================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
[X] Annual report under Section 13 or 15(d) of the Securities Exchange Act of
1934 for the fiscal year ended December 31, 1995
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the transition period from ________________ to_________________
Commission file number: 2-85008-NY
Medical Sterilization, Inc.
(Exact name of Small Business Issuer as specified in its charter)
New York 11-2621408
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
225 Underhill Boulevard, Syosset, New York 11791
(Address of principal executive offices) (Zip code)
(516) 496-8822
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Exchange Act: None
Securities registered pursuant to Section 12(g) of the Exchange Act: None
---------------------
Check whether the Issuer: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. [X] Yes [ ] No
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
the Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [X]
The Issuer's revenues for the fiscal year ended December 31, 1995 were
$8,772,430. As of March 18, 1996, the aggregate market value of the Issuer's
voting stock (including common stock, Series B Convertible Preferred Stock and
Series C Convertible Preferred Stock) held by non-affiliates was approximately
$2,239,500 based on the average bid and asked price of the Issuer's Common Stock
on March 18, 1996 as reported on the Nasdaq Bulletin Board System.
As of March 18, 1996, there were 2,980,496 shares of the Issuer's Common Stock,
par value $.01 per share, issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts of the following document are incorporated by reference in Part III of
this Form 10-KSB: (1) Proxy Statement for the Issuer's 1996 Special Meeting in
Lieu of Annual Meeting of Shareholders - Items 9, 10, 11 and 12.
================================================================================
<PAGE>
PART I
Item 1. Description of Business
- - ----------------------------------
Overview
Medical Sterilization, Inc. ("MSI" or the "Company") provides
off-site reprocessing and sterilization of the Company's standard containerized
reprocessable sterilized surgical instrument sets as well as certain other items
requiring sterilization for healthcare providers such as hospitals and
ambulatory surgi-centers. MSI also provides contract steam and radiation
sterilization services for manufacturers of disposable medical products such as
bandages, sponges, tracheotomy kits, surgical gloves and laboratory ware. In
addition, the Company utilizes its electron beam radiation accelerator to
process various industrial products and to perform certain modifications to
those products.
The Company provides its off-site reprocessing and sterilization
services and pre-sterilized reprocessable instrument sets to hospitals and
ambulatory surgi-centers within a radius of 75 miles of its Syosset, New York
facility. As of December 31, 1995, MSI had 22 long-term and 6 short-term
contracts with healthcare providers in its area of operations and estimates that
there are approximately 250 hospitals within this area. The Company provides its
contract steam and radiation sterilization services to manufacturers of
disposable medical products within a 300 mile radius of its Syosset facility.
The Company currently provides sterilization services for approximately 30
medical products manufacturers such as Busse Hospital Disposables, Elkay
Products, Inc. and Hermitage Hospital Supply Corp., and estimates that there are
approximately 200 such manufacturers in its operating area. MSI processes
industrial products for several industrial companies principally in the
Northeastern United States and processes polytetrafluoroethylene ("PTFE"), also
known as "Teflon" (a registered trademark of E.I. Dupont de Nemours & Co.),
solely for Precision Micron Powders, Inc., a distributor of processed PTFE owned
by Shamrock Technologies, Inc., and for Shamrock Technologies, Inc.
The Company was founded in May 1982 as a New York corporation. Its
principal executive offices are located at 225 Underhill Boulevard, Syosset, New
York 11791, and its telephone number is (516) 496-8822.
Statements in this Form 10-KSB which are not historical facts,
so-called "forward-looking statements," are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Investors
are cautioned that all forward-looking statements involve risks and
uncertainties, including those detailed herein and in the Company's other
filings with the Securities and Exchange Commission. See "Item 6. Management's
Discussion and Analysis of Financial Condition and Results of Operations-Certain
Factors That May Affect Future Results."
2
<PAGE>
Sterilization Services for Healthcare Providers
MSI provides off-site cleaning, decontamination and sterilization
processing of the Company's standard containerized reprocessable sterilized
surgical instrument sets ("Instrument Sets") as well as certain other items
requiring sterilization ("Sterilizable Items") for healthcare providers such as
hospitals and ambulatory surgi-centers within a radius of 75 miles of its
Syosset, New York facility. As of December 31, 1995, the Company had 28
sterilization service contracts with hospitals and ambulatory surgi-centers. The
Company estimates that there are approximately 250 such healthcare providers in
its operating area.
Sterilizable Items consist of surgical instruments, utensils,
surgical gowns and wraps and other items used in healthcare facilities which
require sterilization. Instrument Sets are pre-packaged, sterilized,
reprocessable instrument sets, each of which is a complete set of instruments
necessary for a given medical procedure. The Company has designed approximately
85 different Instrument Sets for operating room procedures and labor and
delivery, including gall bladder, tonsillectomy and adenoidectomy, open heart,
vascular, orthopedic, endoscopy, cesarean sections, newborn delivery,
hysterectomy and dilation and curettage. MSI packages its Instrument Sets in
rigid containers with filters and seals, thereby maintaining sterile integrity
without the risk of tearing and pinholes which occur in more traditional
wrappers. The Instrument Sets aid in the organization of the instruments for
ease of use and provide for better instrument accountability once the procedure
is completed. Once an Instrument Set has been utilized, it is returned to the
Company for cleaning, sterilization and repackaging.
The Company's services are designed to replace or supplement the
existing in-house sterilization facilities of healthcare providers. Many
hospitals have older, less efficient sterilization facilities, staff their
facilities with nurses whose skills could be more effectively used elsewhere and
underutilize their sterilization facilities by operating their equipment only
once per day. Because of the relatively low volume of sterilization activities
undertaken at many of these facilities, worker productivity may not be as high
as in other areas of the healthcare organization, causing concern for
administrators. In addition, as hospitals continue to evaluate ways in which to
better utilize their available space, many hospitals are seeking to replace
their in-house sterilization facilities with profit generating centers such as
operating rooms. Many hospitals are also looking for ways in which to improve
operating room efficiency by eliminating the sterilization processing delays and
shortages sometimes experienced with their in-house sterilization facilities.
By utilizing state of the art, industrial size equipment, modern
sterilization technology, less expensive labor, and handling larger volumes, the
Company believes that it offers a cost-effective, high quality alternative to
in-house sterilization facilities. The Company processes Instrument Sets and
Sterilizable Items for numerous customers and has installed modern, industrial
size sterilization equipment at its Syosset facility, including ultrasonic
cleaners, a tunnel washer and a 300 cubic foot steam sterilizer. The Company is
in the process of installing an additional tunnel washer and another 300 cubic
foot steam sterilizer.
3
<PAGE>
The Company believes that it offers better sterility assurance levels
than those maintained at many hospitals. In order to comply with the infection
control requirements of the Joint Commission on Accreditation of Healthcare
Organizations ("JCAHO"), the Center for Disease Control, the Association for
Advancement of Medical Instrumentation ("AAMI"), the Association of Operating
Room Nurses ("AORN"), the policies and procedures of each respective hospital as
well as the requirements of Federal, state and local government agencies, the
Company has established rigorous testing measures and procedures, such as
sterilization process monitors (including temperature and pressure recording),
chemical indicators and bacteriological spore and culture testing. The Company
is a registered contract sterilization facility with the U.S. Food and Drug
Administration ("FDA"), even though neither the Company's activities in this
area nor hospital sterilization facilities are required to be so registered. See
"-Government Regulation."
Contract Sterilization of Disposable Medical Products
MSI provides contract steam and radiation sterilization services to
manufacturers of disposable medical products. The Company sterilizes disposable
medical products such as adhesive and gauze bandages, lap sponges, absorbent
cotton balls, tracheotomy kits, trauma dressings, operating room drapes,
surgical gloves, in vitro diagnostic kits and laboratory ware, such as pipettes,
petri dishes, flasks, roller bottles and tissue culture wells. As of December
31, 1995, the Company's customers in this area included 30 disposable medical
products manufacturers within a 300 mile radius of its Syosset, New York
facility. MSI estimates that there are approximately 200 disposable medical
products manufacturers operating in this geographic area.
The Company's contract sterilization services are utilized by
manufacturers of disposable medical products which do not have in-house
sterilization capabilities or which have limited in-house capacity and utilize
the Company's services to handle overflow. The Company's services are also used
by manufacturers which require electron beam radiation sterilization either
because the nature of the product requires electron beam radiation treatment to
achieve acceptable levels of sterilization or because for certain products
electron beam radiation sterilization can be more cost-effective than other
methods. The Company believes that approximately 10% of all disposable medical
products and devices are sterilized using electron beam radiation. To meet this
need for contract sterilization services, MSI has established a radiation
facility featuring a 4.5 million electron volt, 150 kilowatt accelerator which
provides either electron or x-ray radiation.
Although the Company provides sterilization services for
approximately 30 manufacturers of disposable medical products and is sterilizing
products on a daily basis, the Company has experienced reduced orders from
certain large customers over the preceding three years and has a significant
amount of available capacity in its contract sterilization business. The
Company's Board of Directors has determined that it is in the best interests of
the Company's shareholders that the Company focus on its core Instrument Set
sterilization processing business. The Company is evaluating opportunities to
maximize the value of its electron-beam related businesses, including its
contract sterilization of disposable medical products unit and its
4
<PAGE>
radiation processing of industrial products unit either through sale, joint
venture or other commercial means. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
Radiation Processing of Industrial Products
MSI performs radiation processing services for a number of industrial
products manufacturers. The Company's electron beam accelerator can be used to
link chemically a long string of molecules of polyethylene and
polyvinylchloride, to treat crude rubber to achieve bonding and hardening and to
link undivided chemical compounds into a larger chemical entity. As of December
31, 1995, the Company was processing industrial products for several industrial
companies principally in the Northeastern United States, which products included
fabricated plastic objects, gaskets, tubing and plastic sheet and film. As part
of its radiation processing services, the Company can also cross-link the
insulation on small gauge wire.
The Company's primary radiation processing activity is the
irradiation of polytetrafluoroethylene ("PTFE"), which is also known as "Teflon"
(a registered trademark of E.I. Dupont de Nemours & Co). Once processed, the
PTFE can be ground into very small particles for use primarily as an additive
for printing inks and as a lubricant. The Company processes PTFE for Precision
Micron Powders, Inc. ("Precision"), a PTFE distributor owned by Shamrock
Technologies, Inc. ("Shamrock"), and for Shamrock. The Company processes PTFE
for Precision and Shamrock pursuant to a Toll Processing Agreement, as amended,
entered into in connection with the settlement of a lawsuit brought against the
Company by Shamrock. See "Item 3. Legal Proceedings." Pursuant to the Toll
Processing Agreement, as amended, MSI will process PTFE only for Precision and
Shamrock, and Precision and Shamrock agree to use certain minimum levels of
processing services through June 30, 1997 at prices which will result in a gross
profit to the Company for providing these services. The Company anticipates that
the amended Toll Processing Agreement will result in the purchase by Precision
and Shamrock of approximately $4.2 million of PTFE processing services for the
period of January 1, 1996 through June 30, 1997 if the Toll Processing Agreement
is performed in accordance with its terms. The term of the Toll Processing
Agreement may be extended at Shamrock's option in three month increments until
December 31, 1997, after which time MSI must cease processing PTFE, unless
otherwise agreed by Shamrock.
The Company's Board of Directors has determined that it is in the
best interests of the Company's shareholders that the Company focus on its core
Instrument Set sterilization processing business. The Company is evaluating
opportunities to maximize the value of its electron-beam related businesses,
including its contract sterilization of disposable medical products unit and its
radiation processing of industrial products unit either through sale, joint
venture or other commercial means. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition."
5
<PAGE>
Competition
The Company's principal competition with respect to its sterilization
services for healthcare providers comes from the in-house sterilization
facilities of hospitals and ambulatory surgi-centers. Most hospitals have an
in-house sterilization capability and many have invested significant capital in
their sterilization facilities. Also, the in-house sterilization facility staff
may be committed to maintaining the facility and its current staffing levels. As
a result, healthcare providers may be reluctant to shift their sterilization
activities from in-house to an off-site contractor. The Company also understands
that Baxter V. Mueller ("Baxter"), a division of Baxter Health Care Corporation,
a company with substantially greater financial and other resources than MSI, has
established Offsite Instrument and Gown Reprocessing and Sterilization Service
Centers in Chicago, Illinois; Houston, Texas; Detroit, Michigan; Tampa, Florida;
and Baltimore, Maryland. Although the Company does not directly compete with
Baxter, there can be no assurance that Baxter will not open an Offsite
Instrument and Gown Reprocessing and Sterilization Center in the Company's
service territory. If such a center were opened in the Company's service
territory, the Company's business, results of operations and financial condition
could be materially adversely affected. In addition, the Company is aware of an
emerging trend for some hospitals to outsource their endoscopy decontamination
processing to mobile endoscopy reprocessors who provide limited on-site
decontamination services to the hospital, which then will utilize its in-house
facility for sterilization. The Company has identified endoscopy decontamination
and sterilization as a target market for its services. To the extent the Company
enters into this field, it will face competition from these mobile endoscopy
reprocessing service providers. There can be no assurance that the Company will
be able to penetrate the market for endoscopy processing and sterilization
services, to achieve significant market share or to compete effectively with
mobile endoscopy reprocessing service providers.
The market for contract sterilization of disposable medical products
services is highly competitive. There are a number of entities, most of which
have significantly greater financial and other resources than the Company, which
offer contract sterilization services. The Company's major competitors in this
area include Isomedix Inc., E-Beam Services, Inc. and Ethox Corp. The Company
also competes with in-house sterilization departments of disposable medical
products manufacturers. There are a number of companies, many of which have
significantly greater financial and other resources than the Company, with
sterilization capabilities, primarily Ethylene Oxide ("EtO"), radiation and
steam sterilization, as well as decontamination and packaging capabilities,
which could enter into the healthcare provider field or the disposable medical
products field in the future.
In the industrial products radiation processing area, the Company
competes with a number of competitors, including Isomedix Inc. and E-Beam
Services, Inc.. Most of these companies have significantly greater financial and
other resources than the Company. In the year ended December 31, 1995,
substantially all of the Company's revenues from radiation processing of
industrial products services were derived from the provision of PTFE processing
services for Precision and Shamrock. Pursuant to the amended Toll Processing
Agreement with Shamrock, all of the Company's PTFE processing during 1995 was,
and in the future will be, performed for Precision and Shamrock at established
minimum production levels and the Company is not
6
<PAGE>
permitted to process PTFE for any other party. As a result, the Company does not
currently face competition with respect to its PTFE processing services.
MSI believes that the principal bases of competition include price,
quality, reputation and rapid turnaround. The Company believes that it competes
favorably with respect to these factors, although there can be no assurance that
it will be able to continue to do so. The ability of the Company to compete
successfully in the future will depend on factors both within and outside its
control, including the Company's ability to modernize and upgrade its
technology, to improve and modernize its sterilization processes, to respond to
changing market conditions and the activities of its competitors, to control
costs, to grow its customer base both within its existing geographic area and
nationally in a manner which permits the allocation of fixed costs over a
broader revenue base, and general market and economic conditions. The Company's
ability to compete will also depend, in significant part, upon the Company's
ability to convince hospitals to shift their sterilization activities from
in-house to the Company's off-site facilities and to penetrate the marketplace
for endoscopy decontamination and processing services. There can be no assurance
that the Company will be able to compete successfully with respect to these
factors in the future or that present competitors or future entrants will not
successfully compete with the Company in the future, any of which could have a
material adverse effect on the Company's business, results of operations or
financial condition.
Customers
The Company sells its sterilization services to healthcare providers
such as hospitals and ambulatory surgi-centers within a 75 mile radius of its
Syosset facility. As of December 31, 1995, the Company provided Instrument Sets
and sterilization services for Sterilizable Items pursuant to 28 sterilization
services contracts with hospitals and ambulatory surgi-centers. With respect to
contract sterilization services for disposable medical products manufacturers,
as of December 31, 1995, the Company provided contract sterilization services to
30 disposable medical products manufacturers within a 300 mile radius of its
facility in Syosset. The Company performs its PTFE processing services for
Precision and Shamrock and processes other industrial products for other
manufacturers. As of December 31, 1995, the Company was processing industrial
products for several industrial companies principally in the Northeastern United
States. For the fiscal year ended December 31, 1995, sales to Precision and
Shamrock accounted for substantially all of the Company's revenues from
industrial product radiation processing services and 30% of the Company's total
revenues. No other single customer accounted for 10% or more of the Company's
total revenues for the fiscal year ended December 31, 1995. The loss of any one
or more significant customers could have a material adverse effect on the
Company's business, results of operations and financial condition.
Suppliers
The Company purchases from surgical instrument manufacturers the
surgical instruments included in Instrument Sets that are provided to hospitals
and ambulatory surgi-centers. Pursuant to a sales and marketing agreement
recently entered into with Pilling Weck, a national surgical instrument
manufacturer and a division of Teleflex Incorporated, the Company
7
<PAGE>
has agreed to purchase substantially all of its surgical instrument requirements
from Pilling Weck, and Pilling Weck has agreed to supply surgical instruments to
the Company as well as to be the exclusive sales and marketing agent for MSI in
the United States. See "-Sales and Marketing." Pursuant to this agreement, the
Company will receive certain volume pricing discounts and the Company will
utilize Pilling Weck supplied instruments in its Instrument Sets unless a
particular customer requires the use of another instrument vendor. The Company
believes that surgical instruments are readily available from other suppliers at
market prices should Pilling Weck for any reason be unable to satisfy the
Company's instrument needs in full.
Sales and Marketing
MSI's sales and marketing strategy is to grow existing accounts by
service expansion: for example, if the Company is serving the labor and delivery
department of a hospital it will attempt to leverage its services into the
general operating room of the hospital after a period of successful product
performance in the labor and delivery area. The Company also intends to expand
its portfolio of reprocessing services to include new service offerings such as
endoscopy procedure specific Instrument Sets. The Company's sales and marketing
efforts are coordinated by two dedicated in-house sales professionals who are
supported by a third sales coordinator who works with the hospitals to determine
the proper configuration of the Instrument Sets to be provided to each hospital.
In addition, the Company has recently entered into a sales and marketing
agreement with Pilling Weck which provides, among other things, for Pilling Weck
to represent and sell MSI's decontamination, reprocessing and sterilization
services to customers in select highly populated urban centers in exchange for
specified commissions. Pursuant to the sales and marketing agreement, which has
a three-year term ending January 5, 1999 unless extended or earlier terminated
in accordance with its terms, Pilling Weck is providing to MSI the services of
its 10 Northeast sales representatives who are assisting the Company in
developing sales opportunities in the Northeast corridor.
Intellectual Property
The Company does not rely on any patents for the conduct of its
business. The Company does rely upon the know-how of its employees and has
executed non-disclosure and non-competition agreements with its employees. The
Company relies in significant part upon its hospital tracking software which
allows the Company to monitor and control the levels of Sterilizable Items and
Instrument Sets on site with a given customer and to plan and control
sterilization activities. The Company's hospital tracking software was purchased
from its developer and the copyrights were assigned to the Company. Although the
Company believes that it has all necessary ownership and copyright rights in its
hospital tracking software and that this software does not infringe upon the
intellectual property rights of third parties, any determination to the contrary
could have a material adverse effect on the Company's business, results of
operations and financial condition.
8
<PAGE>
Government Regulation
The Company has obtained a license from the New York State Department
of Labor, Division of Safety and Health, Radiological Health Unit to operate its
radiation sterilization and processing facility. This license is currently in
force and the Company believes it is in material compliance with applicable laws
and regulations with respect to its radiation sterilization and processing
facility.
The Company is registered with the Department of Health and Human
Services, Public Health Service of the FDA, and believes it is in material
compliance with the FDA compliance program with regard to the industrial
sterilization of medical devices. The Company complies with this program even
though, for these purposes, a hospital (and the Company, by extension) is not
considered to be a manufacturer of medical devices and is therefore not subject
to the FDA regulations.
The Company believes that it is in material compliance with the
regulations of the Nassau County Department of Public Works with regard to the
disposition of effluents. The Company has a certificate to operate an ozone
emission source from the Nassau County Department of Health which enforces the
regulations of the New York State Department of Health. In July 1994, the New
York State Department of Environmental Conservation announced stringent
standards with regard to the emission of ozone . The Company is working with
State and County authorities on an established timeline to bring the Company
into compliance with these standards. MSI has hired consultants to measure the
emissions of ozone and, in conjunction with State and County authorities, to
design necessary pollution control equipment to meet these standards. The
Company estimates that the cost of equipment to bring the Company into
compliance with these standards will be approximately $300,000. If the Company
does not comply with these ozone emission standards it will not be able to
obtain a permit to operate its electron beam accelerator, resulting in a
significant reduction in revenues. With the exception of this potential
expenditure, the Company's cost of compliance with applicable environmental laws
and regulations has not been material. However, there can be no assurances that
changes in existing environmental laws or the enactment of new laws will not
require the Company to invest substantial amounts in pollution control
equipment. Any such changes, or any failure to comply with environmental laws
and regulations, could have a material adverse effect on the Company's business,
results of operation or financial condition. See "Item 3. Legal Proceedings."
The Company is also subject to the requirements of the Occupational
Safety and Health Administration ("OSHA") and believes that it is in material
compliance with OSHA. The Company believes that it is in material compliance
with all other applicable federal, state and local rules and regulations
relating to the conduct of its business.
9
<PAGE>
Employees
As of December 31, 1995, the Company had 81 full-time and 20 part-time
employees. Management believes its relations with its employees are good. None
of its employees are covered by any collective bargaining agreement.
Item 2. Description of Property
- - -----------------------------------
The Company's headquarters, including its executive offices,
sterilization facility and radiation processing facility, occupy 103,000 square
feet of leased space in a building located at 225 Underhill Boulevard, Syosset,
New York. The Company originally entered into its headquarters lease on March 1,
1984. In February 1994, the Company and the Landlord amended the lease to extend
its term from March 1, 1994 to February 28, 1996, with an annual rent of
$432,000. On November 20, 1995, the Company executed a new lease for its
headquarters which provides for a term of March 1, 1996 through February 28,
2001 with an annual rent of $456,000 for the first three years and $504,000 for
the next two years.
The Company believes that its facilities and equipment are in good
condition and are suitable for its operations as presently conducted and for its
foreseeable future operations. The Company currently believes that additional
facilities and equipment can be acquired if necessary, although there can be no
assurance that additional facilities and equipment will be available upon
reasonable or acceptable terms, if at all.
Item 3. Legal Proceedings
- - ----------------------------
The Company and Robert S. Luniewski, its former Senior Vice President,
were named as defendants in an action which was commenced on May 31, 1988 in the
United States District Court, Eastern District of New York, by Shamrock alleging
patent infringement, breach of an Employment Agreement, a Trade Secret Agreement
and fiduciary relationship as an officer of Shamrock. Shamrock was awarded
damages in the amount of $2,677,728.70 together with interest on the sum of
$2,057,294.30 at the rate of 1.5% above the prime rate from August 21, 1989.
Shamrock also obtained a permanent injunction as of September 3, 1989 against
the Company from processing PTFE by methods which allegedly infringed Shamrock's
patent and violated trade secrets. The Court of Appeals for the Federal Circuit
affirmed the award of damages. In November 1994, Shamrock and MSI entered into
agreements as a result of which the judgment, then in the amount of $3,751,600
including interest, was satisfied. In settlement, the Company paid $62,500 to
Shamrock; issued to Shamrock warrants to purchase 75,000 shares of the Company's
Common Stock at $2.00 per share; and issued to Shamrock 25,000 shares of the
Company's Common Stock. See Note 13 of Notes to Financial Statements.
At the time of the settlement in November 1994, the Company and
Shamrock entered into the Toll Processing Agreement pursuant to which Shamrock
agreed to purchase from the Company $3.3 million of PTFE processing services
over a period of 18 months ending May, 1996 at prices which provided for a gross
profit to the Company. On November 1, 1995, the Toll Processing Agreement was
extended and modified. The extension covers a period of 18 months
10
<PAGE>
which commenced January 1, 1996 and ends on June 30, 1997, unless extended at
Shamrock's option for additional three month increments through December 31,
1997. Because the extension agreement was to commence on January 1, 1996, the
existing requirement for Shamrock to purchase $3.3 million of PTFE processing
services through May of 1996 was terminated as of December 31, 1995. For the
period from November 1994 through December 31, 1995, Shamrock had purchased
approximately $3,200,000 of PTFE processing services pursuant to the Toll
Processing Agreement. During the extension period the Company has agreed to
provide, and Shamrock has agreed to use, certain minimum levels of processing
services at prices which will result in a gross profit to the Company for
providing these services. If the extension agreement is performed in accordance
with its terms, the Company estimates that Shamrock and Precision will purchase
approximately $4.2 million of PTFE processing services from January 1, 1996
through June 30, 1997. The Company has agreed that it will not process PTFE for
any other entity during and after the termination of its agreement with
Shamrock.
MSI gave to Shamrock as security a confession of judgment in the amount
of $1,250,000 to be entered only if any agreement listed in the Settlement
Agreement is rejected under the provisions of the Bankruptcy Code and only if a
proceeding is commenced in the future in which the Company is the bankrupt
party. The Confession of Judgment is limited to the earlier of the rejection of
an agreement by the Bankruptcy Court and 120 days after the termination of the
original Toll Processing Agreement on December 31, 1995.
In addition, in July 1994 the New York State Department of
Environmental Conservation announced stringent standards with regard to the
emission of ozone. The Company is working with State and County authorities on
an established timeline to bring the Company into compliance with these
standards. The Company has hired consultants to measure the Company's ozone
emissions and, in conjunction with State and County authorities, to design
necessary pollution control equipment to meet these standards. The estimated
cost of such pollution control equipment is approximately $300,000. In the event
the Company does not install such pollution control equipment, it will not
obtain a permit to operate its electron beam accelerator, which would result in
a significant reduction in revenues and would have a material adverse effect on
the Company's business, results of operations and financial condition. See "Item
1. Description of Business-Government Regulation."
Item 4. Submission of Matters to a Vote of Security-Holders
- - --------------------------------------------------------------
No matters were submitted for a vote of security-holders during the
Company's fiscal quarter ended December 31, 1995.
11
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Shareholder Matters
- - --------------------------------------------------------------------------------
The Company's Common Stock, $.01 par value per share, has been traded
in the over-the-counter market (under the symbol "MSTI") since September 26,
1983 and is now quoted on the Nasdaq Bulletin Board. Such quotations reflect
inter-dealer prices, without retail mark-up, mark-down, or commission and may
not necessarily represent actual transactions. The approximate number of record
holders of the Company's Common Stock as of March 18, 1996 was 275. The
following table sets forth the high and low bid prices for a share of the
Company's Common Stock as reported on the Nasdaq Bulletin Board for each fiscal
quarter in the last two fiscal years and for the first fiscal quarter of 1996
(through March 18, 1996):
1996 High Bid Low Bid
- - ---- -------- -------
First Quarter (through March 18, 1996) 1-3/16 15/16
1995
- - ----
Fourth Quarter 1-7/8 11/16
Thir Quarter 1-1/4 1/2
Second Quarter 1-1/4 1/2
First Quarter 1-1/4 1/2
1994
- - ----
Fourth Quarter 1-3/8 5/8
Third Quarter 1-3/8 3/8
Second Quarter 19/64 19/64
First Quarter 11/16 1/4
The Company has never paid cash dividends with respect to its shares of
Common Stock. The Company currently intends to retain earnings, if any, for use
in its business and does not anticipate paying cash dividends on its shares of
Common Stock in the foreseeable future. The Company is required to pay dividends
in cash or in kind with respect to the outstanding shares of Series B
Convertible Preferred Stock. In addition, the Company's loan agreements, the
Financing Agreement with Rosenthal and Rosenthal, Inc. and the terms of the
Company's outstanding Series B Convertible Preferred Stock and the Series C
Convertible Preferred Stock prohibit the payment of dividends on the shares of
Common Stock. See Notes 6 and 8 of Notes to Financial Statements.
12
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- - ---------------------------------------------------------------------------
Overview
The Company had net income in the year ended December 31, 1995 of
approximately $192,000 as compared to approximately $52,000 for the year ended
December 31, 1994. The increase in net income of approximately $140,000 was due
primarily to a 17% increase in sales volume in the Company's sterilization
services for healthcare providers business in 1995 as compared to the Company's
sales volume in that business for 1994, partially offset by reduced sales volume
in the Company's radiation processing business and an increase in operating
expenses and selling, general and administrative expenses.
The Company had net income in 1994 of approximately $52,000 as compared
to approximately $246,000 in 1993. The decrease was due primarily to reduced
sales volume in the Company's contract sterilization business as several
customers (Costar and American White Cross) reduced their business with the
Company. Even though sales in the Company's sterilization services for
healthcare providers and radiation processing businesses increased, they could
not offset the significant loss of volume in the contract sterilization
business. The profit in 1993 was primarily a result of the reversal of the
unapplied portion of the reserve for litigation loss the Company had accrued as
of December 31, 1992.
For the fiscal year ended December 31, 1995, the Company's
sterilization services for healthcare providers, contract sterilization of
disposable medical products and radiation processing of industrial products
businesses accounted for approximately 53.7%, 15.3% and 31.0%, respectively, of
the Company's revenues, as compared with 49.2%, 15.4% and 35.4%, respectively,
for the fiscal year ended December 31, 1994. The Company's Board of Directors
has determined that it is in the best interests of the Company's shareholders
that the Company focus on its core Instrument Set sterilization processing
business. The Company is evaluating opportunities to maximize the value of its
electron-beam related businesses, including its contract sterilization of
disposable medical products unit and its radiation processing of industrial
products business unit either through sale, joint venture or other commercial
means.
Price increases are governed by contract terms for sterilization
services to healthcare providers. These contracts have recognizable escalation
factors. The prices for sterilization of disposable medical products and the
processing of industrial products are determined by competition and market
conditions. Price increases normally will be reflected in increased revenues and
profits and a price decreases normally will result in decreased revenues and
profits.
In November 1994, the Company satisfied an outstanding judgment against
it, entered into a two million dollar working capital line of credit with an
asset-based lender, restructured its bank financing and renegotiated the terms
of its existing preferred stock with its majority preferred shareholders See
Notes 6, 8, 9 and 13 of Notes to Financial Statements.
13
<PAGE>
In December 1995, the Company extended the term of its working capital
line of credit (which was due to expire in November 1996) to January 1997. All
other terms of the agreement were left the same. See Note 6 of Notes to
Financial Statements.
Results of Operations
1995 Compared with 1994
- - -----------------------
Revenues. Revenues for the year ended December 31, 1995 increased
approximately 7% to approximately $8,772,000 from approximately $8,220,000 for
the year ended December 31, 1994. The increase in revenues was attributable to
an approximate $685,000 or 8% increase in total revenues related to the
Company's sterilization services to healthcare providers business and an
approximate $77,000 or 1% increase in total revenues related to the Company's
contract sterilization business, partially offset by an approximate $207,000 or
2% decrease in total revenues related to the Company's radiation processing of
industrial products business. The increase in total revenues related to the
Company's sterilization services to healthcare providers was attributable to
market penetration of new customers and expanded services to the Company's
existing customer base. The Company's sales strategy is to grow existing
accounts by service expansion: for example, if the Company is serving the labor
and delivery department of a hospital it will attempt to leverage its service
into the general operating room of the hospital after a period of successful
product performance in the original labor and delivery area. MSI also intends to
expand its portfolio of reprocessing services to include new service offerings
such as endoscopy procedure specific Instrument Sets. The decrease in radiation
processing revenues was primarily attributable to discounted prices given to its
largest customer. These price concessions, which are basically volume discounts,
were given to ensure a steady flow of production through its facility which
provides for a more consistent absorption of the Company's overhead.
Gross Profit. Gross profit increased approximately $374,000 or 19% from
approximately $1,972,000 in the year ended December 31,1994 to approximately
$2,346,000 in the year ended December 31, 1995. Gross profit as a percentage of
revenues increased 2.8% from 23.9% in the year ended December 31, 1994 to 26.7%
in the year ended December 31, 1995. The increase in the Company's gross profit
was attributable to improved production efficiencies in the Company's plant. The
major components of these efficiencies were a reduction in labor as a percentage
of revenues, and a reduction of utilities as the Company made arrangements to
purchase the major portion of its electricity from the New York State Power
Authority at reduced rates.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased by approximately $116,000 from approximately
$1,706,000 in the year ended December 31, 1994 to approximately $1,822,000 in
the year ended December 31, 1995. As a percentage of revenues, selling, general
and administrative expenses increased from 20.7% in the year ended December 31,
1994 to 20.8% in the year ended December 31, 1995. The major portion of the
increase resulted from the recruiting and eventual hiring of a new president of
the Company and the expenses related thereto, which was a non-recurring expense.
In most other
14
<PAGE>
areas of selling, general and administrative expenses, the Company experienced
virtually no increases.
Interest Expense. Interest expense increased from approximately
$221,000 or 2.7% of revenues for the year ended December 31, 1994 to
approximately $335,000 or 3.8% of revenues for the year ended December 31, 1995.
This increase of $114,000 or 52% was the result of increased borrowing to
support the Company's growth and an increase in the Company's interest rate.
Net Income. Net income increased from approximately $52,000 or 0.6% of
revenues in 1994 to approximately $192,000 or 2.2% of revenues in the year ended
December 31, 1995. This represented an increase of approximately $140,000 or
269% for the year ended December 31, 1995 compared to the year ended December
31, 1994. The increase in net income is basically attributable to the increased
sales volumes and gross margin increases partially offset by increases in
selling, general and administrative expenses and interest expense as the Company
continued to make investments in these areas.
Net Income (Loss) Applicable to Common Shareholders. Net income (loss)
applicable to common shareholders for the year ended December 31, 1995 increased
to approximately $77,000 from a net loss of approximately ($126,000) for the
year ended December 31, 1994. This represented an increase of approximately
$203,000 for the year ended December 31, 1995 compared to the year ended
December 31, 1994. The increase was the result of the increase in net income
described above and the decrease in dividends on the Preferred Stock from
approximately $178,000 in the year ended December 31, 1994 to approximately
$114,000 in the year ended December 31, 1995. This decrease was the result of
the restructuring of the Company's Preferred Stock in the year ended December
31, 1994 which reduced the amount of Preferred Stock bearing dividends and also
reduced the dividend rate.
Net Income (Loss) Per Share of Common Stock. Net income (loss) per
share of common stock for the year ended December 31, 1995 increased to $.02 per
share compared to a net loss per share of ($.04) for the year ended December 31,
1994. The increase was primarily attributable to the increased net income
applicable to common shareholders described above partially offset by an
increase in the weighted average number of common shares outstanding.
1994 Compared With 1993
Net income for 1994 was approximately $52,000 compared to approximately
$246,000 in 1993. The net loss per share after adjustment for accrued dividends
on Preferred Stock was ($.04) for 1994 compared to net income per share of $.00
in 1993. The decrease in net income was primarily due to a significant decrease
in the Company's contract sterilization services which could not be totally
offset by modest growth in its sterilization services for healthcare
organizations and radiation processing of industrial products services.
Revenues decreased to approximately $8,220,000 in 1994 from
approximately $8,476,000 in 1993. This decrease of approximately $256,000 or 3%
resulted principally from
15
<PAGE>
the loss of business in the Company's contract sterilization of disposable
medical products business.
Operating expenses increased to approximately $6,248,000 in 1994 from
approximately $5,991,000 in 1993. This increase of approximately $257,000 or 4%
resulted primarily from increased costs for utilities, healthcare insurance and
raw materials.
Selling, general and administrative expenses decreased in 1994 to
approximately $1,706,000 from approximately $2,003,000 in 1993. This decrease of
approximately $297,000 or 15% resulted primarily from reductions in litigation
expenses and from management's decision to limit expenses as much as possible in
this area in response to the ongoing negotiation of its patent infringement case
which was successfully completed in November 1994.
Interest expense decreased to approximately $221,000 in 1994 from
approximately $236,000 in 1993. This decrease of approximately $15,000 or 6% was
due to a decrease in borrowing as the Company curtailed its instrument purchases
in response to the patent infringement lawsuit.
Liquidity and Capital Resources
Current assets have increased approximately $205,000 to approximately
$2,837,000 at December 31, 1995 from approximately $2,632,000 at December 31,
1994. The increase was primarily attributable to an approximate $50,000 increase
in accounts receivable and an approximate $61,000 increase in inventory. The
Company had working capital of approximately $1,607,000 at December 31, 1995
compared to working capital of approximately $1,149,000 at December 31, 1994.
The Company's current ratio at December 31, 1995 was 2.31 to 1 compared to a
current ratio of 1.77 to 1 at December 31, 1994. The improvement in the
Company's working capital and current ratio at December 31, 1995 compared to
December 31, 1994 was primarily the result of the increases in accounts
receivable and inventory and the reduction of short-term debt through the use of
the Company's line of credit which is classified as long-term. In November 1995,
the Company extended its line of credit (which was to expire in November of
1996) to January 31, 1997. The Company currently plans to expand its business
both geographically and by increasing its portfolio of reprocessing services to
include new service offerings such as endoscopy procedures Instrument Sets. In
addition, the Company will be required to expend approximately $300,000 on
pollution control equipment in the future (see "Item 1. Business-Government
Regulation"). The Company believes that the anticipated future cash flow from
operations, along with its cash on hand and available funds under its working
capital line of credit will be sufficient to meet working capital requirements
during 1996. There can be no assurance, however, that the Company will not
require additional working capital and, if it does require such capital, that
such capital will be available to the Company on acceptable terms, if at all.
As of December 31, 1994, the Company had working capital of
approximately $1,149,000 as compared to approximately $864,000 in 1993. This
change in the Company's working capital was due primarily to a complete
restructuring of the Company's financial
16
<PAGE>
structure including a new bank financing agreement and a new line of credit with
a commercial lender.
In November 1994, the Company restructured its Series A Convertible
Preferred Stock (as of June 30, 1994 values) which was due to be redeemed on
December 31, 1994. Of the 800,000 shares of outstanding Series A Convertible
Preferred Stock, 50,000 outstanding shares of Series A Convertible Preferred
Stock and accrued dividends aggregating $225,000 were converted into a one (1)
year term loan with monthly principal and interest payments and bearing interest
at the rate of prime plus 3-1/2%. This note was paid off in 1995. The Company
also granted warrants to purchase 10,000 shares of its Common Stock at $2.00 per
share expiring in 1999. The remaining 750,000 shares plus accrued dividends of
approximately $1,071,000 were exchanged for 687,500 shares of Series B
Convertible Preferred Stock and 1,945,625 shares of Series C Convertible
Preferred Stock. The Series B Convertible Preferred Stock is convertible at the
option of the holder into Common Stock or cash, at $2.00 per share maturing
December 31, 1999. Dividends accrue on the Series B Convertible Preferred Stock
at the rate of 8% per year. These dividends may be paid in cash or accrued at
the option of the Company. If not paid they will be added to the face amount of
the Series B Convertible Preferred Stock at the price of $2.00 per share.
In the event that during the next five (5) years the market price of
the Company's Common Stock as quoted on Nasdaq attains a price of $6.00 per
share and maintains such price for at least 90 days, the Series B Convertible
Preferred Stock will be automatically converted into Common Stock.
The Series C Convertible Preferred Stock is automatically convertible
at $1.00 per share into 1,945,625 shares of Common Stock on December 30, 2004,
or earlier at the option of the holder. There are no dividends payable or
accrued on the Series C Convertible Preferred Stock.
In the event that during the next (5) years the market price of the
Company's Common Stock as quoted on Nasdaq attains a price of $3.00 per share
and maintains such price for at least 90 days, the Series C Convertible
Preferred Stock will be automatically converted into Common Stock.
In November of 1994, the Company renegotiated the terms of its bank
borrowing facilities. The existing bank loan of $1,514,000 was replaced with a
new loan agreement. In connection with this new loan, the Company made a
$600,000 payment against the existing principal balance. The remaining principal
balance of $914,000 was converted into a four (4) year term loan which bears
interest at a rate of prime plus 2-1/2%. The principal is amortized on a monthly
basis at the rate of $12,500 per month with a balloon payment of $326,836 due
October 1998. In addition, the bank exchanged its first lien on the Company's
assets for a second lien position. The Company also extended the term of the
warrants to purchase 100,000 shares of Common Stock being held by the bank for
an additional three (3) years and reduced the exercise price to $2.00 per share.
17
<PAGE>
In November of 1994, simultaneously with the restructuring of its bank
loan agreement described above, the Company entered into a line of credit
arrangement with a lending institution. The agreement provides for a revolving
collateralized line of credit of up to $2,000,000. The line of credit is secured
by basically all assets of the Company. The Company can borrow up to 70% of its
eligible accounts receivable. The interest rate on the facility is prime plus
3-1/2%. In December 1995, the Company extended the term of its working capital
line of credit which was due to expire in November 1996 to January 1997.
On September 29, 1994, the Board of Directors approved the 1994 Stock
Option Plan and authorized the issuance of up to 1,000,000 shares of Common
Stock of the Company upon the exercise of Incentive and Non Statutory Stock
Options which may be granted pursuant to the Plan. On March 21, 1996, the Board
of Directors approved, subject to shareholder approval at the next shareholders
meeting, the 1996 Stock Plan which authorizes the issuance of up to an
additional 500,000 shares of Common Stock of the Company pursuant to Incentive
and Non-Statutory Stock Options as well as awards of Common Stock and rights to
purchase Common Stock.
At the time of the settlement in November 1994 of Shamrock's patent
infringement suit against the Company, the Company and Shamrock entered into the
Toll Processing Agreement pursuant to which Shamrock agreed to purchase from the
Company $3.3 million of PTFE processing services over a period of 18 months
ending May, 1996 at prices which provided for a gross profit to the Company. On
November 1, 1995, the Toll Processing Agreement was extended and modified. The
extension covers a period of 18 months which commenced January 1, 1996 and ends
on June 30, 1997, unless extended at Shamrock's option for additional three
month increments through December 31, 1997. During the extension period the
Company has agreed to provide, and Shamrock has agreed to use, certain minimum
levels of processing services at prices which will result in a gross profit to
the Company for providing these services. If the extension agreement is
performed in accordance with its terms, the Company estimates that Shamrock and
Precision will purchase approximately $4.2 million of PTFE processing services
from January 1, 1996 through June 30, 1997. The Company has agreed that it will
not process PTFE for any other entity during and after the termination of its
agreement with Shamrock. MSI gave to Shamrock as security a confession of
judgment in the amount of $1,250,000 to be entered only if any agreement listed
in the Settlement Agreement is rejected under the provisions of the Bankruptcy
Code and only if a proceeding is commenced in the future in which the Company is
the bankrupt party. The Confession of Judgment is limited to the earlier of the
rejection of an agreement by the Bankruptcy Court and 120 days after the
termination of the original Toll Processing Agreement on December 31, 1995.
As part of the settlement of the Shamrock litigation, the Company
issued warrants to purchase 75,000 shares of its Common Stock at $2.00 per share
to Shamrock which expire in 1999, and issued 25,000 shares of the Company's
Common Stock outright. Shamrock also received payment of $62,500 in cash. Also
in conjunction with the settlement, the Company issued warrants to purchase
40,000 shares of its common stock at $2.00 per share to each of two directors of
the Company for services rendered in connection with the settlement. The
warrants expire in 1999.
18
<PAGE>
In April 1995, the Company entered into a $440,000 line of credit with
a finance company to finance the acquisition of surgical instruments and fixed
assets. The line of credit bears interest at the rate of prime plus 3-1/2%. Once
a draw-down on the line is taken, the interest rate for the specific lease is
set permanently for that lease. The Company expects to fully utilize this line
for fixed asset acquisitions during 1996.
Inflation
The Company does not anticipate that inflation will have any
significant effect on its business particularly since the United States, the
only market in which the Company currently intends to operate, is presently
experiencing a relatively low rate of inflation.
Certain Factors That May Affect Future Results
From time to time, information provided by the Company, statements made
by its employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-KSB) may contain statements which
are not historical facts, so-called "forward-looking statements," which involve
risks and uncertainties. Forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In particular, statements made above in "Item 2. Description of Property"
relating to the suitability of the Company's facilities and equipment for future
operations and the availability of additional facilities and equipment in the
future and in "Item 6. Management's Discussion and Analysis of Financial
Condition and Results of Operations" relating to the sufficiency of funds for
the Company's working capital requirements during 1996, the Company's
expectation that future cash flow will continue to be provided from operations
and the Company's not presently anticipating that inflation will have any
significant impact on its business may be forward-looking statements. The
Company's actual future results may differ significantly from those stated in
any forward-looking statements. Factors that may cause such differences include,
but are not limited to, the factors discussed below. Each of these factors, and
others, are discussed from time to time in the Company's filings with the
Securities and Exchange Commission.
The Company's future results are subject to substantial risks and
uncertainties. The Company has operated at a loss or a very small profit for its
entire history and there can be no assurance of its ever achieving consistent
profitability. The Company had working capital of approximately $1,607,000 as at
December 31, 1995 and has a working capital line of credit which expires January
31, 1997. The Company may require additional working capital in the future and
there can be no assurance that such working capital will be available on
acceptable terms, if at all. The contract sterilization of disposable medical
products marketplace is highly competitive and many of the Company's competitors
have significantly greater financial and other resources than the Company. The
failure of the Company to continue to compete effectively with existing or new
competitors could result in price erosion, decreased margins and decreased
revenues, any or all of which could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company
historically has relied on a
19
<PAGE>
relatively small number of customers, including Shamrock and Precision, for a
large percentage of its total revenues. Loss of, or a decrease in orders from,
any one or more of these customers could have a material adverse effect on the
Company's results of operations. In particular, the loss of business from
Shamrock or Precision in spite of the amended toll processing agreement would
have a material adverse effect on the Company's business and results of
operations. The Company's healthcare provider customers are all located in the
New York metropolitan area and Long Island, New York. Any factors affecting this
market generally could have a material adverse effect on the Company's business,
results of operations and financial condition. The Company is subject to
government regulation in certain aspects of its operations and is required to
install certain pollution control equipment. Any failure to comply with
applicable government regulations or to properly and timely install appropriate
pollution control equipment could have a material adverse effect on the
Company's business, results of operations and financial condition. The Company's
future success will depend in part on its ability to convince hospitals and
other healthcare providers to utilize the Company's off-site sterilization
services as opposed to their own on-site facilities. Hospitals may resist this
change for a number of reasons, including the preferences of hospital staffs
which may wish to preserve their existing staffing intact, labor unions which
may resist any staffing reductions and the ongoing consolidation of hospitals
which may impact the willingness of hospital administrators to make operational
decisions on a timely basis and which may affect a hospital's decision to
utilize an off-site processor as opposed to retaining one or more of the
consolidated hospital group's central sterilization facilities to provide
services for the entire group. The Company relies upon the know-how of its
employees and upon its hospital tracking software to efficiently conduct its
business. Any invalidation of these intellectual property rights or lengthy and
expensive defense of these rights could have a material adverse effect on the
Company.
The Company's quarterly and annual operating results are affected by a
wide variety of factors that could materially adversely affect revenues and
profitability, including: competitive pressures on selling prices and margins;
the timing and cancellation of customer orders; the lengthy sales cycle of the
Company's sterilization services to healthcare organizations; the Company's
ability to maintain state-of-the-art sterilization facilities and the
corresponding timing and amount of capital expenditures, particularly if the
Company executes its plan for expansion; and the introduction of new services by
the Company's competitors. As a result of the foregoing and other factors, the
Company may experience material fluctuations in future operating results on a
quarterly or annual basis which could materially and adversely affect its
business, operating results and stock price. Although the Company achieved a
positive net income per share of Common Stock for the fiscal year ended December
31, 1995, the Company expects to incur a net loss per share of Common Stock for
the first fiscal quarter of 1996.
Item 7. Financial Statements
- - -------------------------------
For the following financial information required by this Item, see
Index on Page F-1:
Report of Independent Accountants
Balance Sheet as at December 31, 1995
Statements of Operations for the years ended December 31, 1995 and 1994
20
<PAGE>
Statements of Shareholders' Equity for the years ended December 31,
1995 and 1994
Statements of Cash Flows for the years ended December 31,
1995 and 1994
Notes to Financial Statements
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure
- - --------------------------------------------------------------------------
There has been no change of accountants nor any disagreements with
accountants on any matter of accounting principles or practices or financial
statement disclosure required to be reported under this Item.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16(a) of the Exchange Act
- - ------------------------------------------------------------------------
The information required by this Item is incorporated herein by
reference to the information in the sections entitled "Proposal Relating to
Election of Directors," "Occupations of Directors and Executive Officers," and
"Compensation and Other Information Concerning Directors and Officers" contained
in the Company's definitive proxy statement to be filed with the Securities and
Exchange Commission not later than 120 days after the close of the fiscal year
ended December 31, 1995.
Item 10. Executive Compensation
- - -----------------------------------
The information required by this Item is incorporated herein by
reference to the information in the section entitled "Compensation and Other
Information Concerning Directors and Officers" contained in the Company's
definitive proxy statement to be filed with the Securities and Exchange
Commission not later than 120 days after the close of the fiscal year ended
December 31, 1995.
Item 11. Security Ownership of Certain Beneficial Owners and Management
- - ---------------------------------------------------------------------------
The information required by this Item is incorporated herein by
reference to the information in the section entitled "Management and Principal
Shareholders" contained in the Company's definitive proxy statement to be filed
with the Securities and Exchange Commission not later than 120 days after the
close of the fiscal year ended December 31, 1995.
Item 12. Certain Relationships and Related Transactions
- - -----------------------------------------------------------
The information required by this Item is incorporated herein by
reference to the information in the section entitled "Certain Relationships and
Related Transactions" contained in the Company's definitive proxy statement to
be filed with the Securities and Exchange Commission not later than 120 days
after the close of the fiscal year ended December 31, 1995.
21
<PAGE>
Item 13. Exhibits, List and Reports on Form 8-K
- - ------------------------------------------------
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
3.1(beta) Restated Certificate of Incorporation
3.2(beta) Certificate of Amendment of Certificate of Incorporation
3.3(beta) Certificate of Amendment of Certificate of Incorporation
3.4(beta) Amended and Restated By-Laws
10.1(PHI) 1994 Stock Option Plan
10.2(beta) 1996 Stock Plan
10.3* Agreement with Mercy Hospital dated November 14, 1988. This contract is substantially
similar to the other contracts entered into with hospitals. The basic differences relate
to the type of medical sets provided, the term of the contract and the compensation.
10.4(beta) Lease Agreement with Barlich Realty, Inc.
10.5(beta) Agreement with Oxford Venture Fund III, Limited Partnership, and Oxford Venture Fund III
Adjunct, Limited Partnership.
10.6(beta) Agreement with Oxford Venture Fund II, Limited Partnership.
10.7(PHI) Agreement with Precision Micron Powders, Inc. and Robert S. Luniewski.
10.8 (arrows) Letter Agreement with Precision Micron Powders, Inc.
10.9@@ Revised Agreement with Precision Micron Powders, Inc.
10.10(PHI) Settlement Agreement with Shamrock Technologies, Inc. and Robert S. Luniewski.
10.11(PHI) Toll Processing Agreement with Shamrock Technologies, Inc.
10.12(beta) Extension of Toll Processing Agreement
10.13(PHI) Release dated November 29, 1994.
10.14(PHI) Satisfaction of Judgment
10.15(PHI) Affidavit of Confession of Judgment
10.16(beta) Agreement with Sumitomo Heavy Industries (USA)
10.17(PHI) Financing Agreement with Rosenthal & Rosenthal, Inc.
10.18* Credit Line and Term Loan Agreements with Apple Bank for Savings
10.19(beta) Letter amending Credit Line and Term Loan Agreements from Apple Bank for Savings
10.20 (arrows) Letter confirming Term Loan Agreement from Apple Bank for Savings
10.21(PHI) Amendment No. 1 to Credit Agreement with Apple Bank for Savings
10.22(PHI) Loan Extension Agreement with Apple Bank for Savings
10.23(beta) Agreement with Dr. Morganstern
10.24(beta)(diamond) Agreement with Pilling Weck
22
<PAGE>
23.1(beta) Consent of Coopers & Lybrand L.L.P.
27.1(beta) Financial Data Schedule
<FN>
- - -------------
(beta) Filed herewith.
* Previously filed as an exhibit to the Company's Amendment No. 1 to the
Registration Statement on Form S-1(File No. 33-28660) and incorporated
herein by reference.
(PHI) Previously filed as an exhibit to the Company's Annual Report for the
fiscal year ended December 31, 1993 on Form 10-K and incorporated herein
by reference.
(graphic) Previously filed as an exhibit to the Company's Registration Statement on
Form SB-2 (File No. 33-96330) and incorporated herein by reference.
@@ Previously filed as an exhibit to the Company's Annual Report for the
fiscal year ended December 31, 1992 on Form 10-K and
incorporated herein by reference.
(arrows) Previously filed as an exhibit to the Company's Annual Report for the
fiscal year ended December 31, 1991 on Form 10-K and incorporated
herein by reference.
(graphic) Previously filed as an exhibit to the Company's Annual Report for the
fiscal year ended December 31, 1990 on Form 10-K and incorporated
herein by reference.
(diamond) Confidential treatment requested as to certain portions.
</FN>
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the Company's
fiscal quarter ended December 31, 1995.
23
<PAGE>
SIGNATURES
In accordance with Section 13 or 15 (d) of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
March 29, 1996 MEDICAL STERILIZATION, INC.
By: /s/ D. Michael Deignan
--------------------------
Name: D. Michael Deignan
Title: President and Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated.
Name and Signature Title(s) Date
- - -------------------------- ----------------------------- --------------
/s/ D. Michael Deignan President, Chief Executive March 29, 1996
- - -------------------------- Officer and Director
D. Michael Deignan (principal executive officer)
/s/ Paul V. Rossi Treasurer and Chief March 29, 1996
- - -------------------------- Financial Officer (principal)
Paul V. Rossi financial and accounting
officer)
/s/ Harvey Cohen Director and Secretary March 29, 1996
- - --------------------------
Harvey Cohen
/s/ John R. Hoover Director March 29, 1996
- - --------------------------
John R. Hoover
/s/ Kenneth W. Rind Director March 29, 1996
- - --------------------------
Kenneth W. Rind
/s/ Kennard H. Morganstern Director March 29, 1996
- - --------------------------
Kennard H. Morganstern
/s/ William R. Lonergan Director March 29, 1996
- - --------------------------
William R. Lonergan
/s/ Forrest Whittaker Director March 29, 1996
- - ------------------------
Forrest Whittaker
<PAGE>
SUPPLEMENTAL INFORMATION TO BE
FURNISHED WITH REPORTS FILED PURSUANT
TO SECTION 15(d) OF THE EXCHANGE
ACT BY NON-REPORTING ISSUERS
No annual report or proxy material has been sent to the Issuer's
security holders with respect to the year ended December 31, 1995. A copy of the
Issuer's Annual Report to Shareholders for the fiscal year ended December 31,
1995 and the Issuer's Proxy Statement for the 1996 Special Meeting in Lieu of
Annual Meeting of Shareholders will be furnished to stockholders and filed with
the Securities and Exchange Commission on or about April 26, 1996.
<PAGE>
MEDICAL STERILIZATION, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Report of Independent Accountants F-2
Balance Sheet as at December 31, 1995 F-3
Statements of Operations for the years ended December 31, 1995 and 1994 F-4
Statements of Shareholders' Equity for the years ended December 31, 1995
and 1994 F-5
Statements of Cash Flows for the years ended December 31, 1995 and 1994 F-6
Notes to Financial Statements F-8
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Shareholders of Medical Sterilization, Inc.:
We have audited the financial statements of MEDICAL STERILIZATION, INC.
listed in Item 7 of this Form 10-KSB. 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 Medical
Sterilization, Inc. at December 31, 1995 and the results of its operations and
its cash flows for each of the two years in the period ended December 31, 1995
in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Melville, New York
March 19, 1996
F-2
<PAGE>
MEDICAL STERILIZATION, INC.
