<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 17, 1997.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
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>
<C> <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. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
====================================================================================================================
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value... 2,566,832 $25.1875 $64,652,081 $19,592
====================================================================================================================
</TABLE>
(1) Includes up to 334,804 shares of Common Stock which may be purchased by the
Underwriters from the Registrant to cover over-allotments, if any and
532,028 shares of outstanding Common Stock to be sold by Selling
Stockholders. See "Underwriting" and "Selling Stockholders."
(2) The registration fee is based on the average of the high and low trading
price of the Common Stock on the Nasdaq National Market on March 14, 1997
pursuant to Rule 457(c).
------------------------
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.
================================================================================
<PAGE> 2
SABRATEK CORPORATION
CROSS-REFERENCE SHEET SHOWING LOCATION
IN PROSPECTUS OF INFORMATION REQUIRED BY FORM S-1
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<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 of
Prospectus.............................. Outside Front Cover Page
2 Inside Front and Outside Back Cover Pages
of Prospectus........................... Inside Front Cover Page, Back Cover Pages
3 Summary Information, Risk Factors and
Ratio of Earnings to Fixed Charges...... Prospectus Summary, Risk Factors
4 Use of Proceeds........................... Use of Proceeds
5 Determination of Offering Price........... Underwriting
6 Dilution.................................. Risk Factors, Dilution
7 Selling Security Holders.................. Selling Stockholders
8 Plan of Distribution...................... Underwriting
9 Description of Securities to be
Registered.............................. Prospectus Summary, Description of Capital
Stock -- Common Stock
10 Interests of Named Experts and Counsel.... Legal Matters
11 Information with Respect to the
Registrant.............................. Prospectus Summary, Risk Factors, The
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
Indemnification for Securities Act
Liabilities............................. Not Applicable
</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 MARCH 17, 1997
PROSPECTUS
2,232,028 SHARES
SABRATEK LOGO
COMMON STOCK
------------------------------
Of the 2,232,028 shares of Common Stock, $.01 par value per share (the
"Common Stock"), offered hereby, 1,700,000 shares are being sold by Sabratek
Corporation ("Sabratek" or the "Company") and 532,028 shares are being sold by
certain selling stockholders (the "Selling Stockholders"). The Company will not
receive any proceeds from the sale of the shares by the Selling Stockholders. To
the extent that the shares of Common Stock sold by Selling Stockholders are
received by them upon the exercise of outstanding options and warrants, the
Company will receive the proceeds of such exercise. See "Selling Stockholders."
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "SBTK." On March 14, 1997, the last reported sale price of the Common
Stock on the Nasdaq National Market was $24.75 per share. See "Price Range of
Common Stock."
------------------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 7.
------------------------------
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>
========================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO THE
PUBLIC COMMISSIONS(1) THE COMPANY(2) SELLING STOCKHOLDERS
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Per Share............... $ $ $ $
- ------------------------------------------------------------------------------------------------------------------------
Total(3)................ $ $ $ $
========================================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have 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 $500,000.
Does not include proceeds to the Company from the exercise of outstanding
options and warrants, estimated at $1,035,517.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 334,804 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
, 1997.
------------------------------
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1997
<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(R) 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.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING OVER-ALLOTMENT AND OTHER STABILIZING TRANSACTIONS. SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M. SEE
"UNDERWRITING."
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
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) assumes the exercise of outstanding options and warrants to
purchase 213,776 shares of Common Stock by the Selling Stockholders and receipt
by the Company of $1,035,517 in proceeds in connection therewith and (iii) has
been adjusted to give effect to a 1-for-3.173 reverse stock split which was
effected by the Company in connection with its initial public offering of
2,875,000 shares of Common Stock in June, 1996. See "Underwriting" and "Selling
Stockholders." This Prospectus contains certain forward-looking statements
within the meaning of the Federal securities laws. Actual results and the timing
of certain events could differ materially from those projected in the
forward-looking statements due to a number of factors, including those set forth
under "Risk Factors" and elsewhere in this Prospectus.
THE COMPANY
Sabratek Corporation (the "Company" or "Sabratek") develops, produces and
markets technologically-advanced, user-friendly and cost-effective therapeutic
and diagnostic medical systems designed specifically to meet the unique needs of
the alternate-site health care market. The Company's multi-therapy infusion and
other systems 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 in
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 revenues have historically been derived from the sale of
its multi-therapy infusion pumps and related disposable supplies. Since August,
1996, the Company has commercially introduced several additional products which
it believes will contribute to future revenues.
Sabratek's strategy focuses primarily 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 the SEAMLESS DELIVERY
SYSTEM which integrates stationary and ambulatory multi-therapy infusion pumps,
disposable supplies, a proprietary interactive software system and a proprietary
infusion pump 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
3
<PAGE> 8
devices, thereby reducing the costly time requirements of training and infusion
administration as well as minimizing equipment inventories. The Company's
interactive software system augments the utilization of Sabratek's infusion
pumps and allows providers to program therapies and monitor compliance on a
real-time basis from a remote location. The Company's portable, automatic
infusion pump testing device enables providers to perform on-site diagnostic
tests on Sabratek's infusion pumps and thereby reduces costs by eliminating the
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"). In 1996, the
Company began marketing its proprietary medical software system ("MediVIEW") and
its proprietary infusion pump testing device (the "PumpMaster"). The Company
currently markets its products domestically to national, regional and local
alternate-site and acute-care providers through a sales force composed of 17
direct sales professionals, six 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, Africa, 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 continuing to: (i) develop advanced medical products and
related software systems that maximize the cost-effective provision of
alternate-site health care, (ii) develop an integrated 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.
RECENT DEVELOPMENTS
On February 25, 1997, Sabratek acquired substantially all the assets of
Rocap, Inc. ("Rocap") for $100,000 in cash, 131,593 shares of Sabratek Common
Stock (valued at approximately $2.9 million), plus the assumption of net
liabilities of approximately $661,000 and the forgiveness of a bridge loan. In
connection with the acquisition, the former President of Rocap entered into a
three-year employment agreement with Sabratek.
Rocap produces and markets prepackaged injectable prescription
pharmaceuticals (intravenous or "I.V." Admixture products) and pre-filled I.V.
tubing flush syringes for the alternative-site and acute-care markets. The
Company believes the addition of the Rocap product line expands the scope of the
Company's I.V. delivery systems, products, and services, thereby enhancing the
Company's competitive position.
4
<PAGE> 9
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company......................... 1,700,000 shares
Common Stock offered by Selling Stockholders................ 532,028 shares
Common Stock to be outstanding after the Offering(1)........ 10,288,005 shares
Use of proceeds............................................. For expanding manufacturing capacity;
for funding further product
development efforts; and for expanding
sales and marketing activities, with
the remainder to be used for working
capital and general corporate
purposes. In addition, proceeds may be
used for future joint ventures or
acquisitions. See "Use of Proceeds."
Nasdaq National Market Symbol............................... SBTK
</TABLE>
- ---------------
(1) Based on the number of shares outstanding on February 28, 1997. Excludes
1,467,123 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 $8.31 per share, 233,997 shares of Common Stock reserved for future
option grants under such plan and 544,430 shares of Common Stock issuable
upon exercise of warrants at a weighted average exercise price of $5.36 per
share. Includes 213,776 shares of the above outstanding options and warrants
issuable upon exercise by the Selling Stockholders. See "Management -- Stock
Option Plan" and "Description of Capital Stock -- Warrants."
5
<PAGE> 10
SUMMARY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------- PRO
1992 1993 1994 1995 1996 FORMA(1)
---- ---- ---- ---- ---- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................ $ 842 $ 1,229 $ 3,315 $ 4,040 $17,696 $19,632
Gross margin (loss)...................... (28) (405) 834 1,138 8,948 9,340
Selling, general and administrative
expenses............................... 765 2,411 4,108 6,874 8,474 10,092
Operating income (loss).................. (793) (2,816) (3,274) (5,736) 474 (752)
Stock appreciation rights(2)............. -- -- -- -- (1,628) (1,628)
Net loss................................. (791) (2,821) (3,555) (6,036) (858) (2,122)
Weighted average common shares
outstanding(3)......................... 6,610 7,263 7,395
Net loss per share(3) (1995 pro forma)... $ (0.90) $ (0.12) $ (0.29)
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1996
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(4) AS ADJUSTED(5)
------ ------------ --------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital....................................... $ 24,587 $ 23,427 $ 63,723
Total assets.......................................... 32,951 37,235 77,531
Total debt and capital lease obligations.............. 327 818 818
Accumulated deficit................................... (14,310) (14,310) (14,310)
Total stockholders' equity............................ 28,650 31,550 71,846
</TABLE>
- ---------------
(1) Gives effect to the acquisition of Rocap as if it occurred on January 1,
1996. See "Pro Forma Supplemental Consolidated Financial Statements."
(2) For the period ended December 31, 1996, a non-recurring charge in the amount
of approximately $1.6 million was recorded to recognize obligations under
certain stock appreciation rights in connection with the Company's June 1996
initial public offering.
(3) See Note (2) to the Financial Statements for an explanation of the
calculation of weighted average shares outstanding.
(4) Gives effect to the acquisition of Rocap as if it occurred on December 31,
1996. See "Pro Forma Supplemental Consolidated Financial Statements."
(5) Gives effect to the sale of the 1,700,000 shares of Common Stock offered by
the Company hereby at an assumed public offering price of $24.75 per share
and receipt by the Company of $1,035,517 upon exercise of outstanding
options and warrants to purchase 213,776 shares of Common Stock by the
Selling Stockholders.
6
<PAGE> 11
RISK FACTORS
This Prospectus contains certain forward-looking statements within the
meaning of the Federal securities laws. Actual results and the timing of certain
events could differ materially from those projected in the forward-looking
statements due to a number of factors, including those set forth below and
elsewhere in this Prospectus. 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 through September 30,
1996. The Company incurred net losses of approximately $3.6 million, $6.0
million, and $858,000 for the years 1994, 1995 and 1996, respectively, and as of
December 31, 1996, had an accumulated deficit of $14.3 million. 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 and has operated at a profit for the last two calendar
quarters, such recent growth and profitability may not be sustainable 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
remain 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. Although the
commercial introduction of MediVIEW and PumpMaster along with the recent
acquisition of Rocap reduce the Company's reliance on its principal product
line, 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 or
acquisition 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 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 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. In addition, the Company may be unable to acquire additional
products and technologies. See "Business -- Products," "-- Sales and Marketing"
and "-- Competition."
7
<PAGE> 12
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, Advanced Medical, Inc., Baxter
International Inc. and SIMS Deltec, Inc., a subsidiary of Smiths Industries, PLC
("SIMS Deltec"), 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
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 can currently only pursue on a more limited 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.
PENDING LITIGATION
On February 5, 1997, SIMS Deltec filed a complaint (the "Complaint") in the
United States District Court for the District of Minnesota alleging that
Sabratek's manufacture, use and/or sale of the MediVIEW software in conjunction
with its infusion pumps infringes on a patent entitled "Systems and Methods for
Communicating with Ambulatory Medical Devices Such as Drug Delivery Devices"
previously issued to SIMS Deltec. The Complaint seeks injunctive relief,
unspecified monetary damages and costs. The Company has not yet formally
responded to the Complaint but intends to vigorously defend against the
allegations contained in the Complaint. Protracted litigation or an adverse
outcome in this matter could have a material adverse impact on the Company's
business, financial condition and results of operations.
LIMITED SALES AND MARKETING EXPERIENCE
The Company has only begun to significantly expand its sales, marketing and
distribution force within the past year. 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 continue to successfully expand its sales and
marketing staff,
8
<PAGE> 13
that such an expanded sales and marketing staff will be cost-effective, or that
the Company's increased direct sales and marketing efforts will be successful.
The Company also sells its products through domestic and international
distributors of medical products. 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."
BROAD DISCRETION WITH RESPECT TO ALLOCATION OF NET PROCEEDS
The Company intends to use the net proceeds of the Offering for working
capital and general corporate purposes, including: expanding manufacturing
capacity; funding further product development efforts; and expanding sales and
marketing activities. In addition, proceeds may be used for future joint
ventures or acquisitions of technologies, products or companies complementary to
the Company's business. The Company has not yet identified the specific uses for
such net proceeds and will, therefore, retain broad discretion as to their
allocation. Pending such uses, the Company intends to invest the net proceeds in
short-term interest-bearing, investment-grade securities. See "Use of Proceeds."
RISKS ASSOCIATED WITH PAST AND FUTURE ACQUISITIONS
In February, 1997, the Company acquired Rocap. Although the Company has no
pending agreements or commitments, the Company may make additional acquisitions
of complementary businesses, products or technologies in the future.
Acquisitions of companies, divisions of companies, or products entail numerous
risks, including (i) the potential inability to successfully integrate acquired
operations and products or to realize anticipated synergies, economies of scale
or other value, (ii) diversion of management's attention, and (iii) loss of key
employees of acquired operations. No assurance can be given that the Company
will not incur problems in integrating the Rocap operations or any future
acquisition and there can be no assurance that the acquisition of Rocap or any
future acquisition will increase the Company's profitability. Furthermore, there
can be no assurance that the Company will realize value from any such
acquisition which equals or exceeds the consideration paid. Any such problems
could have a material adverse effect on the Company's business, financial
condition and results of operations. In addition, future acquisitions by the
Company may result in dilutive issuances of equity securities, the incurrence of
additional debt, large one-time write-offs and the creation of goodwill or other
intangible assets that could result in amortization expense. These factors could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Certain Transactions."
LIMITED ASSEMBLY/MANUFACTURING EXPERIENCE
Most of the Company's products are currently assembled/manufactured by the
Company at its facilities. To be successful, the Company must
assemble/manufacture its products in compliance with regulatory requirements, in
sufficient quantities and on a timely basis, while maintaining product quality
and acceptable assembly/manufacturing costs. There can be no assurance that the
Company will be able to continue to assemble/manufacture products in large
commercial quantities on a timely basis and at an acceptable cost. If the
Company becomes unable to assemble/manufacture its products 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/manufacture arrangements.
See "Business -- Assembly and Manufacturing."
INTERRUPTION IN SOURCES OF SUPPLY
The Company could face problems in supplying its equipment and disposable
products to distributors and customers if its primary sources of supply were
interrupted and it faced delays in activating its secondary sources of supply.
Any such interruption or delays could have an adverse effect on 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 -- Assembly and
Manufacturing."
9
<PAGE> 14
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 effect 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
for use with these systems, 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.
The Company's Rocap division is registered with the FDA as a drug
manufacturer and repackager and its products are required to be manufactured
according to current good manufacturing practices. Some of the products
manufactured by the Rocap division have been listed with the FDA in accordance
with the Drug Listing Act of 1972. Some of the products manufactured by the
Rocap division contain drugs which are purchased from other manufacturers which
have received FDA approvals. There can be no assurance that the suppliers of
such drugs will be able to maintain such approvals. While Rocap currently
manufactures and distributes its products without any FDA approvals, there can
be no assurance that the FDA will allow the Rocap division to manufacture and
distribute new or altered products without obtaining FDA approvals. If in the
future the FDA concludes that the products manufactured and distributed by the
Company's Rocap division require that the products be relabeled, require Rocap
to obtain 510(k) clearance, require new drug approval, or other regulatory
approval, the FDA could prohibit the Rocap division from manufacturing and/or
distributing these products until the Company made the necessary submissions and
obtained any required approvals. The FDA could also take regulatory action
against the Company for the Rocap division's manufacture and/or distribution of
products. If the FDA were to take any of the foregoing actions with respect to
the Company, it could have a material adverse effect on the Company's
operations.
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.
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
10
<PAGE> 15
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 Company's new products and new applications for existing products may
require FDA clearance or approval prior to marketing. The FDA is currently in
the process of revising the regulatory requirements and review criteria for
software-related medical devices, which could adversely effect the Company's
introduction of new software products, or devices that incorporate software, in
the future. 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.
In October 1996, the Company learned of a defect in a software feature of
certain units of the 6060 Ambulatory Pump. The Company initiated a recall of
these units to correct the problem with an upgrade of the software. Pursuant to
FDA regulations, the Company notified the FDA of the recall and has updated the
FDA of the progress of the recall, which is now approximately 85% complete. The
FDA reported this recall in the January 15, 1997, issue of the FDA Enforcement
Report. There can be no assurance that the FDA will not take further enforcement
action against the Company with respect to this matter.
The Company is also subject to strict domestic and foreign regulations and
supervision regarding the development, 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") requirements, which are set forth in the
FDA's Quality System ("QS") regulations. 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 Insurance."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
During the year ended December 31, 1996, the Company derived approximately
9% of its revenues from international sales, resulting in exposure to certain
risks. Fluctuations in exchange rates of the U.S. dollar 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."
11
<PAGE> 16
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 and other customers 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 products, (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 1998. 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, beyond the amount available under existing credit facilities, 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."
INFLUENCE OF LIMITED NUMBER OF STOCKHOLDERS
Following completion of the Offering, the directors and executive officers
of the Company and certain existing stockholders may be able to influence the
Company's 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 influence 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."
POSSIBLE VOLATILITY OF STOCK PRICE
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
12
<PAGE> 17
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. 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 or warrants) 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 10,288,005 shares of Common Stock
outstanding. The 2,232,028 shares offered hereby and the 2,875,000 shares issued
by the Company in its initial public offering in June 1996 will be freely
tradable without restriction, unless purchased by an affiliate of the Company.
Of the remaining 5,180,977 shares outstanding, approximately 2,058,840 shares
will be available for sale upon the effective date of the Registration Statement
of which this Prospectus is a part (the "Effective Date") pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act"). Shares
held by the Selling Stockholders (other than those sold in the Offering), all
directors, certain officers, and certain stockholders are subject to lock-ups of
60 or 90 days and may become available for sale upon the expiration of such
lock-ups. Bear, Stearns & Co. Inc. may waive the foregoing lock-up without
notice to persons purchasing shares in this Offering and without notice to any
market on which the Common Stock is traded. In addition, certain holders of the
Company's Common Stock have registration rights. See "Shares Eligible for Future
Sale", "Dilution." "Description of Capital Stock -- Registration Rights" and
"Shares Eligible for Future Sale."
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 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.
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 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."
13
<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
1,700,000 shares of Common Stock offered by it pursuant hereto are estimated to
be approximately $39.3 million ($47.1 million if the Underwriters'
over-allotment option is exercised in full), at an assumed public offering price
of $24.75 per share, after deducting underwriting discounts and commissions and
estimated offering expenses. The Company will not receive any proceeds from the
sale of the 532,028 shares of Common Stock offered by the Selling Stockholders
pursuant hereto. The Company will, however, receive proceeds of approximately
$1,035,517 upon exercise of outstanding options and warrants to purchase 213,776
shares of Common Stock by Selling Stockholders.
The Company estimates that it will use the net proceeds in the following
manner: 20% for expanding manufacturing capacity; 20% for financing further
product development efforts; and 15% for expanding sales and marketing
activities, with the remainder to be used for working capital and general
corporate purposes. In addition, proceeds may be used for future joint ventures
or acquisitions of technologies, products or companies which are complementary
to the Company's business.
PRICE RANGE OF COMMON STOCK
The Company completed its initial public offering in June, 1996 at a price
per share of $10.00. Since June 21, 1996, the Company's Common Stock has traded
on the Nasdaq National Market under the symbol "SBTK". The following table sets
forth, for the periods indicated, the high and low reported sale prices of
shares of the Common Stock as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C> <C> <C>
1996
Second Quarter (from June 21, 1996)......................... $12 $10
Third Quarter............................................... $16 1/2 $ 7 3/4
Fourth Quarter.............................................. $16 3/4 $13
1997
First Quarter (through March 14, 1997)...................... $29 1/8 $15 1/4
</TABLE>
As of March 7, 1997, there were approximately 214 holders of record of the
Common Stock. On March 14, 1997, the last reported sale price on the Nasdaq
National Market for the Common Stock was $24.75 per share.
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.
14
<PAGE> 19
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$28,608,542, or $3.49 per share. Net tangible book value per share is determined
by dividing the tangible net worth of the Company (total tangible assets less
total liabilities) by the number of shares of Common Stock outstanding. Without
taking into account any changes in such net tangible book value after December
31, 1996, other than to give effect to the sale of the 1,700,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $24.75 per share and receipt by the Company of $1,035,517 upon the exercise
of outstanding options and warrants to purchase 213,776 shares of Common Stock
by the Selling Stockholders, net tangible book value of the Company as of
December 31, 1996 would have been $68,904,934, or $6.82 per share (after
deducting the estimated underwriting discount and offering expenses payable by
the Company). This represents an immediate increase in net tangible book value
of $3.33 per share to existing stockholders and an immediate dilution of $17.93
per share to new investors. Dilution to new investors is determined by
subtracting the net tangible book value per share after the Offering from the
public offering price per share. The following table illustrates this per share
dilution.
<TABLE>
<S> <C> <C>
Assumed public offering price per share(1)........................... $24.75
Net tangible book value per share before Offering......... $3.49
Increase per share attributable to new investors(2)....... 3.33
-----
Net tangible book value per share after Offering..................... 6.82
------
Dilution per share to new investors(3)............................... $17.93
======
</TABLE>
- ---------------
(1) Assumed public offering price before deduction of underwriting discounts and
commissions and estimated expenses of the Offering to be paid by the
Company.
(2) Assumes receipt by the Company of $1,035,517 in proceeds upon exercise of
outstanding options and warrants to purchase 213,776 shares of Common Stock
by the Selling Stockholders.
(3) Assumes no exercise of outstanding stock options and warrants except for
those specifically described in note (2) above. See "Selling Stockholders."
The following table summarizes, as of December 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>
SHARES PURCHASED(1) TOTAL CONSIDERATION
----------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------ ------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 8,196,981 81% $45,133,919 51% $ 5.51
New investors.................. 1,913,776 19 43,110,517 49 22.53
---------- --- ----------- ---
Total................ 10,110,757 100% $88,244,436 100%
========== === =========== ===
</TABLE>
- ---------------
(1) Assumes no exercise of outstanding stock options and warrants except for
those specifically described in note (2) above. See "Management -- Stock
Option Plan" and "Description of Capital Stock -- Common Stock."
15
<PAGE> 20
CAPITALIZATION
The following table sets forth (i) the total capitalization of the Company
as of December 31, 1996, (ii) the pro forma capitalization of the Company as of
December 31, 1996 giving effect to the acquisition of Rocap, and (iii) such pro
forma capitalization as adjusted to reflect the sale of the 1,700,000 shares of
Common Stock offered by the Company hereby at an assumed public offering price
of $24.75 per share and receipt by the Company of $1,035,517 upon exercise of
outstanding options and warrants to purchase 213,776 shares of Common Stock by
the Selling Stockholders.
<TABLE>
<CAPTION>
AS OF DECEMBER 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)......................................... $ 303 $ 503 $ 503
Long-term obligations (excluding current portion)(1)...... 24 315 315
-------- -------- --------
Total debt................................................ 327 818 818
-------- -------- --------
Stockholders' equity:
Common Stock, par value $0.01; 25,000,000 shares
authorized; 8,196,981 shares issued and outstanding;
8,328,574 shares issued and outstanding pro forma(2);
10,242,350 shares issued and outstanding pro forma as
adjusted(3).......................................... 82 83 102
Additional paid-in capital.............................. 42,891 45,790 86,067
Deferred compensation................................... (17) (17) (17)
Unrealized gains........................................ 4 4 4
Accumulated deficit..................................... (14,310) (14,310) (14,310)
-------- -------- --------
Total stockholders' equity................................ 28,650 31,550 71,846
-------- -------- --------
Total capitalization...................................... $ 28,977 $ 32,368 $ 72,664
======== ======== ========
</TABLE>
- ---------------
(1) Includes capital lease obligations.
(2) Includes 131,593 shares issued in connection with the acquisition of Rocap.
See "Certain Transactions."
(3) Excludes 1,822,763 shares of Common Stock issuable upon exercise of
outstanding stock options and warrants at December 31, 1996.
16
<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 five year period ended December 31, 1996
and the balance sheet data as of December 31, 1992, 1993, 1994, 1995 and 1996
are derived from the Company's financial statements, which have been audited by
KPMG Peat Marwick LLP, independent certified public accountants. The pro forma
selected financial data with respect to statement of operations for the year
ended December 31, 1996 and the balance sheet data as of December 31, 1996 are
derived from the unaudited Pro Forma Supplemental Consolidated Financial
Statements which, in the opinion of the Company's management, fairly present the
information contained therein. The financial data for the Company should be read
in conjunction with the Company's 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>
YEAR ENDED DECEMBER 31,
----------------------------------------------- 1996
1992 1993 1994 1995 1996 PRO FORMA(1)
---- ---- ---- ---- ---- ------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $ 842 $ 1,229 $ 3,315 $ 4,040 $17,696 $19,632
Cost of sales...................... 870 1,634 2,481 2,902 8,748 10,292
----- ------- ------- ------- ------- -------
Gross margin (loss)................ (28) (405) 834 1,138 8,948 9,340
Selling, general and administrative
expenses......................... 765 2,411 4,108 6,874 8,474 10,092
----- ------- ------- ------- ------- -------
Operating income (loss)............ (793) (2,816) (3,274) (5,736) 474 (752)
Interest expense................... (11) (20) (260) (222) (319) (357)
Other income (expense), including
interest income.................. 13 15 (21) (78) 615 615
Stock appreciation rights(2)....... -- -- -- -- (1,628) (1,628)
----- ------- ------- ------- ------- -------
Net loss........................... $(791) $(2,821) $(3,555) $(6,036) $ (858) $(2,122)
===== ======= ======= ======= ======= =======
Weighted average common shares
outstanding(3)................... 6,610 7,263 7,395
======= ======= =======
Net loss per share (1995 pro
forma)(3)........................ $ (0.90) $ (0.12) $ (0.29)
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------ 1996
1992 1993 1994 1995 1996 PRO FORMA(4)
---- ---- ---- ---- ---- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ (1) $(1,296) $ 999 $ (1,101) $ 24,587 $ 23,427
Total assets....................... 1,547 2,215 3,338 4,179 32,951 37,235
Short-term debt (including current
portion of long term
obligations)(5).................. 381 2,013 91 775 303 503
Long-term obligations (excluding
current portion)(5).............. -- 310 464 2,512 24 315
Accumulated deficit................ (1,040) (3,861) (7,416) (13,452) (14,310) (14,310)
Total stockholders' equity
(deficit)........................ 390 (1,211) 1,151 (2,821) 28,650 31,550
</TABLE>
- ---------------
(1) Gives effect to the acquisition of Rocap as if it occurred on January 1,
1996. See "Pro Forma Supplemental Consolidated Financial Statements."
(2) For the year ended December 31, 1996, a non-recurring charge in the amount
of approximately $1.6 million was recorded to recognize obligations under
certain stock appreciation rights in connection with the Company's June 1996
initial public offering.
(3) See Note (2) to the Financial Statements for an explanation of the
calculation of weighted average shares outstanding.
(4) Gives effect to the acquisition of Rocap as if it occurred on December 31,
1996. See "Pro Forma Supplemental Consolidated Financial Statements."
(5) Includes capital lease obligations.
17
<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, although profitable for the last two calendar quarters, 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."
The Company commercially launched the 6060 Ambulatory Pump and related
disposable supplies in late 1995 and its MediVIEW and PumpMaster in late 1996.
Since then, the Company has continued its sales and marketing activities
domestically and internationally for the distribution of its products and
continued to fund the research and development of additional products. In
addition, the Company derives revenues from the rental of its multi-therapy
infusion devices, servicing of products, and the sale of extended warranties.
See "Risk Factors -- Dependence on Principal Product Line and New Product
Development."
The Company sells its products both directly to alternate-site and
acute-care providers, as well as to third-party distributors. The Company's
distributors and customers 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. 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
YEARS ENDED DECEMBER 31, 1996 AND 1995
NET SALES. Net sales increased to $17.7 million for the year ended December
31, 1996 from $4.0 million for the year ended December 31, 1995, an increase of
$13.7 million or 343%. The increase is primarily attributable to an increase in
sales volume of the 3030 Stationary Pump, the 6060 Ambulatory Pump and the
respective disposables, to the alternate-site health care market. Also
contributing to the increase was the introduction of the MediVIEW and PumpMaster
products.
COST OF SALES. Cost of sales increased to $8.7 million for the year ended
December 31, 1996 from $2.9 million for the year ended December 31, 1995, an
increase of $5.8 million, or 200%. Approximately $5.3 million of the increase
represents the direct manufacturing cost attributable to the increase in sales
volume and the balance of the increase is attributable to the investment in
fixed manufacturing costs and overhead necessary to increase production
capacity.
GROSS MARGIN. Gross margin increased to $8.9 million for the year ended
December 31, 1996 from $1.1 million for the year ended December 31, 1995, an
increase of $7.8 million, or 709%. The increase is due primarily to the increase
in sales volume and the resulting economies of scale associated with the
increase. Gross margin as a percentage of sales increased to 50% for the year
ended December 31, 1996, from 28% for the year ended December 31, 1995. The
increase is due to the absorption of fixed manufacturing costs and overhead over
a greater unit volume, higher average pricing levels for the 3030 Stationary
Pump, and the higher margins inherent to the 6060 Ambulatory Pump introduced in
the fourth quarter of 1995.
18
<PAGE> 23
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $8.5 million for the year ended December
31, 1996 from $6.9 million for the year ended December 31, 1995, an increase of
$1.6 million, or 23%. Expansion of the Company's sales and clinical support
staff increased selling, general and administrative expenses by approximately
$1.8 million while reductions and elimination of financial, marketing and
product development consulting fees represent the offsetting amount. Selling,
general and administrative expenses as a percent of sales decreased to 48% for
the year ended December 31, 1996 from 173% for the year ended December 31, 1995.
The decrease is due to the allocation of overhead expenses over a greater volume
of sales.
OPERATING INCOME (LOSS). The Company reported operating income of $474,000
for the year ended December 31, 1996 as compared to an operating loss of $5.7
million for the year ended December 31, 1995. The primary contributors to
operating profitability, as discussed above, are the incremental sales volume of
the 3030 Stationary Pump and the 6060 Ambulatory Pump and related products.
INTEREST EXPENSE. Interest expense increased to $319,000 for the year ended
December 31, 1996 from $222,000 for the year ended December 31, 1995, an
increase of $97,000, or 44%. The increase is attributable to the incremental
amount of debt issued by the Company and outstanding during the comparative
periods. Approximately $1.8 million, in aggregate, of debt was issued between
July and December, 1995 and was outstanding through the end of June, 1996.
INTEREST INCOME. Interest income increased to $617,000 for the year ended
December 31, 1996 from $13,000 for the year ended December 31, 1995. The
increase of $604,000 is due to the investment interest earned on proceeds from
the Company's initial public offering in June, 1996.
INCOME TAX PROVISION. Due to net losses for the years ended December 31,
1996 and 1995, the Company did not incur any federal or state income tax
liability for such periods. The Company currently has a net operating loss
carryforward in excess of $14.0 million; however, utilization of such
carryforward depends on future earnings and will be subject to annual
limitations as a result of changes that have occurred in the Company's
ownership.
NET LOSS. Net loss decreased to $858,000 for the year ended December 31,
1996 from $6.0 million for the year ended December 31, 1995, a decrease of $5.1
million. The loss was reduced primarily as a result of increased sales volume of
new and existing products, as discussed above, and the allocation of fixed
manufacturing cost and overhead over a greater unit volume. The year ended
December 31, 1996 includes a non-recurring charge for stock appreciation rights
of approximately $1.6 million in connection with the Company's June, 1996
initial public offering, without which the Company would have reported net
income of $770,000.
YEARS ENDED DECEMBER 31, 1995 AND 1994
NET SALES. Net sales increased to $4.0 million for the year ended December
31, 1995 from $3.3 million for the year ended December 31, 1994, 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 to $2.9 million for the year ended
December 31, 1995 from $2.5 million for the year ended December 31, 1994, 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. Cost of sales as a percentage of sales decreased to 72%
in 1995 from 75% in 1994 as a result of the change in product mix, 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.
19
<PAGE> 24
GROSS MARGIN. Gross margin increased to $1.1 million for the year ended
December 31, 1995 from $834,000 for the year ended December 31, 1994, 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses increased to $6.9 million for the year ended December
31, 1995 from $4.1 million for the year ended December 31, 1994, an increase of
$2.8 million, or 68%. Selling, general and administrative expenses accounted for
170% of net sales in 1995 and 124% of net sales in 1994. 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
in 1995 from 1994 resulted primarily from an increase in the number of direct
sales personnel, increased expenditures relating to development of the 6060
Ambulatory Pump, MediVIEW and PumpMaster, 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.
OPERATING LOSS. Operating loss increased to $5.7 million for the year ended
December 31, 1995 from $3.3 million for the year ended December 31, 1994.
INTEREST EXPENSE. Interest expense decreased to $222,000 for the year ended
December 31, 1995 from $260,000 for the year ended December 31, 1994. 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, 1995 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 to $6.0 million for the year ended December 31, 1995 from $3.6 million
for the year ended December 31, 1994.
LIQUIDITY AND CAPITAL RESOURCES
In June, 1996, the Company completed an initial public offering with
proceeds of $26.7 million, after underwriters' discounts and commissions. As of
December 31, 1996, cash balances were invested in U.S. Treasury Bills, U.S.
Treasury Notes, a short-term bond mutual fund, and a money market account.
As of December 31, 1996, the Company had approximately $16.8 million in
cash, cash equivalents, short-term and long-term investments in marketable
securities, and had net working capital of approximately $24.6 million.
Subsequent to December 31, 1996, the Company received a commitment for a credit
facility with up to $9.5 million of available borrowing.
The Company used cash in its operations of approximately $8.4 million for
the year ended December 31, 1996. Cash used in operations for the period exceeds
the Company's operating results for the same period due, primarily, to the
growth in trade accounts receivable and inventories as a result of actual and
anticipated growth in sales volume.
The Company believes that its financial assets will be sufficient to fund
its operations for the foreseeable future. Future liquidity and capital
resources could be adversely influenced by certain factors including the
Company's dependence on a relatively new customer base, regulatory or
legislative changes pertaining to health care, product liability exposure
regarding the delivery of medication, dependence on future product development,
and others. There can be no assurance that the Company will not require
additional financing and may, in the future, seek additional funds through bank
facilities, debt or equity offerings and to the extent such additional financing
is not available, the Company could suffer material adverse effects to its
financial condition and the results of its operations.
20
<PAGE> 25
BUSINESS
INTRODUCTION
Sabratek develops, produces and markets technologically-advanced,
user-friendly and cost-effective therapeutic and diagnostic medical systems
designed specifically to meet the unique needs of the alternate-site health care
market. The Company's multi-therapy infusion and other systems 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 in 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
revenues have historically been derived from the sale of its multi-therapy
infusion pumps and related disposable supplies. Since August, 1996, the Company
has commercially introduced several additional products which it believes will
contribute to future revenues.
CHANGING HEALTH CARE ENVIRONMENT
The 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, 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
facilitated by the increased acceptance of such care by physicians, caregivers
and patients. The American Medical Association Council on Scientific Affairs and
the American Medical Association Council on Medical
21
<PAGE> 26
Education have 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:
- OFFER 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 such features as real-time
data capture, remote monitoring capability, alarms that immediately
alert
22
<PAGE> 27
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.
This is particularly true under capitated payment programs. 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 considerably reduce costly on-site nurse intervention.