BALANCE SHEET
December 31, 1995
<TABLE>
ASSETS:
<S> <C>
Current assets:
Cash $ 175,390
Trade accounts receivable (net of allowance for doubtful
accounts of $34,000) 2,456,707
Inventory 132,664
Prepaid expenses 71,756
-------------
Total current assets 2,836,517
Fixed assets, at cost, less accumulated depreciation and amortization 3,773,022
Other assets 195,329
------------
Total assets $6,804,868
============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities:
Accounts payable $ 625,326
Accrued expenses 368,095
Current maturities of long term debt (including $59,055 due to related parties) 209,005
Obligation under capital leases 26,871
-------------
Total current liabilities 1,229,297
Long-term debt (including $175,000 due to related parties), less current maturities 1,944,103
Obligation under capital leases 2,150
--------------
Total liabilities $3,175,550
--------------
Commitments and contingencies (Notes 9 and 12):
Preferred stock:
Convertible redeemable cumulative preferred stock, par value $.0l per
share:
Series B-authorized 1,000,000 shares, issued and outstanding 687,500 shares $1,544,400
----------
Shareholders' equity:
Convertible preferred stock, par value $.01 per share: Series C - authorized
2,000,000 shares, issued and outstanding 1,945,625 shares 1,945,625
Common stock, par value $.0l per share: authorized 10,000,000 shares, issued
and outstanding 2,980,496 shares 29,804
Additional paid-in capital 7,688,144
Accumulated deficit (7,578,655)
----------
Total shareholders' equity $2,084,918
----------
Total liabilities and shareholders' equity $6,804,868
==========
</TABLE>
See notes to financial statements
F-3
<PAGE>
MEDICAL STERILIZATION, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------
1995 1994
---------- ----------
<S> <C> <C>
Income:
Revenue $8,772,430 $8,219,827
Interest 2,673 5,969
---------- ----------
8,775,103 8,225,796
---------- ----------
Costs and expenses:
Facility operating expenses 6,426,319 6,247,727
Selling, general and administrative 1,822,012 1,705,654
Interest 335,199 220,597
---------- ----------
8,583,530 8,173,978
---------- ----------
Income before income taxes 191,573 51,818
Income taxes 0 0
---------- ----------
Net income 191,573 51,818
Preferred stock dividends (114,400) (178,125)
---------- ----------
Net income (loss) applicable to common shareholders $ 77,173 $ (126,307)
========== ==========
Net income (loss) per share of common stock $ 0.02 $ (0.04)
========== ==========
Weighted average number of common shares outstanding
5,099,415 2,957,580
</TABLE>
See notes to financial statements
F-4
<PAGE>
MEDICAL STERILIZATION, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1995 and 1994
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------------- -------------------- paid-in Accumulated
Shares Amount Shares Amount Capital Deficit Total
--------- ---------- --------- ------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances,
December 31, 1993 -- -- 2,955,496 $29,554 $7,968,953 ($7,822,046) $176,461
Accrual of preferred
stock dividends -- -- -- -- (178,125) -- (178,125)
Options issued in
connection with
financing services -- -- -- -- 25,600 -- 25,600
Shares issued in
settlement of
judgment -- -- 25,000 250 18,250 -- 18,500
Issuance of
preferred stock
in connection
with refinancing 1,945,625 $1,945,625 -- -- -- -- 1,945,625
Net income for year -- -- -- -- -- 51,818 51,818
--------- ---------- --------- ------- ---------- ------------ ----------
Balances,
December 31, 1994 1,945,625 1,945,625 2,980,496 29,804 7,834,678 (7,770,228) 2,039,879
Accrual of
preferred stock
dividends -- -- -- -- (114,400) -- (114,400)
Costs incurred in
connection with
registration -- -- -- -- (32,134) -- (32,134)
Net income for year
-- -- -- -- -- 191,573 191,573
Balances,
December 31, 1995 1,945,625 $1,945,625 2,980,496 $29,804 $7,688,144 ($7,578,655) $2,084,918
========= ========== ========= ======= ========== ============ ==========
</TABLE>
See notes to financial statements
F-5
<PAGE>
MEDICAL STERILIZATION, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------
1995 1994
------ ------
<S> <C> <C>
Cash flows from operating activities:
Net income $191,573 $ 51,818
-------- ---------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 647,762 844,886
Provision for bad debts 11,553
Issuance of stock - settlement of judgment 18,500
Issuance of options - financing costs 25,600
Changes in assets and liabilities:
(Increase) decrease in receivables (62,197) 20,972
Increase in inventory (61,007) (22,792)
Decrease (increase) in prepaid expenses 36,018 (34,332)
Decrease in other assets 133,353 224,394
Decrease in accounts payable (41,207) (489,381)
Increase (decrease) in accrued expenses 48,477 (327,742)
---------- ---------
Net cash provided by operating activities 904,325 311,923
--------- ---------
Cash flows from investing activities:
Capital expenditures (682,976) (377,946)
--------- ---------
Net cash used in investing activities (682,976) (377,946)
--------- ---------
</TABLE>
Continued
See notes to financial statements
F-6
<PAGE>
MEDICAL STERILIZATION, INC.
STATEMENTS OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1995 1994
-------- -----------
<S> <C> <C>
Cash flows from financing activities:
Net proceeds from revolving line of credit 503,877 1,355,024
Repayment of long-term debt (285,838) (1,521,591)
Repayment of short-term debt (225,000)
Principal payments under capital lease obligations (53,376) (48,796)
Costs incurred in connection with stock registration (32,134)
--------
Net cash used in financing activities (92,471) (215,363)
-------- -----------
Net increase (decrease) in cash 128,878 (281,386)
Cash at beginning of year 46,512 327,898
-------- -----------
Cash at end of year $175,390 $ 46,512
======== ===========
Supplemental disclosure:
<FN>
Interest payments during the years ended December 31, 1995 and 1994 were
$335,000 and $229,000, respectively.
Taxes paid during the years ended December 31, 1995 and 1994 were $6,498 and
$6,444, respectively.
During 1995 and 1994, the Company accrued dividends of $114,400 and $55,000,
respectively, on the Series B Preferred Stock, in accordance with the terms of
the Series B Preferred Stock.
In 1994, the Company converted 50,000 shares of Class A Preferred Stock (face
value $150,000) and accrued dividends of $75,000 into a one year term loan of
$225,000.
</FN>
</TABLE>
See notes to financial statements
F-7
<PAGE>
MEDICAL STERILIZATION, INC.
NOTES TO FINANCIAL STATEMENTS
1. Formation and Business:
Medical Sterilization, Inc. (the "Company") was incorporated in New
York State on May 27, 1982. The Company completed construction of its expanded
facility in 1985 and initiated off-site sterilization services to health care
providers and to manufacturers of disposable medical products, principally in
the New York Metropolitan area. The Company also provides contract sterilization
services to other customers. In addition, the Company uses its radiation
facility at Syosset to irradiate polytetrafluoroethylene ("PTFE"), which can
then be ground into very small particles for use primarily as an additive to
printing inks and as a lubricant. The Company leases its facility in which it
has installed steam and radiation sterilization equipment.
One customer accounted for approximately 30% and 35% of total revenue
for 1995 and 1994, respectively. One customer accounted for 40% of revenue from
contract sterilization services in 1995 and two customers accounted for 43% of
such revenues in 1994. One customer accounted for all of the revenue from PTFE
processing service in 1995 and 1994 (see Note 13).
2. Summary of Significant Accounting Policies:
Inventory:
----------
Inventory is stated at the lower of first-in, first-out cost or market.
Fixed Assets:
-------------
Depreciation and amortization are computed using the straight-line
method over the estimated useful lives of the related assets (ranging from 3 to
20 years) and, for leasehold improvements, over the shorter of the useful life
of the improvement or the term of the lease. Shrinkage-loss of surgical
instruments and containers is provided based upon incurred losses.
Maintenance and repairs are charged to income in the year incurred.
Expenditures which significantly improve or extend the life of the assets are
capitalized.
Upon disposal, the cost and related accumulated depreciation are
removed from the respective accounts and any resulting gain or loss is included
in income.
Revenue Recognition:
--------------------
The Company records revenue for hospital services monthly, in
accordance with contractual terms. Revenues for other sterilization and
radiation services are recorded upon the completion of processing.
F-8
<PAGE>
Concentration of Credit Risk:
-----------------------------
Trade receivables arise from long-term and short-term contracts with
healthcare providers in its area of operations. The Company provides instrument
sterilization services pursuant to contracts with 28 hospitals and ambulatory
surgi-centers. In addition, the Company sterilizes disposable medical products
for 30 disposable medical products manufacturers. Receivables also arise from
the processing of polytetrafluorethylene "PTFE," also known as "Teflon." This
process is solely performed for Shamrock Technologies, Inc. To reduce credit
risk, the Company performs credit evaluations of its customers but does not
generally require collateral Credit risk is affected by conditions of
occurrences within the economy and the healthcare industry. The Company
establishes an allowance for doubtful accounts based upon factors surrounding
the credit risk of specific customers, historical trends and other information.
At December 31, 1995, four customers represented 42% of the accounts
receivable balance. The loss of any one customer could have a significant impact
on the Company's financial position or results of operations.
Income Taxes:
-------------
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes",
which requires that deferred income taxes be recognized for the tax consequences
in future years of differences between the tax bases of assets and liabilities
and their financial reporting amounts at each year-end based on enacted tax laws
and statutory rates applicable to the periods in which the differences are
expected to effect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected to be realized.
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.
Prospective Accounting Change:
------------------------------
In March 1995, the Financial Accounting Standard Board issued SFAS No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of." Adoption of the new standard is required for fiscal
years beginning after December 15, 1995. Management estimates that the new
accounting principle will not have a material impact on the Company's financial
position or results of operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation," which establishes financial
accounting and
F-9
<PAGE>
reporting standards for stock based plans. The Statement, which becomes
effective in 1996, requires the Company to choose between accounting for
issuance of stock and other equity instruments to employees based on their fair
value or disclosing the pro forma effects such accounting would have had on the
Company's net income and earnings per share. The Company has begun to gather the
documentation necessary to address the impact of this Statement, although it has
not yet decided which method it will utilize relating to its stock based
employee plans.
Net Income (Loss) Per Share of Common Stock:
--------------------------------------------
Net income (loss) per share of common stock is based on the weighted
average number of common shares outstanding during each period adjusted for
dividends on preferred stock. Common stock equivalents of 2,118,919 resulting
from Convertible Series C Preferred Stock and the effects of options and
warrants have been included in the calculation of weighted average shares
outstanding in 1995. Common stock equivalents have been excluded in 1994 from
the computation of net loss per share of common stock since the result would be
anti-dilutive.
Reclassifications:
------------------
Certain items in the 1994 financial statements have been reclassified
to conform to the 1995 presentation.
3. Fixed Assets:
At December 31, 1995, fixed assets consists of:
Machinery and equipment $4,147,289
Leasehold improvements 1,853,539
Surgical instruments 4,012,600
Containers 815,352
Furniture and fixtures 243,957
------------
11,072,737
Less, accumulated depreciation and amortization 7,299,715
-----------
$3,773,022
===========
Included in fixed assets at December 31, 1995 are assets recorded under
capital leases comprised of:
Machinery and equipment $463,917
Less, accumulated amortization 370,876
---------
$ 93,041
=========
F-10
<PAGE>
Repairs and maintenance charged to operations for the years ended
December 31, 1995 and 1994 amounted to approximately $180,000 and $160,000,
respectively.
4. Employee Benefit Plans:
The Company adopted a 401(k) defined contribution plan commencing with
the 1995 fiscal year which allows participants to make contributions based on a
percentage of their earnings. The Company's contribution for the fiscal year
ended December 31, 1995 was approximately $22,000.
5. Income Taxes:
During 1995, the Company utilized approximately $320,000 of net
operating loss carryforwards for income tax purposes. Such utilization served to
eliminate the Company's current tax liability.
Reconciliation of the federal statutory tax rate to the effective tax
rate is as follows:
1995 1994
---- ----
Expected federal statutory tax rate 34% 34%
State and local taxes, net 6% 6%
Utilization of net operating losses (40%) (40%)
----- ---
Effective tax rate 0% 0%
===== =====
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amount of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Significant
components of the Company's deferred tax assets and liabilities at December 31,
1995 are as follows:
Deferred tax liability:
Depreciation ($ 991,831)
----------
Total deferred tax liability (991,831)
Deferred tax assets:
Net operating loss carryforwards 3,903,511
Other 30,624
Total deferred tax assets 3,934,135
Less valuation allowance (2,942,304)
----------
Net deferred tax assets $ 0
===========
The Company has established a valuation allowance equal to the net
deferred tax asset amount as it is more likely than not that the deferred tax
asset will not be realized. The net change in the total valuation allowance for
the year ended December 31, 1995 was a decrease of $99,900 related primarily to
utilization of the net operating loss carryforwards.
F-11
<PAGE>
At December 31, 1995, the Company had federal net operating loss
carryforwards of approximately $9,700,000, which expire in varying amounts from
1988 through 2008.
6. Long-Term Debt:
<TABLE>
<S> <C>
At December 31, 1995, long-term debt consists of:
Note payable to officer and shareholder, payable in annual installments of
$50,000 with interest payable monthly at the prime rate (8.25% at
December 31, 1995) plus 1% (a) $ 200,000
Note payable to director and shareholder, payable in annual installments of
$8,333 with interest payable monthly at the rate of 2% per annum over
the prime rate (a) 33,334
Note payable to bank, payable in monthly installments of $12,500,
with final payment due October 1998 with interest at the rate of
2-1/2% per annum over the prime rate (b) 751,836
Note payable to commercial lender, due January 1997, with interest
payable monthly at the rate of 3-1/2% per annum over the prime
rate (c)
1,167,266
Note payable to officer, due February, 1999, payable in monthly
installments of $970 at the rate of 2% per annum over the prime
rate
672
----------
2,153,108
Less, current maturities 209,005
----------
Long-term debt $1,944,103
==========
</TABLE>
(a) During 1991, the Board of Directors approved a resolution to repay
the debt to the President and the director at a rate not to exceed 10% of the
profits in any quarter and to be limited further by the Company's cash
availability.
On September 29, 1994, the Board of Directors revised the
prior resolution with regard to payments of the debt to the President and
Director to authorize the payment of $50,000 per year to the President and a
pro-rata amount ($8,333) to the Director. The loans are subordinate to the bank
borrowings.
(b) In November of 1994, the Company renegotiated the term of its bank
borrowing facilities. The existing bank loan of $1,514,000 was replaced with a
new loan agreement. In connection with this new loan, the Company made a
$600,000 payment against the existing principal balance. The remaining principal
balance of $914,000 was converted to a four (4) year term loan which bears
interest at a rate of prime plus 2-1/2%. The principal is amortized on a monthly
basis at the rate of $12,500 per month with a balloon payment of $326,836 due in
F-12
<PAGE>
October, 1998. In addition, the bank exchanged its first lien on the Company's
assets for a second lien position. The Company also extended the term of the
warrants being held by the bank for an additional three (3) years and reduced
the exercise price to $2 per share. (See Note 9).
(c) In November of 1994, simultaneously with the restructuring of its
bank loan agreement described above, the Company entered into a line of credit
arrangement with a lending institution. The agreement provides for a revolving
collateralized line of credit of up to $2,000,000. The line of credit is
collateralized by substantially all assets of the Company. The Company can
borrow up to 70% of its eligible accounts receivable. The interest rate on the
facility is prime plus 3-1/2%. In December 1995, the expiration date was
extended to January 1997. The Company issued to its commercial lender warrants
to purchase 50,000 shares of its Common Stock at $2.00 per share, expiring in
1999.
Average monthly borrowings under the revolving line of credit described
above for the year ended December 31, 1995 amounted to $1,087,600 and the
related weighted average interest rate was 12.25%. Maximum borrowings at any
month end were $1,235,600 in 1995.
The approximate aggregate principal payment requirements for long-term
debt are as follows: 1996 - $209,000; 1997 - $1,376,000; 1998 - $510,000; 1999 -
$58,000; and thereafter - $0.
Fair value of long-term debt approximates recorded amounts as similar
borrowings have been offered to the Company at comparable rates and maturities.
7. Capital Leases:
Future minimum payments as of December 31, 1995 under capital leases
for equipment are as follows:
<TABLE>
<S> <C>
1996 $31,373
1997 2,166
---------
Total minimum lease payments 33,539
Less, amount representing interest 4,518
---------
Present value of minimum lease payments, including $26,871
currently payable at December 31, 1995 $29,021
=======
</TABLE>
8. Preferred Stock (See Note 9):
In November 1994, the Company restructured its Series A Convertible
Preferred Stock (as of June 30, 1994 values) which was due to be redeemed on
December 31, 1994. Of the 800,000 shares ($2,400,000 face value) of outstanding
Series A Convertible Preferred Stock, 50,000 outstanding shares ($150,000 face
value) and accrued dividends aggregating $225,000
F-13
<PAGE>
were converted into a one (1) year term loan with monthly principal and interest
payments. This loan bears interest at the rate of prime plus 3 1/2%. This note
was paid off in 1995. The Company also granted warrants to purchase 10,000
shares of its Common Stock at $2.00 per share expiring in 1999. The remaining
750,000 shares ($2,250,000 face value) plus accrued dividends of approximately
$1,071,000 were exchanged for $1,375,000 of Series B Convertible Preferred Stock
and $1,945,625 of Series C Convertible Preferred Stock. The Series B Convertible
Preferred Stock is convertible at $2.00 per share into 687,500 shares of Common
Stock. This Series B Convertible Preferred Stock is convertible at the option of
the holder into Common Stock or cash, at $2.00 per share maturing December 31,
1999. Dividends accrue on this Series B Convertible Preferred Stock at the rate
of 8% per year. These dividends may be paid in cash or accrued at the option of
the Company. If not paid, accrued dividends are added to the face amount of the
Series B Convertible Preferred Stock.
In the event during the next five (5) years, the market price of the
Company's Common Stock as quoted on Nasdaq attains a price of $6.00 per share
and maintains such price for at least 90 days, the Series B Convertible
Preferred Stock will be automatically converted into Common Stock.
The Series C Convertible Preferred Stock is automatically convertible
at $1.00 per share into 1,945,625 shares of Common Stock on December 30, 2004,
or earlier at the option of the holder. There are no dividends payable nor
accrued on the Series C Convertible Preferred Stock.
In the event during the next five (5) years, the market price of the
Company's Common Stock as quoted on Nasdaq attains a price of $3.00 per share
and maintains such price for at least 90 days, the Series C Convertible
Preferred Stock will be automatically converted into Common Stock.
9. Common Stock Warrants (see Note 13):
In February 1993, for his guarantee for the issuance of a $100,000
bond, the Company issued warrants to purchase 2,500 shares of Common Stock at a
price of $2.00 per share exercisable through February 1998, to a director of the
Company.
In November 1994, as part of the settlement of the Shamrock litigation
(Note 13) the Company issued warrants to purchase 75,000 shares of its common
Stock at $2.00 per share to Shamrock which expire in 1999. Also in conjunction
with the settlement, the Company issued warrants to purchase 40,000 shares of
its common stock at $2.00 per share to each of two directors of the Company in
consideration of their efforts in achieving the settlement. The warrants expire
in 1999.
In March 1994 the Company issued warrants to purchase 25,000 shares of
stock at $2.00 per share to a new board member. Such warrants become exercisable
as follows: 25% in 1995, 50% in 1996 and 25% in 1997. The warrants expire in
2000.
F-14
<PAGE>
In connection with the financing described in Note 6(b), the Company
extended the term of a warrant to purchase an aggregate of 100,000 shares of
common stock for three years (to expire in 1998) and reduced the exercise price
to $2.00 per share.
In November 1994, the Company issued to a financial institution
warrants to purchase 50,000 shares of its common stock at $2.00 per share,
expiring in 1999.
In December 1994, in connection with the conversion of 50,000 shares of
Class A convertible stock into debt, the Company issued warrants to purchase
10,000 shares at $2.00 per share, which warrants expire in January 1997.
At December 31, 1995, the Company had outstanding warrants to purchase
342,500 shares of common stock at a price of $2.00 per share with expiration
dates through September 2000.
10. Stock Option Plan:
The Company's 1983 Stock Option Plan (the "Plan"), amended in 1986,
1989 and 1991, authorized the issuance, not later than May 11, 1993, of options
to purchase up to 800,000 shares of common stock. Options granted under the Plan
may be either "Incentive Stock Options" or "Non-qualified Stock Options". The
Plan expired on May 11, 1993.
On September 29, 1994 the Board of Directors approved the 1994 Stock
Option Plan (the "1994 Plan") and authorized the issuance of up to 1,000,000
shares of Common Stock of the Company upon the exercise of Incentive and Non
Statutory Stock Options which may be granted pursuant to the Plan. The Plan was
approved by the shareholders at a meeting held on July 20, 1995.
Incentive stock options may be granted only to key employees, including
officers or directors who are employees of the Company, and are exercisable
immediately or in installments following a period of two years after grant but
within ten years from the date of grant (five years in the case of options
granted to holders of more than 10% of the Company's voting stock). The exercise
price must be at least equal to the fair market value of the Company's common
stock on the date granted (110% in the case of 10% shareholders). At December
31, 1995 incentive stock options for an aggregate of 282,250 shares of common
stock at an exercise price of $0.74 were outstanding.
Non-qualified stock options may be granted under the Plan or otherwise
to officers, consultants, and key employees. The exercise price is not limited
and may be below the fair market value of the Company's common stock on the date
of grant. At December 31, 1995, non-qualified options for an aggregate of
612,500 shares of common stock at exercise prices ranging from $.10 to $9.00,
were outstanding.
A summary of activity under the stock option plans follows:
F-15
<PAGE>
1995 1994
---- ----
Shares under option, beginning of year 612,250 320,500
Options cancelled (2,500) (318,000)
Options granted: Stock options, at exercise prices
ranging from $.10 to $.75 285,000 609,750
------- -------
Shares under option, end of year ranging from
$.10 to $9.00 per share 894,750 612,250
======= =======
Unoptioned shares available for future grants 105,250 387,750
======= =======
At December 31, 1995 and 1994, options under the 1994 Plan and previous
plan were exercisable for 701,000 shares and 556,000 shares, respectively. In
connection with the aforementioned plan, 1,000,000 shares of the Company's
common stock have been reserved for future issuance.
11. Related Party Transactions:
As of December 31, 1995 and 1994, members of the law firm previously
serving as general counsel for the Company owned 48,057 shares of common stock.
Fees for legal services rendered by the law firm approximated $80,000 and
$93,000 for the years ended December 31, 1995 and 1994, respectively.
The president and shareholder of Precision Micron Powders, Inc.
("Precision"), a company which is engaged in the sale and marketing of PTFE, was
a vice president of the Company until November 1994. As part of the settlement
with Shamrock Technologies Inc., Precision and its president became a subsidiary
and employee, respectively, of Shamrock. See Note 13. The Company had sales of
approximately $2,911,000 in 1994 to Precision.
See Notes 6 and 9 for other related party transactions.
12. Commitments and Contingencies
The Company leases its operating facility and certain equipment under
operating leases. The lease for the facility in Syosset, New York, was renewed
in November 1995, with the following terms: (a) term of the lease is five (5)
years until March 2001, (b) annual rental to be $456,000 for the first three
years and $504,000 for the remaining two (2) years.
The equipment leases have terms up to five years.
F-16
<PAGE>
Minimum annual rental commitments for noncancellable operating leases
at December 31, 1995, are as follows:
Year ending
December 31, Amount
------------- -----------
1996 $ 620,364
1997 591,125
1998 568,237
1999 581,426
2000 529,046
Thereafter 84,000
----------
$2,902,198
==========
Rent expense was approximately $684,000 and $750,000 and for the years
ended December 31, 1995 and 1994 and respectively.
The Company's purchases from surgical instrument manufacturers the
surgical instruments included in instrument sets that are utilized in providing
the Company's services. Pursuant to a sales and marketing agreement entered into
with Pilling Weck, a national surgical instrument manufacturer and a division of
Teleflex Incorporated, the Company has agreed to purchase all of its surgical
instrument requirements from Pilling Weck, and Pilling Weck has agreed to supply
surgical instruments to the Company, as well as to be the exclusive sales and
marketing agent for MSI in the United States.
In July 1994 the New York State Department of Environmental
Conservation announced stringent standards with regard to the emission of ozone.
The Company is working with State and County authorities on an established
timeline to bring the Company into compliance with these standards. The Company
has hired consultants to measure the Company's ozone emissions and, in
conjunction with State and County authorities, to design necessary pollution
control equipment to meet these standards. the estimated cost of such pollution
control equipment is approximately $300,000. In the event the Company does not
install such pollution control equipment, it will not obtain a permit to operate
its electron beam accelerator, which would result in a significant reduction in
revenues and would have a material adverse effect on the Company's business,
results of operations and financial condition.
13. Litigation:
(a) In November 1994, the Company reached an agreement with the
plaintiff, Shamrock Technologies Inc. ("Shamrock"), in which the judgment that
had been awarded in the approximate amount of $3,500,000, including interest,
was satisfied. The Company had given to Shamrock, as security, a confession of
judgment in the amount of $1,250,000.
F-17
<PAGE>
As part of the settlement, Shamrock agreed to purchase $3.3 million of
tolling or processing services for 18 months beginning November 1994, at prices
which provide a gross margin to the Company on such services. At the end of the
tolling agreement the Company must refrain from participating in the PTFE
processing business.
In November 1995, the Company and Shamrock entered into an agreement
modifying and extending the toll processing agreement. The agreement was
extended through June 30, 1997 with Shamrock having the right to extend it
further to December 31, 1997.
As part of the settlement of the Shamrock litigation the Company issued
warrants to purchase 75,000 shares of its common stock at $2.00 per share to
Shamrock which expire in 1999, and issued 25,000 shares of the Company's common
stock to Shamrock. Shamrock also received payment of $62,500 in cash. Also in
conjunction with the settlement, the Company issued warrants to purchase 40,000
shares of its common stock at $2.00 per share to each of two directors of the
Company in consideration of their efforts in achieving the settlement. The
warrants expire in 1999.
(b) The Company entered into a deferred payment plan agreement with the
New York State Department of Taxation and Finance to satisfy its obligation
under a final assessment related to a prior period sales tax audit. At December
31, 1995 the Company had completed all payments due under this agreement and a
satisfaction of judgment was issued by the New York State Department of Taxation
and Finance.
F-18
Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
Under Section 807 of the Business Corporation Law
We, Kennard H. Morganstern and Harvey Cohen, being respectively the
President and Secretary of Medical Sterilization, Inc. hereby certify:
1. The name of the corporation is Medical Sterilization, Inc.
2. The Certificate of Incorporation was filed on May 27, 1982
under the name, General Sterilization Services, Inc. Restated Certificates
of Incorporation were filed on May 12, 1983 and August 5, 1983.
3. The Certificate of Incorporation is amended as follows:
(a) to increase the authorized number of shares of Common
Stock from Five Million (5,000,000) to Ten Million (10,000,000);
(b) to eliminate the Class A Convertible Non-Cumulative
Preferred Stock and the Class B Convertible Non-Cumulative Preferred Stock;
the shares being eliminated are not issued;
(c) to authorize the issuance of 3,000,000 shares of Preferred Stock
issuable in series, par value .01 per share.
4. The Certificate of Incorporation is hereby restated to set
forth its entire text as amended:
<PAGE>
"FIRST: The name of the corporation shall be Medical Sterilization,
Inc.
SECOND: The purposes for which it is formed are:
A. To engage in the business of providing sterilization
services for business and institutions, supplying and/or leasing materials,
instruments and equipment, experimenting with, developing, producing, buying,
renting, leasing, maintaining, servicing, repairing and generally dealing in all
types of sterilization equipment, x-ray equipment and instruments, electronic
and nuclear equipment, scientific apparatus and instruments, and all other
articles and equipment of kindred nature, and to engage in the business of
acting as scientific consultants in connection with the above.
B. To own, operate and control, to lease, manage, take over or in
any lawful manner acquire any business, factory, warehouse, plant, office, store
or establishment for the carrying on of the business of the corporation and for
the purchase, sale, import, export, manufacture, fabrication, production or
storage of all kinds of goods, wares, merchandise of any and all descriptions.
C. To do all and everything necessary, suitable or proper for the
accomplishment of any of the purposes, the attainment of any of the objects, or
the furtherance of any of the powers hereinbefore set forth, either alone or in
connection with other corporations, firms, or individuals, and either as
principals or agents, and to do every other act or acts, thing or things,
incidental or appurtenant to or growing out of or connected with the aforesaid
objects, purposes, or powers, or any of them.
THIRD: The office of the corporation is to be located in the Village
of Garden City, County of Nassau.
-2-
<PAGE>
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is Thirteen Million (13,000,000) shares to consist of Ten
Million (10,000,000) shares of Common Stock, with a par value of $.01 per share
and Three Million (3,000,000) shares of Preferred Stock, with a par value of
$.01 per share.
The respective designations, preferences, privileges and voting powers or
restrictions or qualifications of each class of stock are as follows:
A. Preferred Stock. The Preferred Stock may be issued from time to
time in one or more series and with such designation for each such series as
shall be stated and expressed in the resolution or resolutions providing for the
issue of each such series adopted by the Board of Directors. The Board of
Directors in any such resolution or resolutions is expressly authorized to state
and express for each such series:
(i) Voting rights, if any, including without limitation the
authority to confer multiple votes per share, voting rights as to specified
matters or issues such as mergers, consolidations or sales of assets, or voting
rights to be exercised either together with holders of Common Stock as a single
class, or independently as a separate class;
(ii) The rate per annum and the times at and conditions upon
which the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or non-cumulative and
if cumulative the terms upon which such dividends shall be cumulative;
(iii) The price or prices and the time or times at and
the manner in which the stock of such series shall be redeemable;
-3-
<PAGE>
(iv) The rights to which the holders of the shares of stock of
such series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(v) The terms, if any, upon which the shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock of any
other class or classes or of any other series of the same or any other class or
classes, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof so far as they are not inconsistent with the provisions
of the Certificate of Incorporation, as amended, and to the full extent now or
hereafter permitted by the laws of the State of New York.
All shares of the Preferred Stock of any one series shall be
identical to each other in all aspects, except that shares of any one series
issued at different times may differ as to the dates from which dividends
thereon, if cumulative, shall be cumulative.
B. Common Stock.
(i) Whenever dividends upon the Preferred Stock at the time
outstanding shall have been paid in full for all past dividend periods or
declared and set apart for payment, such dividends as may be determined by the
Board of Directors may be declared by the Board of Directors and paid from time
to time to the holders of the Common Stock, subject to any restrictions stated
and expressed in any resolution or resolutions adopted by the Board of Directors
including any resolutions providing for the issuance of Preferred Stock.
(ii) In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or involuntary, all
assets remaining after the
-4-
<PAGE>
payment to the holders of the Preferred Stock at the time outstanding of the
full amounts to which they shall be entitled, shall be divided and distributed
among the holders of Common Stock according to their respective shares.
(iii) Each holder of the Common Stock shall have one vote in
respect of each share of such stock held by him.
C. Pre-emptive Rights. No shareholder of this corporation shall have
a pre-emptive right because of his shareholdings to have first offered to him
any part of any of the presently authorized shares of this corporation hereafter
issued, optioned, or sold, or any part of any debenture, bonds, notes, or
securities of this corporation convertible into shares hereafter issued,
optioned, or sold by the corporation. This provision shall operate to defeat
rights in all shares and classes of shares now authorized and in all debentures,
bonds, notes, or securities of the corporation which may be convertible into
shares, and also to defeat pre-emptive rights in any and all shares and classes
of shares and securities convertible into shares which this corporation may be
hereafter authorized to issue by any amended certificate duly filed. Thus, any
and all of the shares of this corporation presently authorized, and any and all
debentures, bonds, notes, or securities of this corporation convertible into
shares and any and all of the shares of this corporation which may hereafter be
authorized, may at any time be issued, optioned, and contracted for sale, and/or
sold and disposed of by direction of the Board of Directors of this corporation
to such persons, and upon such terms and conditions as may to the Board of
Directors seem proper and advisable, without first offering the said shares or
securities or any part thereof to existing shareholders.
D. Stock Rights and Options. The corporation shall have the
power to create and issue rights, warrants, or options entitling the
holders thereof to purchase from the
-5-
<PAGE>
corporation any shares of its capital stock of any class or classes, upon such
terms and conditions and at such time and prices as the Board of Directors may
provide, which terms and conditions shall be incorporated in an instrument or
instruments evidencing such rights. In the absence of fraud, the judgment of the
Directors as to the adequacy of consideration for the issuance of such rights or
options and the sufficiency thereof shall be conclusive.
FIFTH: The Secretary of State is designated as the agent of the
corporation upon whom process against it may be served, and the post office
address to which the Secretary of State shall mail a copy of such process served
upon him is c/o Murtagh, Cohen & Byrne, 1122 Franklin Avenue, Garden City, New
York 11530."
5. The Restatement of the Certificate of Incorporation was authorized by
the vote of the Board, followed by the affirmative vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a meeting of
shareholders.
IN WITNESS WHEREOF, we have signed this Restated Certificate of
Incorporation on the 22nd day of May, 1989.
------------------------------------
Kennard H. Morganstern
President
------------------------------------
Harvey Cohen
Secretary
-6-
<PAGE>
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
On this 22nd day of May, 1989, before me personally came KENNARD H.
MORGANSTERN and HARVEY COHEN, to me known to be the individual's described in
and who executed the foregoing Restated Certificate of Incorporation, and they
duly acknowledged to me they executed the same.
------------------------------------
Notary Public
393LMM5962/1.195515_1
-7-
Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
Under Section 805 of the Business Corporation Law
We, Kennard H. Morganstern and Harvey Cohen, being respectively the
President and Secretary of Medical Sterilization, Inc., hereby certify:
(1) The name of the Corporation is
MEDICAL STERILIZATION, INC.
(2) The Certificate of Incorporation was filed on May 27, 1982 under
the name General Sterilization, Inc. Restated Certificates of Incorporation were
filed on May 12, 1983, August 5, 1983 and May 24, 1989.
(3) The Certificate of Incorporation is amended by the addition of a
provision stating the number, designation, relative rights, preferences and
limitations of Preferred Shares of a series of the par value of $.01 per share,
as fixed by the Board of Directors before the issuance of such series, under
authority contained in the Certificate of Incorporation and as permitted by
Section 502 of the Business Corporation Law as follows:
"1. Number of Shares. One Million (1,000,000) shares of authorized
Preferred Stock of the par value of $.01 each shall be issued in and as a series
to be designated "Series A Convertible Preferred Stock." The term Preferred
Stock, as used herein, shall include all of the shares of Preferred Stock
authorized by the Certificate of Incorporation, of which Series A Convertible
Preferred Stock is the first series.
2. Voting.
2A. General. Except as may be otherwise provided in these
terms of the Series A Convertible Preferred Stock or by law, the Series A
Convertible Preferred Stock shall vote together with all other classes and
series of stock of the Corporation as a single class on all
<PAGE>
actions to be taken by the stockholders of the Corporation. Each share of
Series A Convertible Preferred Stock shall entitle the holder thereof to such
number of votes per share on each such action as shall equal the number of
shares of Common Stock (including fractions of a share) into which each share of
a Series A Convertible Preferred Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holder of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of eleven (11).
2C. Board Seats. The holders of the Series A Convertible
Preferred Stock, voting as a separate series, shall be entitled to elect one (1)
director of the Corporation. The holders of the Common Stock, voting as a
separate class, shall be entitled to elect the remaining directors of the
Corporation. Notwithstanding the foregoing or anything else to the contrary
provided in the Restated Certificate of Incorporation, if the Corporation fails
or refuses, for any reason or for no reason, to redeem on the Redemption Date
(as defined in paragraph 7) all of the then outstanding shares of Series A
Convertible Preferred Stock in accordance with the terms and provisions of
paragraph 7, the holders of the Series A Convertible Preferred Stock, voting as
a separate series, shall be entitled to elect a majority of the directors of the
Corporation. At any meeting (or in a written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of Series A
Convertible Preferred Stock then outstanding shall constitute a quorum of the
Series A Convertible Preferred Stock for the election of directors to be elected
solely by the holders of the Series A Convertible Preferred Stock or jointly by
the holders of the Series A Convertible Preferred Stock and the Common Stock. A
vacancy in any directorship elected by the holders of the Series A Convertible
Preferred Stock shall be filled only by vote or written consent of the holders
of the Series A Convertible Preferred Stock.
3. Dividends. The holders of the Series A Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends at the rate per annum
of $.30 per share (the "Accruing Dividends"). Accruing Dividends shall accrue
from day to day, whether or not earned or declared, and shall be cumulative from
the date of issuance of the Series A Convertible Preferred Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall first be entitled, before any
distribution or payment is made upon any stock ranking on liquidation junior to
the Series A Convertible Preferred Stock, to be paid an amount equal to $3.00
per share plus, in the case of each share, an amount equal to all Accruing
Dividends unpaid thereon (whether or not declared) and any other dividends
declared but unpaid thereon, computed to the date payment thereof is made
available, such amount payable with respect to one share of Series A Convertible
Preferred Stock being sometimes
2
<PAGE>
referred to as the "Liquidation Preference Payment" and with respect to all
shares of Series A Convertible Preferred Stock being sometimes referred to as
the "Liquidation Preference Payments." If upon such liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the assets to
be distributed among the holders of Series A Convertible Preferred Stock shall
be insufficient to permit payment in full to the holders of Series A Convertible
Preferred Stock of the Liquidation Preference Payments, then the entire assets
of the Corporation to be so distributed shall be distributed ratably among the
holders of Series A Convertible Preferred Stock. Upon any such liquidation,
dissolution or winding up of the Corporation, immediately after the holders of
Series A Convertible Preferred Stock shall have been paid in full the
Liquidation Preference Payments, the remaining net assets of the Corporation
available for distribution shall be distributed ratably among the holders of
Series A Convertible Preferred Stock and Common Stock (with each share of Series
A Convertible Preferred Stock being deemed, for such purpose, to be equal to the
number of shares of Common Stock (including fractions of a share) into which
such share of Series A Convertible Preferred Stock is convertible immediately
prior to the close of business on the business day fixed for such distribution).
Written notice of such liquidation, dissolution or winding up, stating a payment
date and the place where said payments shall be made, shall be given by mail,
postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior
to the payment date stated therein, to the holders of record of Series A
Convertible Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, and the sale or transfer by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the provision
of this paragraph 4. For purposes hereof, the Common Stock shall rank on
liquidation junior to the Series A Convertible Preferred Stock.
5. Restrictions. At any time when shares of Series A Convertible
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Restated Certificate of Incorporation, and in addition to any other vote
required by law or the Restated Certificate of Incorporation, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Series A Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class
or series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series A Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series A Convertible Preferred Stock as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into shares of Series A
Convertible Preferred Stock or into shares of any other class or series of stock
unless the same ranks junior of the Series A Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation,
3
<PAGE>
whether any such creation, authorization or increase shall be by means of
amendment to the Restated Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding
up of the Corporation or consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all its assets;
5C. Amend, alter or repeal its Restated Certificate of
Incorporation or By-laws in a manner which adversely affects the holders of
Series A Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay
any dividend or make any distribution on, any shares of stock other than the
Series A Convertible Preferred Stock, except for dividends or other
distributions payable on the Common Stock solely in the form of additional
shares of Common Stock and except for the purchase of shares of Common Stock
from former employees of the Corporation who acquired such shares directly from
the Corporation, if each such purchase is made pursuant to contractual rights
held by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of Series A
Convertible Preferred Stock except as expressly authorized in paragraph 7 hereof
or pursuant to a purchase offer made pro rata to all holders of the shares of
Series A Convertible Preferred Stock on the basis of the aggregate number of
outstanding shares of Series A Convertible Preferred Stock then held by each
such holder.
6. Conversions. The holders of shares of Series A Convertible
Preferred Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of
this paragraph 6, the holder of any share or shares of Series A Convertible
Preferred Stock shall have the right, at its option at any time, to convert any
such shares of Series A Convertible Preferred Stock (except that upon any
liquidation of the Corporation the right of conversion shall terminate at the
close of business on the business day fixed for payment of the amount
distributable on the Series A Convertible Preferred Stock) into such number of
fully paid and nonassessable shares of Common Stock as is obtained by (i)
multiplying the number of shares of Series A Convertible Preferred Stock so to
be converted by $3.00 and (ii) dividing the result by the conversion price of
$3.00 per share or, in case an adjustment of such price has taken place pursuant
to the further provisions of this paragraph 6, then by the conversion price as
last adjusted and in effect at the date any share or shares of Series A
Convertible Preferred Stock are surrendered for conversion (such price, or such
price as last adjusted, being referred to as the "Conversion Price"). Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series A
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at is
principal office (or such other office or agency of the Corporation as the
4
<PAGE>
Corporation may designate by notice in writing to the holders of the Series A
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph 6A
and surrender of the certificate or certificates for the share or shares of
Series A Convertible Preferred Stock to be converted, the Corporation shall
issue and deliver, or cause to be issued and delivered, to the holder,
registered in such name or names as such holder may direct, a certificate or
certificates for the number of whole shares of Common Stock issuable upon the
conversion of such share or shares of Series A Convertible Preferred Stock. To
the extent permitted by law, such conversion shall be deemed to have been
effected and the Conversion Price shall be determined as of the close of
business on the date on which such written notice shall have been received by
the Corporation and the certificate or certificates for such share or shares
shall have been surrendered as aforesaid, and at such time the rights of the
holder of such share or shares of Series A Convertible Preferred Stock shall
cease, and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares
represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series A Convertible
Preferred Stock into Common Stock and no payment or adjustment shall be made
upon any conversion on account of any cash dividends on the Common Stock issued
upon such conversion. At the time of each conversion, the Corporation shall pay
in cash an amount equal to all dividends, excluding Accruing Dividends, accrued
and unpaid on the shares of Series A Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in subparagraph 6B. In case the number of shares of Series A
Convertible Preferred Stock represented by the certificate or certificates
surrendered pursuant to subparagraph 6A exceeds the number of shares converted,
the Corporation shall, upon such conversion, execute and deliver to the holder,
at the expense of the Corporation, a new certificate or certificates for the
number of shares of Series A Convertible Preferred Stock represented by the
certificate or certificates surrendered which are not to be converted. If any
fractional share of Common Stock would, except for the provisions of the first
sentence of this subparagraph 6C, be delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Series A Convertible Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except
as provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Conversion Price in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, the
5
<PAGE>
Conversion Price shall be reduced to the price at which the Corporation issued
or sold, or is deemed to have issued or sold, such shares of Common Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options begin called
"Options" and such convertible or exchangeable stock or securities
being called "Convertible Securities") whether or not such Options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common
Stock is issuable upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities (determined by
dividing (i) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options, plus
the minimum aggregate amount of additional consideration payable to
the Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the
minimum aggregate amount of additional consideration, if any, payable
upon the issue or sale of such Convertible Securities and upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or
upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Options) shall be less than the
Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed
to have been issued for such price per share as of the date of
granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding. Except as
otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock or of such Convertible Securities upon exercise of such Options
or upon the actual issue of such Common Stock upon conversion or
exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption a merger or otherwise) or sell any Convertible Securities,
whether or not the rights to exchange or convert any such Convertible
Securities are immediately exercisable, and the price per share for
which Common Stock is issuable upon such conversion or exchange
(determined by dividing (i) the total amount receive or receivable by
the Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the
6
<PAGE>
Conversion Price in effect immediately prior to the time of such issue
or sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per
share as of the date of the issue of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that (a) except
as otherwise provided in subparagraph 6D(3), no adjustment of the
conversion Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities and
(b) if any such issue or sale of such Convertible Securities is made
upon exercise of any Options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or
are to be made pursuant to other provisions of this subparagraph 6D,
no further adjustment of the Conversion Price shall be made by reason
of such issue or sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase
price, provided for in any Option referred to subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph
6D(1) or 6D(2), or the rate at which Convertible Securities referred
to in subparagraph 6D(1) or 6D(2)are convertible into or exchangeable
for Common Stock shall change at any time (including, but not limited
to, changes under or by reason or provisions designed to protect
against dilution), the Conversion Price in effect at the time of such
event shall forthwith be readjusted to the Conversion Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at
the time initially granted, issued or sold, but only if as a result of
such adjustment the Conversion Price then in effect hereunder is
thereby reduced; and on the expiration of any such Option or the
termination of any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall
forthwith be increased to the Conversion Price which would have been
in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been
issued.
6D(4) Stock Dividends. In case the Corporation shall declare
a dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection
therewith. In case any shares of Common Stock, Options or Convertible
7
<PAGE>
Securities shall be issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such consideration
as determined in good faith by the Board of Directors of the
Corporation, without deduction of any expenses incurred or any
underwriting commissions or concessions paid or allowed, by the
Corporation in connection therewith. In case any Options shall be
issued in connection with the issue and sale of other securities of
the Corporation, together comprising one integral transaction in which
no specific consideration is allocated to such Options by the parties
thereto, such Options shall be deemed to have been issued for such
consideration as determined in good faith by the Board of Directors of
the Corporation.
6D(6) Record Date. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling
them (i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Option or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
6D(7) Treasury Shares. The disposition of any shares of
Common Stock owned or held by or for the account of the Corporation
shall be considered an issue or sale of Common Stock for the purpose
of this subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance of up to an
aggregate of 500,000 shares (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) of Common Stock to directors, officers
or employees of the Corporation in connection with their service as directors of
the Corporation or their employment by the Corporation.
6F. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
6G. Reorganization or Reclassification. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for Common Stock, then, as a
condition of such reorganization or reclassification, lawful and adequate
provisions shall be made whereby each holder of a share or shares of Series A
Convertible Preferred Stock shall thereupon have the right to receive, upon the
basis and upon
8
<PAGE>
the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore receivable upon the conversion of such share or
shares of Series A Convertible Preferred Stock, such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for a
number of outstanding shares of such Common Stock equal to the number of shares
of such Common Stock immediately theretofore receivable upon such conversion had
such reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise of such conversion rights.
6H. Failure to Redeem. If the Corporation fails, for any reason or for
no reason, to redeem on the Redemption Date (as defined in paragraph 7) all of
the then outstanding shares of Series A Convertible Preferred Stock in
accordance with the terms and conditions of paragraph 7, the Conversion Price
then in effect shall be immediately reduced to an amount equal to 90% thereof.
Thereafter, until such redemption has been made in full in accordance with such
terms and conditions, the Conversion Price shall be further reduced on the 90th
day following the Redemption Date and at the end of each 90-day period
thereafter to an amount equal to 90% of the Conversion Price in effect
immediately prior to each such reduction.
6I. Notice of Adjustment. Upon any adjustment of the Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
first class mail, postage prepaid, or by telex to non-U.S. residents, addressed
to each holder of shares of Series A Convertible Preferred Stock at the address
of such holder as shown on the books of the Corporation, which notice shall
state the Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
6J. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(2) the Corporation shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock
of any class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of
all or substantially all of its assets to, another entity or entities;
or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non-U.S. residents, addressed to
each holder of any shares of Series A
9
<PAGE>
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation, (a) at least 20 days' prior written notice of the date on
which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Convertible Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the Conversion Price in effect at the time. The Corporation will take
all such action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the Common
Stock may be listed. The Corporation will not take any action which results in
any adjustment of the Conversion Price if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Series A
Convertible Preferred Stock would exceed the total number of shares of Common
Stock then authorized by the Restated Certificate of Incorporation.
6L. No Reissuance of Series A Convertible Preferred Stock. Shares of
Series A Convertible Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
6M. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series A Convertible Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Convertible
Preferred Stock which is being converted.
6N. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Common
10
<PAGE>
Stock issued or issuable upon the conversion of any shares of Series A
Convertible Preferred Stock in any manner which interferes with the timely
conversion of such Series A Convertible Preferred Stock, except as may otherwise
be required to comply with applicable securities laws.
6O. Definition of Common Stock. As used in this paragraph 6, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.01 per share, as constituted on the date of filing of these terms of
the Series A Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall not be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series A Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6P. Mandatory Conversion. If at any time the Corporation shall effect
a firm commitment underwritten public offering of shares of Common Stock in
which (i) the aggregate price paid for such shares by the public shall be at
least $5,000,000 and (ii) the price paid by the public for such shares shall be
at lest $10.50 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Common Stock.
7. Redemption. The shares of Series A Convertible Preferred Stock
shall be redeemed as follows:
7A. Mandatory Redemption. On December 31, 1995, the
Corporation shall redeem from each holder of shares of Series A Preferred Stock,
all of the shares of Series A Convertible Preferred Stock held by such holder on
the Redemption Date.
7B. Optional Redemption. At any time after December 31, 1992,
the Corporation shall have the right, at its sole option, to redeem from each
holder of shares of Series A Convertible Preferred stock, all of the shares of
Series A Convertible Preferred Stock held by such holder on the date of such
redemption. The date of a redemption pursuant to Section 7A or 7B is hereinafter
referred to as the "Redemption Date."
7C. Redemption Price and Payment. The Series A Convertible
Preferred Stock to be redeemed on the Redemption Date shall be redeemed by
paying for each share in cash an amount equal to $3.00 per share plus, in the
case of each share, an amount equal to all Accruing Dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon,
computed to the Redemption Date, such amount being referred to as the
"Redemption Price." Such payment shall be made in full on the Redemption Date to
the holders entitled thereto.
11
<PAGE>
7D. Redemption Mechanics. At least 20, but not more than 30 days prior
to the Redemption Date, written notice (the "Redemption Notice") shall be given
by the Corporation by mail, postage prepaid, or by telex to non-U.S. residents
to each holder of record (at the close of business on the business day next
preceding the day on which the Redemption Notice is given) of shares of Series A
Convertible Preferred Stock notifying such holder of the redemption and
specifying the Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on the Redemption Date, unless there shall have been
a default in the payment of the Redemption Price, all rights of holders of
shares of Series A Convertible Preferred Stock (except the right to receive the
Redemption Price) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Series A Convertible Preferred Stock on
the Redemption Date are insufficient to redeem the total number of outstanding
shares of Series A Convertible Preferred Stock, the holders of shares of Series
A Convertible Preferred Stock shall share ratably in any funds legally available
for redemption of such shares according to the respective amounts which would be
payable with respect to the full number of shares owned by them if all such
outstanding shares were redeemed in full. The shares of Series A Convertible
Preferred Stock not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter, when additional funds
of the Corporation are legally available for the redemption of such shares of
Series A Convertible Preferred Stock, such funds will be used, at the end of the
next succeeding fiscal quarter, to redeem the balance of such shares, or such
portion thereof for which funds are then legally available, on the basis set
forth above.
7E. Redeemed or Otherwise Acquired Shares to be Retired. Any shares of
Series A Convertible Preferred Stock redeemed pursuant to this paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever shall be
cancelled and shall not under any circumstances be reissued; and the Corporation
may from time to time take such appropriate corporation action as may be
necessary to reduce accordingly the number of authorized shares of Series A
Convertible Preferred Stock.
8. Amendments. No provision of these terms of the Series A Convertible
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock."
(4) The foregoing amendment to the Certificate of Incorporation was
authorized by the Board of Directors at a meeting of the Board duly held on
December 12, 1989.
12
<PAGE>
IN WITNESS WHEREOF, we have hereunto subscribed this Certificate this
29th day of December, 1989.
-----------------------------------
Kennard H. Morganstern, President
-----------------------------------
Harvey Cohen, Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this ___th day of _______________, 1996, before me personally came
____________________ and ______________, to me know to be the individuals
described in and who executed the foregoing Certificate of Amendment, and they
duly acknowledged to me that they executed same.
---------------------------------
13
Exhibit 3.3
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
Under Section 805 of the Business Corporation Law
We, Kennard H. Morganstern and Harvey Cohen, being respectively the
President and Secretary of Medical Sterilization, Inc., hereby certify:
1. The name of the Corporation is
MEDICAL STERILIZATION, INC.
2. The Certificate of Incorporation was filed on May 27, 1982 under the
name GENERAL STERILIZATION SERVICES, INC. Restated Certificates of Incorporation
and amendments to the Certificate of Incorporation were filed on May 12, 1983,
August 5, 1983, May 24, 1989 and January 4, 1990.
3. The Certificate of Incorporation is amended by the addition of
provisions stating the number, designation, relative rights, preferences and
limitations of a Series B Convertible Preferred Stock, par value $.01 per share,
and a Series C Convertible Preferred Stock, par value of $.01 per share, as
fixed by the Board of Directors before the issuance of such series, under
authority contained in the Certificate of Incorporation and as permitted by
Section 502 of the Business Corporation Law.
4. The 800,000 issued and outstanding shares of Series A Convertible
Preferred Stock, par value $.01, are to be exchanged for 1,000,000 shares of
Series B Convertible Preferred Stock, par value $.01 per share, and 1,542,000
shares of Series C Convertible Preferred Stock, par value $.01 per share, at an
exchange rate of 1.25 shares of Series B Convertible Preferred Stock and 1.9275
shares of Series C Convertible Preferred Stock for each shares of Series A
Convertible Preferred Stock. The One Million (1,000,000) shares of Series A
Convertible Preferred Stock, par value $.01 per
<PAGE>
share, heretofore authorized of which 800,000 shares are issued and 200,000
shares are unissued, shall be eliminated.
5. Paragraph "FOURTH A." of the Restated Certificate of
Incorporation is hereby amended to read as follows:
"FOURTH: The aggregate number of shares which the Corporation shall have
authority to issue is Thirteen Million (13,000,000) shares to consist of Ten
Million (10,000,000) shares of Common Stock, with a par value of $.01 per share
and Three Million (3,000,000) shares of Preferred Stock, with a par value of
$.01 per share.
The respective designations, preferences, privileges and voting powers or
restrictions or qualifications of each class of stock are as follows:
A. Preferred Stock. (a) The Preferred Stock may be issued from time
to time in one or more series and with such designation for each such series as
shall be stated and expressed in the resolution or resolutions providing for the
issue of each such series adopted by the Board of Directors. The Board of
Directors in any such resolution or resolutions is expressly authorized to state
and express for each such series:
(i) Voting rights, if any, including without limitation the
authority to confer multiple votes per share, voting rights as to specified
matters or issues such as mergers, consolidations or sales of assets, or voting
rights to be exercised either together with holders of Common Stock as a single
class, or independently as a separate class;
(ii) The rate per annum and the times at and conditions upon
which the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or non-cumulative and
if cumulative the terms upon which such dividends shall be cumulative;
(iii) The price or prices and the time or times at and
the manner in which the stock of such series shall be redeemable;
(iv) The rights to which the holders of the shares of stock of
such series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
(v) The terms, if any, upon which the shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock of any
other class or classes or of any other series of the same or any other class or
classes, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any; and
2
<PAGE>
(vi) Any other designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof so far as they are not inconsistent with the provisions
of the Certificate of Incorporation, as amended, and to the full extent now or
hereafter permitted by the laws of the State of New York.
All shares of the Preferred Stock of any one series shall be identical to
each other in all aspects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereof, if
cumulative, shall be cumulative.
(b) Number of Shares.
(i) The Series A Convertible Preferred Stock authorized
pursuant to the Certificate of Amendment filed January 4, 1990 consisting of
800,000 issued shares and 200,000 unissued shares is eliminated pursuant to the
written consent of 93.75% of the outstanding Series A Convertible Preferred
Stock.
(ii) One Million (1,000,000) shares of authorized Preferred
Stock of the par value of $.01 each shall be issued in and as a series to be
designated "Series B Convertible Preferred Stock."
(iii) 1,542,000 shares of authorized Preferred Stock of the
par value of $.01 each shall be issued in and as a series to be designated
"Series C Convertible Preferred Stock."
(iv) The term Preferred Stock, as used herein, shall include
all of the shares of Preferred Stock authorized by the Board of Directors
pursuant to the Certificate of Incorporation, including the Series B Convertible
Preferred Stock and Series C Convertible Preferred Stock.
(c) Voting.
(i) General. Except as may be otherwise provided in these
terms of the Series B and Series C Convertible Preferred Stock or by law, the
Series B and Series C Convertible Preferred Stock shall vote together with all
other classes and series of stock of the Corporation as a single class on all
actions to be taken by the shareholders of the Corporation. Each share of Series
B and Series C Convertible Preferred Stock shall entitle the holder thereof to
such number of votes per share on each such action as shall equal the number of
shares of Common Stock (including fractions of a share) into which each share of
Series B and Series C Convertible Preferred Stock is then convertible.
(ii) Board Size. The Corporation shall not, without the
written consent or affirmative vote of the holders of at least two-thirds
of the then outstanding shares of Series B and Series C Convertible
Preferred Stock, given in writing or by vote
3
<PAGE>
at a meeting, consenting or voting (as the case may be) together as a single
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of six (6).
(iii) Board Seats. The holders of the Series B and Series C
Convertible Preferred Stock voting together as a single series, shall be
entitled to elect three (3) directors of the Corporation. The holders of the
Common Stock, voting as a separate class, shall be entitled to elect the
remaining directors of the Corporation. Notwithstanding the foregoing or
anything else to the contrary provided in the Restated Certificate of
Incorporation, if the Corporation fails or refuses, for any reason or for no
reason, to redeem on the Redemption Date (as defined in paragraph (h)) all of
the then outstanding shares of Series B Preferred Stock in accordance with the
terms and provisions of paragraph (h), the holders of the Series B Convertible
Preferred Stock, voting as a separate series, shall be entitled to elect a
majority of the directors of the Corporation. At any meeting (or in a written
consent in lieu thereof) held for the purpose of electing directors, the
presence in person or by proxy (or the written consent) of the holders of a
majority of the shares of Series B and Series C Convertible Preferred Stock then
outstanding shall constitute a quorum of the Series B and Series C Convertible
Preferred Stock for the election of directors to be elected solely by the
holders of the Series B and Series C Convertible Preferred Stock. A vacancy in
any directorship elected by the holders of the Series B and Series C Convertible
Preferred Stock shall be filled only by vote or written consent of the holders
of the Series B and Series C Convertible Preferred Stock.
(d) Dividends.
(i) The holders of the Series B Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends at the rate per annum
of Eight (8%) percent per share. The dividends may be paid in cash or accrued at
the option of the Corporation. If not paid in cash the dividends (the "Accruing
Dividends") shall accrue from day to day, whether or not earned or declared, and
shall be cumulative from the date of issuance of the Series B Convertible
Preferred Stock and shall be added to the face amount of the Series B
Convertible Preferred Stock at the rate of $2.00 per share or such price
adjusted pursuant to the provisions of paragraph (g)(iv) hereof at the time of
conversion.
(ii) There are no dividends payable or accrued on the Series C
Convertible Preferred Stock.
(e) Liquidation. Upon any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of the shares of
Series B Convertible Preferred Stock shall first be entitled, before any
distribution or payment is made upon any stock ranking on liquidation junior to
the Series B and Series C Convertible Preferred Stock, to be paid an amount
equal to $2.00 per share plus, in the
4
<PAGE>
case of each share, an amount equal to all Accruing Dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon,
computed to the date payment thereof is made available, such amount payable with
respect to one share of Series B Convertible Preferred Stock being sometimes
referred to as the "Series B Liquidation Preference Payment." Upon any
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the holders of the shares of Series C Convertible Preferred Stock
shall first be entitled, before any distribution or payment is made upon any
stock ranking on liquidation junior to the Series C Convertible Preferred Stock,
to be paid an amount equal to $1.00 per share, such amount payable with respect
to one share of Series C Preferred Stock being sometimes referred to as the
"Series C Liquidation Preference Payment." If upon such liquidation, dissolution
or winding up of the Corporation, whether voluntary or involuntary, the assets
to be distributed among the holders of Series B and Series C Convertible
Preferred Stock shall be insufficient to permit payment in full to the holders
of Series B and Series C Convertible Preferred Stock of the Liquidation
Preference Payments, then the entire assets of the Corporation to be so
distributed shall be distributed ratably among the holders of Series B and
Series C Convertible Preferred Stock. Upon any such liquidation, dissolution or
winding up of the Corporation, immediately after the holders of Series B and
Series C Convertible Preferred Stock shall have been paid in full the Series B
and Series C Convertible Liquidation Preference Payments, the remaining net
assets of the Corporation available for distribution shall be distributed
ratably among the holders of Series B and Series C Convertible Preferred Stock
and Common Stock (with each share of Series B and Series C Convertible Preferred
Stock being deemed, for such purpose, to be equal to the number of shares of
Common Stock (including fractions of a share) into which such share of Series B
and Series C Convertible Preferred Stock is convertible immediately prior to the
close of business on the business day fixed for such distribution). Written
notice of such liquidation, dissolution or winding up, stating a payment date
and the place where said payment shall be made, shall be given by mail, postage
prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the
payment date stated therein, to the holders of record of Series B and Series C
Convertible Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, and the sale or transfer by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph (e). For purposes hereof, the Common Stock shall
rank on liquidation junior to the Series B and Series C Convertible Preferred
Stock.
(f) Restrictions. At any time when shares of Series B and Series C
Convertible Preferred Stock are outstanding, except where the vote or written
consent of the holders of a greater number of shares of the Corporation is
required by law or by the Restated Certificate of Incorporation, and in addition
to any other vote required by law or the Restated Certificate of Incorporation,
as amended, without the approval of the holders
5
<PAGE>
of at least two-thirds of the then outstanding shares of Series B and Series C
Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
(i) Create or authorize the creation of any additional class
or series of shares of stock unless the same ranks junior to the Series B and
Series C Convertible Preferred Stock as to the distribution of assets on the
liquidation, dissolution or winding up of the Corporation, or increase the
authorized amount of the Series B and Series C Convertible Preferred Stock or
increase the authorized amount of any additional class or series of shares of
stock unless the same ranks junior to the Series B and Series C Convertible
Preferred Stock as to the distribution of assets on the liquidation, dissolution
or winding up of the Corporation, or create or authorize any obligation or
security convertible into shares of Series B and Series C Convertible Preferred
Stock or into shares of any other class or series of stock unless the same ranks
junior to the Series B and Series C Convertible Preferred Stock as to the
distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or increase shall be by
means of amendment to the Restated Certificate of Incorporation or by merger,
consolidation or otherwise;
(ii) Consent to any liquidation, dissolution or winding up of
the Corporation or consolidate or merge into or with any other entity or
entities or sell or transfer all or substantially all its assets;
(iii) Amend, alter or repeal its Restated Certificate of
Incorporation or By-laws in a manner which adversely affects the holders of
Series B and Series C Convertible Preferred Stock;
(iv) Purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of stock other than the
Series B Convertible Preferred Stock, except for dividends or other
distributions payable on the Common Stock solely in the form of additional
shares of Common Stock and except for the purchase of shares of Common Stock
from former employees of the Corporation who acquired such shares directly from
the Corporation, if each such purchase is made pursuant to contractual rights
held by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares; or
(v) Redeem or otherwise acquire any shares of Series B
Convertible Preferred Stock except as expressly authorized in paragraph (h)
hereof or pursuant to a purchase offer made pro rata to all holders of the
shares of Series B Convertible Preferred Stock on the basis of the aggregate
number of outstanding shares of Series B Convertible Preferred Stock then held
by each such holder.
(g) Conversions. The holders of shares of Series B and Series C
Convertible Preferred Stock shall have the following conversion rights:
6
<PAGE>
(i)(1) Right to Convert Series B Convertible Preferred Stock.
Subject to the terms and conditions of this paragraph (g), the holder of any
share or shares of Series B Convertible Preferred Stock shall have the right, at
its option at any time prior to December 30, 1999 to convert any such shares of
Series B Convertible Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series B
Convertible Preferred Stock) into such number of fully paid and nonassessable
shares of Common Stock as is obtained by (i) multiplying the number of shares of
Series B Convertible Preferred Stock so to be converted by $2.00 and adding an
amount equal to all Accruing Dividends unpaid thereon (whether or not declared)
and any other dividends declared but unpaid thereon, computed to the date of
conversion and (ii) dividing the result by the conversion price of $2.00 per
share or, in case an adjustment of such price has taken place pursuant to the
further provisions of this paragraph (g), then by the conversion price as last
adjusted and in effect at the date any share or shares of Series B Convertible
Preferred Stock are surrendered for conversion (such price, or such price as
last adjusted, being referred to as the "Conversion Price"). Such rights of
conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of Series B
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series B
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
(i)(2). Right to Convert Series C Convertible Preferred Stock.
Subject to the terms and conditions of this paragraph (g), the holder of any
share or shares of Series C Convertible Preferred Stock shall have the right, at
its option at any time prior to December 30, 2004 to convert any such shares of
Series C Convertible Preferred Stock (except that upon any liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series C
Convertible Preferred Stock) into such number of fully paid and nonassessable
shares of Common Stock as is obtained by (i) multiplying the number of shares of
Series C Convertible Preferred Stock so to be converted by $1.00 and (ii)
dividing the result by the conversion price of $1.00 per share or, in case an
adjustment of such price has taken place pursuant to the further provisions of
this paragraph (g), then by the conversion price as last adjusted and in effect
at the date any share or shares of Series C Convertible Preferred Stock are
surrendered for conversion (such price, or such price as last adjusted, being
referred to as the "Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder elects
to convert a stated number of shares of Series C Convertible Preferred Stock
into Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the Corporation at its principal office (or such
other office or agency of the Corporation
7
<PAGE>
as the Corporation may designate by notice in writing to the holders of the
Series C Convertible Preferred Stock) at any time during its usual business
hours on the date set forth in such notice, together with a statement of the
name or names (with address) in which the certificate or certificates for shares
of Common Stock shall be issued.
(ii) Issuance of Certificates; Time Conversion Effected.
Promptly after the receipt of the written notice referred to in subparagraph
(g)(i)(1) and/or (g)(i)(2) and the surrender of the certificate or certificates
for the share or shares of Series B and/or Series C Convertible Preferred Stock
to be converted, the Corporation shall issue and deliver, or cause to be issued
and delivered, to the holder, registered in such name or names as such holder
may direct, a certificate or certificates for the number of whole shares of
Common Stock issuable upon the conversion of such share or shares of Series B
and/or Series C Convertible Preferred Stock. To the extent permitted by law,
such conversion shall be deemed to have been effected and the Conversion Price
shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Series B and/or Series C Preferred Stock shall cease, and the person or persons
in whose name or names any certificate or certificates for shares of Common
Stock shall be issuable upon such conversion shall be deemed to have become the
holder or holders of record of the shares represented thereby.
(iii) Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series B and Series C
Convertible Preferred Stock into Common Stock and no payment or adjustment shall
be made upon any conversion on account of any cash dividends on the Common Stock
issued upon such conversion. In case the number of shares of Series B and Series
C Convertible Preferred Stock represented by the certificate or certificates
surrendered pursuant to subparagraph (g)(i) exceeds the number of shares
converted, the Corporation shall, upon such conversion, execute and deliver to
the holder, at the expense of the Corporation, a new certificate or certificates
for the number of shares of Series B or Series C Convertible Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph (g)(ii), be delivered upon
such conversion, the Corporation, in lieu of delivering such fractional share,
shall pay to the holder surrendering the Series B and Series C Convertible
Preferred Stock for conversion an amount in cash equal to the current market
price of such fractional share as determined in good faith by the Board of
Directors of the Corporation.
(iv) Adjustment of Price Upon Issuance of Common Stock. Except
as provided in subparagraph (g)(vi), if and whenever the Corporation shall issue
or sell, or is, in accordance with subparagraphs (g)(v)(1) through (g)(v)(7),
deemed to have issued or sold, any share of Common Stock for a consideration per
share less than the Conversion Price in effect immediately prior to the time of
such issue or sale, then, forthwith upon such issue or sale, the Conversion
Price shall be reduced to the price at
8
<PAGE>
which the Corporation issued or sold, or is deemed to have issued or sold, such
shares of Common Stock.
For purposes of this subparagraph (g)(iv), the following subparagraphs
(g)(v)(1) to (g)(v)(7) shall also be applicable:
(v)(1). Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption in a
merger or otherwise) any warrants or other rights to subscribe for or to
purchase, or any options for the purchase of, Common Stock or any stock or
security convertible into or exchangeable for Common Stock (such warrants,
rights or options being called "Options" and such convertible or exchangeable
stock or securities being called "Convertible Securities") whether or not such
Options or the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock is
issuable upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of all such Options, plus, in the
case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange thereof,
by (ii) the total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such Options) shall be less
than the Conversion Price in effect immediately prior to the time of the
granting of such Options, then the total maximum number of shares of Common
Stock issuable upon the exercise of such Options or upon conversion or exchange
of the total maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such price per
share as of the date of granting of such Options or the issuance of such
Convertible Securities and thereafter shall be deemed to be outstanding. Except
as otherwise provided in subparagraph (g)(v)(3), no adjustment of the Conversion
Price shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual issue of
such Common Stock upon conversion or exchange of such Convertible Securities.
(v)(2). Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by assumption in a
merger or otherwise) or sell any Convertible Securities, whether or not the
rights to exchange or convert any such Convertible Securities are immediately
exercisable, and the price per share for which Common Stock is issuable upon
such conversion or exchange (determined by dividing (i) the total amount
received or receivable by the Corporation as consideration for the issue or sale
of such Convertible Securities, plus the minimum aggregate amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange thereof, by (ii) the total/maximum number of shares of Common Stock
issuable upon the conversion or exchange of all such Convertible Securities)
shall be less than the
9
<PAGE>
Conversion Price in effect immediately prior to the time of such issue or sale,
then the total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have been
issued for such price per share as of the date of the issue or sale of such
Convertible Securities and thereafter shall be deemed to be outstanding,
provided that (a) except as otherwise provided in subparagraph (g)(v)(3), no
adjustment of the Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities and (b)
if any such issue or sale of such Convertible Securities is made upon exercise
of any Options to purchase any such Convertible Securities for which adjustments
of the Conversion Price have been or are to be made pursuant to other provisions
of this subparagraph (g)(3), no further adjustment of the Conversion Price shall
be made by reason of such issue or sale.
(v)(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price provided
for in any Option referred to in subparagraph (g)(v)(1), the additional
consideration, if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraph (g)(v)(1) or (g)(v)(2), or
the rate at which Convertible Securities referred to in subparagraph (g)(v)(1)
or (g)(v)(2) are convertible into or exchangeable for Common Stock shall change
at any time (including, but not limited to, changes under or by reason of
provisions designed to protect against dilution), the Conversion Price in effect
at the time of such event shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed purchase price,
additional consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such adjustment
the Conversion Price then in effect hereunder is thereby reduced; and on the
expiration of any such Option for the termination of any such right to convert
or exchange such Convertible Securities, the Conversion Price then in effect
hereunder shall forthwith be increased to the Conversion Price which would have
been in effect at the time of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
(v)(4) Stock Dividends. In case the Corporation shall declare
a dividend or make any other distribution upon any stock of the Corporation
payable in Common Stock (except for dividends or distributions upon the Common
Stock), Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such dividend
or distribution shall be deemed to have been issued or sold without
consideration.
(v)(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any expenses incurred or
any underwriting commissions or concessions paid or allowed by the Corporation
in
10
<PAGE>
connection therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Corporation shall be
deemed to be the fair value of such consideration as determined in good faith by
the Board of Directors of the Corporation, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Corporation in connection therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Corporation,
together comprising one integral transaction in which no specific consideration
is allocated to such Options by the parties thereto, such Options shall be
deemed to have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
(v)(6) Record Date. In case the Corporation shall take a
record of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock, Options or
Convertible Securities, then such record date shall be deemed to be the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(v)(7) Treasury Shares. The disposition of any
shares of Common Stock owned or held by or for the account of the
Corporation shall be considered an issue or sale of Common Stock for the
purpose of this subparagraph (g)(iv).
(vi) Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required to make
any adjustment of the Conversion Price in the case of the issuance of up to an
aggregate of 1,000,000 shares (appropriately adjusted to reflect the occurrence
of any event described in subparagraph (g)(viii) of Common Stock to officers,
directors, consultants or employees of the Corporation in connection with their
employment by the Corporation, the issuance of 1,542,000 shares of Series C
Convertible Preferred Stock with a conversion price of $1.00 per share and the
issuance of warrants to purchase 80,000 shares of common stock of the
Corporation at a price of $1.00 per share.
(vii) Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding shares of Common Stock into a greater number of
shares, the conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and, conversely, in case the outstanding
shares of Common Stock shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(viii) Reorganization or Reclassification. If any
capital reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities
11
<PAGE>
or assets with respect to or in exchange for Common Stock, then, as a condition
of such reorganization or reclassification, lawful and adequate provisions shall
be made whereby each holder of a share or shares of Series B and Series C
Convertible Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore receivable upon the conversion of
such share or shares of Series B and Series C Convertible Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Common Stock equal
to the number of shares of such Common Stock immediately theretofore receivable
upon such conversion had such reorganization or reclassification not taken
place, and in any such case appropriate provisions shall be made with respect to
the rights and interests of such holder to the end that the provisions hereof
(including without limitation provisions for adjustments of the Conversion
Price) shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the exercise
of such conversion rights.
(ix) Failure to Redeem. If the Corporation fails, for any
reason or for no reason, to redeem on the Redemption Date (as defined in
paragraph (h) all of the then outstanding shares of Series B Convertible
Preferred Stock in accordance with the terms and conditions of paragraph (h),
the Conversion Price then in effect shall be immediately reduced to an amount
equal to 90% thereof. Thereafter, until such redemption has been made in full in
accordance with such terms and conditions, the Conversion Price shall be further
reduced on the 90th day following the Redemption Date and at the end of each
90-day period thereafter to an amount equal to 90% of the Conversion Price in
effect immediately prior to each such reduction.
(x) Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall give written
notice thereof, by first class mail, postage prepaid, or by telex to non-U.S.
residents, addressed to each holder of shares of Series B and Series C
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation, which notice shall state the conversion Price resulting from
such adjustment, setting forth in reasonable detail the method upon which such
calculation is based.
(xi) Other Notices. In case at any time:
(xi)(1) the Corporation shall declare any dividend
upon its Common Stock payable in cash or stock or make any other
distribution to the holders of its Common Stock;
(xi)(2) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock any additional shares of stock
of any class or other rights;
12
<PAGE>
(xi)(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non-U.S. residents, addressed to
each holder of any shares of Series B and Series C Convertible Preferred Stock
at the address of such holder as shown on the books of the Corporation, (a) at
least 20 days' prior written notice of the date on which the books of the
Corporation shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up and (b) in the case of any such
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Common Stock shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
(xii) Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Series B and/or Series C Convertible
Preferred Stock as herein provided, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding shares of Series B
and/or Series C Convertible Preferred Stock. The Corporation covenants that all
shares of Common Stock which shall be so issued shall be duly and validly issued
and fully paid and nonassessable and free from all taxes, liens and charges with
respect to the issue thereof, and, without limiting the generality of the
foregoing, the Corporation covenants that it will from time to time take all
such action as may be requisite to assure that the par value per share of the
Common Stock is at all times equal to or less than the Conversion Price in
effect at the time. The Corporation will take all such action as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or regulation, or of any requirement of
any national securities exchange upon which the Common Stock may be listed. The
Corporation will not take any action which results in any adjustment of the
Conversion Price if the total number of shares of Common Stock issued and
issuable after such action upon conversion of the Series B and/or Series C
Convertible Preferred Stock would exceed the total number of shares of Common
Stock then authorized by the Restated Certificate of Incorporation, as amended.
13
<PAGE>
(xiii) No Reissuance of Series B or Series C Convertible
Preferred Stock. Shares of Series B and/or Series C Convertible Preferred Stock
which are converted into shares of Common Stock as provided herein shall not be
reissued.
(xiv) Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of Series B and/or Series C Convertible Preferred
Stock shall be made without charge to the holders thereof for any issuance tax
in respect thereof, provided that the Corporation shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any certificate in a name other than that of the holder of the
Series B and/or Series C Convertible Preferred Stock which is being converted.
(xv) Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series B and/or Series C
Convertible Preferred Stock or of any shares of Common Stock issued or issuable
upon the conversion of any shares of Series B and/or Series C Convertible
Preferred Stock in any manner which interferes with the timely conversion of
such Series B and Series C Convertible Preferred Stock, except as may otherwise
be required to comply with applicable securities laws.
(xvi) Definition of Common Stock. As used in this paragraph
(g), the term "Common Stock" shall mean and include the Corporation's authorized
Common Stock, par value $.01 per share, as constituted on the date of filing of
these terms of the Series B and Series C Convertible Preferred Stock, and shall
also include any capital stock of any class of the Corporation thereafter
authorized which shall not be limited to a fixed sum or percentage of par value
in respect of the rights of the holders thereof to participate in dividends or
in the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Series B and Series C Convertible
Preferred Stock shall include only shares designated as Common Stock of the
Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph (g)(viii).
(xvii) Mandatory Conversion.
(xvii)(1) In the event that any time during the
period ending October 31, 1999, the fair market price of the Corporation's
Common Stock as quoted on NASDAQ, attains a price of Three ($3.00) Dollars per
share and maintains such price for at least ninety (90) days, all outstanding
shares of Series C Convertible Preferred Stock shall be automatically converted
into shares of Common Stock of the Corporation on such ninetieth day.
(xvii)(2) In the event that at any time during
the period ending October 31, 1999, the fair market price of the
Corporation's Common Stock as
14
<PAGE>
quoted on NASDAQ, attains a price of Six ($6.00) Dollars per share and maintains
such price for at least ninety (90) days, all outstanding shares of Series B
Convertible Preferred Stock shall be automatically converted into shares of
Common Stock of the Corporation on such ninetieth day.
(xvii)(3) In the event that the holder of any
share or shares of Series C Convertible Preferred Stock shall not have converted
such share or shares prior to December 30, 2004, such share or shares shall be
automatically converted into shares of Common Stock of the Corporation.
(h) Redemption. The shares of Series B Convertible
Preferred Stock shall be redeemed as follows:
(h)(i) Mandatory Redemption. On December 30, 1999,
the Corporation shall redeem from each holder of shares of Series B Convertible
Preferred Stock, all of the shares of Series B Convertible Preferred Stock held
by such holder on said date.
(h)(ii) Redemption Price and Payment. The Series B
Convertible Preferred Stock to be redeemed on the Redemption Date shall be
redeemed by paying for each share in cash an amount equal to $2.00 per share
plus, in the case of each share, an amount equal to all Accruing Dividends
unpaid thereon (whether or not declared) and any other dividends declared but
unpaid thereon, computed to the Redemption Date, such amount being referred to
as the "Redemption Price". Such payment shall be made in full on the Redemption
Date to the holders entitled thereto.
(h)(iii) Redemption Mechanics. At least 20 but
not more than 30 days prior to the Redemption Date, written notice (the
"Redemption Notice") shall be given by the Corporation by mail, postage prepaid,
or by telex to non-U.S. residents, to each holder of record (at the close of
business on the business day next preceding the day on which the Redemption
Notice is given) of shares of Series B Convertible Preferred Stock notifying
such holder of the redemption and specifying the Redemption Price, the
Redemption Date and the place where said Redemption Price shall be payable. The
Redemption Notice shall be addressed to each holder at his address as shown by
the records of the Corporation. From and after the close of business on the
Redemption Date, unless there shall have been a default in the payment of the
Redemption Price, all rights of holders of shares of Series B Convertible
Preferred Stock (except the right to receive the Redemption Price) shall cease
with respect to such shares, and such shares shall not thereafter be transferred
on the books of the Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for redemption of
shares of Series B Convertible Preferred Stock on the Redemption Date are
insufficient to redeem the total number outstanding shares of Series B
Convertible Preferred Stock, the holders of shares of Series B Convertible
Preferred Stock shall share ratably in any funds legally available for
redemption of such shares according to the respective amounts which would be
payable with respect to the full
15
<PAGE>
number of shares owned by them if all such outstanding shares were redeemed in
full. The shares of Series B Convertible Preferred Stock not redeemed shall
remain outstanding and entitled to all rights and preferences provided herein.
At any time thereafter when additional funds of the Corporation are legally
available for the redemption of such shares of Series B Convertible Preferred
Stock, such funds will be used, at the end of the next succeeding fiscal
quarter, to redeem the balance of such shares, or such portion thereof for which
funds are then legally available, on the basis set forth above.
(h)(iv) Redeemed or Otherwise Acquired Shares to be
Retired. Any shares of Series B Convertible Preferred Stock redeemed pursuant to
this paragraph (h) or otherwise acquired by the Corporation in any manner
whatsoever shall be cancelled and shall not under any circumstances be reissued;
and the Corporation may from time to time take such appropriate corporation
action as may be necessary to reduce accordingly the number of authorized shares
of Series B Convertible Preferred Stock.
(i) Amendments. No provision of these terms of the Series B
and/or Series C Convertible Preferred Stock may be amended, modified or waived
without the written consent or affirmative vote of the holders of at least
two-thirds of the then outstanding shares of Series B and/or Series C
Convertible Preferred Stock."
5. The foregoing amendment to the Certificate of Incorporation was
authorized by the Board of Directors at a meeting of the Board duly held on
September 29, 1994.
IN WITNESS WHEREOF, we have hereunto subscribed this Certificate this 22nd
day of November, 1994.
-----------------------------------
Kennard H. Morganstern, President
-----------------------------------
Harvey Cohen, Secretary
16
<PAGE>
VERIFICATION
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
HARVEY COHEN, being duly sworn deposes and says, that he is the Secretary
of Medical Sterilization, Inc., the corporation named in and described in the
foregoing certificate, and is one of the persons described in and who executed
the foregoing certificate, that he has read the foregoing Certificate of
Amendment of the Certificate of Incorporation and knows the contents thereof,
and that the statements contained therein are true.
------------------------
Harvey Cohen
Sworn to before me this
22nd day of November, 1994
--------------------
Notary Public
393LMM5962/1.195588_1
17
Exhibit 3.4
AMENDED AND RESTATED BY-LAWS
OF
MEDICAL STERILIZATION, INC.
June 2, 1987
ARTICLE I - OFFICES
The principal office of the corporation shall be in Garden City, County of
Nassau, State of New York. The corporation may also have offices at such other
places within or without the State of New York as the board of directors may
from time to time determine or the business of the corporation may require.
ARTICLE II - SHAREHOLDERS
1. PLACE OF MEETINGS.
Meetings of shareholders shall be held at the principal office of the
corporation or at such place within or without the State of New York as the
board shall authorize.
2. ANNUAL MEETING.
The annual meeting of the shareholders shall be held on the 22nd day of
May at 10:00 A.M. in each year if a business day, and, if not a business day,
then on the next business day following at the same hour, when the shareholders
shall elect a board of directors and transact such other business as may
properly come before the meeting.
3. SPECIAL MEETINGS.
Special meetings of the shareholders may be called by the board or by the
president and shall be called by the president or the secretary at the request
in writing of a majority of the board or at the request in writing by
shareholders owning a majority in amount of the shares issued and outstanding.
Such request shall state the purpose or purposes of the proposed meeting.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice.
4. FIXING RECORD DATE.
For the purpose of determining the shareholders entitled to notice of, or
to vote at, any meeting of shareholders or any adjournment thereof, or to
express consent to, or dissent from, any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any dividend
or the allotment of any rights, or for the purpose of any other action, the
board shall fix, in advance, a date as the record date for any such
determination of
<PAGE>
shareholders. Such date shall not be more than fifty nor less than ten days
before the date of such meeting, nor more than fifty days prior to any other
action. If no record date is fixed it shall be determined in accordance with the
provisions of law.
5. NOTICE OF MEETINGS OF SHAREHOLDERS.
Written notice of each meeting of shareholders shall state the purpose or
purposes for which the meeting is called, the place, date and hour of the
meeting and unless it is the annual meeting, shall indicate that it is being
issued by or at the direction of the person or persons calling the meeting.
Notice shall be given either personally or by mail to each shareholder entitled
to vote at such meeting, not less than ten nor more than fifty days before the
date of the meeting. If action is proposed to be taken that might entitle
shareholders to payment for their shares, the notice shall include a statement
of that purpose and to that effect. If mailed, the notice is given when
deposited in the United States mail, with postage thereon prepaid, directed to
the shareholder at his address as it appears on the record of shareholders, or,
if he shall have filed with the secretary a written request that notices to him
be mailed to some other address, then directed to him at such other address.
6. WAIVERS.
Notice of meeting need not be given to any shareholder who signs a waiver
of notice, in person or by proxy, whether before or after the meeting. The
attendance of any shareholder at a meeting, in person or by proxy, without
protesting prior to the conclusion of the meeting the lack of notice of such
meeting, shall constitute a waiver of notice by him.
7. QUORUM OF SHAREHOLDERS.
Unless the certificate of incorporation provides otherwise, the holders of
a majority of the shares entitled to vote thereat shall constitute a quorum at a
meeting of shareholders for the transaction of any business, provided that when
a specified item of business is required to be voted on by a class or classes,
the holders of a majority of the shares of such class or classes shall
constitute a quorum for the transaction of such specified item of business.
When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any shareholders.
The shareholders present may adjourn the meeting despite the absence of a
quorum.
8. PROXIES.
Every shareholders entitled to vote at a meeting of shareholders or to
express consent or dissent without a meeting may authorize another person or
persons to act for him by proxy.
Every proxy must be signed by the shareholder or his attorney-in-fact. No
proxy shall be valid after expiration of eleven months from the date thereof
unless otherwise provided in the
2
<PAGE>
proxy. Every proxy shall be revocable at the pleasure of the shareholder
executing it, except as otherwise provided by law.
9. QUALIFICATION OF VOTERS.
Every shareholder of record shall be entitled at every meeting of
shareholders to one vote for every share standing in his name on the record of
shareholders, unless otherwise provided in the certificate of incorporation.
10. VOTE OF SHAREHOLDERS.
Except as otherwise required by statute or by the certificate of
incorporation;
(a) directors shall be elected by a plurality of the votes cast at
a meeting of shareholders by the holders of shares entitled to vote in the
election;
(b) all other corporate action shall be authorized by a majority of
the votes cast.
11. WRITTEN CONSENT OF SHAREHOLDERS.
Any action that may be taken by vote may be taken without a meeting on
written consent, setting forth the action so taken, signed by the holders of all
the outstanding shares entitled to vote thereon or signed by such lesser number
of holders as may be provided for in the certificate of incorporation.
ARTICLE III - DIRECTORS
1. BOARD OF DIRECTORS.
Subject to any provision in the certificate of incorporation the business
of the corporation shall be managed by its board of directors, each of whom
shall be at least 21 years of age and need not be shareholders.
2. NUMBER OF DIRECTORS.
The number of directors shall be not less than three nor more than eleven.
3. ELECTION AND TERM OF DIRECTORS.
At each annual meeting of shareholders, the shareholders shall elect
directors to hold office until the next annual meeting. Each director shall hold
office until the expiration of the term for which he is elected and until his
successor has been elected and qualified, or until his resignation or removal.
3
<PAGE>
4. NEWLY CREATED DIRECTORSHIPS AND VACANCIES.
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists, unless otherwise
provided in the certificate of incorporation. Vacancies occurring by reason of
the removal of directors without cause shall be filled by vote of the
shareholders unless otherwise provided in the certificate of incorporation. A
director elected to fill a vacancy caused by resignation, death or removal shall
be elected to hold office for the unexpired term of his predecessor.
5. REMOVAL OF DIRECTORS.
Any or all of the directors may be removed for cause by vote of the
shareholders or by action of the board. Directors may be removed without cause
only by vote of the shareholders.
6. RESIGNATION.
A director may resign at any time by giving written notice to the board,
the president or the secretary of the corporation. Unless otherwise specified in
the notice, the resignation shall take effect upon receipt thereof by the board
or such officer, and the acceptance of the resignation shall not be necessary to
make it effective.
7. QUORUM OF DIRECTORS.
Unless otherwise provided in the certificate of incorporation, a majority
of the entire board shall constitute a quorum for the transaction of business or
of any specified item of business.
8. ACTION OF THE BOARD.
Unless otherwise required by law, the vote of a majority of the directors
present at the time of the vote, if a quorum is present at such time, shall be
the act of the board. Each director present shall have one vote regardless of
the number of shares, if any, which he may hold.
9. PLACE AND TIME OF BOARD MEETINGS.
The board may hold its meetings at the office of the corporation or at
such other places, either within or without the State of New York, as it may
from time to time determine.
10. REGULAR ANNUAL MEETING.
A regular annual meeting of the board shall be held immediately following
the annual meeting of shareholders at the place of such annual meeting of
shareholders.
4
<PAGE>
11. NOTICE OF MEETINGS OF THE BOARD, ADJOURNMENT.
(a) Regular meetings of the board may be held without notice at such time
and place as it shall from time to time determine. Special meetings of the board
shall be held upon notice to the directors and may be called by the chairman of
the board or the president upon three days notice to each director either
personally or by mail or by wire; special meetings shall be called by the
president or by the secretary in a like manner on written request of two
directors. Notice of a meeting need not be given to any director who submits a
waiver of notice whether before or after the meeting or who attends the meeting
without protesting prior thereto or at its commencement, the lack of notice to
him.
(b) A majority of the directors present, whether or not a quorum is
present, may adjourn any meeting to another time and place. Notice of the
adjournment shall be given all directors who were absent at the time of the
adjournment and, unless such time and place are announced at the meeting, to the
other directors.
12. CHAIRMAN.
At all meetings of the board the Chairman of the Board, or in his absence,
a chairman chosen by the board shall preside.
13. EXECUTIVE AND OTHER COMMITTEES.
(a) The board, by resolution adopted by a majority of the entire board,
may designate from among its members an executive committee and other
committees, each consisting of three or more directors. Each such committee
shall serve at the pleasure of the board.
(b) The executive committee shall have the following powers in the
management and operation of the business of the corporation to the extent such
powers may be delegated while the board of directors is not in session.
1. to determine questions of general policy with regard to
the business of the corporation;
2. to appoint agents of the corporation and to determine
their compensation;
3. to borrow money, and issue bonds, notes or other
obligations and evidences of indebtedness therefore; and
4. such other powers as may be lawfully delegated to it by
the board of directors.
(c) A committee shall fix its own rules of procedures, shall elect a
chairperson, and shall meet where and as provided by such rules, but in every
case the presence of a majority shall
5
<PAGE>
be necessary to constitute a quorum, and the affirmative vote of a majority of
all of the members of the committee shall be necessary for the adoption of any
resolution.
(d) Meetings of a committee shall be called by its chairperson or by any
two members of the committee. Notice shall be given to each member of the
committee, at address designated by him at least 24 hours before the meeting,
either orally or in writing, delivered personally, or by mail, telegraph,
telephone or telecopy.
(e) Each committee shall report all of its actions to the board of
directors.
14. COMPENSATION.
No compensation shall be paid to directors, as such, for their services,
but by resolution of the board a fixed sum and expenses for actual attendance,
at each regular or special meeting of the board may be authorized. Nothing
herein contained shall be construed to preclude any director from serving the
corporation in any other capacity and receiving compensation therefor.
15. ACTION BY UNANIMOUS WRITTEN CONSENT AND MEETINGS BY TELEPHONE, ETC.
Any action required or permitted to be taken by the board or any committee
may be taken without a meeting if all members of the board or the committee
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the board or
committee shall be filed with the minutes of the proceedings of the board or
committee.
Any one or more members of the Board of Directors or any Committee thereof
may participate in a meeting of such Board or Committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at such meeting.
ARTICLE IV - OFFICERS
1. OFFICES, ELECTION, TERM.
(a) Unless otherwise provided for in the certificate of incorporation, the
board may elect or appoint a Chairman of the Board, a president, one or more
vice-presidents, a secretary and a treasurer, and such other officers as it may
determine, who shall have such duties, powers and functions as hereinafter
provided.
(b) All officers shall be elected or appointed to hold office until the
meeting of the board following the annual meeting of shareholders.
6
<PAGE>
(c) Each officer shall hold office for the term for which he is elected or
appointed and until his successor has been elected or appointed and qualified.
2. REMOVAL, RESIGNATION, SALARY, ETC.
(a) Any officer elected or appointed by the board may be removed by the
board with or without cause.
(b) In the event of the death, resignation or removal of an officer, the
board in its discretion may elect or appoint a successor to fill the unexpired
term.
(c) Any two or more offices may be held by the same person, except the
offices of president and secretary.
(d) The salaries of all officers shall be fixed by the board.
(e) The directors may require any officer to give security for the
faithful performance of his duties.
3. CHAIRMAN OF THE BOARD.
The Chairman of the Board shall preside at all meetings of the
shareholders and of the board of directors, except as may be otherwise required
under the law of New York. He shall act in an advisory capacity with respect to
matters of policy and other matters of importance pertaining to the affairs of
the company. He, alone, or with the president and/or the secretary, shall sign
and send out reports and other messages which are to be sent to shareholders
from time to time. He shall also perform such other duties as may be assigned to
him by these By-Laws or the board of directors.
4. PRESIDENT.
The president shall be the chief executive officer of the corporation,
shall be ex officio a member of all standing committees, shall have general and
active management of the business of the corporation and shall see that all
orders and resolutions of the board of directors are carried into effect. He
shall, in the absence of the chairman of the board, preside at all meetings of
shareholders and directors.
5. VICE-PRESIDENTS.
During the absence or disability of the President, the vice-president, or
if there are more than one, the executive vice-president, shall have all the
powers and functions of the president. Each vice-president shall perform such
other duties as the board shall prescribe.
7
<PAGE>
6. SECRETARY.
The secretary shall:
(a) attend all meetings of the board and of the shareholders;
(b) record all votes and minutes of all proceedings in a book to be
kept for that purpose;
(c) give or cause to be given notice of all meetings of
shareholders and of special meetings of the board;
(d) keep in safe custody the seal of the corporation and affix it
to any instrument when authorized by the board;
(e) when required, prepare or cause to be prepared and available at each
meeting of shareholders a certified list in alphabetical order of the names of
shareholders entitled to vote thereat, indicating the number of shares of each
respective class held by each;
(f) keep all the documents and records of the corporation as
required by law or otherwise in a proper and safe manner.
(g) perform such other duties as may be prescribed by the board.
7. ASSISTANT-SECRETARIES.
During the absence or disability of the secretary, the
assistant-secretary, or if there are more than one, the one so designated by the
secretary or by the board, shall have all the powers and functions of the
secretary.
8. TREASURER.
The treasurer shall:
(a) have the custody of the corporate funds and securities;
(b) keep full and accurate accounts of receipts and disbursements
in the corporate books;
(c) deposit all money and other valuables in the name and to the
credit of the corporation in such depositories as may be designated by the
board;
(d) disburse the funds of the corporation as may be ordered or
authorized by the board and preserve proper vouchers for such disbursements;
8
<PAGE>
(e) render to the president and board at the regular meetings of the
board, or whenever they require it, an account of all his transactions as
treasurer and of the financial condition of the corporation;
(f) render a full financial report at the annual meeting of the
shareholders if so requested;
(g) be furnished by all corporate officers and agents at his
request, with such reports and statements as he may require as to all
financial transactions of the corporation;
(h) perform such other duties as are given to him by these by-laws or as
from time to time are assigned to him by the board or by the president.
9. ASSISTANT-TREASURER.
During the absence or disability of the treasurer, the
assistant-treasurer, or if there are more than one, the one so designated by the
secretary or by the board, shall have all the powers and functions of the
treasurer.
10. SURETIES AND BONDS.
In case the board shall so require, any officer or agent of the
corporation shall execute to the corporation a bond in such sum and with such
surety or sureties as the board may direct, conditioned upon the faithful
performance of his duties to the corporation and including responsibility for
negligence and for the accounting for all property, funds or securities of the
corporation which may come into his hands.
ARTICLE V - CERTIFICATES FOR SHARES
1. CERTIFICATES.
The shares of the corporation shall be represented by certificates. They
shall be numbered and entered in the books of the corporation as they are
issued. They shall exhibit the holder's name and the number of shares and shall
be signed by the president or a vice-president and the treasurer or the
secretary and shall bear the corporate seal.
2. LOST OR DESTROYED CERTIFICATES.
The board may direct a new certificate or certificates to be issued in
place of any certificate or certificates theretofore issued by the corporation,
alleged to have been lost or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require and/or
give the corporation a bond in such sum and with such
9
<PAGE>
surety or sureties as it may direct as indemnity against any claim that may be
made against the corporation with respect to the certificate alleged to have
been lost or destroyed.
3. TRANSFER OF SHARES.
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office. No transfer shall be made within ten days next preceding the annual
meeting of shareholders.
(b) The corporation shall be entitled to treat the holder of record of any
share as the holder in fact thereof and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of New York.
4. CLOSING TRANSFER BOOKS.
The board shall have the power to close the share transfer books of the
corporation for a period of not more than ten days during the thirty day period
immediately preceding (1) any shareholders' meeting, or (2) any date upon which
shareholders shall be called upon to or have a right to take action without a
meeting, or (3) any date fixed for the payment of a dividend or any other form
of distribution, and only those shareholders of record at the time the transfer
books are closed, shall be recognized as such for the purpose of (1) receiving
notice of or voting at such meeting, or (2) allowing them to take appropriate
action, or (3) entitling them to receive any dividend or other form of
distribution.
ARTICLE VI - DIVIDENDS
Subject to the provisions of the certificate of incorporation and to
applicable law, dividends on the outstanding shares of the corporation may be
declared in such amounts and at such time or times as the board may determine.
Before payment of any dividend, there may be set aside out of the net profits of
the corporation available for dividends such sum or sums as the board from time
to time in its absolute discretion deems proper as a reserve fund to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the corporation, or for such other purpose as the board shall think
conducive to the interests of the corporation, and the board may modify or
abolish any such reserve.
ARTICLE VII - CORPORATE SEAL
The seal of the corporation shall be circular in form and bear the name of
the corporation, the year of its organization and the works "Corporate Seal, New
York". The seal may be used by causing it to be impressed directly on the
instrument or writing to be sealed, or upon adhesive
10
<PAGE>
substance affixed thereto. The seal on the certificates for shares or on any
corporate obligation for the payment of money may be a facsimile, engraved or
printed.
ARTICLE VIII - EXECUTION OF INSTRUMENTS
All corporate instruments and documents shall be signed or countersigned,
executed, verified or acknowledged by such officer or officers or other person
or persons as the board may from time to time designate.
ARTICLE IX - FISCAL YEAR
The fiscal year shall begin the first day of January in each year.
ARTICLE X - REFERENCES TO CERTIFICATE OF INCORPORATION
Reference to the certificate of incorporation in these by-laws shall
include all amendments thereto or changes thereof unless specifically excepted.
ARTICLE XI - BY-LAW CHANGES
(a) Except as otherwise provided in the certificate of incorporation the
by-laws may be amended, repealed or adopted by vote of the holders of the shares
at the time entitled to vote in the election of any directors. By-Laws may also
be amended, repealed or adopted by the board but any by-law adopted by the board
may be amended by the shareholders entitled to vote thereon as hereabove
provided.
(b) If any by-law regulating an impending election of directors is
adopted, amended or repealed by the board, there shall be set forth in the
notice of the next meeting of shareholders for the election of directors the
by-law so adopted, amended or repealed, together with a concise statement of the
changes made.
ARTICLE XII - INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
1. GENERAL.
The corporation shall, to the fullest extent permitted by the New York
Business Corporation Law as the same exists or, subject to Section 4 of this
Article, may hereafter be amended, indemnify any person who is or was made or
threatened to be made a party to or is involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, against judgments, fines, amounts paid or to be paid in
settlement, excise taxes or penalties, and costs, charges and expenses,
including attorneys' fees incurred in connection with such action or proceeding
or any appeal therein. The actions for which such indemnification shall be
available shall include an action by or in the right of any other corporation of
any type or kind, domestic or foreign, or any partnership, joint venture, trust,
employee benefit plan or other enterprise, which any director or officer of the
corporation is
11
<PAGE>
serving, has served or has agreed to serve in any capacity at the request of the
corporation, by reason of the fact that he or she, his or her testator,
testatrix or intestate, is or was or has agreed to become a director or officer
of the corporation, or is or was serving or has agreed to serve such other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise in any capacity. Notwithstanding the foregoing, no indemnification
shall be provided to any such person if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty
and, in either case, were material to the cause of action so adjudicated, or
(ii) he or she personally gained in fact a financial profit or other advantage
to which he or she was not legally entitled. Except as provided in Section 6 of
this Article or as otherwise provided by agreement, the corporation shall
indemnify and such person seeking indemnification in connection with a
proceeding, or part thereof, initiated by such person only if such proceeding,
or part thereof, was authorized by the Board. The corporation may, to the extent
authorized from time to time by its Board, provide indemnification to employees
or agents of the Corporation who are not officers or directors of the
corporation with such scope and effect as determined by the Board.
2. NON-EXCLUSIVITY OF RIGHTS.
The corporation may indemnify any person to whom the corporation is
permitted to provide indemnification or the advancement of expenses by
applicable law, whether pursuant to rights granted pursuant to, or provided by,
the New York Business Corporation Law or other rights created by (i) a
resolution of shareholder, (ii) resolution of directors or (iii) an agreement
providing for such indemnification, it being expressly intended that these
by-laws authorize the creation of other rights in any such manner. The right to
be indemnified and to the reimbursement or advancement of expenses incurred in
defending a proceeding in advance of its final disposition conferred in this
Section shall not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the by-laws, agreement, vote
of shareholders or disinterested directors or otherwise.
3. EXPENSES.
The corporation shall, from time to time, reimburse or advance to any
person referred to in Section 1 of this Article the funds necessary for payment
of expenses, including attorneys' fees, incurred in connection with any such
action or proceeding upon receipt of a written undertaking by or on behalf of
such person to repay such amount(s) if a judgment or other final adjudication
adverse to the director or officer establishes that (i) his or her acts were
committed in bad faith or were the result of active and deliberate dishonesty
and, in either case, were material to cause of action so adjudicated, or (ii) he
or she personally gained in fact a financial profit or other advantage to which
he or she was not legally entitled.
4. INTERPRETATION OF RIGHTS TO INDEMNIFICATION.
Any person entitled to be indemnified or to the reimbursement or
advancement of expenses as a matter of right pursuant to this Section may elect
to have the right to
12
<PAGE>
indemnification, or advancement of expenses, interpreted on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the action or proceeding, to the extent permitted by law, or on
the basis of the applicable law in effect at the time indemnification is sought.
5. OTHER RIGHTS.
The right to be identified or to the reimbursement or advancement of
expenses pursuant to this Article is: (i) a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the corporation and the director or
officer, (ii) intended to be retroactive and shall be available with respect to
events occurring prior to the adoption hereof and (iii) shall continue to exist
after the rescission or restrictive modification hereof with respect to events
occurring prior thereto.
6. RIGHT OF CLAIMANT TO BRING SUIT.
If a request to be indemnified is made under this Article, the corporation
shall make a determination pursuant to Section 723(b) of the New York Business
Corporation Law within thirty (30) days after such request as to whether the
person so requesting indemnification is entitled to indemnification under this
Article and the New York Business Corporation Law. If a request to be
indemnified or for the reimbursement or advancement of expenses under this
Article is not paid in full by the corporation within thirty (30) days after a
written claim has been received by the corporation, the claimant may at any time
thereafter bring suit against the corporation to recover the unpaid amount of
the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expense of prosecuting such claim. It shall be a defense to
any such action (other than an action brought to enforce a claim for expenses
incurred in defending any proceeding in advance of its final disposition where
the required undertaking, if any is required, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the New York Business Corporation Law or hereunder for the
corporation to indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the corporation. Neither the failure of the
corporation to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
New York Business Corporation Law or hereunder, nor an actual determination by
the corporation that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
7. INSURANCE.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or another
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
New York Business Corporation Law.
13
<PAGE>
8. SEPARABILITY.
If this Article or any portion hereof shall be invalidated on any ground
by any court of competent jurisdiction, then the corporation shall nevertheless
indemnify each director, officer, employee or agent of the corporation as to
costs, charges and expenses, including attorneys' fee, judgments, fines and
amounts paid in settlement with respect to any action, suit or proceeding,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the corporation, to the fullest extent permitted by any
applicable portion of this Article that shall not have been invalidated and to
the fullest extent permitted by applicable law.
393LMM5962/1.195522_1
14
Exhibit 10.2
MEDICAL STERILIZATION, INC.
1996 STOCK PLAN
1. Purpose. The purpose of the Medical Sterilization, Inc. 1996 Stock
Plan (the "Plan") is to encourage key employees of Medical Sterilization, Inc.
(the "Company") and of any present or future parent or subsidiary of the Company
(collectively, "Related Corporations") and other individuals who render services
to the Company or a Related Corporation, by providing opportunities to
participate in the ownership of the Company and its future growth through (a)
the grant of options which qualify as "incentive stock options" ("ISOs") under
Section 422(b) of the Internal Revenue Code of 1986, as amended (the "Code");
(b) the grant of options which do not qualify as ISOs ("Non-Qualified Options");
(c) awards of stock in the Company ("Awards"); and (d) opportunities to make
direct purchases of stock in the Company ("Purchases"). Both ISOs and
Non-Qualified Options are referred to hereafter individually as an "Option" and
collectively as "Options." Options, Awards and authorizations to make Purchases
are referred to hereafter collectively as "Stock Rights." As used herein, the
terms "parent" and "subsidiary" mean "parent corporation" and "subsidiary
corporation," respectively, as those terms are defined in Section 424 of the
Code.
2. Administration of the Plan.
A. Board or Committee Administration. The Plan shall be
administered by the Board of Directors of the Company (the "Board") or by a
committee appointed by the Board (the "Committee"); provided that the Plan shall
be administered: (i) to the extent required by applicable regulations under
Section 162(m) of the Code, by two or more "outside directors" (as defined in
applicable regulations thereunder) and (ii) to the extent required by Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or any successor provision ("Rule 16b-3"), by a disinterested
administrator or administrators within the meaning of Rule 16b-3. Hereinafter,
all references in this Plan to the "Committee" shall mean the Board if no
Committee has been appointed. Subject to ratification of the grant or
authorization of each Stock Right by the Board (if so required by applicable
state law), and subject to the terms of the Plan, the Committee shall have the
authority to (i) determine to whom (from among the class of employees eligible
under paragraph 3 to receive ISOs) ISOs shall be granted, and to whom (from
among the class of individuals and entities eligible under paragraph 3 to
receive Non-Qualified Options and Awards and to make Purchases) Non-Qualified
Options, Awards and authorizations to make Purchases may be granted; (ii)
determine the time or times at which Options or Awards shall be granted or
Purchases made; (iii) determine the purchase price of shares subject to each
Option or Purchase, which prices shall not be less than the minimum price
specified in paragraph 6; (iv) determine whether each Option granted shall be an
ISO or a Non-Qualified Option; (v) determine (subject to paragraphs 7 and 8) the
time or times when each Option shall become exercisable and the duration of the
exercise period; (vi) extend the period during which outstanding Options may be
exercised; (vii) determine
<PAGE>
whether restrictions such as repurchase options and rights of first refusal are
to be imposed on shares subject to Options, Awards and Purchases and the nature
of such restrictions, if any, and (viii) interpret the Plan and prescribe and
rescind rules and regulations relating to it. If the Committee determines to
issue a Non-Qualified Option, it shall take whatever actions it deems necessary,
under Section 422 of the Code and the regulations promulgated thereunder, to
ensure that such Option is not treated as an ISO. The interpretation and
construction by the Committee of any provisions of the Plan or of any Stock
Right granted under it shall be final unless otherwise determined by the Board.
The Committee may from time to time adopt such rules and regulations for
carrying out the Plan as it may deem advisable. No member of the Board or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any Stock Right granted under it.
B. Committee Actions. The Committee may select one of its
members as its chairman, and shall hold meetings at such time and places as it
may determine. A majority of the Committee shall constitute a quorum and acts of
a majority of the members of the Committee at a meeting at which a quorum is
present, or acts reduced to or approved in writing by all the members of the
Committee (if consistent with applicable state law), shall be the valid acts of
the Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
C. Grant of Stock Rights to Board Members. Subject to the
provisions of the first sentence of paragraph 2(A) above, if applicable, Stock
Rights may be granted to members of the Board. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with the
provisions of this Plan applicable to other eligible persons. Consistent with
the provisions of the first sentence of Paragraph 2(A) above, members of the
Board who either (i) are eligible to receive grants of Stock Rights pursuant to
the Plan or (ii) have been granted Stock Rights may vote on any matters
affecting the administration of the Plan or the grant of any Stock Rights
pursuant to the Plan, except that no such member shall act upon the granting to
himself or herself of Stock Rights, but any such member may be counted in
determining the existence of a quorum at any meeting of the Board during which
action is taken with respect to the granting to such member of Stock Rights.
3. Eligible Employees and Others. ISOs may be granted only to employees
of the Company or any Related Corporation. Non-Qualified Options, Awards and
authorizations to make Purchases may be granted to any employee, officer or
director (whether or not also an employee) or consultant of the Company or any
Related Corporation. The Committee may take into consideration a recipient's
individual circumstances in determining whether to grant a Stock Right. The
granting of any Stock Right to any individual or entity shall neither entitle
that individual or entity to, nor disqualify such individual or entity from,
participation in any other grant of Stock Rights.
4. Stock. The stock subject to Stock Rights shall be authorized but
unissued shares of Common Stock of the Company, $. 01 par value (the "Common
Stock"), or shares of
2
<PAGE>
Common Stock reacquired by the Company in any manner. The aggregate number of
shares which may be issued pursuant to the Plan is 500,000, subject to
adjustment as provided in paragraph 13. If any Stock Right granted under the
Plan shall expire or terminate for any reason without having been exercised in
full or shall cease for any reason to be exercisable in whole or in part or
shall be repurchased by the Company, the shares of Common Stock subject to such
Stock Right shall again be available for grants of Stock Rights under the Plan.
No employee of the Company or any Related Corporation may be granted
Options to acquire, in the aggregate, more than 300,000 shares of Common Stock
under the Plan. If any Option granted under the Plan shall expire or terminate
for any reason without having been exercised in full or shall cease for any
reason to be exercisable in whole or in part or shall be repurchased by the
Company, the shares subject to such Option shall be included in the
determination of the aggregate number of shares of Common Stock deemed to have
been granted to such employee under the Plan.
5. Granting of Stock Rights. Stock Rights may be granted under the Plan
at any time on or after March 21, 1996 and prior to March 21, 2006. The date of
grant of a Stock Right under the Plan will be the date specified by the
Committee at the time it grants the Stock Right; provided, however, that such
date shall not be prior to the date on which the Committee acts to approve the
grant. Options granted under the Plan are intended to qualify as
performance-based compensation to the extent required under Treasury Regulation
Section 1.162-27.
6. Minimum Option Price; ISO Limitations.
A. Price for Non-Qualified Options, Awards and Purchases. The
exercise price per share specified in the agreement relating to each
Non-Qualified Option granted, and the purchase price per share of stock granted
in any Award or authorized as a Purchase, under the Plan shall in no event be
less than the minimum legal consideration required therefor under the laws of
any jurisdiction in which the Company or its successors in interest may be
organized. The Committee may, in its discretion, subject any Non-Qualified
Option granted under the Plan or Award made or Purchase authorized under the
Plan to any terms or conditions necessary for such Stock Right to qualify as
performance-based compensation under Section 162(m) of the Code and any
applicable regulations thereunder.
B. Price for ISOs. The exercise price per share specified in
the agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant. In
the case of an ISO to be granted to an employee owning stock possessing more
than ten percent (10%) of the total combined voting power of all classes of
stock of the Company or any Related Corporation, the price per share specified
in the agreement relating to such ISO shall not be less than one hundred ten
percent (110%) of the fair market value per share of Common Stock on the date of
grant. For purposes of determining stock ownership under this paragraph, the
rules of Section 424(d) of the Code shall apply.
C. $100,000 Annual Limitation on ISO Vesting. Each eligible
employee may be granted Options treated as ISOs only to the extent that, in the
aggregate under this Plan and all incentive stock option plans of the Company
and any Related Corporation, ISOs do not
3
<PAGE>
become exercisable for the first time by such employee during any calendar year
with respect to stock having a fair market value (determined at the time the
ISOs were granted) in excess of $100,000. The Company intends to designate any
Options granted in excess of such limitation as Non-Qualified Options.
D. Determination of Fair Market Value. If, at the time an
Option is granted under the Plan, the Company's Common Stock is publicly traded,
"fair market value" shall be determined as of the date of grant or, if the
prices or quotes discussed in this sentence are unavailable for such date, the
last business day for which such prices or quotes are available prior to the
date of grant and shall mean (i) the average (on that date) of the high and low
prices of the Common Stock on the principal national securities exchange on
which the Common Stock is traded, if the Common Stock is then traded on a
national securities exchange; or (ii) the last reported sale price (on that
date) of the Common Stock on the Nasdaq National Market, if the Common Stock is
not then traded on a national securities exchange; or (iii) the closing bid
price (or average of bid prices) last quoted (on that date) by an established
quotation service for over-the-counter securities, if the Common Stock is not
reported on the Nasdaq National Market. If the Common Stock is not publicly
traded at the time an Option is granted under the Plan, "fair market value"
shall mean the fair value of the Common Stock as determined by the Committee
after taking into consideration all factors which it deems appropriate,
including, without limitation, recent sale and offer prices of the Common Stock
in private transactions negotiated at arm's length.
7. Option Duration. Subject to earlier termination as provided in
paragraphs 9 and 10 or in the agreement relating to such Option, each Option
shall expire on the date specified by the Committee, but not more than (i) ten
years from the date of grant in the case of Options generally and (ii) five
years from the date of grant in the case of ISOs granted to an employee owning
stock possessing more than ten percent (10%) of the total combined voting power
of all classes of stock of the Company or any Related Corporation, as determined
under paragraph 6(B). Subject to earlier termination as provided in paragraphs 9
and 10, the term of each ISO shall be the term set forth in the original
instrument granting such ISO, except with respect to any part of such ISO that
is converted into a Non-Qualified Option pursuant to paragraph 16.
8. Exercise of Option. Subject to the provisions of paragraphs 9
through 12, each Option granted under the Plan shall be exercisable as follows:
A. Vesting. The Option shall either be fully exercisable on the date
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. Full Vesting of Installments. Once an installment becomes
exercisable it shall remain exercisable until expiration or termination of the
Option, unless otherwise specified by the Committee.
C. Partial Exercise. Each Option or installment may be exercised at
any time or from time to time, in whole or in part, for up to the total number
of shares with respect to which it is then exercisable.
4
<PAGE>
D. Acceleration of Vesting. The Committee shall have the right to
accelerate the date that any installment of any Option becomes exercisable;
provided that the Committee shall not, without the consent of an optionee,
accelerate the permitted exercise date of any installment of any Option granted
to any employee as an ISO (and not previously converted into a Non-Qualified
Option pursuant to paragraph 16) if such acceleration would violate the annual
vesting limitation contained in Section 422(d) of the Code, as described in
paragraph 6(C).
9. Termination of Employment. Unless otherwise specified in the
agreement relating to such ISO, if an ISO optionee ceases to be employed by the
Company and all Related Corporations other than by reason of death or disability
as defined in paragraph 10, no further installments of his or her ISOs shall
become exercisable, and his or her ISOs shall terminate on the earlier of (a)
ninety (90) days after the date of termination of his or her employment, or (b)
their specified expiration dates, except to the extent that such ISOs (or
unexercised installments thereof) have been converted into Non-Qualified Options
pursuant to paragraph 16. For purposes of this paragraph 9, employment shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Committee shall not be considered an interruption of employment under this
paragraph 9, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. Death; Disability.
A. Death. If an ISO optionee ceases to be employed by the Company and
all Related Corporations by reason of his or her death, any ISO owned by such
optionee may be exercised, to the extent otherwise exercisable on the date of
death, by the estate, personal representative or beneficiary who has acquired
the ISO by will or by the laws of descent and distribution, until the earlier of
(i) the specified expiration date of the ISO or (ii) 180 days from the date of
the optionee's death.
B. Disability. If an ISO optionee ceases to be employed by the Company
and all Related Corporations by reason of his or her disability, such optionee
shall have the right to exercise any ISO held by him or her on the date of
termination of employment, for the number of shares for which he or she could
have exercised it on that date, until the earlier of (i) the specified
expiration date of the ISO or (ii) 180 days from the date of the termination of
the optionee's employment. For the purposes of the Plan, the term "disability"
shall mean
5
<PAGE>
"permanent and total disability" as defined in Section 22(e)(3) of
the Code or any successor statute.
11. Assignability. No Stock Right shall be assignable or transferable
by the grantee except by will, by the laws of descent and distribution or, in
the case of Non-Qualified Options only, pursuant to a valid domestic relations
order. Except as set forth in the previous sentence, during the lifetime of a
grantee each Stock Right shall be exercisable only by such grantee.