The ability of the Company's infusion system to administer a variety of
infusion therapies, as well as the Company's infusion pump testing
device, allow providers to minimize their inventories of infusion pumps
and related supplies. The Company's infusion pump testing device can
further reduce costs by eliminating outside recalibration and
preventative maintenance costs. 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.
- OFFER AN INTEGRATED SYSTEM OF THERAPEUTIC AND DIAGNOSTIC
INFORMATION-BASED MEDICAL PRODUCTS SUPPORTED BY THE COMPANY'S PROPRIETARY
HEALTH CARE INFORMATION SOFTWARE PLATFORM. The Company's software system
allows 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.
23
<PAGE> 28
PRODUCTS
SABRATEK'S SEAMLESS DELIVERY SYSTEM. Sabratek's software-based infusion
devices and related interactive information system and pump testing device 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 hemophilia 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)(2)(4)(5)
6060 Ambulatory Pump...... Ambulatory, multi-therapy Commercially available since
infusion device 1995(2)(4)(5)
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
I.V. Admixture Products... Prepackaged, injectable, Commercial available since
prescription pharmaceuticals 1995(3)
Pre-filled Syringe Pre-filled I.V. tubing flush Commercially available since
Products.................. syringes 1996(2)(3)
INTERACTIVE PROGRAMMING AND MONITORING SOFTWARE
MediVIEW.................. Proprietary, PC-based Commercially available since
software that allows remote 1996(2)
and real-time programming,
monitoring and data capture
AUTOMATIC DIAGNOSTIC TESTING DEVICE
PumpMaster................ Proprietary, portable, Commercially available since
automatic diagnostic device 1996(2)
for the testing of Sabratek
infusion pumps
</TABLE>
- ---------------
(1) Patent(s) issued in the United States.
(2) United States and/or foreign patent applications pending.
(3) See "Certain Transactions" for information relating to the Company's
acquisition of Rocap.
(4) Foreign patents issued.
(5) U.S. patent applications allowed.
24
<PAGE> 29
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.
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.
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. Through the
acquisition of Rocap, the Company has begun offering I.V. Admixture and
pre-filled syringe products.
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 has designed MediVIEW to enable alternate-site health care providers
using the 3030 Stationary Pump and 6060 Ambulatory Pump combined with MediVIEW
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. The
first release of MediVIEW became commercially available in the third quarter of
1996.
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 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 as well as eliminate the cost of outside infusion pump
testing. The PumpMaster is designed to conduct automatically, in approximately
ten minutes, all tests typically performed as part of JCAHO re-certification.
PumpMaster became commercially available in the fourth quarter of 1996.
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
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<PAGE> 30
centers and long-term care facilities. This group of customers ranges in size
from national and regional chains to local independent operators. The Company's
products are also sold to hospitals. Key decision makers include nursing,
pharmacy, purchasing and bio-medical departments, as well as physicians.
As of December 31, 1996, the Company's domestic sales force consisted of 17
direct sales professionals, six 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. In certain limited geographic areas, the
distributors are directly involved in sales and implementation; in others, the
distributors act as support to the new client implementation process. 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 information and other relevant field literature. In addition, Sabratek's
direct sales representatives coordinate and manage national account activity.
The 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, Asia and Africa. For the year ended
December 31, 1996, international sales accounted for approximately 9% of the
Company's total sales. The Company perceives the international marketplace as a
potential area for 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. Currently, all of the Company's
international sales are invoiced and paid in U.S. dollars.
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.
RESEARCH AND DEVELOPMENT
The Company is committed to continued product innovation and has invested
approximately $1.0 million, $2.2 million and $1.1 million in research and
development for the years ended December 31, 1996, 1995 and 1994, respectively.
The Company's research and development effort is supported by a staff of twelve
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, vital signs monitoring, blood gas monitoring and whole blood
analysis. 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 AND MANUFACTURING
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 outsources the manufacture of certain sub-systems used in its
infusion systems. In addition, disposable tubing sets sold by Sabratek are
manufactured by contract
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<PAGE> 31
manufacturers. Sabratek believes its use of in-house assembly and contract
manufacturing is the most cost-effective means of producing its products.
Additionally, Sabratek's Rocap division manufactures prepackaged injectible
prescription pharmaceuticals and pre-filled I.V. flush syringes at its facility
in Woburn, Massachusetts.
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 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, the 6060
Ambulatory Pump and PumpMaster. 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, maintenance and upgrade of its
products. The repair and maintenance function utilizes full-time technical
personnel as well as on-going support from temporary and 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.
As part of its quality program, Sabratek provides its customers with
extensive in-service and training in the use of its products. This is provided
by both Sabratek's sales force and its distributors.
INTELLECTUAL PROPERTY
One United States patent and one Australian patent have been issued for the
3030 Stationary Pump. In addition, two foreign patent applications are pending
for the 3030 Stationary pump and a Patent Cooperation Treaty application is
pending, seeking protection in foreign countries for certain aspects of the 6060
Ambulatory Pump. Four United States patent application have been allowed (are
awaiting the issuance of patent numbers by the Patent and Trademark Office) and
four United States patent applications are pending for the 6060 Ambulatory Pump.
In addition, a design patent has been issued in Germany and additional foreign
patent applications are pending for the 6060 Ambulatory Pump. The Company also
has United States and Foreign patent applications pending for certain aspects of
MediVIEW and PumpMaster. There is one United States patent application pending
with respect to the pre-filled syringe products. 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.
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<PAGE> 32
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(R) 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; Advanced
Medical, Inc.; Baxter International Inc.; I-Flow Corp.; McGaw, Inc., a
subsidiary of IVAX Corporation, and SIMS Deltec. 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 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. A
recent trend is for providers to contract for services on a capitated basis.
Under those contracts, providers receive a fixed fee for providing service to
patients. In those situations, the providers' profit or loss on the contract is
dependent upon managing its costs.
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 and supplies 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, development, manufacture,
packaging, labeling, distribution and promotion of medical devices and supplies.
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") requirements) 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
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<PAGE> 33
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 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.
The process for preparing and obtaining FDA approval of a PMA is much more
elaborate, time-consuming, and expensive than the process of preparing and
obtaining FDA clearance of a 510(k) Submission and would require the Company,
among other things, to conduct preclinical and clinical trials to demonstrate
the safety and effectiveness of the proposed device. A "not substantially
equivalent" determination or a request for additional information could
significantly delay the market introduction of new products.
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. In June 1996, the Company received 510(k) clearance for the MediVIEW
software system for use with the 3030 Stationary Pump.
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.
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
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product. Alternatively, the FDA could use its discretion not to take any
regulatory steps with respect to this issue.
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 Company has made some
enhancements to its currently marketed products without filing 510(k)
Submissions. There can be no assurance that the FDA would agree with the
Company's determinations that these enhancements do not require a 510(k)
Submission. Likewise, if the Company determines that any modifications that it
may make to its cleared devices in the future 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 past or future modification to a cleared 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 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.
The Company intends to develop new products for the future, including new
applications for the MediVIEW software system. The Company's new products,
including new applications for existing products, may qualify as devices that
require FDA clearance or approval prior to marketing . The FDA is currently in
the process of revising the regulatory requirements and review criteria for
software-related medical devices, which could adversely affect the Company's
introduction of new software products, or devices that incorporate software, in
the future. There can be no assurance that market clearance of future products
or product applications will be forthcoming in a timely manner, if at all, or
that FDA's clearance or approval of future products or product applications will
not contain significant limitations in the form of warnings, precautions or
contraindications with respect to conditions of use.
In October 1996, the Company learned of a defect in a software feature of
certain units of the 6060 Ambulatory Pump. The Company initiated a recall of
these units to correct the problem with an upgrade of the software. Pursuant to
FDA regulations, the Company notified the FDA of the recall and has updated the
FDA of the progress of the recall, which is now approximately 85% complete. The
FDA classified the Company's recall as a Class II recall, which is defined as a
situation in which the use of a violative product may cause temporary or
medically reversible adverse health consequences or where the probability of
serious adverse health consequences is remote. FDA reported this recall in the
January 15, 1997 issue of the FDA Enforcement Report. There can be no assurance
that FDA will not take further enforcement action against the Company with
respect to this matter.
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 requirements, which impose certain process, procedure and
documentation requirements upon the Company with respect to product development,
manufacturing and quality assurance activities. FDA recently revised its GMP
requirements. The new GMP requirements, which are outlined under the FDA's
Quality Systems regulations, are more extensive than previous requirements.
There can be no assurance that the Company will be able to attain or maintain
compliance with GMP requirements.
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.
There can be no assurance that the
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<PAGE> 35
FDA would agree with the Company's determinations as to whether particular
incidents meet the threshold for MDR reporting.
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 or
uncleared 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
or regulations thereunder, 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
to Foreign Government verifying that the product complies with FFDCA
requirements. To obtain a Certificate to Foreign Government, the device
manufacturer must certify to the FDA that the product has been granted clearance
or approval in the United States and that the manufacturer and the exported
products are in substantial compliance with the FFDCA and all applicable or
pertinent regulations. The FDA may refuse to issue a Certificate to Foreign
Government 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.
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. 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.
The Company's Rocap division is currently registered with the FDA as a drug
manufacturer and repackager. Rocap intends to develop new products and to make
modifications to existing products. Such new or modified products may require
obtaining 510(k) clearance, new drug application approval, or other FDA
clearance. If it were determined that any such new or modified products required
prior FDA approval, the Company would be prohibited from marketing such products
until the necessary approvals were obtained. Such approvals could prove costly
and time consuming to obtain. In addition there can be no assurance that the
Company will obtain such clearances on a timely basis, if at all, for any new
product and/or modification
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to an existing product. If any such 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 the
use.
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
On February 5, 1997, SIMS Deltec filed the Complaint in the United States
District Court for the District of Minnesota alleging that Sabratek's
manufacture, use and/or sale of the MediVIEW software in conjunction with its
infusion pumps infringes on a patent entitled "Systems and Methods for
Communicating with Ambulatory Medical Devices Such as Drug Delivery Devices"
previously issued to SIMS Deltec. The Complaint seeks injunctive relief,
unspecified monetary damages and costs. The Company has not yet formally
responded to the Complaint but intends to vigorously defend against the
allegations contained in the Complaint. Protracted litigation or an adverse
outcome in this matter could have a material adverse impact on the Company's
business, financial condition or results of operations.
The Company is also 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.
EMPLOYEES
As of December 31, 1996, the Company employed 100 persons full-time,
including 48 in manufacturing and operations, 26 in sales and marketing, eight
in research and development, twelve in administration, and six 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 38,000 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 $217,000 and is subject to annual increases. Sabratek
believes that the leased space is adequate for its anticipated needs into the
foreseeable future.
The Company's Rocap division occupies approximately 7,900 square feet of
production, warehouse and administrative space at two facilities in Woburn,
Massachusetts. The lease terms end July 31, 2000 and August 1, 2000. The current
annual lease rate in aggregate is approximately $64,000. Sabratek intends to
continue to operate the Rocap division's current business from its existing
facilities but may need to lease additional space based upon the planned
expansion of the Rocap division business.
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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........................ 34 Chairman of the Board, Chief Executive Officer
and Treasurer
Anil K. Rastogi, Ph.D................ 53 President and Chief Operating Officer
Doron C. Levitas..................... 39 Vice Chairman of the Board, Vice President of
International Operations and Secretary
Alan E. Jordan....................... 53 Senior Vice President of Sales and Marketing
Stephen L. Holden.................... 43 Senior Vice President and Chief Financial
Officer
Scott Skooglund...................... 38 Vice President of Finance
Joseph Moser......................... 43 Vice President of Research and Development
Vincent J. Capponi................... 38 Vice President of Manufacturing
Elliot R. Mandell.................... 41 Vice President
Scott Hodes.......................... 59 Director
Mark Lampert......................... 36 Director
William D. Lautman(1)................ 34 Director
William H. Lomicka(1)................ 60 Director
Marvin Samson(2)..................... 55 Director
L. Peter Smith(2).................... 48 Director
Edson W. Spencer, Jr.(2)............. 42 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
33
<PAGE> 38
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 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.
STEPHEN L. HOLDEN has served as Senior Vice President and Chief Financial
Officer of the Company since August, 1996. Prior thereto, from 1993 to 1996, Mr.
Holden was Chief Operating Officer of a subsidiary of Value Health, Inc., a
provider of specialty managed care. From 1976 to 1993, Mr. Holden was with
American Hospital Supply, Baxter Healthcare and Caremark, Inc., where he served
in a number of financial and operating roles. Mr. Holden holds a B.A. in
Economics and a M.S.B.A. in finance from the University of Denver and is a
certified public accountant.
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 1994. Prior thereto, Mr. Moser served as Vice
President, Research and Development for VideOcart, a Chicago-based technology
firm from 1990 to 1993. 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.
VINCENT J. CAPPONI joined the Company in April, 1996, as Vice President of
Manufacturing. Prior to joining Sabratek, from 1992 to 1996, Mr. Capponi was
employed by SIMS Deltec, 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.
ELLIOT R. MANDELL was elected a Vice President of Sabratek upon the
Company's acquisition of Rocap in February, 1997. Mr. Mandell founded Rocap in
1995 and served as its President until its acquisition by Sabratek. Prior
thereto, Mr. Mandell served as corporate director of clinical services for the
Yankee Alliance of Hospitals, an affiliation of hospitals located in Andover,
Massachusetts. Previously, Mr. Mandell spent 14 years in various clinical
capacities with the New England General Hospital. Mr. Mandell holds a B.S. in
Pharmacy from the Massachusetts College of Pharmacy and also an M.B.A. from the
New Hampshire College Graduate School of Business.
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,
34
<PAGE> 39
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
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 is a
director of One Call Medical, Inc. 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: Regal Cinemas, 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 injectable 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 injectable 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.
35
<PAGE> 40
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.
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 165,298 shares of Common Stock at prices
ranging from $3.17 to $11.11 per share pursuant to the Company's Stock Option
Plan.
CLASSIFIED BOARD OF DIRECTORS
The Company's By-Laws divide the Board of Directors into three classes,
with three-year staggered terms and initial terms of one, two and three years
for Class I, Class II and Class III Directors, respectively. The terms of
Messrs. Hodes, Lampert and Spencer expire at the 1997 annual meeting of
stockholders; the terms of Messrs. Lautman, Samson and Smith expire at the 1998
annual meeting of stockholders and the terms of Messrs. Padda, Levitas and
Lomicka expire at the 1999 annual meeting of stockholders.
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<PAGE> 41
EXECUTIVE COMPENSATION
The Summary Compensation Table below sets forth certain information
concerning compensation paid or accrued for services rendered to the Company in
all capacities for the years ended December 31, 1995 and 1996 to the Chief
Executive Officer and each of the four other most highly compensated executive
officers of the Company (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
----------------------------- AWARDS
OTHER ------------
ANNUAL SECURITIES
COMPEN- UNDERLYING ALL OTHER
NAME AND SALARY BONUS SATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($)(1) ($) (#)(2) ($)
------------------ ---- ------ ------ ------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
K. Shan Padda................................ 1995 90,000 -- -- 157,580 --
Chairman and Chief Executive Officer 1996 150,000 90,000 10,800(3) 157,580 --
Anil K. Rastogi, Ph.D........................ 1995 52,500(4) -- -- 70,911 --
President and Chief Operating Officer 1996 143,000 107,200 -- 31,516 --
Doron C. Levitas............................. 1995 90,000 -- -- 94,548 --
Vice Chairman and Vice President of 1996 120,000 24,000 -- 47,274 --
International Operations
Alan E. Jordan............................... 1995 124,980 -- 22,939(5) 107,154 --
Senior Vice President of Sales and
Marketing 1996 132,000 26,400 426,533(6) 47,274 --
Stephen L. Holden............................ 1995 -- -- -- -- --
Senior Vice President and 1996 50,053(7) 21,000 -- 55,000 --
Chief Financial Officer
</TABLE>
- ---------------
(1) The Board adopted a bonus plan for 1996 and subsequent years, with bonuses
to be paid at the discretion of the Compensation Committee.
(2) Represents shares of Common Stock underlying stock options granted during
1995 and 1996 pursuant to the Stock Option Plan.
(3) Represents Mr. Padda's housing allowance as provided for in his employment
agreement.
(4) Mr. Rastogi joined the Company in August 1995.
(5) Represents commissions paid by the Company.
(6) Represents $89,594 in commissions plus $336,939 in forgiveness of
indebtedness to the Company.
(7) Mr. Holden joined the Company in August 1996.
37
<PAGE> 42
The following table sets forth certain information with respect to options
granted to the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
--------------------------------------------------------------
NUMBER OF
SECURITIES PERCENT OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE GRANT
GRANTED EMPLOYEES IN PRICE EXPIRATION DATE
NAME (#) 1996 ($/SH)(1) DATE(2) VALUE(3)
---- ---------- ---------------- --------- ---------- --------
<S> <C> <C> <C> <C> <C>
K. Shan Padda................ 157,580 35.9% $4.76/$9.80 1/05/06, 3/15/06 $606,999
Anil K. Rastogi, Ph.D. ...... 31,516 7.2% $4.76 01/05/06 100,221
Alan E. Jordan............... 47,274 10.8% $4.76 01/05/06 150,331
Stephen L. Holden............ 55,000 12.5% $8.38 8/09/06 307,450
Doron C. Levitas............. 47,274 10.8% $4.76 01/05/06 150,331
</TABLE>
- ---------------
(1) Options were granted at an exercise price equal to the fair market value of
the Company's Common Stock on the date of grant, as determined by the Board.
(2) Some of the options granted to the Named Executive Officers are subject to
vesting and, accordingly, may expire before the dates indicated.
(3) Calculation based on the Black-Scholes model. For assumptions used see Note
18 to the Financial Statements.
The following table sets forth certain information with respect to the
unexercised options held by the Named Executive Officers as of December 31,
1996. No options were exercised by the Named Executive Officers during 1996.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF SECURITIES IN-THE-MONEY
UNDERLYING UNEXERCISED OPTIONS AT YEAR-END
SHARES ACQUIRED VALUE OPTIONS AT YEAR-END 1996($)
ON EXERCISE REALIZED 1996(#) EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
---- --------------- -------- ---------------------- --------------------
<S> <C> <C> <C> <C>
K. Shan Padda............... -- -- 39,395/275,765 $438,072/3,090,065
Anil K. Rastogi, Ph.D. ..... -- -- 47,274/ 55,153 525,087/ 613,301
Alan E. Jordan.............. -- -- 50,425/104,003 560,726/1,156,513
Stephen L. Holden........... -- -- 13,750/ 41,250 103,125/ 309,375
Doron C. Levitas............ -- -- 23,637/118,185 262,843/1,314,217
</TABLE>
- ---------------
(1) Calculated based on stock price at December 31, 1996 of $15.88.
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 1,773,668 shares of
Common Stock. The Plan is administered by the Compensation Committee which makes
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.
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.
38
<PAGE> 43
The selection of participants, allotment of shares, determination of price
and other conditions of purchase of such options are 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 are 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 receives 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 receives 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.
The Company has entered into an Employment Agreement with Mr. Rastogi. The
Employment Agreement provides that Mr. Rastogi will receive a base salary of
$130,000, bonuses based upon the Company's performance as compared to its
business plan and options to purchase shares of the Company's Common Stock under
its Stock Option Plan. Mr. Rastogi is entitled to severance payments if he is
terminated other than for cause. Mr. Rastogi's Employment Agreement contains a
non-competition provision.
The Company entered into a seventeen-month Employment Agreement with Mr.
Holden, dated as of August 15, 1996, with provision for automatic extensions for
consecutive one-year terms, unless proper notice of termination is given. The
Employment Agreement provides that Mr. Holden will receive an annual base salary
of $140,000, with an unspecified guaranteed increase on January 1, 1997, bonuses
based upon the Company's performance, and options to purchase shares of the
Company's Common Stock under its Stock Option Plan. Mr. Holden is entitled to
severance payments if he is terminated other than for cause. In addition to
provisions relating to Mr. Holden's duties and compensation, the Employment
Agreement requires Mr. Holden to assign all inventions he develops in the course
of his employment with the Company to the
39
<PAGE> 44
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 the longer of the term of the contract or six months
after his employment with the Company ends.
The Company entered into a three-year Employment Agreement with Mr.
Mandell, dated as of February 25, 1997. The Employment Agreement provides that
Mr. Mandell will receive an annual base salary of $150,000, based upon Mr.
Mandell's and the Company's performance, and options to purchase shares of the
Company's Common Stock under its Stock Option Plan. As of the date of the
Employment Agreement, Mr. Mandell was granted options to acquire 200,000 shares
of the Company's Common Stock. Under the Employment Agreement, the Company could
be obligated to purchase 100,000 option shares at $18.00 each. Mr. Mandell is
entitled to severance payments if he is terminated other than for cause. In
addition to provisions relating to Mr. Mandell's duties and compensation, the
Employment Agreement requires Mr. Mandell 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 the longer of the term of the contract or 12 months after his
employment with the Company ends.
40
<PAGE> 45
PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding beneficial ownership
of the Company's Common Stock as of February 28, 1997, 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>
SHARES BENEFICIALLY
SHARES BENEFICIALLY NUMBER OF OWNED AFTER COMPLETION
OWNED PRIOR TO OFFERING SHARES OF OFFERING(2)
OFFICERS, DIRECTORS OR ------------------------ BEING ----------------------
5% STOCKHOLDERS NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)
---------------------- ------ ---------- --------- ------ ----------
<S> <C> <C> <C> <C> <C>
OFFICERS:
K. Shan Padda(3).................... 509,611 5.325% 75,000 434,611 4.224%
Doron C. Levitas(4)................. 450,282 4.705% 59,091 391,191 3.802%
Stephen L. Holden(5)................ 27,500 0.287% 0 27,500 0.267%
Anil K. Rastogi, Ph.D(6)............ 55,152 0.576% 20,000 35,152 0.342%
Alan E. Jordan(7)................... 153,954 1.609% 72,801 81,153 0.789%
Scott Skooglund(8).................. 12,606 0.132% 0 12,606 0.123%
Joseph Moser(9)..................... 18,910 0.198% 0 18,910 0.184%
Vincent J. Capponi(10).............. 5,916 0.062% 0 5,916 0.058%
Elliot R. Mandell(11)............... 40,000 0.418% 0 40,000 0.389%
DIRECTORS:
Scott Hodes(12)..................... 64,079 0.670% 0 64,079 0.623%
Mark Lampert(13).................... 7,879 0.082% 0 7,879 0.077%
William D. Lautman(14).............. 175,703 1.836% 0 175,703 1.708%
William H. Lomicka(15).............. 84,434 0.882% 0 84,434 0.821%
Marvin Samson(16)................... 24,115 0.252% 0 24,115 0.234%
L. Peter Smith(17).................. 42,028 0.439% 0 42,028 0.409%
Edson W. Spencer, Jr.(18)........... 114,173 1.193% 37,031 77,142 0.750%
5% STOCKHOLDERS:
MSI, Inc.(19)....................... 758,631 7.926% 50,000 708,631 6.888%
Charles K. Stewart(20).............. 507,688 5.305% 0 507,688 4.935%
Putnam Investments, Inc.(21)........ 809,600 8.459% 0 809,600 7.869%
The Kaufman Fund, Inc.(22).......... 750,000 7.836% 0 750,000 7.290%
All Officers and Directors as a
group (15 persons):............... 1,786,342 18.664% 1,522,419 14.798%
</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.
Percentage of beneficial ownership is based on 9,570,870 shares of Common
Stock outstanding as of February 28, 1997, including 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.
(2) Assumes that the Underwriters' over-allotment option to purchase up to
334,815 shares from the Company is not exercised.
(3) Includes 118,184 shares subject to options exercisable within 60 days. Mr.
Padda will be selling 75,000 shares which are issuable upon exercise of
options at $4.76 per share.
(4) Includes 59,091 shares subject to options exercisable within 60 days. Mr.
Levitas will be selling 59,091 shares which are issuable upon exercise of
options at $4.76 per share.
(5) Includes 27,500 shares subject to options exercisable within 60 days.
(6) Includes 55,152 shares subject to options exercisable within 60 days. Mr.
Rastogi will be selling 20,000 shares which are issuable upon exercise of
options at $4.76 per share.
(7) Includes 81,153 shares subject to options exercisable within 60 days.
(8) Includes 12,606 shares subject to options exercisable within 60 days.
41
<PAGE> 46
(9) Includes 18,910 shares subject to options exercisable within 60 days.
(10) Includes 5,916 shares subject to options exercisable within 60 days.
(11) Includes 40,000 shares subject to options exercisable within 60 days.
(12) Includes 24,080 shares subject to options exercisable within 60 days and 46
shares issuable upon exercise of warrants.
(13) Includes 7,879 shares subject to options exercisable within 60 days.
(14) Includes 21,115 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.
(15) Includes 21,824 shares subject to options exercisable within 60 days and
3,152 shares issuable upon exercise of warrants.
(16) Includes 21,115 shares subject to options exercisable within 60 days. Mr.
Samson disclaims beneficial ownership of shares owned by MSI, Inc.
(17) Includes 34,115 shares subject to options exercisable within 60 days.
(18) Includes 28,915 shares subject to options exercisable within 60 days, 2,749
shares issuable upon exercise of warrants, 3,366 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., 33,098 shares held by PSF HealthCare Fund, L.P. ("PSF Health") of
which Mr. Spencer is the managing partner, and 12,153 shares held of record
by Spencer Family Partnership, L.P. Excludes 5,253 shares held of record by
Valerie Spencer, Mr. Spencer's wife, 1,719 shares held of record by Valerie
C. Spencer Trust #3 U/A 8/24/84, Valerie C. Spencer & Edward J. Stewart,
III TTEE, 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, Valerie C. Spencer Trust #3 and the WHC #145751
Trust. Mr. Spencer is selling 6,303 shares and 13,315 shares which are
issuable upon exercise of options at $11.11 and $4.76 per share,
respectively and 1,173 shares issuable upon exercise of warrant at $4.76
per share. PSF Co. is selling 3,152 shares and 11,088 shares which are
issuable upon exercise of warrants at $3.17 and $4.76 per share,
respectively.
(19) Includes 318,667 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.
(20) Includes 3,939 shares subject to options exercisable within 60 days,
271,738 shares held of record by Charles K. Stewart Money Purchase Plan.
Mr. Stewart's address is 401 South LaSalle Street, Suite 1502, Chicago,
Illinois 60605.
(21) Includes 662,900 shares owned by Putnam Investment Management, Inc., and
146,700 shares owned by The Putnam Advisory Company, Inc., both of which
are wholly-owned subsidiaries of Putnam Investments Inc., a wholly-owned
subsidiary of Marsh & McLennan Companies, Inc. Putnam Investments Inc.'s
address is One Post Office Square, Boston, Massachusetts, 02109.
(22) The Kaufman Fund's address is 140 E. 45th Street, New York, New York 10017.
42
<PAGE> 47
SELLING STOCKHOLDERS
The table below sets forth the number of shares of Common Stock (i) owned
beneficially by each of the Selling Stockholders as of February 28, 1997; (ii)
being offered by each Selling Stockholder pursuant to this Prospectus; (iii) to
be owned by each Selling Stockholder after completion of the Offering, assuming
that all of the shares offered hereby are sold and that none of the other shares
held by the Selling Stockholders, if any, are sold and (iv) the percentage (if
one percent or more) to be owned by each Selling Stockholder after completion of
the Offering, assuming that all of the shares offered hereby are sold and that
none of the other shares held by the Selling Stockholders, if any, are sold.
Except as otherwise noted, none of such persons or entities has had any material
relationship with the Company during the past three years.
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF OUTSTANDING
SHARES TO BE SHARES TO BE
TOTAL NUMBER OF OWNED AFTER OWNED AFTER
SHARES SHARES OPTION/ COMPLETION OF COMPLETION OF
SELLING STOCKHOLDERS OWNED(1) OFFERED WARRANT OFFERING(1) OFFERING
-------------------- -------- --------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C>
K. Shan Padda(2)................. 501,733 75,000(11) 75,000 426,733 4.24%
Doron C. Levitas(3).............. 450,283 59,020(11) 59,020 391,263 3.88%
Anil K. Rastogi, Ph.D.(4)........ 78,790 20,000(11) 20,000 58,790 0.58%
MSI, Inc.(5)..................... 758,633 50,000 708,633 7.03%
Edson W. Spencer, Jr.(6)......... 45,013 20,791(12) 20,791 24,222 0.24%
Peterson-Spencer-Fansler
Company(6)..................... 17,606 14,240(13) 14,240 3,366 0.03%
Spencer Family Partnership,
L.P.(6)........................ 12,153 2,000 10,153 0.10%
Gary Peterson.................... 1,173 1,173(13) 1,173 -- 0.00%
Barker, Lee & Company(7)......... 5,139 4,986 153 0.00%
Namakagon Associates, L.P.(7).... 5,139 4,986 153 0.00%
Upland Associates, L.P.(7)....... 7,752 7,523 229 0.00%
Sam Oracle Fund, Inc.(8)......... 44,797 13,185 -- 31,612 0.31%
Oracle Partners, L.P.(8)......... 188,580 50,000 -- 138,580 1.38%
Oracle Institutional Partners,
L.P.(8)........................ 12,749 3,295 -- 9,454 0.09%
Alan E. Jordan(9)................ 153,954 72,801 -- 81,153 0.81%
James O. Pohlad(10).............. 14,048 14,048 -- 0.00%
Pohlad Companies(10)............. 22,331 22,331 -- -- 0.00%
Carl Pohlad Trust No. 2(10)...... 5,093 5,093 -- -- 0.00%
Gideon Hixon Fund, L.P........... 32,131 1,575(14) 1,575 30,556 0.30%
Paul J. Finnegan................. 21,089 15,000 -- 6,089 0.06%
John E. Rogers................... 76,241 44,726(15) 21,977 31,515 0.31%
Frank D. Mayer................... 7,037 7,037 -- -- 0.00%
Vukasin Pavlovic................. 7,026 7,026 -- -- 0.00%
Oakleaf Associates............... 5,093 5,093 -- -- 0.00%
Gerald E. Jr. & Linda E.
Bisbee......................... 1,099 1,099 -- -- 0.00%
Mirza Mehdi...................... 40,179 10,000 -- 30,179 0.30%
---------- ------- ------- --------- ------
Total....................... 2,514,861 532,028 213,776 1,982,833 19.68%
========== ======= ======= ========= ======
Total Outstanding after IPO...... 10,074,229
==========
</TABLE>
- ---------------
(1) Includes shares issuable upon exercise of warrants or options exercisable
within 60 days.
(2) Chairman of the Board, Chief Executive Officer, Treasurer and a director
of the Company.
(3) Vice Chairman of the Board, Vice President of International Operations, a
Secretary and a director of the Company.
(4) President and Chief Operating Officer.
43
<PAGE> 48
(5) MSI, Inc. is a beneficial owner of more than 5% of the securities of the
Company.
(6) Related party to Edson W. Spencer, Jr., a director of the Company. The
total number of shares Mr. Spencer beneficially owns is 107,870.
(7) Related party to Dwight Lee. The total number of shares which Mr. Lee
beneficially owns is 18,030.
(8) Related party to Larry Feinberg. The total number of shares which Mr.
Feinberg beneficially owns is 246,126.
(9) Senior Vice President of the Company.
(10) Related party to James Pohlad. The total number of shares which Mr. Pohlad
owns is 42,472.
(11) Represents the number of shares of Common Stock issuable upon exercise of
option at $4.76 per share which is to take effect simultaneously with the
Offering.
(12) Includes 10,984 shares and 3,256 shares of Common Stock issuable upon
exercise of warrants at $3.17 and $4.76 respectively, which is to take
effect simultaneously with the Offering.
(13) Includes shares of Common Stock issuable upon exercise of warrant at $4.76
per share which is to take effect simultaneously with the Offering.
(14) Represents the number of shares of Common Stock issuable upon exercise of
warrant which is to take effect simultaneously with the Offering.
(15) Includes 21,977 shares of Common Stock issuable upon exercise of warrant
at $4.55 per share which is to take effect simultaneously with the
Offering.
CERTAIN TRANSACTIONS
On February 25, 1997, Sabratek acquired substantially all the assets of
Rocap for $100,000 in cash, 131,593 shares of Sabratek Common Stock (valued at
approximately $2.9 million), plus the assumption of net liabilities of
approximately $661,000 and the forgiveness of a bridge loan. In connection with
the acquisition, the former President of Rocap, who is also the majority
shareholder of Rocap, entered into a three-year employment agreement with
Sabratek. See "Management -- Employment Agreements." The number of shares to be
paid to Rocap may be increased based on the value of the Sabratek Common Stock
on July 1, 1997 (the "Valuation Date"). Sabratek retains the right to pay cash
in lieu of delivery of the shares of Common Stock. As part of the transaction,
the former shareholders of Rocap received the right to have a registration
statement relating to the shares issued in the acquisition filed for their
benefit. In the event such registration statement is not declared effective by
the Commission on or before September 1, 1997, such former shareholders have the
right, exercisable from September 2, 1997 to September 15, 1997, to put such
shares to the Company at a price determined in accordance with the acquisition
agreement.
On December 26, 1996, the Company granted EGS Securities Corp. ("EGS"), of
which William D. Lautman, a director of the Company, is Managing Director, an
option under the Stock Option Plan to purchase 50,000 shares of the Company's
Common Stock at a price of $14.00 per share. The option was granted in
consideration of services provided by EGS to the Company in evaluating potential
acquisitions and strategic relationships and fully vests on June 30, 1997.
In May, 1996 the Company entered into an agreement with 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 initial public offering. In connection with this agreement, the Company paid
EGS $150,000 upon consummation of the Company's initial public 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 was converted into 354,869 shares of Common Stock upon the
consummation of the initial public offering at a conversion price of $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
44
<PAGE> 49
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 was converted into 23,112 shares of Common Stock at a
conversion price of $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 bore interest at a rate of 10% per annum. The Company
repaid the Convertible Subordinated Debenture, plus accrued interest thereon, in
June 1996.
In December, 1995, the Company issued a Convertible Subordinated Debenture
to Charles Stewart in the principal amount of $100,000. The debenture was
converted into 42,021 shares of Common Stock upon the consummation of the
initial public offering at a conversion price of $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. Pursuant to the EGS
Agreement, as amended, the Company paid EGS a fee of approximately $410,000.
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 were converted into 147,075
shares of Common Stock upon the consummation of the initial public offering at a
conversion price of $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 paid each of Messrs.
Newquist and Eccles a stock appreciation payment in the amount of approximately
$414,000. 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 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
paid MSI, Inc. a stock appreciation payment in the amount of approximately
$800,000. 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.
45
<PAGE> 50
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 and the related accrued interest were
forgiven during 1996.
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.
46
<PAGE> 51
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 -- Influence of Limited Number of
Stockholders" and "-- Impact of Anti-Takeover Measures; Possible Issuance of
Preferred Stock; Classified Board."
COMMON STOCK
As of February 28, 1997, assuming no exercise of outstanding options or
warrants, there were 8,374,229 shares of Common Stock outstanding, held of
record by approximately 214 stockholders of record. 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.
WARRANTS
As of February 28, 1997, there were warrants outstanding to purchase
544,430 shares of Common Stock at a weighted average exercise price of $5.36 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 April 18, 1997 to September 6, 2001.