12. Terms and Conditions of Options. Options shall be evidenced by
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. The Committee may specify that any
Non-Qualified Option shall be subject to the restrictions set forth herein with
respect to ISOs, or to such other termination and cancellation provisions as the
Committee may determine. The Committee may from time to time confer authority
and responsibility on one or more of its own members and/or one or more officers
of the Company to execute and deliver such instruments. The proper officers of
the Company are authorized and directed to take any and all action necessary or
advisable from time to time to carry out the terms of such instruments.
13. Adjustments. Upon the occurrence of any of the following events, an
optionee's rights with respect to Options granted to such optionee hereunder
shall be adjusted as hereinafter provided, unless otherwise specifically
provided in the written agreement between the optionee and the Company relating
to such Option:
A. Stock Dividends and Stock Splits. If the shares of Common
Stock shall be subdivided or combined into a greater or smaller number of shares
or if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock deliverable
upon the exercise of Options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
B. Consolidations or Mergers. If the Company is to be
consolidated with or acquired by another entity in a merger, sale of all or
substantially all of the Company's assets or otherwise (an "Acquisition"), the
Committee or the board of directors of any entity assuming the obligations of
the Company hereunder (the "Successor Board"), shall, as to outstanding Options,
either (i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such Options
either (a) the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition, (b) shares of stock of the
surviving corporation or (c) such other securities as the Successor Board deems
appropriate, the fair market value of which shall not materially exceed the fair
market value of the shares of Common Stock subject to such Options immediately
preceding the Acquisition; or (ii) upon written notice to the optionees, provide
that all Options must be exercised, to the extent then exercisable, within a
specified number of days of the date of such
6
<PAGE>
notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of the
fair market value of the shares subject to such Options (to the extent then
exercisable) over the exercise price thereof.
C. Recapitalization or Reorganization. In the event of a
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the Company
or of another corporation are issued with respect to the outstanding shares of
Common Stock, an optionee upon exercising an Option shall be entitled to receive
for the purchase price paid upon such exercise the securities he or she would
have received if he or she had exercised such Option prior to such
recapitalization or reorganization.
D. Modification of ISOs. Notwithstanding the foregoing, any
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs shall
be made only after the Committee, after consulting with counsel for the Company,
determines whether such adjustments would constitute a "modification" of such
ISOs (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such ISOs. If the Committee
determines that such adjustments made with respect to ISOs would constitute a
modification of such ISOs or would cause adverse tax consequences to the
holders, it may in its discretion refrain from making such adjustments.
E. Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such other
time and subject to such other conditions as shall be determined by the
Committee.
F. Issuances of Securities. Except as expressly provided
herein, no issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of shares subject to Options. No adjustments shall be made for dividends paid in
cash or in property other than securities of the Company.
G. Fractional Shares. No fractional shares shall be issued
under the Plan and the optionee shall receive from the Company cash in lieu of
such fractional shares.
H. Adjustments. Upon the happening of any of the events
described in subparagraphs A, B or C above, the class and aggregate number of
shares set forth in paragraph 4 hereof that are subject to Stock Rights which
previously have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments to
be made under this paragraph 13 and, subject to paragraph 2, its determination
shall be conclusive.
14. Means of Exercising Options. An Option (or any part or installment
thereof) shall be exercised by giving written notice to the Company at its
principal office address, or to such transfer agent as the Company shall
designate. Such notice shall identify the Option being exercised and specify the
number of shares as to which such Option is being exercised,
7
<PAGE>
accompanied by full payment of the purchase price therefor either (a) in United
States dollars in cash or by check, (b) at the discretion of the Committee,
through delivery of shares of Common Stock having a fair market value equal as
of the date of the exercise to the cash exercise price of the Option, (c) at the
discretion of the Committee, by delivery of the grantee's personal recourse note
bearing interest payable not less than annually at no less than 100% of the
lowest applicable Federal rate, as defined in Section 1274(d) of the Code, (d)
at the discretion of the Committee and consistent with applicable law, through
the delivery of an assignment to the Company of a sufficient amount of the
proceeds from the sale of the Common Stock acquired upon exercise of the Option
and an authorization to the broker or selling agent to pay that amount to the
Company, which sale shall be at the participant's direction at the time of
exercise, or (e) at the discretion of the Committee, by any combination of (a),
(b), (c) and (d) above. If the Committee exercises its discretion to permit
payment of the exercise price of an ISO by means of the methods set forth in
clauses (b), (c), (d) or (e) of the preceding sentence, such discretion shall be
exercised in writing at the time of the grant of the ISO in question. The holder
of an Option shall not have the rights of a shareholder with respect to the
shares covered by such Option until the date of issuance of a stock certificate
to such holder for such shares. Except as expressly provided above in paragraph
13 with respect to changes in capitalization and stock dividends, no adjustment
shall be made for dividends or similar rights for which the record date is
before the date such stock certificate is issued.
15. Term and Amendment of Plan. This Plan was adopted by the Board on
March 21, 1996 subject, with respect to the validation of ISOs granted under the
Plan, to approval of the Plan by the shareholders of the Company at the next
Shareholders Meeting or, in lieu thereof, by written consent. If the approval of
shareholders is not obtained prior to March 21,1997, any grants of ISOs under
the Plan made prior to that date will be rescinded. The Plan shall expire at the
end of the day on March 20, 2006 (except as to Options outstanding on that
date). Subject to the provisions of paragraph 5 above, Options may be granted
under the Plan prior to the date of shareholder approval of the Plan. The Board
may terminate or amend the Plan in any respect at any time, except that, without
the approval of the shareholders obtained within 12 months before or after the
Board adopts a resolution authorizing any of the following actions: (a) the
total number of shares that may be issued under the Plan may not be increased
(except by adjustment pursuant to paragraph 13); (b) the benefits accruing to
participants under the Plan may not be materially increased; (c) the
requirements as to eligibility for participation in the Plan may not be
materially modified; (d) the provisions of paragraph 3 regarding eligibility for
grants of ISOs may not be modified; (e) the provisions of paragraph 6(B)
regarding the exercise price at which shares may be offered pursuant to ISOs may
not be modified (except by adjustment pursuant to paragraph 13); (f) the
expiration date of the Plan may not be extended; and (g) the Board may not take
any action which would cause the Plan to fail to comply with Rule 16b-3. Except
as otherwise provided in this paragraph 15, in no event may action of the Board
or shareholders alter or impair the rights of a grantee, without such grantee's
consent, under any Option previously granted to such grantee.
16. Conversion of ISOs into Non-Qualified Options. The Committee, at
the written request or with the written consent of any optionee, may in its
discretion take such actions as may be necessary to convert such optionee's ISOs
(or any installments or portions of
8
<PAGE>
installments thereof) that have not been exercised on the date of conversion
into Non-Qualified Options at any time prior to the expiration of such ISOs,
regardless of whether the optionee is an employee of the Company or a Related
Corporation at the time of such conversion. Such actions may include, but shall
not be limited to, extending the exercise period or reducing the exercise price
of the appropriate installments of such ISOs. At the time of such conversion,
the Committee (with the consent of the optionee) may impose such conditions on
the exercise of the resulting Non-Qualified Options as the Committee in its
discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Committee takes
appropriate action.
17. Application Of Funds. The proceeds received by the Company
from the sale of shares pursuant to Options granted and Purchases authorized
under the Plan shall be used for general corporate purposes.
18. Notice to Company of Disqualifying Disposition. By
accepting an ISO granted under the Plan, each optionee agrees to notify the
Company in writing immediately after such optionee makes a Disqualifying
Disposition (as described in Sections 421, 422 and 424 of the Code and
regulations thereunder) of any stock acquired pursuant to the exercise of ISOs
granted under the Plan. A Disqualifying Disposition is generally any disposition
occurring on or before the later of (a) the date two years following the date
the ISO was granted or (b) the date one year following the date the ISO was
exercised.
19. Withholding of Additional Income Taxes. Upon the exercise
of a Non-Qualified Option, the grant of an Award, the making of a Purchase of
Common Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 18), the vesting or transfer of restricted
stock or securities acquired on the exercise of an Option hereunder, or the
making of a distribution or other payment with respect to such stock or
securities, the Company may withhold taxes in respect of amounts that constitute
compensation includable in gross income. The Committee in its discretion may
condition (i) the exercise of an Option, (ii) the grant of an Award, (iii) the
making of a Purchase of Common Stock for less than its fair market value, or
(iv) the vesting or transferability of restricted stock or securities acquired
by exercising an Option, on the grantee's making satisfactory arrangement for
such withholding. Such arrangement may include payment by the grantee in cash or
by check of the amount of the withholding taxes or, at the discretion of the
Committee, by the grantee's delivery of previously held shares of Common Stock
or the withholding from the shares of Common Stock otherwise deliverable upon
exercise of a Option shares having an aggregate fair market value equal to the
amount of such withholding taxes.
20. Governmental Regulation. The Company's obligation to sell
and deliver shares of the Common Stock under this Plan is subject to the
approval of any governmental authority required in connection with the
authorization, issuance or sale of such shares.
Government regulations may impose reporting or other
obligations on the Company with respect to the Plan. For example, the Company
may be required to send tax information
9
<PAGE>
statements to employees and former employees that exercise ISOs under the Plan,
and the Company may be required to file tax information returns reporting the
income received by grantees of Options in connection with the Plan.
21. Governing Law. The validity and construction of the Plan
and the instruments evidencing Options shall be governed by the laws of the
State of New York, or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
Date Approved by the Board of Directors of the Company: March 21, 1996
Date Approved by Shareholders of the Company: May 30, 1996
10
Exhibit 10.4
This Lease, dated the 20th day of November, 1995.
Parties Between Barlich Realty, Inc., 58 Warner Lane, Syosset, New
York 11791, hereinafter referred to as the Landlord, and
Medical Sterilization, Inc., 225 Underhill Boulevard,
Syosset, New York 11791, hereinafter referred to as the
Tenant.
WITNESSETH: That the Landlord hereby demises and leases unto
the Tenant, and the Tenant hereby hires and takes from the
Landlord for the term and upon the rentals hereinafter
specified, the premises described as follows, situated in
the Town of Oyster Bay, County of Nassau and State of New
York.
Premises Building known as 225 Underhill Boulevard, Syosset, New York
and the property on which it is situated.
Term The term of this demise shall be for 5 years beginning March
1, 1996 and ending February 28, 2001.
Rent The rent for the demised term shall be
$2,376,000.00 ($ ), which shall accrue at a yearly rate
$456,000.00 for each of the first three years; and
$504,000.00 for each of the last two years of the term.
The said rent is to be payable monthly in advance on the
first day of each c calendar month for the term hereof, in
installments as follows:
Payment of $38,000.00 per month for the first three years;
Rent $42,000.00 per month for the last two years at the office of
Barlich Realty, Inc. or as may be otherwise directed by the
Landlord in writing.
THE ABOVE LETTING IS UPON THE FOLLOWING CONDITIONS
Peaceful First. - The landlord covenants that the Tenant, on paying
Possession the said rental and performing the covenants and conditions
to this Lease contained, shall and may peaceably and quietly
have, hold and enjoy the demised premises for the term
aforesaid.
Purpose Second. - The Tenant covenants and agrees to use the
demised premises for a sterilization and radiation
processing facility, light manufacturing, warehouse,
distribution and related facility; offices and any legally
permitted use, and agrees not to use or permit the premises
to be used for any other purpose without the prior written
consent of the Landlord endorsed hereon.
<PAGE>
-2-
Default Third. - The Tenant shall, without any previous demand
in Payment therefor, pay to the Landlord or its agent, the said rent at
of Rent the times and in the manner above provided. In the event of
the non-payment of said rent, or any instrument thereof, at
the times and in the manner above provided, and if the same
Abandonment shall remain in default for ten days after becoming due or
in payment if the Tenant shall be dispossessed for non-payment of rent,
of Rent or if the leased premises shall be deserted or vacated, the
Landlord or its agents shall have the right to and may enter
the said premises as the agent of the Tenant, either by
force or otherwise, without being liable for any prosecution
or damages therefor, and may relet the premises as the agent
of the Tenant, and receive the rent therefor, upon such
Re-entry and terms as shall be satisfactory to the Landlord, and all
Reletting rights of the Tenant to repossess the premises under this
by Landlord lease shall be forfeited. Such re-entry by the Landlord
shall not operate to release Landlord the Tenant from any
rent to be paid or covenants to be performed hereunder
during the full term of this lease. For the purposes of
reletting, the Landlord shall be authorized to make such
Tenant repairs or alterations in or on the leased premises as may
Liable for be necessary to put the premises in good order and
Deficiency condition. The Tenant shall be liable to the landlord for
the cost of such repairs or alterations, and all expenses of
such reletting. If the sum realized or to be realized from
the reletting is insufficient to nullify the monthly or term
Lien of rent provided in this lease, the Landlord, at its option,
Landlord may require the Tenant to pay such deficiency month by
to Secure month, or may hold the Tenant in advance for the reletting
deficiency to be realized during the term of the reletting.
The Tenant shall not be entitled to any surplus accruing as
a result of the reletting. The Landlord is hereby granted a
lien, In addition to any statutory lien or right to
distraint that may exist, on all personal property of the
Tenant in or upon the demised premises, to secure payment of
the rest and performance of the covenants and conditions of
Performance this lease. The Landlord shall have the right, as agent of
Attorney's the Tenant to take possession of any furniture, fixtures or
Fees other personal property of the Tenant found in or about the
premises and sell the same at public or private sale and to
apply the proceeds thereof to the payment of any monies
becoming due under this lease, the Tenant hereby waiving the
benefit of all laws exempting property from execution, levy,
sale on distress or judgment. The Tenant agrees to pay, as
additional rent, all attorney's fees and other expenses
incurred, by the Landlord in enforcing any of the
obligations under the same.
<PAGE>
-3-
1) Notice that rent has become due and is unpaid
Subletting
and
Assignment
Condition of Fifth. - The Tenant has examined the demised premises,
Premises, and accepts them in their present condition and without any
Repairs representations on the part of the Landlord or its agents as
to the present or future condition of the said premises. The
Tenant shall keep the demised premises in good condition,
and shall redecorate, paint and renovate the said premises
as may be necessary to keep them in repair and good
appearance. The Tenant shall quit and surrent the premises
at the end of the demised term in as good condition as the
reasonable use thereof will permit. The Tenant shall not
make any alterations, additions, or improvements to said
premises without the prior written consent of the Landlord.
Alterations * All erections, alterations, additions and improvements,
and whether temporary or permanent in character, which may be
Improvements made upon the premises either by a landlord or the Tenant,
except furniture or movable trade fixtures installed at the
expense of the Tenant, shall be the property of the Landlord
and shall remain upon and be surrendered with the premises
as part thereof at the termination of this Lease, without
compensation to the Tenant. The Tenant further agrees to
Sidewalks keep said premises and all parts thereof in a clean and
sanitary condition of which are on the Sidewalks ground
floor, the Tenant further agrees to keep the sidewalks in
front of such ground floor portion of the demised premises
clean and free of obstructions, snow and Ice. *Except
landlord shall not unreasonably withhold consent. Further,
Landlord's consent shall not be required for construction of
interior partitions which do not affect bearing members.
Mechanics'
Liens Sixth. - In the event that any mechanics lien is held
against the premises or a result of alterations, additions
or improvements made by the Tenant, the Landlord, at its
option, after thirty day's notice to the Tenant, may
terminate this lease and may pay the said lien, without
inquiring into the validity thereof, and the Tenant shall
forthwith reimburse the Landlord the total expense incurred
by the Landlord in discharging the said lien, as additional
rent thereunder.
Glass Seventh.- The Tenant agrees to replace at the Tenant's
expense any and all glass which may become broken in and on
the demised premises. Plate glass and mirrors, if any, shall
be insured by the Tenant at their full insurance value in a
copy satisfactory to the Landlord. Said policy shall be of
the full premium type, and shall be deposited with the
Landlord or its agent.
<PAGE>
-4-
Liability of
Landlord Eighth.- The Landlord shall not be responsible for the
loss of or damage to property, or injury to persons,
occurring in or about this demised premises, by reason of
any existing or future condition, defect, matter or thing in
said demised premises or the property of which the premises
are in part, or for the acts, omissions or negligence of
other persons or tenants in and about the said property. the
Tenant agrees to indemnity and save the Landlord harmless
from all claims and liability for losses of or damage to
property, or injuries to persons occurring in or about the
demised premises.
Right to
Inspect and
Exhibit Tenth.- The Landlord, or its agents, shall have the
right to enter the demised premises at reasonable hours in
the day or night to examine the same, or to run telephone or
other wires, or to make such repairs, additions or
alterations as it shall deem necessary for the safety,
preservation or restoration of the improvements, or for the
safety or convenience of the occupants or users thereof
(there being no obligation, however, on the part of the
Landlord to make any such repairs, additions or alteration),
or to exhibit the same to prospect purchasers and put upon
the premises a suitable "For Sale" sign. For 1 year prior to
the expiration of the demised term, the landlord, or its
agents may similarly exhibit the premises to prospective
tenants, and may place the usual "To Let" signs thereon.
Damage by Eleventh.- In the event of the destruction's of the
Fire, demised premises or the building containing the said
Explosion premises by fire, explosion, the elements or otherwise
the Elements during the term hereby granted, or previous thereto, or such
or Otherwise partial destruction thereof as to render the premises wholly
untenantable or unfit for occupancy; or should the
demised premises be so badly injured that the same cannot be
repaired within ninety days from the happening of such
injury, then and in such case the term hereby created shall,
at the option of the Landlord, cease and become null and
void from the date of such damage or destruction, and the
Tenant shall immediately surrender said premises and all the
Tenant's interest therein to the Landlord, and shall pay
rent only to the time of such surrender, in which event the
Landlord may rent and re-posses the premises thus discharged
from this lease and may remove all parties threrefrom.
Should the demised premises be rendered untenantable and
unfit for occupancy; but yet be repairable within 180 days
from the happening of said injury, the Tenant may repair the
same with reasonable speed. But if the Premises shall be so
slightly injured as not to be rendered untenantable and
unfit for occupancy, then the Tenant may repair the same
with reasonable promptness and the Tenant shall immediately
notify the Landlord in case of fire or other damage to the
premises. In the event Landlord receives insurance proceeds
to cover rent loss, the Tenant's obligation hereunder shall
be
<PAGE>
-5-
reduced by the amount of such insurance recovery. Nothing
herein shall require Landlord to carry any such insurance.
Observation Twelfth.- The Tenant agrees to observe and comply with
of Laws, all laws, ordinances, rules and regulations of the Federal,
Ordinances, State, County and Municipal authorities applicable to the
Rules and business to be conducted by the Tenant in the demised
Regulations premises. The Tenant agrees not to do or permit anything to
be done in sold premises, or keep anything therein, which
will increase the rate of fire insurance premiums on the
improvements or any part thereof, or on property kept
therein, or which will obstruct or interfere with the rights
of the other tenants, or conflict with the regulations of
the Fire Department or with any insurance policy upon such
improvements or any part thereof. In the event of any
increase in insurance premiums resulting from the Tenant's
occupancy of the premises, or any act or omission on the
part of the Tenant, the Tenant agrees to pay such increase
in insurance premiums on the improvements or contents
thereto as additional rent.
Signs Thirteenth.- No sign, advertisement or notice shall be
affixed to or placed upon any part of the demised premises
by the Tenant, except in such manner, and of such size,
design and color as shall be approved in advance in writing
by the Landlord.
Fourteenth.- This lease is subject and is hereby
subordinated to all present Subordination mortgages, deeds
of trust and other encumbrances affecting the demised
premises to Mortgages or the property of which said premises
are a part. The Tenant agrees to execute, and Deeds of at no
expense to the Landlord, any instrument which may be
required, necessary Regulations or desirable by the Landlord
to further effect the subordination of this lease to any
such mortgage, deed of trust or encumbrance.
Sixteenth.- Reasonable rules and regulations which
shall be made by the landlord, shall be observed by the
Tenant and by the Tenant's employees, agent and customers.
The Landlord reserves the right to record and presently
exiting rules applicable to the demised premises, and to
make such other and further reasonable rules and regulations
as in its judgment, may from time to time be desirable for
the safety, care and cleanliness of the premises, and for
the reservation of good order therein, which rules, when so
made and notice thereof given to the Tenant, shall have the
same force and effect as if originally made a part of this
lease. Such other and further rules shall not, however, be
inconsistent with the proper and rightful enjoyment by the
Tenant of the demised premises.
**SEE RIDER PARAGRAPH 37**
<PAGE>
-6-
Eighteenth.- All notices and demands, legal or
otherwise, included in this lease, or the occupation of the
demised premises, shall be in writing, if the Landlord or
its agent desires to serve upon the Tenant any notice or
Notices demand it shall be sufficient to send a copy thereof by
certified mail addressed to the Tenant at the demised
premises or to leave a copy thereof with a person of
suitable age found on the premises, or to post a copy
thereof upon the door of said premises. Notices from the
Tenant to the Landlord shall be sent by certified mail or
delivered to the Landlord at the place hereinbefore
designated for the payment of rent, or to such party or
place as the Landlord may from time to time designate in
writing.
Nineteenth.- It is further agreed that if at any time
during the terms of this lease, (1) the Tenant shall make
any assignment for the benefit of creditors, or be decreed
Bankruptcy, insolvent or bankrupt according to law, or if a receiver
Insolvency, shall be appointment for the Tenant *then the Landlord may,
Assignment at its option, terminate this lease, exercise of such option
for Benefit to be evidenced by notice to that effect served upon the
of Creditors the assignee, receiver, trustee or other person in charge of
the liquidation of the property of the Tenant or the
Tenant's estate, but such termination shall not release or
discharge any payment of rent payable hereunder and then
accrued, or any liability then accrued by reason of any
agreement or covenant herein contained on the park of the
Tenant, or the Tenant's legal representatives. *and (2) such
assignment, insolvency, bankruptcy or receivership shall not
be terminated within 30 days of the date thereof.
Twenty-first.- If a substantial portion of the property
or any part thereof wherein the demised premises are located
shall be taken by public or quasi-public authority under any
Eminent power of eminent domain or condemnation, this lease, at the
Domain, option of the Landlord, shall forthwith terminate and the
Condemnation Tenant shall have no claim or interest in or to any award of
damages for such taking.
Security Twenty-second.- The Tenant has this day deposited *by
transfer of security under former lease with the Landlord
the sum of $83,945 as security for the full and faithful
performance by the Tenant of all the terms, covenants and
conditions of this lease upon the Tenant's part to be
performed, which said sum shall be returned to the Tenant
within 30 days after the time fixed as the expiration of the
term herein, provided the Tenant has fully and faithfully
carried out all of said terms, covenants and conditions on
Tenant's part to be performed. In the event of a bona fide
sale, subject to this lease, the Landlord shall have the
right to transfer the security to the vender for the benefit
of the Tenant and the Landlord shall be considered released
by the Tenant from all liability for the return of such
security; and the Tenant agrees to look to the new Landlord
solely for the return of the said security, and it is agreed
that this shall apply to every transfer or assignment made
of the security to a new Landlord. The security deposited
under this lease
<PAGE>
-7-
shall not be mortgaged, assigned or encumbered by the Tenant
without written consent of the Landlord. No interest shall
be payable on the security deposit. (1) within 30 days.
Delivery of Twenty-fourth.- No rights are to be conferred upon the
Lease Tenant until this lease has been signed by the Landlord and
an executed copy of the lease has been delivered to the
Tenant.
Lease Twenty-fifth.- The foregoing rights and remedies are
Provisions not intended to be exclusive but as additional to all rights
Not and remedies the Landlord would otherwise have by law.
Exclusive
Twenty-sixth.- All of the terms, covenants and
conditions of this lease shall inure to the benefit of and
Lease be binding upon the respective heirs, executors,
Binding administrators, successors and assigns of the parties
on Heirs, hereto. However, in the event of the death of the Tenant, if
Successors, an individual, the Landlord may, at its options, terminate
Etc. this lease by notifying the executor or administrator of the
Tenant at the demised premises.
Twenty-seventh.- This lease and the obligation of
Tenant to pay rent hereunder and perform all of the other
covenants, and agreements hereunder on part of Tenant to be
performed shall in no way be affected, impaired or excused
because of any claim that Landlord is unable to supply or is
delayed in supplying any service expressly or impliedly to
be supplied or unable to make, or is delayed in making any
repairs, additions, alternations or decorations or is unable
to supply or is delayed in supplying any equipment or
fixtures if Landlord is prevented or delayed from so doing
by reason of governmental preemption in connection with the
National Emergency declared by the President of the United
States or the connection with any rule, order or regulation
of any department or subdivisions thereof of any
governmental agency or be reason of the conditions of supply
and demand which have been or are affected by the war. As
noted in rider, Landlord has no obligation to supply
services or make any repairs whether structural or
otherwise.
Twenty-eighth.- This instrument may not be changed
orally.
***FOR ADDITIONAL PROVISIONS SEE RIDER***
<PAGE>
-8-
RIDER TO LEASE DATED ____________, 1995 BETWEEN
MEDICAL STERILIZATION, INC. AND BARLICH REALTY, INC.
1. TENANT'S RESPONSIBILITIES:
A. Nothing to the contrary herein prevailing, the Tenant shall be
responsible for the functional integrity of the bearing members. All matters of
maintenance and management shall be the sole and exclusive responsibility of
Tenant. Tenant hereby covenants that it will make all reasonably necessary
repairs in a timely and effective manner, and should a defect in maintenance or
management of the demised premises not be remedied in a timely and effective
manner, the Landlord is hereby authorized to, without notice to Tenant, enter
upon the demised premises and make, on behalf of Tenant, the necessary repairs.
Any cost attendant upon such repairs shall be deemed additional rent to be paid
on the first day of the month next succeeding completion of the repairs.
Landlord (and its representative) shall be entitled to unlimited access to the
premises for purpose of inspection of all repairs and maintenance by Tenant and
to determine the need for same.
B. Tenant's responsibility for maintenance and management
shall be for all matters including, but not be limited to:
a) heat
b) ventilation
c) air conditioning
d) plumbing
e) parking
f) landscaping
g) insurance
h) snow removal
i) water
<PAGE>
-9-
j) parking lot and driveways
k) structural, including roof, repairs
1) all taxes applicable to the ownership and occupation of
the demised premises
C. Tenant will maintain the sidewalks in front of the demised premises by
sweeping same and keeping the same clear of snow and provide whatever janitorial
services may be necessary to keep the exterior walks clean. Further, the Tenant
agrees that it is solely responsible for the removal of garbage and debris which
may accumulate and that all garbage shall be bound neatly and firmly in suitable
containers and thereafter shall be placed in a metal container of the type
supplied by carting companies for the purpose of accumulating garbage, (for
example, a "dumpster"). Further, it shall be Tenant's responsibility to pay for
and enforce prompt and regular removal of its garbage and debris and that the
area or areas surrounding the storage of garbage and debris subject to
collection shall be made clear of refuse upon the ground and shall be maintained
daily by the Tenant to insure against collection or accumulation thereof. In the
event of the failure of the Tenant to generally comply with this regulation or
any part thereof, in the sole discretion of the Landlord, the Landlord may
engage (at Tenant's expense) whatever services may be necessary to maintain the
premises in a suitable degree of cleanliness and freedom from debris.
2. SECURITY: It is intended that security shall equal two months rent and
any increase in annual rent provided for herein shall require an increase in
security so that security shall at all times equal two months of rent. The
security shall be for the sole and exclusive use of the Landlord and no
accountability for principal or interest accumulated or earned thereon shall be
required of Landlord by Tenant.
<PAGE>
-10-
3. NO SUBLEASE OR ASSIGNMENT ALLOWED: Tenant shall not be permitted
to sublease or assign any or all of the demised premises without the advance
written approval of Landlord, which approval Landlord shall not reasonably
withhold.
Notwithstanding the above, Landlord's consent shall not be required
for Tenant's subleasing or assigning up to 50% of the improvements on the
demised premises, provided the proposed assignee(s)/sublessee(s) meets
Landlord's reasonable imposed standards of financial responsibility.
Notwithstanding any assignment or sublease Tenant hereunder shall remain
primarily liable to Landlord for all Tenant's obligations under this Lease,
including for the payment of rent.
4. DELIVERY IN "AS IS" CONDITION: Landlord delivers to Tenant the demised
premises in "as is" condition and makes no warranties that any or all parts
thereof will be in good working order as of the day of the commencement of this
lease.
5. INSURANCE:
A. Tenant shall insure the demised premises and the
improvements thereon as follows:
a) against the risk of fire or other casualty in the amount
of $5,000,000;
b) against the risk of public liability in the amount of
$5,000,000 for any one claim and $10,000,000 for any
number of claims arising from a single event.
c) Landlord and its shareholders, officers and directors
and any mortgagee shall be named insureds in all
policies.
B. Tenant shall provide at Tenant's sole cost and expense insurance
insuring Landlord against any loss of rental during the term of this lease by
reason of casualty loss.
<PAGE>
-11-
C. The policies shall name Landlord, any person, firms or
corporations designated by Landlord, and Tenant as insured, and shall contain
clauses that the insurer will not cancel or change the insurances without first
giving the Landlord ten (10) days prior written notice. The insurances shall be
with insurance companies approved by Landlord and a copy of the policies or
certificates of insurance shall be delivered to Landlord. Upon a failure, after
demand, of the Tenant to obtain the insurance policies described hereinabove,
the Landlord is hereby authorized to obtain same in the limits set forth
hereinabove on behalf of the Tenant and the premiums for such policies shall be
due and payable with the installment of rent next due.
6. FIXTURES: For the purposes of paragraph FIFTH hereof "movable trade
fixtures" shall be defined as: trade or other fixtures or equipment of Tenant
detachable from the realty by removal of screws, bolts or nails or the severing
of any wires by which such fixtures have been affixed to the floors, walls or
ceiling. Tenant shall at its own cost and expense, however, repair all damage to
the demised premises caused by the installation or removal of its trade or other
fixtures in default of which such repairs may be made by the Landlord at
Tenant's expense.
7. INCREASED LOAD CAPACITY: If any use granted by this lease to the Tenant
shall result in a floor load in excess of the load capacity presently in
existence, Tenant is hereby granted the authority to increase the load capacity
in any manner permitted by law and subject to the same conditions imposed upon
Tenant herein for renovation of the demised premises except that Tenant shall
not be required to restore the property to it's former load capacity.
8. OMITTED.
9. ASSIGNMENT TO PARENT CORPORATION PERMITTED:
<PAGE>
-12-
A. Tenant shall have the right to assign this lease to a
corporation which owns 51% percent of the stock of Tenant or to corporation in
which Tenant owns 50% percent of the stock provided (a) no assignment shall be a
release of Tenant and Tenant shall remain liable and responsible in all cases,
(b) that the assignee delivers to Landlord a duly executed assumption agreement
assuming and agreeing to all the terms and obligations of the lease in form
satisfactory to Landlord, and (c) that Tenant is not then in default of its
lease agreement.
B. A subsequent reduction in either (a) Assignee's stock ownership
of Tenant to less than 51% percent or (b) Tenant's stock ownership of Assignee
to less than 50% percent shall, at Landlord's sole option, be deemed a
reassignment to Tenant. In the event of reassignment Assignee shall nevertheless
remain liable and responsible to Landlord for all of Tenant's and Assignee's
obligations under this lease as if reassignment to Tenant had not occurred.
C. Landlord may exercise its option under paragraph B above at
anytime; and no acceptance of rent or other action by Landlord shall constitute
a waiver of Landlord's rights to exercise its option, whether such acceptance of
rent or action occurs before or after Landlord acquires knowledge of its right
to exercise such option.
10. NO BROKER: Tenant hereby states that Tenant has not dealt with
any broker in connection with this lease.
11. IMPOSITIONS:
A. Tenant shall pay (except as hereinafter provided), before any
fine, penalty, interest or cost may be added thereto, or become due or be
imposed by operation of law for the nonpayment thereof, all taxes, assessments,
water and sewer rents, rates and charges, charges for public utilities, levies
and all other license and permit fees and other governmental charges,
<PAGE>
-13-
general and special, ordinary and extraordinary, unforeseen and foreseen, of any
kind and nature whatsoever, which at any time prior to or during the term of
this lease may be assessed, levied, confirmed, imposed upon, or become due and
payable out of or in respect of, or become a lien on, the leased premises or any
part thereof or any appurtenance thereto, the rent payable hereunder, any use or
occupation of the leased premises (all collectively hereinafter referred to as
"Impositions," and each of the above being hereinafter referred to as an
"Imposition").
B. If by law any Imposition may at the option of the payor be paid
in installments (whether or not interest shall accrue on the unpaid balance of
such Imposition), Tenant may exercise the option to pay the same (and any
accrued interest on the unpaid balance of such Imposition) in installments and,
in such event, shall pay such installments as they become due and before any
fine, penalty, further interest or cost may be added thereto. Upon termination
of this lease, Tenant shall forthwith prepay any installments which fall due
after termination.
C. Any Imposition (other than Impositions which have been converted
into installment payments by Tenant as referred to in subdivision B above)
relating to a fiscal period of the taxing authority, a part of which period is
included within the term of this lease and a part of which is included in a
period of time before or after the expiration of the term of this lease, shall
(whether or not such Imposition shall be assessed, levied, confirmed, imposed
upon or in respect of or become a lien upon the leased premises, or shall become
payable, during the term of this lease) be adjusted between Landlord and Tenant
as of the commencement or expiration of the term of this lease, so that Tenant
shall pay that portion of such Imposition which that part of such fiscal period
included in the period of time after the commencement and before the expiration
of the term of this lease bears to such fiscal period, and Landlord shall pay
the
<PAGE>
-14-
remainder thereof; the above provided, however, that the term of this lease
shall not have been shortened due to Tenant's default in the performance of any
of the Tenant's covenants, agreements and undertakings in this lease provided.
If Tenant is in default and as a result the term of this expires prior to its
expiration date absent such default, then there shall be no such apportionment,
in which case Tenant shall pay the Imposition for the entire remaining term of
this lease. However, if the premises be relet Tenant's obligations for
Impositions shall be apportioned only through the commencement date of the new
lease.
D. Nothing to the contrary herein contained shall require Tenant to
pay any municipal, state or federal income taxes assessed against Landlord, or
any municipal, state or federal capital levy, estate, succession, inheritance or
transfer taxes of Landlord, or any corporation franchise taxes imposed upon any
corporate owner of the fee of the leased premises; provided, however, that if at
any time during the term of this lease the methods of taxation prevailing at the
commencement of the term hereof shall be altered so as to cause the whole or any
part of the taxes, assessments, levies, impositions or charges now or hereafter
levied, assessed or imposed on real estate and the improvements thereon, to be
levied, assessed or imposed, wholly or partially as a capital levy, or
otherwise, on the rents received therefrom, or if any tax, corporation franchise
tax, assessment, levy (including but not limited to any municipal, state or
federal levy), imposition or charge, or any part thereof, shall be measured by
or based in whole or in part, upon the value of the leased premises and shall be
imposed upon Landlord, then all such taxes, assessments, levies, impositions or
charges, or the part thereof so measured or based, shall be deemed to be
included within the term "Impositions" for the purposes hereof, to the extent
that such Impositions would be payable if the leased Premises were the only
property
<PAGE>
-15-
of Landlord subject to such Impositions, and Tenant shall pay and discharge the
same as herein provided in respect of the payment of Impositions.
E. Landlord shall promptly forward to Tenant all tax bills received
relating to the leased premises. Tenant will furnish to Landlord, within ten
(10) days after the date when any Imposition would become delinquent, official
receipts of the appropriate taxing authority, or other evidence satisfactory to
Landlord, evidencing the payment thereof. However, failure to furnish same shall
not be deemed a default unless Tenant fails to comply with this requirement
within 15 days after written request by Landlord.
F. Tenant shall have the right to contest the amount or validity, in
whole or in part, of any Imposition by appropriate proceedings diligently
conducted in good faith but only after payment of such Imposition, unless such
payment would operate as a bar to such contest or interfere materially with the
prosecution thereof, in which event Tenant may postpone or defer payment of such
Imposition if
(1) neither the leased premises nor any part thereof would by
reason of such postponement or deferment be in danger of being forfeited or
lost, and
(2) Tenant shall have deposited with Landlord the amount so
contested and unpaid, together with all interest and penalties in connection
therewith and all charges that might be assessed against or become a charge on
the leased premises or any part thereof in and/or during the course of such
proceedings, and
(3) Landlord shall not be in danger of being subjected to
criminal liability or penalty by reason of such postponement.
G. Upon the termination of any such proceedings (which shall include
any appeals from and petitions for review of any orders, decrees or judgments
deemed by Tenant to
<PAGE>
-16-
be adverse or unfavorable, Tenant shall pay the amount of such Imposition or
part thereof as finally determined in such proceedings, the payment of which may
have been deferred during the prosecution of such proceedings, together with any
costs, fees, interest, penalties or other liabilities in connection therewith,
and, upon such payment, Landlord shall return, without interest, any amount
deposited with it with respect to such Imposition as aforesaid, or, at the
written request of Tenant, Landlord shall make available to Tenant, upon such
reasonable conditions as Landlord may prescribe, the amount of such deposit for
the making of such payment as aforesaid. If, at any time during the continuance
of such proceedings, Landlord shall reasonably deem the amount deposited as
aforesaid insufficient, Tenant shall, upon demand, make an additional deposit of
such sum as Landlord reasonably may request, and upon failure of Tenant so to
do, the amount previously deposited may be applied by Landlord (unless such
application would prejudice or otherwise adversely affect Tenant's rights in
such proceedings, including any rights to appeal or to seek petitions for the
review of any adverse order, decree or judgment issued in such proceedings) to
the payment, removal and discharge of such Imposition, and the interest and
penalties in connection therewith and any costs, fees or other liability
accruing in any such proceedings, and the balance, if any, shall be returned to
Tenant.
H. Tenant, at Tenant's sole cost and expense, shall have a right to
seek a reduction in the valuation of the leased premises as assessed for tax
purposes and to prosecute any action or proceeding which may be appropriate for
seeking or obtaining such reduction. To the extent to which any tax refund
payable as a result of any proceeding which Tenant may institute, or payable by
reason of compromise or settlement of any such proceeding, may be based upon, a
payment made by Tenant and shall not relate to a period as to which
apportionment thereof has been made with Landlord, Tenant shall be authorized to
collect the
<PAGE>
-17-
same, subject to Tenant's obligation to reimburse Landlord forthwith for any
expenses and fees incurred by Landlord in connection therewith. Landlord may
(but shall not be obligated to) at its own expense, if it shall so desire,
endeavor at any time or times to obtain a reduction of the assessed valuation
upon the leased premises or any part thereof for the purpose of reducing taxes
thereon, and, in such event, Tenant will cooperate in effecting such a
reduction.
I. Landlord shall not be required to join in any proceedings
referred to in paragraphs F or H hereof unless the provisions of any law, rule
or regulation at the time in effect shall require that such proceedings be
brought by and/or in the name of Landlord or any owner of the leased premises,
in which event Landlord shall join in such proceedings or permit the same to be
brought in its name, in which event Tenant shall reimburse Landlord for its
costs (including attorney's fees) incurred in connection with any such
proceeding. Landlord shall not ultimately be subjected to any liability for the
payment of any costs or expenses in connection with any such proceedings, and
Tenant will indemnify and save harmless Landlord from any such costs and
expenses. Except as otherwise provided in this lease, Tenant shall be entitled
to any refund of any Imposition and penalties or interest thereon received by
Landlord which have been paid by Tenant, or which have been paid by Landlord but
previously reimbursed in full by Tenant.
J. The certificate, advice, or bill of the appropriate official
designated by law to make or issue the same or to receive payment of any
Imposition, certifying nonpayment of such Imposition, shall be prima facie
evidence that such Imposition is due and unpaid at the time of the making or
issuance of such certificate, advice or bill.
K. Landlord appoints Tenant the attorney-in-fact of Landlord for the
purpose of making all payments to be made by Tenant pursuant to any of the
provisions of this lease to
<PAGE>
-18-
persons or entities other than Landlord. In case any person or entity to whom
any sum is directly payable by Tenant under any of the provisions of this lease
shall refuse to accept payment of such sum from Tenant, Tenant shall thereupon
give written notice of such fact to Landlord and shall pay such sum directly to
Landlord who shall thereupon pay such sum to such person or entity.
12. ADDITIONAL RENT: In addition to the base rent, the Tenant shall pay as
additional rent all other sums of money or charges required to be paid by Tenant
under this Lease whether or not the same be designated "additional rent." If
such amounts or charges are not paid at the time provided in this Lease, they
shall nevertheless, if not paid when due, be collectible as additional rent with
the next installment of rent thereafter falling due hereunder, but nothing
herein contained shall be deemed to suspend or delay the payment of any amount
or money or charge at the time the same becomes due and payable hereunder, or
limit any other remedy of the Landlord.
13. INDEMNIFICATION AND WAIVER OF SUBROGATION: Tenant will indemnify
Landlord and save it harmless from and against any and all claims, actions,
damages, liability and expense in connection with loss of life, personal injury
and/or damage to property arising from or out of any occurrence in, upon or at
the leased premises or any part thereof. In case Landlord shall, without fault
on its part, be made a party to any litigation commenced by or against Tenant,
then Tenant shall protect and hold Landlord harmless and shall pay all costs,
expenses and reasonable attorneys' fees incurred or paid by Landlord in
connection with such litigation.
<PAGE>
-19-
Tenant hereby waives any and all claims of damage or loss against
the Landlord. Tenant shall obtain in all insurance policies insuring the Tenant
for any loss, injury or damages whatsoever, a waiver of subrogation against the
Landlord, its agents and employees.
14. LEGAL EXPENSES: In the event that the Landlord shall have to bring any
action or proceeding against Tenant for the recovery of money damages or for
possession of the Premises by reason of nonpayment of rent, additional rent or
other sum by Tenant, or by reason of non-performance by Tenant of the terms and
conditions of the Lease herein or by reason of a breach of the Lease herein by
Tenant, and the Landlord shall incur costs and expenses by reason thereof, such
reasonable charges, including legal fees, shall be due and payable from the
Tenant as additional rent, and shall become immediately due and payable upon the
incurment of same.
15. NONLIABILITY OF LANDLORD: Landlord or its agents shall not in any
event whatsoever be liable for any injury or damage to any person or property
happening on or about the demised premises, or for any injury or damage to the
demised premises, or to any property of Tenant or to any property of any other
person, firm, association, or corporation on or about the demised premises from
whatever cause whatsoever including, but not limited to, fire, theft, explosion,
falling plaster, steam, gas, electricity, water, rain or snow or leaks from any
part of said building or from the pipes, appliances or plumbing works or from
the roof. Tenant shall give immediate notice to Landlord in case of fire or
accidents in the demised premises or of defects therein or in any fixtures or
equipment. If the Tenant shall fail to keep in force and effect the insurance
hereinabove set forth, then the Tenant shall indemnify and save harmless the
Landlord from and against any and all suits, claims, demands of every kind and
nature, including reasonable counsel fees by or on behalf of any person, firm,
association or corporation arising out of or based upon any accident, injury or
damage, however occurring, which shall or may happen on
<PAGE>
-20-
or about the demised premises, or in or about the vaults, streets, sidewalks or
curbs in front of or adjacent thereto, and from and against any matter or thing
growing out of the condition, maintenance, repair, alteration, use, occupation,
or operation of the demised premises or of the vaults, streets, sidewalks or
curbs in front of or adjacent thereto.
16. REPOSSESSION: On the last day of the term hereof or on the earlier
termination thereof, Tenant shall peaceably and quietly leave, surrender and
deliver up to Landlord the demised premises broom-clean, together with the
building or any new building and all alterations, changes, additions and
improvements which may have been made upon the premises (except movable
furniture or movable trade fixtures put in at the expense of Tenant) in good
repair and good order and safe condition except for reasonable wear and tear.
Tenant, on or before said date shall remove all of Tenant's personal property
from the demised premises and all property not so removed shall be deemed to
have been abandoned and may be appropriated, sold, stored, destroyed or
otherwise disposed of by Landlord without notice to Tenant and without
obligation to account therefor, but at Tenant's cost. Tenant's obligations under
this paragraph shall be deemed to survive the expiration or other termination of
this Lease.
17. FIXTURES ATTACHED TO REALTY: Any and all improvements in the property
and any and all structures or fixtures, except movable trade fixtures, not
attached to the realty shall be deemed attached to the freehold and
automatically become the property of Landlord upon installation unless Landlord
shall elect otherwise, which election shall be made by giving a notice not more
than sixty (60) days after the expiration or other termination of this Lease.
18. NO ABATEMENT OR RENT: No diminution or abatement of rent or other
compensation shall be claimed or allowed for inconvenience or discomfort arising
from the
<PAGE>
-21-
making of repairs or improvements to the building or to its appliances, nor for
any space taken to comply with any law, ordinance or order of a governmental
authority. The Landlord shall not be required to furnish, and the Tenant shall
not be entitled to receive any "services" from the Landlord. Neither shall there
be any abatement or diminution of rent because of making of repairs,
improvements, or decorations to the demised premises after the date above fixed
for the commencement of the term, it being understood and agreed that rent
shall, in any event, commence to run at such date so above fixed.
19. VALIDITY OF LEASE NOTWITHSTANDING UNENFORCEABILITY OF LEASE
PROVISION: The invalidity or unenforceability of any portion of the within
Lease Agreement shall in no way affect the validity or enforceability of any
other provision hereof.
20. NO ORAL AGREEMENTS: There are no oral agreements between the parties
hereto affecting this Lease and this Lease supersedes and cancels any and all
previous representations, negotiations, arrangements and understandings, if any,
between the parties hereto with respect to the subject matter hereof, and they
shall not be used to interpret or construe this Lease.
21. UTILITIES: The parties agree that the Tenant shall bear the entire
cost and expense of providing all utilities and services in or for the demised
premises, including (but not limited to) the following: Fuel for heat, fuel for
hot water in the event Tenant shall provide facilities for hot water, water,
janitor service, garbage removal, gas, electricity, air-conditioning, the
cleaning and/or repair of any septic tank or cesspool exclusively appurtenant to
the demised premises, including the pipes connecting same and/or sewer lines,
snow removal, and sewer hookup.
<PAGE>
-22-
Tenant will keep the demised premises heated during the heating
season of each year during the term hereof and will protect the pipes from
freezing. Throughout the term of this Lease, Tenant shall maintain at its sole
cost and expense and keep in full force and effect for the benefit of Landlord,
with a company doing business in Nassau County, deemed responsible by the
Landlord, a service, repair and maintenance contract with respect to the
heating, ventilating and air-conditioning systems of the Premises. A copy of
such contract shall be delivered to Landlord together with a copy of the paid
bill.
22. RIDER SUPERSEDES PRINTED PORTION OF LEASE: If in this Lease there is
any conflict between the provisions of any of the printed portions of this Lease
and this Rider, the provisions of this Rider shall be deemed to supersede the
printed provisions.
23. LOCAL LAW: Any reference in the printed portions of this Lease to the
City of New York, and the Administrative Code of the City of New York, are
deemed deleted, and where applicable the Town of Oyster Bay, and the County of
Nassau and other local governmental authorities and their ordinances shall be
substituted in lieu thereof.
24. SUMS DUE LANDLORD: In any case in which the Rent, additional rent or
other sum due is not paid within 10 days of the day when same is due, Tenant
shall pay a late charge equal to 5 percent of the amount so due. Tenant further
agrees that the late charge imposed is fair and reasonable, complies with all
laws, regulations and statutes, and constitutes an agreement between Landlord
and Tenant as to the estimated compensation for costs and administrative
expenses incurred by Landlord due to the late payment of rent to Landlord by
Tenant. Tenant further agrees that the late charge assessed pursuant to this
Lease is not interest.
25. UTILITY EASEMENTS: This Lease is subject and subordinate to any
utility, gas, water and electric, light or telephone line easements affecting
the demised premises (a) now
<PAGE>
-23-
existing or (b) which may hereafter be given and which shall not affect the use
and enjoyment of the premises. Landlord shall have the right to run services and
utilities through Tenant's premises if required.
26. SIGNS: Landlord consents to Tenant's present signage. In the future
Tenant shall erect only dignified signs from the exterior to the demised
premises which in addition to complying with all laws, rules and regulations of
any governing authority having jurisdiction thereof, shall be subject to the
prior written approval of Landlord as to size, content, place and manner of
erection, which consent shall not be unreasonably withheld.
27. LIMIT OF LIABILITY: In the event any clause in this Lease is deemed
null and void, or in the event any clause in this Lease may impart a liability
or obligation on the part of Landlord, then it is understood between the parties
to this Lease Agreement that the dollar amount of Landlord's liability herein
shall be limited to the extent of Landlord's interest in the property being
rented herein reduced by the amount of any mortgage then an encumbrance on the
premises.
28. EXCUSE OF LANDLORD'S PERFORMANCE: Anything in this agreement to the
contrary notwithstanding, providing such cause is not due to the willful act or
neglect of the Landlord, the Landlord shall not be deemed in default with
respect to the performances of any of the terms, covenants and conditions of
this Lease if same shall be due to any strike, lockout, civil commotion,
war-like operation, invasion, rebellion, hostilities, military or usurped power,
sabotage, governmental regulations or controls, inability to obtain any
material, service or financing through Act of God or other cause beyond the
control of the Landlord.
29. PERMITS: Tenant at its own cost and expense shall procure all
necessary certificates, permits, orders or licenses which may be required for
the conduct of its business by
<PAGE>
-24-
any governmental statute, regulation, ordinance or agency and insure that all
requirements relating to the uses of the demised premises by the Tenant shall be
complied with by the Tenant at its own cost and expense.
30. DEFINITION OF LANDLORD: As used in this Lease, the term "Landlord"
shall mean only the owner or the mortgagee in possession for the time being of
the building in which the demised premises are located so that in the event of
any sale of said building or an assignment of this lease or any underlying lease
or a demise of both said building and land, Landlord shall be and hereby is
entirely released and discharged from any and all further liability and
obligations of Landlord hereunder, except any that may have theretofore accrued.
Notwithstanding anything to the contrary provided in this Lease, it
is specifically understood and agreed, such agreement being a primary
consideration of this Lease by Landlord, that there shall be absolutely no
personal liability on the part of Landlord, its successors, assigns or any
mortgagee in possession (for the purposes of this paragraph collectively
referred to as "Landlord"), with respect to any of the terms, covenants and
conditions of this Lease, and that Tenant shall look solely to the equity of
Landlord in the demised premises for the satisfaction of each and every remedy
of Tenant in the event of any breach by Landlord of any of the terms, covenants
and conditions of this Lease to be performed by Landlord, such exculpation or
liability to be absolute and without exceptions whatsoever.
Any sale of the subject premises shall be subject to this Lease.
31. TENANT'S CERTIFICATE: Tenant shall, without charge at any time
and from time to time, within ten (10) days after request by Landlord, certify
by written instrument, duly executed, acknowledge and delivered, to any
mortgagee, assignee of any mortgagee, purchaser, or any other person, firm or
corporation specified by Landlord:
<PAGE>
-25-
(a) That this Lease is unmodified and in full force and effect
(or, if there has been modification, that the same is in full
force and effect as modified and stating the modifications);
(b) whether or not there are then existing any set-offs or
defenses against the enforcement of any of the agreements,
terms, covenants or conditions hereof upon the part of Tenant
to be performed or complied with (and, if so, specifying the
same); and
(c) the dates, if any, to which the rental and other charges
hereunder have been paid in advance and/or to which Landlord
may have consented, released or relieved Tenant from Tenant's
obligations fully to perform all of the terms, covenants and
conditions of the Lease on Tenant's part to be performed.
32. HOLDING OVER: If the Tenant retains possession of the demised premises
or any part thereof after the termination of the term by lapse of time or
otherwise, without prior written approval of Landlord, the Tenant shall pay the
Landlord rent at double the monthly rental otherwise applicable as set forth on
the first page of this lease for the time the Tenant thus remains in possession,
and in addition thereto, shall pay the Landlord all damages, consequential as
well as direct, sustained by reason of the Tenant's retention of possession. If
the Tenant remains in possession of the demised premises, or any part thereof,
after the termination of the term by lapse of time or otherwise, such holding
over shall at the election of the Landlord expressed in a written notice to the
Tenant and not otherwise, constitute an extension of this Lease on a
month-to-month basis at double the monthly rental otherwise applicable as set
forth
<PAGE>
-26-
on the first page of this lease. The provisions of this section do not
exclude the Landlord's right of re-entry or any other right hereunder.
33. MECHANICS' LIENS: If, because of any act or omission of Tenant or
anyone claiming through or under Tenant, any mechanics' or other lien or order
for the payment of money shall be filed against the demised premises or the
building, or against Landlord (whether or not such lien or order is valid or
enforceable as such), Tenant shall, at Tenant's own cost and expense, cause the
same to be canceled and discharged of record within thirty (30) days after the
date of entry or filing thereof, and shall also indemnify and save harmless
Landlord from and against any and all costs, expenses, claims, losses or
damages, including reasonable counsel fees, resulting therefrom or by reason
thereof.
34. RIGHTS RESERVED BY LANDLORD:
A. Landlord reserves the right to enter the demised premises at all
reasonable times (1) for the making of inspections as Landlord may deem
necessary or desirable, (2) to exhibit the premises to prospective purchasers or
lessees of the building and/or land which same is situated, and (3) for any
purpose whatsoever relating thereto or to the safety, protection or preservation
of the demised premises or of the building or of Landlord's interest.
B. If during the last six (6) months of the term or of a renewal
term, Tenant shall have removed all or substantially all of Tenant's property
therefrom, Landlord may immediately enter and alter, renovate, and redecorate
the premises without reduction or abatement of rent or incurring any liability
to Tenant for compensation.
C. Landlord may exercise any or all of the foregoing rights hereby
reserved to Landlord without being deemed guilty of an eviction, actual or
constructive, or disturbance or interruption of Tenant's use or possession and
without being liable in any manner toward Tenant
<PAGE>
-27-
and without limitation or abatement of rent or other compensation, and such acts
shall have no effect on this Lease.
35. SPRINKLERS: If there now is or shall be installed in the building a
"sprinkler system" and such system or any of its appliances shall be damaged,
injured or not in proper working order, Tenant shall forthwith restore the same
to good working condition at its own expense. If the Board of Fire Underwriters
or any bureau, department or official of the state or city government having
jurisdiction shall require or recommend that any changes, modifications,
alterations or additional sprinkler heads or other equipment be made or supplied
by reason of Tenant's business, or the location of partitions or trade fixtures
or other contents of the demised, premises, or for any other reason, then all
such changes, modifications, alterations, additional sprinkler heads or other
equipment as are required or recommended and/or are reasonably necessary to
prevent the imposition of a penalty or charge against the full allowance for a
sprinkler system in the fire insurance rate as fixed by said Board, or by any
Fire Insurance Company, shall be promptly made or installed at Tenant's expense.
36. INTEREST: Any payment required to be made by Tenant pursuant to this
Lease including all payments of rent, additional rent or other charges, not made
by Tenant within 10 days of its due date shall thereupon be deemed to be due and
payable by Tenant to Landlord on demand with interest thereon from the date when
the particular amount becomes due to the date of payment thereof to Landlord at
the rate of ten (10%) percent per annum.
37. VIOLATIONS OF COVENANTS: If (a) Tenant violates any of the covenants,
agreements and conditions of this lease or any of the rules and regulations now
or hereafter reasonably established by the Landlord and (b) Tenant fails within
10 days of the mailing of notice of such violation to the Tenant to either (1)
discontinue such violation or (2) if said
<PAGE>
-28-
violation is of a nature that cannot be completely cured or remedied within said
ten day period, and if Tenant shall not have diligently commenced during such
ten day period, and shall not thereafter with reasonable diligence and in good
faith proceed to remedy or cure such violation; then this lease shall
thenceforth, at the option of the Landlord, become null and void, and the
Landlord may re-enter without further notice or demand. The rent in such case
shall become due, be apportioned and paid on and up to the day of such reentry;
and the Tenant shall be liable for all loss or damage resulting from such
violation and breach of this Lease. No waiver by the Landlord of any violation
or breach of condition by the Tenant shall constitute or be construed as a
waiver of any other violation or breach of condition, nor shall lapse of time
after breach of condition by the Tenant before the Landlord shall exercise its
option under this paragraph operate to defeat the right of the Landlord to
declare this lease null and void and to re-enter upon the demised premises after
the said breach or violation.
38. RECOVERY, IF ANY, UNDER LANDLORD'S INSURANCE: Landlord shall not be
required to maintain any insurance concerning the premises. However, (1) if for
its own reasons Landlord maintains insurance, (2) Tenant undertakes roof and/or
structural repairs covered by Landlord's insurance, and (3) if as a result of
the Landlord maintaining insurance monies are payable for roof and/or structural
repairs, then the amount of any such proceeds attributable to roof and/or
structural repairs shall be made available by the Landlord to the Tenant for
Tenant's use in effectuating such repairs.
BARLICH REALTY, INC.
By: _________________________________
Herbert B. Ehrlich, President
<PAGE>
-29-
MEDICAL STERILIZATION, INC.