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 1,442,752 shares of
Common Stock. As part of this Offering, the Company is registering the sale of
approximately 532,028 of such shares. As such, following the Offering
approximately 910,724 shares of the Company's outstanding Common Stock will
continue to have the benefit of Registration Rights. Persons who own shares of
Common Stock which will have the benefit of Registration Rights following this
Offering are hereinafter referred to as "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.
The Company has entered into a Registration Rights Agreement with Rocap,
pursuant to which the Company agreed to register on Form S-3 in a delayed or
continuous offering (a "Shelf Registration"), 131,593 shares of Common Stock of
the Company, which were distributed to Rocap in connection with the Company's
acquisition of Rocap. Such Shelf Registration would permit the registration of
such securities for resale by Rocap or the Rocap shareholders to whom such
shares may be distributed (the "Rights Holders"). In the event a Shelf
Registration is not permitted under the Securities Act, the Company agreed to
provide alternative registration rights to the Rights Holders. Rights Holders
also have "piggyback" registration rights pursuant to which the Rights Holders
will have the right to require the Company to register shares of Common Stock
held by the Rights Holders on any Registration Statement being filed by the
Company, unless in connection with an underwritten public offering, the managing
underwriter is of the opinion that inclusion of
47
<PAGE> 52
such shares of Common Stock would have an adverse impact on the marketing of the
securities to be sold for the benefit of the Company in such public offering.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is LaSalle National
Bank, Chicago, Illinois.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have approximately
10,288,005 shares of Common Stock outstanding. Of these shares, the 2,232,028
shares of Common Stock sold in the Offering and the 2,875,000 shares of Common
Stock sold by the Company in its initial public offering in June, 1996, 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 Company's
initial public 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. The "restricted securities" 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.
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 (at least one year but
less than two years beginning April 29, 1997), and any affiliate of the Company
who has owned shares for at least two years (one year beginning April 29, 1997),
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 (two
years beginning April 29, 1997) is entitled to sell such shares under Rule 144
without regard to the limitations described above.
The Company, all Selling Stockholders, all directors, certain officers, and
certain other stockholders 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 90 days, or 60 days in
the case of certain stockholders, 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 (the "Lock-up
Agreements").
On October 2, 1996, the Company's 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 became effective. After the effective
date of that registration statement, but subject to the provisions of applicable
Lock-up Agreements, shares purchased upon exercise of options covered by such
registration statement generally would be available for resale in public market.
On the anticipated Effective Date, approximately 2,058,840 shares of Common
Stock outstanding before the Offering will be eligible for sale under Rule 144
promulgated under the Act. Shares subject to the Lock-up Agreements may become
available for sale upon the expiration of such lock-ups.
The holders of certain of the Company's outstanding securities also have
the benefit of a Registration Rights Agreements which provide that, subject to
certain conditions, certain holders of the Company's
48
<PAGE> 53
outstanding securities have rights with respect to registration under the Act.
See "Description of Capital Stock -- Registration Rights."
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.
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, Salomon Brothers Inc, Smith Barney Inc.
and Jefferies & Company, Inc. are acting as representatives (the
"Representatives"), have severally agreed to purchase an aggregate of 1,700,000
shares of Common Stock from the Company and 532,028 shares of Common Stock from
the Selling Stockholders. 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 .......................................
Smith Barney Inc. ..........................................
Jefferies & Company, Inc. ..................................
---------
2,232,028
=========
</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.
The Company and the Selling Stockholders have 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 334,804 additional shares of Common Stock at the 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 Selling Stockholders, all directors, certain officers and
certain other stockholders 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 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
49
<PAGE> 54
60 or 90 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.
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.
In connection with this Offering, the Underwriters may engage in
transactions that stabilize, maintain, or otherwise affect the price of the
Common Stock, including over-allotment and other stabilizing transactions, in
accordance with Rule 104 of Regulation M promulgated by the Commission. Such
transactions may be discontinued at any time.
In connection with this Offering, certain Underwriters and selling group
members, if any, may engage in passive market making transactions in the Common
Stock on the Nasdaq National Market in accordance with Rule 103 of Regulation M
promulgated by the Commission. Passive market making consists of displaying bids
on the Nasdaq National Market limited by the prices of independent market makers
and effecting purchases limited by such prices and in response to order flow.
Rule 103 limits the amount of net purchases that each passive market maker can
make and the displayed size of the bid. Passive market making may stabilize the
market price of the Common Stock at a level above that which might otherwise
prevail and, if commenced, may be discontinued at any time.
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 64,079 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 of the Company as of December 31, 1996 and 1995
and for each of the years in the three year period ended December 31, 1996 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.
The financial statements of Rocap as of December 31, 1996 and for the year
ended December 31, 1996 have been included herein and elsewhere in the
Registration Statement in reliance upon the report of Parent, Naffah & Company,
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 referred to
are not necessarily complete, and in each instance reference is made to the copy
of such contract or 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.,
50
<PAGE> 55
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.
Sabratek is subject to the information requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by Sabratek can be inspected and copied at Room 1024
of the Offices of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, and the Commission's Regional Offices in New York (7 World Trade Center,
13th Floor, New York, New York 10048) and Chicago (Northwestern Atrium Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511), and copies
of such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a Website that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.
Sabratek Common Stock is traded in the over-the-counter market and quoted
on the Nasdaq National Market under the symbol "SBTK." Documents filed by
Sabratek with the Commission can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
51
<PAGE> 56
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SABRATEK CORPORATION
Independent Auditors' Report................................ F-2
Balance Sheets as of December 31, 1996 and 1995............. F-3
Statements of Operations for the years ended December 31,
1996, 1995 and 1994....................................... F-4
Statements of Stockholders' Equity for the years ended
December 31, 1996, 1995 and 1994.......................... F-5
Statements of Cash Flows for the years ended December 31,
1996, 1995 and 1994....................................... F-6
Notes to Financial Statements............................... F-7
ROCAP, INC.
Independent Auditors' Report................................ F-17
Balance Sheet as of December 31, 1996....................... F-18
Statement of Loss and Accumulated Deficit for the year ended
December 31, 1996......................................... F-19
Statement of Cash Flows for the year ended December 31,
1996...................................................... F-20
Notes to Financial Statements............................... F-21
SABRATEK CORPORATION PRO FORMA SUPPLEMENTAL CONSOLIDATED
FINANCIAL STATEMENTS...................................... F-24
Balance Sheet as of December 31, 1996....................... F-25
Statement of Operations for the year ended December 31,
1996...................................................... F-26
Notes to Pro Forma Supplemented Consolidated Financial
Statements................................................ F-27
</TABLE>
F-1
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sabratek Corporation:
We have audited the accompanying balance sheets of Sabratek Corporation as
of December 31, 1996 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, 1996. 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, 1996 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, 1996 in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
March 4, 1997
F-2
<PAGE> 58
SABRATEK CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $10,446,818 $ 8,027
Short-term investments in marketable securities........... 4,351,726 --
Receivables:
Trade, net of allowance for doubtful accounts of
$146,151 and $75,469 at December 31, 1996 and December
31, 1995, respectively................................ 8,305,045 1,454,919
Other.................................................. 124,690 --
----------- ------------
Total receivables................................. 8,429,735 1,454,919
----------- ------------
Inventories............................................... 5,049,001 1,825,411
Prepaids and other assets................................. 586,338 50,737
----------- ------------
Total current assets........................................ 28,863,618 3,339,094
----------- ------------
Property, plant and equipment, net.......................... 1,774,612 901,728
Intangible asset, net....................................... 41,587 --
Note receivable............................................. 200,000 --
Long-term investments in marketable securities.............. 2,011,560 --
Other....................................................... 59,495 50,828
----------- ------------
$32,950,872 $ 4,291,650
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt........................................... $ 167,813 $ 621,021
Current portion of capital lease obligation............... 132,459 150,848
Current portion of long-term debt......................... 3,200 3,200
Accounts payable.......................................... 2,247,312 2,377,159
Accrued expenses:
Payroll & commissions.................................. 1,264,857 191,086
Warranty............................................... 235,740 229,263
Other.................................................. 54,861 399,490
Deferred rent............................................. 30,599 31,322
Deferred revenue.......................................... -- 125,000
Due to affiliated company................................. 139,991 311,811
----------- ------------
Total current liabilities................................... 4,276,832 4,440,200
----------- ------------
Long-term capital lease obligation.......................... 23,111 149,334
Long-term debt.............................................. 800 2,362,293
Accrued interest............................................ -- 160,630
----------- ------------
Total liabilities........................................... 4,300,743 7,112,457
----------- ------------
Stockholders' equity (deficit):
Convertible preferred stock par value $.01, issued and
outstanding -- 0 at December 31, 1996 and 1,768,129 at
December 31, 1995...................................... -- 17,681
Common stock, par value $.01, issued and outstanding --
8,196,981 at December 31, 1996 and 1,718,458 at
December 31, 1995...................................... 81,970 17,185
Additional paid-in capital................................ 42,891,350 10,708,671
Note receivable from stockholder.......................... -- (112,500)
Deferred compensation..................................... (17,371) --
Unrealized gains.......................................... 4,140 --
Accumulated deficit....................................... (14,309,960) (13,451,844)
----------- ------------
Total stockholders' equity (deficit)........................ 28,650,129 (2,820,807)
----------- ------------
Commitments and contingencies...............................
----------- ------------
$32,950,872 $ 4,291,650
=========== ============
</TABLE>
See accompanying notes to financial statements.
F-3
<PAGE> 59
SABRATEK CORPORATION
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales......................................... $17,696,786 $ 4,039,797 $ 3,314,599
Cost of sales..................................... 8,748,364 2,901,818 2,480,369
----------- ----------- -----------
Gross margin...................................... 8,948,422 1,137,979 834,230
Selling, general and administrative expenses...... 8,474,408 6,873,934 4,107,588
----------- ----------- -----------
Operating income (loss)........................... 474,014 (5,735,955) (3,273,358)
Other income (expenses):
Interest income................................. 617,157 12,607 19,340
Interest expense................................ (318,557) (222,491) (260,494)
Stock appreciation rights....................... (1,628,463) -- --
Other........................................... (2,267) (90,496) (40,311)
----------- ----------- -----------
Net loss.......................................... $ (858,116) $(6,036,335) $(3,554,823)
=========== =========== ===========
Weighted average shares outstanding............... 7,263,114 6,609,571
=========== ===========
Net loss per share (1995 pro forma)............... $ (0.12) $ (0.90)
=========== ===========
</TABLE>
See accompanying notes to financial statements.
F-4
<PAGE> 60
SABRATEK CORPORATION
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
PREFERRED COMMON ADDITIONAL
--------------------- ------------------- PAID-IN NOTE DEFERRED
DESCRIPTION SHARES AMOUNT SHARES AMOUNT CAPITAL RECEIVABLE COMPENSATION
----------- ------ ------ ------ ------ ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993.... -- $ -- 1,510,395 $15,104 $ 2,746,663 $(112,500) $ --
Conversion of short-term
convertible subordinated
debentures to convertible
preferred stock................ 635,815 6,358 -- -- 3,019,802 -- --
Issuance of convertible
preferred stock, net of
$354,596 of offering costs..... 681,900 6,819 -- -- 2,884,090 -- --
Net loss........................ -- -- -- -- -- -- --
---------- -------- --------- ------- ----------- --------- --------
Balance at December 31, 1994.... 1,317,715 13,177 1,510,395 15,104 8,650,555 (112,500) --
Issuance of convertible
preferred stock and warrants,
net of $76,758 of offering
costs.......................... 202,963 2,030 -- -- 887,207 -- --
Issuance of preferred stock in
exchange for services
rendered....................... 728 7 -- -- 3,458 -- --
Exercise of stock options....... -- -- 9,621 96 33,623 -- --
Exercise of stock warrants...... 246,723 2,467 198,442 1,985 1,054,928 -- --
Issuance of common stock
warrants....................... -- -- -- -- 78,900 -- --
Net loss........................ -- -- -- -- -- -- --
---------- -------- --------- ------- ----------- --------- --------
Balance at December 31, 1995.... 1,768,129 17,681 1,718,458 17,185 10,708,671 (112,500) --
Issuance of common shares, net
of offering costs of
1,562,932...................... -- -- 3,042,245 30,422 26,783,907 -- --
Issuance of common shares for
services....................... -- -- 124,488 1,245 591,255 -- --
Conversion of long-term
debentures..................... -- -- 1,331,162 13,312 3,992,662 -- --
Conversion of preferred stock... (1,768,129) (17,681) 1,838,113 18,381 (700) -- --
Exercise of warrants and
options........................ -- -- 142,515 1,425 668,702 -- --
Settlement of note receivable... -- -- -- -- -- 112,500 --
Issuance of warrant............. -- -- -- -- 127,000 -- --
Deferred compensation, net...... -- -- -- -- 19,853 -- (17,371)
Unrealized gains on
investments.................... -- -- -- -- -- -- --
Net loss........................ -- -- -- -- -- -- --
---------- -------- --------- ------- ----------- --------- --------
Balance at December 31, 1996.... -- $ -- 8,196,981 $81,970 $42,891,350 $ -- $(17,371)
========== ======== ========= ======= =========== ========= ========
<CAPTION>
TOTAL
STOCKHOLDERS'
UNREALIZED ACCUMULATED EQUITY
DESCRIPTION GAINS DEFICIT (DEFICIT)
----------- ---------- ----------- -------------
<S> <C> <C> <C>
Balance at December 31, 1993.... $ -- $ (3,860,686) $(1,211,419)
Conversion of short-term
convertible subordinated
debentures to convertible
preferred stock................ -- -- 3,026,160
Issuance of convertible
preferred stock, net of
$354,596 of offering costs..... -- -- 2,890,909
Net loss........................ -- (3,554,823) (3,554,823)
------ ------------ -----------
Balance at December 31, 1994.... -- (7,415,509) 1,150,827
Issuance of convertible
preferred stock and warrants,
net of $76,758 of offering
costs.......................... -- -- 889,237
Issuance of preferred stock in
exchange for services
rendered....................... -- 3,465
Exercise of stock options....... -- -- 33,719
Exercise of stock warrants...... -- -- 1,059,380
Issuance of common stock
warrants....................... -- -- 78,900
Net loss........................ -- (6,036,335) (6,036,336)
------ ------------ -----------
Balance at December 31, 1995.... -- (13,451,844) (2,820,807)
Issuance of common shares, net
of offering costs of
1,562,932...................... -- -- 26,814,329
Issuance of common shares for
services....................... -- -- 592,500
Conversion of long-term
debentures..................... -- -- 4,005,974
Conversion of preferred stock... -- -- --
Exercise of warrants and
options........................ -- -- 670,127
Settlement of note receivable... -- -- 112,500
Issuance of warrant............. -- -- 127,000
Deferred compensation, net...... -- -- 2,482
Unrealized gains on
investments.................... 4,140 -- 4,140
Net loss........................ -- (858,116) (858,116)
------ ------------ -----------
Balance at December 31, 1996.... $4,140 $(14,309,960) $28,650,129
====== ============ ===========
</TABLE>
See accompanying notes to financial statements
F-5
<PAGE> 61
SABRATEK CORPORATION
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (858,116) $(6,036,335) $(3,554,823)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization........................... 402,953 185,562 89,483
Loss on sale of property, plant and equipment........... -- -- 63,498
Deferred compensation................................... 2,482 -- --
Expenses paid with issuance of stock.................... 840,051 3,465 --
Expenses paid with issuance of warrants................. 127,000 35,700 --
Stock appreciation rights expense....................... 1,628,463 -- --
Provision for bad debts................................. 70,682 75,469 --
Changes in assets and liabilities:
Receivables........................................... (7,045,498) (350,659) (509,268)
Note receivable....................................... (200,000) -- --
Deferred revenue...................................... (125,000) 125,000 --
Inventories........................................... (3,223,590) (1,190,326) (90,479)
Advances to stockholders.............................. -- 162,306 (11,827)
Accounts payable...................................... (129,847) 1,522,960 147,883
Deferred rent......................................... (723) 19,254 3,535
Accrued expenses...................................... 848,119 621,860 139,010
Due to affiliated company............................. (171,820) (95,863) 238,732
Other................................................. (544,268) 45,751 (124,196)
----------- ----------- -----------
Net cash used in operating activities....................... (8,379,112) (4,875,856) (3,608,452)
----------- ----------- -----------
Cash flows from investing activities:
Purchases of property, plant and equipment................ (1,275,221) (458,857) (249,824)
Purchase of intangible assets............................. (42,203) -- --
Proceeds from sale of property, plant and equipment....... -- -- 182,611
Purchases of marketable securities, net................... (6,359,146) -- --
----------- ----------- -----------
Net cash used in investing activities....................... (7,676,570) (458,857) (67,213)
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from issuance of short-term debt................. 167,813 621,021 860,000
Repayment of short-term debt.............................. (621,021) -- (25,000)
Repayment of long-term debt............................... (353,200) (3,200) (3,200)
Proceeds from issuance of long-term debt.................. 1,589,500 2,058,533 --
Payment of stock appreciation rights...................... (1,628,463) -- --
Payments of capital lease, net............................ (144,612) (123,912) (45,880)
Proceeds from issuance of common stock, net............... 27,484,456 505,963 --
Proceeds from issuance of preferred stock, net............ -- 1,519,573 3,072,069
----------- ----------- -----------
Net cash provided by financing activities................... 26,494,473 4,577,978 3,857,989
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents............ 10,438,791 (756,735) 182,324
Cash and cash equivalents at beginning of year.............. 8,027 764,762 582,438
----------- ----------- -----------
Cash and cash equivalents at end of year.................... $10,446,818 $ 8,027 $ 764,762
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE> 62
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS
(1) DESCRIPTION OF BUSINESS
Sabratek Corporation (the "Company") designs, manufactures and markets
programmable electronic intravenous infusion pumps, disposable intravenous
administration sets, integrated software, and related accessories. Sales of the
products are made through distributors as well as the Company's own
representatives.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) 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.
(b) Cash and Cash Equivalents
Cash and cash equivalents represent funds in demand deposit accounts, money
market accounts and short-term bond mutual funds. Also included are U.S.
Treasury Bills and U.S. Treasury Notes to the extent they mature within 90 days.
(c) Short-term and Long-term Investment in Marketable Securities
Short-term and long-term investments in marketable securities are
classified as available-for-sale and are reported at fair market value.
Unrealized gains on available-for-sale securities are excluded from earnings and
are reported as a separate component of stockholders' equity until realized.
(d) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost
is determined under the first-in, fist-out ("FIFO") method.
(e) 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
straightline 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 office furniture, fixtures and equipment is 7 years. Leasehold
improvements are amortized over the life of the lease.
(f) Research and Development
Research and development costs are expensed as incurred. Research and
development costs amounted to $969,059, $2,193,508 and $1,098,167 in 1996, 1995
and 1994, respectively.
(g) Patents
Patents costs in progress are amortized over 16 years. The Company has
assessed that no permanent impairment of the value of the asset has occurred.
Such assessment includes consideration of possible obsolescence, demand, new
technology, competition, and other pertinent economic factors and trends that
may have an impact on the value or remaining lives of the asset.
F-7
<PAGE> 63
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(h) Warranty
The provision for estimated warranty costs is recorded at the time of sale
and periodically adjusted to reflect actual experience.
(i) 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.
(j) 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.
(k) Computation of Net Loss Per Share
Net loss per share is based on the weighted average number of shares
outstanding with common equivalent shares from stock options and warrants
excluded because their effect is antidilutive. Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin No. 83, options and warrants, and
convertible debt granted or issued by the Company during the twelve month period
immediately preceding the initial public offering of the Company's common stock
have been included in the calculation of common shares as if they had been
outstanding for all periods presented. The net loss per share for the year ended
December 31, 1995 has been presented on a pro forma basis in lieu of historical
net loss per share as such historical information is not meaningful due to the
conversion of preferred stock and debt in connection with the Company's initial
public offering.
(l) Reclassifications
Certain amounts for the year ended December 31, 1995 were reclassified to
conform to the current year presentation.
(3) INVESTMENTS IN MARKETABLE SECURITIES
The following table summarizes short-term and long-term investments in
marketable securities as of December 31, 1996:
<TABLE>
<CAPTION>
LESS THAN 1-2
1 YEAR YEARS TOTAL
--------- ----- -----
<S> <C> <C> <C>
U.S. Treasury Bills.......................... $1,344,386 $ -- $1,344,386
U.S. Treasury Notes.......................... 3,007,340 2,011,560 5,018,900
---------- ---------- ----------
$4,351,726 $2,011,560 $6,363,286
========== ========== ==========
</TABLE>
The above securities are classified as available-for-sale and are reported
at fair market value. As of the balance sheet date, an unrealized gain of $4,140
was recorded in the stockholders' equity section of the Balance Sheet.
F-8
<PAGE> 64
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(4) INVENTORIES
Inventories at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Raw materials............................................. $3,401,848 $1,228,594
Work-in-process........................................... 1,068,343 195,981
Finished goods............................................ 578,810 400,836
---------- ----------
$5,049,001 $1,825,411
========== ==========
</TABLE>
(5) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Machinery and equipment..................................... $1,817,063 $ 725,694
Furniture and fixtures...................................... 411,187 278,168
Leasehold improvements...................................... 181,769 130,936
---------- ----------
2,410,019 1,134,798
Less accumulated depreciation............................... 635,407 233,070
---------- ----------
$1,774,612 $ 901,728
========== ==========
</TABLE>
Depreciation expense for years ended December 31, 1996, 1995 and 1994
amounted to $402,337, $184,383 and $86,639 respectively.
(6) NOTE RECEIVABLE
In December, 1996, the Company loaned $200,000 to a non-affiliated
corporation in exchange for a Non-Negotiable Promissory Note due upon demand
after February 18, 1999. The note carries an interest rate of 5.5% per annum,
payable upon maturity or prepayment of the note.
(7) AFFILIATED COMPANY
The Company is affiliated through common ownership with Dak-Tech Ltd., an
Israeli company. Dak-Tech Ltd. provides the Company with manufacturing goods and
previously 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 $0, $44,585, and $271,166 for the years ended December
31, 1996, 1995 and 1994, respectively. Amounts included as cost of sales were
$384,800, $493,959 and $748,652 for the years ended December 31, 1996, 1995 and
1994, respectively. As of December 31, 1996 and 1995, the Company was indebted
to Dak-Tech Ltd. for receipts of various inventory components in the amount of
$139,991 and $311,811, respectively.
(8) TRANSACTIONS WITH STOCKHOLDERS
During 1996, the Company forgave the repayment of a loan, interest on the
loan and certain advances to a stockholder who is an officer of the Company
totaling $336,939, in aggregate.
(9) CAPITAL STOCK
In March, 1996, the Company issued 167,245 shares of common stock at a per
share price of approximately $9.80, resulting in gross proceeds to the Company
of $1,639,761.
F-9
<PAGE> 65
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In April, 1996, the Company executed a 1-for-3.173 reverse stock split of
its Common Stock and Series A convertible preferred stock. All references in the
financial statements to share and per share data retroactively reflect the
reverse stock split. Also in April, the Company filed a Restated Certificate of
Incorporation authorizing an increase in the number of authorized shares of
common stock to 25,000,000, $0.01 par value, and preferred stock to 12,500,000,
$0.01 par value.
In October, 1996, the Company filed a Certificate of Elimination to rescind
its Preferred Stock Certificate of Designation.
(10) INITIAL PUBLIC OFFERING
In June, 1996, the Company completed an underwritten initial public
offering (the "Offering") of 2,785,000 shares of common stock, par value $0.01,
at a price of $10.00 per share, with proceeds to the Company of $26,737,500
after underwriters' discounts and commissions. The Company's shares are traded
on the Nasdaq National Market under the symbol "SBTK."
(11) SHORT-TERM DEBT
During 1996, the Company executed a bank promissory note due August 5,
1997, in the amount of $167,813. Interest is paid monthly at a floating rate of
0.50% over the bank's prime rate and is secured by a domestically confirmed
letter of credit from a foreign customer of Sabratek.
During 1995, the Company entered into a General Loan and Security Agreement
with Sterling Business Credit (Sterling), pursuant to which, Sterling held a
first security interest in accounts receivable, as well as other assets of the
Company. As of December 31, 1995, the outstanding balance on the loan was
$621,021. During 1996, the Company paid back the loan in full and terminated the
General Loan and Security Agreement.
(12) LONG-TERM DEBT
In January, 1996, the Company issued 6 year convertible subordinated
debentures bearing interest at 13.22% per annum in the amount of $110,000,
convertible into one share of common stock for every $5.24 of principal and
accrued interest. The debentures were converted into 46,222 shares of common
stock, in the aggregate, upon the Offering, giving effect to the conversion
premium provided for in the debentures.
In January, 1996, the Company issued a convertible subordinated debenture
to a director of the Company in the amount of $100,000 at an interest rate of
10%, until due at June 30, 1996. After June 30, 1996, the debenture would have
paid interest at 13.22% and been extended to 6 years, however, the debenture was
repaid in full, including interest, immediately following the Offering, and
prior to June 30, 1996.
In January and February, 1996, the Company issued convertible subordinated
debentures to directors and independent third-parties in the principal amounts
of $110,000 and $425,000, respectively. $60,000 of the debentures were issued to
a director in satisfaction of an obligation for services rendered. In February,
1996, the debenture holders and the Company agreed to convert the debenture into
112,407 shares of common stock, in the aggregate, reflecting a conversion rate
of $4.76.
In March, 1996, the Company issued a convertible subordinated debenture to
a stockholder in the principal amount of $844,500. The debenture contained a 6
year maturity and an interest rate of 13.22% per annum and was convertible into
one share of common stock for every $5.24 of principal and accrued interest. The
debenture was converted into 354,869 shares of common stock upon the Offering,
giving effect to the conversion premium provided for in the debenture.
In June, 1996, two convertible subordinated debentures, issued in 1993, in
the principal amount of $300,000, in the aggregate, plus accrued interest
thereon, were converted into 63,031 shares of common stock,
F-10
<PAGE> 66
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
in the aggregate, upon the Offering. The conversion rate included a conversion
premium not originally provided for in the debentures which resulted in a charge
to operating income of $46,841 in 1996.
In June, 1996, convertible subordinated debentures, issued in 1995, in the
aggregate principal amount of $1,808,292, were converted into 749,348 shares of
common stock, in the aggregate, upon the Offering, giving effect to the
conversion premium provided for in the debentures.
(13) SERIES A CONVERTIBLE PREFERRED STOCK
Upon the closing of the Offering, all 1,768,129 shares of Series A
Preferred Stock were converted into 1,838,113 shares of the Company's Common
Stock, including anti-dilution adjustments.
(14) STOCK APPRECIATION RIGHTS
In July, 1996, the Company paid, in full, stock appreciation rights
totaling $1,628,463 in aggregate, which were issued pursuant to three separate
agreements during 1995. The agreements provided for a maximum appreciation of
$4.76 per share and required payment at the time of certain qualifying events,
or upon demand of the holder. The obligation created with respect to the
agreements resulted in a non-recurring charge to other income (expenses) in the
Statement of Operations for 1996.
(15) BUSINESS AND CREDIT CONCENTRATIONS
As of December 31, 1996 and 1995, individual customers representing at
least 10% of total receivables accounted for $3,458,882 or 41% (three customers)
and $848,588 or 53% (five customers) of accounts receivable, respectively.
Aggregate sales to customers representing at least 10% of total sales
individually amounts to $0, $1,367,227 (three customers) and $1,690,678 (four
customers), for the years ended December 31, 1996, 1995 and 1994, respectively.
Individual customers representing over 10% of aggregate sales each had sales of
$0 for the year ended December 31, 1996; $475,591, $449,020 and $442,616 for the
year ended December 31, 1995 and $517,204, $468,636, $353,364 and $351,474 for
the year ended December 31, 1994.
The Company's customers are based throughout the world with 9%, 15%, 14% of
sales from international markets for the years ended December 31, 1996, 1995 and
1994, 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.
(16) 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 1996 and 1995, no matching
contributions were made to Plan participants' accounts.
(17) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash paid during the year for interest...................... $133,103 $87,473
</TABLE>
In 1996, 124,488 shares of common stock were issued in satisfaction of
accrued obligations in the amount of $592,500 for services rendered in 1995.
F-11
<PAGE> 67
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
In 1996, 1,331,451 shares of common stock were issued in exchange for the
retirement of $3,597,793 in long-term debt principal and $364,210 in accrued
interest on long-term debt. The number of shares issued included the conversion
premium originally provided for in the debt instruments.
Capital lease obligations of $0 and $178,239 were incurred in 1996 and
1995, respectively, when the Company entered into leases primarily for
machinery, equipment, furniture and fixtures.
In 1995, 728 shares of common stock were issued in exchange for services
rendered. The value of the services rendered equaled $3,465.
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.
(18) 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 Board on an individual basis, but not to exceed 10 years. Total shares of
common stock reserved at December 31, 1996 for issuance on the exercise of stock
options was 1,773,668.
The Company applies APB Opinion No. 25 and related interpretations in
accounting for its Stock Option Plan. Accordingly, no compensation cost has been
recorded. Had compensation cost for the Company's Stock Option Plan been
determined consistent with FASB Statement No. 123, the Company's net loss and
loss per share would have been increased to the pro forma amounts indicated
below.
The compensation cost of each option grant is estimated on the date of
grant using the Black-Scholes option pricing model with the following weighted
average assumptions used for grants in 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Dividend yield.............................................. 0% 0%
Volatility.................................................. 67% 67%
Risk-free interest rate..................................... 7% 7%
Expected term in years...................................... 4.2 4.2
</TABLE>
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C> <C>
Net loss As reported................................. $ (858,116) $(6,036,335)
Pro forma................................... $(2,025,953) $(6,522,389)
Net loss per
share As reported (1995 pro forma)................ $ (0.12) $ (0.90)
Pro forma................................... $ (0.28) $ (0.99)
=========== ===========
</TABLE>
Pro forma net loss and loss per share reflect only options granted in 1996
and 1995. Therefore, the full impact of calculating compensation cost for stock
options under SFAS No. 123 is not reflected in the pro forma net loss amounts
presented above because compensation cost is reflected over the options' vesting
period of up to 4 years and compensation cost for options granted prior to
January 1, 1995 is not considered.
F-12
<PAGE> 68
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's Stock Option Plan as of December
31, 1994, 1995 and 1996 and changes during the years then ended is presented
below:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE PRICE
------ -------------
<S> <C> <C>
Outstanding at December 31, 1993............................ 105,184 $ 4.71
Granted................................................... 53,577 5.43
Expired................................................... (157) 11.11
---------
Outstanding at December 31, 1994............................ 158,604 4.95
Granted................................................... 613,773 4.76
Exercised................................................. (9,621) 3.51
Expired................................................... (30,120) 5.51
---------
Outstanding at December 31, 1995............................ 732,636 4.78
Granted................................................... 581,590 7.10
Exercised................................................. (55,978) 4.90
Expired................................................... (2,994) 5.29
---------
Outstanding at December 31, 1996............................ 1,255,254 $ 5.85
=========
</TABLE>
The following table summarizes information about stock options outstanding
as of December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------------- ----------------------------
WEIGHTED-AVG.
REMAINING WEIGHTED-AVG. WEIGHTED-AVG.
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------ ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
$3.17 to 4.76............. 1,021,363 7.4 $ 4.73 375,986 $ 4.68
$8.38 to 9.80............. 159,224 9.4 9.31 20,986 8.87
$11.11 to 15.25........... 74,667 9.2 13.75 8,619 11.60
--------- -------
$3.17 to 15.25............ 1,255,254 7.8 5.85 405,591 5.04
========= =======
</TABLE>
(19) WARRANTS
The following table of warrants gives effect to the anti-dilution
adjustment on the conversion of preferred stock warrants to common stock
warrants. The anti-dilution adjustment resulted in 19,849 additional shares of
F-13
<PAGE> 69
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
common stock issuable upon the exercise of certain warrants and changed the
exercise price from $4.76 to $4.55.
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
------------------- -------------------
NUMBER AVERAGE NUMBER AVERAGE
OF SHARES PRICE OF SHARES PRICE
--------- ------- --------- -------
<S> <C> <C> <C> <C>
December 31, 1993................................ 84,462 4.76 33,798 5.17
Issued......................................... 593,760 4.76 945 4.76
-------- --------
December 31, 1994................................ 678,222 4.76 34,743 5.16
Anti-dilution adjustment....................... 19,849 4.76
Issued......................................... 316,397 4.76
Exercised...................................... (246,723) 2.38 (198,442) 2.38
-------- --------
December 31, 1995................................ 451,348 4.55 152,698 4.71
Converted to Common............................ (451,348) 4.55 451,348 4.55
Issued......................................... -- 50,000 13.00
Exercised...................................... -- (86,537) 4.57
-------- --------
December 31, 1996 -- 567,509 5.33
======== ========
</TABLE>
(20) 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 $5,851,000 and $5,201,542
as of December 31, 1996 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........................................................ 5,880,000 63,000
2011........................................................ 1,335,000 27,000
----------- --------
Total....................................................... $14,020,000 $192,000
=========== ========
</TABLE>
F-14
<PAGE> 70
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The net deferred tax assets are summarized at December 31 as follows:
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Deferred tax assets
Net operating loss
carryforwards....... $ 374,032 $ 1,344,032 $ 2,640,340 $ 4,839,542 $ 5,443,000
Research and
development credit
carryforwards....... -- -- 102,000 188,000 192,000
Other.................. -- -- -- 174,000 216,000
--------- ----------- ----------- ----------- -----------
374,032 1,344,032 2,742,340 5,201,542 5,851,000
Less: Valuation
allowance.............. (374,032) (1,344,032) (2,742,340) (5,201,542) (5,851,000)
--------- ----------- ----------- ----------- -----------
Net deferred taxes....... $ -- $ -- $ -- $ -- $ --
========= =========== =========== =========== ===========
</TABLE>
(21) LEASES
The following summarizes assets held under capital leases which are
included in property, plant, and equipment as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Machinery and equipment..................................... $239,839 $239,839
Furniture and fixtures...................................... 181,750 181,750
Leasehold improvements...................................... 48,386 48,386
-------- --------
469,975 469,975
Less accumulated depreciation............................... 232,871 94,316
-------- --------
$237,104 $375,659
======== ========
</TABLE>
The Company leases its facility under a noncancelable operating lease
arrangement. Rent expense charged to operations for the years ended December 31,
1996, 1995 and 1994 amounted to $221,035, $221,361 and $121,632, respectively.
At December 31, 1996 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>
1997...................................................... $141,789 $230,949
1998...................................................... 23,351 236,335
1999...................................................... -- 200,764
2000...................................................... -- --
2001...................................................... -- --
-------- --------
Total minimum lease payments................................ 165,140 $668,048
========
Less amount representing interest........................... 9,570
--------
Present value of minimum lease payments..................... 155,570
Less current installments of obligation..................... 132,459
--------
Obligation excluding current installments................... $ 23,111
========
</TABLE>
F-15
<PAGE> 71
SABRATEK CORPORATION
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(22) SUBSEQUENT EVENTS (UNAUDITED)
Acquisition
In February, 1997, the Company purchased substantially all of the assets of
Rocap, Inc., a Massachusetts company which produces various types of
pre-packaged syringes. Consideration paid by the Company is summarized as
follows:
(1) $100,000 cash.
(2) Forgiveness of $300,000 in debt, owed to the Company in the form of
a bridge loan agreement entered into on January 15, 1997.
(3) Assumption of approximately $661,000 in net liabilities.
(4) $2,900,000 in cash or stock of the Company.
The stock value as determined by the Asset Purchase Agreement for payment
in shares was $22.0375 per share and, as such, 131,593 shares are held in
escrow. The final number of Company shares deliverable to Rocap, Inc. will be
determined by the Company's stock price at July 1, 1997. The Company has the
option to pay in cash, rather than shares.
In February, 1997, the Company granted stock options to two former Rocap,
Inc. employees, one of which was elected an officer of the Company. In
aggregate, 220,000 option shares were granted at an exercise price of $22.25,
under the Company's Amended and Restated 1993 Stock Option Plan. The stock
options vest over a period of 3 to 4 years. Pursuant to the officer's employment
agreement, the Company could be obligated to purchase 100,000 option shares at
$18.00 each.
Litigation
On February 5, 1997, SIMS Deltec filed a complaint (the "Complaint") in the
United States District Court for the District of Minnesota alleging that
Sabratek's manufacture, use and/or sale of the MediVIEW software in conjunction
with its infusion pumps infringes on a patent entitled "Systems and Methods for
Communicating with Ambulatory Medical Devices Such as Drug Delivery Devices"
previously issued to SIMS Deltec. The Complaint seeks injunctive relief,
unspecified monetary damages and costs. The Company has not yet formally
responded to the Complaint but intends to vigorously defend against the
allegations contained in the Complaint. Although the outcome of these
proceedings cannot be determined, management believes that the outcome should
not have a material adverse effect on the Company's financial position.
Credit Facility
The Company received a commitment for a credit facility with up to $9.5
million of available borrowings. Borrowings under this facility bear interest at
the bank's prime rate and the facility matures in April, 1999. No amounts have
been borrowed under this facility.
F-16
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
ROCAP, Inc.
Five Constitution Way
Woburn, MA 01801
We have audited the accompanying balance sheet of ROCAP, Inc. (an S
corporation) as of December 31, 1996, and the related statements of loss and
accumulated deficit, and cash flows for the year then ended. 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 audit.
We conducted our audit 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 statements presentation.
We believe that our audit provides 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 ROCAP, Inc. as of December
31, 1996, and the results of its operations and its cash flows for the year then
ended, in conformity with generally accepted accounting principles.
/s/ Parent, Naffah & Company
North Andover, Massachusetts
February 3, 1997
F-17
<PAGE> 73
ROCAP, INC.
BALANCE SHEET, DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current assets
Cash $ 22,317
Accounts receivable, net of allowance for bad debts of
$50,000................................................ 425,629
Inventory................................................. 24,500
Prepaid expense........................................... 10,455
-----------
Total Current Assets.............................. 482,901
-----------
Property and equipment
Leasehold improvements.................................... 62,637
Equipment................................................. 217,148
Office equipment.......................................... 17,152
Furniture and fixtures.................................... 32,164
-----------
Total............................................. 329,101
Less: Accumulated depreciation............................ 95,100
-----------
Property and equipment -- net............................. 234,001
-----------
Other assets
Organization costs, net of accumulated amortization of
$792................................................... 1,708
Deposits.................................................. 4,133
-----------
Total Other Assets................................ 5,841
-----------
Total assets...................................... $ 722,743
===========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Note payable.............................................. $ 200,000
Accounts payable.......................................... 629,224
Accrued payroll and payroll taxes......................... 40,248
Accrued liabilities....................................... 141,023
Due to officer............................................ 82,800
-----------
Total Current Liabilities......................... 1,093,295
Notes payable -- stockholders............................... 290,576
-----------
Total Liabilities................................. 1,383,871
-----------
Stockholders' Deficit
Common Stock, no par value, 100,000 shares authorized,
58,677 issued and outstanding.......................... 515,000
Additional paid-in capital................................ 277,500
Accumulated deficit....................................... (1,453,628)
-----------
Total Stockholders' Deficit....................... (661,128)
-----------
Total liabilities and stockholders' deficit....... $ 722,743
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-18
<PAGE> 74
ROCAP, INC.
STATEMENT OF LOSS AND ACCUMULATED DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Revenue
Flush program............................................. $ 1,672,726
IV program................................................ 263,365
-----------
Total Revenue.......................................... 1,936,091
-----------
Cost of Goods Sold
Materials and supplies.................................... 1,109,805
Outside labor............................................. 275,539
Shipping and freight...................................... 138,001
Equipment leases.......................................... 16,264
Waste removal............................................. 4,391
-----------
Total Cost of Goods Sold............................... 1,544,000
-----------
Gross Profit................................................ 392,091
General and Administrative Expenses......................... 1,388,402
-----------
Loss from Operations........................................ (996,311)
-----------
Other Income (Expense)
Interest income........................................... 31
Interest expense.......................................... (37,531)
-----------
Total Other Income (Expense)........................... (37,500)
-----------
Net Loss.................................................... (1,033,811)
Accumulated Deficit, January 1, 1996........................ (419,817)
-----------
Accumulated Deficit, December 31, 1996...................... $(1,453,628)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-19
<PAGE> 75
ROCAP, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 13, 1996
<TABLE>
<S> <C>
INCREASE (DECREASE) IN CASH
Cash Flows From Operating Activities
Cash received from customers.............................. $ 1,476,626
Cash paid to suppliers and employees...................... (2,098,539)
Interest received......................................... 31
Interest paid............................................. (2,600)
-----------
Net Cash Used in Operating Activities.................. (624,482)
-----------
Cash Flows from Investing Activities
Capital expenditures...................................... (13,562)
Collection of notes receivable............................ 22,750
-----------
Net Cash Provided by Investing Activities.............. 9,188
-----------
Cash Flows from Financing Activities
Proceeds from note payable................................ 200,000
Proceeds from issuance of common stock.................... 265,000
Proceeds from issuance of stockholder notes payable....... 40,576
Proceeds from officer loan................................ 82,800
-----------
Net Cash Provided by Financing Activities.............. 588,376
-----------
Net Decrease in Cash........................................ (26,918)
Cash, January 1, 1996....................................... 49,235
-----------
Cash, December 31, 1996..................................... $ 22,317
===========
Reconciliation of Net Loss to Net Cash Used in Operating
Activities
Net Loss.................................................. $(1,033,811)
Adjustments to reconcile net loss to net cash used in
operating activities
Depreciation and amortization.......................... 72,421
Changes in assets and liabilities:
Increase in accounts receivable...................... (409,464)
Increase in inventory................................ (24,500)
Decrease in prepaid expense.......................... 15,545
Increase in accounts payable......................... 596,303
Increase in accrued payroll and payroll taxes........ 40,248
Increase in accrued liabilities...................... 124,356
Decrease in unearned revenue......................... (5,580)
-----------
Total Adjustments................................. 409,329
-----------
Net Cash Used In Operating Activities....................... $ (624,482)
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-20
<PAGE> 76
ROCAP, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
The Company was incorporated in 1994 under the laws of the Commonwealth of
Massachusetts. The Company has developed an alternative for the in-hospital
pharmacy production process for mixing and packaging pharmaceuticals into
dilutent solutions for intravenous administration.
Basis of Accounting
The Company maintains its records on the accrual basis of accounting.
Accounts Receivable
An allowance for uncollectible accounts in the amount of $50,000 has been
provided at December 31, 1996.
Inventory
Inventories are valued at lower of cost or market on the first-in,
first-out (FIFO) basis.
Property and Equipment
Property and equipment is recorded at cost. Depreciation is computed in
accordance with the Modified Accelerated Cost Recovery System (MACRS) using
various methods and lives as provided in the Internal Revenue Code. Maintenance
and repairs are charged to operations when incurred while significant renewals
and betterments are capitalized.
Income Taxes
The shareholders of the Corporation elected to have the Corporation taxed
as a "S Corporation" for federal and state tax reporting purposes. As such, the
net income of the corporation is taxed at the shareholder level, thereby
eliminating the liability for federal and state corporate income taxes.
Cash Equivalents
For purposes of the statements of cash flows, the Corporation considers all
short-term instruments purchased with a maturity of three months or less to be
cash equivalents. There were no cash equivalents at December 31, 1996.
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.
2. PREPAID EXPENSES
Prepaid expense at December 31, 1996 consists of prepaid insurance.
F-21
<PAGE> 77
ROCAP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
3. ORGANIZATION COSTS
Certain legal fees and other expenses associated with the organization of
the Company are being amortized over five years. Amortization expense for the
year ended December 31, 1996 was $792.
4. DEPOSITS
Deposits at December 31, 1996 consist of security deposits paid to a
landlord and certain utility companies.
5. NOTES PAYABLE -- STOCKHOLDERS
On June 1, 1995 the Company borrowed a total sum of $250,000 from the
stockholders of record on that date. The notes are payable in full on May 1,
2000, and bear interest at 10% per annum, payable quarterly. The notes are
secured by substantially all of Company's assets, and requires a premium of 10%
of the amount of any principal paid prior to May 1, 2000. The note also requires
an acceleration of principal payments if and when the Company reaches certain
levels of net income. In January 1996 certain stockholders loaned the Company an
additional $40,576 under the same terms as the original debt.
6. NOTE PAYABLE -- VENDOR
On December 1, 1996, the Company borrowed $200,000 from a vendor. The note,
which is unsecured, is payable in quarterly installments of $50,000 plus
interest at 8%, beginning March 1997.
7. ACCRUED LIABILITIES
Accrued liabilities at December 31, 1996 includes accrued interest of
$51,597 (Refer to notes 5 and 6 above), accrued future compensated absences of
$26,703, accrued Medicaid rebates of $32,509, and uninvoiced services and
purchases of $30,214.
8. OPERATING LEASE
On June 26, 1996 the Company entered into a five year lease agreement for
their 4,700 square foot manufacturing facility located in Woburn, Massachusetts.
The lease requires monthly payments of $4,027 representing a base rent of $3,133
plus the Company's proportional share of real estate taxes and other common area
charges. The lease commenced August 1, 1995 and expires July 31, 2000.
Minimum future rental payments under this non-cancelable operating lease
through the end of the lease term are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
- ------------ ------
<S> <C> <C>
1997.................................................................. $ 48,324
1998.................................................................. 48,324
1999.................................................................. 48,324
2000.................................................................. 28,189
--------
$173,161
========
</TABLE>
9. MAJOR DISTRIBUTOR
In 1996, sales to the Company's two major distributors totalled $1,503,712.
A major distributor is defined as one whose sales exceed 10% of the Company's
total sales.
F-22
<PAGE> 78
ROCAP, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1996
10. SUBSEQUENT EVENTS
On January 15, 1997, the Company borrowed $300,000 from a non-affiliated
corporation. The loan accrues interest at 6%, until September 30, 1997, and at
8%, thereafter. As of the date of this report, the repayment terms of this note
had not been determined.
On January 21, 1997, the Company entered into a 42 month lease for
warehouse space in Woburn, Massachusetts. The minimum future payments under this
lease through the end of its term are:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, AMOUNT
- ------------ ------
<S> <C>
1997.................................................................. $23,898
1998.................................................................. 26,794
1999.................................................................. 27,584
2000.................................................................. 2,304
-------
$80,580
=======
</TABLE>
F-23
<PAGE> 79
PRO FORMA SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
The accompanying Pro Forma Supplemental Consolidated Financial Statements
gives effect to the Company's acquisition of substantially all of the assets of
Rocap, Inc. The Pro Forma Supplemental Consolidated Statement of Operations for
the fiscal year ended December 31, 1996 combines the Statement of Operations of
the Company for the year ended December 31, 1996 with the Statement of Loss and
Accumulated Deficit of Rocap, Inc. for the same year then ended as if the
acquisition had occurred at January 1, 1996. The Pro Forma Supplemental
Consolidated Balance Sheet at December 31, 1996 combines the Balance Sheets at
December 31, 1996 of the Company and Rocap, Inc. as if the acquisition had
occurred at December 31, 1996. The transaction has been accounted for as a
purchase and appropriate adjustments have been made to the Pro Forma
Supplemental Consolidated Statement of Operations to reflect the transaction at
the beginning of period presented. The Pro Forma Supplemental Consolidated
Financial Statements presented is not necessarily indicative of the operating
results which would have been achieved had the transaction occurred at the
beginning of the period presented or of results to be achieved in the future.
F-24
<PAGE> 80
SABRATEK CORPORATION
PROFORMA SUPPLEMENTAL CONSOLIDATED BALANCE SHEET
DECEMBER 31, 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
----------------
SABRATEK ROCAP DEBIT CREDIT PRO FORMA
-------- ----- ----- ------ ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................. $ 10,447 $ 22 $ 550 $ 9,919
Short-term investments in marketable securities....... 4,352 -- 4,352
Receivables:
Trade, net.......................................... 8,305 426 8,731
Other............................................... 125 -- 125
-------- ------ ------ ------ --------
Total receivables 8,430 426 8,856
-------- ------ ------ ------ --------
Inventories........................................... 5,049 25 5,074
Prepaids and other assets............................. 586 10 596
-------- ------ ------ ------ --------
Total current assets.................................... 28,864 483 550 28,797
-------- ------ ------ ------ --------
Property, plant, and equipment, net..................... 1,775 234 2,009
Intangible asset, net................................... 42 -- 42
Note receivable......................................... 200 200
Long-term investments in marketable securities.......... 2,011 -- 2,011
Goodwill................................................ 4,111(1) 4,111
Other................................................... 59 6 65
-------- ------ ------ ------ --------
Total assets............................................ $ 32,951 $ 723 $4,111 $ 550 $ 37,235
======== ====== ====== ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Short-term debt....................................... $ 168 $ 200 $ 368
Current portion of capital lease obligation........... 132 132
Current portion of long-term debt..................... 3 3
Accounts payable...................................... 2,247 629 2,876
Accrued expenses:
Payroll & commissions............................... 1,265 40 1,305
Warranty............................................ 236 236
Other............................................... 55 224 279
Deferred rent......................................... 31 31
Deferred revenue...................................... -- -- --
Due to affiliated company............................. 140 140
-------- ------ ------ ------ --------
Total current liabilities............................... 4,277 1,093 -- -- 5,370
-------- ------ ------ ------ --------
Long-term of capital lease obligation................... 23 23
Long-term debt.......................................... 1 291 292
Accrued interest........................................ -- -- --
-------- ------ ------ ------ --------
Total liabilities....................................... 4,301 1,384 -- -- 5,685
-------- ------ ------ ------ --------
Stockholders' equity (deficit):
Common stock, 8,196,981 shares issued and outstanding
December 31, 1996, 8,328,574 shares pro forma....... 82 515 515(1) 1(1) 83
Additional paid-in capital............................ 42,891 278 278(1) 2,899(1) 45,790
Deferred compensation................................. (17) -- (17)
Unrealized gains...................................... 4 -- 4
Accumulated deficit................................... (14,310) (1,454) 1,454(1) (14,310)
-------- ------ ------ ------ --------
Total stockholders' equity (deficit).................... 28,650 (661) 793 4,354 31,550
-------- ------ ------ ------ --------
$ 32,951 $ 723 $ 793 $4,354 $ 37,235
======== ====== ====== ====== ========
</TABLE>
F-25
<PAGE> 81
SABRATEK CORPORATION
PROFORMA SUPPLEMENTAL CONSOLIDATED STATEMENT OF OPERATIONS
DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
----------------- PRO
SABRATEK ROCAP DEBIT CREDIT FORMA
-------- ----- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Net sales...................................... $17,696 $ 1,936 $19,632
Cost of sales.................................. 8,748 1,544 10,292
------- ------- ---- -- -------
Gross margin.............................. 8,948 392 -- -- 9,340
Selling, general & administrative expenses..... 8,474 1,388 9,862
Goodwill amortization.......................... -- -- 230(2) -- 230
------- ------- ---- -- -------
Operating income (loss)........................ 474 (996) 230 -- (752)
------- ------- ---- -- -------
Other income (expense):........................ --
Interest income.............................. 617 -- 617
Interest expense............................. (319) (38) (357)
Stock appreciation rights.................... (1,628) -- (1,628)
Other........................................ (2) -- (2)
------- ------- ---- -- -------
Net income (loss).............................. $ (858) $(1,034) 230 -- $(2,122)
======= ======= ==== == =======
Weighted average shares outstanding............ 7,263 7,395
======= =======
Net income (loss) per share.................... $ (0.12) $ (0.29)
======= =======
</TABLE>
F-26
<PAGE> 82
SABRATEK CORPORATION
NOTES TO PROFORMA SUPPLEMENTAL CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
The Proforma adjustments reflect the following:
(1) On February 25, 1997, the company consummated an agreement to acquire the
assets of Rocap. This acquisition was accounted for using the purchase
method of accounting. The total purchase price of $3,450,000 was paid for
in a combination of Sabratek stock (assumed to be 131,593 shares currently
held in escrow) and cash. In addition, Sabratek assumed $661,000 in net
liabilities. An allocation of the purchase price has been made based upon
the estimated fair value of the net assets acquired in excess of the
purchase price over the estimated fair value of the net assets acquired of
$4,111,000 recorded as goodwill.
(2) Represents amortization, on a straight line basis over 15 years, of the
goodwill arising out of Rocap.
F-27
<PAGE> 83
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> 84
======================================================
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.......................... 7
The Company........................... 14
Use of Proceeds....................... 14
Price Range of Common Stock........... 14
Dividend Policy....................... 14
Dilution.............................. 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 21
Management............................ 33
Principal Stockholders................ 41
Selling Stockholders.................. 43
Certain Transactions.................. 44
Description of Capital Stock.......... 47
Shares Eligible for Future Sale....... 48
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Available Information................. 50
Index to Financial Statements......... F-1
</TABLE>
- ------------------------------------------------------
======================================================
- ------------------------------------------------------
2,232,028 SHARES
SABRATEK LOGO
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
, 1997
======================================================
<PAGE> 85
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. None of the expenses of the issuance and
distribution of the securities being registered will be borne by selling
stockholders.
<TABLE>
<S> <C>
Registration Fee -- Securities and Exchange Commission...... $ 20,000
Filing and Listing Fee -- National Association of Securities
Dealers................................................... 60,000
Legal Fees.................................................. 125,000
Accounting Fees............................................. 95,000
Printing and Engraving...................................... 175,000
Blue Sky Fees and Expenses.................................. 10,000
Transfer Agent Fees......................................... 5,000
Miscellaneous Expenses...................................... 10,000
--------
Total.................................................. 500,000
========
</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.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On February 25, 1997, the Company issued 131,593 shares of Common Stock
valued at $3,043,088 to Rocap as partial consideration for the acquisition of
substantially all of the assets of Rocap. This sale was exempt from registration
in reliance on Section 4(2) of the Act.
On September 6, 1996, the Company issued a warrant to purchase 50,000
shares of Common Stock at $13.00 per share to a customer. This warrant vested
immediately and is exercisable for a period of 5 years and
II-1
<PAGE> 86
includes piggyback registration rights with a guarantee of one registration
during the five year term. This sale was exempt from registration in reliance on
Section 4(2) of the Act.
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 $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.
II-2
<PAGE> 87
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.
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 January 14, 1997, Steve Johns exercised a warrant
to purchase 9,454 shares of Common Stock at $4.76 per share. This transaction
was exempt from registration in reliance on Section 4(2) of the Act.
II-3
<PAGE> 88
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.
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 Weber 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 June 27,
1996, IASD Health Services
II-4
<PAGE> 89
Corp. exercised a warrant to purchase 9,454 shares of Common Stock at $4.76 per
share. This transaction was exempt from registration in reliance on Section 4(2)
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.
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.
II-5
<PAGE> 90
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.
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.
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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.
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
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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.
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. In February,
1997, Jack E. Hill exercised a warrant to purchase 4,395 shares of Common Stock
at $4.55 per share. This transaction was exempt from registration in reliance on
Section 4(2) 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.
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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 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 October
3, 1996, John E. Traeger Trust No. 1 exercised a warrant to purchase 5,495
shares of Common Stock at $4.55 per share. This transaction was exempt from
registration in reliance on Section 4(2) 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 November 12,
1996, Edward G. Edelstein exercised a warrant to purchase 220 shares of Common
Stock at $4.55 per share. This transaction was exempt from registration in
reliance on Section 4(2) 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
October 28, 1996, Jim Stafford and John Stafford each exercised a warrant to
purchase 5,354 shares of Common Stock at $4.55 per
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share. These transactions were exempt from registration in reliance on Section
4(2) of the Act. On January 31, 1997, Sabratek Holdings I exercised a warrant to
purchase 9,230 shares of Common Stock at $4.55 per share. This transaction was
exempt from registration in reliance on Section 4(2) 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.
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 19, 1996, Steven M. & Rivanna Hyman exercised a warrant to
purchase 2,198 shares of Common Stock at $4.55 per share. This transaction was
exempt from registration in reliance on Section 4(2) 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, 1996, Gerald E. & Linda E. Bisbee exercised a warrant to
purchase 1,099 shares of Common Stock at $4.55 per share. This transaction was
exempt from registration in reliance on Section 4(2) 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 14,
1996, D-W Investments, L.P. exercised a warrant to purchase 5,275 shares of
Common Stock at $4.55 per share. This transaction was exempt from registration
in reliance on Section 4(2) 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
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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 October 18,
1996, Vukasin Pavlovic exercised a warrant to purchase 1,099 shares of Common
Stock at $4.55 per share. This transaction was exempt from registration in
reliance on Section 4(2) 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 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 October 10, 1996, PSF HealthCare Fund,
L.P. exercised a warrant to purchase 3,297 shares of Common Stock at $4.55 per
share. This transaction was exempt from registration in reliance on Section 4(2)
of the Act. On October 14, 1996, Davis D. Fansler exercised a warrant to
purchase 1,538 879 shares of Common Stock at $4.55 per share. This transaction
was exempt from registration in reliance on Section 4(2) of the Act. On November
8, 1996, Gordon H. and Eunice H. Smith exercised a warrant to purchase 1,099
shares of Common Stock at $4.55 per share. This transaction was exempt from
registration in reliance on Section 4(2) of the Act. On November 14, 1996, P-J
Investments, L.P., James O. Pohlad and Pohlad Companies each exercised a warrant
to purchase 4,395 shares, 2,198 shares and 10,988 shares of Common Stock,
respectively at $4.55 per share. These transactions were exempt from
registration in reliance on Section 4(2) 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 October 10, 1996, Robin S. and Timm R.
Reynolds exercised a warrant to purchase 1,099 shares of Common Stock at $4.55
per share. This transaction was exempt from registration in reliance on Section
4(2) 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.,
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$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, 1996, PSF HealthCare Fund, L.P. exercised a warrant and
purchased 2,198 shares of Common Stock at $4.55 per share in a private
transaction in reliance on Section 4(2) of the Act. On November 3, 1996, Paul J.
Finnegan exercised a warrant and purchased 3,297 shares of Common Stock at $4.55
per share in a private transaction in reliance on Section 4(2) 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 October 16,
1996, Peter M. Gains exercised a warrant and purchased 1,099 shares of Common
Stock at $4.55 per share in a private transaction in reliance on Section 4(2) 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
October 23, 1996, Frank D. Mayer, Jr. exercised a warrant tp purchase 1,099
shares of Common Stock at $4.55 per share. This transaction was exempt from
registration in reliance on Section 4(2) of the Act. On November 2, 1996,
Charles R. Hall exercised a warrant to purchase 1,099 shares of Common Stock at
$4.55 per share. This transaction was exempt from registration in reliance on
Section 4(2) of the Act. On December 24, 1996, Duncan N. Dayton exercised a
warrant to purchase 2,198 shares of Common Stock at $4.55 per share. This
transaction was exempt from registration in reliance on Section 4(2) 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 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
II-12
<PAGE> 97
pursuant to Regulation D of the Act. On October 3, 1996, John E. Traeger Trust
No. 1 exercised a warrant to purchase 1,099 shares of Common Stock at $4.55 per
share. This transaction was exempt from registration in reliance on Section 4(2)
of the Act. On October 4, 1996, Dwight P. Fawcett exercised a warrant to
purchase 550 shares of Common Stock at $4.55 per share. This transaction was
exempt from registration in reliance on Section 4(2) of the Act. On October 18,
1996, Dwight W. Fawcett and Ann L. Fawcett each exercised a warrant to purchase
439 shares and 1,539 shares of Common Stock, respectively at $4.55 per share.
These transactions were exempt from registration in reliance on Section 4(2) of
the Act. On October 25, 1996, Jane D. Dearborn exercised a warrant to purchase
550 shares of Common Stock at $4.55 per share. This transaction was exempt from
registration in reliance on Section 4(2) of the Act. On October 27, 1996, Donald
N. and Adrienne W. Fawcett exercised a warrant to purchase 220 shares of Common
Stock at $4.55 per share. This transaction was exempt from registration in
reliance on Section 4(2) 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,
1996, Davis D. Fansler exercised a warrant to purchase 659 shares of Common
Stock at $4.55 per share. This transaction was exempt from registration in
reliance on Section 4(2) 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 October 8,
1996, Warren H. Corning #145751 Trust exercised a warrant to purchase 4,395
shares of Common Stock at $4.55 per share. This transaction was exempt from
registration in reliance on Section 4(2) of the Act. On October 10, 1996 and
November 15, PSF HealthCare Fund, L.P. exercised two warrants to purchase a
total of 6,594 shares of Common Stock at $4.55 per share. This transaction was
exempt from registration in reliance on Section 4(2) 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.
II-13
<PAGE> 98
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 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.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
(A) EXHIBITS
<C> <S>
1.1 Form of 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
</TABLE>
II-14
<PAGE> 99
<TABLE>
<CAPTION>
(A) EXHIBITS
<C> <S>
+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
+10.29 Employment Agreement for Anil Rastogi
++10.30 Asset Purchase Agreement, dated February 25, 1997, by and
among Sabratek Corporation, Rocap, Inc. and Elliott Mandell
10.31 Employment Agreement for Stephen L. Holden
++10.32 Employment Agreement for Elliott Mandell
10.33 Lease Agreement for property located at 11 Sixth Road,
Woburn, Massachusetts, dated February 1, 1997
10.34 Lease Agreement for property located at 5 Constitution Way,
Woburn, Massachusetts, dated June 26, 1995
11.1 Computation of Per Share Earnings
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Parent, Naffah & Company
</TABLE>
II-15
<PAGE> 100
<TABLE>
<CAPTION>
(A) EXHIBITS
<C> <S>
23.3 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 (included on signature page hereof)
</TABLE>
- ---------------
+ Incorporated by reference to the Company's Registration Statement on Form S-1
declared effective by the Commission on June 21, 1996, file No. 333-3866.
++ Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on March 11, 1997.
(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: N/A
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> 101
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Niles, State of Illinois,
on March 17, 1997.
SABRATEK CORPORATION
By: /s/ K. SHAN PADDA
------------------------------------
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on March 17, 1997.
KNOW ALL MEN BY THESE PRESENTS, that the undersigned hereby constitute and
appoint K. Shan Padda and Stephen L. Holden their true and lawful
attorneys-in-fact and agents, each acting alone, with full powers of
substitution and resubstitution, for them and in their name, place and stead, in
any and all capacities, to sign any and all amendments to this Registration
Statement and to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done, in and about the premises, as fully to all intents and
purposes as the undersigned might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, each acting alone, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
<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 Secretary
Doron C. Levitas
/s/ STEPHEN L. HOLDEN Senior Vice President and Chief Financial
- -------------------------------------------- Officer, Principal Financial Officer
Stephen L. Holden
/s/ SCOTT SKOOGLUND Vice President--Finance and Assistant
- -------------------------------------------- Secretary, Principal Accounting Officer
Scott Skooglund
/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
/s/ MARK LAMPERT Director
- --------------------------------------------
Mark Lampert
</TABLE>
II-17
<PAGE> 102
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
1.1 Form of 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
+10.29 Employment Agreement for Anil Rastogi
++10.30 Asset Purchase Agreement, dated February 25, 1997, by and
among Sabratek Corporation; Rocap, Inc. and Elliott Mandell
10.31 Employment Agreement for Stephen L. Holden
++10.32 Employment Agreement for Elliott Mandell
</TABLE>
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S>
10.33 Lease Agreement for property located at 11 Sixth Road,
Woburn, Massachusetts, dated February 1, 1997
10.34 Lease Agreement for property located at 5 Constitution Way,
Woburn, Massachusetts, dated June 26, 1995
11.1 Computation of Per Share Earnings
23.1 Consent of KPMG Peat Marwick LLP
23.2 Consent of Parent, Naffah & Company
23.3 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 (included on signature pages hereof)
</TABLE>
- ---------------
+ Incorporated by reference to the Company's Registration Statement on Form S-1
declared effective by the Commission on June 21, 1996, File No. 333-3866.
++ Incorporated by reference to the Company's Current Report on Form 8-K filed
with the Commission on March 11, 1997.
<PAGE> 1
EXHIBIT 1.1
2,232,028 Shares of Common Stock
SABRATEK CORPORATION
UNDERWRITING AGREEMENT
_____ __, 1997
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
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
<PAGE> 2
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 1,700,000 shares of its common
stock, par value $.01 per share (the "Common Stock") and the stockholders named
in SCHEDULE II hereto (the "Selling Stockholders") propose to sell severally to
the Underwriters an aggregate of 532,028 shares of Common Stock (together
with the 1,700,000 shares of Common Stock to be issued and sold by the Company,
the "Firm Shares"). In addition, for the sole purpose of covering
over-allotments in connection with the sale of the Firm Shares, the Company
grants the Underwriters the option to purchase up to an additional 334,804
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. 333-________), for the registration of the
Shares under the Securities Act of 1933, as amended (the "Act"). 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
2
<PAGE> 3
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 thereof or 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.
3
<PAGE> 4
(c) KPMG Peat Marwick LLP and Parent, Neffah & Company, who have
certified the financial statements and supporting schedules included in the
Registration Statement relating to the Company and Rocap, Inc., a Massachusetts
corporation ("Rocap"), respectively, 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
4
<PAGE> 5
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.
(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
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<PAGE> 6
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.
(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 or Rocap, as applicable, 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.
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<PAGE> 7
(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. REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS.
Each Selling Stockholder, for such Selling Stockholder only and not for
any other Selling Stockholder, represents and warrants to, and agrees with, the
several Underwriters that:
(a) Such Selling Stockholder has duly and irrevocably executed and
delivered a custody agreement and power of attorney with respect to the
total number of Shares to be sold by such Selling Stockholder, as set forth in
SCHEDULE II hereto (the "Custody Agreement"), in the form heretofore delivered
to the Representatives, appointing Stephen Holden and Scott Skoogland as such
Selling Stockholder's attorneys-in-fact (each an "Attorney-in-Fact"), each with
authority to execute, deliver and perform this Agreement and to take such
actions as may be necessary or desirable to carry out the provisions hereof on
behalf of such Selling Stockholder, and appointing the Company as custodian (in
such capacity, the "Custodian"). Certificates in negotiable form representing,
or duly exercised warrants representing the right to purchase, the Shares to be
sold by such Selling Stockholder hereunder have been deposited
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<PAGE> 8
with the Custodian pursuant to the Custody Agreement for the purpose of
delivery of such Shares pursuant to this Agreement. All authorizations, orders
and consents necessary for the execution and delivery by such Selling
Stockholder of this Agreement and the Custody Agreement have been duly and
validly given, and such Selling Stockholder has full legal right, power and
authority to enter into this Agreement and the Custody Agreement and to sell,
assign, transfer and deliver to the Underwriters the Shares to be sold by such
Selling Stockholder hereunder. Such Selling Stockholder agrees (i) that the
Shares represented by the stock or warrant certificates on deposit with the
Custodian have been delivered to the Custodian for your benefit to the extent
such Selling Stockholder is obligated to deliver such Shares to you pursuant to
this Agreement; (ii) that the arrangements made for such custody and the
appointment of the Attorney-in-Fact are irrevocable to the extent described in
the Custody Agreement; and (iii) that the obligations of such Selling
Stockholder hereunder may not be terminated (except as provided in this
Agreement, the Custody Agreement) by any act of such Selling Stockholder, by
operation of law (whether by the death or incapacity of such Selling
Stockholder), or by the occurrence of any other event. If any individual
Selling Stockholder should die or become incapacitated, or if any other event
should occur, before the delivery of such Shares hereunder, the certificates
for such Shares shall be delivered by the Custodian in accordance with the
terms and conditions of this Agreement as if such death, incapacity or other
event had not occurred, regardless of whether or not the Custodian or the
Attorney-in-Fact shall have received notice thereof.
(b) There is no litigation, arbitration, claim, governmental or other
proceeding (formal or informal), or investigation pending, or, to the
Selling Stockholder's knowledge, threatened or in prospect (or any basis
therefor known to the Selling Stockholder) with respect to such Selling
Stockholder or any of their respective business, properties or assets which
would prohibit or delay the sale of Stock or Additional Stock to be sold by the
Selling Stockholder hereunder or materially adversely affect the consummation
of the transactions contemplated hereby. The Selling Stockholder is not in
violation of, or in default with respect to, any law, rule, regulation, order,
judgment or decree which would prohibit or delay the sale of stock to be sold
by the Selling Stockholder hereunder or materially adversely affect the
consummation of the transactions contemplated hereby.
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<PAGE> 9
(c) Such Selling Stockholder has all requisite power and authority to
execute and deliver this Agreement and the Custody Agreement and to perform the
obligations of the Selling Stockholder hereunder and thereunder. All necessary
corporate or other proceedings of such Selling Stockholder have been duly taken
to authorize the execution, delivery and performance of this Agreement and the
Custody Agreement by such Selling Stockholder. This Agreement and the Custody
Agreement have been duly authorized, executed and delivered by such Selling
Stockholder, are the legal, valid and binding obligations of such Selling
Stockholder, and are enforceable as to such Selling Stockholder in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws relating to
or affecting creditors' rights generally, by general principles of equity
whether such enforceability is considered in a proceeding in law or equity and
by the discretion of the court before which any proceeding therefor may be
brought, and except to the extent that rights to indemnity hereunder may be
limited by federal or state securities laws or the public policy underlying
such laws. No consent, authorization, approval, order, license, certificate or
permit of or from, or declaration or filing with, any federal, state, local or
other governmental authority or any court or other tribunal is required by such
Selling Stockholder for the execution, delivery or performance of this
Agreement (except filings under the Act and such consents as may be required
under "blue sky" or state securities laws identified to the Selling Stockholder
by counsel to the Underwriters, which have been obtained at or prior to the
date of this Agreement) or the Custody Agreement by such Selling Stockholder.
No consent of any party to any written or oral contract, agreement, instrument,
lease or license to which such Selling Stockholder is a party, or to which any
of their respective properties or assets are subject, is required for the
execution, delivery or performance of this Agreement or the Custody Agreement;
and the execution, delivery and performance of this Agreement and the Custody
Agreement will not violate, result in a breach of, conflict with or (with or
without the giving of notice or the passage of time or both) entitle any party
to terminate or call a default under any such contract, agreement, instrument,
lease or license or violate or result in a breach of, any documents or violate,
result in a breach of, or conflict with, any law, rule, regulation, order,
judgment or decree binding on such Selling Stockholder.