By: ________________________________
Michael Deignan, President
393LMM5962/1.199065-1
Exhibit 10.5
- - --------------------------------------------------------------------------------
CONVERTIBLE DEMAND NOTE AND WARRANT
PURCHASE AGREEMENT
between
MEDICAL STERILIZATION, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of January 30, 1989
- - --------------------------------------------------------------------------------
<PAGE>
-2-
TABLE OF CONTENTS
Page
ARTICLE I PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
Section 1.01 The Notes........................................ 6
Section 1.02 The Warrants..................................... 6
Section 1.03 Purchase and Sale of Notes 1 and Warrants........ 6
(a) The Closing................................ 6
(b) Allocation of Purchase Price............... 7
Section 1.04 Payments and Endorsements........................ 7
Section 1.05 Demand for Payment............................... 7
Section 1.06 Payment on Non-Business Days..................... 7
Section 1.07 Registration, etc................................ 7
Section 1.08 Transfer and Exchange of Notes................... 8
Section 1.09 Replacement of Notes............................. 8
Section 1.10 Conversion of Notes.............................. 9
(a) Mandatory Conversion....................... 9
(b) Optional Conversion........................ 10
(c) Conversion Value........................... 11
(d) No Deletion or Impairment.................. 11
(e) Cash in Lieu of Fractional Shares.......... 11
(f) Notice of Record Date...................... 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 2.01 Organization, Qualifications and Corporate Power.. 12
Section 2.02 Authorization of Agreements, Etc.................. 13
Section 2.03 Validity.......................................... 14
Section 2.04 Authorized Capital Stock.......................... 14
Section 2.05 Financial Statements.............................. 15
Section 2.06 Events Subsequent to the Date of the Balance Sheet 16
Section 2.07 Litigation; Compliance with Law................... 16
Section 2.08 Proprietary Information of Third Parties.......... 17
Section 2.09 Title to Properties............................... 17
Section 2.10 Leasehold Interests............................... 18
Section 2.11 Insurance......................................... 18
Section 2.12 Taxes............................................. 18
Section 2.13 Other Agreements.................................. 18
Section 2.14 Patents, Trademarks, Etc.......................... 21
<PAGE>
-3-
Page
Section 2.15 Loans and Advances................................ 21
Section 2.16 Assumptions, Guarantees, Etc. of Indebtedness of
Other Persons..................................... 21
Section 2.17 Significant Customers and Suppliers............... 21
Section 2.18 Governmental Approvals............................ 22
Section 2.19 Disclosure........................................ 22
Section 2.20 Offering of the Notes, the Warrants, the Common
Conversion Shares, the Preferred Conversion Shares
and the Preferred Shares.......................... 23
Section 2.21 Brokers........................................... 23
Section 2.22 Officers.......................................... 23
Section 2.23 Transactions with Affiliates...................... 23
Section 2.24 Employees......................................... 24
Section 2.25 U.S. Real Property Holding Corporation............ 24
Section 2.26 Authorization of Stockholders' Meeting............ 24
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............... 24
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS................ 25
ARTICLE V COVENANTS OF THE COMPANY....................................... 32
Section 5.01 Financial Statements, Reports, Etc................ 32
Section 5.02 Right of First Refusal............................ 33
Section 5.03 Reserve for Preferred Shares, Common Conversion
Shares and Preferred Conversion Shares............ 34
Section 5.04 Corporate Existence............................... 35
Section 5.05 Properties, Business, Insurance................... 35
Section 5.06 Inspection, Consultation and Advice............... 35
Section 5.07 Restrictive Agreements Prohibited................. 35
Section 5.08 Transactions with Affiliates...................... 35
Section 5.09 Expenses of Directors............................. 36
Section 5.10 Use of Proceeds................................... 36
Section 5.11 Board of Directors Meetings....................... 36
Section 5.12 Compensation...................................... 36
Section 5.13 By-laws........................................... 36
Section 5.14 Performance of Contracts.......................... 37
Section 5.15 Vesting of Reserved Employee Shares............... 37
Section 5.16 Employee Nondisclosure and Developments Agreements 37
Section 5.17 Mergers, Sale of Assets, Etc. of Subsidiaries..... 37
Section 5.18 Maintenance of Ownership of Subsidiaries.......... 37
Section 5.19 Distributions by Subsidiaries..................... 38
<PAGE>
-4-
Page
Section 5.20 Compliance with Laws.............................. 38
Section 5.21 Keeping of Record and Books of Account............ 38
Section 5.22 Change in Nature of Business...................... 38
Section 5.23 U.S. Real Property Interest Statement............. 38
Section 5.24 Punctual Payment.................................. 38
Section 5.25 Authorization of Preferred Stock.................. 38
Section 5.26 Restrictions...................................... 39
ARTICLE VI EVENTS OF DEFAULT.............................................. 39
Section 6.01 Events of Default................................. 39
Section 6.02 Annulment of Defaults............................. 41
ARTICLE VII MISCELLANEOUS.................................................. 41
Section 7.01 Expenses.......................................... 41
Section 7.02 Survival of Agreements............................ 41
Section 7.03 Brokerage......................................... 42
Section 7.04 Parties in Interest............................... 42
Section 7.05 Notices........................................... 42
Section 7.06 Governing Law..................................... 42
Section 7.07 Entire Agreement.................................. 43
Section 7.08 Counterparts...................................... 43
Section 7.09 Amendments........................................ 43
Section 7.10 Severability...................................... 43
Section 7.11 Titles and Subtitles.............................. 43
Section 7.12 Certain Defined Terms............................. 43
Section 7.13 Accounting Terms.................................. 44
<PAGE>
-5-
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Subsidiaries
SCHEDULE IV Security Holders
SCHEDULE V(A)
and (B) Agreements
INDEX TO EXHIBITS
EXHIBIT A Form of Convertible Demand Notes
EXHIBIT B Form of Common Stock Purchase Warrants
EXHIBIT C Charter
EXHIBIT D Charter Amendment
EXHIBIT E Form of Registration Rights Agreement
EXHIBIT F Form of Stock Restriction Agreement
EXHIBIT G Form of Employment Agreement
<PAGE>
-6-
CONVERTIBLE DEMAND NOTE AND WARRANT PURCHASE AGREEMENT dated as of
January 30, 1989 between Medical Sterilization, Inc., a New York corporation
(the "Company"), and the several purchasers named in the attached Schedule I
(individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issue and sell to the Purchasers its
Convertible Demand Notes, due 1994, and its Common Stock Purchase Warrants; and
WHEREAS, the Purchasers, severally, wish to purchase the Notes and
Warrants on the terms and subject to the conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
SECTION 1.01 The Notes. The Company has authorized the issuance and
sale to the Purchasers of the Company's Convertible Demand Notes, due 1994, in
the original principal amount of $1,000,000. The Convertible Subordinated Notes
shall be substantially in the form set forth in Exhibit A hereto and are herein
referred to individually as a "Note" and collectively as the "Notes", which
terms shall also include any notes delivered in exchange or replacement
therefor.
SECTION 1.02 The Warrants. The Company has also authorized the issuance
and sale to the Purchasers of the Company's Common Stock Purchase Warrants for
the purchase (subject to adjustment as provided therein) of 285,715 shares of
the Company's Common Stock, $.01 par value (the "Common Stock"). The Common
Stock Purchase Warrants shall be substantially in the form set forth in Exhibit
B hereto and are herein referred to individually as a "Warrant" and collectively
as the "Warrants", which terms shall also include any warrants delivered in
exchange or replacement therefor.
SECTION 1.03 Purchase and Sale of Notes and Warrants.
(a) The Closing. The Company agrees to issue and sell to each
Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, each Purchaser agrees to purchase, the
principal amount of the Notes and Warrants for the purchase of the number of
shares of Common Stock set forth opposite the name of such Purchaser under the
headings "Principal Amount of Notes" and "Warrant Shares", respectively, on
Schedule I, at the aggregate purchase price set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price" on Schedule I. Such
purchase and sale shall take place at a closing (the "Closing") to be held at
the offices of Testa, Hurwitz & Thibeault, Exchange Place, 53 State Street,
<PAGE>
-7-
Boston, Massachusetts, on January 30, 1989 at 10:00 a.m., or at such other
location date and time as may be agreed upon by the Purchasers and the Company
(such date and time being called the "Closing Date"). At the Closing the Company
shall issue and deliver to each Purchaser Notes, payable to the order of such
Purchase, in the principal amount set forth opposite the name of such Purchaser
under the heading "Principal Amount of Notes" on Schedule I and Warrants,
registered in the name of such Purchaser, to purchase (subject to adjustment as
provided therein) the number of shares of the Company's Common Stock set forth
opposite the name of such Purchaser under the heading "Warrant Shares" on
Schedule I. As payment in full for the Notes and Warrants being purchased by it
under this Agreement, and against delivery of the Notes and Warrants as
aforesaid, on the Closing Date each Purchaser shall deliver to the Company a
check payable to the Company, in the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price" on Schedule I, or shall
transfer such sum to the account of the Company by wire transfer.
(b) Allocation of Purchase Price. The Company and the Purchasers,
having adverse interests and as a result of arm's length bargaining, agree that
(i) neither the Purchasers nor any of their respective partners have rendered or
have agreed to render any services to the Company in connection with this
Agreement or the issuance of the notes and Warrants; (ii) the Warrants are not
being issued as compensation; and (iii) for the purpose, and within the meaning,
of Proposed Treasury Regulation Section 1.1273-2(d)(2)(iv), the aggregate issue
price at which the Notes would be issued if they were issued apart from the
Warrants is $990,000.
The Company and the Purchaser recognize that this Agreement determines
the original issue discount to be taken into account by the Company and the
Purchaser for Federal income tax purposes on the Notes, and they agree to adhere
to this Agreement for such purposes.
SECTION 1.04 Payments and Endorsements. Payments of principal and
interest on the Notes shall be made directly by check duly mailed or delivered
to each Purchaser at its address set forth on Schedule I, without any
presentment or notation of payment, except that prior to any transfer of any
Note, the holder of record shall endorse on such Note a record of the date to
which interest has been paid and all payments made on account of principal of
such Note.
SECTION 1.05 Demand for Payment. The principal of and interest on the
Notes shall be payable on demand made by a holder thereof. Any demand for
payment shall be made by written notice to the Company, which notice shall set
forth the date and time for such redemption, which shall not be less than five
(5) days after the date such notice was delivered to the Company. No demand for
payment may be made by any holder of the Notes prior to June 30, 1989 except in
the event that (i) at a duly held meeting of the stockholders of the Company
(the "Stockholders' Meeting") convened for the purposes of amending the
Company's Certificate of Incorporation, as amended through the date hereof (the
"Charter") as set forth in Exhibit C hereto, to provide for the creation of a
<PAGE>
-8-
series of Preferred Stock (the "Preferred Stock") substantially on the terms set
forth in Exhibit D hereto (the "Charter Amendment"), such stockholders shall
fail to approve the Charter Amendment or (ii) Kenneth W. Rind, or such other
person as shall be nominated for election to the Board of Directors by the
holders of the Notes and the Warrants shall not have been so elected or shall
have been removed from the Board of Directors.
SECTION 1.06 Payment on Non-Business Days. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under the laws of
the State of New York, such payment may be made on the next succeeding business
day, and such extension of time shall in such case be included in the
computation of payment of interest due.
SECTION 1.07 Registration, etc. The Company shall maintain at its
principal office a register of the Notes and shall record therein the names and
addresses of the registered holders of the Notes, the address to which notices
are to be sent and the address to which payments are to be made as designated by
the registered holder if other than the address of the holder, and the
particulars of all transfers, exchanges and replacements of Notes. No transfer
of a Note shall be valid unless made on such register for the registered holder
or his executors or administrators or his or their duly appointed attorney, upon
surrender therefor for exchange as hereinafter provided, accompanied by an
instrument in writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon transfer,
exchange or replacement of a Note or Notes, shall be registered on the date of
execution thereof by the Company or shall be dated the date to which interest
has been paid on such Notes or Note. The registered holder of a Note shall be
that Person in whose name the Note has been so registered by the Company. A
registered holder shall be deemed the owner of a Note for all purposes of this
Agreement and, subject to the provisions hereof, shall be entitled to the
principal and interest evidenced by such Note free from all equities or rights
of setoff or counterclaim between the Company and the transferor of such
registered holder or any previous registered holder of such Note.
SECTION 1.08 Transfer and Exchange of Notes. The registered holder of
any Note or Notes may, prior to maturity thereof, surrender such Note or Notes
at the principal office of the Company for transfer or exchange. Within a
reasonable time after notice to the Company from a registered holder of its
intention to make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in exchange therefor
another Note or Notes, in such denominations as requested by the registered
holder, for the same aggregate principal amount as the unpaid principal amount
of the Note or Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same terms and
conditions as the Note or Notes so surrendered. Each new Note shall be made
payable to such Person or Persons, or registered assigns, as the registered
holder of such surrendered Note or Notes may designate, and such transfer or
exchange shall be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
<PAGE>
-9-
SECTION 1.09 Replacement of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Note and, if requested in the case of any such loss, theft or destruction, upon
delivery of an indemnity bond or other agreement or security reasonably
satisfactory to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of such Note, the Company will issue a new Note, of
like tenor and amount and dated the date to which interest has been paid, in
lieu of such lost, stolen, destroyed or mutilated Note; provided, however, if
any Note of which any Purchaser, its nominee, or any of its partners is the
registered holder is lost, stolen or destroyed, the affidavit of an executive
officer or general partner of the registered holder setting forth the
circumstances with respect to such loss, theft or destruction shall be accepted
as satisfactory evidence thereof, and no indemnification bond or other security
shall be required as a condition to the execution and delivery by the Company of
a new Note in replacement of such lost, stolen or destroyed note other than the
registered holder's written agreement to indemnify the Company such certificates
evidencing shares of Preferred Stock.
SECTION 1.10 Conversion of Notes.
(a) Mandatory Conversion. All outstanding Notes shall automatically be
converted into the number of shares of Preferred Stock into which such Notes are
convertible upon application of the then effective Preferred Stock Conversion
Value immediately upon the filing by the Company of the Charter Amendment with
the Secretary of State of the State of New York and the creation of the
Preferred Stock. The date of such event shall referred to as the "Mandatory
Conversion Date".
Upon the occurrence of an automatic conversion specified above, the
outstanding Notes shall cease to represent any obligation of the Company and
shall be converted automatically without any further action by the holders of
such Notes and whether or not the Notes are surrendered to the Company provided,
however, that the Company shall not be obligated to issue certificates
evidencing the shares of Preferred Stock issuable upon such conversion or to
make any interest payment unless the Notes being converted are either delivered
to the Company, or the holder notifies the Company that such Note has been lost,
stolen or destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith;
provided, however, if any Note of which any Purchaser, its nominee, or any of
its partners is the registered holder is lost, stolen or destroyed, the
affidavit of an executive officer or general partner of the registered holder
setting forth the circumstances with respect to such loss, theft or destruction
shall be accepted as satisfactory evidence thereof, and no indemnification bond
or other security shall be required as a condition to the execution and delivery
by the Company of such certificates evidencing shares of Preferred Stock.
Upon the occurrence of an automatic conversion specified above, the
holders of the Notes shall surrender the Notes at the office of the Company.
Thereupon, there shall be issued and delivered to such holder, a certificate or
certificates for the number of shares of Preferred Stock into which the Notes
surrendered were convertible on the date
<PAGE>
-10-
on which such automatic conversion occurred, cash in the amount of all accrued
and unpaid interest on such Note up to and including the Mandatory Conversion
Date, cash, as provided subsection 1.10(e), in respect of any fraction of a
share of Preferred Stock issuable upon such conversion and any other securities
or property to which the holder becomes entitled upon conversion pursuant to
this Section 1.10. Such conversion shall be deemed to have been effected
immediately after the filing of the Charter Amendment with the Secretary of
State of the State of New York and the creation of the Preferred Stock on the
Mandatory Conversion Date, and at such time the rights of the holder as holder
of a Note shall cease and the Person or Persons in whose name names any
certificate or certificates for shares of Preferred Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares of Preferred Stock represented thereby.
(b) Optional Conversion. In the event that the Charter Amendment has
not been filed with the Secretary of State of the State of New York and the
Preferred Stock has not been created on or prior to June 30, 1989, any holder of
the outstanding Notes after that date shall have the right, at its election, to
require the Company to convert any portion of the principal of and interest on
the Notes held by such holder into shares of Common Stock upon application of
the then effective Common Stock Conversion Value, by delivering written notice
to the Company, which notice shall set forth the date and time for such optional
conversion which shall be not less than five (5) days after the date such notice
was delivered to the Company (the "Optional Conversion Date"). Within five (5)
days of receipt of a notice of conversion, the Company shall send written notice
to all other holders of the Notes setting forth the identities of the converting
holders, the number of shares of Common Stock to be issued, and the Optional
Conversion Date.
Upon the consummation of an optional conversion specified above, the
Notes so converted shall cease to represent any obligation of the Company and
shall be converted automatically without any further action by the holders of
such Notes and whether or not the Notes are surrendered to the Company;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion or to make
any interest payment unless the Notes being converted are either delivered to
the Company, or the holder notifies the Company that such Note has been lost,
stolen or destroyed and executes an agreement satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection therewith;
provided, however, if any Note of which any Purchaser, its nominee, or any of
its partners is the registered holder is lost, stolen or destroyed, the
affidavit of an executive officer or general partner of the registered holder
setting forth the circumstances with respect to such loss, theft or destruction
shall be accepted as satisfactory evidence thereof, and no indemnification bond
or other security shall be required as a condition to the execution and delivery
by the Company of such certificates evidencing shares of Common Stock.
Upon the consummation of an optional conversion specified above, the
holder of the Notes so converted shall surrender the Notes at the office of the
Company.
<PAGE>
-11-
Thereupon, there shall be issued and delivered to such holder, a certificate or
certificates for the number of shares of Common Stock into which the Notes
surrendered were convertible on the Optional Conversion Date, cash in the amount
of all accrued and unpaid interest on such Note up to and including the Optional
Conversion Date in the case that the holder of a Note does not elect to convert
such accrued and unpaid interest into shares of Common Stock, cash, as provided
in subsection 1.10(e), in respect of any fraction of a share of Common Stock
issuable upon such conversion and any other securities or property to which the
holder becomes entitled upon conversion pursuant to this Section 1.10. Such
conversion shall be deemed to have been effected immediately upon the Optional
Conversion Date, and at such time the rights of the holder as holder of a Note
shall cease and the Person or Persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(c) Conversion Value. The price at which any Note may be converted into
Preferred Stock (the "Preferred Stock Conversion Value") pursuant to subsection
1.10(a) shall, subject to adjustment as hereinafter provided, be three dollars
and fifty cents ($3.50) in principal amount of the Note for each share of
Preferred Stock. The price at which any Note may be converted into Common Stock
(the "Common Stock Conversion Value") pursuant to subsection 1.10(b) shall,
subject to adjustment as hereinafter provided, be one dollar ($1.00) in
principal amount of the Note or in accrued and unpaid interest thereon for each
share of Common Stock.
(d) No Dilution or Impairment. The Company will not, by amendment of
its Charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms of the
Notes, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of shares of Preferred
Stock or Common Stock issuable upon conversion of the Notes against dilution or
other impairment. Without limiting the generality of the foregoing, the Company
(i) will not increase the par value of any shares of capital stock receivable on
the conversion of the Notes above the amount payable therefor on such
conversion, (ii) will take all action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
non-assessable shares of stock on the conversion of any Note from time to time
outstanding, and (iii) will not transfer all or substantially all of its
properties and assets to any other Person, or consolidate with or merge into any
other Person or permit any such Person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless such other Person
shall expressly assume in writing and will be bound by all the terms of the
Notes.
(e) Cash in Lieu of Fractional Shares. No fractional shares of
Preferred Stock or Common Stock or script representing fractional shares shall
be issued upon the conversion of a Note. Instead of any fractional shares of
Preferred Stock or Common
<PAGE>
-12-
Stock that would otherwise be issuable upon conversion of a Note, the Company
shall pay to the holder of the Note that was converted a cash adjustment in
respect of such fractional shares in an amount equal to the same fraction of the
market price per share of the Preferred Stock or Common Stock (as determined in
a reasonable manner prescribed by the Board of Directors) as the close of
business on the Mandatory Conversion Date or Optional Conversion Date, as the
case may be. The determination as to whether or not any fractional shares are
issuable shall be based upon the total Notes being converted at any one time by
and holder thereof, not upon each Note being converted.
(f) Notice of Record Date. In the event of:
(i) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders thereof who
are entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(ii) any capital reorganization of the Company, and
reclassification or recapitalization of the capital stock of the Company, any
merger or consolidation of the company, or any transfer of all or substantially
all of the assets of the Company to any other corporation, or any other entity
or person, or
(iii) any voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then and in each such event the Company shall mail or cause to be mailed to each
holder of a Note a notice specifying (i) the date on which any such record is to
be taken for the purpose of such dividend, distribution or right and a
description of such dividend, distribution or right, (ii) the date on which any
such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected to
become effective and (iii) the time, if any, that is to be fixed, as to when the
holders of record of capital stock of the Company shall be entitled to exchange
their shares of capital stock of the Company for securities or other property
deliverable upon such reorganization, reclassification, recapitalization,
transfer, consolidation, merger, dissolution, liquidation or winding up. Such
notice shall be mailed at least seven (7) days prior to the date specified in
such notice on which such action is to be taken.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set froth in the Disclosure Schedule attached as Schedule II (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is
<PAGE>
-13-
taken, which in each case shall constitute the sole representation and warranty
as to which such exception shall apply):
SECTION 2.01 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly existing
and in good standing under the laws of the State of New York and is duly
licensed or qualified to transact business as a foreign corporation and is in
good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as not
conducted and as proposed to be conducted, to execute, deliver and perform the
terms of this Agreement, the Notes, the Warrants, the Registration Rights
Agreement with the Purchasers in the form attached as Exhibit E (the
"Registration Rights Agreement") and the Stock Restriction Agreement with the
Purchasers and Kennard H. Morganstern, in the form attached as Exhibit F (the
"Stock Restriction Agreement"), to issue, sell and deliver the Notes and the
Warrants, to issue and deliver the shares of Common Stock issuable upon exercise
of the Warrants and conversion of the Notes pursuant to Section 1.10(b) hereof
(collectively the "Common Conversion Shares") and, upon approval of the Charter
Amendment at the Stockholders' Meeting and filing of the Charter Amendment with
the Secretary of State of the State of New York, to issue and deliver the shares
of Common Stock issuable upon conversion of the Preferred Stock (the "Preferred
Conversion Shares") and to issue and deliver the shares of Preferred Stock
issuable upon conversion of the Notes pursuant to Section 1.10(a) hereof (the
"Preferred Shares").
(b) The Company has no subsidiaries. Except as set forth on the
attached Schedule III, the Company does not (i) own of record or beneficially,
directly or indirectly, (A) any shares of capital stock or securities
convertible into capital stock of any other corporation or (B) any participating
interest in any partnership, joint venture or other non-corporate business
enterprise or (ii) control, directly or indirectly, any other entity.
SECTION 2.02 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this Agreement, the
Notes, the Warrants, the Registration Rights Agreement and the Stock Restriction
Agreement, the performance by the Company of its obligations hereunder and
thereunder, the issuance, sale and delivery of the Notes and Warrants and the
issuance and delivery of the Common Conversion Shares upon exercise of the
Warrants and conversion of the Notes have been and, upon approval of the Charter
Amendment at the Stockholders' Meeting and the filing of the Charter Amendment
with the Secretary of State of the State of New York, the issuance and delivery
of the Preferred Conversion Shares upon conversion of the Preferred Shares and
the Preferred Shares upon conversion of the Notes will be, duly authorized by
all requisite corporate action and will not violate any provision of law, any
order of any court or other agency of government, the Charter, the Charter as
proposed to
<PAGE>
-14-
be amended by the Charter Amendment, or the By-laws of the Company, as amended,
or any provision of any indenture, agreement or other instrument to which the
Company or any of its properties or assets is bound, or conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company. No
provision of the Stock Restriction Agreement violates, conflicts with, results
in a breach of or constitutes (with due notice or lapse of time or both) a
default under any indenture, agreement or other instrument to which the Company
is bound or, to the best of the Company's knowledge, any other indenture,
agreement or instrument (regardless, in each such case, of whether any such
violation, conflict, breach or default relates to the Company or to another
party to any such indenture, agreement or other instrument).
(b) The Notes and the Warrants have been duly authorized and, when
issued in accordance with this Agreement, will be validly issued, with no
personal liability attaching to the ownership thereof and will be free an clear
of all liens, charges, restrictions, claims and encumbrances imposed by or
through the Company except as set forth in the Registration Rights Agreement.
The Common Conversion Shares shave been duly reserved for issuance upon the
exercise of the Warrants and the conversion of the Preferred Conversion Shares
and the Notes, and, when so issued, will be duly authorized, validly issued,
fully paid and nonassessable shares of Common Stock with no personal liability
attaching to the ownership thereof except for any liability that may be imposed
by applicable state statutes upon stockholders for wages or similar claims and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement. Upon the approval of the Charter Amendment with
the Secretary of State of the State of New York, the Preferred Shares will be
duly reserved for issuance upon the conversion of the Notes and the Preferred
Conversion Shares will be duly reserved for issuance upon the conversion of the
Preferred Shares, and, when so issued, will be duly authorized, validly issued,
fully paid and nonassessable shares of Preferred Stock, with no person liability
attaching to the ownership thereof except for any liability that may be imposed
by applicable state statutes upon stockholders for wages or similar claims and
will be free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement. Neither the issuance, sale or delivery of the
Notes or the Warrants nor the issuance or delivery of the Common Conversion
Shares, the Preferred Conversion Shares or the Preferred Shares is subject to
any preemptive right of stockholders of the Company or to any right of first
refusal or other right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed and
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Notes, the
Warrants, the Registration Rights Agreement and the Stock Restriction Agreement,
when executed and delivered in
<PAGE>
-15-
accordance with this Agreement, will constitute the legal, valid and binding
obligations of the Company, enforceable in accordance with their respective
terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
the Company consists of 5,000,000 shares of Common Stock, 1,000 shares of Class
A Convertible Non-cumulative Preferred Stock, $.01 par value (the "Class A
Stock") and 1,000 shares of Class B Convertible Non-cumulative Preferred Stock,
$.01 par value (the "Class B Stock"). Immediately prior to the Closing,
2,788,829 shares of Common Stock, no shares of Class A Stock and no shares of
Class B Stock will be validly issued and outstanding, fully paid and
nonassessable with no personal liability attaching to the ownership thereof
except for any liability that may be imposed by applicable state statutes upon
stockholders for wages or similar claims. The stockholders of record holding
more than five (5%) percent of the outstanding Common Stock and holders of
subscriptions, warrants, options, convertible securities, and other rights
(contingent or other) to purchase or otherwise acquire equity securities of the
Company, and the number of shares of Common Stock, and the number of such
subscriptions, warrants, options, convertible securities, and other such rights
held by each, are as set forth in the attached Schedule IV. The designations,
powers, preferences, rights, qualifications, limitations and restrictions in
respect of the Common Stock, the Class A Stock and the Class B Stock are as set
forth in the Charter, a copy of which is attached as Exhibit C, and all such
designations, powers, preferences, rights, qualifications, limitations and
restrictions are valid, binding and enforceable in accordance with all
applicable laws. Upon the filing of the Charter Amendment with the Secretary of
State of the State of New York, the designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the Preferred Stock
will be as set forth in the Charter Amendment, a copy of which is attached as
Exhibit D, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions will be valid, binding and
enforceable and in accordance with all applicable laws. Except as set forth in
the attached Schedule IV, (i) no person owns of record or is known to the
Company to own beneficially five (5%) percent or more of the outstanding Common
Stock, (ii) no subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire equity securities
of the Company is authorized or outstanding and (iii) there is no commitment by
the Company to issue shares, subscriptions, warrants, options, convertible
securities, or other such rights or to distribute to holders of any of its
equity securities any evidence of indebtedness or asset. Except as provided for
the in the Charter or as set forth in the attached Schedule IV, the Company has
no obligation (contingent or other) to purchase, redeem or otherwise acquire any
of its equity securities or any interest therein or to pay and dividend or make
any other distribution in respect thereof. Except for the Stock Restriction
Agreement, to the best of the Company's knowledge there are no voting trusts or
agreements, stockholders' agreement, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to any securities
of the Company or any of its subsidiaries (whether or not the Company or any of
its subsidiaries is a party thereto). All of the outstanding securities of the
Company were issued in compliance with all applicable Federal and State
securities laws.
<PAGE>
-16-
SECTION 2.05 Financial Statements. The Company has furnished to the
Purchasers the audited balance sheet of the Company as of December 31, 1987 and
the related statements of income, stockholders' equity and changes in financial
position of the Company for the year ended December 31, 1987 and the unaudited
balance sheet of the Company as of September 30, 1988 (the "Balance Sheet") and
the related statements of income, stockholders' equity and changes in financial
position of the Company for the nine (9) months ended September 30, 1988. All
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial position of the Company as of December 31, 1987 and September 30,
1988, respectively, and the results of its operations and changes in financial
position for the year ended December 31, 1987 and the nine (9) months ended
September 30, 1988, respectively. Since the date of the Balance Sheet, (i) there
has been no change in the assets, liabilities or financial condition of the
Company from that reflected in the Balance Sheet except for changes in the
ordinary course of business which in the aggregate have not been materially
adverse and (ii) none of the business, prospects, financial condition,
operations, property or affairs of the Company has been materially adversely
affected by any occurrence or development, individually or in the aggregate,
whether or not insured against.
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet. Since
the date of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security, (ii) borrowed any amount or incurred or become subject
to any liability (absolute, accrued or contingent), except current liabilities
incurred and liabilities under contracts entered into in the ordinary course of
business, (iii) discharged or satisfied any lien or encumbrance or incurred or
paid any obligation or liability (absolute, accrued or contingent) other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the date of the Balance Sheet in the ordinary course of business, (iv)
declared or made any payment or distribution to stockholders or purchased or
redeemed any share of its capital stock or other security, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens of current real property taxes not yet due and payable, (vi) sold,
assigned or transferred any of its tangible assets except in the ordinary course
of business, or cancelled any debt or claim, (vii) sold, assigned, transferred
or granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business or as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 2.07 Litigation; Compliance with Law. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge,
<PAGE>
-17-
threatened against or affecting the Company, at law or in equity, or before or
by any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, (ii) arbitration
proceeding relating to the Company pending under collective bargaining
agreements or otherwise or (iii) governmental inquiry pending or, to the best of
the Company's knowledge, threatened against or affecting the Company (including
without limitation any inquiry as to the qualification of the Company to hold or
receive any license or permit), and there is no basis for any of the foregoing.
The Company has not received any opinion or memorandum or legal advice from
legal counsel to the effect that it is exposed, from a legal standpoint, to any
liability or disadvantage which may be material to its business, prospects,
financial condition, operations, property or affairs. The Company is not in
default with respect to any order, writ, injunction or decree known to or served
upon the Company of any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign. There is no action or suit by the Company pending or
threatened against others. The Company has complied with all laws, rules,
regulations and orders applicable to its business, operations, properties,
assets, products and services, and the Company has all necessary permits,
licenses and other authorizations required to conduct is business as conducted
and as proposed to be conducted. There is no existing law, rule, regulation or
order, and the Company after due inquiry is not aware of any proposed law, rule,
regulation or order, whether Federal or state, which would prohibit or restrict
the Company from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now conducting
business or in which it proposes to conduct business.
SECTION 2.08 Proprietary Information of Third Parties. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may be
violating any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the best
of the Company's knowledge, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of
<PAGE>
-18-
the business of the Company, will conflict with or result in a breach of the
terms, conditions or provisions of or constitute a default under any contract,
covenant or instrument under which any such person is obligated.
SECTION 2.09 Title to Properties. The Company has good and marketable
title to its properties and assets reflected on the Balance Sheet or acquired by
it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances, except for liens for or current taxes not yet due and payable and
minor imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company.
SECTION 2.10. Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement without any default of the Company
thereunder and, to the best of the Company's knowledge, without any default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default by the Company under any such lease or agreement or, to the
best of the Company's knowledge, by any other party thereto. The Company's
possession of such property has not been disturbed and, to the best of the
Company's knowledge, no claim has been asserted against the Company adverse to
its rights in such leasehold interests.
SECTION 2.11. Insurance. The Company holds valid policies covering all
of the insurance required to be maintained by it under Section 5.05.
SECTION 2.12 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties. All such taxes with
respect to which the Company has become obligated pursuant to elections made by
the Company in accordance with generally accepted practice have been paid and
adequate reserves have been established for all taxes accrued but not yet
payable. The Federal income tax returns of the Company have never been audited
by the Internal Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or local taxes is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company. Neither
the Company nor any of its stockholders has ever filed (a) an election pursuant
to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"),
that the Company be taxed as an S corporation or (b) consent pursuant to Section
341(f) of the Code, relating to collapsible
<PAGE>
-19-
corporations. The Company's net operating losses for Federal income tax
purposes, as set forth in the financial statements referred to in Section 2.05,
are not subject to any limitations imposed by Section 382 of the Code and the
full amount of such net operating losses are available to offset the taxable
income of the Company for the current fiscal year and, to the extent not so
used, succeeding fiscal years. Consummation of the transactions contemplated by
this Agreement or by any other agreement, understanding or commitment
(contingent or otherwise) to which the Company is a party or by which it is
otherwise bound will not have the effect of limiting the Company's ability to
use such net operating losses in full to offset such taxable income.
SECTION 2.13 Other Agreements. Except as set forth in the attached
Schedule V(A), the Company is not a party to or otherwise bound by any written
or oral contract or instrument or other restriction which individually or in the
aggregate could materially adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company. Except as set forth
in the attached Schedule V(B), the Company is not a party to or otherwise bound
by any written or oral:
(a) distributor, dealer, manufacturer's representative or
sales agency contract or agreement which is not terminable on less than
ninety (90) days' notice without cost or other liability to the Company
(except for contracts which, in the aggregate, are not material to the
business of the Company);
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company after acceptance
thereof or to delay the acceptance thereof, or which varies in any
material respect from the Company's standard form contracts;
(c) contract with any labor union (and, to the knowledge of
the Company, no organizational effort is being made with respect to any
of its employees);
(d) contract or other commitment with any supplier containing
any provision permitting any party other than the Company to
renegotiate the price or other terms, or containing any pay-back or
other similar provision, upon the occurrence of a failure by the
Company to meet its obligations under the contract when due or the
occurrence of any other event;
(e) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of
its normal operating requirements;
(f) contract for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of
informal understandings) on a full-time or consulting basis which is
not terminable on
<PAGE>
-20-
notice without cost or other liability to the Company, except normal
severance arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock option or other plan,
contract or understanding pursuant to which benefits are provided to
any employee of the Company (other than group insurance plans
applicable to employees generally);
(h) agreement or indenture relating to the borrowing of money
or to the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company;
(i) guaranty of any obligation for borrowed money or
otherwise;
(j) voting trust or agreement, stockholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights
agreement r elating to any securities of the Company;
(k) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company has
advanced or agreed to advance money or has agreed to lease any property
as lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to
issue, sell or otherwise distribute or to repurchase or otherwise
acquire or retire any share of its capital stock or any of its other
equity securities;
(m) assignment, license or other agreement with respect to any
form of intangible property;
(n) agreement under which it has granted any person any
registration rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its
right to compete with any person in any respect.
(p) other contract or group of related contracts with the same
party involving more than $20,000 or continuing over a period of more
than six months from the date or dates thereof (including renewals or
extensions optional with another party), which contract or group of
contracts is not terminable by the Company without penalty upon notice
of thirty (30) days or less, but excluding any contract or group of
contracts with a customer of the Company for the sale, lease or rental
of the Company's products or services if such contract or group of
contracts was entered into by the Company in the ordinary course of
business; or
<PAGE>
-21-
(q) other contract, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with the
Securities and Exchange Commission (the "Commission") as an exhibit to
a registration statement on From S-1 if the Company were registering
securities under the Securities Act of 1933, as amended (the
"Securities Act").
The Company, and to the best of the Company's knowledge, each other party
thereto have in all material respects performed all the obligations required to
be performed by them to date, have received no notice of default and are not in
default (with due notice or lapse of time or both) under any lease, agreement or
contract now in effect to which the Company is a party or by which it or its
property may be bound. The Company has no present expectation or intention of
not fully performing all its obligations under each such lease, contract or
other agreement, and the Company has no knowledge of any breach or anticipated
breach by the other party to any contract or commitment to which the Company is
a party. The Company is in full compliance with all of the terms and provisions
of its Charter and By-laws, as amended.
SECTION 2.14 Patents, Trademarks, Etc. Set forth in Schedule II is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company, or
of which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use all patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names, copyrights, manufacturing processes, formulae,
trade secrets and know how (collectively, "Intellectual Property") necessary or
desirable to the conduct of its business as conducted and as proposed to be
conducted, and no claim is pending or, to the best of the Company's knowledge,
threatened to the effect that the operations of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and there is no basis for any such claim (whether or not pending or
threatened). No claim is pending or threatened to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and
there is no basis for any such claim (whether or not pending or threatened). To
the best of the Company's knowledge, all technical information developed by and
belonging to the Company which has not been patented has been kept confidential.
The Company has not granted or assigned to any other person or entity any right
to manufacture, have manufactured, assemble or sell the products or proposed
products or to provide the services or proposed services of the Company.
SECTION 2.15 Loans and Advances. The company does not have any
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect
<PAGE>
-22-
of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company.
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 Significant Customers and Suppliers. No customer or
supplier which was significant to the Company during the period covered by the
financial statements referred to in Section 2.05 or which has been significant
to the Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
SECTION 2.18 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement or the Stock Restriction
Agreement, the issuance, sale and delivery of the Notes or the Warrants or, upon
conversion or exercise thereof, the issuance and delivery of the Common
Conversion Shares, the Preferred Conversion Shares or the Preferred Shares,
other than (i) in the case of the Preferred Conversion Shares and the Preferred
Shares, the filing of the Charter Amendment with the Secretary of the State of
New York, (ii) filings pursuant to state securities laws (all of which filings
have been made by the Company) in connection with the sale of the Notes and the
Warrants and (iii) with respect to the Registration Rights Agreement, the
registration of the shares covered thereby with the Commission and filings
pursuant to state securities laws.
SECTION 2.19 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor the Business Plan of the Company for 1989 (the
"Business Plan"), contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Purchasers and their
counsel in writing and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company
or any of its subsidiaries. The financial projections and other estimates
contained in the Business Plan were prepared by the
<PAGE>
-23-
Company based on the Company's experience in the industry and on assumptions of
fact and opinion as to future events which the Company, at the date of the
issuance of the Business Plan, believed to be reasonable, but which the Company
cannot and does not assure or guarantee the attainment of in any manner. As of
the date hereof no facts have come to the attention of the Company which would,
in its opinion, require the Company to revise or amplify the assumptions
underlying such projections and other estimates or the conclusions derived
therefrom. The Company has previously furnished to the Purchasers true and
complete copies of its annual reports on Form 10-K for its fiscal years ended
December 31, 1985, 1986 and 1987 (the "10-Ks") and of its quarterly reports on
Form 10-Q for its fiscal quarters ended March 30, June 30 and September 30, in
each of such fiscal years and for the fiscal year ended December 31, 1988 (the
"10-Qs") as filed with the Securities and Exchange Commission (the "SEC").
Neither the 10-Ks, the 10-Qs, nor any other documents filed by the Company with
the SEC, as of the dates they were respectively filed, contained any untrue
statement of a material fact or omitted to state a 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. Each of the 10-Ks
and 10-Qs complied with all applicable rules of the SEC.
SECTION 2.20 Offering of the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares and the Preferred Shares. Neither the
Company nor any person authorized or employed by the Company as agent, broker,
dealer or otherwise in connection with the offering or sale of the Notes, the
Warrants, the Common Conversion Shares, the Preferred Conversion Shares or the
Preferred Shares or any security of the Company similar to the Notes, the
Warrants, the Common Conversion Shares, the Preferred Conversion Shares or the
Preferred Shares has offered the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares or the Preferred Shares or any such
similar security for sale to, or solicited any offer to buy the Notes, the
Warrants, the Common Conversion Shares, the Preferred Conversion Shares or the
Preferred Shares or any such similar security from, or otherwise approached or
negotiated with respect thereto with, any person or persons, and neither the
Company nor any person acting on its behalf has taken or will take any other
action (including, without limitation, any offer, issuance or sale of any
security of the Company under circumstances which might require the integration
of such security with the Notes, the Warrants, the Common Conversion Shares, the
Preferred Conversion Shares or the Preferred Shares under the Securities Act or
the rules and regulations of the Commission thereunder), in either case so as to
subject the offering, issuance or sale of the Notes, the Warrants, the Common
Conversion Shares, the Preferred Conversion Shares or the Preferred Shares to
the registration provisions of the Securities Act.
SECTION 2.21 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 Officers. Set forth in Schedule II is a list of the names
of the officers of the Company, together with the title or job classification of
each such person
<PAGE>
-24-
and the total compensation anticipated to be paid to each such person by the
Company and its subsidiaries in 1989. None of such persons has an employment
agreement or understanding, whether oral or written, with the Company or any of
its subsidiaries, which is not terminable on notice by the Company or such
subsidiary without cost or other liability to the Company or such subsidiary.
SECTION 2.23 Transactions With Affiliates. No director, officer,
employee or holder of five (5%) percent or more of the outstanding Common Stock
of the Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Company, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm.
SECTION 2.24 Employees. Each of the officers of the Company, each key
employee and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employment Agreement
substantially in the form of Exhibit G (collectively, the "Employment
Agreements"), and such agreements are in full force and effect. No officer or
key employee of the Company has advised the Company (orally or in writing) that
he intends to terminate employment with the Company. The Company has complied in
all material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes, and
with the Employee Retirement Income Security Act of 1974, as amended.
SECTION 2.25 U.S. Real Property Holding Corporation. The Company is not
now and has never been a "United States real property holding corporation", as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
SECTION 2.26 Authorization of Stockholders' Meeting. The Board of
Directors of the Company has done all such things and taken all such action as
is necessary under the laws of the State of New York, the Charter, the By-laws
of the Company, and any agreement, indenture or instrument to which the Company
is a party or by which it is bound, to approve the Charter Amendment, to
recommend and submit the Charter Amendment to the stockholders for their
approval at the Stockholders' Meeting and to call the Stockholders' Meeting for
the purpose of approving the Charter Amendment.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
<PAGE>
-25-
Each Purchaser severally represents and warrants to the Company that:
(a) it is an "accredited investor" within the meaning of Rule
501 under the Securities Act and was not organized for the specific
purpose of acquiring the Notes and the Warrants;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of its
investment in the Company and it is able financially to bear the risks
thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
management;
(d) the Notes and the Warrants being purchased by it are being
acquired for its own account for the purpose of investment and not with
a view to or for sale in connection with any distribution thereof; and
(e) it understands that (i) the Notes, the Warrants, the
Common Conversion Shares, the Preferred Conversion Shares and the
Preferred Shares have not been registered under the Securities Act by
reason of their issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2) thereof or
Rule 505 or 506 promulgated under the Securities Act, (ii) the Notes
and the Warrants and, upon conversion or exercise thereof, the Common
Conversion Shares the Preferred Conversion Shares and the Preferred
Shares must be held indefinitely unless a subsequent disposition
thereof is registered under the Securities Act or is exempt from such
registration, (iii) the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares and the Preferred Shares will
bear a legend to such effect and (iv) the Company will make a notation
on its transfer books to such effect.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS
OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Notes and
Warrants being purchased by it on the Closing Date is, at its option, subject to
the satisfaction, on or before the Closing Date, of the following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from Murtagh, Cohen & Byrne, counsel for the Company, an opinion dated the
Closing Date, in form and scope satisfactory to the Purchasers and their
counsel, to the effect that:
<PAGE>
-26-
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of its respective
jurisdiction of incorporation. The Company has no subsidiaries. The
Company is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which the
nature of the business transacted by it or the character of the
properties owned or leased by it requires such licensing or
qualification. The Company has the corporate power and authority to own
and hold its properties and to carry on its business as currently
conducted and as proposed to be conducted. The Company has the
corporate power and authority to execute, deliver and perform this
Agreement, the Registration Rights Agreement and the Stock Restriction
Agreement, to issue, sell and deliver the Notes and the Warrants, to
issue and deliver the Common Conversion Shares upon exercise of the
Warrants and conversion of the Notes and, upon the approval of the
Charter Amendment at the Stockholders' Meeting and the filing of the
Charter Amendment with the Secretary of the State of New York, to issue
and deliver the Preferred Conversion Shares upon conversion of the
Preferred Shares and to issue and deliver the Preferred Shares upon
conversion of the Notes.
(ii) This Agreement, the Notes, the Warrants, the Registration
Rights Agreement and the Stock Restriction Agreement have been duly
authorized, executed and delivered by the Company and constitute the
legal, valid and binding obligations of the Company, enforceable in
accordance with their respective terms (subject, as to enforcement of
remedies, to the discretion of courts in awarding equitable relief, and
to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally), except that
such counsel need not express any opinion as to the validity or
enforceability of the indemnification and contribution provisions of
the Registration Rights Agreement.
(iii) The execution and delivery by the Company of this
Agreement, the Notes, the Warrants, the Registration Rights Agreement
and the Stock Restriction Agreement, the performance by the Company of
its obligations hereunder and thereunder, the issuance, sale and
delivery of the Notes and the Warrants, the issuance and delivery of
the Common Conversion Shares upon exercise of the Warrants and
conversion of the Notes, and, upon approval of the Charter Amendment at
the Stockholders' Meeting and the filing of the Charter Amendment with
the Secretary of State of the State of New York, the issuance and
delivery of the Preferred Conversion Shares upon conversion of the
Preferred Shares and the issuance and delivery of the Preferred Shares
upon conversion of the Notes, will not violate any provision of law,
the Charter, the Charter as proposed to be amended by the Charter
Amendment, or By-laws, as amended, of the Company, any order of any
court or other agency of government or any indenture, agreement or
other instrument known to such counsel to which the Company or any of
its properties or assets is bound, or conflict with, result in a breach
of or constitute (with due notice or lapse of time or both) a default
under
<PAGE>
-27-
any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties of
assets of the Company. In rendering the foregoing opinion, such counsel
may assume full disclosure to the Purchasers of all material facts and,
with respect to performance by the Company of its obligations under the
Registration Rights Agreement, may assume compliance by the Company at
such time with the registration requirements of the Securities Act and
with applicable state securities laws and may disclaim any opinion as
to the validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
(iv) The authorized capital stock to the Company consists of
5,000,000 shares of Common Stock, 1,000 shares of Class A Stock and
1,000 shares of Class B Stock. Immediately prior to the Closing,
2,788,829 shares of Common Stock no shares of Class A Stock and no
shares of Class B Stock will be validly issued, fully paid and
nonassessable with no personal liability attaching to the ownership
thereof except for any liability that may be imposed by applicable
state statutes upon stockholders for wages or similar claims.
Immediately prior to the Closing, the stockholders of record holding
more than five (5%) percent of the outstanding Common Stock and holders
of record of subscriptions, warrants, options, convertible securities,
and other rights (contingent or other) to purchase or otherwise acquire
equity securities of the Company, and the number of shares of Common
Stock and the number of such subscriptions, warrants, options,
convertible securities, and other such rights held by each, will be as
set forth in Schedule IV. The designations, powers, preferences,
rights, qualifications, limitations and restrictions in respect of the
Common Stock, the Class A Stock and the Class B Stock are as set forth
in the Charter, and all such designations, powers, preferences, rights,
qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of courts in awarding equitable relief
and to applicable bankruptcy, reorganization, insolvency, moratorium
and similar laws affecting the rights of creditors generally). Upon the
filing of the Charter Amendment with the Secretary of State of the
State of New York, the designations, powers, preferences, rights,
qualifications, limitations and restrictions in respect of the
Preferred Stock will be as set forth in the Charter Amendment, and all
such designations, powers, preferences, rights, qualifications,
limitations and restrictions will be valid, binding, enforceable and in
accordance with all applicable laws (subject, as to enforcement, to the
discretion of courts in awarding equitable relief and to applicable
bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting the rights of creditors generally). Except as set forth in
Schedule IV, to the knowledge of such counsel, immediately prior to the
Closing no subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or acquire equity
securities of the Company will be authorized or outstanding and there
will be no commitment by the Company to issue shares, subscriptions,
warrants, options,
<PAGE>
-28-
convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of indebtedness or
asset. Except as set forth in Schedule IV or as provided for in the
Charter, to the knowledge of such counsel the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of
its equity securities or any interest therein or to pay any dividend or
make any other distribution in respect thereof.
(v) The Notes, the Warrants, and the Common Conversion Shares
have been and, upon the approval of the Charter Amendment at the
Stockholders' Meeting and the filing of the Charter Amendment with the
Secretary of State of the State of New York, the Preferred Conversion
Shares and the Preferred Shares will be, duly authorized, The issuance,
sale and delivery of the Notes and the Warrants and the issuance and
delivery of Common Conversion Shares upon exercise of the Warrants and
conversion of the Notes, have been and, upon the approval of the
Charter Amendment at the Stockholders' Meeting and the filing of the
Charter Amendment with the Secretary of State of the State of New York,
the issuance of the Preferred Shares upon conversion of the Notes and
the issuance of the Preferred Conversion Shares upon conversion of the
Preferred Shares will be, duly authorized by all required corporate
action; the Notes and the Warrants have been validly issued with no
personal liability attaching to the ownership thereof and, to the
knowledge of such counsel, are free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company
except as set forth in the Registration Rights Agreement; and the
Common Conversion Shares have been and, upon the approval of the
Charter Amendment at the Stockholders' Meeting and the filing of the
Charter Amendment with the Secretary of State of the State of New York,
the Preferred Conversion Shares and the Preferred Shares will be, duly
reserved for issuance upon exercise of the Warrants or conversion of
the Preferred Shares or the Notes, as the case may be and, when so
issued, will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof except for any
liability that may be imposed by applicable state statutes upon
stockholders for wages or similar claims and, to the knowledge of such
counsel, will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company except as set
forth in the Registration Rights Agreement. Neither the issuance, sale
or delivery of the Notes or the Warrants nor the issuance or deliver of
the Conversion Shares, the Preferred Conversion Shares or the Preferred
Shares is subject to any preemptive right of stockholders of the
Company arising under law or the Charter Amendment or By-laws of the
Company, each as amended, or, to the knowledge of such counsel, to any
contractual right of first refusal or other right in favor of any
person.
(vi) Except as described in Schedule II, to the knowledge of
such counsel there is no (A) action, suit, claim, proceeding or
investigation pending or threatened against or affecting the Company,
at law or in equity, or before or by and Federal, state, municipal or
other governmental department, commission,
<PAGE>
-29-
board, bureau, agency or instrumentality, domestic or foreign, (B)
arbitration proceeding relating to the Company pending under collective
bargaining agreements or (C) governmental inquiry pending or threatened
against or affecting the Company (including, without limitation, any
inquiry as to the qualification of the Company to hold or receive any
license or permit). To the knowledge of such counsel, the Company is
not in default with respect to any order, writ, injunction or decree
known to such counsel of any court or of any Federal, state, municipal
or other governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
(vii) To the knowledge of such counsel, no third party has
claimed that any person employed by or affiliated with the Company has
violated or may be violating any of the terms or conditions of his
employment, non-competition or non-disclosure agreement with such third
party, or disclosed or may be disclosing or utilized or may be
utilizing any trade secret or proprietary information or documentation
of such third party or interfered or may be interfering in the
employment relationship between such third party and any of its present
or former employees.
(viii) Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III, no registration
or filing with, and no consent or approval of, or other action by any
Federal, state or other governmental agency or instrumentality is or
will be necessary for the valid execution, delivery and performance by
the Company of this Agreement, the Notes, the Warrants, the
Registration Rights Agreement and the Stock Restriction Agreement, the
issuance, sale and delivery of the Notes or the Warrants or, upon
conversion or exercise thereof, the issuance and delivery of the Common
Conversion Shares, the Preferred Conversion Shares or the Preferred
Shares, other than (i) in the case of the Preferred Conversion Shares
and the Preferred Shares, the filing of the Charter Amendment with the
Secretary of State of New York and (ii) filings pursuant to state
securities laws (all of which filings have been made by the Company).
In rendering the foregoing opinion with respect to performance by the
Company of its obligations under the Registration Rights Agreement,
such counsel may assume compliance by the Company at such time with the
registration requirements of the Securities Act and with applicable
state securities laws and may disclaim any opinion as to the validity
or enforceability of the indemnification and contribution provisions of
the Registration Rights Agreement.
(ix) Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III, the issuance,
sale and delivery of the Notes and the Warrants to be sold to the
Purchasers on the Closing Date, under the circumstances contemplated by
this Agreement, are exempt from the registration requirements of the
Securities Act, and the issuance and delivery of the Common Conversion
Shares, the Preferred Conversion Shares and the Preferred Shares
<PAGE>
-30-
upon exercise of the Warrants and conversion of the Preferred Shares
and the Notes, as the case may be, as contemplated hereby, will be
exempt from such requirements.
(x) All of the outstanding shares of Common Stock have been
issued in compliance with the registration requirements of the
Securities Act and all applicable state securities laws.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(c) Performance. The Company shall have performed and complied with all
agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Treasurer of the Company
shall have certified to the Purchasers in writing to such effect and to the
further effect that all of the conditions set forth in this Article IV have been
satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transactions
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(e) Purchase by Other Purchasers. Each Purchaser shall have purchased
and paid for the Notes and Warrants being purchased by it on the Closing Date,
and the aggregate purchase price paid by all of the Purchasers for the Notes and
Warrants being purchased by them on the Closing Date shall be at least
$1,000,000.
(f) Supporting Documents. The Purchasers and their counsel shall have
received copies of the following documents:
(i) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying: (A) that attached
thereto is a true and complete copy of the Charter and By-laws of the
Company as in effect on the date of such certification; (B) as to the
due incorporation and good standing of the Company and listing all
documents of the Company on file with the Secretary of State of the
State of New York; (C) that attached thereto is a true and complete
copy of all resolutions adopted by the Board of Directors or the
stockholders of the Company approving the Charter Amendment, calling
the Stockholders' Meeting and authorizing the execution, delivery and
performance of this Agreement, the Notes, the Warrants, the
Registration Rights Agreement and the
<PAGE>
-31-
Stock Restriction Agreement, the issuance, sale and delivery of the
Notes and Warrants and the reservation, issuance and delivery of the
Common Conversion Shares, Preferred Conversion Shares and the Preferred
Shares, and that all such resolutions are in full force and effect and
are all the resolutions adopted in connection with the transactions
contemplated by this Agreement, the Notes, the Warrants, contemplated
by this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and the Stock Restriction Agreement; (D) that the Charter has
not been amended since the date of the last amendment referred to in
the certificate delivered pursuant to clause (B) above; (E) to the
incumbency and specimen signature of each officer of the Company
executing this Agreement, the Notes, the Warrants, the Registration
Rights Agreement or any of the Stock Restriction Agreement and any
certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency
and signature of the officer signing the certificate referred to in
this clause (i); (F) that the Company shall deliver to the Purchasers,
as soon as practicable after the Closing, the Charter, certified as of
a recent date by the Secretary of State of the State of New York and a
certificate of said Secretary dated as of a recent date as to the due
incorporation and good standing of the Company, the payment of all
excise taxes by the Company and listing all documents of the Company on
file with said Secretary;
(ii) a certificate of the Treasurer of the Company dated the
Closing Date and certifying as to the payment of all excise taxes by
the Company; and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company
as the Purchasers or their counsel reasonably may request.
(g) Registration Rights Agreement. The Company shall have executed and
delivered the Registration Rights Agreement.
(h) Election of Directors. The number of directors constituting the
entire Board of Directors shall have been fixed at six (6) and the following
persons shall have been elected as the directors and shall each hold such
position as of the Closing Date: Harvey Cohen, John R. Hoover, Kennard H.
Morganstern, Yoshiyuki Naqashima and Albert T. Sommers as the directors elected
solely by the holders of the Common Stock and Kenneth W. Rind as the director
nominated by the holders of the Notes and the Warrants.
(i) Stock Restriction Agreement. The Stock Restriction Agreement shall
have been executed and delivered by the Company and Kennard H. Morganstern.
(j) Employment Agreements. Copies of the Employment Nondisclosure and
Developments Agreements shall have been delivered to counsel for the Purchasers.
<PAGE>
-32-
(k) Preemptive Rights. All stockholders of the Company having any
preemptive, first refusal or other rights with respect to the issuance of the
Notes, the Warrants, the Conversion Shares, the Preferred Conversion Shares or
the Preferred Shares shall have irrevocably waived the same in writing.
(l) Waivers and Consents. The Company shall have obtained, in form and
substance satisfactory to the Purchasers, any and all waivers and consents
required under any agreement, indenture or instrument to which the Company is a
party or by which it is bound and shall have delivered copies of any such
waivers and consents to the Purchasers and their counsel, including, without
limitation, (i) the Loan Agreement dated as of July 7, 1985 between the Company
and Edward Weck & Company, Inc., as amended, (ii) the Term Loan Agreement dated
as of June 30, 1986 between the Company and The Bank of New York, as amended and
(iii) the Agreement dated as of May 11, 1983 between the Company and American
Sterilizer Company.