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<PAGE> 10
(d) If such Selling Stockholder deposited any warrants under the Custody
Agreement, the Selling Stockholder is the lawful owner of, and has (or upon
such exercise will have) good and marketable title to, such warrants, and such
warrants have been duly exercised and such exercise will be effective on the
Closing Date. The Selling Stockholder is (or upon such exercise will be) the
lawful owner of, and has (or upon such exercise will have) good and marketable
title to, the Shares to be sold by such Selling Stockholder pursuant to this
Agreement, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts (except those created
by this Agreement and the Custody Agreement), and when delivered in accordance
with this Agreement, the Underwriters will receive good and marketable title to
the Shares, if any, purchased by them, respectively, from such Selling
Stockholder, free and clear of all liens, security interests, pledges, charges,
encumbrances, stockholders' agreements and voting trusts.
(e) The Selling Stockholder has never taken nor will take, directly or
indirectly, nor will they cause any affiliated purchaser (as defined in the
Regulations) to take, prior to the termination of the underwriting syndicate
contemplated by this Agreement, any action designed to stabilize or manipulate
the price of any security of the Company, or which has caused or resulted in,
or which might in the future reasonably be expected to cause or result in,
stabilization or manipulation of the price of any security of the Company, to
facilitate the sale or resale of the Shares.
(f) All information furnished or to be furnished to the Company by or on
behalf of the Selling Stockholder for use in connection with the preparation
of the Registration Statement and the Prospectus does not and will not include
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading.
(g) To the best knowledge of the Selling Stockholder, the representations
and warranties of the Company contained in Section 1 hereof are true and
correct; the Selling Stockholder has reviewed and is familiar with the
Registration Statement and the Prospectus and neither the Prospectus nor any
amendments or supplements thereto includes any untrue statement of a material
fact or omits to state a material fact necessary in order to make the
statements therein, in the light of the
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<PAGE> 11
circumstances under which they were made, not misleading; the Selling
Stockholder is not prompted to sell the Shares by any information concerning
the Company or any subsidiary of the Company which is not set forth in the
Prospectus.
(h) Neither the Selling Stockholder nor any affiliates of the Selling
Stockholder directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, or has any
other association with (within the meaning of Article I, Section 1(m) of the
By-laws of the National Association of Securities Dealers, Inc. (the "NASD")),
any member firm of the NASD.
(i) Except as may be set forth in the Prospectus, the Selling Stockholder
has not incurred any liability for a fee, commission or other compensation
on account of the employment of a broker or finder in connection with the
transactions contemplated by this Agreement.
3. PURCHASE, SALE AND DELIVERY OF THE SHARES.
(a) On the basis of the representations, warranties, covenants and
agreements of the Company and the Selling Stockholders herein contained, but
subject to the terms and conditions herein set forth, (i) 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, and (ii) each Selling Stockholder agrees to sell to the
Underwriters, and the Underwriters, severally and not jointly, agree to
purchase from Selling Stockholders, at a purchase price per share of $[____],
the number of Firm Shares set forth opposite the respective names of such
Selling Stockholders on SCHEDULE II hereto, to be allocated among the
Underwriters pro rata in accordance with the allocation of Firm Shares set
forth on SCHEDULE I, subject, however, to such adjustment as needed to
eliminate fractional shares.
(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
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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 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 all or part of the 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 3, 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 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
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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 1,700,000, 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.
4. 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.
5. 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.
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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 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.
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(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 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 90 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, and (iii) the
Company's issuance of Common Stock upon the exercise of outstanding stock
options or warrants.
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(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.
6. COVENANTS OF THE SELLING STOCKHOLDERS.
Each Selling Stockholder covenants and agrees that for a period of 90 days
after the date of the Prospectus, such Selling Stockholder will not, without
the prior written consent of Bear, Stearns & Co. Inc., offer, pledge, sell,
contract to sell, grant any option for the sale of or otherwise dispose (or
announce any offer, pledge, sale, contract of sale, grant of an option to
purchase or other disposition) of, directly or indirectly, any shares of Common
Stock or any security or other instrument which by its terms is convertible
into, exercisable for, or exchangeable for shares of Common Stock, except as
provided in Section 3 and for bona fide gifts provided the donee or recipient
thereof agrees in writing to the terms of this Section 6.
7. PAYMENT OF EXPENSE.
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
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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.
8. 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 and the Selling
Stockholders herein contained, as of the date hereof and as of the Closing Date
(for purposes of this Section 8 "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 8 of any misstatement or omission, to the performance by the
Company and the Selling Stockholders 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 proceedings
therefor shall have been initiated or threatened by the Commission.
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<PAGE> 18
(b) At the Closing Date and the Additional Closing Date, as the case may
be, you shall have received the opinion of Ross & Hardies, counsel for the
Company and the Selling Stockholders, 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 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.
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(v) To the best of such counsel's knowledge, the Company does not
have any subsidiaries.
(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
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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 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) Each Selling Stockholder has full power and authority to execute,
deliver and perform this Agreement and the Custody Agreement. All
necessary proceedings of each Selling Stockholder have been duly taken to
authorize the execution, delivery and performance of this Agreement and
the Custody Agreement by such Selling Stockholder. This
Agreement and the Custody Agreement have been duly authorized, executed
and delivered by each Selling Stockholder, are the legal, valid and
binding obligations of such Selling Stockholder, and are enforceable as
to such Selling Stockholder in accordance with their respective terms,
except as enforcement may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting
creditors' rights generally, by general principles of equity whether such
enforceability is considered in a proceeding in law or equity and by the
discretion of the court before which any proceeding therefor may be
brought, and except to the extent that rights to indemnity hereunder may
be limited by federal or state securities laws or the public policy
underlying such laws. No consent, authorization, approval, order,
license, certificate or permit of or from, or declaration or filing with,
any federal, state, local or other governmental authority or any court of
other tribunal is required by each Selling Stockholder for the execution,
delivery or performance of this Agreement (except filings under the Act
and such consents as may be required under "blue sky" or state securities
laws) or the Custody Agreement by such Selling Stockholder. To the
knowledge of such counsel, no consent of any party to any written or oral
contract, agreement, instrument, lease or license to which such Selling
Stockholder is party, or to which any of their respective properties or
assets are subject, is required for
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the execution, delivery or performance of this Agreement (except filings
under the Act and such consents as may be required under "blue sky" or
state securities laws) or the Custody Agreement by such Selling
Stockholder. To the knowledge of such counsel, no consent of any party
to any written or oral contract, agreement, instrument, lease or license
to which such Selling Stockholder is party, or to which any of their
respective properties or assets are subject, is required for the
execution, delivery or performance of this Agreement or the Custody
Agreement; and the execution, delivery and performance of this Agreement
and the Custody Agreement will not violate, result in a breach of,
conflict with or (with or without the giving of notice or the passage of
time or both) entitle any party to terminate or call a default under any
such written or oral contract, agreement, instrument, lease or license or
violate, result in a breach of or contravene any provision of such
Selling Stockholder's organizational documents, if any, or violate,
result in a breach of or conflict with any law, rule, regulation, order,
judgment or decree binding on such Selling Stockholder or to which any of
their respective operations, business, properties or assets are subject.
(xi) To the knowledge of such counsel, there is no litigation,
arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending, threatened or in prospect (or any
basis therefor) with respect to each Selling Stockholder or any of their
respective properties or assets which would prohibit or delay the sale of
Shares to be sold by such Selling Stockholder or materially adversely
affect the consummation of the transactions contemplated hereby.
(xii) To the knowledge of such counsel, immediately prior to the
Closing Date (or the Additional Closing Date, as the case may be), each
Selling Stockholder had good and valid title to the Shares to be sold
at such date by such Selling Stockholder under this Agreement, free and
clear of all liens, encumbrances, security interests or claims (except
those created by this Agreement and the Custody Agreement), and has full
right, power and authority to sell, assign, transfer and deliver the
Shares to be sold by such Selling Stockholder hereunder.
(xiii) Good and marketable title to such Shares, free and clear of all
liens, encumbrances, security
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interests or claims, has been transferred to each of the several
Underwriters who have purchased such Shares in good faith and without
notice of any such lien, encumbrance, security interest or claim or any
other adverse claim within the meaning of the Uniform Commercial Code (as
in effect in the State of Illinois).
(xiv) To the knowledge of such counsel, no person or entity has the
right to require registration of shares of Common Stock or other
securities of the Company because the filing or effectiveness of the
Registration Statement or otherwise in connection with the sale of the
Shares contemplated hereby.
(xv) 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
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<PAGE> 23
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.
(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 and the Selling
Stockholders 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
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<PAGE> 24
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 Closing Date, each Selling Stockholder (or the
attorney-in-fact on behalf of such Selling Stockholder) shall have
furnished to you a certificate dated the Closing Date signed by, or on behalf
of, such Selling Stockholder (or the attorney-in-fact) stating that the
representations, warranties and agreements of such Selling Stockholder
contained herein are timely and correct as of the Closing Date and that such
Selling Stockholder has complied with all agreements contained herein to be
performed by such Selling Stockholder at or prior to the Closing Date.
(f) 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, 1996, inquiries of officers and other
employees of the Company who have responsibility for financial and accounting
matters of the Company with respect to transactions and events subsequent to
December 31, 1996 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
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<PAGE> 25
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 December 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 January
1, 1997, 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.
(g) Prior to the Closing Date the Company and the Selling Stockholders
shall have furnished to you such further
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information, certificates and documents as you may reasonably request.
(h) You shall have received from each person who is a director or
officer of the Company and those holders of capital stock, stock options,
warrants, or convertible debt securities of the Company identified by Bear,
Stearns & Co. Inc. 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
90 days after the date of the Prospectus.
(i) The NASD, upon review of the public offering of the Shares, shall
not have objected to the Underwriters' participation in such offering.
If any of the conditions specified in this Section 8 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 8 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.
9. 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
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claim or litigation), joint 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 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 Selling Stockholder 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 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 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, in each case to the extent, but only to the extent, that any such
loss, liability, claim,
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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 relating to such
Selling Stockholder furnished to the Company by such Selling Stockholder
expressly for use therein. This indemnity agreement will be in addition to any
liability which such Selling Stockholder may otherwise have including under
this Agreement.
(c) Each Underwriter severally, and not jointly, agrees to indemnify
and hold harmless the Company, each Selling Stockholder, 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 or any Selling Stockholder 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 Underwriter hereunder. This indemnity will be in
addition to any liability which any Underwriter may otherwise have including
under this Agreement. The Company and the Selling Stockholders acknowledge
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that the statements set forth in the last paragraph of the cover page, in the
bold legends 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.
(d) Promptly after receipt by an indemnified party under subsection
(a), (b) or (c) 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 9). 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 indemnifying party shall
not be liable for any settlement of any claim or action effected without its
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written consent; provided, however, that such consent was not unreasonably
withheld.
10. CONTRIBUTION.
In order to provide for contribution in circumstances in which the
indemnification provided for in Section 9 is for any reason held to be
unavailable from any indemnifying party or is insufficient to hold harmless a
party indemnified thereunder, the Company, the Selling Stockholders 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 or any
Selling Stockholder any contribution received by the Company or any Selling
Stockholder 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, the Selling Stockholders 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, the Selling Stockholders 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 9(d)
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, the
Selling Stockholders 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, the Selling Stockholders 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
expenses) received by the Company and the Selling Stockholders 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 or any Selling Stockholder and
of the Underwriters
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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, any Selling Stockholder or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company, the Selling Stockholders and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 10 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 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 10, 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 10, and
each person, if any, who controls any Selling Stockholder 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 Selling Stockholder. 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
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contribution may be sought from any obligation it or they may have under this
Section 10 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.
11. 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 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 11, 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 and the Selling Stockholders to sell the Additional
Shares shall thereupon terminate, without liability on the part of the Company
or the Selling Stockholders with respect thereto (except in each case as
provided in Sections 7, 9(a) and 10 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, the Company and the Selling
Stockholders for damages occasioned by its or their default hereunder.
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(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, the
Company or the Selling Stockholders 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 11 with like effect as if it had
originally been a party to this Agreement with respect to such Firm Shares and
Additional Shares.
12. SURVIVAL OF REPRESENTATIONS AND AGREEMENTS.
All representations and warranties, covenants and agreements of the
Underwriters, the Company and the Selling Stockholders contained in this
Agreement, including the agreements contained in Section 7, the indemnity
agreements contained in Section 9 and the contribution agreements contained in
Section 10, 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, by or on behalf of the Company, any of its officers and
directors or any controlling person thereof, or by or on behalf of any Selling
Stockholders, and shall survive delivery of and payment for the Shares to and
by the Underwriters. The representations contained in Sections 1 and 2 and the
agreements contained in Sections 7, 9, 10 and 13(d) hereof shall survive the
termination of this Agreement, including termination pursuant to Section 11 or
13 hereof.
13. 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 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
33
<PAGE> 34
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 13 and of Sections 1, 7, 9 and 10
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 13 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 13(a)
34
<PAGE> 35
hereof or (ii) Section 11(b) or 13(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 or any Selling
Stockholder to perform any agreement herein or comply with any provision
hereof, the Company and the Selling Stockholders will, subject to demand by
you, reimburse the Underwriters for all out-of-pocket expenses (including the
fees and expenses of their counsel), incurred by the Underwriters in connection
herewith.
14. 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 or any Selling Stockholder, shall be mailed, delivered, or
telegraphed and confirmed in writing to the Company, 5601 West Howard Street,
Niles, IL 60714, Attention: K. Shan Padda.
15. PARTIES.
This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Underwriters, the Company and the Selling Stockholders and
the controlling persons, directors, officers, employees and agents referred to
in Sections 9 and 10, 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.
16. 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.
35
<PAGE> 36
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:___________________________
SELLING STOCKHOLDERS
By:___________________________
As Attorney-in-Fact for the
Stockholders named in
SCHEDULE II hereto
Accepted as of the date first above written
BEAR, STEARNS & CO. INC.
SALOMON BROTHERS INC
SMITH BARNEY INC.
JEFFERIES & COMPANY, INC.
By: _________________________
On behalf of themselves and the other
Underwriters named in Schedule I hereto.
<PAGE> 37
SCHEDULE I
NUMBER OF FIRM SHARES
NAME OF UNDERWRITER TO BE PURCHASED
- ------------------- ---------------------
<PAGE> 38
SCHEDULE II
NAME OF SELLING STOCKHOLDER NUMBER OF FIRM SHARES
- --------------------------- ---------------------
<PAGE> 1
EXHIBIT 5.1
[ROSS & HARDIES LETTERHEAD]
March 17, 1997
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 2,034,804 shares of Common Stock, $0.01 par value per share (the "Common
Stock") of the Company (including a 15% underwriters over-allotment option) by
the Company and up to 532,028 shares of Common Stock by certain stockholders of
the Company.
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 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
March , 1997
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: /s/ David S. Guin
----------------------------------
A Partner
<PAGE> 1
EXHIBIT 10.31
SABRATEK CORPORATION
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of August 15, 1996 between Steve Holden (the
"Employee"), and Sabratek Corporation (the "Company").
WHEREAS, the parties wish to provide for the employment of the Employee
by the Company and the Employee, each intending to be legally bound, agree as
follows:
1. Employment. Subject to all of the terms and conditions of this
Agreement, the Company agrees to employ the Employee as the Chief Financial
Officer (the "CFO") and Senior Vice-President of the Company within the general
guidelines to be determined by the Company's Chief Executive Officer, (the
"CEO").
2. Duties. The Employee will devote substantially all of his business
hours to, and make the best use of his energy, knowledge and training in
carrying out all accounting functions of the Company, SEC, MIS, HR, treasury,
investor relations and some business development functions and will not be
actively engaged in other employment with any other entity or concern. The
Employee will diligently and conscientiously perform the duties of CFO and
Senior Vice-President of the Company within the general guidelines to be
determined by the Company's CEO with cross reporting to the Company's Chief
Operating Officer (the "COO").
3. Term. The Employee's employment shall commence on the date of this
Agreement and shall continue for a period of 17 months, subject to earlier
termination in accordance with Section 4 below. Thereafter, the term of this
Agreement shall be automatically extended without action by either the Company
or the Employee for consecutive one-year terms, unless either party gives
written notice to the other not to renew such employment within 120 days before
the expiration of the then current term.
4. Termination. Subject to the respective continuing obligations of
the Company and the Employee under Sections 7, 8, 9 and 10 below:
(a) This Agreement may be terminated by the Company
"for cause" effective immediately upon the giving of written notice
to the Employee (if termination results from actions described in
clauses (i) or (ii) of Section 4(d) below) or on 60 days' written
notice to the Employee (if termination results from actions
described in clauses (iii) or (iv) of Section 4(d) below), with the
basis for termination specified in such notice.
(b) This Agreement may be terminated upon the Employee's death
or in the event the Employee becomes totally disabled. For purpose of
this Agreement, "total disability" shall have the meaning defined in
the long-term disability plan of the Company then covering the
Employee or, if no such plan exists, shall mean a disability that
prevents the Employee from performing his duties under Section 2
of this Agreement and that can be expected to result in death or has
lasted or can be expected to last for a continuous period of not
less than 12 months.
<PAGE> 2
(c) This Agreement may be terminated by either the Company or
the Employee at any time upon 60 day's written notice to the Company or
the Employee, as the case may be.
(d) For purposes of this Agreement "for cause" shall mean (i)
dishonesty, fraud, misrepresentation, embezzlement or material and
deliberate injury or attempted injury, in each case, related to the
Company or its business, (ii) any unlawful or criminal activity of a
serious nature, (iii) any repeated and demonstrated failure on the
Employee's part to faithfully discharge the responsibilities of his
position for such a period of time that the CEO, in good faith
determines is extremely detrimental to the current and future interests
of the Company, or (iv) a material breach of any provision of the
Agreement.
5. Compensation.
(a) Base Salary. In consideration of the Employee's services
under this Agreement, the Company agrees to pay the Employee an annual
base salary of $140,000 (the "Base Salary"), payable in accordance with
the standard payroll practices of the Company with a guaranteed
increase on January 1, 1997, assuming continuing employment. On the
first business day of each consecutive employment year, the CEO shall
review the Base Salary, and, based upon this review the CEO may at his
sole discretion adjust it accordingly.
(b) Bonuses. In addition to the Base Salary, the Employee
shall be entitled to receive an annual incentive bonus (the "Incentive
Bonus"), based upon milestones mutually agreed to by the CEO and the
Employee annually.
For each future period, the milestones for earning the
Incentive Bonus shall be mutually agreed to by the CEO and the Employee
prior to the commencement of each period, the CEO shall review the
maximum annual amount of the Incentive Bonus, and, based upon this
review, the CEO may at his sole discretion increase or decrease such
maximum annual amount. In setting the maximum amount of future
Incentive Compensation and the milestones, the CEO shall consider
Operational requirements of the Company and the success of the Employee
in meeting those requirements.
The Employee's Incentive Bonus target will be 20% of Base
Salary in previous fiscal year for hitting 80% of plan, 30% for hitting
plan and 40% for hitting 120% of plan. Measurement of performance
against plan is 50% against top-line and 50% against bottom line. (For
1996, bonus would be pro-rated based on 6 months of employment).
(c) Stock Options.
(i) The Employee shall receive 55,000 shares of common
stock out of the employee option pool at the strike price of
$8.375. The stock will vest as follows: 25% upon joining the
company, 25% on January 1, 1997 and the balance in 3 equal
annual installments of 16.6667% on January 1 of the following 3
years. All options will vest immediately in the case of the
sale of the company.
<PAGE> 3
The company shall keep available such number of shares
of Common Stock as will be sufficient to satisfy the
requirements of this Agreement and shall pay all original issue
and transfer taxes (if any) with respect to the issue and
transfer of such shares. In the event that the outstanding
shares of the Common Stock of the Company are changed into or
exchanged for a different number of kind of shares or other
securities of the Company or of another corporation by reason
of any reorganization, merger, consolidation, recapitalization,
reclassification, stock split, combination of shares, or
dividends payable in capital stock, appropriate adjustments
shall be made in the number and kind of shares as to which the
grants set forth herein shall be made.
(ii) The Employee shall be eligible for participation
in additional options if such options become available for
senior management.
(d) Benefit Plans. The Employee shall be entitled to the
benefits set forth on Exhibit A attached hereto.
(e) Expenses. The Company shall pay or reimburse the Employee
for all reasonable expenses (including, without limitation, expenses
for entertainment, travel, meals and hotel accommodations) that the
Employee incurs while performing his duties under this Agreement,
provided that the Employee accounts properly for such expenses to the
Company in accordance with Company policies.
6. Payment Upon Termination. Upon the termination of the Employee's
employment with the Company, the Employee shall be entitled to receive the
amounts described below and Exhibit A and no other amounts. The ability of the
employee to exercise any stock options following such termination shall be
governed by and subject to the terms and conditions of the Plan and the stock
option agreements entered into between the Company and the Employee.
(a) If the Employee is terminated pursuant to Section 4(a)
(for cause) subsection (d)(i), (ii) or (iv) of this Agreement, the
Employee shall be paid (i) the Base Salary through the date of
termination, (ii) benefits payable to the Employee pursuant to the
terms and conditions of any benefit plan and stock option plan in which
the Employee participated during the term of his employment, the right
to which had vested on the date of his termination under the terms and
conditions of such plans, and (iii) any unpaid expense reimbursement.
The Employee will have ninety (90) days to exercise all vested options.
(b) If the Employee is terminated pursuant to Section
4(d)(iii) (performance related), the Employee shall be paid the base
salary through a period six (6) months after the date of termination
and the benfits listed in 6(a)(ii) and (iii) above.
(c) If the Employee is terminated pursuant to Section 4(b)
(death or disability) of this Agreement, the Employee shall be paid (i)
the Base Salary through the end of the month following his death or
termination as a result of total disability, (ii) the Incentive Bonus
to which the Employee would have been entitled (as determined in good
faith by the CEO) for the year in which his death or termination for
total disability occur, (iii)
<PAGE> 4
benefits payable to the Employee pursuant to the terms and conditions of any
benefit plan in which the Employee participated during the term of his
employment, the right to which had accrued on the date of his death or
termination under the terms and conditions of such plans, (iv) any unpaid
expense reimbursement and (v) the right to exercise all vested and unvested
options granted pursuant to paragraph 5(c)(i) or granted under 5(c)(ii) within
90 days of such termination.
(d) If this Agreement is terminated by the Company pursuant to
Section 4(c) of this Agreement, (i) Employee shall receive from the Company
an amount equal to 6 months salary until January 1, 1998, 12 months salary
thereafter. (ii) The Company shall provide the Employee continued participation
by Employee (and Employee's dependents) in the benefits set forth in paragraph
5(d) for twelve (12) months following termination; provided, that such benefits
may be terminated by the Company at such time Employee obtains other
substantially similar employment. Employee shall promptly inform the Company
when he obtains other employment. (iii) Employee shall be permitted to
immediately exercise all vested options granted based upon vesting outlined in
Exhibit A pursuant to paragraph 5(c)(i) and 5(c)(ii) within ninety (90) days of
such termination. (iv) Employee shall be entitled to outplacement services or
$20,000.
(e) Benefits Upon Change in Control.
(i) In the event that a Change in Control occurs, Employee
shall be permitted to immediately exercise all vested and
unvested options granted pursuant to paragraphs 5(c)(i), or any other
options granted by the Company within ninety (90) days of such event,
in either case regardless of whether any time or other criteria has
been satisfied; provided, that Employee pays the exercise price per
share for any unexercised options he wishes to exercise.
(ii) If the Employee voluntarily terminates his employment,
it shall be treated as a termination for cause, with the
payment mechanism described in 6(b).
(f) Change in Control. For purposes of this Agreement, a "Change
in Control" of the Company shall mean any of the following:
(i) A Change in Control of a nature that would be required
to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), whether or not the Company is then subject to
such reporting requirement.
(ii) Any person or group acquires beneficial ownership of
80% or more of the Company's voting shares.
(iii) The Company's stockholders approve any merger,
consolidation, combination of the Company, any sale, transfer
or encumbrance of substantially all of the assets or business of the
Company.
(iv) The Company enters into an agreement or the CEO and the
Board of Directors of the Company adopts a resolution, the
effect of consummation of
<PAGE> 5
which would result in the occurrence of a "Change in
Control" of the Company as set forth in subparagraphs (i),
(ii), (iii) or (iv).
(v) A change in control shall not be a condition
whereby (i) above may technically occur, or where the change in
control is due to an acquisition by the Company, but when the
CEO and Board retain their position in the new entity.
7. Inventions.
(a) "Inventions", as used in this Section 7, means any
discoveries, improvements and ideas (whether or not they are in writing
or reduced to practice) or works of authorship (whether or not they can
be patented or copyrighted) that the Employee makes, authors or
conceives (either alone or with others) and that:
(i) concern directly the Company's business or the
Company's present or possible future research or development;
(ii) result from any work the Employee performs for
the Company;
(iii) use the Company's equipment, supplies,
facilities, or trade secret information; or
(iv) the Employee develops during any such time that
Section 2 above obligates him to perform his employment duties.
(b) The Employee agrees that all Inventions he makes during or
within six months after the term of this Agreement will be the
Company's sole and exclusive property. The Employee will, with respect
to any such Invention:
(i) keep current, accurate, and complete records,
which will belong to the Company and be kept and stored on the
Company's premises while the Employee is employed by the
Company;
(ii) promptly and fully disclose the existence and
describe the nature of the Invention to the Company in writing
(and without request);
(iii) assign (and the Employee does hereby assign) to
the Company all of his rights to the Invention, any
applications he makes for patent or copyrights in any country,
and any patents or copyrights granted to him in any country;
and
<PAGE> 6
(iv) acknowledge and deliver promptly to the
Company any written instruments, and perform any other
acts necessary in the Company's opinion to preserve property
rights in the Invention against forfeiture, abandonment, or
loss and to obtain and maintain letters, patents and/or
copyrights on the Invention and to vest the entire right and
title to the Invention in the Company.
The requirements of this subsection 7(b) do not apply to an
Invention for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed entirely
on the Employee's own time and (x) which does not relate directly to
the Company's business or to the Company's actual or demonstrably
anticipated research or development, or (y) which does not result from
any work the Employee performed for the Company. Except as previously
disclosed to the Company in Inventions as having been made, conceived,
authorized or acquired by the Employee prior to his employment by the
Company.
8. Confidential
(a) "Confidential Information", as used in this Section 8
means information that is not generally known and that is proprietary
to the Company or that the Company is obligated to treat as
proprietary. This information includes, without limitation:
(i) trade secret information about the Company and
its products;
(ii) "Inventions", as defined in Section 7(a) above;
(iii) information concerning the Company's business,
as the Company has conducted it during the last five years or
as it may conduct it in the future; and
(iv) information concerning any of the Company's
past, current or possible future products, including (without
limitation) information about the Company's research,
development, engineering, purchasing, manufacturing,
accounting, marketing, selling or leasing.
Any information that the Employee reasonably considers Confidential
Information, or that the Company treats as Confidential Information,
will be presumed to be Confidential Information (whether the Employee
or others originated it and regardless of how he obtained it.)
(b) Except as required in his duties to the Company, that
Employee will never, either during or after his employment by the
Company, use or disclose Confidential Information to any person not
authorized by the Company to receive it. When the Employee's
employment with the Company ends, he will promptly turn over to the
Company all records and any compositions, articles, devices, apparatus
and other items that disclose, describe or embody Confidential
Information, including all copies, reproductions and specimens of the
Confidential Information in his possession, regardless of who prepared
them.
<PAGE> 7
9. Competitive Activities. The Employee agrees that during his
employment with the Company and for a period of the longer of 6 months
or the term of the contract after his employment with the Company ends:
(a) He will not alone, or in any capacity with another
firm,
(i) directly or indirectly engage in any commercial
activity that competes with the Company's business, as the Company has
conducted it during the five (5) years before the Employee's employment
with the Company ends, within any state in the United States or within
any country in which the Company directly or indirectly markets or
services products or provides services,
(ii) in any way interfere or attempt to
interfere with the Company's relationships with any of its current or
potential customers, or
(iii) employ or attempt to employ any of the
Company's then employees on behalf of any other entity
competing with the Company.
(b) He will, prior to accepting employment with any
new employer, inform that employer of this Agreement and provide that
employer with a copy of this Agreement.
10. Conflicting Business. The Employee agrees that he
will not transact business with the Company personally, or as agent, owner,
partner, or shareholder of any other entity; provided, however, that the
Employee may enter into any business transaction that is, in the opinion of the
CEO, reasonable, prudent or necessary to the Company, so long as any such
business transaction is at arms length as though between independent and prudent
individuals.
11. Miscellaneous
(a) Successors and Assigns. This Agreement may not be
assigned without the Employee's consent, which consent shall not be
unreasonably withheld.
(b) Modification. This Agreement may be modified or
amended only by a writing signed by each of the parties
hereto.
(c) Governing Law. The laws of the State of Illinois shall
govern the validity, construction, and performance of the Agreement.
Any legal proceeding related to this Agreement shall be brought in an
appropriate Illinois court, and each of the parties hereto hereby
consents to the exclusive jurisdiction of that court for this purpose.
(d) Construction. Wherever possible, each provision of
this Agreement shall be interpreted so that it is valid under
applicable law. If any provision of this Agreement is to any extent
invalid under applicable law in any jurisdiction, that provision shall
still be effective to the extent it remains valid. The remainder of
this Agreement also shall continue to be valid, and the entire
Agreement shall continue to be valid in other jurisdictions.
<PAGE> 8
(e) Non-Waiver. No failure or delay by either
the Company or the Employee in exercising any right or remedy under this
Agreement shall waive any provision of the Agreement. Nor will any
single or partial exercise by either the Company or the Employee of any
right or remedy under this Agreement preclude either of them from
otherwise or further exercising these rights or remedies, or any other
rights or remedies granted by any law or any related document.
(f) Captions. The headings in this Agreement are for
convenience only and do not affect the interpretation of this Agreement.
(g) Entire Agreement. This Agreement supersedes all
previous and contemporaneous oral negotiations, commitments, writings,
and understandings among the parties hereto concerning the matters in
this Agreement, including, without limitation, any policy or personnel
manuals of the Company or any of its subsidiaries or affiliates.
(h) Notices. All notices and other communications
required or permitted under this Agreement shall be in writing and hand
delivered or sent by registered first-class mail, postage prepaid, and
shall be effective upon receipt if hand delivered, and five (5)
business days after mailing if sent by mail, to the following addresses
or such other addresses as either party shall have notified the other
party.
If to the Company: 5601 West Howard Street
Niles, IL 60714
If to the Employee: 5601 West Howard Street
Niles, IL 60714
IN WITNESS WHEREOF the Company and the Employee have executed this
Agreement as of the date first above written.
STEVE HOLDEN
By: /s/ Steve Holden 8/15/96
-------------------------------
Title: CFO and SVP
--------------------------
SABRATEK CORPORATION
By [SIG]
--------------------------------
Title: CEO
----------------------------
<PAGE> 9
EXHIBIT A
Additional Benefits: Health Insurance.
Standard coverage for all employees,
which means 80% contribution by Sabratek for
employee coverage only. Insurance provided by
Blue Cross Blue Shield of Illinois. Coverage
for other family members can be purchased at
the Sabratek rate.
Membership Dues:
Payment for annual dues for CPA societies.
Vacation:
(1) Four (4) weeks per calendar year.
(2) Standard sick days and personal days.
(Approximately 10 working days per
year.)
Other Issues:
Dismissal for no cause entitles Employee to
the following:
Accelerated vesting of stock to the
next milestone date (i.e., if dismissal
occurred on June 1, 1997, 50% of stock options
would have already vested and Employee
would have an additional 16.667% vest
immediately. If it were to happen
on June 1, 1988, 66.667% of
stock options would have already vested and an
additional 16.6667% would vest immediately).
<PAGE> 10
SABRATEK .(R)
POSITION: Chief Financial Officer and Senior Vice-President.
RESPONSIBILITY: Report directly to the CEO for CFO and business
development function, cross reporting to COO
for operational issues. Responsibility for all
Accounting, SEC, MIS, HR, Treasury, Investor Relations,
and some Business Development functions (shared with
CEO).
BASE SALARY: 140K/yr. Guaranteed salary increase on
January 1, 1997 assuming continuing employment.
Annual salary review on the 1st of every year
thereafter.
CASH BONUS: 20% of base compensation in previous fiscal year for
hitting 80% of plan, 30% for hitting plan, 40% for
hitting 120% of plan. Measurement of performance
against plan is 50% against top-line, 50% against
bottom line. (For 1996, bonus would be pro-rated based
on 6 months of employment.
OPTIONS: 55,000 shares of common stock out of the
employee option pool at the strike price as reflected
by the stocks closing price at the end of the previous
day of trading, from the day the offer is made and
accepted (must be same day). For point of reference
this shall be the price quoted in the following days
Wall Street Journal. The stock would vest as follows:
25% upon joining the company, 25% on January 1, 1997
and the balance in 3 equal annual installments of
16.667% on January 1 of the following 3 years.
All options will vest immediately in the case
of sale of the company.
Eligible for participation in additional
options if such options become available
for senior management.
ADDITIONAL BENEFITS: Health Insurance.
Participation in whatever the prevailing standard
coverage for all employees is, which
<PAGE> 11
SABRATEK .(R)
currently means 80% contribution by Sabratek for
employee coverage only. Insurance provided by
Blue Cross/Blue Shield of Illinois. Coverage for other
family members can be purchased at the Sabratek rate.
Membership dues
Payment for annual dues for CPA societies.
VACATION: 1.) 4 weeks per calendar year.
2.) Standard sick days and personal days.
(About total of 10 working days/year).
SEVERANCE AND
OTHER ISSUES: 1.) Non-compete for 6 months.
2.) Dismissal for cause, no severance benefits.
3.) Dismissal for no cause entitles you to
the following:
A) 6 months salary until January 1, 1998, One
year salary thereafter.
B) Accelerated vesting
of stock to the next milestone date. For
example: If it were to happen on June 1, 1997,
50% of stock options would have an
additional 16.667% vest immediately. If it
were to happen on June 1, 1998, 66.667% of
stock options would have already vested and an
additional 16.667% would vest immediately.
c) Outplacement services or $20,000.
START DATE: August 15, 1996. Full employment contract to
be signed before start date.
/s/ Shan Padda /s/ Steve Holden
- ------------------------ -----------------------------
Shan Padda Steve Holden
Chairman of the Board and CEO
Date: August 12, 1996 Date: August 12, 1996
<PAGE> 1
EXHIBIT-10.33
COMMERCIAL LEASE
1.) PARTIES
SIXTH ROAD REALTY TRUST, 11 Sixth Road, Woburn, Massachusetts, LESSOR,
which expression shall include its heirs, successors, and assigns where
the context so admits, does hereby lease to ROCAP, INC., a Massachusetts
corporation, 6 Constitution Way, Woburn, MA 01801, LESSEE, which
expression shall include its successors, executors, administrators, and
assigns where the context so admits.
2.) PREMISES
The LESSEE hereby leases the following described premises:
Approximately 3,160 square feet of space located in a multi-tenant
building owned by the Lessor and located at 11 Sixth Road, Woburn,
Massachusetts, together with the right to use in common, with others
entitled thereto, the driveways and parking areas, the hallways,
stairways, and elevators, necessary for access to said leased premises,
and lavatories nearest thereto.
3.) TERM
The term of this lease shall be for three (3) years and six (6) months
commencing on February 1, 1997 and ending on July 31, 2000.
4.) RENT
The LESSEE shall pay to the LESSOR rent as follows:
a.) For the period commencing February 1, 1997 and ending January 31,
1998 the LESSEE shall pay to the LESSOR rent at the annual rate of
$26,970.00 payable monthly in advance in twelve equal monthly installments
of $2,172.50.
b.) For the period commencing February 1, 1998 and ending January 31, 1999
the LESSEE shall pay to the LESSOR rent at the annual rate of $26,860.00
payable monthly in advance in eleven equal monthly installments of
$2,238.33 and one monthly installment of $2,238.37
c.) For the period of February 1, 1999 and ending July 31, 2000 the
LESSEE shall pay to the LESSOR rent at the annual rate of $27,650.00
payable monthly in advance in twenty two equal monthly installments of
$2,304.16.
If LESSOR elects to accept rent after 10 days of the applicable due
date, LESSEE shall pay LESSOR a late charge equal to three(3%)
percent of the over due amount.
<PAGE> 2
5.) SECURITY DEPOSIT
The LESSEE shall pay to the LESSOR the amount of $4,345.00 which shall be
held as security for the payment of all rent, and for the faithful
performance by the LESSEE of all other covenants and agreements; provided
that the LESSEE shall have no right to require LESSOR to indemnify itself
from the Deposit for any particular violation or default of LESSEE,
such use of the Deposit being with LESSOR'S sole discretion. If all or
any part of the Deposit is applied to an obligation of LESSEE, LESSEE
shall restore the Deposit to its full amount immediately upon request by
LESSOR. On the effective date of any increase in the rent, LESSEE shall
deposit additional funds with LESSOR sufficient to increase the Deposit to
an amount which bears the same relationship to the current rent as the
Deposit bore to the original rent.
The Deposit, or any part not previously applied by the LESSOR, shall be
returned to LESSEE only after the expiration of this Lease and LESSEE has
fully vacated the premises in accordance with the terms of this Lease,
notwithstanding that this Lease has been terminated by the LESSOR. It is
the intention of the parties that the Deposit shall secure LESSOR not only
as to default by LESSEE before such termination, but also from any
deficiency of rent or post-termination occupancy charges payable to LESSOR
by LESSEE.
6.) RENT ADJUSTMENT
The LESSEE shall pay to the LESSOR as additional rent its pro-rata share
of any increase in real estate taxes levied against the land and
building, or which the leased premises are a part, over those incurred or
levied during the fiscal year ending 6-30-97. This increase shall be
prorated should this lease terminate before the end of any calendar year.
The LESSEE shall make payment within thirty (30) days of written notice
from the LESSOR that such increased taxes, are payable by the LESSOR.
7.) UTILITIES
LESSOR shall provide and shall pay for structural insurance, structural
maintenance, exterior maintenance (plowing and lawns), interior
maintenance of plumbing, heating and air conditioning. LESSOR shall
maintain the Premises mechanical system and services in proper working
order and condition, and at least the same level and quality as the
commencement date of the Lease.
8.) USE OF LEASED PREMISES
The LESSEE shall use the leased premises only for the purpose of office,
warehouse, and distribution of goods and materials associated with
LESSEE's business, so long as the same are lawful under any state or
local authority having
<PAGE> 3
jurisdiction over the same. LESSOR acknowledges that LESSEE'S proposed
use is acceptable hereunder.
9.) COMPLIANCE WITH LAWS
The LESSEE acknowledges that no trade or occupation shall be conducted in
the leased premises or use made thereof which will be unlawful, improper,
noisy or offensive, or contrary to any law or any municipal by-law or
ordinance in force in the city or town in which the premises are situated.
10.) FIRE INSURANCE
The LESSEE shall not permit any use of the leased premises which will
make voidable any insurance on the property of which the leased premises
are a part, or on the contents of said property or which shall be contrary
to any law or regulation from time to time established by the New England
Fire Insurance Rating Association, or any similar body succeeding to its
powers. The LESSEE shall on demand reimburse the LESSOR, and all other
tenants, all extra insurance premiums caused by the LESSEE'S use of the
premises.
11.) MAINTENANCE OF PREMISES
The LESSEE agrees to maintain the leased premises in the same condition as
they are at the commencement of the term or as they may be put in during
the term of lease, reasonable wear and tear, damage by fire and other
casualty only excepted, and whenever necessary, to replace plate
glass and other glass therein acknowledging that the leased premises are
now in good order and the glass whole. The LESSEE shall not permit the
leased premises to be overloaded damaged, stripped, or defaced, nor suffer
any waste. LESSEE shall obtain LESSOR'S written consent before erecting
any sign on the premises. The LESSEE shall keep the areas of the leased
premises free and clear of all rubbish and debris. The LESSEE shall not
permit the outside storage of any of its goods and effects and further
agrees that no trailers shall be left on the premises for more than 72
hours. Nothing in this Paragraph shall reduce LESSOR'S obligation to
maintain the premises and systems under Paragraph 7.
12.) ALTERATIONS-ADDITIONS
The LESSEE shall not make structural alterations or additions to the
leased premises, but may make non-structural alterations provided the
LESSOR consents thereto in writing, which consent shall not be
unreasonably withheld or delayed. All such allowed alterations shall be at
LESSEE'S expense and shall be in quality at least equal to the present
construction. LESSEE shall not permit any mechanical liens, or similar
liens, to remain upon the leased premises for labor and material furnished
to LESSEE or claimed to have been furnished to LESSEE in connection
<PAGE> 4
with work of any character performed or claimed to have been performed
at the direction of LESSEE and shall cause any such lien to be released
on board forthwith without cost to LESSOR. Any alterations or
improvements made by the LESSEE shall become the property of the LESSOR
at the termination of occupancy as provided herein, or the LESSOR may at
its option require that the LESSEE restore the premises to the same
condition as at the inception of this lease, normal wear and tear
excepted.
13.) ASSIGNMENT-SUBLEASING
The LESSEE shall not assign or sublet the whole or any part of the
leased premises without LESSOR'S prior written consent, which consent
shall not be unreasonably withheld or delayed. Notwithstanding such
consent, LESSEE shall remain liable to LESSOR for the payment of all rent
and for the full performance of the covenants and conditions of this
lease.
14.) SUBORDINATION
This lease shall be subject and subordinate to any and all mortgages,
deeds of trust and other instruments in the native of a mortgage, now
or at any time hereafter, a lien or liens on the property of which the
leased premises are a part and the instruments as shall be necessary to
show the subordination of this lease to said mortgages, deeds of trust or
other such instruments in the nature of a mortgage.
15.) QUIET ENJOYMENT
The LESSOR agrees that if the LESSEE shall pay the rent as aforesaid and
perform the covenants and agreements herein contained on its part to be
paid and performed, the LESSEE shall peaceably hold and enjoy the said
rented premises without hindrance or interruption by the LESSOR or by any
other person or persons. Prior to the commencement date hereof, LESSOR
shall deliver to LESSEE an agreement executed by all mortgages agreeing
to be bound by this Lease. LESSOR shall be entitled to record in the
public record notice of this Lease.
16.) LESSOR'S ACCESS
The LESSOR or agents of the LESSOR may, at reasonable times, enter to
view the leased premises and may remove placards and signs not
approved and affixed as herein provided, and make repairs and alteration
as LESSOR should elect to do and may show the leased premises to
others, and at any time with three (3) months before the expiration
of the term, may affix to any suitable part of the leased premises a
notice for letting or selling the leased premises or property of which
the leased premises are a part and keep the same so affixed without
hindrance of business activities. LESSOR also acknowledges that LESSEE
may be required by law or regulation to restrict access to certain
supplies, inventory and/or areas
<PAGE> 5
LESSOR shall comply with said restrictions.
17.) INDEMNIFICATION AND LIABILITY
The LESSEE shall save the LESSOR harmless from all loss and damage upon
the premises so leased, or by any nuisance made or suffered on leased
premises unless such loss is caused by the neglect of the LESSOR. The
plowing of snow from the parking areas bordering upon the leased premises
shall be LESSOR'S responsibility. LESSOR shall plow said snow at time and
in a manner which allows normal business operations.
18.) LESSEE'S LIABILITY INSURANCE
The LESSEE shall maintain with respect to the leased premises and the
property, of which the leased premises are a part, comprehensive public
liability insurance in the amount of $5000,000/1,000,000 with property
damage insurance in limits of $1,000,000 in responsible companies
qualified to do business in Massachusetts and in good standing therein
insuring the LESSOR as well as LESSEE against injury to persons or damage
to property as provided. The LESSEE shall deposit with the LESSOR
certificates for such insurance at or prior to the commencement of the
term, and thereafter within thirty (30) days prior to the expiration of
any such policies. All such insurance certificates shall provide that
such policies shall not be canceled without at least ten(10) days prior
written notice to each assured named therein. The LESSOR shall be named
either co-insured or additional insured.
19.) FIRE, CASUALTY-EMINENT DOMAIN
Should a substantial portion of the leased premises, or of the property of
which they are a part, be substantially damaged by fire or other casualty,
or be taken by eminent domain either the LESSEE or the LESSOR may
elect to terminate this lease. In addition to said option, when such
fire, casualty, or taking render the leased premises substantially
unsuitable for their intended use, a just and proportionate abatement of
rent shall be made, and the LESSEE may elect to terminate this lease if:
a.) The LESSOR fails to give written notice within thirty (30) days of
intention to restore leased premises, or
b.) The LESSOR fails to restore the leased premises to a condition
substantially suitable for their intended use within ninety(90) days
of said fire, casualty, or taking.
The LESSOR reserves, and the LESSEE grants the LESSOR, all rights which
the LESSEE may have for damages or injury to the leased premises for any
taking by eminent domain, except fro damage to the LESSEE'S fixtures,
property or equipment.
<PAGE> 6
20.) DEFAULT AND BANKRUPTCY
In the event that:
a.) The LESSEE shall default in the payment of any installment of rent or
other sum herein specified and such default shall continue for ten
(10) days after written notice thereof; or
b.) The LESSEE shall default in the observance or performance of any
other of the LESSEE'S covenants, agreements, or obligations hereunder
and such default shall not be corrected within thirty (30) days
after written notice thereof; or
c.) The LESSEE shall be declared bankrupt or insolvent according to law,
or if any assignment shall be made of LESSEE'S property for the
benefit of creditors,
then the LESSOR shall have the right thereafter, while such default
continues, to re-enter and take complete possession of the leased
premises, to declare the term of this lease ended, and remove the
LESSEE'S effects, without prejudice to any remedies which might be
otherwise used for arrears of rent or other default. No termination or
repossession provided for in this lease shall relieve the LESSEE of its
liability and obligations under this Lease, all of which shall
survive such termination or repossession. In the event of any such
termination or repossession, the LESSEE shall pay the rent and any other
such sums as hereinbefore provided up to the time of such termination. If
LESSEE shall default, after reasonable notice thereof, in the observance
or performance of any conditions or covenants on LESSEE'S part to be
observed or performed under or by virtue of any of the obligation to do
so and without thereby waiving such default, may remedy such default
for the account and at the expense of the LESSEE. If the LESSOR makes any
expenditures or incurs any obligations for the payment of money in
connection therewith, including but not limited to, reasonable attorney's
fees in instituting, prosecuting or defending any action or proceeding,
such sums paid or obligations insured, with interest at the rate of six
(6) per cent per annum and costs, shall be paid to the LESSOR by the
LESSEE as additional rent. LESSOR shall provide LESSEE reasonable notice
and opportunity to remove any inventory, supplies or product access to
which LESSEE is required by law or regulation to restrict.
21.) NOTICE
Any notice from the LESSOR to the LESSEE relating to the leased premises
or to to the occupancy thereof, shall be deemed duly served, if left at
the leased premises addressed to the LESSEE, or if mailed to the leased
premises, registered or certified mail, return receipt requested, postage
prepaid, addressed to the LESSEE with copy of Cossingham Law Office, P.C.,
800 Turnpike Street, Suite 206, Mont Andover, MA certified, return receipt
requested, postage prepaid, addressed
<PAGE> 7
to the LESSEE. Any notice from the LESSEE to the LESSOR relating to
the leased premises or to the occupance thereof, shall be deemed duly
served, if mailed to the LESSOR by registered or certified mail, return
receipt requested, postage prepaid, addressed to the LESSOR at such
address as the LESSOR may from time to time advise in writing. All rent
and notices shall be paid and sent to the LESSOR, at 11 Sixth Road,
Woburn, MA 01801.
22.) SURRENDER
The LESSEE shall at the expiration or other termination of this lease
remove all LESSEE'S goods and effects from the leased premises,
(including, without hereby limiting the generality of the foregoing, all
signs and lettering affixed or painted by the LESSEE, either inside or
outside the leased premises). LESSEE shall deliver to the LESSOR the
leased premises and all keys, locks thereto, and other fixtures connected
therewith and all alterations an additions made to or upon the leased
premises, in the same condition as they were at the commencement of the
term, or as they were put in during the term hereof, reasonable wear and
tear and damage by fire or other casualty only excepted. In the event of
the LESSEE'S failure to remove any of the LESSEE'S property from the
premises, LESSORS is hereby authorized, without liability to LESSEE for
loss or damage thereto, at the sole risk of LESSEE, to remove and store
any of the property at the LESSEE'S expenses, or to retain same under
LESSOR'S control or to sell at public or private sale, without notice any
or all of the property not so removed and to apply net proceeds for such
sales to the payment of any sum due hereunder, or to destroy such
property.
23.) OTHER PROVISIONS
a.) The LESSOR hereby grants to LESSEE an option to renew for an
additional one (1) five year term upon the same terms and conditions as
herein contained at fair market value, and in the event that they are
unable to agree, the fair market value rent shall be arbitrated in
accordance with the rules of the American Arbitration Association. Notice
of exercise of the option shall be delivered or sent by LESSEE (or its
representative) by registered mail or certified mail addressed to LESSOR
not later 90 days prior to the expiration date of this Lease.
b.) Except as otherwise hereinbefore provided, if LESSEE holds over or
continues in possession of the premises after the expiration of this lease
and without the execution of a new lease, the tenancy thus created shall
be one from month to month. All covenants, obligations, conditions and
agreements herein contained shall so far as applicable apply to all
extensions of the terms hereof and to all holding over by the LESSEE as a
tenant at will except that the rent to be paid for such holding over will
be negotiated.
c.) LESSEE agrees to strictly abide by all section of Massachusetts
General Law
<PAGE> 8
Chap 21E (Hazardous Waste Regulations), including but not limited to, the
proper disposal and storage of hazardous waste materials, and LESSEE
agrees to indemnify and hold LESSOR harmless from and against any costs
or expenses under this chapter relating directly or indirectly to
activities conducted by the LESSEE.
d.) Neither the LESSOR nor the LESSEE have relied on any representation of
the Broker regarding the financial stability or capability of either
party. Both LESSOR and LESSEE agree to hold Broker harmless for any
financial cost incurred by either party for any matter related to this
lease.
e.) Upon the execution of this lease the LESSEE shall pay to the LESSOR,
the amount of $6,517.50, which represent rent for the month of February,
1997 ($2,172.50) and security deposit ($4,345.00).
f.) It is further understood and agreed that the LESSOR will at its sole
cost and expense remove from the demised premises one office and the
kitchen area as shown and highlighted in blue on the attached
plan (Exhibit A). In addition, LESSOR agrees that it will repaint any
walls already painted in the warehouse as well as paint the warehouse
floor. LESSOR shall replace carpet and ceiling tiles as needed and paint
the offices. LESSOR shall repair railing on rear stairs.
g.) Any and all broker fees due as a result of the execution and/or
performance of this Lease shall be paid by LESSOR.
IN WITNESS WHEREOF, the LESSOR and LESSEE have hereunto set their hands
and common seals this _____ day of __________ 1997,
LESSEE: LESSOR:
____________________ _________________________
ROCAP, INC. SIXTH ROAD REALTY TRUST
<PAGE> 9
Commonwealth of Massachusetts
Essex, ss January 21, 1997
Then personally appeared the above-named Rocap, Inc., by Elliot Mandell
President and Treasurer as aforesaid and acknowledged that he executed the
foregoing as the free act and deed of said corporation, before me
____________________________
Notary Public
My commission expires:
Commonwealth of Massachusetts
Essex, ss October 1996
Then personally appeared the above-named Sixth Road Realty Trust by
________ as Trustee as aforesaid and acknowledged that he executed the
foregoing as the free act and deed of said Trust, before me.
___________________________
Notary Public
My commission expires:
<PAGE> 10
NOTICE OF LEASE
OWNER: Sixth Road Realty Trust
11 Sixth Road
Woburn, MA 01810
TENANT: Rocap, Inc.
5 Constitution Way
Woburn, MA 01810
PREMISES: Approximately 3,160 square feet of space located in a multi-tenant
building owned by the Lessor and located at 11 Sixth Road, Woburn, MA together
with the right in common with others entitled thereto, the driveways and
parking areas, the hallways, stairways, and elevators, necessary for access to
said leased premises, and lavatories nearest thereto.
TERM OF LEASE: Three (3) years and six (6) months commencing February, 1997
and ending on July 31, 2000.
OPTION TO RENEW: The tenant has the right to extend said term an one (1)
additional term of five (5) years, in accordance with the term of the Lease.
LESSOR/ LANDLORD TENANT/ LESSEE
Sixth Road Realty Trust Rocap, Inc
by: by:
_________________________ _____________________
Trustee Elliot Mandell, Pres and Treas.
Declaration of Trust recorded
at Book _____ Page _____
<PAGE> 1
EXHIBIT-10.34
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT (this "Lease") is made and entered into this 26th
day of June, 1995, by and between Robert W. Murray, Trustee of Constitution
Park Trust Four under Declaration of Trust dated _________ and recorded at
________ Registry of Deeds at Book ________, Page ________ (hereinafter
referred to as "Landlord) and Rocap Inc., a duly organized Massachusetts
corporation, having an office and usual place of business at 5 Constitution
Park, Woburn, Massachusetts (hereinafter referred to as "Tenant").
WITNESSETH
ARTICLE I: PREMISES
Landlord hereby leases to Tenant and Tenant hereby takes from Landlord
approximately 4700 square feet of rentable area (the "Premises"), outlined in
Exhibit A attached hereto and made a part hereof, within a portion of that
certain building (the "Building") known as Building #4 situated in
"Constitution Park", 5 Constitution Way, Woburn, Massachusetts (the "Property")
together with all the improvements located thereon.
The Premises are leased subject to any and all existing encumbrances,
conditions, rights, covenants, easements, restrictions and rights of way of
record, and other matters of record, if any, applicable zoning and building
laws, regulations and codes, and such matters as may be disclosed by inspection
or survey. Landlord warrants and represents, as an essential term of this
Lease that no such item or matter exists or will exist which substantially
limits or restricts Tenant's use of the premises in a manner consistent with
the use identified in Article VI of this Lease Agreement.
ARTICLE II: TERM
2.1 Commencement Date.
The term of this Lease shall be for five (5) years (the "Term") and
shall commence on August 1, 1995 (the "Commencement Date"), on which date
Landlord shall have completed the Tenant improvements as provided in Exhibit B
attached hereto (that is, has completed the tenant improvements, except for
normal "punch list" items which do not unreasonably or substantially affect use
or aesthetics of the premises, which items shall be completed by Landlord prior
to said date. The Landlord shall use diligent efforts to complete said
improvements by such date without the necessity of such punch list items) and
shall have obtained reasonably satisfactory evidence confirming the completion
of construction in accordance with the plans which include the
<PAGE> 2
tenant improvements as provided in Exhibit B, in good and workmanlike manner
and in conformity with applicable municipal codes and regulations. In the
event the Premises are not completed on or before August 1, 1995, Tenant shall
have the right to terminate its obligations under this Lease; provided,
however, that (i) such date shall be extended for a period equal to the
duration of any delays in construction caused by strikes, shortages or
materials, acts of God or other matters not reasonably within the control of
Landlord, and (ii) in the event any delays in completing the Premises are as a
result of substantial change orders or other delays caused by Tenant,
Tenant's rights to terminate pursuant to this paragraph shall be null and void
to the extent of delays so caused by Tenant. Landlord shall be deemed to have
satisfactorily completed the construction of the tenant improvements, and
Tenant shall be deemed to have waived all rights and remedies with respect to
deficiencies in such construction, except for deficiencies of which Tenant has
informed Landlord, in writing, not later that thirty (30) days following the
Commencement Date.
2.2 Option to Extend.
A. Provided Tenant is not then in default of its obligations
hereunder, Tenant shall have the right to extend the Term for one (1) extension
period of five (5) years (the "Option Term") upon the following terms and
conditions:
(i) Tenant must notify Landlord of its election to extend the Term
for the Option Term on or before two hundred seventy (270) days before the date
that the original Term expires.
(ii) The annual rent due (i.e., Base Rent) for each year of the
Option Term shall be the Base Rent as adjusted to the greater of the following:
a. One hundred percent (100%) of the immediately preceding
year's Base Rent; or
b. The Fair Market Rental for the Premises (up to $9.50
per square foot triple net) determined as follows:
The term "Fair Market Rental" as used in this Lease shall mean the fair
market rental value of the Premises for the Option Term, which shall be
determined taking into consideration the terms and provisions contained in
this Lease. Landlord and Tenant shall consult, at the request of either
party during the 5th year of the Term for the purpose of determining Fair
Market Rental for the Option Term, and any value jointly agreed upon in
writing shall constitute Fair Market Rental for the purposes hereof. If
Landlord and Tenant fail to agree upon Fair Market Rental prior to four (4)
months before the end of the 5th year of the Term, the
-2-
<PAGE> 3
Fair Market Rental shall be determined by an appraisal using standards
then commonly used by professional appraisers in determining fair
market rent in connection with a net lease (having terms substantially
similar to those contained in this Lease) to an unrelated third party
of similar improved real property along Route 128, in Massachusetts.
If a determination of Fair Market Rental by appraisal is required under
this Lease, such question shall be submitted to a board of appraisers,
three (3) in number, one named by Landlord, one named by Tenant, and
one named by the other two appraisers. The Fair Market Rental shall be
an amount equal to the average of the two closest appraisals in dollar
amount. This provision for determination by appraisal shall be
specifically enforceable, and any such determination hereunder shall be
final and binding upon the parties. Landlord and Tenant shall
each pay for the fees and disbursements of the appraiser appointed by
it and shall share equally in the fees and expenses of any third
appraiser.
(iii) Additional Rent (defined below) due under this Lease shall be
payable during the Option Term in the same manner as herein provided for the
original Term.
(iv) All other provisions of this Lease shall also remain in effect
during the Option Term except the right to extend as set forth in this Section
2.2, it being agreed that there are no further rights of extension after the
Option Term. Unless expressly stated herein to the contrary, all references
in this Lease to the "Term" shall include the Option Term when and if Landlord
receives Tenant's notice of election to extend the Term as herein provided.
2.3 Early Possession.
Provided there is no interference with the work to be performed by
Landlord, Landlord hereby grants to Tenant the right to enter upon the
Premises prior to the Commencement Date for the purpose of constructing the
"Clean Room" and other improvements to be completed upon the Premises by
Tenant, for installation and storage of personal property and equipment of
Tenant in preparation for occupancy and use thereof in accordance with this
Lease Agreement, said storage and installation being at the sole and exclusive
risk of Tenant, and for reasonable and related purposes. Such entry shall be
deemed to be pursuant to a license from Landlord to Tenant and shall be at the
risk of Tenant, and any early occupancy of the Premises shall be subject to all
of the provisions of this Lease.
-3-
<PAGE> 4
ARTICLE III: RENT
3.1 Base Rent.
Tenant agrees to pay Landlord, at the address provided for notices
herein, or such other place or to such other person as Landlord may designate,
rent for the Premises ("Base Rent") in accordance with the following schedule:
Commencing on the Commencement Date and continuing until the fifth
(5th) anniversary of the Commencement Date, Tenant shall pay Base Rent in the
amount of Thirty-Seven Thousand Six Hundred and 00/100 Dollars ($37,600.00) per
annum, payable in equal monthly installments of $3,133.33 each;
All payments of Base Rent made hereunder shall be made in advance on
the first day of each month during the Term of this Lease without deduction,
set-off, prior notice or demand in lawful money of the United States of
America. The Base Rent payment for any fractional month at the commencement,
termination or expiration of the Term will be prorated. Tenant's first payment
of Base Rent and Additional Rent (as hereinafter defined) shall be due and
owing upon the date of execution of this Lease.
3.2 Additional Rent.
All amounts which Tenant is required to pay pursuant to this Lease
except Base Rent, including Tenant's payments under Sections 3.3, 3.4 and 3.5
hereof and every fine, penalty, interest and cost which may be added for
nonpayment or late payment, will constitute "Additional Rent" hereunder, and if
Tenant fails to pay such Additional Rent when due, Landlord will have the right
to pay the same and will have all the right, powers and remedies with respect
thereto as are provided herein or by law in the case of nonpayment of Base
Rent.
3.3 Common Area Maintenance and Operation Expense Charge.
A. Commencing on the Commencement Date, Tenant shall pay to
Landlord, as Additional Rent hereunder, a Common Area Maintenance and Operation
Expense Charge of Two Thousand Eight Hundred Twenty and 00/100 Dollars
($2,280.00) per annum ($.60 per square foot of area within the Premises) (the
"CAM Charge"), payable in equal monthly installments of $235.00 each in the
same manner as payments by Tenant of Base Rent. Commencing on the third (3rd)
anniversary of the Commencement Date, the CAM Charge shall be increased
pursuant to subsection C hereof.
-4-
<PAGE> 5
B. For the purposes of this Section 3.3 only, the following terms
shall have the following meanings:
(i) "Adjustment Date" means the third (3rd) anniversary and each
subsequent anniversary of the Commencement Date.
(ii) "Base CPI" means the CPI published two (2) months prior to the
month during which the Commencement Date occurs.
(iii) "Comparison CPI" means the CPI published two (2) months prior
to the month during which an Adjustment Date occurs.
(iv) "Consumer Price Index", also referred to as "CPI", means the
United States Department of Labor Bureau of Labor Statistics" Consumer
Price Index, All Urban Consumers, All Items, (1982-84 = 100) for
Boston-Lawrence-Salem, MA-NH. If the Bureau of Labor Statistics
substantially revises the manner in which the CPI is determined, an
adjustment shall be made in the revised index which would produce
results equivalent, as nearly as possible, to those which would be
obtained if the CPI had not been so revised. Without limiting the
generality of the foregoing, if the 1982-84 average shall no longer be
used as an index of 100, such change shall constitute a substantial
revision. If the CPI becomes unavailable to the public because
publication is discontinued, or otherwise becomes unavailable, or if
data is not readily available to enable the parties to calculate the
adjustment to the revised index referred to above, the parties shall
substitute a comparable index based upon changes in the cost of living
or purchasing power of the consumer dollar published by any other
governmental agency or, if no such index is available, then a
comparable index published by a major bank, other financial
institution, university or recognized financial publication and
generally recognized and used for such adjustments in the Boston
metropolitan area. The substitution of such index shall be subject to
reasonable agreement of the parties thereon or failing such agreement
to a final determination by a court of competent jurisdiction.
C. Consumer Price Index Adjustments. On each Adjustment Date,
the annual CAM Charge for the twelve months commencing with said Adjustment
Date will equal the product of sixty cents ($.60) multiplied by the number of
leasable square feet within the Premises multiplied by the percentage increase,
if any, in the applicable Comparison CPI over the base CPI. In no event shall
the annual CAM Charge for any twelve month period be less than
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the annual CAM Charge for the immediately preceding twelve month period.
3.4 Taxes.
A. Payment of Taxes. Commencing on the Commencement Date and
continuing throughout the Term hereof, Tenant will pay to Landlord, as
Additional Rent hereunder, a tax payment of Six Thousand One Hundred Ten and
00/100 Dollars ($6,110.00) per annum ($1.30 per square foot within the
Premises) (the "Tax Payment"), payable in equal monthly installments of
$509.17 each in the same manner as payments by Tenant of Base Rent hereunder.
Commencing on the first (1st) anniversary of the Commencement Date, in addition
to the aforementioned Tax Payment, Tenant will pay to Landlord, as Additional
Rent, Tenant's Pro Rata Share (as hereinafter defined) of any increase in
taxes, both general and special, all assessments including general, special and
local, governmental charges of any kind and nature whatsoever, and taxes levied
against the rents, occupancy or use of the Premises (hereinafter collectively
referred to as "Taxes"), levied or assessed on the Building or the property on
which the Building is located, whether such taxes are general or special,
ordinary or extraordinary, foreseen or unforeseen, over the Tax Payment set
forth above (the "Tax Increase Payment)"). Tenant shall pay the Tax Increase
Payment to Landlord monthly based on Landlord's reasonable estimates of the
increase in Taxes, subject to adjustment from time to time upon determination
of the actual amount of the increase in Taxes. Tenant will pay to Landlord,
within ten (10) days after demand therefor (except that the payment for the
period from the last payment to termination of this Lease shall be paid on the
date of termination based on reasonable estimates), as Additional Rent, Tenant's
Pro Rata Share of any water or sewer rents or charges. For the purposes of
this Lease, "Tenant's Pro Rata Share" shall mean the fraction (expressed as a
percentage) determined from time to time by dividing the number of square feet
of leasable space in the Premises by the number of square feet of leasable
space in the Building.
In the event that the Landlord obtains an abatement of said taxes, then
Landlord shall rebate to Tenant the proportionate amount of said payments
attributable to said abatement.
B. Change in Method of Taxation. If at any time during the Term of
this Lease, the present method of taxation is changed so that in lieu of the
whole or any part of any taxes, assessments or charges levied, assessed or
imposed upon real estate and the improvements thereon, there is levied,
assessed or imposed on Landlord a capital levy or other tax directly on the
rents received therefrom and/or a franchise tax assessment, levy or charge
measured by or based, in whole or in part, upon such rents for the present or
any future building or buildings on the
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property on which the Building is located or any other tax or
assessment, levied or assessed in lieu of any present taxes, then all such
taxes, assessments, levies, or charges will be deemed to be included within the
term "Taxes" for the purposes hereof. In the event any such tax cannot legally
be reimbursable by the Tenant, Landlord will have the option to terminate this
Lease.
C. Personal Property Taxes. Tenant shall pay prior to delinquency all
taxes assessed against and levied upon leasehold improvements, trade fixtures,
furnishings, equipment and all other personal property of Tenant contained in
the Premises or elsewhere. Tenant shall cause said leasehold improvements,
trade fixtures, furnishings, equipment and all other personal property to be
assessed and billed separately from the real property of Landlord. If any of
Tenant's said personal property shall be assessed with Landlord's real
property, Tenant shall pay Landlord the taxes so attributable to Tenant within
ten (10) days after receipt of a written statement setting forth the taxes
applicable to Tenant's property, based upon a reasonable allocation thereof.
3.5 Tenant's Payment of Landlord's Insurance.
Commencing on the Commencement Date, Tenant shall pay to Landlord, as
Additional Rent hereunder, an insurance payment for the premiums for insurance
maintained by Landlord with respect to the Property (the "Insurance Payment")
in the amount of Seven Hundred Five and 00/100 Dollars ($705.00) per annum ($.15
per square foot of area within the Premises), payable in equal monthly
installments of $58.75 each in the same manner as payments by Tenant of Base
Rent. Tenant will pay to Landlord within ten (10) days after demand (except
that the payment for the period from the last payment to the termination of
this Lease shall be paid on the date of termination based on reasonable
estimates), as Additional Rent, Tenant's Pro Rata Share (as defined in Section
3.4 hereof) of any increase in said insurance premiums over the Insurance
Payment set forth in the previous sentence. The charge will be billed annually
by Landlord. In the event that any action or nonfeasance on the part of Tenant
results in an increase in Landlord's insurance premiums, then Tenant shall pay
to Landlord, as Additional Rent, the amount of any such increase.
3.6 Late Charges and Interest.
A. Tenant hereby acknowledges that late payment by Tenant to Landlord
of Base Rent, Additional Rent or any other sums due hereunder shall cause
Landlord to incur costs not contemplated by this Lease, the exact amount of
which will be extremely difficult to ascertain. Such costs include, but are
not limited to, processing and accounting charges, and late charges which may
be imposed on Landlord by the terms of any mortgage or trust deed covering the
Premises. Accordingly, if any installment of Base
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Rent, Additional Rent or any other sum due from Tenant, shall not be received
by Landlord or Landlord's designee within ten (10) days after the date any such
payment becomes due, then Tenant shall pay to Landlord a late charge equal to
six and one half percent (6 1/2%) of such overdue amount. The parties hereby
agree that such late charge represents a fair and reasonable estimate of the
cost Landlord will incur by reason of late payment by Tenant. Acceptance of
such late charge by Landlord shall in no event constitute a waiver of Tenant's
default with respect to such overdue amount, nor prevent Landlord from
exercising any of the other rights and remedies granted hereunder.
B. Tenant shall be obligated to pay to Landlord interest at the rate
of twelve percent (12%) per annum, on all sums above specified and on all sums
and charges Tenant is obligated to pay under the terms of this Lease from the
date that a late charge under the preceding subparagraph becomes due and
payable thereon, until the date said sums and charges are paid in full.
ARTICLE IV: UTILITIES
Tenant will pay all charges incurred or billed for all water, gas,
heating fuel, electricity, telephone and all other utility services used on or
from the Premises and any maintenance charges for utilities, and will furnish
all electrical light bulbs and tubes. If any such utility services are not
separately metered to Tenant, the cost thereof shall be separately billed to
Tenant by Landlord, such bills payable by Tenant on each rental payment date.
Landlord will in no event be liable for any injury, loss or damage caused by
interruption or failure of utility services to the Premises which is not the
result of negligence, action or wrongful inaction of Landlord, nor shall such
interruption or failure terminate, cancel, affect or modify this Lease unless
same is the result of such negligence, action or wrongful inaction of Landlord
and such interruption so caused by Landlord continues for such a substantial or
unreasonable period that such prolonged interruption substantially interferes
with the ability of Tenant to conduct ongoing business operations in the
premises in compliance with the use identified in Article VI hereof.
ARTICLE V: SECURITY DEPOSIT
Tenant will deposit with Landlord upon execution of this Lease the sum
of Three Thousand One Hundred Thirty-Three and 33/100 ($3,133.33) as security
for Tenant's faithful performance of Tenant's obligations hereunder (the
"Security Deposit"). If Tenant fails to pay Base Rent, Additional Rent or any
other charges due hereunder, or otherwise defaults with respect to any
provision of this Lease, Landlord may use, apply
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or retain all or any portion of the Security Deposit for the payment of any
Base Rent, Additional Rent or other charge in default or for the payment of any
other sum to which Landlord may become obligated to pay be reason of Tenant's
default, or to compensate Landlord for any loss or damage which Landlord may
suffer thereby. If Landlord so uses or applies all or any portion of the
Security Deposit, Tenant will, within ten (10) days after written demand
therefor, deposit cash with Landlord in an amount sufficient to restore the
Security Deposit to the full amount hereinabove stated and Tenant's failure to
do so will be a material breach of this Lease and shall entitle Landlord to
exercise any and all remedies set forth herein. Landlord will not exercise any
and all remedies set forth herein. Landlord will not be required to retain the
Security Deposit in a separate escrow account nor will Tenant be entitled to
interest on the Security Deposit. If Tenant performs all of Tenant's
obligations hereunder, the Security Deposit, or so much as has not been applied
by Landlord, will be returned to Tenant within fifteen (15) days after the
expiration or earlier termination of the Lease. In the event of a sale of the
Premises, the Landlord may transfer the balance of the Security Deposit, if
any, to the purchaser and shall thereupon be released from all liability for
the return of the Security Deposit and the Tenant will look solely to said
purchaser for the return thereof. Tenant hereby agrees not to look to the
mortgagee, as mortgagee, mortgagee in possession, or successor in title to the
property, for accountability for the Security Deposit unless the Security
Deposit has actually been received by said mortgagee as security for Tenant's
performance under this Lease.