(m) Fees of Purchasers' Counsel. The Company shall have paid in
accordance with Section 7.01 the fees and disbursements of Purchasers' counsel
invoiced at the Closing.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
Except as set forth in Section 5.26, the Company covenants and agrees
with each of the Purchasers that so long as any of the Notes, the Warrants, the
Preferred Shares or the Common Conversion Shares issued upon conversion of the
Notes are outstanding:
SECTION 5.01 Financial Statements, Reports, Etc. The Company shall
furnish to each Purchaser:
(a) as soon as possible and in any event within five (5) days
after the occurrence of each Event of Default or each event which, with
the giving of notice or lapse of time or both, would constitute an
Event of Default, the statement of the Chief Financial Officer of the
Company setting forth details of such Event of Default or event and the
action which the Company proposes to take with respect thereto;
(b) within ninety (90) days after the end of each fiscal year
of the Company a balance sheet of the Company as of the end of such
fiscal year and the related statements of income, stockholders' equity
and changes in financial position for the fiscal year then ended,
prepared in accordance with generally accepted accounting principals
and certified by a firm of independent public
<PAGE>
-33-
accounts of recognized national standing selected by the Board of
Directors of the Company;
(c) within forty-five (45) days after the end of each fiscal
quarter in each fiscal year (other than the last fiscal quarter in each
fiscal year) a balance sheet of the Company and the related statements
of income, stockholders' equity and changes in financial position,
unaudited but prepared in accordance with generally accepted accounting
principals and certified by the Chief Financial Officer of the Company,
such balance sheet to be as of the end of such fiscal quarter and such
statements of income, stockholders' equity and changes in financial
position to be for such fiscal quarter and for the period from the
beginning of the fiscal year to the end of such fiscal quarter, in each
case with comparative statements for the corresponding period in the
prior fiscal year;
(d) at the time of delivery of each annual financial statement
pursuant to Section 5.01(b), a certificate executed by the Chief
Financial Officer of the Company stating that such officer has caused
this Agreement, the Notes and the Warrants, and, upon the issuance
thereof, the Common Conversion Shares, the Preferred Conversion Shares
and the Preferred Shares, to be reviewed and has no knowledge of any
default by the Company in the performance or observance of any of the
provisions of this Agreement, the Notes or the Warrants or, upon the
issuance thereof, the Common Conversion Shares, the Preferred
Conversion Shares or the Preferred Shares or, if such officer has such
knowledge, specifying such default and the nature thereof; and
(e) promptly, from time to time, such other information
regarding the business, prospects, financial condition, operations,
property or affairs of the Company and its subsidiaries as such
Purchaser reasonably may request.
SECTION 5.02 Right of First Refusal. The Company shall, prior to any
issuance by the Company of any of its securities (other than debt securities
with no equity feature), offer to each Purchaser by written notice the right,
for a period of thirty (30) days, to purchase all of such securities for cash at
an amount equal to the price or other consideration for which such securities
are to be issued; provided, however, that the first refusal rights of the
Purchasers pursuant to this Section 5.02 shall not apply to securities issued
(A) upon conversion of any of the notes or the Preferred Conversion Shares or
exercise of any of the Warrants, (B) as a stock dividend or upon any subdivision
of shares of Common Stock, provided that the securities issued pursuant to such
stock dividend or subdivision are limited to additional shares of Common Stock,
(C) pursuant to subscriptions, warrants, options, convertible securities, or
other rights which are listed in Schedule IV as being outstanding on the Closing
Date, (D) solely in consideration for the acquisition (whether by merger or
otherwise) by the Company or any of its subsidiaries of all or substantially all
of the stock or assets of any other entity, (E) pursuant to a firm commitment
underwritten public offering, (F) pursuant to the exercise of options to
purchase Common Stock granted to employees of the Company, not to exceed in the
<PAGE>
-34-
aggregate 500,000 shares (appropriately adjusted to reflect stock splits, stock
dividends, combinations of shares and the like with respect to the Common Stock)
less the number of shares (as so adjusted) issued pursuant to options
outstanding on the date of this Agreement and listed in Schedule IV pursuant to
clause (C) above (the shares exempted by this clause (F) being hereinafter
referred to as the "Reserved Employee Shares"), and (G) upon the exercise of any
right which was not itself in violation of the terms of this Section 5.02. The
Company's written notice to the Purchasers shall describe the securities
proposed to be issued by the Company and specify the number, price and payment
terms. Each Purchaser may accept the Company's offer as to the full number of
securities offered to it or any lesser number, by written notice thereof given
by it to the Company prior to the expiration of the aforesaid thirty (30) day
period, in which event the Company shall promptly sell and such Purchaser shall
buy, upon the terms specified, the number of securities agreed to be purchased
by such Purchaser. Notwithstanding the foregoing, if the Purchasers agree, in
the aggregate, to purchaser more than the full number of securities offered by
the Company, then each Purchaser accepting the Company's offer shall first be
allocated the lesser of (i) the number of securities which such Purchaser agreed
to purchase and (ii) the number of securities as is equal to the full number of
securities offered by the Company multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock held by such Purchaser as of
the date of the Company's notice of offer (treating such Purchaser, for the
purpose of such calculation, as the holder of the number of shares of Common
Stock which would be issuable to such Purchaser upon conversion, exercise or
exchange of all securities (including but not limited to the Preferred Shares)
held by such Purchaser on the date such offer is made, that are convertible,
exercisable or exchangeable into or for (whether directly or indirectly) shares
of Common Stock) and the denominator of which shall be the aggregate number of
shares of Common Stock (calculated as aforesaid) held on such date by all
Purchasers who accepted the Company's offer, and the balance of the securities
(if any) offered by the Company shall be allocated among the Purchasers
accepting the Company's offer in proportion to their relative equity ownership
interests in the Company (calculated as aforesaid), provided that no Purchaser
shall be allocated more than the number of securities which such Purchaser
agreed to purchase and provided further that in cases covered by this sentence
all Purchasers shall be allocated among them the full number of securities
offered by the Company. The Company shall be free at any time prior to ninety
(90) days after the date of its notice of offer to the Purchasers, to offer and
sell to any third party or parties the number of such securities not agree by
the Purchasers to be purchased by them, at a price and on payment terms no less
favorable to the Company than those specified in such notice of offer to the
Purchasers. However, if such third party sale or sales are not consummated
within such ninety (90) day period, the Company shall not sell such securities
as shall not have been purchased within such period without again complying with
this Section 5.02.
SECTION 5.03 Reserve for Preferred shares, Common Conversion Shares and
Preferred Conversion Shares. The Company shall at all time reserve and keep
available out of its authorized but unissued shares of Common Stock and, upon
the approval of the Charter Amendment at the Stockholders' Meeting and the
filing of the Charter
<PAGE>
-35-
Amendment with the Secretary of State of the State of New York, out of its
authorized but unissued shares of Preferred Stock, for the purpose of effecting
the exercise of the Warrants and the conversion of the Preferred Shares and the
Notes, and otherwise complying with the terms of this Agreement, such number of
its duly authorized shares of Common Stock and Preferred Stock as shall be
sufficient to effect the exercise of the Warrants and the Conversion of the
Preferred Shares and Notes, from time to time outstanding or otherwise to comply
with the terms of this Agreement. If at any time the number of authorized but
unissued shares of Common Stock and/or Preferred Stock shall not be sufficient
to effect the exercise of the Warrants and the conversion of the Preferred
Shares and the Notes, or otherwise to comply with the terms of this Agreement,
the Company will forthwith take such corporate action as may be necessary to
increase its authorize but unissued shares of Common Stock and/or Preferred
Stock to such number of shares as shall be sufficient for such purposes. The
Company will obtain any authorization, consent, approval or other action by or
make any filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock and Preferred Stock upon the exercise of the Warrants and the
conversion of the Preferred Shares and the Notes.
SECTION 5.04 Corporate Existence. The Company shall maintain and cause
any subsidiary which it may create to maintain their respective corporate
existence, rights and franchises in full force and effect.
SECTION 5.05 Properties, Business, Insurance. The Company shall
maintain and cause any subsidiary which it may create to maintain as to their
respective properties and business, with financially sound and reputable
insurers, insurance against such casualties and contingencies and of such types
and in such amounts as is customary for companies similarly situated, which
insurance shall be deemed by the Company to be sufficient. The Company shall
also maintain in effect a "key person" life insurance policy, payable to the
Company, on the life of Kennard H. Morganstern (so long as he remains an
employee of the Company), in the amount of $1,000,000. The Company shall not
cause or permit any assignment or change in beneficiary and shall not borrow
against any such policy. If requested by Purchasers holding at least a majority
of the outstanding Notes and Warrants, the Company will add one designee of such
Purchasers as a notice party for each such policy and shall request that the
issuer of each policy provide such designee with ten (10) days' notice before
such policy is terminated (for failure to pay premiums or otherwise) or assigned
or before any change is made in the beneficiary thereof.
SECTION 5.06 Inspection, Consultation and Advice. The Company shall
permit and cause any subsidiary which it may create to permit each Purchaser and
such persons as it may designate, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and any such subsidiary, examine
their books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company and any such subsidiary with their
officers, employees and public accountants (and the Company hereby authorizes
said accountants to discuss with such Purchaser and such designees
<PAGE>
-36-
such affairs, finances and accounts), and consult with and advise the management
of the Company and any such subsidiary as to their affairs, finances and
accounts, all at reasonable times and upon reasonable notice.
SECTION 5.07 Restrictive Agreements Prohibited. Neither the Company nor
any subsidiary which it may create shall become a party to any agreement which
by its terms restricts the Company's performance of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement or the Charter.
SECTION 5.08 Transaction with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any subsidiary which it may create shall
enter into any transaction with any director, officer, employee or holder of
more than 5% of the outstanding capital stock of any class or series of capital
stock of the Company or any subsidiary which it may create, member of the family
of any such person, or any corporation, partnership, trust or other entity in
which any such person, or member of the family of any such person, is a
director, officer, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof, except for transactions on customary terms related to
such person's employment.
SECTION 5.09 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was nominated by the holders of the Notes and the Warrants, or,
upon the approval of the Charter Amendment at the Stockholders' Meeting, the
filing of the Charter Amendment with the Secretary of State of the State of New
York and the creation of the Preferred Stock, elected by the holders of the
Preferred Shares, for all of his reasonable out-of-pocket expenses incurred in
attending each meeting of the Board of Directors of the Company or any Committee
thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds from
the sale of the Notes and the Warrants solely (i) for the repayment of $260,000
in principal amount of debt to Edward Weck & Company, Inc., ("Weck") pursuant to
the Supply Agreement dated as of July 7, 1985 between the Company and Weck, (ii)
for the repayment of $300,000 of principal amount of debt to Medical Investment
Associates and Robert Liebowitz and (iii) for working capital.
SECTION 5.11 Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at least
four times each year and at least once each quarter. The Company shall permit
each Purchaser who holds of record or beneficially at least twenty-five (25%)
percent of the Common Conversion Shares and Preferred Conversion Shares issued
or issuable upon exercise of the Warrant or conversion of the Notes or the
Preferred Shares or its designee to have one representative attend each meeting
of the Board of Directors of the Company and each meeting of any committee
thereof and to participate in all discussions during each such meeting. The
Company shall send to each such Purchaser and designee the notice of the
<PAGE>
-37-
time and place of such meeting in the same manner and at the same time as it
shall send such notice to its directors or committee members, as the case may
be. The Company shall also provide to each such Purchaser and designee copies of
all notices, reports, minutes and consents at the time and in the manner as they
are provided to the Board of Directors or committee, except for information
reasonably designated as classified information by the Board of Directors.
SECTION 5.12 Compensation. The Company shall not pay to its management
compensation in excess of that compensation customarily paid to management in
companies of similar size, of similar maturity, and in similar businesses.
SECTION 5.13 By-laws. The Company shall at all times cause its By-laws
to provide that unless otherwise required by the laws of the State of New York,
(i) any two directors and (ii) the director nominated by the holders of the
Notes and the Warrants, or, upon the approval of the Charter Amendment at the
Stockholders' Meeting, the filing of the Charter Amendment with the Secretary of
State of the State of New York and the creation of the Preferred Stock, elected
by the holders of the Preferred Shares, shall have the right to call a meeting
of the Board of Directors or stockholders. The Company shall at all times
maintain provisions in its By-laws and/or Charter indemnifying all directors
against liability and absolving all directors from liability to the Company and
its stockholders to the maximum extent permitted under the laws of the State of
New York.
SECTION 5.14 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employment Agreement without the consent of that member of the Company's Board
of Directors nominated by the holders of the Notes and the Warrants or, upon the
approval of the Charter Amendment at the Stockholders' Meeting, the filing of
the Charter Amendment with the Secretary of State of the State of New York and
the creation of the Preferred Stock, elected by the holders of the Preferred
Shares.
SECTION 5.15 Vesting of Reserved Employee Shares. The Company shall not
grant to any of its employees options to purchase Reserved Employee Shares which
will become exercisable at a rate in excess of 20% per annum from the date of
such grant without the unanimous written consent of that member of the Company's
Board of Directors nominated by the holders of the Notes and the Warrants or,
upon the approval of the Charter Amendment at the Stockholders' Meeting, the
filing of the Charter Amendment with the Secretary of State of the State of New
York and the creation of the Preferred Stock, elected by the holders of the
Preferred Shares.
SECTION 5.16 Employment Agreements. The Company shall use its best
efforts to obtain, and shall cause its subsidiaries to use their best efforts to
obtain, an Employment Agreement in substantially the form of Exhibit G from all
future officers, key employees and other employees who will have access to
confidential information of the Company or any of its subsidiaries, upon their
employment by the Company or any of its subsidiaries.
<PAGE>
-38-
SECTION 5.17 Mergers, Sale of Assets, Etc. of Subsidiaries. The Company
shall not permit any subsidiary which it may create to consolidate or merge into
or with or sell or transfer all or substantially all its assets, except that any
such subsidiary may (i) consolidate or merge into or with or sell or transfer
assets to any other such subsidiary, or (ii) merge into or sell or transfer
assets to the Company.
SECTION 5.18 Maintenance of Ownership of Subsidiaries. The Company
shall not sell or otherwise transfer any shares of capital stock of any
subsidiary which it may create, except to the Company or another such
subsidiary, or permit any such subsidiary to issue, sell or otherwise transfer
any shares of its capital stock or the capital stock of any such subsidiary,
except to the Company or another such subsidiary.
SECTION 5.19 Distributions by Subsidiaries. The Company shall not
permit any subsidiary which it may create to purchase or set aside any sums for
the purchase of, or pay any dividend or make any distribution on, any shares of
its stock, except for dividends or other distributions payable to the Company or
another such subsidiary.
SECTION 5.20 Compliance with Laws. The Company shall comply, and cause
any subsidiary which it may create to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise.
SECTION 5.21 Keeping of Records and Books of Account. The Company shall
keep, and cause any subsidiary which it may create to keep, adequate records and
books of account in which complete entries will be made in accordance with
generally accepted accounting principles consistently applied, reflecting all
financial transactions of the Company and such subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.22 Change in Nature of Business. The Company shall not make,
or permit any subsidiary which it may create to make, any material change in the
nature of its business as set forth in the Business Plan.
SECTION 5.23 U.S. Real Property Interest Statement. Upon a written
request by any Purchaser, the Company shall provide such Purchaser with a
written statement informing the Purchaser whether such Purchaser's interest in
the Company constitutes a U.S. real property interest. The Company's
determination shall comply with the requirements of Treasury Regulation section
1.897-2(h)(1) or any successor regulation, and the Company shall provide timely
notice to the Internal Revenue Service, in accordance with and to the extent
required by Treasury Regulation Section 1.897-2(h)(2) or any successor
regulation, that such statement has been made. The Company's written statement
to any Purchaser shall be delivered to such Purchaser within ten (10) days of
such Purchaser's written request therefor. The Company's obligation to furnish a
written
<PAGE>
-39-
statement pursuant to this Section 5.24 shall continue notwithstanding the fact
that a class of the Company's stock may be regularly traded on an established
securities market.
SECTION 5.24 Punctual Payment. The Company shall pay the principal of
and interest on each of the Notes at the times and place and in the manner
provided in the Notes and herein.
SECTION 5.25 Authorization of Preferred Stock. The Company will use its
best efforts to cause, on or before June 30, 1989, the adoption at the
Stockholder Meeting of the Charter Amendment, including the authorization of the
Preferred Stock, such efforts to include soliciting the proxies of the Company's
stockholders to approve such authorization and filing.
SECTION 5.26 Restrictions. At any time when the Notes or the Common
Conversion Shares issued upon conversion of the Notes are outstanding, except
where the vote or written consent of the holders of a greater number of shares
of the Corporation is required by law or by the Charter, and in addition to any
other vote required by law or the Charter, without the approval of the holders
of at least two-thirds of the Common Conversion Shares issued or issuable upon
conversion of the Notes.
(a) Create or authorize the creation of any additional class or series
of shares of stock, except for the Preferred Stock, or increase the authorized
amount of the Preferred Stock to an amount in excess of that set forth in the
Charter Amendment or increase the authorized amount of any additional class or
series of shares of stock or create or authorize any obligation or security
convertible into shares of Preferred Stock or into shares of any other class or
series of stock, except for the Preferred Stock, whether any such creation,
authorization or increase shall be by means of amendment to the Charter or by
merger, consolidation or otherwise;
(b) Consent to any liquidation, dissolution or winding up of the
Company or consolidate or merge into or with any other entity or entities or
sell or transfer all or substantially all its assets;
(c) Amend, alter or repeal the Charter or By-laws of the Company in a
manner which adversely affects the rights of the holders of the Note, the
Warrants, the Common Conversion Shares or the Preferred Conversion Shares;
(d) Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock, except for dividends
or other distributions payable on the Common Stock solely in the form of
additional shares of Common Stock and except for the purchase of shares of
Common stock from former employees of the Company who acquired such shares
directly from the Company, if each such purchase is made pursuant to contractual
rights held by the Company relating to the termination of employment of such
former employee and the purchase price does not exceed the original issue price
paid by such former employee to the Company for such shares; or
<PAGE>
-40-
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01 Events of Default. If any of the following events ("Events
of Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of principal of any
of the Notes when due; or
(b) The Company shall default in the performance of any covenant
contained herein for ten (10) days; or
(c) Any representation or warranty made by the Company in this
Agreement or by the Company (or any officers of the Company) in any certificate,
instrument or written statement contemplated by or made or delivered pursuant to
or in connection with this Agreement, shall prove to have been incorrect when
made in any material respect; or
(d) The Company shall fail to perform or observe any other term,
covenant or agreement contained in this Agreement, the Notes or the Warrants on
its part to be performed or observed and any such failure remains unremedied for
ten (10) business days after written notice thereof shall have been given to the
Company by any registered holder of the Notes; or
(e) The Company shall fail to pay any Indebtedness for borrowed money
(other than as evidenced by the Notes) owing by the Company or any interest or
premium thereon, when due (or, if permitted by the terms of the relevant
document, within any applicable grace period), whether such Indebtedness shall
become due by scheduled maturity, by required prepayment, by acceleration, by
demand or otherwise, or shall fail to perform any term, covenant or agreement on
its part to be performed under any agreement or instrument (other than this
Agreement or the Notes) evidencing or securing or relating to any Indebtedness
owing by the Company when required to be performed (or, if permitted by the
terms of the relevant document, within any applicable grace period), if the
effect of such failure to pay or perform is to accelerate, or to permit the
holder or holders of such Indebtedness, or the trustee or trustees under any
such agreement or instrument to accelerate, the maturity of such Indebtedness,
unless such failure to pay or perform shall be waived by the holder or holders
of such Indebtedness or such trustee or trustees; or
(f) The Company shall be involved in financial difficulties as
evidenced (i) by its admitting in writing its inability to pay its debts
generally as they become due; (ii) by its commencement of a voluntary case under
title 11 of the United States Code as from time to time in effect, or by its
authorizing, by appropriate proceedings of its Board of Directors or governing
body, the commencement of such a voluntary case; (iii) by its
<PAGE>
-41-
filing an answer or other pleading admitting or failing to deny the material
allegations of a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the relief therein
provided, or by its failing to controvert timely the material allegations of any
such petition; (iv) by the entry of an order for relief in any involuntary case
commenced under said Title 11, and such order shall not be released or vacated
within twenty (20) days after its entry; (v) by its seeking relief as a debtor
under any applicable law, other than said Title 11, of any jurisdiction relating
to the liquidation or reorganization of debtors or to the modification or
alternation of the rights of creditors, or by its consenting to or acquiescing
in such relief; (vi) by the entry of an order by a court of competent
jurisdiction (a) finding it to be bankrupt or insolvent, (b) ordering or
approving its liquidation, reorganization or any modification or alteration of
the rights of its creditors, or (c) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its property, and
such order shall not be released or vacated within twenty (20) days after its
entry or (vii) by its making an assignment for the benefit of, or entering into
a composition with, its creditors, or appointing or consenting to the
appointment of a receiver or other custodian for all or a substantial part of
its property; or
(g) Any judgment, writ, warrant of attachment or execution or similar
process shall be issued or levied against a substantial part of the property of
the Company and such judgment, writ, or similar process shall not be released,
vacated or fully bonded within sixty (60) days after its issue or levy;
then, and in any such event, the Purchaser or any other holder of the Notes may,
by notice to the Company, declare the entire unpaid principal amount of the
Notes, all interest accrued and unpaid thereon and all other amounts payable
under this Agreement to be forthwith due and payable, whereupon the Notes, all
such accrued interest and all such amounts shall become and be forthwith due and
payable (unless there shall have occurred an Event of Default under subsection
6.01(g) in which case all such amounts shall automatically become due and
payable), without presentment, demand, protest or further notice of any kind,
all of which are hereby expressly waived by the Company.
SECTION 6.02 Annulment of Defaults. Section 6.01 is subject to the
condition that, if at any time after the principal of any of the Notes shall
have become due and payable, and before any judgment or decree for the payment
of the monies so due, or any thereof, shall have been entered, all arrears of
interest upon all the Notes and all other sums payable under the Notes and under
this Agreement (except the principal of the Notes which by such declaration
shall have become payable) shall have been duly paid, and every other default
and Event of Default shall have been made good or cured, then and in every such
case the holders of seventy-five percent (75%) or more in principal amount of
all Notes then outstanding may, by written instrument filed with the Company,
rescind an annual such declaration and its consequences; but no such rescission
or annulment shall extend to or affect any subsequent default or Event of
Default or impair any right consequent thereon.
<PAGE>
-42-
ARTICLE VII
MISCELLANEOUS
SECTION 7.01 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the fees and disbursements of the Purchasers' special counsel, Testa, Hurwitz &
Thibeault, in connection with such transactions and the subsequent amendment or
enforcement thereof.
SECTION 7.02 Survival of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Agreement, the Notes, the Warrants, the Stock Restriction Agreement, or any
certificate or instrument delivered to the Purchasers pursuant to or in
connection with this Agreement, the Notes, the Warrants, the Registration Rights
Agreement or the Stock Restriction Agreement, shall survive the execution and
delivery of this Agreement, the Notes, the Warrants, the Registration Rights
Agreement and the Stock Restriction Agreement, the issuance, sale and delivery
of the Notes and Warrants, and the issuance and delivery of the Common
Conversion Shares, the Preferred Conversion Shares and the Preferred Shares and
all statements contained in any certificate or other instrument delivered by the
Company hereunder or thereunder or in connection herewith or therewith shall be
deemed to constitute representations and warranties made by the Company.
SECTION 7.03 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understanding made or
claimed to have been made by such party with any third party.
SECTION 7.04 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective successors and
assigns of the parties hereto whether so expressed or not. Without limiting the
generality of the foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and all subsequent
holders from time to time of the Notes, the Warrants, the Common Conversion
Shares, the Preferred Conversion Shares or the Preferred Shares.
SECTION 7.05 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person or
mailed by certified or registered mail, return receipt requested, or telexed in
the case of non-U.S. residents, addressed as follows:
<PAGE>
-43-
(a) if to the Company, at 225 Underhill Boulevard, Syosset,
New York 11791, Attention: President, with a copy to Harvey Cohen,
Esq., Murtagh, Cohen & Byrne, 1122 Franklin Avenue, Garden City, New
York 11530; and
(b) if to any Purchaser, at the address of such Purchaser set
forth in Schedule I, with a copy to James P. O'Hare, Esq., Testa,
Hurwitz & Thibeault, Exchange Place, 53 State Street, Boston,
Massachusetts 02109;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 7.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 7.07 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 7.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 7.09 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding Common
Conversion Shares (i) issued or issuable upon exercise of the Warrants and
conversion of the Preferred Shares in the event the Preferred Shares have been
issued to the Purchasers or (ii) issued or issuable upon exercise of the
Warrants and conversion of the Notes, in the event the Preferred Shares have not
been issued to the Purchasers.
SECTION 7.10 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 7.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 7.12 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Indebtedness" means all obligations, contingent and otherwise,
which should, in accordance with generally accepted accounting principles
consistently applied,
<PAGE>
-44-
be classified upon the obligor's balance sheet as liabilities, but in any event
including, without limitation, liabilities secured by any mortgage on property
owned or acquired subject to such mortgage, whether or not the liability secured
thereby shall have been assumed, and also including, without limitation, (i) all
guaranties, endorsements and other contingent obligations, in respect of
Indebtedness of others, whether or not the same are or should be so reflected in
said balance sheet, except guaranties by endorsement of negotiable instruments
for deposit or collection or similar transactions in the ordinary course of
business and (ii) the present value of any lease payments due under leases
required to be capitalized in accordance with applicable Statements of Financial
Accounting Standards, determined in accordance with applicable Statements of
Financial Accounting Standards.
(b) "Person" shall mean an individual, corporation, trust, partnership,
joint venture, unincorporated organization, government agency or agency or
political subdivision thereof, or entity.
(c) "Subsidiary" shall mean, as to the Company, any corporation of
which more than 50% of the outstanding stock having ordinary voting power to
elect a majority of the Board of Directors of such corporation (irrespective of
whether or not at the time stock of any other class or classes of such
corporation shall have or might have voting power by reason of the happening of
any contingency) is at the time directly or indirectly owned by the Company, or
by one or more of its subsidiaries, or by the Company and one or more of its
subsidiaries.
SECTION 7.13 Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in preparation of the
financial statements delivered pursuant to Section 2.05 hereof, and all
financial data submitted pursuant to this Agreement and all financial tests to
be calculated in accordance with this Agreement shall be prepared and calculated
in accordance with such principles.
**REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.**
<PAGE>
-45-
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
MEDICAL STERILIZATION, INC.
By:____________________
[Corporate Seal] Title:_________________
Attest:
______________________
Secretary
PURCHASERS:
OXFORD VENTURE FUND III,
LIMITED PARTNERSHIP
By: Oxford Partners III,
Limited Partnership
General Partner
By: _______________________
General Partner
OXFORD VENTURE FUND III
ADJUNCT, LIMITED PARTNERSHIP
By: Oxford Partners III A,
Limited Partnership
General Partner
By: _______________________
General Partner
<PAGE>
-46-
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
MEDICAL STERILIZATION, INC.
By:________________________
[Corporate Seal] Title:_____________________
Attest:
______________________
Secretary
PURCHASERS:
OXFORD VENTURE FUND III,
LIMITED PARTNERSHIP
By: Oxford Partners III,
Limited Partnership
General Partner
By:________________________
General Partner
OXFORD VENTURE FUND III
ADJUNCT, LIMITED PARTNERSHIP
By: Oxford Partners III A,
Limited Partnership
General Partner
By:_________________________
General Partner
393LMM5962/1.198377-1
<PAGE>
-47-
SCHEDULE I
Purchasers
Principal Aggregate
Name and Amount Warrant Purchase
Address of Purchaser of Notes Shares Price
- - -------------------- -------- ------ -----
Oxford Venture Fund III, $800,000 228,572 $800,000
Limited Partnership
266 Main Street
Stamford, CT 06902
Oxford Venture Fund III 200,000 57,143 200,000
Adjunct, Limited Partnership
266 Main Street
Stamford, CT 06902
---------- ------- ----------
$1,000,000 285,715 $1,000,000
<PAGE>
-48-
SCHEDULE II
Disclosure Schedule
Section 2.05. The loss for the nine months ended September 30, 1988 was
$164,370. The estimated loss for the year will be approximately $400,000.
Section 2.06. Since September 30, 1988, the Company has redeemed the
outstanding shares of Class A and Class B stock; has issued notes for $550,000
held by Bernard Livingston ($400,00), Constance K. Livingston ($100,000) and
Michael Morris ($50,000), maturing December 31, 1989 to replace notes which
matured December 31, 1988; has authorized the issuance of warrants to purchase
545,715 shares of common stock at $3.50 per share; has agreed to pay Weck
$260,000 on an account payable and to pay Medical Investment Associates $250,000
and Robert Liebowitz $50,000 in repayment of loans which were due December 31,
1988 and were extended by oral agreement to January 31, 1989; has negotiated
with Bank of New York for a new loan agreement, with Norstar Bank for a line of
credit and a term loan agreement, and with an investing client of Michael Morris
for a loan of $200,000. The Norstar Bank loans would require payment of Bank of
New York's loan and transfer of collateral from that bank to Norstar.
Section 2.07. The only outstanding matters in litigation are:
(1) McKenzie Associates, Inc. vs. General Sterilization
Services, Inc. (now the Company) and D.H. Blair, Inc. commenced in 1982 in The
Supreme Court of the State of New York, County of Nassau. The Company and D.H.
Blair Co., Inc. were named as defendants in an action which commenced August 17,
1983 by an investment advisor alleging failure to pay for services rendered,
breach of agreement and a conspiracy to deprive plaintiff of monies and Company
stock, and claiming damages in the amount of $112,500. The Company has agreed to
indemnify D.H. Blair & Co., Inc. for damages suffered by reason of this action.
Special counsel to the Company is of the opinion that the likelihood of an
unfavorable outcome in this litigation is remote.
(2) Shamrock Technologies, Inc. vs. Medical Sterilization, Inc.
and Robert S. Luniewski, commenced in 1988 in the United States District Court,
Eastern District of New York, Civil Action No. 88-1681. The Company and Robert
S. Luniewski, its Vice-President, were named as defendants in an action which
commenced on June 3, 1988 by a Company alleging patent infringement and breach
of an Employment Agreement and a Trade Secret Agreement. The Complainant is
seeking damages and a permanent injunction from processing by methods which
allegedly infringed the patent and violated trade secrets. Special patent
counsel to the Company is of the opinion that the compliant is without merit.
Section 2.08. See Section 2.07 (2) above.
<PAGE>
-49-
Section 2.09. The loan owed to the Bank of New York is collateralized
by the Company's accounts receivable, surgical instruments and containers. The
loans owed to Weck are collateralized by steam and gas sterilizers and
ultrasonic and tunnel washers and second lien on the collateral given to the
Bank of New York.
Section 2.14. The Company has no patents, patent rights, etc.
Section 2.14. The Company has already disclosed the Shamrock
litigation.
Section 2.15. Employee loans may be granted for medical or other
emergency on approval of the President and Vice-President in an amount not
exceeding $500.
Section 2.17. The Company is in default under its Supply Agreement with
Weck, a significant supplier, which will be cured on January 31, 1989.
Section 2.19. In the Company's Business Plan for 1989, there is a
reference to "A Business Opportunity." In the Profit & Loss for 1989 the Company
shows revenues and expenses relating to "Soft-Pack." There are no agreements
executed regarding this product and service, although the parties orally agreed
to proceed. The failure to proceed at this time would use the revenues and
expenses to be delayed.
Section 2.20. The Company has discussed the issuance of notes to two
other parties including the client of Michael Morris. No agreement has been
rescheduled with either.
Section 2.22. The officers of the Company and their salaries for 1989
are:
Name Position Salary
---- -------- ------
Kennard H. Morganstern Chairman of Board & President 95,000
Robert S. Luniewski Vice-President, Operations 82,000
Philip J. McCann, Jr. Vice-President, Marketing 75,000
Michael G. Fogarty Vice-President, Quality Assurance 75,000
& Regulatory Affairs
John M. Sharpe, Jr. Treasurer 70,000
Harvey Cohen Secretary ______
Section 2.23. Mr. Luniewski, Senior Vice-President of the Company, is
an officer of Precision Micron Powders, Inc., a distributor of products of the
Company pursuant to an agreement which has been delivered to counsel for the
Purchasers. AMSCO, a holder of more than 5% of the Company's stock, is a vendor
of the Company.
Harvey Cohen, Secretary and Director of the Company, is a partner of
Murtagh, Cohen & Byrne, counsel for the Company.
<PAGE>
-50-
SCHEDULE III
Subsidiaries
The Company does not have subsidiaries as that term is defined in
Section 7.12 of the Agreement. It does have 100 shares (50%) of the outstanding
stock of Medical Sterilization Realty, Inc. ("Realty"). The remaining 100 shares
are held as follows: 50 shares by medical Investment Associates, 10 shares by
Robert Liebowitz, 20 shares by Bernard Livingston and 20 shares by Constance K.
Livingston.
The Company's 100 shares have been pledged to the above persons to
secure the repayment of their loans to the Company in the aggregate amount of
$500,000 and the performance of an agreement to exercise the option under the
Company's Lease under certain conditions. The Company expects to pay off the
loans held by Medical Investment Associates and Robert Liebowitz on or about
January 31, 1989 and Mr. and Mrs. Livingston will continue to hold the
collateral.
Realty has one asset - the lease of the Company with Barlich Realty
Inc. and, in particular, the option to purchase the demised premises between
August 1, 1989 and February 1, 1990 for the price of $4,400,000 or between
August 1, 1994 and February 1, 1995 for the price of $4,900,000. Realty entered
into a sublease with the Company.
Copies of the Lease, the Loan Agreement dated December 23, 1986, the
Assignment of Lease, the Pledge Agreement, the Sublease, and the exclusive
agency letter agreement have been supplied to counsel for the Purchasers.
<PAGE>
-51-
SCHEDULE IV
Security Holders
Number of Shares
Name Beneficially Owned Percent of Class
- - ---- ------------------ ----------------
Kennard H. Morganstern 257,900 9.2%
American Sterilizer Company 263,356 9.4%
Dr. William C. Cartinhour, Jr. 300,000 10.8%
Sumitomo Heavy Industries, Ltd. 271,429 9.7%
Option Holders
Name Number of Shares
------ -------------------
Carl W. Bruch 5,000
John R. Hoover 5,000
Julius H. Jacobson 5,000
Philip J. McCann, Jr. 50,000
Marimargret Reichert 5,000
Michael G. Fogarty 50,000
H. Robert Catchcart 5,000
Henry R. Karpe 1,000
Thomas Healy 2,500
Kennard H. Morganstern 25,000
Robert S. Luniewski 25,000
Calvin Ripman 2,000
Alfonso Iannucci 10,000
Retta Sengstock 5,000
Mildred Simms 3,000
David B. Morganstern 3,000
Robert C. Becker 10,000
John M. Sharpe, Jr. 10,000
<PAGE>
-52-
Warrant Holders
Name Number of Shares
------ -------------------
D. H. Blair 63,884
Murray Koppelman 6,992
Wallace Steinberg 48,214
David Nachamie 723
Vincent Coakley 723
Preston Bank 5,744
Cherie L. Bank 1,343
Patricia B. Bank 1,343
Ray Eder 7,716
Gay Eder 1,343
Andrew Eder 1,343
James Eder 1,343
Elliot Eder 1,343
Andrew Eder, Cust. for 1,343
Samuel B. Eder
Sylvan Fry 6,789
Harold S. & Maxine Levy 6,789
Irving Goldstein 3,357
Harvey Cohen 6,789
Kennard H. Morganstern 33,570
Dennis Telischak 13,562
Richard Brown 13,562
David Olson 2,712
Harold Werner 1,356
Wallace Steinberg* 26,106
Richard Lyman* 26,106
*Transferred to Wallace
Steinberg on 7/6/87
Ronald Nash 17,359
Ronald Weiss 17,359
Lee Casty 15,189
Bodan Turynsky 136
James Carney 1,763
Martin Cohen 407
Joseph Pardi, Jr. 3,598
Stuart Travis 3,591
Lawrence Kobren 1,498
Brad Silver 1,498
Linda Wooley 686
Randolph K. Pace 6,535
<PAGE>
-53-
Name Number of Shares
------ -------------------
Donald Erenberg 4,901
Howard D. Sterling 3,268
Lawrence K. Fleischman 1,634
Faith Griffin 1,634
George Carhart 1,307
Harvey Kohn 1,307
Carey Sukoff 654
Bernard Notas 327
Arnold Weinberg 327
Michael Pincus 163
Medical Investment 8,414
Associates
Constance K. Livingston 3,365
Bernard Livingston 3,365
Robert Liebowitz 1,683
Ben Shames 5,610
Ben Shames 5,610
Herbert B. Ehrlich 5,610
Bernard Livingston 15,000
Ben Shumes 25,000
Michael L. Morris 13,333
Mark R. Resnick 15,000
Michael L. Morris 6,667
William C. Cartinhour, Jr. 80,000
Medical Investment 25,000
Associates
Robert Liebowitz 5,000
Ben Shames, Trustee 9,999
Bernard Livingston 10,000
Constance K. Livingston 10,000
Ben Shames, Trustee 6,665
Bernard L. Livingston, 25,000
Trustee
Patricia H. Steets 5,000
Ben Shames, Trustee 10,000
Ben Shames 10,000
Mark R. Resnick 4,000
Robert S. Luniewski 13,000
------
592,233
In addition on January 25, 1989 the Board of Directors authorized the
issuance of the following warrants:
<PAGE>
-54-
Bernard S. Livingston ITF Jennifer Cooke 20,000
Bernard S. Livingston ITF Allison Cooke 20,000
Patricia H. Steets 20,000
Ben Shames 40,000
Michael L. Morris 10,000
Kennard H. Morganstern 90,000
Harvey Cohen 20,000
Oxford ** 285,715
Client of Morris ** 40,000
------
545,715
1,137,948
**Subject to consummation of sale of Notes
The Number of shares set forth above have been adjusted by reason of
anti-dilution provisions in the warrants.
In addition, by agreement dated May 11, 1983 with American Sterilizer
Company ("Amsco"), Amsco has the right to acquire additional shares. This right
has been waived.
In addition, by agreement with Edward Weck & Company, Inc. ("Weck"), in
the event the Company issues additional shares, or securities convertible into
common stock, Weck has the option to purchase such number of shares or
quantities that will maintain the proportion of ownership which the number of
shares Weck can obtain under said agreement has to the number of shares the
Company has outstanding prior to such issuance.
<PAGE>
-55-
SCHEDULE V(A) and (B)
SCHEDULE V(A)
NONE
SCHEDULE V(B)
Section 2.13. (a) & (p) The Company, Precision Micron Powders, Inc. and
Robert S. Luniewski entered into an agreement on July 25, 1988 regarding the
processing of teflon powders.
Section 2.13. (g) The Company has a 1983 Stock Option Plan, which was
amended in 1986 authorizing issuance of Incentive Stock Options and
Non-Qualified Stock Options in an aggregate amount of 250,000 shares. The
Company proposed to increase the authorized shares to 500,000. Of this amount,
options to purchase 221,500 shares have been granted.
Section 2.13. (g) The Company has also a bonus plan with Robert Becker,
Industrial Sales Manager, Philip McCann, Marketing Director of the hospital
business and Calvin Repman, supervisor of contract services.
Section 2.13. (h) The Company has already set forth agreements relating
to outstanding loans from Medical Investment Associates, Robert Liebowitz,
Bernard Livingston, Constance K. Livingston, Michael Morris and the Bank of New
York. In addition, the Company entered into a Loan Agreement and a Supply
Agreement with Edward Weck & Co. In 1988 the Company obtained a loan of $500,000
from Dr. William C. Cartinhour, Jr. The Company also has combined loans of
$450,000 from Dr. Morganstern and $100,000 from Harvey Cohen.
Section 2.13. (j) As previously disclosed, Weck and Amsco had rights to
purchase stock. Amsco has waived its right permanently. Weck has waived it right
in connection with this transaction.
Section 2.13. (n) The existing warrants have certain registration
rights and the agreement with Sumitomo has registration rights.
Section 2.13. The Company is in default in payment of certain loans and
obligations as set forth on Schedule II, Section 2.06 and Section 2.17.
393LMM5962/1.198377-1
Exhibit 10.6
===============================================================================
SERIES A CONVERTIBLE PREFERRED STOCK AND
WARRANT PURCHASE AGREEMENT
between
MEDICAL STERILIZATION, INC.
and
THE SEVERAL PURCHASERS NAMED IN SCHEDULE I
Dated as of December 30, 1989
===============================================================================
<PAGE>
-2-
TABLE OF CONTENTS
ARTICLE I PURCHASE, SALE AND TERMS OF PREFERRED STOCK AND Page
WARRANTS
SECTION 1.01 The Preferred Stock..........................................1
SECTION 1.02 The Warrants.................................................1
SECTION 1.03 Purchase and Sale of the Preferred Stock and Warrants........1
(a) The Closing............................................1
(b) Allocation of Purchase Price...........................2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................2
SECTION 2.01 Organization, Qualifications and Corporate Power..............2
SECTION 2.02 Authorization of Agreements, Etc..............................3
SECTION 2.03 Validity......................................................3
SECTION 2.04 Authorized Capital Stock......................................4
SECTION 2.05 Financial Statements..........................................4
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet............5
SECTION 2.07 Litigation; Compliance with Law...............................5
SECTION 2.08 Proprietary Information of Third Parties......................6
SECTION 2.09 Title to Properties...........................................6
SECTION 2.10 Leasehold Interests...........................................7
SECTION 2.11 Insurance.....................................................7
SECTION 2.12 Taxes.........................................................7
SECTION 2.13 Other Agreements..............................................7
SECTION 2.14 Patents, Trademarks, Etc......................................9
SECTION 2.15 Loans and Advances...........................................10
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of
Other Persons................................................10
SECTION 2.17 Significant Customers and Suppliers..........................10
SECTION 2.18 Governmental Approvals.......................................10
SECTION 2.19 Disclosure...................................................11
SECTION 2.20 Offering of the Preferred Stock, the Warrants, the Common
Conversion Shares and the Preferred Conversion Shares........11
SECTION 2.21 Brokers......................................................12
SECTION 2.22 Officers.....................................................12
SECTION 2.23 Transactions With Affiliates.................................12
SECTION 2.24 Employees....................................................12
SECTION 2.25 U.S. Real Property Holding Corporation.......................12
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE URCHASERS................12
ARTICLE IV CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS................13
<PAGE>
-3-
(a) Opinion of Company's Counsel.............................13
(b) Representations and Warranties to be True and Correct....17
(c) Performance..............................................17
(d) All Proceedings to be satisfactory.......................17
(e) Purchase by Other Purchasers.............................17
(f) Supporting Documents.....................................18
(g) Registration Rights Agreement............................18
(h) Execution of Directors...................................18
(i) Stock Restriction Agreement..............................18
(j) Employment Agreements....................................18
(k) Preemptive Rights........................................18
(l) Waivers and Consents.....................................18
(m) Fees of Purchasers' Counsel..............................19
ARTICLE V COVENANTS OF THE COMPANY............................................19
SECTION 5.01 Financial Statements, Reports, Etc.:.........................19
SECTION 5.02 Right of First Refusal.......................................20
SECTION 5.03 Reserve for Preferred Stock, Common Conversion Shares
and Preferred Conversion Shares..............................21
SECTION 5.04 Corporate Existence..........................................21
SECTION 5.05 Properties, Business Insurance...............................22
SECTION 5.06 Inspection, Consultation and Advice..........................22
SECTION 5.07 Restrictive Agreements Prohibited............................22
SECTION 5.08 Transactions with Affiliates.................................22
SECTION 5.09 Expenses of Directors........................................22
SECTION 5.10 Use of Proceeds..............................................22
SECTION 5.11 Board of Directors Meetings..................................23
SECTION 5.12 Compensation.................................................23
SECTION 5.13 By-laws......................................................23
SECTION 5.14 Performance of Contracts.....................................23
SECTION 5.15 Vesting of Reserved Employee Shares..........................23
SECTION 5.16 Employment Agreements........................................23
SECTION 5.17 Mergers, Sale of Assets, Etc. of Subsidiaries................24
SECTION 5.18 Maintenance of Ownership of Subsidiaries.....................24
SECTION 5.19 Distributions by Subsidiaries................................24
SECTION 5.20 Compliance with Laws.........................................24
SECTION 5.21 Keeping of Records and Books of Account......................24
SECTION 5.22 Change in Nature of Business.................................24
SECTION 5.23 U.S. Real Property Interest Statement........................24
ARTICLE VI MISCELLANEOUS...................................................25
SECTION 6.01 Expenses.....................................................25
SECTION 6.02 Survival Of Agreements.......................................25
<PAGE>
-4-
SECTION 6.03 Brokerage....................................................25
SECTION 6.04 Parties in Interest..........................................25
SECTION 6.05 Notices......................................................26
SECTION 6.06 Governing Law................................................26
SECTION 6.07 Entire Agreement.............................................26
SECTION 6.08 Counterparts.................................................26
SECTION 6.09 Amendments...................................................26
SECTION 6.10 Severability.................................................26
SECTION 6.11 Titles and Subtitles.........................................26
SECTION 6.12 Certain Defined Terms........................................26
SECTION 6.13 Accounting Terms.............................................27
<PAGE>
-5-
INDEX TO SCHEDULES
SCHEDULE I Purchasers
SCHEDULE II Disclosure Schedule
SCHEDULE III Subsidiaries
SCHEDULE IV Security Holders
SCHEDULE V(A) and (B) Agreements
INDEX TO EXHIBITS
EXHIBIT A Form of Preferred Stock
EXHIBIT B Form of Common Stock Purchase Warrants
EXHIBIT C Restated Certificate of Incorporation
EXHIBIT D Series A Convertible Preferred Stock
EXHIBIT E Form of Registration Rights Agreement
EXHIBIT F Form of Stock Restriction Agreement
EXHIBIT G Form of Employment Agreement
EXHIBIT H Amendment to Restated Certificate of
Incorporation
<PAGE>
SERIES A CONVERTIBLE PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
dated as of December 30, 1989 between Medical Sterilization, Inc., a New York
corporation (the "Company"), and the several purchasers named in the attached
Schedule I (individually a "Purchaser" and collectively the "Purchasers").
WHEREAS, the Company wishes to issues and sell to the Purchasers its
Series A Convertible Preferred Stock ("Preferred Stock"), and its Common Stock
Purchase Warrants ("Warrants"); and
WHEREAS, the Purchasers, severally, wish to purchase the Preferred
Stock and Warrants on the terms and subject to the conditions set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained in this Agreement, the parties agree as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF PREFERRED STOCK AND WARRANTS
SECTION 1.01 The Preferred Stock. The Company has authorized the
issuance and sale to the Purchasers and others of the Company's Preferred Stock
in the original principal amount of no more than $2,000,000. The Preferred Stock
shall be substantially in the form set forth in Exhibit A hereto and is herein
referred to as Preferred Stock, which term shall also include any Preferred
Stock delivered in exchange or replacement therefor.
SECTION 1.02 The Warrants. The Company has also authorized the issuance
and sale to the Purchasers and others of the Company's Common Stock Purchase
Warrants for the purchase (subject to adjustment as provided therein) of an
aggregate of 666,667 shares of the Company's Common Stock, $.01 par value (the
"Common Stock"). The Warrants shall be substantially in the form set forth in
Exhibit B hereto and are herein referred to individually as a "Warrant" and
collectively as the "Warrants," which terms shall also include any warrants
delivered in exchange or replacement therefor.
SECTION 1.03 Purchase and Sale of the Preferred Stock and Warrants.
(a) The Closing. The Company agrees to issue and sell to each
Purchaser, and, subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, each Purchaser agrees to purchase, the
principal amount of the Preferred Stock and Warrants for the purchase of the
number of shares of Common Stock set forth opposite the name of such Purchaser
under the headings "Shares of Preferred Stock" and "Warrant Shares,"
respectively, on Schedule I, at the aggregate purchase price set forth opposite
the name of such Purchaser under the heading "Aggregate Purchaser Price" on
Schedule I. Such purchase and sale shall take place at a closing (the "Closing")
to be held at the offices of Murtagh, Cohen & Byrne, 1122 Franklin Avenue,
Garden City, New York, on December 29, 1989 at 10:00 a.m., or at such other
location, date and time as may be agreed upon by the Purchasers and the Company
(such date and time being called the "Closing Date"). At the Closing the Company
shall issue and deliver to each Purchaser shares of Preferred Stock registered
in the name of such Purchaser under the heading "Shares of Preferred Stock" on
Schedule I and Warrants, registered in the
<PAGE>
-2-
name of such Purchaser, to purchase (subject to adjustment as provided therein)
the number of shares of the Company's Common Stock set forth opposite the name
of such Purchaser under the heading "Warrant Shares" on Schedule I. As payment
in full for the Preferred Stock and Warrants being purchased under this
Agreement, and against delivery of the Preferred Stock and Warrants as
aforesaid, on the Closing Date each Purchaser shall deliver to the Company a
check payable to the Company, in the amount set forth opposite the name of such
Purchaser under the heading "Aggregate Purchase Price" on Schedule I, or shall
transfer such sum to the account of the Company by wire transfer, or shall
acknowledge as "Paid" money owed by the Company to such Purchaser in such
amount.
(b) Allocation of Purchase Price. The Company and the
Purchasers, having adverse interests and as a result of arm's length bargaining,
agree that (i) neither the Purchasers nor any of their respective partners, in
the case of a partnership, have rendered or have agreed to render any services
to the Company in connection with this Agreement or the issuance of the
Preferred Stock and Warrants; and (ii) the Warrants are not being issued as
compensation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that, except as
set forth in the Disclosure Schedule attached as Schedule II (which Disclosure
Schedule makes explicit reference to the particular representation or warranty
as to which exception is taken, which in each case shall constitute the sole
representation and warrant as to which such exception shall apply):
SECTION 2.01 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of New York and is
duly licensed or qualified to transact business as a foreign corporation and is
in good standing in each jurisdiction in which the nature of the business
transacted by it or the character of the properties owned or leased by it
requires such licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its business as now
conducted and as proposed to be conducted, to execute, deliver and perform the
terms of this Agreement, the Preferred Stock, the Warrants, the Registration
Rights Agreement with the Purchasers in the form attached as Exhibit E (the
"Registration Rights Agreement") and the Stock Restriction Agreement with the
Purchasers and Kennard H. Morganstern, in the form attached as Exhibit F (the
"Stock Restriction Agreement"), to issue, sell and deliver the Warrants, to
issue and deliver the shares of Common Stock issuable upon exercise of the
Warrants (the "Common Conversion Shares") and to issue and deliver the shares of
Preferred Stock and to issue and deliver the shares of Common Stock issuable
upon conversion of the Preferred Stock (the "Preferred Conversion Shares").
(b) The Company has no subsidiaries. Except as set forth on
the attached Schedule III, the Company does not (i) own of record or
beneficially, directly or indirectly,
<PAGE>
-3-
(A) any shares of capital stock or securities convertible into capital stock of
any other corporation or (B) any participating interest in any partnership,
joint venture or other non-corporate business enterprise or (ii) control,
directly or indirectly, any other entity.
SECTION 2.02 Authorization of Agreements, Etc.
(a) The execution and delivery by the Company of this
Agreement, the Preferred Stock, the Warrants, the Registration Rights Agreement
and the Stock Restriction Agreement, the performance by the Company of its
obligations hereunder and thereunder, the issuance, sale and delivery of the
Preferred Stock and Warrants and the issuance and delivery of the Common
Conversion Shares upon exercise of the Warrants and the issuance and delivery of
the Preferred Conversion Shares upon conversion of the Preferred Shares have
been duly authorized by all requisite corporate action and will not violate any
provision of law, any order of any court or other agency of government, the
Certificate of Incorporation, or the By-laws of the Company, as amended, or any
provision of any indenture, agreement or other instrument to which the Company
or any of its properties or assets is bound, or conflict with, result in a
breach of or constitute (with due notice of lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company. No
provision of the Stock Restriction Agreement violates, conflicts with, results
in a breach of or constitutes (with due notice of lapse of time or both) a
default under any indenture, agreement or other instrument to which the Company
is bound or, to the best of the Company's knowledge, any other indenture,
agreement or instrument (regardless, in each such case, of whether any such
violation, conflict, breach or default relates to the Company or to another
party to any such indenture, agreement or other instrument.)
(b) The Preferred Stock and the Warrants have been duly
authorized and, when issued in accordance with this Agreement, will be validly
issued, with no personal liability attaching to the ownership thereof and will
be free and clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company except as set forth in the Registration Rights
Agreement. The Common Conversion Shares have been duly reserved for issuance
upon the exercise of the Warrants and the Preferred Conversion Shares have been
duly reserved for issuance upon the conversion of the Preferred Stock, and, when
so issued, will be duly authorized, validly issued, fully paid and nonassessable
shares of Common Stock with no personal liability attaching to the ownership
thereof except for any liability that may be imposed by applicable state
statutes upon shareholders for wages or similar claims and will be free and
clear of all liens, charges, restrictions, claims and encumbrances imposed by or
through the Company except as set forth in the Registration Rights Agreement.
Neither the issuance, sale or delivery of the Preferred Stock or the Warrants
nor the issuance or delivery of the Common Conversion Shares or the Preferred
Conversion Shares is subject to any preemptive right of shareholders of the
Company or to any right of first refusal or other right in favor of any person.
SECTION 2.03 Validity. This Agreement has been duly executed an
delivered by the Company and constitutes the legal, valid and binding obligation
of the Company, enforceable in accordance with its terms. The Preferred Stock,
the Warrants, the Registration Rights Agreement
<PAGE>
-4-
and the Stock Restriction Agreement, when executed and delivered in accordance
with this Agreement, will constitute the legal, valid and binding obligations of
the Company, enforceable in accordance with their respective terms.
SECTION 2.04 Authorized Capital Stock. The authorized capital stock of
the Company consists of 10,000,000 shares of Common Stock, and 3,000,000 shares
of Preferred Stock, issuable in series, par value $.01 per share. Immediately
prior to the Closing, 2,788,829 shares of Common Stock and 285,715 shares of
Series A Convertible Preferred Stock will be validly issued and outstanding,
fully paid and nonassessable with no personal liability attaching to the
ownership thereof except for any liability that may be imposed by applicable
state statutes upon shareholders for wages or similar claims. The outstanding
285,715 shares of Series A Convertible Preferred Stock will be exchanged for
333,333 shares of the Series A Convertible Preferred Stock being issued to the
Purchasers and others. All such Preferred Stock will have the same terms as set
forth in Exhibit D hereto. The shareholders of record holding more than five
(5%) percent of the outstanding Common Stock and holders of subscriptions,
warrants, options, convertible securities, and other rights (contingent or
other) to purchase or otherwise acquire equity securities of the Company, and
the number of shares of Common Stock, and the number of such subscriptions,
warrants, options, convertible securities, and other such rights held by each,
are as set forth in the attached Schedule IV. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in respect of
the Common Stock and the Preferred Stock are as set forth in the Restated
Certificate of Incorporation, a copy of which is attached as Exhibit C, and in
Exhibit D and in the Amendment to the Restated Certificate of Incorporation, a
copy of which is attached as Exhibit H, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions are valid,
binding and enforceable in accordance with all applicable laws. Except as set
forth in the attached Schedule IV, (i) no person owns of record or is known to
the Company to own beneficially five (5%) percent or more of the outstanding
Common Stock, (ii) no subscription, warrant, option, convertible security, or
other right (contingent or other) to purchase or otherwise acquire equity
securities of the Company is authorized or outstanding and (iii) there is no
commitment by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of any
of its equity securities, or other such rights or to distribute to holders of
any of its equity securities any evidence of indebtedness or asset. Except as
provided for in the Restated Certificate of Incorporation or as set forth in the
attached Schedule IV, the Company has no obligation (contingent or other) to
purchase, redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. Except for the Stock Restriction Agreement, to the best of the
Company's knowledge there are no voting trusts or agreements, shareholders'
agreements, pledge agreements, buy sell agreements, rights of first refusal,
preemptive rights or proxies relating to any securities of the Company or any of
its subsidiaries (whether or not the Company or any of its subsidiaries is a
party thereto). All of the outstanding securities of the Company were issued in
compliance with all applicable Federal and state securities laws.
SECTION 2.05 Financial Statements. The Company has furnished to the
Purchasers the audited balance sheet of the Company as of December 31, 1988 and
the related statements of loss, shareholders' equity and cash flow of the
Company for the year ended December 31, 1988
<PAGE>
-5-
and the unaudited balance sheet of the Company as of September 30, 1989 (the
"Balance Sheet") and the related statements of loss, shareholders' equity and
cash flow of the Company for the nine (9) months ended September 30, 1989. All
such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied and fairly present the
financial position of the Company as of December 31, 1988 and September 30,
1989, respectively, and the results of its operations and cash flow for the year
ended December 31, 1988 and the nine (9) months ended September 30, 1989,
respectively. Since the date of the Balance Sheet, (i) there has been no change
in the assets, liabilities or financial condition of the Company from that
reflected in the Balance Sheet except for changes in the ordinary course of
business which in the aggregate have not been materially adverse except that the
Company anticipates a loss for the fourth quarter of approximately $117,000 and
for the year of approximately $400,000 and (ii) none of the business, prospects,
financial condition, operations, property or affairs of the Company has been
materially adversely affected by any occurrence or development, individually or
in the aggregate, whether or not insured against.