ARTICLE VI: USE
6.1 Use.
The Premises shall be used and occupied only for general offices,
storage, shipping, receipt and production of pharmaceutical products purposes
and for no other use or purpose. The parties acknowledge that such use shall
include but not be limited to the operation of a "clean room" involving the
production, manufacture, mixing, and/or solution of pharmaceutical products,
the receipt of competent chemicals or productions and the shipping of finished
products, and all activities appurtenant thereto.
6.2 Compliance with Law.
Landlord warrants and represents, that to the best of its knowledge,
the Building is in compliance with applicable land use, building and zoning
codes, laws and statutes. Tenant shall, at Tenant's expense, comply promptly
or do these acts or perform that work necessary to comply with all applicable
statutes (including the Americans With Disabilities Act ("ADA")),
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ordinances, rules, regulations, orders and requirements in effect during the
Term or any part of the Term hereof regulating the use or occupancy by Tenant
of the Premises and will, at Tenant's expense, obtain any and all licenses and
permits necessary for any such use or occupancy; provided, however, that Tenant
shall have no obligation to comply with the ADA with respect to rest rooms or
the Building entrance. Landlord further warrants and represents that the
improvements to be installed by Landlord as identified in Exhibit B will be
completed by Landlord in compliance with law and in a good and workmanlike
manner, and that during the Term the Landlord shall undertake any and all acts
necessary to keep in order and to maintain the Building and that portion of the
Premises as is constructed and/or maintained by Landlord in compliance
therewith throughout the Term. Tenant shall at Tenant's expense apply for and
obtain any and all licenses or permits necessary for Tenant's occupancy and use
of the Premises. Tenant shall not use or permit the use of the Premises.
Tenant shall not use or permit the use of the Premises in any manner that will
tend to create waste or a nuisance, or that will be unlawful, improper, noisy
or offensive or which shall tend to unreasonably disturb other tenants of the
Building.
6.3 Hazardous Use.
Tenant shall not receive, store or otherwise handle any product, material
or merchandise which is explosive or highly flammable other than as listed on
Exhibit D attached hereto or permit the Premises to be used for any purpose
which would render the insurance thereon void or cause an increase in the
premiums for such insurance or make the insurance risk more hazardous other
than the uses identified as Section 6.1. Tenant shall on demand reimburse
Landlord, and all other tenants, any and all extra insurance premiums caused in
any way by Tenant's use of the Premises.
6.4 Landlord's Rules and Regulations.
Tenant shall faithfully observe and comply with, and cause its employees,
agents and invitees to observe and comply with, the rules and regulations that
Landlord shall from time to time reasonably promulgate. A copy of Landlord's
rules and regulations in effect as of the date hereof is attached here to as
Exhibit "C". Landlord reserves the right from time to time to make all
reasonable modifications to said rules and regulations. The additions and
modifications to Landlord's rules and regulations shall be binding upon Tenant
upon delivery of a copy of them to Tenant. Landlord shall use reasonable
efforts to ensure that no tenant make issue which is unlawful, improper, noisy
or offensive or which shall tend to unreasonably disturb Tenant.
Tenant's obligations regarding the locks as described in
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Rule 4 shall be subject to the provisions of Section 20.3 and Article XXVIII
hereof regarding Landlord's right of entry. Tenant reserves the right to
withhold keys in order to restrict access in compliance with the terms of said
Article XXVIII.
Tenant shall have the right to place reasonable decorations and wall
furnishings without being in violation of Rule 5.
Landlord agrees that the storage and use of the items identified in
Exhibit C hereto shall not be in violation of Rule 8.
All medical or other wastes produced by Tenant shall be disposed of in
compliance with law. Said compliance with law shall constitute full compliance
with Rule 14.
The parties agree that Rule 17 shall apply only to major movements of
office furniture or other large items. Normal business operations and freight
shipments as part of normal business operations shall not be in violation of
said Rule 17.
The parties acknowledge that Tenant will make use of the Clean Room
section of the premises for hours in excess of those identified in Rule 18.
Because said Clean Room is serviced by systems which are installed and
maintained by Tenant, this use is not in violation of said Rule 18. Use of the
remaining portion of the Premises during said hours shall not be in violation
of same to the extent that said use is auxiliary to the primary use within the
Clean Room during such times.
6.5 Common Areas.
Landlord grants to Tenant, during the Term of this Lease, a license to
use all areas and facilities outside the Premises that are provided and
designated for the general use and convenience of Tenant and the other tenants
of the Building including sidewalks, landscaped areas, roadways and parking
areas (the "Common Areas").
ARTICLE VII: INSURANCE
7.1 Tenant's Insurance.
Tenant, at its own expense, shall provide and keep in force with
companies reasonably acceptable to Landlord public liability insurance for the
benefit of Landlord and Tenant jointly against liability for bodily injury and
property damage in the amount at the beginning of the Term of not less than
$2,000,000.00 combined single limit and from time to time during the Term shall
be for such higher limits as may be reasonably required by Landlord. Tenant
shall keep all of Tenant's fixtures, furniture.
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furnishings, and equipment insured against loss or damage by fire or other
hazards included within the usual "all risk" insurance in an amount not less
than $2,000,000. Tenant shall furnish Landlord with certificates of such
policies within thirty (30) days after the Commencement Date of this Lease and
whenever reasonably required shall satisfy Landlord that such policies are in
full force and effect. All such policies shall be obtained from responsible
companies qualified to do business in the Commonwealth of Massachusetts and in
good standing therein and shall be in a form and from a company approved by
Landlord, which approval shall not be unreasonably withheld or delayed. Such
policies shall name Landlord and Landlord's first mortgagee as additional
insureds and shall be primary and non-contributing with any insurance carried
by Landlord. All such policies shall further provide that such policies shall
not be cancelled or altered without at least thirty (30) days prior written
notice to Landlord.
7.2 Waiver of Subrogation.
Insofar as, and to the extent that, the following provision may be
effective without invalidating or making it impossible to secure insurance
coverage obtainable from responsible insurance companies doing business in the
locality in which the Property is located (even though an extra premium may
result therefrom), Landlord and Tenant mutually agree that, with respect to any
hazard or casualty, the loss from which is covered by insurance then being
carried by them, respectively, the party carrying such insurance and suffering
such loss releases the other of and from any and all claims with respect to
such loss to the extent of the insurance proceeds paid with respect thereto;
and they further mutually agree that their respective insurance companies shall
have no right of subrogation against the other on account thereof.
ARTICLE VIII: MAINTENANCE AND REPAIRS
8.1 Landlord's Obligations.
Within a reasonable time (not to exceed thirty (30) days) following
receipt of written notice from Tenant of the necessity therefor, Landlord shall
make necessary repairs to maintain the structural integrity of the Building and
Premises and mechanical and utility systems servicing the Premises, including
but not limited to roof, foundations, exterior walls and the structure of the
Premises and the Building in good condition and repair. "Structure" for
purposes of this Lease shall mean and include only the following: roof framing
and roof (specifically excluding without limitation the ceiling) and bearing
columns and bearing walls (specifically excluding without limitation the
interior surfaces thereof).
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In the event that the premises or any part thereof shall be destroyed
or damaged or rendered unusable as a result of lack of structural integrity or
necessary repairs under the preceding paragraph, the Tenant shall be entitled to
abatement of a just and proportionate share of base rent and additional rent,
according to the nature and extent of same. In the event that a substantial
portion becomes unusable due to said causes (a substantial portion of the
premises for the purposes of this Article shall be deemed to be 25% or more,
according to the same standard identified in Article XVI hereof), and Landlord
fails to remedy same within sixty (60) days of Tenant's notice to Landlord, the
Tenant shall have the right to terminate this Lease Agreement upon written
notice to Landlord.
Landlord shall not be liable to Tenant for any compensation, nor shall
Tenant be entitled to any reduction of Base Rent or Additional Rent, by reason
of inconvenience or annoyance or for loss of business arising from the
necessity of Landlord's entering the Premises for any of the purposes in this
Lease authorized, or for repairing the Premises or any portion of the Building,
however the necessity may occur. However, Landlord shall use reasonable
efforts to conduct such repairs in such manner and at such times which limit
the impact upon Tenant's business operations, to the extent reasonably
possible. Said right of entry by Landlord shall also be subject to Article
XXVIII hereof. In case Landlord is prevented or delayed from making any
repairs, alterations or imporvements, or furnishing any services or performing
any other covenant or duty to be performed on Landlord's part, by reason of any
cause reasonably beyond Landlord's control, Landlord shall not be liable to
Tenant therefor, nor shall the same give rise to a claim in Tenant's favor that
such failure constitutes actual or constructive, total or partial, eviction
from the Premises. In no event shall Landlord be liable for indirect or
consequential damages.
Landlord reserves the right to stop any service or utility system, when
reasonably necessary by reason of accident or emergency, or until necessary
repairs have been completed, provided, however, that in each instance of
stoppage, Landlord shall exercise reasonable diligence to eliminate the cause
thereof. Except in case of emergency repairs, Landlord will give Tenant
resonable advance notice of any contemplated stoppage and will use reasonable
efforts to avoid unnecessary inconvenience to Tenant by reason thereof.
8.2 Tenant's Obligations.
A. Landlord warrants and represents that as of the Commencement Date,
the electrical, mechanical and utility services installed by Landlord shall be
in good working order without substantial defect. During the term hereof,
Tenant
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shall, at its sole cost and expense and without any cost to Landlord, keep in
good order, condition and repair the Premises, and all utility equipment used
exclusively for the interior of the Premises (including all portions of
electrical and mechanical systems located within the Premises or servicing the
Premises exclusively) and all utility lines to the point of connection for
Tenant, at all times during the Term of this Lease, unless specifically made
Landlord's responsibility under Section 8.1 above. Tenant's responsibility
hereunder shall include, without limitation and at its sole cost, maintenance,
repair and replacement of mechanical equipment required for the Premises,
fixtures, glass (with glass of the same size and quality), floor covering and
ceiling materials, doors and door hardware and the decoration of the interior
of the Premises. If Tenant refuses or neglects to make or perform such
replacements, repairs, or maintenance, in a manner reasonably satisfactory to
Landlord, Landlord shall the right, upon giving Tenant reasonable written
notice of its election to do so except in situations deemed to be emergency
situations by Landlord, to make such replacement or repairs or perform such
maintenance on behalf of and for the account of Tenant, and Tenant shall pay
Landlord's cost of such work, as Additional Rent, within thirty (30) days of
receipt of a bill therefor. Said right of entry shall be subject to Article
XXVIII hereof.
B. During the Term of this Lease, Tenant agrees to employ a suitable
contractor reasonably approved by Landlord to perform Tenant's obligations for
maintenance of the heating, cooling and ventilating units on the Premises and
for maintenance of all fire protection systems within the Premises including
the sprinkler system. Landlord's approval of such contractor shall not be
unreasonably withheld or delayed. Such maintenance shall include at least
semiannual inspections and cleaning of said units and systems, together with
such adjustments and servicing as each such inspection discloses to be required
and, in addition, all repairs, testing and servicing as shall be necessary or
reasonably required by Landlord or Landlord's insurance underwriter. A
suitable contractor to be approved by Landlord shall be one who is reliable
and capable of performing Tenant's obligations hereunder at a competitive cost
to Tenant. Notwithstanding the foregoing to the contrary, at Landlord's
option, Landlord may elect to employ a suitable contractor to perform Tenant's
obligations for maintenance of the heating, cooling and ventilating units
and/or fire protection systems. If Landlord elects to employ a contractor or
maintain the heating, cooling and ventilating units and/or fire protection
systems, Tenant shall, promptly upon demand, reimburse Landlord, as Additional
Rent hereunder, for all costs and expenses, the sum of $90.38 per month.
Nothing contained in this paragraph shall be deemed to be a guarantee by
Landlord or its agents or employees of the performance or responsibility of any
contractor approved by or employed by Landlord as herein provided, and Tenant
hereby
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waives all claims for damages against Landlord to persons or property sustained
by Tenant or any person claiming through Tenant resulting from or in any way
concerned with the employment of a contractor pursuant to the provisions of
this Article. The parties acknowledge that said systems shall serve only that
area outside of the Clean Room within the Premises. Therefore the calculation
of the charge hereunder shall utilize only the square footage of the area
actually served by said system. Tenant shall be solely responsible for
installation, operation and maintenance of the system servicing the Clean Room.
8.3 Snow Removal and Grounds Care.
The removal of snow and ice from the parking areas, access drives and
loading areas bordering upon the Premises shall be the Landlord's
responsibility. The removal of snow and ice from the sidewalks and/or walkways
immediately bordering upon the Premises shall be the Tenant's responsibility.
The care and maintenance of the grounds, including lawns, trees, shrubs and
painted areas bordering upon the Premises shall be the Landlord's
responsibility.
8.4 Cleaning Services and Trash Removal.
The Tenant shall be responsible, at its sole cost, for providing
cleaning services to and trash removal from within the Premises.
ARTICLE IX: ALTERATIONS AND SIGNS
Tenant will not make any alterations, additions or improvements to the
Premises or install any signs upon the exterior of the Premises without on
each occasion the prior written consent of the Landlord, which consent shall
not be unreasonably withheld or delayed; provided, however, in no event shall
Tenant be entitled to maintain a sign on the Building. All permitted
alterations and signs shall be at Tenant's sole cost and expense. All
alterations or additions made by Tenant shall be performed in a good and
workmanlike manner using materials of equal or better quality than original
construction, and shall be in compliance with all the applicable laws,
ordinances, orders, rules, regulations and requirements applicable thereto and
shall be performed only by contractors and mechanics reasonably approved by
Landlord. All such contractors and mechanics shall carry adequate liability
insurance, builder's risk insurance and workmen's compensation insurance in
amounts and companies reasonably approved by Landlord. Landlord shall be
presented with certificates of same prior to the commencement of any work.
Furthermore, as a condition to such consent, Landlord may require Tenant to
provide to Landlord, at Tenant's expense, a completion bond in form and
substance satisfactory to Landlord. Landlord
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hereby consents to the installation by Tenant, at Tenant's sole cost and
expense, of one so-called "clean room" within the Premises.
ARTICLE X: INSPECTION
Landlord and Landlord's agents and representatives will have the right
to enter and inspect the Premises at any reasonable time during business hours
(and all other times in case of emergency) for the purpose of ascertaining the
condition of the Premises, curing any default on the part of the Tenant or
making repairs to the Premises. During the one year period prior to the end of
the Term hereof, Landlord and Landlord's agents and representatives will have
the right to enter the Premises at any reasonable time during business hours
for the purpose of showing the Premises and will have the right to erect on the
Premises a suitable sign indicating that the Premises are available. Landlord
will use reasonable efforts to limit the impact of any and all such entries to
the extent reasonably possible. Landlord's right of entry hereunder shall also
be subject to Article XXVIII hereof.
ARTICLE XI: ASSIGNMENT AND SUBLETTING
Tenant shall not assign, transfer, mortgage or pledge this Lease or
sublet the whole or any part of the Premises without the prior written consent
of Landlord, which consent may not be unreasonably withheld or delayed.
Without limiting the generality of the foregoing, Landlord may specifically
withhold consent if: (i) Tenant is then in default hereunder; (ii) any notice
of termination of this Lease or termination of Tenant's possession shall have
been given under Section XX hereof, and is then outstanding and not cured;
(iii) the portion of the Premises which Tenant proposes to sublease, including
the means of ingress and egress thereto and the proposed use thereof, and the
remaining portion of the Premises will violate any city, state or federal law,
ordinance or regulation, including, without limitation, any applicable building
code or zoning ordinances; (iv) the proposed use of the Premises by the
subtenant or assignee does not conform with the permitted use set forth in
Section 6.1 hereof or other use reasonably permitted in the building; (v) in
the reasonable judgement of Landlord the proposed subtenant or assignee is of a
character or is engaged in a business which would be deleterious to the
reputation of the Building, or the subtenant or assignee is not sufficiently
financially responsible to perform its obligations under the proposed sublease
or assignment; (vi) the proposed subtenant or assignee is an occupant of the
Building; (vii) the proposed assignee or subtenant is a governmental or
quasi-governmental agency; (viii) the stature, reputation or financial
capability of the prospective assignee or subtenant is not at least equivalent
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to the stature, reputation or financial capacity of Tenant as of the date
hereof; or (ix) the proposed assignee or subtenant's projected use of the
Premises involves the use, storage, generation or disposal of Hazardous
Material as defined in Article XII of this Lease. Notwithstanding any
permitted assignment or subletting, Tenant will at all times remain liable for
the payment of all Base Rent, Additional Rent, and any other charges due
hereunder and for the compliance with all of Tenant's other obligations under
the terms, provisions and covenants of this Lease. A transfer of fifty percent
(50%) or more of an interest in the Tenant to any person or entity who is not a
Stockholder at time of execution of this Lease (whether by stock, partnership
interest or otherwise) by any party in interest will be deemed an assignment of
this Lease. Landlord's consent to any transfer, assignment or sublease will not
be deemed a consent to any subsequent transfer, assignment or sublease. In the
event of a default under the terms of this Lease, if the Premises or any part
thereof are then assigned or sublet, Landlord, in addition to any other
remedies herein provided, or provided by law, may at its option collect
directly from assignee or subtenant all rents becoming due to Tenant under
such assignment or sublease and apply such rent against any sums due it by
Tenant hereunder, and no such collection shall be construed to constitute a
novation or a release of Tenant from the further performance of its obligations
hereunder. Landlord will have the right to assign any of its rights and
obligations under this Lease. If the rent and other sums and all
considerations received by Tenant on account of any such sublease or assignment
shall exceed the Base Rent, Additional Rent and other charges allocable to the
Premises or to the space subject to the sublease, as the case may be, Tenant
shall pay to Landlord, as Additional Rent hereunder, all of such excess,
monthly as received by Tenant, less Tenant's reasonable expenses incurred in
respect of such sublease or assignment, including brokerage commissions to a
licensed third party real estate broker, advertising and reasonable attorney's
fees, but expressly excluding costs of repairs or fit-up or alterations to the
Premises for such subtenant or assignee.
ARTICLE XII: HAZARDOUS MATERIALS.
12.1 Tenant shall not cause or permit any Hazardous Material to be
brought upon, kept, used, stored, generated or disposed of on, in or about the
Premises by Tenant, its agents, employees, contractors, or invitees, without
first obtaining Landlord's written consent, with the sole exceptions of those
items which are listed on Exhibit E attached hereto, for which items Landlord
hereby grants consent.
12.2 Any Hazardous Material permitted on the Premises as provided in
Section 12.1, and all containers therefor, shall be used, kept, stored, and
disposed of in a manner that complies
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with all federal, state, and local laws or regulations applicable to this
Hazardous Material.
12.3 Tenant shall not discharge, leak, or emit, or permit to be
discharged, leaked, or emitted, any material into the atmosphere, ground, sewer
system, or any body of water, if that material (as is reasonably determined by
the Landlord, or any governmental authority) does or may pollute or contaminate
the same, or may adversely affect (a) the health, welfare, or safety of
persons, whether located on the Premises or elsewhere, or (b) the condition,
use, or enjoyment of the Building or any other real or personal property.
12.4 In the event that Tenant's use of hazardous materials changes
from the uses identified on Exhibit E attached hereto, then at the commencement
of each year of the Term, Tenant shall disclose to Landlord the names and
approximate amounts of all Hazardous Material that Tenant intends to store,
use, or dispose of on the Premises in the coming year. In addition, at the
commencement of each year of the Lease Term, beginning with the second year of
the Lease Term, Tenant shall disclose to Landlord the names and amounts of all
Hazardous Materials that were actually used, stored, or disposed of on the
Premises if those materials were not previously identified to Landlord at the
commencement of the previous year, in the event that same varied from Exhibit E
attached hereto.
12.5 As used herein, the term "Hazardous Material" means (a) any
"hazardous waste" as defined by the Resource Conservation and Recovery Act of
1976, as amended from time to time, and regulations promulgated thereunder; (b)
any "hazardous substance" as defined by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended from time to time,
and regulations promulgated thereunder; (c) any oil, petroleum products, and
their by-products; (d) any substance that is toxic, ignitable, reactive or
corrosive; and (e) any substance that is or becomes regulated by any federal,
state, or local governmental authority.
12.6 Tenant hereby agrees that it shall be fully liable for all costs
and expenses related to the use, storage and disposal of Hazardous Material
kept on the Premises by the Tenant, and the Tenant shall give immediate notice
to the Landlord of any violation or potential violation of the provisions of
this Article XII. Tenant shall defend, indemnify, and hold harmless Landlord
and its agents, from and against any and all claims, demands, penalties, fines,
liabilities, settlements, damages, costs, or expenses (including, without
limitation, attorneys' and consultants' fees, court costs, and
litigation expenses) of whatever kind or nature, known or unknown, contingent
or otherwise, allegedly or actually arising out of or in any way related to (a)
the presence, disposal, release, or threatened
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release of any such Hazardous Material that is on, from, or affecting the soil,
water, vegetation, buildings, personal property, persons, animals, or otherwise;
(b) any personal injury (including wrongful death) or property damage (real or
personal) arising out of or related to that Hazardous Material; (c) any lawsuit
brought or threatened, settlement reached, or government order relating to that
Hazardous Material; or (d) any violation of any laws applicable thereto. This
indemnification includes, without limitation, any and all costs incurred because
of any investigation of the site or any cleanup, removal, or restoration
mandated by a federal, state, or local agency or political subdivision. Without
limitation of the foregoing, if Tenant causes or permits the presence of any
Hazardous Material on the Premises and that results in contamination, Tenant
shall promptly, at its sole expense, take any and all necessary actions to
return the Premises to the condition existing prior to the presence of any such
Hazardous Material on the Premises. Tenant shall first obtain Landlord's
approval for any such remedial action. The provisions of this Section 12.6
shall be in addition to any other obligations and liabilities Tenant may have to
Landlord at law or equity and shall survive the transactions contemplated herein
and shall survive the expiration or earlier termination of this Lease.
12.7 Landlord represents as an essential term hereof that as of the date
hereof no Hazardous Material, including asbestos or urea formaldehyde insulation
(UFFI), is on or within the Premises.
ARTICLE XIII: INDEMNITY
13.1 Tenant will defend, indemnify and save harmless Landlord from and
against any and all liabilities, obligations, claims, damages, penalties,
causes of action, costs and expenses (including, without limitation, reasonable
attorneys' fees and expenses) imposed upon, incurred by or asserted against
Landlord arising from Tenant's use or occupancy of the Premises or any breach
or default by Tenant of its obligations hereunder or arising from the
negligence or willful omission of Tenant, its agents, contractors, employees or
invitees to the extent that Tenant is negligent or otherwise legally culpable.
Tenant shall save Landlord harmless from (i) all loss and damage to personal
property, fixtures, equipment and inventory located within the Premises
occasioned by the escape of water or by the bursting of pipes, which burst is
caused by the negligence, breach or wrongful act or wrongful failure to act by
Tenant, and (ii) any nuisance made or suffered on the Premises.
13.2 Tenant shall also save Landlord harmless and indemnified, to the
extent permitted by law, from and against any and all claims, actions, loss,
damage, liability and expense in
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connection with loss of life, personal injury and/or damage to property arising
out of or resulting from any occurrence in, upon or at the Premises or the
occupancy or use of the Premises or any part thereof to the extent that Tenant
is negligent or otherwise legally culpable thereof, or anywhere if caused
wholly or in part by any wrongful act, neglect or failure to perform the
obligations imposed by this Lease or any breach thereof, or wrongful omission
of Tenant, its officers, agents, employees, subtenants, licenses,
concessionaires, or others occupying space in the Premises. If Landlord shall
be threatened with or made a party to any litigation commenced by or against
Tenant, or with respect to any matter described above, then Tenant shall
protect and hold Landlord harmless and indemnified and shall defend Landlord
with counsel reasonably acceptable to Landlord, or, at Landlord's option, shall
advance all costs, expenses and reasonable attorney's fees incurred or paid by
Landlord in connection with such litigation.
ARTICLE XIV: EXEMPTION OF LANDLORD FROM LIABILITY
The term "Landlord" as used in this Lease, so far as the covenants or
obligations on the part of Landlord are concerned, shall be limited to mean and
include only the owner or owners at the time in question of the Premises, and
in the event of any transfer or transfers of title thereto, Landlord named
herein (and in case of any subsequent transfer or conveyance, the then grantor)
shall be automatically relieved from and after the date of such transfer or
conveyance of all liability as respects the performance of any covenants or
obligations on the part of Landlord contained in this Lease thereafter to be
performed. It is expressly understood and agreed that in the case of default
hereunder by Landlord, Tenant shall look solely to the interest of Landlord in
the Premises for satisfaction of any obligation of Landlord to Tenant, and that
neither the Landlord nor anyone claiming under the Landlord shall ever be
personally liable for satisfaction of any such obligation. Tenant hereby
agrees that Landlord shall not be liable for injury to Tenant's business or any
loss of income therefrom or for damage to the goods, wares, merchandise or
other property of Tenant, Tenant's employees, invitees, customers, or any other
person in or about the Premises, nor, unless through its negligence or other
legally culpable act or omission, shall Landlord be liable for injury to the
person of Tenant, Tenant's employees, agents or contractors and invitees,
whether such damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage, leakage, obstruction or
other defects of pipes, sprinklers, wires, appliances, plumbing, air
conditioning or lighting fixtures, or from any cause, whether the said damage
or injury results from conditions arising upon the Premises or upon other
portions of the Building, or from other sources or places, and regardless of
whether the cause of such damage or
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injury or the means of repairing the same in inaccessible to Landlord or
Tenant. Landlord shall not be liable for any damages arising from any act or
neglect of any other tenant, if any, of the Building.
This paragraph shall be interpreted in such a manner that Landlord shall be
liable only for its own negligence or other legally culpable act or omission,
and for not other cause.
ARTICLE XV: LIENS AND ENCUMBRANCES
15.1 Tenant will not do any act which will in any way encumber the title of
Landlord in and to the Premises nor will the interest or estate of Landlord in
the Premises be in any way subject to any claim by way of lien or encumbrance,
whether by operation of law or by virtue of any express or implied contract by
Tenant. Any claim to, or lien upon, the Premises arising from any act or
omission of Tenant will accrue only against the leasehold estate of Tenant and
will be subject and subordinate to the paramount title and rights of Landlord in
and to the Premises.
15.2 Tenant will not suffer or permit any liens to stand against the
Premises, the Building or any part thereof, by reason of any work, labor,
services, or materials done for, or supplied, or claimed to have been done for,
or supplied to Tenant, or anyone holding the Premises, or any part thereof,
through or under Tenant. If any such lien is at any time filed against the
Premises, or the Building, Tenant will cause the same to be discharged of record
within thirty (30) days after the date of filing the same, by either payment,
deposit or bond. If Tenant fails to discharge any such lien within such period,
then, in addition to any other right or remedy of Landlord, Landlord may, but
will not be obligated to, procure the discharge of the same by paying the amount
outstanding under said lien, and Tenant shall immediately reimburse Landlord for
the amount paid by Landlord for any of the aforesaid purposes, together with all
legal and other expenses incurred Landlord, including reasonable attorneys'
fees, in defending any such action or in procuring the discharge of such lien,
which reimbursement from Tenant will become due and payable, as Additional Rent
hereunder on the date of payment of any such sums by Landlord.
15.3 Nothing in this Lease will be deemed to be, or construed in any way as
constituting the consent or request of Landlord, express or implied, by
inference or otherwise, to any person, firm or corporation for the performance
of any labor or the furnishing of any materials for any construction,
rebuilding, alteration or repair of or to the Premises or any part thereof, nor
as giving Tenant any right, power or authority to contract for or permit the
rendering of any services or the furnishing of
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any materials which might in any way give rise to the right to file any lien
against Landlord's interest in the Premises.
ARTICLE XVI: DAMAGE OR DESTRUCTION AND CONDEMNATION
16.1 Damage or Destruction of Premises
A. If all or a substantial part of the leased Premises is destroyed or
damaged by fire or other unavoidable casualty (a substantial part of the
Premises for the purposes of this Article shall be deemed to be twenty-five
(25) percent or more of its insurable value), then within thirty (30) days
after such casualty either landlord or Tenant may elect in writing to terminate
this Lease.
B. If Landlord elects to terminate this Lease as aforesaid, the
termination shall be effective as of the time of such election; if Landlord
elects to restore damaged areas, it shall commence the restoration of the
Premises within forty five (45) days after such casualty and use its best
efforts to coordinate the activities of contractors and material suppliers to
accomplish the restoration within a period of time commensurate with the degree
of damage sustained. In no event, however, shall Landlord be obligated to use
any of its funds for such restoration other than from applicable fire insurance
proceeds. Notwithstanding the foregoing, Landlord shall not be obliged to
repair or replace Tenant's furniture, furnishings, personal property or
equipment and shall not be obligated to bear the costs of repairing any damage
caused by any act, omission or negligence of Tenant or of Tenant's employees,
contractees, invitees, or licensees, and Landlord may make such repairs at the
expense of Tenant, and the cost thereof shall be collectable as additional rent
due hereunder.
C. If any such restoration is delayed for causes beyond the control of
Landlord, such as acts of God, war, civil insurrection or public disorder,
strikes, unavailability of construction materials, shortages within the labor
market, or acts of governmental authorities, then in such event, the completion
of such restoration shall be postponed for the period of time equal to the
period of delay caused by such events.
D. If this Lease is not terminated, a just portion of the rent,
according to the nature and extent of the damage, shall be abated until the
Premises shall have been put into proper condition for use and occupation by
Tenant; provided, however, that if such damage or casualty is caused because of
the negligence of Tenant, its employees, contractees, invitees or licensees,
there shall be no such abatement in rent.
E. Notwithstanding the foregoing, Landlord may, in Landlord's sole
discretion, repair and/or rebuild the Building in
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the event of either total or partial destruction, subject to Tenant's right of
termination under Paragraph 16.1A. Landlord will not be obligated to rebuild
until the insurance proceeds have been received and in the event such insurance
proceeds are insufficient to completely rebuild or restore the Premises,
Landlord, at Landlord's option, may provide the funds required to completely
rebuild or restore. If Landlord's mortgagee applies the insurance proceeds to
the mortgage debt, Landlord shall have no obligation to rebuild, and Tenant may
terminate this Lease by notice.
F. In the event that (a) Landlord fails to give written notice within
thirty (30) days of its intention to restore the Premises, or (b) Landlord
fails to restore the Premises to a condition substantially suitable for their
intended use within Ninety (90) days of said damage or destruction (or within
such other period of time as Landlord and Tenant may agree in writing), unless
such damage was due to the negligence or intentional acts of Tenant or Tenant's
employees, contractors, invitees, or licensees, Tenant may elect to terminate
this Lease by written notice to Landlord to be given no later than thirty (30)
days after the date last mentioned. This right to terminate is in addition to
Tenant's rights to terminate under Paragraph 16.1.A and Paragraph 16.1.E.
16.2 Condemnation.
A. If the Premises shall be completely taken by exercise of eminent
domain, then this Lease shall terminate. If any substantial part of the
Premises shall be taken by exercise of eminent domain or by action of any public
or other authority, then this Lease shall terminate at the election of Landlord
or Tenant, notice of which election shall be given to the other party within
sixty (60) days of such taking. If Landlord shall not so elect, then in case of
such taking, and in case of any taking of less than a substantial part of the
Premises, a just proportion of said rent according to the nature and extent of
the taking shall be abated, unless the Landlord shall supply to Tenant
equivalent substitute space in the Building at no additional rent. Landlord
reserves and accepts all rights to any awards of damages in connection with the
Premises and the Building and the leasehold hereby created, accrued or
subsequently accruing by reason of anything lawfully done in pursuance of any
public or other authority. Tenant hereby releases and assigns to Landlord all
of Tenant's rights to such awards, and covenants to deliver such further
assignments and assurances thereof as Landlord may from time to time request,
hereby irrevocably designating and appointing Landlord as its attorney in fact
to execute and deliver in Tenant's name and behalf all such further assignments
thereof. It is agreed and understood, however, that Landlord does not reserve
to itself, and Tenant does not assign to Landlord, any damages payable for
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(i) moveable equipment installed by Tenant or anybody claiming under Tenant at
its own expense, or (ii) relocation expenses, but in each case only if and to
the extent that such damages are recoverable by Tenant from such authority in a
separate action and without reducing Landlord's award of damages.
B. Notwithstanding the above, Landlord may, in Landlord's sole
discretion, repair and/or rebuild the Building in the event of either total
or partial taking. Landlord will not be obligated to rebuild until the eminent
domain proceeds have been received and in the event such eminent domain
proceeds are insufficient to completely rebuild or restore the Premises,
Landlord, at Landlord's option, may provide the funds required to completely
rebuild or restore. If Landlord's mortgagee applies the eminent domain proceeds
to the mortgage debt, Landlord shall have no obligation to rebuild, and Tenant
shall have the right to terminate by notice.
C. In the event that a taking of any portion of the Premises by the
exercise of eminent domain (a) materially adversely affects the ability of
Tenant to continue to conduct its business in the portion of the Premises not
taken; and (b) Landlord fails to give written notice within thirty (30) days of
its intention to restore the Premises; and (c) Landlord fails to restore the
Premises to a condition substantially suitable for their intended uses within
Ninety (90) days of such taking or fails to supply to Tenant equivalent
substitute space in the Building, Tenant may elect to terminate this Lease by
written notice to Landlord to be given no later than thirty (30) days after the
date last mentioned. This right to terminate is an addition to Tenant's rights
to terminate under Paragraph 16.2.A. and Paragraph 16.2.B.
ARTICLE XVII: SURRENDER
Upon the expiration or earlier termination of this Lease for any reason,
Tenant will at once surrender and deliver the Premises, together with all
improvements thereon, to Landlord in good condition and repair, reasonable wear
and tear excepted. Reasonable wear and tear excludes: tears and cuts in floor
coverings: excessive wear of floor coverings because of Tenant's negligence or
failure to use desk and chair pads or otherwise; holes in walls and doors; and
damaged ceiling tiles because of installation of phone lines, computer lines, or
otherwise. All alterations, additions, improvements and partitions (except
Tenant's moveable trade fixtures, Clean Room equipment or furnishings, and clean
room HVAC system, and signs belonging to Tenant) erected or installed by Tenant
shall remain upon the Premises and will become the property of Landlord as of
the date of such expiration or earlier termination, unless
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Landlord gives Tenant notice prior to expiration or earlier termination that
all such improvements must be removed, in which case Tenant, at its expense,
shall forthwith remove such improvements and restore the Premises to their
original condition by the date of expiration or earlier termination of this
Lease. Tenant shall remove its moveable fixtures and signs and shall repair
all damage to the Premises caused by such removal. Tenant's failure to remove
all or part of Tenant's trade fixtures and signs upon expiration or earlier
termination shall be deemed an abandonment to Landlord of such trade fixtures
and signs and, if Landlord elects to remove all or any part of said fixtures
and signs, the cost of such removal, including repairing any damage to the
Premises caused by such removal, shall be paid by Tenant. If installed by
Tenant (not Landlord), all telephone systems, fire alarm systems, burglar alarm
systems and any other security systems affixed to the Premises, upon the
termination of this Lease, may be removed by Tenant, provided that Tenant
repairs the Premises and replaces same to its condition prior to installation
of same, at Tenant's sole cost and expense.
ARTICLE XVIII: HOLDING OVER
18.1 Any holding over by Tenant of the Premises after the expiration
or earlier termination of this Lease will operate and be construed to be a
tenancy from month to month only at a monthly rental of One Hundred Fifty
Percent (150%) of the last monthly base rental plus all other Additional Rent
payable hereunder, and upon the terms hereof applicable to month-to-month
tenancy.
18.2 Nothing contained in this section is to be construed to give
Tenant the right to hold over at any time and Landlord may exercise any and all
remedies at law or in equity to recover possession of the Premises and damages
resulting from any such holding over.
ARTICLE XIX: DEFAULT
The occurrence of any one or more of the following events ("Events of
Default") will constitute a default hereunder:
A. Tenant vacates or abandons the Premises.
B. Tenant defaults in any payment due hereunder and such default
continues for ten (10) days after the due date hereof.
C. Tenant fails to observe or perform any of the covenants,
conditions or provisions of this Lease to be observed or performed by Tenant
other than non-payment of sums due hereunder,
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and Tenant fails to cure such default or diligently pursue such cure within
thirty (30) days after receipt of notice of said default.
D. Tenant petitions to be, or is declared bankrupt, or insolvent according
to law, or if a receiver be appointed for Tenant, or for all or a substantial
portion of its property, or if an assignment for the benefit of creditors is
made by Tenant and in the event of a non-voluntary action, Tenant fails to
obtain dismissal of said Assignment or petition within thirty (30) days of
receipt of notice of same.
ARTICLE XX: REMEDIES
20.1 Right to Terminate.
If an Event of Default shall have occurred, Landlord shall have the right
at its election, then or at any time thereafter, to give Tenant written notice
of Landlord's election to terminate this Lease on a date specified in such
notice. Upon the giving of such notice, this Lease and the estate hereby granted
shall expire and terminate on such date as fully and completely and with the
same effect as if such date were the date hereinbefore fixed for the expiration
of the Term, and all rights of Tenant hereunder shall expire and terminate, but
Tenant shall remain liable as hereinafter provided.
20.2 Right of Re-Entry.
If any Event of Default shall have occurred, Landlord shall have the
immediate right, whether or not this Lease shall have been terminated pursuant
to Section 20.1, to peaceably re-enter and repossess the Premises or any part
thereof in the name of the whole and repossess the same as of its former estate
by peaceful summary proceedings, peaceful ejectment or otherwise and the right
to remove all persons and property therefrom. Landlord shall be under no
liability for or by reason of any such entry, repossession or removal. No such
re-entry or taking of possession of the Premises by Landlord shall be deemed to
waive or prejudice any remedies provided to Landlord hereunder, nor be
construed as an election on Landlord's part to terminate this Lease unless a
written notice of such election be given to Tenant pursuant to Section 20.1 or
unless the termination of this Lease be decreed by a court of competent
jurisdiction. Said right of re-entry shall be subject to Article XXVIII hereof.
20.3 Right to Relet.
At any time or from time to time after the repossession of the Premises or
any part thereof pursuant to Section 20.2, whether or not this Lease shall have
been terminated pursuant to
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Section 20.2, Landlord shall use reasonable efforts to relet the Premises.
Landlord may let the Premises or any part thereof for the account of Tenant, in
the name of Tenant or Landlord or otherwise, without notice to Tenant, for such
term or terms (which may be greater or less than the period which would
otherwise have constituted the balance of the Term) and on such conditions
(which may include concessions or free rent) and for such uses as Landlord, in
its reasonable discretion, may determine, and Landlord may collect and receive
any rents payable by reason of such reletting. Landlord shall use reasonable
efforts to let same as then fair market value, and Tenant shall indemnify
Landlord for the costs of said reasonable efforts as per Paragraph 20.5.
20.4 Tenant to Remain Liable.
No expiration or termination of this Lease pursuant to Section 20.1, by
operation of law or otherwise, and no repossession of the Premises or any part
thereof pursuant to Section 20.2 or otherwise, and no reletting of the Premises
or any part thereof pursuant to Section 20.3, shall relieve Tenant of its
liabilities and obligations hereunder, all of which shall survive such
expiration, termination, repossession or reletting. Tenant shall be entitled
to credit for any and all amounts received by Landlord as a result of such
reletting.
20.5 Current Damages.
In the event of any expiration or termination of this Lease or
repossession of the Premises or any part thereof by reason of the occurrence of
an Event of Default, Tenant will pay to Landlord the Base Rent, Additional
Rent and other sums required to be paid by Tenant for the period to and
including the date of such expiration, termination or repossession; and
thereafter, until the end of what would have been the Term in the absence of
such expiration, termination or repossession, and whether or not the Premises
or any part thereof shall have been relet, Tenant shall be liable to Landlord
to Landlord for, and shall pay to Landlord, as liquidated and agreed current
damages, the Base Rent, Additional Rent and other sums which would be payable
under this Lease by Tenant in the absence of such expiration, termination or
repossession, less the net proceeds, if any, of any reletting effected for the
account of Tenant pursuant to Section 20.3, after deducting from such proceeds
all of Landlord's expenses reasonably incurred in connection with such
reletting (including, without limitation, all repossession costs, brokerage and
management commissions, legal expenses, attorney's fees, repairs, alterations
or additions in or to the Premises that may be necessary. Tenant will pay such
current damages on the days on which Base Rent would have been payable under
this Lease in the absence of such expiration, termination or repossession, and
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Landlord shall be entitled to recover the same from Tenant on each such day.
20.6 Final Damages.
At any time after any such expiration or termination of this Lease or
repossession of the Premises or any part thereof by reason of the occurrence of
an event of default, whether or not Landlord shall have collected any current
damages pursuant to Section 20.5. Landlord shall be entitled to recover from
Tenant, and Tenant will pay to Landlord on demand, as and for liquidated and
agreed final damages for Tenant's default and in lieu of all current damages
beyond the date of such demand (it being agreed that it would be impracticable
or extremely difficult to fix the actual damages), an amount equal to the
excess, if any, of (a) the Base Rent, Additional Rent and other sums which
would be payable under this Lease from the date of such demand (or, if it be
earlier, the date to which Tenant shall have satisfied in full its obligations
under Section 20.5 to pay current damages) for what would be the then unexpired
Term in the absence of such expiration, termination or repossession (assuming
for purposes hereof that Tenant's proportionate Share of Taxes and Insurance
are 120% of the payments required for the immediately preceding calendar year,
and the CPI shall increase by three percent (3%) each calendar year remaining
in the Term), over (b) the then net rental value of the Premises for the same
period. Rental value shall be established by reference to the terms and
conditions upon which Landlord relets the Premises if such reletting is
accomplished within a reasonable period of time after such expiration,
termination or repossession, and otherwise established on the basis of
Landlord's reasonable estimates and assumptions of fact regarding market and
other relevant circumstances. If any statute or rule of law shall validly
limit the amount of such liquidated final damages to less than the amount above
agreed upon, Landlord shall be entitled to the maximum amount allowable under
such statue or rule of law.
20.7 Damages and Proceedings.
Nothing herein contained shall limit or prejudice the right of Landlord to
prove for and obtain in proceedings under any federal or state law relating to
bankruptcy, insolvency, reorganization, or arrangement, in an amount equal to
the maximum allowed by any statute or rule of law in effect at the time when,
and governing the proceedings in which, the damages are to be proved, whether or
not the amount be greater than the amount of loss or damage referred to above.
20.8 Landlord's Right to Cure.
Landlord may, but shall not be obligated to, cure any default by Tenant at
any time, and whenever Landlord so elects,
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all costs and expenses paid or incurred by Landlord in curing such default,
including without limitation reasonable attorney's fees, shall be deemed
Additional Rent due within thirty (30) days of Tenant's receipt of the demand
with interest as provided in Section 3.6. Any such cure shall not be deemed to
waive such default or otherwise affect any of the Landlord's rights due to such
default.
ARTICLE XXI: ATTORNEYS' FEES
If, on account of any breach or default by Tenant in Tenant's obligations
under the terms and conditions of this Lease, it becomes necessary or
appropriate for Landlord to employ or consult with an attorney or attorneys
concerning, or to enforce or defend, any of the Landlord's right or remedies
hereunder, Tenant agrees to pay all reasonable attorneys' fees so incurred.
ARTICLE XXII: NO WAIVER
The waiver by Landlord of any breach of any term, covenant or condition
herein contained will not be deemed to be a waiver of such term, covenant or
condition for any subsequent breach of the same or any other term, covenant or
condition herein contained. The acceptance by Landlord of any payment of rent
or other charges hereunder, after the termination of this Lease by Landlord
shall not be deemed to restore this Lease or Tenant's right to possession
hereunder, but will be construed as a payment on account of damages due from
Tenant to Landlord. No remedy hereunder shall be deemed exclusive, but shall be
cumulative with all other remedies at law or equity.
ARTICLE XXIII: BROKER
Tenant warrants that it has had no dealings with any broker or agent in
connection with this Lease other than Mark A. St. Jean of ACS Development
Corporation whose commission Landlord covenants and agrees to pay. Tenant
covenants to pay, hold harmless and indemnify Landlord and Landlord's first
mortgages for any compensation, commissions and charges claimed by any broker or
agent with respect to this Lease or any extension thereof other than ACS
Development Corporation as aforesaid.
ARTICLE XXIV: LANDLORD'S LIEN
Intentionally deleted.
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<PAGE> 30
ARTICLE XXV: MORTGAGES
25.1 Subordination.
Tenant accepts this Lease subject and subordinate to any mortgage(s)
and/or deed(s) of trust now or at any time hereafter constituting a lien or
charge upon the Premises provided however that if the mortgagee, trustee or
holder of any such mortgage or deed of trust elects to have Tenant's interest
in this Lease be superior to any such instrument, then by notice to Tenant from
such mortgagee, trustee or holder, this Lease will be deemed superior to such
lien, whether this Lease is executed before or after such mortgage or deed of
trust. Tenant will at any time hereafter on demand execute any instruments,
which may be required by any mortgagee for the purposes of subjecting and
subordinating this Lease to the lien of any such mortgage. Tenant will give
notice to any mortgagee whenever notice is given to Landlord by Tenant
hereunder and no such notice to the Landlord will be effective unless also
given to any mortgagee. In the event any proceedings are brought for
foreclosure or in the event of the exercise of the power of sale under any
mortgage or deed of trust made by Landlord covering the Premises, or in
the event any mortgagee obtains possession of the Premises by deed in lieu of
foreclosure, or in any other similar matter, the Tenant, at the request of any
such mortgagee or purchaser upon any such foreclosure or sale, will attorn to
the mortgagee or the purchaser of the Premises, and recognize said mortgagee or
purchaser as the Landlord under this Lease. Tenant will, at the request of the
Landlord, execute a document, in form proper for recording such agreement to
attorn. (See Exhibit D - "Example of Typical Subordination and Attornment
Agreement")
Tenant may at Tenant's costs and expense record notice of the Lease in
the Registry of Deeds. Landlord shall execute all documents reasonably
requested by Tenant in order to evidence this Lease and/or accomplish recording
of notice of same.
25.2 Notice to Mortgagee.
In the event of any default on the part of Landlord, Tenant will give
notice by registered or certified mail to any beneficiary of a deed of trust or
mortgagee of a mortgage covering the Premises whose address shall have been
furnished it, and shall offer such beneficiary or mortgagee a reasonable
opportunity to cure the default, including time to obtain possession of the
Premises by power of sale or a judicial foreclosure, if such should prove
necessary to effect a cure.
25.3 Request by Mortgagee.
In the event that the holder of any mortgage or prospective mortgage on
the Premises shall request any modification of any of
<PAGE> 31
the provisions of this Lease not having a material adverse effect on Tenant's
rights, Tenant agrees that Tenant will enter into a written agreement in
recordable form with such holder or prospective holder, which shall effect such
modification and shall provide that such modification shall become effective and
binding upon Tenant and shall have the same force as an amendment to this Lease
in the event of a foreclosure or other similar action taken by such holder or
prospective holder. A provision directly relating to the rents payable
hereunder, the duration of time hereof, the size, use, or location of the
Premises shall be deemed a provision having a material adverse effect on
Tenant's rights.
25.4 Assignment of Rights.
With respect to any assignment by Landlord of Landlord's interest in this
Lease, or the rents payable hereunder, conditional in nature or otherwise, which
assignment is made to the holder of any mortgage on the Premises, the Building
or the Property, Tenant agrees that the execution thereof by Landlord, and the
acceptance thereof by the holder of such mortgage, shall never be deemed an
assumption by such holder of any of the obligations of Landlord hereunder,
unless such holder shall, by written notice sent to Tenant, specifically elect,
or unless such holder shall foreclose the mortgage, take possession of the
Premises, and agree in writing to so assume Landlord's obligations.
ARTICLE XXVI: NOTICES
Any and all notices, demands, consents or approvals required hereunder
shall be given in writing in accordance with this Section. Any notice from
Landlord to Tenant shall be deemed duly served, if left at the premises
addressed to Tenant or mailed to Tenant at the address listed herein by
reputable overnight courier, or by registered or certified mail, return receipt
requested, postage prepaid. Any notice from tenant to Landlord shall be deemed
duly served, if mailed to Landlord by reputable overnight courier, or by
registered or certified mail, return receipt requested, postage prepaid,
addressed to Landlord at the address listed herein or at such address as
Landlord may from time to time designate. All notices shall be deemed
sufficiently served or given for all purposes hereunder the earlier of (i)
receipt of such notice or (ii) two (2) business days after such notice shall be
deposited in any post office or branch post office regularly maintained by the
United States Government.
LANDLORD: Robert W. Murray
242 Cambridge Street
Burlington, MA 01803
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<PAGE> 32
TENANT: Rocap Inc.
5 Constitution Park
Woburn, MA 01801
Attention: Elliott Mandell, President
ARTICLE XXVII: MISCELLANEOUS
27.1 The terms, provisions, covenants and conditions contained in this
Lease contain all agreements of the parties with respect to any matter mentioned
herein and will apply to, inure to the benefit of, and be binding upon, the
parties hereto and upon their respective heirs, legal representatives,
successors and permitted assigns except as otherwise herein expressly provided.
This Lease may be modified in writing only, signed by landlord and Tenant.
27.2 Tenant agrees, from time to time, within ten (10) days after request
by Landlord, to deliver to Landlord, or Landlord's designee, an estoppel
certificate stating that his Lease is unmodified and in full force and effect
(or if there have been modifications, that the Lease is in full force and effect
as modified and stating the modifications) the date to which rent and other
charges have been paid, the unexpired term of this Lease, whether there are any
defaults or rent abatements or offsets claimed by Tenant and such other matters
pertaining to this Lease as may be reasonably requested by Landlord, it being
intended that any such statement delivered pursuant to this subparagraph may be
relied upon by any prospective purchaser of the fee or mortgagee or assignee of
any mortgage upon the fee of the Premises or any other party, and their
respective successors and assigns.
27.4 if Tenant is a corporation, each individual executing this Lease on
behalf of said corporation represents and warrants that he duly authorized to
execute and deliver this Lease on behalf of said corporation in accordance with
a duly adopted resolution of the Board of Directors of said corporation or in
accordance with he Bylaws of said corporation, and that this Lease is binding
upon said corporation in accordance with its terms. Robert W. Murray, Trustee
as aforesaid, represents and warrants that he is duly authorized by the
beneficiaries of said trust and terms thereof to execute and deliver this Lease,
that the execution and performance of this Agreement is not in violation of the
terms and conditions of said trust or validly enforceable instruction of the
beneficiaries, and that said trust is in full force and effect and has not
been terminated, altered
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<PAGE> 33
or amended except as shown at the recording in the Registry of Deeds indicated
in the first paragraph hereof.
27.5 This Lease will be construed and enforceable in accordance with he
laws of the state where the Premises are located.
27.6 Noting in this Lease is to be deemed to limit or affect the right of
Landlord to well, assign, encumber, transfer, lease or otherwise dispose of any
or all of landlord's interest in any or all of the Premises or in any or all of
the Building.
27.7 Except as set forth in such addendum or exhibit, all tenant
improvements to the Premises shall be the sole irreplaceability of Tenant and
made at Tenant's sole cost.
27.8 The initialed Riders, Addenda and Exhibits, if any, annexed hereto
are incorporated herein by reference.
27.9 Landlord warrants and represents as an essential term hereof and as a
condition precedent to Tenant's obligations hereunder that Tenant shall be
entitled to quiet enjoyment of the Premises as defined in Massachusetts law
throughout the Term hereof.
ARTICLE XXVII: LIMITATIONS ON RIGHT OF ENTRY
Due to the business of Tenant, the Premises is likely to contain drugs and
controlled substances, the access to which Tenant has a legal obligation to
restrict and control, and a "Clean Room, access to which Tenant has a legal
obligation to restrict and control. Therefor, all rights of entry of landlord,
Mortgagee and any person or entity claiming through or entering by right of
Landlord and/or Mortgagee, is subject to the following restrictions:
1. Access to said Clean Room shall be only upon reasonable notice, in the
company of and under the control of a person or persons designated by Tenant
for said purpose, during such times and hours which both comply with law and do
not represent a contamination threat to said Clean Room. Landlord acknowledges
that any such entry is potentially extremely hazardous to the health of Tenant's
customers and Tenant's business activities, and potentially in violation of
federal and state drug and other laws. Therefore, Landlord shall request said
access only upon good cause shown. Tenant's obligation to grant said access is
subject to Tenant's obligations to comply with all applicable law as reasonably
determined by Tenant.
2. Access to any portion of the Premises which contains or is likely to
contain drugs, pharmaceutical products or elements, controlled substances and/or
medicines, or any other substance
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<PAGE> 34
subject to controlled access by law, shall be only upon reasonable notice, in
the company of and under the control of a person or persons designated by
Tenant for said purpose, during such times and hour which both comply with law
and do not represent a contamination threat to said substances. Landlord
acknowledges that any such entry if potentially extremely hazardous to the
health of Tenant's customers and Tenant's business activities, and potentially
in violation of federal and state drug and other laws. Therefore, Landlord
shall request said access only upon good cause shown. Tenant's obligation to
grant said access is subject to Tenant's obligations to comply with all
applicable law as reasonably determined by Tenant.
Notwithstanding any other provisions to the contrary contained in this Lease
Agreement, all rights of entry, both by law and as granted in this Lease
Agreement, are and shall be subject to the provisions of this Article.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease as of the day
and year first above written at the place and on the dates specified adjacent
to their respective signatures, as a sealed instrument.
LANDLORD:
Constitution Park Trust Four
Executed at Burlington, MA By: Robert W. Murray, Trustee
--------------- --------------------------
as aforesaid and not Individually
on June 26, 1995
TENANT:
Rocap Inc.
Executed at
------------------ By:
--------------------------
on
--------------------------- Its: President
--------------------
duly authorized
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<PAGE> 35
EXHIBIT A
PREMISES
FLOOR PLAN
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<PAGE> 36
EXHIBIT B
TENANT IMPROVEMENTS
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<PAGE> 37
EXHIBIT C
RULES AND REGULATIONS ATTACHED TO
AND MADE A PART OF THIS LEASE
1. No sign, placard, picture, advertisement, name or notice shall be inscribed,
displayed or printed or affixed on or to any part of the outside of the Building
without the written consent of Landlord first had and obtained and Landlord
shall have the right to remove any such sign, placard, advertisement, name or
notice without notice to and at the expense of Tenant.
All approved signs or lettering on doors shall be printed, painted,
affixed or inscribed at the expense of Tenant by a person approved by Landlord.
Tenant shall not place anything or allow anything to be placed near the
glass of any window, door, partition or wall which may appear unsightly from
outside the Premises.
2. No Tenant shall have any property stored outside, except with the prior
consent of Landlord.
3. All sidewalks, halls, passages, exits, entrances, elevators and stairways of
the Building, if any, shall not be obstructed by Tenant or used for any purpose
other than for ingress to and egress from its respective Premises. No Tenant
and no employees or invitees of Tenant shall go up on the roof of the Building.
4. Tenant shall not alter any lock nor install any new or additional locks or
any bolts on any doors of the Premises.
5. Tenant shall not overload the floor of the Premises or mark, drive nails,
screw or drill into the partitions, woodwork or plaster or in any way deface the
Premises or any part thereof.
6. Tenant shall not use, keep or permit to be used or kept any foul or noxious
gas or substance in the Premises, or permit or suffer the Premises to be
occupied or used in a manner offensive or objectionable to Landlord or other
occupants of the Building by reason of noise, odors and/or vibrations, or
interfere in any way with other tenants or those having business therein, nor
shall any animals or birds be brought in or kept in or about the Premises or the
Building.
7. No cooking shall be done or permitted by Tenant on the Premises, nor shall
the Premises be used for washing clothes, for lodging, or for any improper,
objectional or immoral purposes.
8. Tenant shall not use or keep in the Premises or the Building
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<PAGE> 38
any kerosene, gasoline or inflammable or combustible fluid or material, or use
any method of heating or air conditioning other than that supplied by Landlord.
9. Landlord will direct electricians as to where and how telephone and
telegraph wires are to be introduced. No boring or cutting for wires will be
allowed without the consent of Landlord. The location of telephones, call
boxes and other office equipment affixed to the Premises shall be subject to the
approval of Landlord.
10. Tenant, upon the termination of its tenancy, shall deliver to the
Landlord the keys of offices, rooms and toilet rooms which shall have been
furnished the Tenant or which the Tenant shall have had made, and in the event
of loss of any keys so furnished, shall pay the Landlord therefor.
11. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgment of Landlord, is intoxicated or under the influence
of liquor or drugs, or who shall in any manner do any act in violation of any
of the rules and regulations of the Building.
12. No vending machines or machines of any description shall be installed,
maintained or operated upon the Premises without the written consent of the
Landlord.
13. Tenant shall not disturb, solicit or canvass any occupant of the
Building and shall cooperate to prevent same.
14. Any permitted corrosive, flammable or other special wastes shall be
handled for disposal as directed by Landlord.
15. Tenant's use of the Common Areas shall be limited to access and parking
purposes and under no circumstances shall Tenant be permitted to store any
goods or equipment, conduct any operations or construct or place any
improvements, barriers or obstructions in the Common Areas, or otherwise
adversely affect the appearance of same.
16. In order to prevent damage or unreasonable wear and tear to carpeting
and other floor covering that is or may become the property of the Landlord
under the terms of the Lease, Tenant shall, at Tenant's expense, provide chair
mats for all desk chairs used in the Premises and furniture cushions or other
suitable protection under all desks, tables and other furniture and equipment
kept in the Premises. Damage caused to carpeting or floor covering because of
Tenant's failure to comply with this rule shall not be considered "reasonable"
or "ordinary" wear and tear under the Lease in determining Tenant's liability
for damage to the Premises or Tenant's duty to repair, restore or maintain
the Premises.
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<PAGE> 39
17. The moving of equipment, furniture, and freight into or out of the
Premises shall occur only on previous notice to Landlord and at such times as
Landlord shall designate. The persons employed to move such equipment,
furniture, or freight in and out of the Building must be acceptable to
Landlord. No equipment, furniture, or freight of any description shall be
received into the Building except during the hours designated by Landlord.
Landlord shall in all cases have and retain the power to prescribe the
weight, proper position, and manner of support under all heavy furniture,
equipment and freight, and all damage done to the Building by moving in or
moving out any equipment, furniture or freight, or during the time it is in or
on the Premises, shall be repaired at the expense of Tenant, but by
contractors or mechanics named by Landlord.
18. Tenant shall refrain from "excessive operation" (as hereinafter defined)
of the air conditioning equipment servicing the Premises. Operation of the air
conditioning equipment servicing the Premises is defined as "excessive
operation" in any of the following cases:
a.) Operation during more than twelve (12) hours each day; or
b.) Operation during more than six (6) days each week; or
c.) Operation during any period other than the normal cooling
season (May 15 through September 15 each year).
Tenant shall give prior written notice to the Landlord of any
anticipated requirement for excessive operation of the air conditioning
equipment servicing the Premises in order to give the Landlord the
opportunity to make any modifications or changes to such equipment then
existing as Landlord in its sole discretion may deem necessary or desirable in
order to assure that the equipment will be able to satisfy the demand imposed
by such excessive operation; however, Landlord shall not be obliged to make any
such modification or changes to the equipment.
Notwithstanding anything to the contrary contained in any other term or
provision of the Lease or the Exhibits, Addenda, or Riders thereto, if Tenant
requires the excessive operation of the air conditioning equipment servicing
the Premises, Tenant shall, at its sole cost and expense and without any cost
to Landlord, keep in good order and repair and replace as necessary, all such
air conditioning equipment. If Tenant refuses or neglects to make or perform
such maintenance, repairs, or replacement, in a manner satisfactory to
Landlord, Landlord shall have the right, upon giving Tenant reasonable written
notice (except in situations deemed to be emergency situations by Landlord),
to perform such maintenance, or to make such repairs or replacements.
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<PAGE> 40
on behalf of and for the account of Tenant and Tenant shall pay Landlord's costs
of such work, as additional rent, promptly upon receipt of a bill therefor.
19. Landlord reserves the right to make such other and further
nondiscriminatory Rules and Regulations as in its judgment may be necessary or
desirable for the safety, care and cleanliness of the Premises and the Building
and for the preservation of good order therein. Tenant agrees to abide by all
such Rules and Regulations which are adopted.
[sig] ,Trustee and not Individually
----------------------------------------
LANDLORD
ROCAP, INC
BY [sig] , President
----------------------------------------
TENANT
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<PAGE> 41
EXHIBIT D
SUBORDINATION AND ATTORNMENT AGREEMENT
THIS SUBORDINATION AND ATTORNMENT AGREEMENT (this "Agreement") made as of
this ____ day of _________, 19__, by and between____________________________
(hereinafter referred to as "Landlord"), _________________________________,
(hereinafter referred to as "Tenant") and ____________________
(hereinafter referred to as "Mortgagee").
W I T N E S S E T H:
WHEREAS, Mortgagee is committed to lend certain sums to Landlord which
sums shall be secured by a Security Agreement and Mortgage Deed (hereinafter
referred to as the "Mortgage") on certain Property (hereinafter referred to as
the "Property") in [LOCATION OF PROPERTY], more particularly described therein
and which shall be recorded in the [NAME OF REGISTRY] concurrently with the
recording of this Agreement; and
WHEREAS, Tenant has entered into a Lease (hereinafter referred to as "said
Lease" which term shall mean and include all amendments and modifications
thereto which have been approved by Mortgagee) with Landlord, executed the
[DATE] day of [MONTH], 19__, as amended, covering the premises and improvements
subject to said Mortgage as therein more particularly described; and
WHEREAS, in order to induce the Mortgagee to make the loan as evidenced by
the Mortgage, Landlord and Tenant have offered to enter into this Agreement in
order to, inter alia, establish the prior right, claim and lien of the Mortgage
with respect to all matters concerning condemnation and casualty as set forth in
said Lease.
NOW, THEREFORE, for and in consideration of One Dollar ($1.00) and other
good and valuable consideration, the receipt whereof the parties hereto hereby
acknowledge, and to induce the Mortgagee to make the loan evidenced by said
Mortgage, the parties hereto covenant and agree as follows:
1. The said Mortgage and the lien thereof, shall be, and the same is hereby
made, SUBJECT AND SUBORDINATE to the said Lease with the same force and effect
as if said Lease had been executed, delivered and recorded prior to the
execution, delivery and recording of the said Mortgage, EXCEPT, HOWEVER, that
the Lease and the rights of Landlord and Tenant thereunder shall be, and is
hereby made, expressly subject and subordinate in all respects to:
(a) The right, claim and lien of said Mortgage in, to and
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upon any award or other compensation heretofore or hereafter to be
made for any taking by eminent domain of any part of the said
Property, and to the right of disposition thereof in accordance
with the provisions of said Mortgage;
(b) The right, claim and lien of said Mortgage in, to and upon any
proceeds payable under all policies of fire, casualty and rent
insurance upon the said Property and as to the right of
disposition thereof in accordance with the terms of said Mortgage;
(c) Any right, power or interest, if any, which may have arisen or
intervened between the date of execution of said Lease, the date of
recording of the Mortgage, or any lien or judgement which may
arise at any time, under the terms of such Lease;
it being expressly further understood and agreed that with respect to the
matters referred to in subsections 1(a) through 1(c), the Mortgage and the lien
thereof shall be, and the same is hereby made, prior in right to the said
Lease and the rights of Landlord and Tenant thereunder with the same force and
effect as if said Mortgage had been executed, delivered and recorded prior to
the execution, delivery and recording of the Lease.
2. Tenant agrees that it shall not alter, modify, amend, change,
surrender or cancel the Lease nor pay the rent due thereunder in advance for
more than thirty (30) days except as may be required by said Lease, without the
prior written consent of the Mortgagee, and will not seek to be made an adverse
or defendant party in any action or proceeding brought to enforce or foreclose
the Mortgage. Tenant further agrees that it shall not subordinate its interest
in the Lease to the lien of any mortgage, security agreement or lease affecting
the premises demised under the Lease.
3. In the event of a default by Landlord under the terms of the Lease
which is of such a nature as to give Tenant the right to terminate the Lease or
reduce the rent payable thereunder by credit, offset or otherwise, then, and in
any such event, Tenant agrees that concurrently with giving notice of default
to Landlord, Tenant shall deliver a copy thereof to Mortgagee. Tenant further
agrees that if Landlord does not cure the default specified in such notice of
default within thirty (30) calendar days after notice thereof, then Tenant
shall give further notice of that fact to Mortgagee and Mortgagee shall
thereupon, if it shall so elect, have the right, but not the obligation, to
cure the default of Landlord within twenty (20) calendar days after the giving
of such further notice by Tenant, and in case of a default which cannot, with
due diligence, be cured with said twenty (20) days, then the twenty (20) days
shall be extended for
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<PAGE> 43
such period as may be necessary to complete the curing of the same with all due
diligence and continuity.
4. In the event of entry to foreclose the Mortgage and/or foreclosure
thereof, or a conveyance in lieu of, or subsequent to, foreclosure and if the
Lease shall not have been terminated under the provisions hereof or of the
Lease:
(a) The Mortgagee will not interfere with or disturb Tenant's
possession of the premises demised under the Lease, so long as Tenant pays
the rent stipulated in the Lease and performs all other terms and
conditions thereof;
(b) The Lease will remain in full force and effect, as modified
hereby, and the Tenant will attorn to and be bound under the Lease to the
Mortgagee and its successors and assigns including any purchaser of the
Property in foreclosure or any grantee under a conveyance in lieu of or
subsequent to foreclosure, and Tenant will perform and observe all of its
obligations thereunder to the same effect as though the Lease had been
executed prior to the execution and delivery of the Mortgage, and Tenant
agrees to execute and deliver, upon the request of the Mortgagee or other
owner of the demised premises, any instrument which may be necessary or
appropriate to evidence such attornment.
PROVIDED, HOWEVER, that the Mortgagee shall not be:
(i) liable for any act or omission of the Landlord; or
(ii) subject to any off-sets or defenses which the Tenant might have
against Landlord; or
(iii) bound by any rent or additional rent which Tenant might have
paid for more than the current rental period of the Lease; or
(iv) bound by any amendment or modification of the Lease made
without its written consent.
(iv) bound by any amendment or modification of the Lease made without
its written consent.
5. All notices, demands or other communications which any party hereto is
required or may desire to give to another party hereto may be delivered in
person or shall be sent by reputable overnight courier or by certified or
registered mail, postage prepaid, return receipt requested, addressed to the
other party at the address first set forth hereinabove or at such other
addresses as any party hereto may hereafter specify by notice in writing to the
others. Any such notice or demand shall be deemed given and received upon the
earlier to occur of reciept thereof or seventy-two (72) hours after deposit in
the United States mail as aforesaid.
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<PAGE> 44
6. Landlord hereby authorizes Tenant to rely on any written notice or
demand received from Mortgagee to make rent and other payments, to which
Landlord may be entitled, to Mortgagee instead of Landlord whenever so demanded
by Mortgagee, whether or not the Mortgage shall have been foreclosed.
7. Tenant agrees that in the event Mortgagee shall succeed to the
rights of Landlord as landlord under the Lease, then Tenant shall look solely
to Mortgagee's interest in the Property in the enforcement of any claims
against Mortgagee. The provisions hereof shall expressly inure to the benefit
of any successors and assigns of Mortgagee.
8. The provisions of this Agreement shall be deemed to be covenants
running with the land, shall be binding upon and shall inure to the benefit of
the parties hereto, their respective successors and assigns and shall
specifically be binding upon any purchaser of said Property at a sale
foreclosing the said Mortgage. Mortgagee may assign and transfer its interest
in the Mortgage to [NAME OF ASSIGNEE], (hereinafter referred to as "Assignee").
It is understood and agreed by all parties hereto that upon making such
assignment, Mortgagee shall be automatically released of all obligations under
this Agreement and that by acceptance of such assignment, Assignee shall
thereby assume all obligations of Mortgagee hereunder.
9. This Agreement may be executed in three (3) or more counterparts by one
or more of the parties hereto and each such counterpart shall be deemed to be an
original and shall have the same force and effect as an original, and all
such counterparts in the aggregate shall constitute but one and the same
instrument.
IN WITNESS WHEREOF, each of the parties hereto have hereunto set their
hands and seals, as of the day and year first above written.
[sig.]
---------------------------------
LANDLORD and not Individually
ROCAP. INC.,
By: [sig.] President
------------------------------
TENANT
---------------------------------
MORTGAGEE
(ACKNOWLEDGMENTS)
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<PAGE> 45
EXHIBIT "E"
HAZARDOUS MATERIALS
1. Medical supplies, to be properly disposed of by Tenant in
compliance with all law and regulation.
2. Esopropyl alcohol.
<PAGE> 1
EXHIBIT 11.1
SABRATEK CORPORATION
EXHIBIT 11.1 -- STATEMENT RE COMPUTATION OF SHARE EARNINGS
<TABLE>
<CAPTION>
PRO FORMA
NET LOSS PER SHARE NET LOSS PER SHARE
------------------ ------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
------------------ ------------------
<S> <C> <C>
Net Loss.............................. $ (858,116) $(6,036,335)
Adjustment to interest expense
assuming conversion of debt at
beginning of period................. - 113,867
---------- -----------
Adjusted net loss..................... $ (858,116) $(5,922,468)
========== ===========
Weighted average shares used to
compute pro forma net loss per
share:
Weighted average common
shares outstanding................ 6,621,442 1,622,283
Weighted average preferred
shares outstanding -- assuming
conversion ....................... - 1,747,231
Weighted average convertible
subordinated debentures --
assuming conversion .............. - 322,209
Additional shares pursuant to
SAB83 computation................. 641,672 2,917,848
---------- -----------
7,263,114 6,609,571
========== ===========
Net loss per share.................... $ (0.12) $ (0.90)
========== ===========
</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
March 14, 1997
<PAGE> 1
EXHIBIT 23.2
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.
/s/ Douglas L. Naffah, CPA
Douglas L. Naffah, CPA
Parent, Naffah & Company
Boston, MA
March 14, 1997