SECTION 2.06 Events Subsequent to the Date of the Balance Sheet. Since
the date of the Balance Sheet, the Company has not (i) issued any stock, bond or
other corporate security, (ii) borrowed any amount or incurred or become subject
to any liability (absolute, accrued or contingent), except current liabilities
incurred and liabilities under contracts entered into in the ordinary course of
business, (iii) discharged or satisfied any lien or encumbrance or incurred or
paid any obligation or liability (absolute, accrued or contingent) other than
current liabilities shown on the Balance Sheet and current liabilities incurred
since the date of the Balance Sheet in the ordinary course of business, (iv)
declared or made any payment or distribution to shareholders or purchased or
redeemed any share of its capital stock or other security, (v) mortgaged,
pledged or subjected to lien any of its assets, tangible or intangible, other
than liens of current real property taxes not yet due and payable, (vi) sold,
assigned or transferred any of its tangible assets except in the ordinary course
of business, or canceled any debts or claim, (vii) sold, assigned, transferred
or granted any exclusive license with respect to any patent, trademark, trade
name, service mark, copyright, trade secret or other intangible asset, (viii)
suffered any loss of property or waived any right of substantial value whether
or not in the ordinary course of business, (ix) made any change in officer
compensation except in the ordinary course of business and consistent with past
practice, (x) made any material change in the manner of business or operations
of the Company, (xi) entered into any transaction except in the ordinary course
of business as otherwise contemplated hereby or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
SECTION 2.07 Litigation; Compliance with Law. There is no (i) action,
suit, claim, proceeding or investigation pending or, to the best of the
Company's knowledge, threatened against or affecting the Company, at law or in
equity, or before or by any Federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company pending under
collective bargaining agreements or otherwise or (iii) governmental inquiry
pending or, to the best of the Company's knowledge, threatened against or
affecting the Company (including without limitation any inquiry as to the
qualification of the Company to hold or receive any license or permit), and
there is no basis for any of the foregoing. The Company has not received
<PAGE>
-6-
any opinion or memorandum or legal advice from legal counsel to the effect that
it is exposed, from a legal standpoint, to any liability or disadvantage which
may be material to its business, prospects, financial condition, operations,
property or affairs. The Company is not in default with respect to any order,
writ, injunction or decree known to or served upon the Company of any court or
of any Federal, state, municipal or other governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign. There is no
action or suit by the Company pending or threatened against others. The Company
has complied with all laws, rules, regulations and orders applicable to its
business, operations, properties, assets, products and services, and the Company
has all necessary permits, licenses and other authorizations required to conduct
its business as conducted and as proposed to be conducted. There is no existing
law, rule, regulation or order, whether Federal or state, which would prohibit
or restrict the Company from, or otherwise materially adversely affect the
Company in, conducting its business in any jurisdiction in which it is now
conducting business or which it proposes to conduct business.
SECTION 2.08 Proprietary Information of Third Parties. To the best of
the Company's knowledge, no third party has claimed or has reason to claim that
any person employed by or affiliated with the Company has (a) violated or may be
violating any of the terms or conditions of his employment, non-competition or
non-disclosure agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or proprietary
information or documentation of such third party or (c) interfered or may be
interfering in the employment relationship between such third party and any of
its present or former employees. No third party has requested information from
the Company which suggests that such a claim might be contemplated. To the best
of the Company's knowledge, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the best of the
Company's knowledge, no person employed by or affiliated with the Company has
violated any confidential relationship which such person may have had with any
third party, in connection with the development, manufacture or sale of any
product or proposed product or the development or sale of any service or
proposed service of the Company, and the Company has no reason to believe there
will be any such employment or violation. To the best of the Company's
knowledge, none of the execution or delivery of this Agreement, or the carrying
on of the business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct or proposed
conduct of the business of the Company, will conflict with or result in a breach
of the terms, conditions or provisions of or constitute a default under any
contract, covenant or instrument under which any such person is obligated.
SECTION 2.09 Title to Properties. The Company has good and marketable
title to its properties and assets reflected on the Balance Sheet or acquired by
it since the date of the Balance Sheet (other than properties and assets
disposed of in the ordinary course of business since the date of the Balance
Sheet), and all such properties and assets are free and clear of mortgages,
pledges, security interests, liens, charges, claims, restrictions and other
encumbrances, except for liens for or current taxes not yet due and payable and
minor imperfections of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the property
subject thereto or impairing the operations or proposed operations of the
Company.
<PAGE>
-7-
SECTION 2.10 Leasehold Interests. Each lease or agreement to which the
Company is a party under which it is a lessee of any property, real or personal,
is a valid and subsisting agreement without any default of the Company
thereunder and, to the best of the Company's knowledge, without any default
thereunder of any other party thereto. No event has occurred and is continuing
which, with due notice or lapse of time or both, would constitute a default or
event of default by the Company under any such lease or agreement or, to the
best of the Company's knowledge, by any other party thereto. The Company's
possession of such property has not been disturbed and, to the best of the
Company's knowledge, no claim has been asserted against the Company adverse to
its rights in such leasehold interests.
SECTION 2.11 Insurance. The Company holds valid policies covering all
of the insurance required to be maintained by it under Section 5.05.
SECTION 2.12 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the Company has paid
all taxes shown to be due by such returns as well as all other taxes,
assessments and governmental charges which have become due or payable, including
without limitation all taxes which the Company is obligated to withhold from
amounts owing to employees, creditors and third parties. All such taxes with
respect to which the Company has become obligated pursuant to elections made by
the Company in accordance with generally accepted practice have been paid and
adequate reserves have been established for all taxes accrued but not yet
payable. The Federal income tax returns of the Company have never been audited
by the Internal Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or local taxes is
pending or, to the best of the Company's knowledge, threatened. There is no tax
lien, whether imposed by any Federal, state, county or local taxing authority,
outstanding against the assets, properties or business of the Company. Neither
the Company nor any of its shareholders has ever filed (a) an election pursuant
to Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"),
that the Company be taxes as an S corporation or (b) consent pursuant to Section
341(f) of the Code, relating to collapsible corporations. The Company's net
operating losses for Federal income tax purposes, as set forth in the financial
statements referred to in Section 2.05, are not subject to any limitations
imposed by Section 382 of the Code and the full amount of such net operating
losses are available to offset the taxable income of the Company for the current
fiscal year and, to the extent not so used, succeeding fiscal years.
Consummation of the transactions contemplated by this Agreement or by any other
agreement, understanding or commitment (contingent or otherwise) to which the
Company is a party or by which it is otherwise bound will not have the effect of
limiting the Company's ability to use such net operating losses in full to
offset such taxable income.
SECTION 2.13 Other Agreements. Except as set forth in the attached
Schedule V(A), the Company is not a party to or otherwise bound by any written
or oral contract or instrument or other restriction which individually or in the
aggregate could materially adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company. Except as set forth
in the attached Schedule V(B), the Company is not a party to or otherwise bound
by any written or oral:
<PAGE>
-8-
(a) distributor, dealer, manufacturer's representative or sale
agency contract or agreement which is not terminable on less than ninety (90)
days' notice without cost or other liability to the Company (except for
contracts which, in the aggregate, are not material to the business of the
Company);
(b) sales contract which entitles any customer to a rebate or
right of set-off, to return any product to the Company after acceptance thereof
or to delay the acceptance thereof, or which varies in any material respect from
the Company's standard form contracts;
(c) contract with any labor union (and, to the knowledge of
the Company, no organizational effort is being made with respect to any of its
employees);
(d) contract or other commitment with any supplier containing
any provision permitting any party other than the Company to renegotiate the
price or other terms, or containing any pay-back or other similar provision,
upon the occurrence of a failure by the Company to meet its obligations under
the contract when due or the occurrence of any other event;
(e) contract for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess of its normal
operating requirements;
(f) contract for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable on
notice without cost or other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement,
hospitalization, insurance, stock purchase, stock option or other plan, contract
or understanding pursuant to which benefits are provided to any employee of the
Company (other than group insurance plans applicable to employees generally);
(h) agreement or indenture relating to the borrowing of money
or to the mortgaging or pledging of, or otherwise placing a lien or security
interest on, any asset of the Company;
(i) guaranty of any obligation for borrowed money or
otherwise;
(j) voting trust or agreement, shareholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive rights agreement
relating to any securities of the Company;
(k) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company has advanced
or agreed to advance money or has agreed to lease any property as lessee or
lessor;
<PAGE>
-9-
(l) agreement or obligation (contingent or otherwise) to
issue, sell or otherwise distribute or to repurchase or otherwise acquire or
retire any share of its capital stock or any of its other equity securities;
(m) assignment, license or other agreement with respect to any
form of intangible property;
(n) agreement under which it has granted any person any
registration rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its
right to compete with any person in any respect;
(p) other contract or group of related contracts with the same
party involving more than $20,000 or continuing over a period of more than six
months from the date or dates thereof (including renewals or extensions optional
with another party), which contract or group of contracts is not terminable by
the Company without penalty upon notice of thirty (30) days or less, but
excluding any contract or group of contracts with a customer of the Company for
the sale, lease or rental of the Company's products or services if such contract
or group of contracts was entered into by the Company in the ordinary course of
business; or
(q) other contract, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with the Securities
and Exchange Commission (the "Commission") as an exhibit to a registration
statement on Form S-1 if the Company were registering securities under the
Securities Act of 1933, as amended (the "Securities Act").
The Company, and to the best of the Company's knowledge, each other
party thereto have in all material respects performed all the obligations
required to be performed by them to date, have received no notice of default and
are not in default (with due notice of lapse of time or both) under any lease,
agreement or contract now in effect to which the Company is party or by which it
or its property may be bound. The Company has no present expectation or
intention of not fully performing all its obligations under each such lease,
contract or other agreement, and the Company has no knowledge of any breach or
anticipated breach by the other party to any contract or commitment to which the
Company is a party. The Company is in full compliance with all of the terms and
provisions of its Restated Certificate of Incorporation and By-laws, as amended.
SECTION 2.14 Patents, Trademarks, Etc. Set forth in Schedule II is a
list and brief description of all patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark applications,
trade names and copyrights, and all applications for such which are in the
process of being prepared, owned by or registered in the name of the Company, or
of which the Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use al patents,
patent applications, trademarks, trademark applications, service marks, service
mark applications, trade names,copyrights, manufacturing processes, formulae,
<PAGE>
-10-
trade secrets and know how (collectively, "Intellectual Property") necessary or
desirable to the conduct of its business as conducted and as proposed to be
conducted, and no claim is pending or, to the best of the Company's knowledge,
threatened to the effect that the operations of the Company infringe upon or
conflict with the asserted rights of any other person under any Intellectual
Property, and there is no basis for any such claim (whether or not pending or
threatened). No claim is pending or threatened to the effect that any such
Intellectual Property owned or licensed by the Company, or which the Company
otherwise has the right to use, is invalid or unenforceable by the Company, and
there is no basis for any such claim (whether or not pending or threatened). To
the best of the Company's knowledge, all technical information developed by and
belonging to the Company which has not been patented has been kept confidential.
The Company has not granted or assigned to any other person or entity any right
to manufacture, have manufacture, assemble or sell the products or proposed
products or to provide the services or proposed services of the Company.
SECTION 2.15 Loans and Advances. The Company does not have any
outstanding loans or advances to any person and is not obligated to make any
such loans or advances, except, in each case, for advances to employees of the
Company in respect of reimbursable business expenses anticipated to be incurred
by them in connection with their performance of services for the Company.
SECTION 2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or otherwise become
directly or contingently liable on any indebtedness of any other person
(including, without limitation, liability by way of agreement, contingent or
otherwise, to purchase to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the creditor against
loss), except for guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business.
SECTION 2.17 Significant Customers and Suppliers. No customer or
supplier which was significant to the Company during the period covered by the
financial statements referred to in Section 2.05 or which has been significant
to the Company thereafter, has terminated, materially reduced or threatened to
terminate or materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
SECTION 2.18 Governmental Approvals. Subject to the accuracy of the
representations and warranties of the Purchasers set forth in Article III, no
registration or filing with, or consent or approval of or other action by, any
Federal, state or other governmental agency or instrumentality is or will be
necessary for the valid execution, delivery and performance by the Company of
this Agreement, the Registration Rights Agreement or the Stock Restriction
Agreement, the issuance, sale and delivery of the Preferred Stock or the
Warrants or, upon conversion or exercise thereof, the issuance and delivery of
the Common Conversion Shares or the Preferred Conversion Shares, other than (i)
filings pursuant to state securities laws (all of which filings have been made
by the Company in connection with the sale of the Preferred Stock and the
Warrants) and (ii) with respect to the Registration Rights Agreement, the
registration of the shares covered thereby with the Commission and filings
pursuant to state securities laws.
<PAGE>
-11-
SECTION 2.19 Disclosure. Neither this Agreement, nor any Schedule or
Exhibit to this Agreement, nor the Business Plan of the Company for 1989 (the
"Business Plan"), contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or other items
prepared or supplied by the Company with respect to the transactions
contemplated hereby contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the Purchasers and their
counsel in writing and of which the Company is aware which materially and
adversely affects or could materially and adversely affect the business,
prospects, financial condition, operations, property or affairs of the Company
or any of its subsidiaries. The financial projections and other estimates
contained in the Business Plan were prepared by the Company based on the
Company's experience in the industry and on assumptions of fact and opinion as
to future events which the Company, at the date of the issuance of the Business
Plan, believed to be reasonable, but which the Company cannot and does not
assure or guarantee the attainment of in any manner. As of the date hereof no
facts have come to the attention of the Company which would, in its opinion,
require the Company to revise or amplify the assumptions underlying such
projections and other estimates or the conclusions derived therefrom. The
Company has previously furnished to the Purchasers true and complete copies of
its annual reports on Form 10-K for its fiscal years ended December 31, 1985,
1986, 1987 and 1988 (the "10-Ks") and of its quarterly reports on Form 10-Q for
its fiscal quarters ended March 30, June 30 and September 30, in the fiscal year
ended December 31, 1989 (the "10-Qs") as filed with the Securities and Exchange
Commission (the "SEC"). Neither the 10-Ks, the 10-Qs, nor any other documents
filed by the Company with the SEC, as of the dates they were respectively filed,
contained any untrue statement of a material fact or omitted to state a 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. Each of the 10-Ks and 10-Qs complied with all applicable rules of
the SEC.
SECTION 2.20 Offering of the Preferred Stock, the Warrants, the Common
Conversion Shares and the Preferred Conversion Shares. Neither the Company nor
any person authorized or employed by the Company as agent, broker, dealer or
otherwise in connection with the offering or sale of the Preferred Stock, the
Warrants, the Common Conversion Shares, or the Preferred Conversion Shares or
any security of the Company similar to the Preferred Stock, the Warrants, the
Common Conversion Shares or the Preferred Conversion Shares has offered the
Preferred Stock, the Warrants, the Common Conversion Shares or the Preferred
Conversion Shares or any such similar security for sale to, or solicited any
offer to buy the Preferred Stock, the Warrants, the Common Conversion Shares or
the Preferred Conversion Shares or any such similar security from, or otherwise
approached or negotiated with respect thereto with, any person or persons, and
neither the Company nor any person acting on its behalf has taken or will take
any other action (including, without limitation, any offer, issuance or sale of
any security of the Company under circumstances which might require the
integration of such security with the Preferred Stock, the Warrants, the Common
Conversion Shares or the Preferred Conversion Shares under the Securities Act
or the rules and regulations of the Commission thereunder), in either case so
as to subject the offering, issuance or sale of the Preferred Stock, the
<PAGE>
-12-
Warrants, the Common Conversion Shares or the Preferred Conversion Shares to
the registration provisions of the Securities Act.
SECTION 2.21 Brokers. The Company has no contract, arrangement or
understanding with any broker, finder or similar agent with respect to the
transactions contemplated by this Agreement.
SECTION 2.22 Officers. Set forth in Schedule II is a list of the names
of the officers of the Company, together with the title or job classification of
each such person and the total compensation anticipated to be paid to each such
person by the Company and its subsidiaries in 1989. None of such persons has an
employment agreement or understanding, whether oral or written, with the Company
or any of its subsidiaries, which is not terminable on notice by the Company or
such subsidiary without cost or other liability to the Company or such
subsidiary.
SECTION 2.23 Transactions With Affiliates. No director, officer,
employee or holder of five (5%) percent or more of the outstanding Common Stock
of the Company, or member of the family of any such person, or any corporation,
partnership, trust or other entity in which any such person, or any member of
the family of any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the outstanding capital
stock thereof, is a party to any transaction with the Company, including any
contract, agreement or other arrangement providing for the employment of,
furnishing of services by, rental of real or personal property from or otherwise
requiring payments to any such person or firm.
SECTION 2.24 Employees. Each of the officers of the Company, each key
employee and each other employee now employed by the Company who has access to
confidential information of the Company has executed an Employment Agreement
substantially in the form of Exhibit G (collectively, the "Employment
Agreements"), and such agreements are in full force and effect. No officer or
key employee of the Company has advised the Company (orally or in writing ) that
he intends to terminate employment with the Company. The Company has complied in
all material respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes, and
with the Employee Retirement Income Security Act of 1974, as amended.
SECTION 2.25 U.S. Real Property Holding Corporation. The Company is not
now and has never been a "United States real property holding corporation," as
defined in Section 897(c)(2) of the Code and Section 1.897-2(b) of the
Regulations promulgated by the Internal Revenue Service.
Each Purchaser severally represents and warrants to the Company that:
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
<PAGE>
-13-
(a) he, she or it is an "accredited investor" within the
meaning of Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Preferred Stock and the Warrants;
(b) he, she or it has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the Company's stage of
development so as to be able to evaluate the risks and merits of the investment
in the Company and is able financially to bear the risks thereof;
(c) he, she or it has had an opportunity to discuss the
Company's business, management and financial affairs with the Company's
management;
(d) the Preferred Stock and the Warrants being purchased by
him, her or it are being acquired for the Purchaser's own account for the
purpose of investment and not with a view to or for sale in connection with any
distribution thereof;
(e) he, she or it understands that (i) the Preferred Stock,
the Warrants, the Common Conversion Shares and the Preferred Conversion Shares
have not been registered under the Securities Act by reason of their issuance in
a transaction exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof or Rule 505 or 506 promulgated under the
Securities Act, (ii) the Preferred Stock and the Warrants and, upon conversion
or exercise thereof, the Common Conversion Shares and the Preferred Conversion
Shares must be held indefinitely unless a subsequent disposition thereof is
registered under the Securities Act or is exempt from such registration, (iii)
the Preferred Stock, the Warrants, the Common Conversion Shares and the
Preferred Conversion Shares will bear a legend to such effect and (iv) the
Company will make a notation on its transfer books to such effect; and
(f) the Right of First Refusal, contained in Section 5.02 is
hereby waived with regard to the purchase on or before January 30, 1989 of up to
the aggregate of $500,000 of the Preferred Stock and warrants to purchase up to
166,667 shares of Common Stock by Allen & Co. Incorporated, its affiliates
and/or officers.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS
The obligation of each Purchaser to purchase and pay for the Preferred
Stock and Warrants being purchased on the Closing Date is, at such Purchaser's
option, subject to the satisfaction, on or before the Closing Date, of the
following conditions:
(a) Opinion of Company's Counsel. The Purchasers shall have received
from Murtagh, Cohen & Byrne, counsel for the Company, an opinion dated the
Closing Date, in form and scope satisfactory to the Purchasers and their
counsel, to the effect that:
<PAGE>
-14-
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of its respective jurisdiction of
incorporation. The Company has no subsidiaries. The Company is duly licensed or
qualified to transact business as a foreign corporation and is in good standing
in each jurisdiction in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such licensing or
qualification. The Company has the corporate power and authority to own and hold
its properties and to carry on its business as currently conducted and as
proposed to be conducted. The Company has the corporate power and authority to
execute, deliver and perform this Agreement, the Registration Rights Agreement
and the Stock Restriction Agreement, to issue, sell and deliver the Preferred
Stock and the Warrants, to issue and deliver the Common Conversion Shares upon
exercise of the Warrants and to issue and deliver the Preferred Conversion
Shares upon conversion of the Preferred Stock.
(ii) This Agreement, the Preferred Stock, the Warrants, the
Registration Rights Agreement and the Stock Restriction Agreement have been duly
authorized, executed and delivered by the Company and constitute the legal,
valid and binding obligations of the Company, enforceable in accordance with
their respective terms (subject, as to enforcement of remedies, to the
discretion of courts in awarding equitable relief and to applicable bankruptcy,
reorganization, insolvency, moratorium and similar laws affecting the rights of
creditors generally), except that such counsel need not express any opinion as
to the validity or enforceability of the indemnification and contribution
provisions of the Registration Rights Agreement.
(iii) The execution and delivery by the Company of this
Agreement, the Preferred Stock, the Warrants, the Registration Rights Agreement
and the Stock Restriction Agreement, the performance by the Company of its
obligations hereunder and thereunder, the issuance, sale and delivery of the
Preferred Stock and the Warrants, the issuance and delivery of the Common
Conversion Shares upon exercise of the Warrants and the issuance and delivery of
the Preferred Conversion Shares upon conversion of the Preferred Stock will not
violate any provision of law, the Certificate of Incorporation or By-laws, as
amended, of the Company, any order of any court or other agency of government or
any indenture, agreement or other instrument known to such counsel to which the
Company or any of its properties or assets is bound, or conflict with, result in
a breach of or constitute (with due notice or lapse of time or both) a default
under any such indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or encumbrance of
any nature whatsoever upon any of the properties or assets of the Company. In
rendering the foregoing opinion, such counsel may assume full disclosure to the
Purchasers of all material facts and, with respect to performance by the Company
of its obligations under the Registration Rights Agreement, may assume
compliance by the Company at such time with the registration requirements of the
Securities Act and with applicable state securities laws and may disclaim any
opinion as to the validity or enforceability of the indemnification and
contribution provisions of the Registration Rights Agreement.
<PAGE>
-15-
(iv) The authorized capital stock of the Company consists of
10,000,000 shares of Common Stock and 3,000,000 shares of Preferred Stock.
Immediately prior to the Closing, 2,788,829 shares of Common Stock and 285,715
shares of Series A Convertible Preferred Stock will be validly issued, fully
paid and nonassessable with no personal liability attaching to the ownership
thereof except for any liability that may be imposed by applicable state
statutes upon shareholders for wages or similar claims. Immediately prior to the
Closing, the shareholders of record holding more than five (5%) percent of the
outstanding Common Stock and holders of record of subscriptions, warrants,
options, convertible securities, and other rights (contingent or other) to
purchase or otherwise acquire equity securities of the Company, and the number
of shares of Common Stock and the number of such subscriptions, warrants,
options, convertible securities, and other such rights held by each, will be as
set forth in Schedule IV. The designations, powers preferences, rights,
qualifications, limitations and restrictions in respect of the Common Stock and
the Preferred Stock are as set forth in the Restated Certificate of
Incorporation and Exhibit D, and all such designations, powers, preferences,
rights, qualifications, limitations and restrictions are valid, binding and
enforceable and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of the courts in awarding equitable relief and to
applicable bankruptcy, reorganization, insolvency, moratorium and similar laws
affecting the rights of creditors generally). Except as set forth in Schedule
IV, to the knowledge of such counsel, immediately prior to the Closing, no
subscription, warrant, option, convertible security or other right (contingent
or other) to purchase or acquire equity securities of the Company will be
authorized or outstanding and there will be no commitment by the Company to
issue shares, subscriptions, warrants, options, convertible securities, or other
such rights or to distribute to holders of any of its equity securities any
evidence of indebtedness or asset. Except as set forth in Schedule II or
Schedule IV or as provided for in the Restated Certificate of Incorporation and
Exhibit D, to the knowledge of such counsel the Company has no obligation
(contingent or other) to purchase, redeem or otherwise acquire any of its equity
securities or any interest therein or to pay any dividend or make any other
distribution in respect thereof.
(v) The Preferred Stock, the Warrants, the Common Conversion
Shares and the Preferred Conversion Shares have been duly authorized. The
issuance, sale and delivery of the Preferred Stock and the Warrants and the
issuance and delivery of Common Conversion Shares upon exercise of the Warrants
and the issuance and delivery of the Preferred Conversion Shares upon conversion
of the Preferred Shares have been duly authorized by all required corporate
action; the Preferred Stock and the Warrants have been validly issued with no
personal liability attaching to the ownership thereof and, to the knowledge of
such counsel, are free and clear of all liens, charges, restrictions, claims and
encumbrances imposed by or through the Company except as set forth in the
Registration Rights Agreement; and the Common Conversion Shares and the
Preferred Conversion Shares have been duly reserved for issuance upon exercise
of the Warrants or conversion of the Preferred Stock, as the case may be and,
when so issued, will be validly issued, fully paid and nonassessable with no
personal liability attaching to the ownership thereof except for any liability
that may be imposed by applicable state statutes upon shareholders for wages or
similar claims and, to the knowledge of such counsel, will be free and clear of
all liens, charges, restrictions, claims and encumbrances imposed by or through
the Company except as set forth in the Registration Rights Agreement. Neither
the issuance, sale or
<PAGE>
-16-
delivery of the Preferred Stock or the Warrants nor the issuance or delivery of
the Common Conversion Shares or the Preferred Conversion Shares is subject to
any preemptive right of shareholders of the Company arising under law or the
Restated Certificate of Incorporation or By-laws of the Company, each as
amended, or, to the knowledge of such counsel, to any contractual right of first
refusal or the right in favor of any person.
(vi) Except as described in Schedule II, to the knowledge of
such counsel there is not (A) action, suit, claim, proceeding or investigation
pending or threatened against or affecting the Company, at law or in equity, or
before or by any Federal, state, municipal or other governmental department,
commission , board, bureau, agency or instrumentality, domestic or foreign, (B)
arbitration proceeding relating to the Company pending under the collective
bargaining agreements or (C) governmental inquiry pending or threatened against
or affecting the Company (including, without limitation, any inquiry as to the
qualification of the Company to hold or receive any license or permit). To the
knowledge of such counsel, the Company is not in default with respect to any
order, writ, injunction or decree known to such counsel of any court or of any
Federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign.
(vii) Except as described in Schedule II to the knowledge of
such counsel, no third party has claimed that any person employed or affiliated
with the Company has violated or may be violating any of the terms or conditions
of his employment, non-competition or non-disclosure agreement with such third
party, or disclosed or may be disclosing or utilized or may be utilizing any
trade secret or proprietary information or documentation of such third party or
interfered or may be interfering in the employment relationship between such
third party and any of its present or former employees.
(viii) Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III, no registration or filing
with, and no consent or approval of, or other action by any Federal, state or
other governmental agency or instrumentality is or will be necessary for the
valid execution, delivery and performance by the Company of this Agreement, the
Preferred stock, the Warrants, the Registration Rights Agreement and the Stock
Restriction Agreement, the issuance, sale and delivery of the Preferred stock or
the Warrants or, upon conversion or exercise thereof, the issuance and delivery
of the Common Conversion Shares and the Preferred Conversion Shares, other than
filings pursuant to state securities laws (all of which filings have been made
by the Company). In rendering the foregoing opinion with respect to performance
by the Company of its obligations under the Registration Rights Agreement, such
counsel may assume compliance by the Company at such time with the registration
requirements of the Securities act and with applicable state securities laws and
may disclaim any opinion as to the validity or enforceability of the
indemnification and contribution provisions of the Registration Rights
Agreement.
(ix) Assuming the accuracy of the representations and
warranties of the Purchasers set forth in Article III, the issuance, sale and
delivery of the Preferred Stock and the Warrants to be sold to the Purchasers on
the Closing Date, under the circumstances contemplated by this Agreement, are
exempt from the registration requirements of the Securities Act, and the
<PAGE>
-17-
issuance and delivery of the Common Conversion Shares and the Preferred
Conversion Shares upon exercise of the Warrants and conversion of the Preferred
Stock, as the case may be, as contemplated hereby, will be exempt from such
requirements.
(x) All of the outstanding shares of Common Stock have been
issued in compliance with the registration requirements of the Securities Act
and all applicable state securities laws.
(b) Representations and Warranties to be True and Correct. The
representations and warranties contained in Article II shall be true, complete
and correct on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date, and the
President and Treasurer of the Company shall have certified to such effect to
the Purchasers in writing.
(c) Performance. The Company shall have performed and complied with all
agreements contained herein required to be performed or complied with by it
prior to or at the Closing Date, and the President and Treasurer of the Company
shall have certified to the Purchasers in writing to such effect and to the
further effect that all of the conditions set forth in this Article IV have been
satisfied.
(d) All Proceedings to be Satisfactory. All corporate and other
proceedings to be taken by the Company in connection with the transaction
contemplated hereby and all documents incident thereto shall be satisfactory in
form and substance to the Purchasers and their counsel, and the Purchasers and
their counsel shall have received all such counterpart originals or certified or
other copies of such documents as they reasonably may request.
(e) Purchase by Other Purchasers. Each Purchaser shall have purchased
and paid for the Preferred Stock and Warrants being purchased by it on the
Closing Date, and the aggregate purchase price paid by all of the Purchasers for
the Preferred Stock and Warrants being purchased by them on the Closing Date
shall be at least $1,500,000.
(f) Supporting Documents. The Purchasers and their counsel shall have
received copies of the following documents:
(i) a certificate of the Secretary or an Assistant Secretary
of the Company dated the Closing Date and certifying: (A) that attached thereto
is a true and complete copy of the Restated Certificate of Incorporation and
By-laws of the Company as in effect on the date of such certification; (B) as to
the due incorporation and good standing of the Company and listing all documents
of the Company on file with the Secretary of State of the State of New York; (C)
that attached thereto is a true and complete copy of all resolutions adopted by
the Board of Directors authorizing the execution, delivery and performance of
this Agreement, the Preferred Stock, the Warrants, the Registration Rights
Agreement and the Stock Restriction Agreement, the issuance, sale and delivery
of the Preferred Stock and Warrants and the reservation, issuance and delivery
of the preferred Stock and Warrants and the reservation, issuance and delivery
of the Common Conversion Shares and Preferred Conversion Shares, and that all
such resolutions are
<PAGE>
-18-
in full force and effect and are all the resolutions adopted in connection with
the transactions contemplated by this Agreement, the Preferred stock, the
Warrants, the Registration Rights Agreement and the Stock Restriction Agreement;
(D) that the Restated Certificate of Incorporation has not been amended since
the date of the last amendment referred to in the certificate delivered pursuant
to clause (B) above; (E) to the incumbency and specimen signature of each
officer of the Company executing this Agreement, the Preferred Stock, the
Warrants, the Registration Rights Agreement, or any of the Stock Restriction
Agreement and any certificate or instrument furnished pursuant hereto and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause (i);
(ii) a certificate of the Treasurer of the Company dated the
Closing Date and certifying as to the payment of all excise taxes by the
Company; and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the Company as the
Purchasers or their counsel reasonably may request.
(g) Registration Rights Agreement. The Company shall have executed and
delivered the Registration Rights Agreement.
(h) Execution of Directors. The number of directors constituting the
entire Board of Directors shall have been filed at six (6) and the following
persons shall have been elected as the directors and shall each hold such
position as of the Closing Date: Harvey Cohen, John R. Hoover, Kennard H.
Morganstern, Yoshiyuki Nagashima and Albert T. Sommers as the directors elected
solely by the holders of the Common Stock and Kenneth W. Rind as the director
nominated by the holders of the Preferred Stock and the Warrants and elected by
the holders of the Common Stock.
(i) Stock Restriction Agreement. The Stock Restriction Agreement shall
have been executed and delivered by the Company and Kennard H. Morganstern.
(j) Employment Agreements. Copies of the Employment Non-disclosure and
Developments Agreements shall have been delivered to counsel for the Purchasers.
(k) Preemptive Rights. All shareholders of the company have any
preemptive, first refusal or other rights with respect to the issuance of the
Preferred Stock, the Warrants, the Common Conversion Shares and the Preferred
Conversion Shares shall have irrevocably waived the same in writing.
(l) Waivers and Consents. The company shall have obtained, in form and
substance satisfactory to the Purchasers, any and all waivers and consents
required under any agreement, indenture or instrument to which the Company is a
party or by which it is bound and shall have delivered copies of any such
waivers and consents to the Purchasers and their counsel, including, without
limitation, (i) the Loan Agreement dated as of July 7, 1985 between the company
and Edward Weck & Company, Inc., as amended, (ii) the Loan and Security
Agreement dated as of
<PAGE>
-19-
June 22, 1989 between the Company and Apple Bank for Savings and the Term Loan
Note and Security Agreement dated November 2, 1989 between the Company and Apple
Bank for Savings and (iii) the Agreement dated as of May 11, 1983 between the
Company and American Sterilizer Company.
(m) Fees of Purchasers' Counsel. The company shall have paid in
accordance with Section 7.01 the fees and disbursements of one counsel for the
Purchasers, if any, invoiced at the Closing.
All such documents shall be satisfactory in form and substance to the Purchasers
and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers that so
long as any of the Warrant or the Preferred Stock are outstanding:
SECTION 5.01 Financial Statements, Reports, Etc. The company shall
furnish to each Purchaser:
(a) within ninety (90) days after the end of each fiscal year of the
Company a balance sheet of the Company as of the end of such fiscal year and the
related statements of income (loss), shareholders' equity and cash flow for the
fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public accountants
of recognized national standing selected by the Board of Directors of the
Company;
(b) within forty-five (45) days after the end of each fiscal quarter in
each fiscal quarter in each fiscal year (other than the last fiscal quarter in
each fiscal year) a balance sheet of the Company and the related statements of
income (loss), shareholders' equity and cash flow, unaudited but prepared in
accordance with generally accepted accounting principles and certified by the
Chief Financial Officer of the Company, such balance sheet to be as of the end
of such fiscal quarter and such statements of income (loss), shareholders'
equity and cash flow to be for such fiscal quarter and for the period from the
beginning of the fiscal year to the end of such fiscal quarter, in each case
with comparative statements for the corresponding period in the prior fiscal
year;
(c) at the time of delivery of each annual financial statement pursuant
to Section 5.01(b), a certificate executed by the Chief Financial Officer of the
Company stating that such officer has caused this Agreement, the Preferred Stock
and the Warrants, and, upon the issuance thereof, the Common Conversion Shares
and the Preferred Conversion Shares to be reviewed and has no knowledge of any
default by the Company in the performance or observance of any of the provisions
of this Agreement, the Preferred Stock or the Warrants or, upon the issuance
thereof,
<PAGE>
-20-
the Common Conversion Shares and the Preferred Conversion Shares or, if such
officer has such knowledge, specifying such default and the nature thereof; and
(d) promptly, from time to time, such other information regarding the
business, prospects, financial condition, operations, property or affairs of the
Company and its subsidiaries as such Purchaser reasonably may request.
SECTION 5.02 Right of First Refusal. The Company shall, prior to any
issuance by the Company of any of its securities) other than debt securities
with no equity feature), offer to each Purchaser by written notice the right,
for a period of thirty (30) days, to purchase all of such securities for cash at
an amount equal to the price or other consideration for which such securities
are to be issued; provided, however, that the first refusal rights of the
Purchasers pursuant to this Section 5.02 shall not apply to securities issued
(A) upon conversion of any of the Preferred Stock or exercise of any of the
Warrants, (B) as a stock dividend or upon any subdivision of shares of Common
Stock, provided that the securities issued pursuant to such stock dividend or
subdivision are limited to additional shares of Common Stock, (C) pursuant to
subscriptions, warrants, options, convertible securities, or other rights which
are listed in Schedule IV as being outstanding on the Closing Date, (D) solely
in consideration for the acquisition (whether by merger or otherwise) by the
Company or any of its subsidiaries of all or substantially all of the stock or
assets of any other entity, (E) pursuant to a firm commitment underwritten
public offering, (F) pursuant to the exercise of options to purchase Common
Stock granted to employees of the Company, not to exceed in the aggregate
500,000 shares (appropriately adjusted to reflect stock splits, stock dividends,
combinations of shares and the like with respect to the Common Stock) less the
number of shares (as so adjusted) issued pursuant to options outstanding on the
date of this Agreement and listed in Schedule IV pursuant to clause (C) above
(the shares exempted by this clause (F) being hereinafter referred to as the
"Reserved Employee Shares"), and (G) upon the exercise of any right which was
not itself in violation of the terms of this Section 5.02. The Company's written
notice to the Purchasers shall describe the securities proposed to be issued by
the Company and specify the number, price and payment terms. Each Purchaser may
accept the Company's offer as to the full number of securities offered to such
Purchaser or any lesser number, by written notice thereof given by it to the
Company prior to the expiration of the aforesaid thirty (30) day period, in
which event the Company shall promptly sell and such Purchaser shall buy, upon
the terms specified, the number of securities agreed to be purchased by such
Purchaser. Notwithstanding the foregoing, if the Purchasers agree, in the
aggregate, to purchase more than the full number of securities offered by the
Company, then each Purchaser accepting the Company's offer shall first be
allocated the lesser of (i) the number of securities which such Purchaser agreed
to purchase and (ii) the number of securities as is equal to the full number of
securities offered by the Company multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock held by such Purchaser as of
the date of the Company's notice of offer (treating such Purchaser, for the
purpose of such calculation, as the holder of the number of shares of Common
Stock which would be issuable to such Purchaser upon conversion, exercise or
exchange of all securities (including but not limited to the Preferred Stock)
held by such Purchaser on the date such offer is made, that are convertible,
exercisable or exchangeable into or for (whether or directly or indirectly)
shares of Common Stock) and the denominator of which shall be the aggregate
number of shares of Common Stock (calculated as
<PAGE>
-21-
aforesaid), held on such date by all Purchasers who accepted the Company's
offer, and the balance of the securities (if any) offered by the Company shall
be allocated among the Purchasers accepting the Company's offer in proportion to
their relative equity ownership interests in the Company provided that no
Purchasers accepting the Company's offer in proportion to their relative equity
ownership interests in the Company (calculated as aforesaid), provided that no
Purchaser shall be allocated more than the number of securities which such
Purchaser agreed to purchase and provided further that in cases covered by this
sentence all Purchasers shall be allocated among them the full number of
securities offered by the Company. The Company shall be free at any time prior
to ninety (90) days after the date of its notice of offer to the Purchasers, to
offer and sell to any third party or parties the number of such securities not
agreed by the Purchasers to be purchased by them, at a price and on payment
terms no less favorable to the Company than those specified in such notice of
offer to the Purchasers. However, if such third party sale or sales are not
consummated within such ninety (90) day period, the Company shall not sell such
securities as shall not have been purchased within such period without again
complying with this Section 5.02.
SECTION 5.03 Reserve for Preferred Stock, Common Conversion Shares and
Preferred Conversion Shares. The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock and for the
purpose of effecting the exercise of the Warrants and the conversion of the
Preferred Stock, and otherwise complying with the terms of this Agreement, such
number of its duly authorized shares of Common Stock as shall be sufficient to
effect the exercise of the Warrants and the Conversion of the Preferred Stock,
from time to time outstanding or otherwise to comply with the terms of this
Agreement. If at any time the number of authorized but unissued shares of Common
Stock shall not be sufficient to effect the exercise of the Warrants and the
conversion of the Preferred Stock, or otherwise to comply with the terms of this
Agreement, the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as shall be sufficient for such purposes. The Company will
obtain any authorization, consent, approval or other action by or make any
filing with any court or administrative body that may be required under
applicable state securities laws in connection with the issuance of shares of
Common Stock upon the exercise of the Warrants and the conversion of the
Preferred Stock.
SECTION 5.04 Corporate Existence. The Company shall maintain and cause
any subsidiary which it may create to maintain their respective corporate
existence, rights and franchises in full force and effect.
SECTION 5.05 Properties, Business Insurance. The Company shall maintain
and cause any subsidiary which it may create to maintain as to their respective
properties and business, with financially sound and reputable insurers,
insurance against such casualties and contingencies and of such types in such
amounts as is customary for companies similarly situated, which insurance shall
be deemed by the Company to be sufficient. The Company shall also maintain in
effect a "key person" life insurance policy, payable to the company, on the life
of Kennard H. Morganstern (so long as he remains an employee of the Company), in
the amount of $1,000,000. The Company shall not cause or permit any assignment
or change in beneficiary and shall not
<PAGE>
-22-
borrow against any such policy. If requested by Purchasers holding at least a
majority of the outstanding Preferred Stock and Warrants, the Company will add
one designee of such Purchasers as a notice party for each such policy and shall
request that the issuer of each policy provide such designee with ten (10) days'
notice before such policy is terminated (for failure to pay premiums or
otherwise) or assigned or before any change is made in the beneficiary thereof.
SECTION 5.06 Inspection, Consultation and Advice. The Company shall
permit and cause any subsidiary which it may create to permit each Purchaser and
such persons as it may designate, at such Purchaser's expense, to visit and
inspect any of the properties of the Company and any such subsidiary, examine
their books and take copies and extracts therefrom, discuss the affairs,
finances and accounts of the Company and any such subsidiary, examine their
books and take copies and extracts therefrom, discuss the affairs, finances and
accounts of the Company and any such subsidiary with their officers, employees
and public accountants (and the Company hereby authorizes said accountants to
discuss with such Purchaser and such designees such affairs, finances and
accounts), and consult with the advise the management of the Company and any
such subsidiary as to their affairs, finances and accounts, all at reasonable
times and upon reasonable notice.
SECTION 5.07 Restrictive Agreements Prohibited. Neither the Company nor
any subsidiary which it may create shall become a party to any agreement which
by its terms restricts the Company's performance of this Agreement, the
Registration Rights Agreement, the Stock Restriction Agreement or the
Certificate of Incorporation.
SECTION 5.08 Transactions with Affiliates. Except for transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any subsidiary which it may create shall
enter into any transaction with any director, officer, employee or holder of
more than 5% of the outstanding capital stock of any class or series of capital
stock of the Company or any subsidiary which it may create, member of the family
of any such person, or any corporation, partnership, trust or other entity in
which any such person, or member of the family of any such person, is a
director, officer, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof, except for transactions on customary terms related to
such person's employment.
SECTION 5.09 Expenses of Directors. The Company shall promptly
reimburse in full, each director of the Company who is not an employee of the
Company and who was elected by the holders of the Preferred Stock, for all of
his reasonable out-of-pocket expenses incurred in attending each meeting of the
Board of Directors of the Company or any Committee thereof.
SECTION 5.10 Use of Proceeds. The Company shall use the proceeds from
the sale of the Preferred Stock and the Warrants solely (i) for the repayment of
an aggregate of $850,000 in principal amount of debt to Bernard S. Livingston
and Constance K. Livingston ($350,000), Dr. William C. Cartinhour, Jr.
($250,000), Michael L. Morris ($50,000) and Kabela, Inc. ($200,000) and (ii) for
working capital.
<PAGE>
-23-
SECTION 5.11 Board of Directors Meetings. The Company shall use its
best efforts to ensure that meetings of its Board of Directors are held at least
four times each year and at least once each quarter. The Company shall permit
each Purchaser who holds of records or beneficially at least twenty five (25%)
percent of the Common Conversion Shares and Preferred Conversion Shares issued
or issuable upon exercise of the Warrant or conversion of the Preferred Stock or
such Purchaser's designee to have one representative attend each meeting of the
Board of Directors of the Company and each meeting of any such committee thereof
and to participate in all discussions during each such meeting. The Company
shall send to each such Purchaser and designee the notice of the time and place
of such meeting in the same manner and at the same time as it shall send such
notice to its directors or committee members, as the case may be. The Company
shall also provide to each such Purchaser and designee copies of all notices,
reports, minutes and consents at the time and in the manner as they are provided
to the Board of Directors or committee, except for information reasonably
designated as classified information by the Board of Directors.
SECTION 5.12 Compensation. The Company shall not pay to its management
compensation in excess of that compensation customarily paid to management in
companies of similar size, of similar maturity and in similar businesses.
SECTION 5.13 By-laws. The Company shall at all times cause its By-laws
to provide that unless otherwise required by the laws of the State of New York,
(i) any two directors and (ii) the director nominated by the holders of the
Preferred Stock and the Warrants, elected by the holders of the Preferred Stock,
shall have the right to call a meeting of the Board of Directors or
shareholders. The Company shall at all times maintain provisions in its By-laws
and/or Certificate of Incorporation indemnifying all directors against liability
and absolving all directors from liability to the Company and its shareholders
to the maximum extent permitted under the laws of the State of New York.
SECTION 5.14 Performance of Contracts. The Company shall not amend,
modify, terminate, waive or otherwise alter, in whole or in part, any of the
Employment Agreements without the consent of that member of the Company's Board
of Directors nominated by the holders of the Preferred Stock and the Warrants
or, elected by the holders of the Preferred Stock.
SECTION 5.15 Vesting of Reserved Employee Shares. The Company shall not
grant to any of its employees options to purchase Reserved Employee Shares which
will become exercisable at a rate in excess of 20% per annum from the date of
such grant without the unanimous written consent of that member of the Company's
Board of Directors nominated by the holders of the Preferred Stock and the
Warrants or elected by the holders of the Preferred Stock or the Common Stock,
as the case may be.
SECTION 5.16 Employment Agreements. The Company shall use its best
efforts to obtain, and shall cause its subsidiaries to use their best efforts to
obtain, an Employment agreement in substantially the form of Exhibit G from all
future officers, key employees and other employees who will have access to
confidential information of the Company or any of its
<PAGE>
-24-
subsidiaries, upon their employment by the Company or any of its subsidiaries,
upon their employment by the Company or any of its subsidiaries.
SECTION 5.17 Mergers, Sale of Assets, Etc. of Subsidiaries. The Company
shall not permit any subsidiary which it may create to consolidate or merger
into or with or sell or transfer all or substantially all its assets, except
that any such subsidiary may (i) consolidate or merge into or with or sell or
transfer assets to any other such subsidiary, or (ii) merge into or sell or
transfer assets to the Company.
SECTION 5.18 Maintenance of Ownership of Subsidiaries. The Company
shall not sell or otherwise transfer any shares of capital stock of any
subsidiary which it may create, except to the Company or another such
subsidiary, or permit any such subsidiary to issue, sell or otherwise transfer
any shares of its capital stock or the capital stock of any such subsidiary,
except to the Company or another such subsidiary.
SECTION 5.19 Distributions by Subsidiaries. The Company shall not
permit any subsidiary which it may create to purchase or set aside any sums for
the purchase of, or pay any dividend or make any distribution on, any shares of
its stock, except for dividends or other distributions payable to the Company or
another such subsidiary.
SECTION 5.20 Compliance with Laws. The Company shall comply, and cause
any subsidiary which it may create to comply, with all applicable laws, rules,
regulations and orders, noncompliance with which could materially adversely
affect its business or condition, financial or otherwise.
SECTION 5.21 Keeping of Records and Books of Account. The Company shall
keep, and cause any subsidiary which it may create to keep, adequate records and
books of account, in which complete entries will be made in accordance with
generally accepted accounting principles consistently applied, reflecting all
financial transactions of the Company and such subsidiary, and in which, for
each fiscal year, all proper reserves for depreciation, depletion, obsolescence,
amortization, taxes, bad debts and other purposes in connection with its
business shall be made.
SECTION 5.22 Change in Nature of Business. The Company shall make, or
permit any subsidiary which it may create to make, any material change in the
nature of its business as set forth in the Business Plan.
SECTION 5.23 U.S. Real Property Interest Statement. Upon a written
request by any Purchaser, the Company shall provide such Purchaser with a
written statement informing the Purchaser whether such Purchaser's interest in
the Company constitutes a U.S. real property interest. The Company's
determination shall comply with the requirements of Treasury Regulation section
1.897-2(h)(1) or any successor regulation, and the Company shall provide timely
notice to the Internal Revenue Service, in accordance with and to the extent
required by Treasury Regulation Section 1-897-2(h)(2) or any successor
regulation, that such statement has been made. The Company's written statement
to any Purchaser shall be delivered to such Purchaser with ten (10) days of such
Purchaser's written request therefor. The Company's
<PAGE>
-25-
obligation to furnish a written statement pursuant to this Section 5.23 shall
continue notwithstanding the fact that a class of the Company's stock may be
regularly traded on an established securities market.
ARTICLE VI
MISCELLANEOUS
SECTION 6.01 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby, whether or not such
transactions shall be consummated, provided, however, that the Company shall pay
the fees and disbursements or one counsel for the Purchasers in connection with
such transactions and the subsequent amendment or enforcement thereof.
SECTION 6.02 Survival Of Agreements. All covenants, agreements,
representations and warranties made herein or in the Registration Rights
Agreement, the preferred Stock, the Warrants, the Stock Restriction Agreement,
or any certificate or instrument delivered to the Purchasers pursuant to or in
connection with this Agreement, the Preferred Stock, the Warrants, the
Registration Rights Agreement or the Stock Restriction Agreement, shall survive
the execution and delivery of this Agreement, the Preferred Stock, the Warrants,
the Registration Rights Agreement and the Stock Restriction Agreement, the
issuance, sale and delivery of the Preferred Stock and Warrants, and the
issuance and delivery of the Common Conversion Shares and the Preferred
Conversion Shares and all statements contained in any certificate or other
instrument delivered by the Company hereunder or thereunder or in connection
herewith or therewith shall be deemed to constitute representations and
warranties made by the Company.
SECTION 6.03 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for brokerage or other
commissions relative to this Agreement or to the transactions contemplated
hereby, based in any way on agreements, arrangements or understandings made or
claimed to have been made by such party with any third party.
SECTION 6.04 Parties in Interest. All representations, covenants and
agreements contained in this Agreement by or on behalf of any of the parties
hereto shall bind and inure to the benefit of the respective heirs, personal
representatives, executors, administrators, successors and assigns of the
parties hereto whether so expressed or not. Without limiting the generality of
the foregoing, all representations, covenants and agreements benefiting the
Purchasers shall inure to the benefit of any and all subsequent holders from
time to time of the Preferred Stock, the Warrants, the Common Conversion Shares
and the Preferred Conversion Shares.
SECTION 6.05 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be delivered in person or
mailed by certified or registered mail, return receipt requested, or telexed in
the case of non-U.S. residents, addressed as follows:
<PAGE>
-26-
(a) if to the Company, at 225 Underhill Boulevard, Syosset,
New York 11791, Attention: President, with a copy to Harvey Cohen, Esq.,
Murtagh, Cohen & Byrne, 1122 Franklin Avenue, Garden City, New York 11530; and
(b) if to any Purchaser, at the address of such Purchaser set
forth in Schedule I, with a copy to such counsel as may be designated by any
such Purchaser;
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
SECTION 6.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 6.07 Entire Agreement. This Agreement, including the Schedules
and Exhibits hereto, constitutes the sole and entire agreement of the parties
with respect to the subject matter hereof. All Schedules and Exhibits hereto are
hereby incorporated herein by reference.
SECTION 6.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
SECTION 6.09 Amendments. This Agreement may not be amended or modified,
and no provisions hereof may be waived, without the written consent of the
Company and the holders of at least two-thirds of the outstanding Common
Conversion Shares and Preferred Conversion Shares (i) issued or issuable upon
exercise of the Warrants and conversion of the Preferred Stock.
SECTION 6.10 Severability. If any provision of this Agreement shall be
declared void or unenforceable by any judicial or administrative authority, the
validity of any other provision and of the entire Agreement shall not be
affected thereby.
SECTION 6.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be considered in
construing or interpreting any term or provision of this Agreement.
SECTION 6.12 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meaning to be equally
applicable to both the singular and plural forms of the terms defined):
(a) "Indebtedness" means all obligations, contingent and
otherwise, which should, in accordance with generally accepted accounting
principles consistently applied, be classified upon the obligor's balance sheet
as liabilities, but in any event including, without limitation, liabilities
secured by any mortgage on property owned or acquired subject to such mortgage,
whether or not the liability secured thereby shall have been assumed, and also
including, without limitation, (i) all guaranties, endorsements and other
contingent obligations, in respect of Indebtedness of others, whether or not the
same are or should be so reflected in said
<PAGE>
-27-
balance sheet, except guaranties by endorsement or negotiable instruments for
deposit or collection or similar transactions in the ordinary course or business
and (ii) the present value of any lease payments due under leases required to be
capitalized in accordance with applicable Statements of Financial Accounting
Standards, determined in accordance with applicable Statements of Financial
Accounting Standards.
(b) "Person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization, government agency or
agency or political subdivision thereof, or entity.
(c) "Subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having ordinary
voting power to elect a majority of the Board of Directors of such corporation
(irrespective of whether or not at the time stock of any other class or classes
of such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time directly or indirectly owned by the
Company, or by one or more of its subsidiaries, or by the Company and one or
more of its subsidiaries.
SECTION 6.13. Accounting Terms. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in preparation of the
financial statements delivered pursuant to Section 2.05 hereof, and all
financial data submitted pursuant to this Agreement and all financial tests to
be calculated in accordance with this Agreement shall be prepared and calculated
in accordance with such principles.
IN WITNESS WHEREOF, the Company and the Purchasers have executed this
Agreement as of the day and year first above written.
MEDICAL STERILIZATION, INC.
(CORPORATE SEAL)
Attest:
By:_______________________________________
Title:_____________________________________
___________________________________ President
Secretary
PURCHASERS:
OXFORD VENTURE FUND II, LIMITED
PARTNERSHIP
By: Oxford Partners II, Its General Partner
<PAGE>
-28-
By:_______________________________________
Kenneth W. Rind
Its General Partner
------------------------------------------
BERNARD S. LIVINGSTON
------------------------------------------
CONSTANCE K. LIVINGSTON
------------------------------------------
WILLIAM C. CARTINHOUR, JR.
------------------------------------------
KENNARD H. MORGANSTERN
------------------------------------------
HARVEY COHEN
<PAGE>
-29-
SCHEDULE I
Purchasers
<TABLE>
<CAPTION>
Name and Address Shares of Warrant Aggregate
Preferred Stock Shares Purchase Price
--------------------- ----------------- ----------------------
<S> <C> <C> <C>
Oxford Venture Fund II, 333,333 333,333 $1,000,000
Limited Partnership
1266 Main Street
Stanford, CT 06902
Bernard S. Livingston 25,000 25,000 75,000
1 Sheldrake Lane
New Rochelle, NY 10804
Constance K. Livingston 25,000 25,000 75,000
1 Sheldrake Lane
New Rochelle, NY 10804
William C. Cartinhour, Jr. 83,333 83,333 250,000
10500 Rockville Pike
Rockville, MD 20852
Kennard H. Morganstern 16,667 16,667 50,000
8 Hunters Lane
Roslyn, NY 11576
Harvey Cohen 16,667 16,667 50,000
125 Woodhill Lane
Manhasset, NY 11030
TOTAL 500,000 500,000 $1,500,000
</TABLE>
<PAGE>
-30-
SCHEDULE II
Disclosure Schedule
Section 2.05. The loss for the nine months ended September 30, 1989 was
$282,620. The estimated loss for the year ended December 31, 1989 will be
approximately $400,000.
Section 2.06. Since September 30, 1989, the Company borrowed the sum of
$500,000 from Apple Bank for Savings pursuant to a Term Loan Note and Security
Agreement dated November 2, 1989 and used the proceeds to purchase from Elkcom
Leasing, Inc. the Radiation Dynamics 4500/34/1220 In Line Dynamitron and
accessory equipment which the Company had leased from Elkcom Leasing, Inc. As
security for said loan, the Company pledged and granted a security interest in
the Dynamitron to Apple Bank for Savings.
Section 2.07. The only outstanding matters in litigation are:
(1) McKenzie Associates, Inc. vs. General Sterilization Services, Inc.
(now the company) and D.H. Blair, Inc. in the Supreme Court of the State of New
York, County of Nassau. The Company and D.H. Blair & Co., Inc. were named as
defendants in an action which commenced August 17, 1983 by an investment advisor
alleging failure to pay for services rendered, breach of agreement and a
conspiracy to deprive plaintiff of monies and Company stock, and claiming
damages in the amount of $112,500. The Company has agreed to indemnify D.H.
Blair & Co., Inc. for damages suffered by reason of this action. The Plaintiff
has not proceeded with this action and special counsel to the Company is of the
opinion that the likelihood of an unfavorable outcome in this litigation is
remote.
(2) The Company and Robert S. Luniewski, its Senior Vice President,
were named as defendants in an action which was commenced on June 3, 1988 in the
United States District Court, Eastern District of New York, by Shamrock
Technologies, Inc. alleging patent infringement and breach of an Employment
Agreement and a Trade Secret Agreement. The Complainant is seeking damages and a
permanent injunction from processing by methods which allegedly infringed the
plaintiff's patents and violated trade secrets. A motion for Summary Judgment
was granted in favor of the plaintiff on August 8, 1989 declaring that the
plaintiff's patents were valid and enforceable and that the Company's processes
infringed the patents. The Company was enjoined as of September 3, 1989 from
using processes and equipment which infringe the patents. On appeal of the order
has been filed with the Federal Circuit Court of Appeals in Washington, D.C.
Special counsel to the Company, Kane, Dalsimer, Sullivan, Kurucz, Levy, Eisele &
Richard, is of the opinion that the judgment will be reversed on appeal and
further that the Company is now processing teflon by methods which do not
infringe the patents.
Section 2.08. See Section 2.07(2) above.
Section 2.09. The Revolving Credit loan owed to Apple Bank for Savings
is collaterilized by the Company's accounts receivable, surgical instruments and
containers. See
<PAGE>
-31-
Section 2.06 above regarding other collateral held by Apple Bank. The loans owed
to Weck are collateralized by steam and gas sterilizers and ultrasonic and
tunnel washers and second lien on the collateral given to the Apple Bank.
Section 2.12. The Sales Tax Department of the New York State Department
of Taxation and Finance has advised the Company that a sales tax audit and
assessment may be made relating to the purchases of medical equipment which are
in turn leased to hospitals. It is the opinion of the Company and its auditors
that the Company is exempt from payment of sales taxes on equipment which it
then leases.
Section 2.13(b). The Company has agreements relating to outstanding
loans from Bernard S. Livingston ($400,000), Constance K. Livingston ($100,000),
Michael L. Morris ($50,000), Kabela, Inc. ($200,000), Dr. William C. Cartinhour,
Jr. ($500,000), Kennard H. Morganstern ($450,000), Harvey Cohen ($100,000), the
Apple Bank for Savings and Weck as previously set forth. Out of the proceeds of
this transaction, all loans will be paid off except Kennard H. Morganstern
($400,000), Harvey Cohen ($50,000), Apple Bank for Savings and Weck.
Section 2.14. The Company has no patents, patent rights, etc. The
Company has already disclosed the Shamrock litigation. (See Section 2.07).
Section 2.15. Employee loans may be granted for medical or other
emergency on approval of the President and Vice-president in an amount not
exceeding $500.
Section 2.17. The Company is in default under its Loan Agreement with
Weck, a significant supplier, because it is not current in its interest
payments.
Section 2.22. The officers of the Company and their salaries for 1989
are:
Name Position Salary
---- -------- ------
Kennard H. Morganstern Chairman of Board & President $100,000
Robert S. Luniewski Senior Vice President 86,000
Michael G. Fogarty Vice-president, Quality
Assurance & Regulatory
Affairs
Robert C. Becker Vice President, Contract 79,000
Sterilization
John M. Sharpe, Jr. Treasurer 73,500
Harvey Cohen Secretary 73,500
Section 2.23. Mr. Luniewski, Senior Vice-President of the Company, is
an officer of Precision Micron Powders, Inc., a distributor of products of the
Company pursuant to an agreement which has been delivered to counsel for the
Purchasers. AMSCO, a holder of more than 5% of the Company's stock, is a vendor
of the Company.
<PAGE>
-32-
Harvey Cohen, Secretary and Director of the Company, is a partner of
Murtagh, Cohen & Brune, counsel for the Company.
Kenneth W. Rind, a Director of the Company, is General Partner of
Oxford Partners III Limited Partnership, which is General Partner of Oxford
Venture Fund III Limited Partnership, which holds 228,572 shares of Series A
Convertible Preferred Stock and warrants to purchase 228,572 shares of the
Company's Common Stock. Such shares and warrants will be exchanged for 266,666
shares of Preferred Stock and warrants to purchase 266,666 shares of Common
Stock. He is also General Partner of Oxford Partners III Adjunct, Limited
Partnership, which holds 57,143 shares of Series A Convertible Preferred Stock
and warrants to purchase 57,143 shares of Company Common Stock. Such shares and
warrants will be exchanged for 66,667 shares of Preferred Stock and warrants to
purchase 66,667 shares of Common Stock.
<PAGE>
-33-
SCHEDULE III
Subsidiaries
The Company does not have subsidiaries as that term is defined in
Section 7.12 of the Agreement. It does have 100 shares (50%) of the outstanding
stock of Medical Sterilization Realty, Inc. ("Realty"). The remaining 100 shares
are held as follows: 50 shares by Medical Investment Associates, 10 shares by
Robert Liebowitz, 20 shares by Bernard Livingston and 20 shares by Constance K.
Livingston.
The Company's 100 shares have been pledged to the above parties to
secure the repayment of their loans to the Company in the aggregate amount of
$500,000 and the performance of an agreement to exercise the option under the
Company's Lease under certain conditions. The Company is paying off the loans
held by Mr. and Mrs. Livingston and has paid off the loans held by Medical
Investment Associates and Robert Liebowitz.
Realty has one asset - the lease of the Company with Barlich Realty
Inc. and, in particular, the option to purchase the demised premises between
August 1, 1989 and February 1, 1990 for the price of $4,400,000 or between
August 1, 1994 and February 1, 1995 for the price of $4,900,000. Realty entered
into a sublease with the Company. Realty has exercised its option to renew the
lease with Barlich Realty, Inc. for a term ending February 28, 1995.
Copies of the Lease, the Assignment of Lease, the Pledge Agreement, the
Sublease, and the exclusive agency letter agreement have been supplied to the
Purchasers.
<PAGE>
-34-
SCHEDULE IV
Security Holders
Number of Shares
Name Beneficially Owned Percent of Class
- - ---- ------------------ ----------------
Kennard H. Morganstern 257,900 9.2%
American Sterilizer Company 263,356 9.4%
Dr. William C. Cartinhour, Jr. 300,000 10.8%
Sumitomo Heavy Industries, Ltd. 271,429 9.7%
Option Holders
--------------
Name Number of Shares
---- ----------------
Carl W. Bruch 5,000
John R. Hoover 5,000
Julius H. Jacobson 5,000
Philip J. McCann, Jr. 50,000
Marimargret Beichert 5,000
Michael G. Fogarty 50,000
Henry R. Karpe 1,000
Thomas Healy 2,500
Kennard H. Morganstern 25,000
Robert S. Luniewski 25,000
Calvin Ripman 2,000
Alfonso Iannucci 10,000
Retta Sengstock 5,000
Mildred Simms 3,000
David B. Morganstern 3,000
Robet C. Becker 10,000
John M. Sharpe, Jr. 20,000
Anne McQuaid 1,000
Joseph Hanrahan 500
William Janes 500
Joseph Emmart 500
Charles Heiser 500
<PAGE>
-35-
Warrant Holders
---------------
Name Number of Shares
---- ----------------
Bank, Preston 5,744
Bank, Cherie L. 1,343
Bank, Patricia, B. 1,343
Brown, Richard 13,562
Carhart, George 1,307
Cartinhour, William. C., Jr. 185,000
Casty, Lee 15,189
Carney, James 1,763
Cohen, Harvey 26,789
Cohen, Martin 407
Eder, Ray 1,716
Eder, Gay 1,343
Eder, Andrew 1,343
Eder, James 1,343
Eder, Elliot 1,343
Eder, Andrew Cust. for Samuel B. Eder 1,343
Ehrlich, Herbert B. 5,610
Erenberg, Donald 4,901
Fleischman, Lawrence K. 1,634
Fry, Sylvan 6,789
Goldstein, Irving 3,357
Griffin, Faith 1,634
Kabela, inc. 40,000
Kobren, Lawrence 1,498
Kohn, Harvey 1,307
Levy, Harold & Maxine 6,789
Liebowitz, Robert 6,683
Livingston, Constance 25,365
Livingston, Bernard 28,365
Livingston, Bernard, Trustee 57,000
Luniewski, Robert S. 13,000
Medical Investment Assoc. 33,414
Morganstern, Kennard H. 123,570
Morris, Michael L. 32,000
Nachamie, David 723
Nash, Ronald 17,359
Notas, Bernard 327
Olson, David 2,712
Oxford Venture Fund III, Limited Partnership 228,572
<PAGE>
-36-
Warrant Holders (continued)
---------------
Name Number of Shares
---- ----------------
Oxford Venture III Adjunct, Limited Partnership 57,143
Pace, Randolph K. 6,535
Pardi, Joseph, Jr. 3,598
Pincus, Michael 163
Resnick, Mark R. 19,000
Shames, Ben 83,976
Shames, Ben, Trustee 26,664
Sharpe, John M., Jr. 2,244
Silver, Brad 1,498
Steinberg, Wallace 52,212
Sterling, Howard D. 3,268
Steets, Patricia 21,000
Sukoff, Carey 654
Telishak, Dennis 13,562
Turynsky, Bodan 136
Travis, Stuart 3,591
Weis, Ronald 17,359
Weinberg, Arnold 327
Werner, Harold 1,356
Wooley, Linda 686
Series A Convertible Preferred Stockholders
Name Number of Shares
---- ----------------
Oxford Venture Fund III, Limited Partnership 228,572
Oxford Venture III Adjunct, Limited Partnership 57,143
The shares of Preferred Stock and warrants held by Oxford Venture Fund
III, Limited Partnership will be exchanged for 266,666 shares of Series A
Convertible Preferred Stock and warrants to purchase 266,666 shares of Common
Stock. The shares of Preferred Stock and warrants held by Oxford Venture Fund
III Adjunct, Limited Partnership will be exchanged for 66,667 shares of Series A
Convertible Preferred Stock and Warrants to purchase 66,667 shares of Common
Stock.
In addition, by agreement dated may 11, 1983 with American Sterilizer
Company ("Amsco"), Amsco has the right to acquire additional shares. This right
has been waived.
<PAGE>
-37-
In addition, by agreement with Edward Weck & Company, Inc. ("Weck"), in
the event the Company issues additional shares, or securities convertible into
common stock, Weck has the option to purchase such number of shares or
securities that will maintain the proportion of ownership which the number of
shares Weck can obtain under said agreement has to the number of shares the
Company has outstanding prior to such issuance. Weck has waived this right.
Furthermore, pursuant to Convertible Demand Note and Warrant Purchase
Agreement dated as of January 30, 1989, each of Oxford Venture Fund III, Limited
Partnership and Oxford Venture Fund III Adjunct, Limited Partnership have a
right of first refusal with regard to the purchase of securities offered by the
Company. Pursuant to the terms of the Series A Convertible preferred Stock
issued to such Purchasers, the Company may redeem the shares of Preferred Stock
after January 30, 1992 and must redeem such preferred Stock on January 30, 1994.
<PAGE>
-38-
SCHEDULE V(A) and (B)
SCHEDULE V(A)
NONE
SCHEDULE V(B)
Section 2.13. (a) & (p) The Company, Precision Micron Powders, Inc. and
Robert S. Luniewski entered into an agreement on July 25, 1988 regarding the
processing of teflon powders.
Section 2.13. (g) The Company has a 1983 Stock Option Plan, which was
amended in 1986 and in 1989 authorizing issuance of Incentive Stock Options and
Non-Qualified Stock Options in an aggregate amount of 500,000 shares. Of this
amount, options to purchase 229,500 shares have been granted.
Section 2.13. (j) As previously disclosed, Weck and Amsco had rights to
purchase stock. Amsco has waived its right permanently. Weck has waived its
right in connection with this transaction. The Oxford Venture Funds have waived
their rights in connection with this transaction.
Section 2.13. (n) The existing warrants have certain registration
rights and the agreement with Sumitomo has registration rights. In addition,
Oxford Venture Funds have registration rights. The Company has prepared a
Registration Statement on Form S-1 relating to 500,000 shares reserved for
issuance upon exercise of outstanding options or options hereafter granted,
1,217,736 reserved for issuance upon exercise of outstanding Warrants, 285,715
shares reserved for issuance upon conversion of 285,715 outstanding shares of
Series A Convertible Preferred Stock held by the Oxford Funds, and 581,429
shares purchased in private placements. The Company plans to file the
Registration Statement after the financial statements for the year ending
December 31, 1989 are completed. The Company intends to include in the
Registration Statement the shares reserved for issuance upon the conversion of
the Series A Convertible Preferred Stock and the exercise of the Warrants being
issued in this transaction.
Section 2.13. The Company is in default in payment of certain loans and
obligations as set forth on Schedule II, Section 2.17
<PAGE>
-1-
EXHIBIT A
SERIES A CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known
as "Series A Convertible Preferred Stock" shall consist of no more than
1,000,000 shares.
2. Voting.
2A. General. Except as may be otherwise provided in these terms of
the Series A Convertible Preferred Stock or by law, the Series A Convertible
Preferred Stock shall vote together with all other classes and series of stock
of the corporation as a single class on all actions to be taken by the
stockholders of the Corporation. Each shares of Series A Convertible Preferred
Stock shall entitle the holder thereof to such number of votes per share on each
such action as shall equal the number of votes of Common Stock (including
fractions of a share) into which each share of Series A Convertible Preferred
Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of election (11).
2C. Board Seats. The holders of the Series A Convertible Preferred
Stock, voting as a separate series, shall be entitled to elect one (1) director
of the Corporation. The holders of the Common Stock, voting as a separate class,
shall be entitled to elect the remaining directors of the Corporation.
Notwithstanding the foregoing or anything else to the contrary provided in the
Restated Certificate of Incorporation, if the Corporation fails or refuses, for
any reason or for no reason, to redeem on the Redemption Date (as defined in
paragraph 7) all of the then outstanding shares of Series A Convertible
Preferred Stock in accordance with the terms and provisions of paragraph 7, the
holders of the Series A Convertible Preferred Stock, voting as a separate
series, shall be entitled to elect a majority of the directors of the
Corporation. At any meeting (or in a written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of Series A
Convertible Preferred Stock then outstanding shall constitute a quorum of the
Series A Convertible Preferred Stock for the election of directors to be elected
solely by the holders of the Series A Convertible Preferred Stock or jointly by
the holders of the Series A Convertible Preferred Stock and the Common Stock. A
vacancy in any directorship elected by the holders of the Series A Convertible
Preferred Stock shall be filled only by vote or written consent of the holders
of the Series A Convertible Preferred Stock.
3. Dividends. The holders of the Series A Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends at the rate per annum
of $.30 per share (the "Accruing Dividends"). Accruing Dividends shall accrue
from day to day, whether or not earned or
<PAGE>
-2-
declared, and shall be cumulative from the date of issuance of the Series A
Convertible Preferred Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall first be entitled, before any
distribution or payment is made upon any stock ranking on liquidation junior to
the Series A Convertible Preferred Stock, to be paid an amount equal o $3.00 per
share plus, in the case of each shares, an amount equal to all Accruing
Dividends unpaid thereon (whether or not declared) and any other dividends
declared but unpaid thereon, computed to the date payment thereof is made
available, such amount payable with respect to one share of Series A Convertible
Preferred Stock being sometimes referred to as the "Liquidation Preference
Payment" and with respect to all shares of Series A Convertible Preferred Stock
being sometimes referred to as the "Liquidation Preference Payments". If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series A Convertible Preferred Stock shall be insufficient to permit payment in
full to the holders of Series A Convertible Preferred Stock of the Liquidation
Preference Payments, then the entire assets of the Corporation to be so
distributed shall be distributed ratably among the holders of Series A
Convertible Preferred Stock. Upon any such liquidation, dissolution or winding
up of the Corporation, immediately after the holders of Series A Convertible
Preferred Stock shall have been paid in full the Liquidation Preference
Payments, the remaining net assets of the Corporation available for distribution
shall be distributed ratably among the holders of Series A Convertible Preferred
Stock being deemed, for such purpose, to be equal to the number of shares of
Common Stock (including fractions of a share) into which such share of Series A
Convertible Preferred Stock is convertible immediately prior to the close of
business on the business day fixed for such distribution). Written notice of
such liquidation, dissolution or winding up, stating a payment date and the
place where said payments shall be made, shall be given by mail, postage
prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the
payment date stated therein, to the holders of record of Series A Convertible
Preferred Stock, such note to be addressed to each such holder at its address as
shown by the records of the Corporation. The consolidation or merger of the
Corporation into or with any other entity or entitles which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
or affiliate thereof, and the sale or transfer by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
paragraph 4. For purposes hereof, the Common Stock shall rank on liquidation
junior to the Series A Convertible Preferred Stock.
5. Restrictions. At any time when shares of Series A Convertible
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Restated Certificate of Incorporation, and in addition to any other vote
required by law or the Restated Certificate of Incorporation, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Series A Convertible Preferred Stock, given in writing or by vote at a meting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
<PAGE>
-3-
5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the corporation, or increase the authorized amount
of the Series A Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series A Convertible preferred stock as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible onto shares of Series A
Convertible Preferred Stock or into shares of any other class or series of stock
unless the same ranks junior to the Series A Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such creation, authorization or increase shall be by
means of amendment to the Restated Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merger into or with any other entity or entities
or sell or transfer all or substantially all its assets;
5C. Amend, alter or repeal its Restated Certificate of Incorporation
or By-laws in a manner in which adversely affects the holders of Series A
Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make an distribution on, any shares of stock other than the Series A
Convertible Preferred Stock, except for dividends or other distributions payable
on the Common Stock solely in the form of additional shares of Common Stock and
except for the purchase of shares of Common Stock from former employees of the
Corporation who acquired such shares directly from the Corporation, if each such
purchase is made pursuant to contractual rights held by the Corporation relating
to the termination of employment of such former employee and the purchase price
does not exceed the original issue price paid by such former employee to the
Corporation for such shares; or
5E. Redeem or other wise acquire any shares of Series A Convertible
Preferred Stock except as expressly authorize din paragraph 7 hereof or pursuant
to a purchase offer made pro rata to all holders of the shares of Series A
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series A Convertible Preferred Stock then held by each such holder.
6. Conversions. The holders of shares of Series A Convertible Preferred
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
paragraph 6, the holder of any share or shares of Series A Convertible Preferred
Stock shall have the rig, at its option at any time, to convert any such shares
of Series A Convertible Preferred Stock (except that upon an liquidation of the
Corporation the right of conversion shall terminate at the close of business on
the business day fixed for payment of the amount distributable on the Series A
<PAGE>
-4-
Convertible Preferred Stock) into such number of fully paid and nonassessable
shares of Common Stock as is obtained by (i) multiplying the number of shares of
Series A Convertible Preferred Stock so to be converted by $3.00 and (ii)
dividing the result by the conversion price of $3.00 per share or, in case an
adjustment of such price has taken place pursuant to the further provisions of
this paragraph 6, then by the conversion price as last adjusted and in effect at
the date any share or shares of Series A convertible Preferred Stock are
surrendered for conversion (such price, or such price as last adjusted, being
referred to as the "Conversion Price"). Such rights of conversion shall be
exercised by the holder thereof by giving written notice that the holder elects
to convert a stated number of shares of Series A Convertible Preferred Stock
into Common Stock and by surrender of a certificate or certificates for the
shares so to be converted to the corporation at its principal office (or such
other office or agency of the Corporation as the Corporation may designate by
notice in writing to the holders of the series A Convertible Preferred Stock) at
any time during its usual business hours on the date set forth in such notice,
together with a statement of the name or names (with address in which the
certificate or certificates for shares of Common Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected. Promptly
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
share or shares of Series A convertible Preferred Stock. To the extent permitted
by law, such conversion shall be deemed to have been effected and the Conversion
Price shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Series A Convertible Preferred Stock shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Series a Convertible Preferred Stock
into Common Stock and no payment or adjustment shall be made upon any conversion
on account of any cash dividends on the Common Stock issued upon such
conversion. At the time of each conversion, the Corporation shall pay in cash an
amount equal to all dividends, excluding Accruing Dividends, accrued and unpaid
on the shares of Series A Convertible Preferred Stock surrendered for conversion
to the date upon which such conversion is deemed to take place as provide don
subparagraph 6B. In case the number of shares of Series A Convertible Preferred
Stock represented by the certificate or certificates surrendered pursuant to
subparagraph 6A exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
corporation, a new certificate or certificates for the number of shares of
Series A Convertible Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional share
of Common Stock would, except for the provisions of the first sentence of this
subparagraph 6C, be delivered upon such
<PAGE>
-5-
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series A Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional shares as determined in good faith by the Board of Directors of the
Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraph 6D(1) through 6D(7), deemed to have
issued or sold, any shares of Common Stock for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then, forthwith upon such issue or sale, the Conversion Price shall be
reduced to the price at which the Corporation issued or sold, or is deemed to
have issued or sold, such shares of Common Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable.
6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by assumption
in a merger or otherwise) any warrants or other rights to subscribe for
or to purchase, or any options for the purchase of, Common Stock or any
stock or security convertible into or exchangeable for common Stock
(such warrants, rights or options being called "Options" and such
convertible or exchangeable stock or securities being called
"Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately
exercisable, and the price per share for which Common stock is issuable
upon the exercise of such Options or upon the conversion or exchange of
such Convertible Securities (determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
convertible Securities and upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options)
shall be less than the Conversion Price in effect immediately prior to
the time of the granting of such Options, then the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or
upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Options shall
be deemed to have been issued for such price per share as of the date of
gaining of such Options or the issuance of such Convertible Securities
and thereafter shall be deemed to be outstanding. Except as otherwise
provided in subparagraph 6D(3), no adjustment of the Conversion Price
shall be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such Options or upon the actual
issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
<PAGE>
-6-
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by assumption
in a merger or otherwise) or sell any Convertible Securities, whether or
not the rights to exchange or convert any such Convertible Securities
are immediately exercisable, and the price per share for which Common
Stock is issuable upon such conversion or exchange (determined by
dividing (i) the total amount received or receivable by the Corporation
as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall be
less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of Common
Sock issuable upon conversion or exchange of all such Convertible
Securities shall be deemed to have been issued for such price per share
as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that (a) except
as otherwise provided in subparagraph 6D(3), no adjustment to the
Conversion Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities and (b)
if any such issue or sale of such Convertible Securities is made upon
exercise of any Options to purchase any such Convertible Securities for
which adjustments of the Conversion price have been or are to be made
pursuant to other provisions of this subparagraph 6D, not further
adjustment of the conversion price shall be made by reason of such issue
or sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph 6D(1)
or 6D(2), or the rate at which Convertible Securities refereed to in
subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for
Common Stock shall change at any time including, but not limited to,
changes under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price in effect at the
time of such event shall forthwith be readjusted to the Conversion Price
which would have been in effect such time had such Options or
Convertible Securities still outstanding provided for such changed
purchase price, additional consideration or conversion rate, as the case
may be, the time initially granted, issued or sold, but only if as a
result of such adjustment the Conversion Price then in effect hereunder
is thereby reduce; and upon the expiration of any such Option or the
termination of any such right to convert or exchange such Convertible
Securities, the Conversion Price then in effect hereunder shall
forthwith be increased to the Conversion Price which would have been in
effect at the time of such expiration or termination of such Option or
Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common
<PAGE>
-7-
Stock (except for dividends or distributions upon the Common Stock),
Options or Convertible Securities, any Common Stock, Options or
Convertible Securities, as the case may be, issuable in payment of such
dividend or distribution shall be deemed to have been issued or sold
without consideration.
6D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefore, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions for
concessions paid or allowed by the Corporation in connection therewith.
In case any Options shall be issued on connection with the issue and
sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereof, such options shall be deemed to
have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them (i)
to receive a dividend or other distribution payable in Common Stock,
Options or Convertible securities or (ii) to subscribe for or purchase
Common Stock, Options or Convertible securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of
Common stock deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or the date of
the granting of such right of subscription or purchase, as the case may
be.
6D(7) Treasury Shares. The disposition of any shares of Common
Stock owned or held by or for the account of the Corporation shall be
considered an issue or sale of Common Stock for the purpose of this
subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein
to the contrary notwithstanding, the Corporation shall not be required
to make any adjustment to the Conversion Price in the case of the
issuance of up to an aggregate of 500,000 shares (appropriately adjusted
to reflect the occurrence of any event described in subparagraph 6F) of
Common Stock to directors, officers or employees of the Corporation in
connection with their service as directors of the Corporation or their
employment by the Corporation.
6F. Subdivision or Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock
dividend or otherwise) its outstanding shares of Common Stock into a
greater number of shares, the Conversion Price in effect
<PAGE>
-8-
immediately prior to such subdivision shall be proportionately reduced,
and, conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionality
increased.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the
Corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such
reorganization or reclassification, lawful and adequate provisions shall
be made whereby each holder of a share or shares of Series A Convertible
Preferred Stock shall thereupon have the right to receive, upon the
basis and upon the terms and conditions as provided herein and in lieu
of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Series A Convertible Preferred
Stock, such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common
Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and
interest of such holder to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Price)
shall thereafter be applicable, as nearly as may be, in relation to any
shares of stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
6H. Failure to Redeem. If the Corporation fails, for any
reason or for no reason, to redeem on the Redemption Date (as defined in
paragraph 7) all of the then outstanding shares of Series A Convertible
Preferred Stock in accordance with the terms and conditions of paragraph
7, the Conversion Price then in effect shall be immediately reduced to
an amount equal to 90% thereof. Thereafter until such redemption has
been made in full in accordance with such terms and conditions, the
Conversion Price shall be further reduced on the 90th day following the
Redemption Ate and at the end of each 90-day period thereafter to an
amount equal to 90% of the Conversion Price in effect immediately prior
to each such reduction.
6I. Notice of Adjustment. Upon any adjustment of the
Conversion Price, then and in each such case the Corporation shall given
written notice thereof, by first class, mail, postage prepaid, or by
telex to non-U.S. residents, addressed to each holder of shares of
Series a Convertible Preferred Stock as the address of such holder as
shown on the books of the corporation, which notice shall state the
Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
6J. Other Notices. In case at any time:
<PAGE>
-9-
(1) the Corporation shall declare any dividend upon its
Common Stock payable in cash or stock or make any other distribution to
the holder of its Common Stock;
(2) the Corporation shall offer for subscription pro rata
to the holders of its Common Stock any additional shares of stock for
any class or other rights;
(3)there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of
all or substantially all its assets to, another entity or entities; or
(4)there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class, mail, postage prepaid, or by telex to non-U.S. residents, addressed to
each holder of any shares of Series A Convertible Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolation, mergers, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the forgoing clause (b) shall also specify the date on which the
holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times
reserve and keep available out of its authorized common stock, solely
for the purpose of issuance upon the conversion of Series A Convertible
Preferred Stock as herein provided, such number of shares of Common
Stock as shall then be issuable upon the conversion of all outstanding
shares of Series A Convertible Preferred Stock. The Corporation
covenants that all shares of Common Stock which shall be so issued shall
be duly and validly issued and fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof,
and, without limiting the generality of the foregoing, the Corporation
covenants that it will from time to time take all such action as may be
requisite to assure that the par value per share of the Common Stock is
at all times equal to or less than the Conversion Price in effect at the
time. The Corporation will taken all such action as may be necessary to
assure that all such shares of Common Stock may be so issued without
violation of any applicable law or regulation, or of any requirement of
any national securities exchange upon which the Common Stock may be
listed. The Corporation will not taken any action which results in any
adjustment of the conversion Price if the total number of shares of
Common Stock issued and issuable after such action upon
<PAGE>
-10-
conversion of the Series A Convertible Preferred Stock would exceed the
total number of shares of Common Stock then authorized by the Restated
Certificate of Incorporation.
6L. No Reissuance of Series A Convertible Preferred Stock.
Share of Series A Convertible Preferred Stock which are converted into
shares of Common Stock as provided herein shall not be reissued.
6M. Issue Tax. The issuance of certificates for shares of
Common Stock upon conversion of Series A Convertible Preferred Stock
shall be made without charge to the holders thereof for any issuance tax
in respect thereof, provided that the Corporation shall not be requited
to pay an tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than
that of the holder of the Series A Convertible Preferred Stock which is
being converted.
6N. Closing of Books. The Corporation will at no time close
its transfer books against the transfer of any Series A Convertible
Preferred Stock or of any shares of Common Stock issued or issuable upon
the conversion of any shares of Series A Convertible Preferred Stock in
any manner which interferes with the timely conversion of such Series A
Convertible Preferred Stock, except as may otherwise be requited to
comply with applicable securities laws.
6O. Definition of Common Stock. As used in this paragraph 6,
the term "Common Stock" shall mean and include the Corporation's
authorized Common Stock per value $.01 per share, as constituted on the
date of filing of these terms of the Series A Convertible Preferred
Stock, and shall also include any capital stock of any class of the
Corporation thereafter authorized which shall not be limited to a fixed
sum or percentage of par value in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets
upon the voluntary o involuntary liquidation, dissolution or winding up
of the Corporation; provided that the shares of Common Stock receivable
upon conversion of shares of Series A Convertible Preferred Stock shall
include only shares designated as Common Stock of the corporation the
date of filing of this instrument, in or in case of any reorganization
or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in subparagraph 6g.
6P. Mandatory Conversion. If at any tine the Corporation shall
effect a firm commitment underwritten public offering of shares of
Common Stock in which (i) the aggregate price paid for such shares by
the public shall be at lest $5,000,000 and (ii) the price paid by the
public for such shares shall be at least $10.50 per shares
(appropriately adjusted to reflect the occurrence of any event described
in subparagraph 6F), then effective upon the close of the sale of such
shares by the Corporation pursuant to such public offering, all
outstanding shares of Series A Convertible Preferred Stock shall
automatically convert to shares of Common Stock.
7. Redemption. The shares of Series A Convertible Preferred Stock shall
be redeemed as follows:
<PAGE>
-11-
7A. Mandatory Redemption. On December 31, 1994, the
Corporation shall redeem from each holder of shares of Series A Convertible
Preferred Stock, all of the shares of Series A Convertible Preferred Stock held
by such holder on the Redemption Date.
7B. Optional Redemption. At any time after December 31, 1992,
the Corporation shall have the right, at its sole option, to redeem from each
holder of shares of Series A Convertible Preferred Stock, all of the shares of
Series A Convertible Preferred Stock held by such holder on the date of such
redemption. The date of a redemption pursuant to Section 7A or 7B is hereinafter
referred to as the "Redemption Date."
7C. Redemption Price and Payment. The Series A Convertible
Preferred Stock to be redeemed ton the Redemption Date shall be redeemed by
paying for each share in cash an amount equal to $3.00 per share plus, in the
case of each share, an amount equal to all Accruing Dividends unpaid thereon
(whether or not declared) and any other dividends declared but unpaid thereon,
computed to the Redemption Date, such amount being referred to as the
"Redemption Price". Such payment shall be made in full on the Redemption Date to
the holders entitled thereto.
7D. Redemption Mechanics. At least 20 but not more than 30
days prior to the Redemption Date, written notice (the "Redemption Notice")
shall be given by the Corporation by mail, postage prepaid, or by telex to
non-U.S. residents, to each holder of record (at the close of business on the
business day next preceding the day on which the Redemption Notice is given) of
shares of Series A Convertible Preferred Stock notifying such holder of the
redemption and specifying the Redemption Price, the Redemption Date and the
place where said Redemption Price shall be payable. The Redemption Notice shall
be addressed to each from and after the close of business on the Redemption
Date, unless there shall have been a default in the payment of the Redemption
Price, all rights of holders of shares of Series A Convertible Preferred Stock
(except the right to receive the Redemption Price) shall cease with respect to
such shares, and such shares shall not thereafter be transferred on the books of
the Corporation or be deemed to be outstanding for any purpose whatsoever. If
the funds of the Corporation legally available for redemption of shares of
Series A Convertible Preferred Stock on the Redemption Date are insufficient to
redeem the total number of outstanding shares of Series A Convertible Preferred
Stock, the holders of shares of Series A Convertible Preferred Stock shall share
ratably in any funds legal available for redemption of such shares according to
the respective amounts which would be payable with respect to the full number of
shares owned by them in all such outstanding shares were redeemed in full. The
shares of Series A Convertible Preferred Stock not redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At any
time thereafter when additional funds of the Corporation are legal available for
the redemption of such shares of Series A Convertible Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.
7E. Redeemed or Otherwise Acquired Shares to be Retired. Any
shares of Series A Convertible Preferred Stock redeemed pursuant to this
paragraph 7 or otherwise acquired by
<PAGE>
-12-
the Corporation and any manner whatsoever shall be cancelled and shall not under
any circumstances be reissued; and the Corporation may from time to time take
such appropriate corporation action as may be necessary to reduce accordingly
the number of authorized shares of Series A Convertible Preferred Stock.
8. Amendments. No provision of these terms of the Series A
Convertible Preferred Stock may be amended, modified or waived without the
written consent or affirmative vote of the holders of at least two-thirds of the
then outstanding shares of Series A Convertible Preferred Stock.
<PAGE>
-1-
Exhibit B
This Warrant has not been registered under the Securities Act of 1933, and may
not be sold or transferred unless such sale or transfer is in accordance with
the registration requirements of the Securities Act of 1933, as at the time
amended, or in conformity with the limitations of Rule 144 or similar rules as
then in effect under such Act, or unless some other exemption from the
registration requirements of such Act is available with respect thereto.
No. W- Right to Purchase Shares of Common
Stock of Medical Sterilization, Inc.
MEDICAL STERILIZATION, INC.
Common Stock Purchase Warrant
Medical Sterilization, Inc., a New York corporation (the "Company"),
hereby certifies that, for value received or assigns, is entitled, subject to
the terms set froth below, to purchase from the Company at any time or from time
to time before 5:00 P.M., New York time, on December 30, 1994, or such later
time as may be specified in Section 18 hereof, ( ) fully paid and
nonassessable shares of Common Stock, $.01 par value, of the Company, at a
purchase price per share of $3.00 (such purchase price per share as adjusted
from time to time as herein provided is referred to herein as the "Purchase
Price"). The number and character of such shares of Common Stock and the
Purchase Price are subject to adjustment as provided herein.
This Warrant is one of the Common Stock Purchase Warrants (the
"Warrants") evidencing the right to purchase shares of Common Stock of the
Company, issued pursuant to a certain Preferred Stock and Warrant Purchase
Agreement (the "Agreement"), dated as of , 1989, between the Company and the
Purchasers, a copy of which is on file at the principal office of the Company
and the holder of this Warrant shall be entitled to all of the benefits of the
Agreement, as provided therein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Medical Sterilization,
Inc. and any corporation which shall succeed or assume the obligations of the
Company hereunder.
(b) The term "Common Stock" includes (a) the Company's Common
Stock, $.01 par value per share, as authorized on the date of the Agreement, (b)
any other capital stock of any class of classes (however designated) of the
Company, authorized on or after such date, the holders of which shall have the
right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
<PAGE>
-2-
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies, be entitled
to vote for the election of a majority of directors of the Company (eventhough
the right so to vote has been suspended by the happening of such a contingency)
and (c) any other securities into which or for which any of the securities
described in (a) or (b) may be converted or exchanged pursuant to a plan of
recapitalization, reorganization, merger, sale of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other
than Common Stock) and other securities of the Company or any other person
(corporate or otherwise) which the holders of the Warrants at any time shall be
entitled to receive, or shall have received, on the exercise of the Warrants, in
lieu of or in addition to Common Stock, or which at any time shall be issuable
or shall have been issued in exchange for or in replacement of Common Stock or
Other Securities pursuant to Section 5 or otherwise.
1. Exercise of Warrant.
1.1 Full Exercise. This Warrant may be exercised in full by the
holder hereof by surrender of this Warrant, with the form of subscription at the
end hereof duly executed by such holder, to the Company at its principal office,
accompanied by payment in cash or by certified or official bank check payable to
the order of the Company, in the amount obtained by multiplying the number of
shares of Common Stock for which this Warrant is then exercisable by the
Purchase Price then in effect. The number of shares shall be obtained by (i)
multiplying the number of shares for which this Warrant is exercisable by $3.00
and (ii) dividing the result by the exercise price of $3.00 per share, or, in
case an adjustment of such price has taken place pursuant to the provisions of
Paragraph 5 hereof, then by the exercise price as last adjusted and in effect at
the date of exercise of this Warrant.
1.2 Partial Exercise. This Warrant may be exercised in part by
surrender of this Warrant in the manner and at the place provided in subsection
1.1 except that the amount payable by the holder on such partial exercise shall
be the amount obtained by multiplying (a) the number of shares of Common Stock
designated by the holder in the subscription at the end hereof by (b) the
Purchase Price then in effect. On any such partial exercise the Company at its
expense will forthwith issue and deliver to or upon the order of the holder
hereof a new Warrant or Warrants of like tenor, in the name of the holder hereof
or as such holder (upon payment by such holder of any applicable transfer taxes)
may request, calling in the aggregate on the face or faces thereof for the
number of shares of Common Stock for which such Warrant or Warrants may still be
exercised.
1.3 Company Acknowledgment. The Company will, at the time of the
exercise of the Warrant, upon the request of the holder hereof acknowledge in
writing its continuing obligation to afford to such holder any rights to which
such holder shall continue to be entitled after such exercise in accordance with
the provisions of this Warrant. If the holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford to such holder any such rights.
<PAGE>
-3-
1.4 Trustee for Warrant Holders. In the event that a bank or trust
company shall have been appointed as trustee for the holders of the Warrants
pursuant to subsection 4.2, such bank or trust company shall have all the powers
and duties of a warrant agent appointed pursuant to section 13 and shall accept,
in its own name for the account of the Company or such successor person as may
be entitled thereto, all amounts otherwise payable to the Company or such
successor, as the case may be, on exercise of this Warrant pursuant to this
section 1.
2. Delivery of Stock Certificates, etc., on Exercise. As soon as
practicable after the exercise of this Warrant in full or in part, and in any
event within 10 days thereafter, the Company at its expense (including the
payment by it of any applicable issue taxes) will cause to be issued in the name
of and delivered to the holder hereof, or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, a certificate or
certificates for the number of fully paid and nonassessable shares of Common
Stock (or Other Securities) to which such holder shall be entitled on such
exercise, plus, in lieu of any fractional share to which such holder would
otherwise be entitled, cash equal to such fraction multiplied by the then
current market value of one full share, together with any other stock or other
securities and property (including cash, where applicable) to which such holder
is entitled upon such exercise pursuant to section 1 or otherwise.
3. Adjustment for Dividends in Other Stock, Property, etc.;
Reclassification, etc. In case at any time or from time to time, the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of shareholders eligible to receive)
shall have become entitled to receive, without payment therefor,
(a) other or additional stock or other securities or property
(other than cash) by way of dividend, or
(b) any cash (excluding cash dividends payable solely out of
earnings or earned surplus of the Company), or
(c) other or additional stock or other securities or property
(including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement,
other than additional shares of Common Stock (or Other Securities) issued as a
stock dividend or in a stock-split (adjustments in respect of which are provided
for in subsection 5.3), then and in each such case the holder of this Warrant,
on the exercise hereof as provided in section 1, shall be entitled to receive
the amount of stock and other securities and property (including cash in the
cases referred to in subdivisions (b) and (c) of this section 3) which such
holder would hold on the date of such exercise if on the date hereof he had been
the holder of record of the number of shares of Common Stock called for on the
face of this Warrant and had thereafter, during the period from the date hereof
to and including the date of such exercise, retained such shares and all such
other or additional stock and other securities and property (including cash in
the cases referred to in subdivisions (b) and (c) of this section 3) receivable
by him as aforesaid during such period, giving effect to all adjustments called
for during such period by sections 4, 5 or 6.
<PAGE>
-4-
4. Adjustment for Reorganization, Consolidation, Merger, etc.
4.1 Reorganization, Consolidation, Merger, etc. In case at any time
or from time to time, the Company shall (a) effect a reorganization, (b)
consolidate with or merge into any other person, or (c) transfer all or
substantially all of its properties or assets to any other person under any plan
or arrangement contemplating the dissolution of the Company, then, in each such
case, the holder of this Warrant, on the exercise hereof as provided in section
1 at any time after the consummation of such reorganization, consolidation or
merger o the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock and other
securities and property (including cash) to which such holder would have been
entitled upon such consummation or in connection with such dissolution, as the
case may be, if such holder had so exercised this Warrant, immediately prior
thereto, all subject to further adjustment as provided in section 3, 5 and 6.
4.2 Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or assets,
the Company, prior to such dissolution, shall at its expense deliver or cause to
be delivered the stock and other securities and property (including cash, where
applicable) receivable by the holders of the Warrants after the effective date
of such dissolution pursuant to this section 4 to a bank or trust company having
its principal office in Boston, Massachusetts, as trustee for the holder or
holders of the Warrants.
4.3 Continuation of Terms. Upon any reorganization, consolidation,
merger or transfer (any dissolution following any transfer) referred to in this
section 4, this Warrant shall continue in full force and effect and the terms
hereof shall be applicable to the shares of stock and other securities and
property receivable on the exercise of this Warrant after the consummation of
such reorganization, consolidation or merger or the effective date of
dissolution following any such transfer, as the case may be, and shall be
binding upon the issuer of any such stock or other securities, including, in the
case of any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall have
expressly assumed the terms of this Warrant as provided in section 7.
5. Adjustment for Issue or Sale of Common Stock at Less Than the
Purchase Price in Effect.
5.1 General. Except as provided in subsection 5.2, if and whenever
the Company shall issue or sell, or is, in accordance with subparagraphs 5.1(a)
through 5.1(g), deemed to have issued or sold, any shares of Common Stock for a
consideration per share less than the Purchase Price in effect immediately prior
to the time of such issue or sale, then, forthwith upon such issue or sale, the
Purchase Price shall be reduced to the price at which the Company issued or
sold, or is deemed to have issued or sold, such shares of Common Stock.
For purposes of this subsection 5.1, the following subsections 5.1(a)
through 5.1(g) shall also be applicable:
<PAGE>
-5-
(a) Issuance of Rights or Options. In case at any time the Company
shall in any manner grant (whether directly or by assumption in a merger or
otherwise) any warrants or other rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or security convertible
into or exchangeable for Common Stock (such warrants, rights or options being
called "Options" and such convertible or exchangeable stock or securities being
called "Convertible Securities") whether or not such Options or the right to
convert or exchange any such Convertible Securities are immediately exercisable,
and the price per share for which Common Stock is issuable upon the exercise of
such Options or upon the conversion or exchange of such Convertible Securities
(determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Company upon the
exercise of all such Options, plus, in the case of such Options which relate to
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such Convertible
Securities and upon the conversion or exchange thereof by, (ii) the total
maximum number of shares of Common Stock issuable upon the exercise of such
Options or upon the conversion or exchange of all such Convertible Securities
issuable upon the exercise of such Option) shall be less than the Purchase Price
in effect immediately prior to the time of the granting of such Options, then
the total maximum number of shares of Common Stock issuable upon the exercise of
such Options shall be deemed to have been issued for such price per share as of
the date of granting of such Options or the issuance of such Convertible
Securities and thereafter shall be deemed to be outstanding. Except as otherwise
provided in subsection 5.1(c), no adjustment of the Purchase Price shall be made
upon the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of such Common Stock upon
conversion or exchange of such Convertible Securities.
(b) Issuance of Convertible Securities. In case the Company shall in
any manner issue (whether directly or by assumption in a merger or otherwise) or
sell any Convertible Securities, whether or not the rights to exchange or
convert any such Convertible Securities are immediately exercisable, and the
price per share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or receivable by
the Company as consideration for the issue or sale of such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof, by (ii) the
total maximum number of shares of Common Stock issuable upon the conversion or
exchange of all such Convertible Securities) shall be less than the Purchase
Price in effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of all such Convertible Securities shall be deemed to have been issued
for such price per share as of the date of the issue or sale of such Convertible
Securities and thereafter shall be deemed to be outstanding, provided that (a)
except as otherwise provided in subsection 5.1(c), no adjustment of the Purchase
Price shall be made upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities and (b) if any such issue or sale of
such Convertible Securities is made upon exercise of any Options to purchase any
such Convertible Securities for which adjustments of the Purchase Price have
been or are to be made
<PAGE>
-6-
pursuant to other provisions of this subsection 5.1, no further adjustment of
the Purchase Price shall be made by reason of such issue or sale.
(c) Change in Option Price or Conversion Rate. Upon the happening of
any of the following events, namely, if the purchase price provided for in any
Option referred to in subsection 5.1(a), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subsection 5.1(a) or 5.1(b), or the rate at which Convertible Securities
referred to in subsection 5.1(a) or 5.1(b) are convertible into or exchangeable
for Common Stock shall change at any time (including, but not limited to,
changes under or by reason of provisions designed to protect against dilution),
the Purchase Price in effect at the time of such event shall forthwith be
readjusted to the Purchase Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion rate, as the case
may be, at the time initially granted, issued or sold, but only if as a result
of such adjustment the Purchase Price then in effect hereunder is thereby
reduced; and on the expiration of any such Option or the termination of any such
right to convert or exchange such Convertible Securities, the Purchase Price
then in effect hereunder shall forthwith be increased to the Purchase Price
which would have been in effect at the time of such expiration or termination
had such Option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(d) Stock Dividends. In case the Company shall declare a dividend or
make nay other distribution upon any stock of the Company payable in Common
Stock (except for dividends or distributions upon the Common Stock), Options or
Convertible Securities, any Common Stock, Options or Convertible Securities, as
the case may be, issuable in payment of such dividend or distribution shall be
deemed to have been issued or sold without consideration.
(e) Consideration for Stock. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deeded to be the amount received by the
Company therefor, without deduction therefrom of any expenses incurred or any
underwriting commissions or concessions paid or allowed by the Company in
connection therewith. In case any shares of Common Stock, Options or Convertible
Securities shall be issued or sold for a consideration other than cash, the
amount of the consideration other than cash received by the Company shall be
deemed to be the fair value of such consideration as determined in good faith by
the Board of Directors of the Company, without deduction of any expenses
incurred or any underwriting commissions or concessions paid or allowed by the
Company in connection therewith. In case any Options shall be issued in
connection with the issue and sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued for such consideration as determined in good faith by the
Board of Directors of the Company.
(f) Record Date. In case the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them (i) to receive a
dividend or other distribution payable in Common Stock, Options or Convertible
Securities or (ii) to subscribe for or purchase
<PAGE>
-7-
Common Stock, Options or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of Common Stock deemed
to have been issued or sold upon the declaration of such dividend or the making
of such other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(g) Treasury Shares. The disposition of any shares of Common Stock
owned or held by or for the account of the Company shall be considered an issue
or sale of Common Stock for the purpose of this subsection 5.1(g).
5.2 Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Company shall not be required to make any
adjustment of the Purchase Price in the case of the issuance of up to an
aggregate of 500,000 shares (appropriately adjusted to reflect the occurrence of
any event described in subsection 5.3) of Common Stock to directors, officers or
employees of the Company in connection with their service as directors of the
Company or their employment by the Company.
5.3 Extraordinary Events. In the event that the Company shall (i) issue
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) subdivide its outstanding shares of Common Stock,
or (iii) combine its outstanding shares of the Common Stock into a smaller
number of shares of the Common Stock, then, in each such event, the Purchase
Price shall, simultaneously with the happening of such event, be adjusted by
multiplying the then Purchase Price by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
event and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after such event, and the product so obtained shall
thereafter be the Purchase Price then in effect. The Purchase Price, as so
adjusted, shall be readjusted in the same manner upon the happening of any
successive event of events described herein in this subsection 5.3. The holder
of this Warrant shall thereafter, on the exercise hereof as provided in section
1, be entitled to receive that number of shares of Common Stock determined by
multiplying the number of shares of Common Stock which would otherwise (but for
the provisions of this subsection 5.3) be issuable on such exercise by a
fraction of which (i) the numerator is the Purchase Price which would otherwise
(but for the provisions of this subsection 5.3) be in effect, and (ii) the
denominator is the Purchase Price in effect on the date of such exercise.
6. Adjustment for Net Income or Public Offering.
6.1 Net Income. Upon the public release of the Company's audited
financial statements for its fiscal year ending December 31, 1991, the number of
shares of Common Stock for which this Warrant is then exercisable shall be
reduced by 8,000 shares of Common Stock for each $100,000 of annual net income
in excess of $1,500,000, based on reported earnings, as if fully taxed,
calculated on an unconsolidated basis which excludes only the financial results
of any majority-owned subsidiaries operating outside of the New York
metropolitan area.
6.2 Public Offering. In case at any time prior to December 31, 1991
the Company shall effect a firm commitment underwritten public offering of
shares of Common
<PAGE>
-8-
Stock in which (i) the aggregate price paid for such shares by the public shall
be at least $5,000,000, (ii) the price paid by the public for such shares shall
be at least $10 per share (approximately adjusted to reflect the occurrence of
any event described in section 4) and (iii) the holders of the Warrants are
permitted by the managing underwriter for the offering to include all the shares
of Common Stock then held by them in the offering, then the number of shares of
Common Stock for which this Warrant is exercisable shall be reduced by fifty
(50%) percent.
7. No Dilution or Impairment. The Company will not, by amendment of its
Restated Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of the Warrants, but will at all times in good faith assist in
the carrying out of all such terms and in the taking of all such action as may
be necessary or appropriate in order to protect the rights of the holders of the
Warrants against dilution or other impairment. Without limiting the generality
of the foregoing, the Company (a) will not increase the par value of any shares
of stock receivable on the exercise of the Warrants above the amount payable
therefor on such exercise, (b) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully paid
and nonassessable shares of stock on the exercise of all Warrants from time to
time outstanding, (c) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon voluntary or
involuntary dissolution, liquidation or winding up, unless the rights of the
holders thereof shall be limited to a fixed sum or percentage of par value in
respect of participation in dividends and in any such distribution of assets,
and (d) will not transfer all or substantially all of its properties and assets
to any other person (corporate or otherwise), or consolidate with or merge into
any other person or permit any such person to consolidate with or merge into the
Company (if the Company is not the surviving person), unless such other person
shall expressly assume in writing and will be bound by all the terms of the
Warrants.
8. Accountants' Certificate as to Adjustments. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable on the exercise of the Warrants, the Company at its expense will
promptly cause independent certified public accountants of recognized standing
selected by the Company to compute such adjustment or readjustment in accordance
with the terms of the Warrants and prepare a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based, including a statement of (a) the
consideration received or receivable by the Company for any additional shares of
Common Stock (or Other Securities) issued or sold or deemed to have been issued
or sold, (b) the number of shares of Common Stock (or Other Securities)
outstanding or deemed to be outstanding, and (c) the Purchase Price and the
number of shares of Common Stock to be received upon exercise of this Warrant,
in effect immediately prior to such issue or sale and as adjusted and readjusted
and provided in this Warrant. The Company will forthwith mail a copy of each
such certificate to each holder of a Warrant, and will, on the written request
at any time of any holder of a Warrant, furnish to such holder a like
certificate setting forth the Purchase Price at the time in effect and showing
how it was calculated.
<PAGE>
-9-
9. Notices of Record Date, etc. In the event of
(a) any taking by the Company of a record of the holders of any
class or securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of all
or substantially all the assets of the Company to or consolidation or merger of
the Company with or into any other person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, or
(d) any proposed issue or grant by the Company of any shares of
stock of any class or any other securities, or any right or option to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any other
securities (other than the issue of Common Stock on the exercise of the
Warrants),
then and in each such event the Company will mail or cause to be mailed to each
holder of a Warrant a notice specifying (i) the date on which any such record is
to be taken for the purpose of such dividend, distribution or right, and stating
the amount and character of such dividend, distribution or right, (ii) the date
on which any such reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up is to take place,
and the time, if any is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding-up, and (iii) the amount and
character of any stock or other securities, or rights or options with respect
thereto, proposed to be issued or granted, the date of such proposed issue or
grant is to be offered or made. Such notice shall be mailed at least 20 days
prior to the date specified in such notice on which any such action is to be
taken.
10. Reservation of Stock, etc., Issuable on Exercise of Warrants. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of the Warrants, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of the Warrants.
11. Exchange of Warrants. On surrender of any Warrant, properly
endorsed, to the Company, the Company at its expense will issue and deliver to
or on the order of the holder thereof a new Warrant or Warrants of like tenor,
in the name of such holder or as such holder (on payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face or
faces of the Warrant or Warrants so surrendered.
<PAGE>
-10-
12. Replacement of Warrants. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of any
Warrant and, in the case of any such loss, theft or destruction of any Warrant,
on delivery of an indemnity agreement or security reasonably satisfactory in
form and amount to the Company or, in the case of any such mutilation, on
surrender and cancellation of such Warrant, the Company at its expense will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
13. Warrant Agent. The Company may, by written notice to each holder of
a Warrant, appoint an agent having an office in either Boston, Massachusetts or
New York, New York for the purpose of issuing Common Stock (or Other Securities)
on the exercise of the Warrants pursuant to section 1, exchanging Warrants
pursuant to section 11, and replacing Warrants pursuant to section 12, or any of
the foregoing, and thereafter any such issuance, exchange or replacement, as the
case may be, shall be made at such office by such agent.
14. Remedies. The Company stipulates that the remedies at law of the
holder of this Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant are not and will not be adequate, and that such terms may be
specifically enforced by a decree for the specific performance of any agreement
contained herein or by an injunction against a violation of any of the terms
hereof or otherwise.
15. Negotiability, etc. This Warrant is issued upon the following
terms, to all of which each holder or owner hereof by the taking hereof consents
and agrees:
(a) title to this Warrant may be transferred by endorsement (by the
holder hereof executing the form of assignment at the end hereof) and delivery
in the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered to
transfer absolute title hereto by endorsement and delivery hereof to a bona fide
purchaser hereof for value; each prior taker or owner waives and renounces all
of his equities or rights in this Warrant in favor of each such bona fide
purchaser, and each such bona fide purchaser shall acquire absolute title hereto
and to all rights represented hereby; and
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered holder hereof as the absolute owner hereof
for all purposes, notwithstanding any notice to the contrary.
16. Notices, etc. All notices and other communications from the Company
to the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such holder or, until any such holder furnishes to the
Company an address, then to, and at the address of, the last holder of this
Warrant who has so furnished an address to the Company.
<PAGE>
-1-
Exhibit C
RESTATED CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
Under Section 807 of the Business Corporation Law
We, Kennard H. Morganstern and Harvey Cohen, being respectively the
President and Secretary of Medical Sterilization, Inc. hereby certify:
1. The name of the corporation is MEDICAL STERILIZATION, INC.
2. The Certificate of Incorporation was filed on May 27, 1982 under the
name, General Sterilization Services, Inc. Restated Certificates of
Incorporation were filed on May 12, 1983 and August 5, 1983.
3. The Certificate of Incorporation is amended as follows:
(a) to increase the authorized number of shares of Common Stock from
Five Million (5,000,000) to Ten Million (10,000,000);
(b) to eliminate the Class A Convertible Non-Cumulative Preferred
Stock and the Class B Convertible Non-Cumulative Preferred Stock; the shares
being eliminated are not issued;
(c) to authorized the issuance of 3,000,000 shares of Preferred
Stock issuable in series, par value .01 per share.
4. The Certificate of Incorporation is hereby restated to set forth its
entire text as amended:
"FIRST: The name of the corporation shall be MEDICAL STERILIZATION,
INC.
<PAGE>
-2-
SECOND: The purposes for which it is formed are:
A. To engage in the business of providing sterilization services
for business and institutions, supplying and/or leasing materials, instruments
and equipment, experimenting with, developing, producing, buying, renting,
leasing, maintaining, servicing, repairing and generally dealing in all types of
sterilization equipment, x-ray equipment and instruments, electronic and nuclear
equipment, scientific apparatus and instruments, and all other articles and
equipment of kindred nature, and to engage in the business of acting as
scientific consultants in connection with the above.
B. To own, operate and control, to lease, manage, take over or in
any lawful manner acquire any business, factory, warehouse, plant, office, store
or establishment for the carrying on of the business of the corporation and for
the purchase, sale, import, export, manufacture, fabrication, production or
storage of all kinds of goods, wares, merchandise of any and all descriptions.
C. To do all and everything necessary, suitable or proper for the
accomplishment of any of the purposes, the attainment of any of the objects, or
the furtherance of any of the powers hereinbefore set forth, either alone or in
connection with other corporations, firms or individuals, and either as
principals or agents, and to do every other act or acts, thing or things,
incidental or appurtenant to or growing out of or connected with the aforesaid
objects, purposes, or powers, or any of them.
THIRD: The office of the corporation is to be located in the Village of
Garden City, County of Nassau.
FOURTH: The aggregate number of shares which the corporation shall have
authority to issue is Thirteen Million (13,000,000) shares to consist of Ten
Million (10,000,000) shares of
<PAGE>
-3-
Common Stock, with a par value of $.01 per share and Three Million (3,000,000)
shares of Preferred Stock, with a par value of $.01 per share.
The respective designations, preferences, privileges and voting powers
or restrictions or qualifications of each class of stock are as follows:
A. Preferred Stock. The Preferred Stock may be issued from time
to time in one or more series and with such designation for each such series as
shall be stated and expressed in the resolution or resolutions providing for the
issue of each such series adopted by the Board of Directors. The Board of
Directors in any such resolution or resolutions is expressly authorized to state
and express for each such series:
(i) Voting rights, if any, including without limitation the
authority to confer multiple votes per share, voting rights as to specified
matters or issues such as mergers, consolidations or sales of assets, or voting
rights to be exercised either together with holders of Common Stock as a single
class, or independently as a separate class;
(ii) The rate per annum and the times at and conditions upon
which the holders of stock of such series shall be entitled to receive
dividends, and whether such dividends shall be cumulative or non-cumulative and
if cumulative the terms upon which such dividends shall be cumulative;
(iii) The price or prices and the time or times at and the
manner in which the stock of such series shall be redeemable;
(iv) The rights to which the holders of the shares of stock
of such series shall be entitled upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
<PAGE>
-4-
(v) The terms, if any, upon which the shares of stock of such
series shall be convertible into, or exchangeable for, shares of stock of any
other class of classes or of any other series of the same or any other class or
classes, including the price or prices or the rate or rates of conversion or
exchange and the terms of adjustment, if any; and
(vi) Any other designations, preferences and relative,
participating, optional or other special rights, and qualifications, limitations
or restrictions thereof so far as they are not inconsistent with the provisions
of the Certificate of Incorporation, as amended, and to the full extent now or
hereafter permitted by the laws of the State of New York.
All shares of the Preferred Stock of any one series shall be identical
to each other in all aspects, except that shares of any one series issued at
different times may differ as to the dates from which dividends thereon, if
cumulative, shall be cumulative.
B. Common Stock.
(i) Whenever dividends upon the Preferred Stock at the time
outstanding shall have been paid in full for all past dividend periods or
declared and set apart for payment, such dividends as may be determined by the
Board of Directors may be declared by the Board of Directors and paid from time
to time to the holders of the Common Stock, subject to any restrictions stated
and expressed in any resolution or resolutions adopted by the Board of Directors
including any resolutions providing for the issuance of Preferred Stock.
(ii) In the event of any liquidation, dissolution or winding
up of the affairs of the Corporation, whether voluntary or involuntary, all
assets remaining after the payment to the holders of the Preferred Stock at the
time outstanding of the full amounts to which they shall be entitled, shall be
divided and distributed among the holders of Common Stock according to their
respective shares.
<PAGE>
-5-
(iii) Each holder of the Common Stock shall have one vote in
respect of each share of such stock held by him.
C. Pre-emptive Rights. No shareholder of this corporation shall
have a pre-emptive right because of his shareholdings to have first offered to
him any part of any of the presently authorized shares of this corporation
hereafter issued, optioned, or sold, or any part of any debenture, bonds, notes,
or securities of this corporation convertible into shares hereafter issued,
optioned, or sold by the corporation. This provision shall operate to defeat
rights in all shares and classes of shares now authorized and in all debentures,
bonds, notes, or securities of the corporation which may be convertible into
shares, and also to defeat pre-emptive rights in any and all shares and classes
of shares and securities convertible into shares which this corporation may be
hereafter authorized to issue by any amended certificate duly filed. Thus, any
and all of the shares of this corporation presently authorized, and any and all
debentures, bonds, notes, or securities of this corporation convertible into
shares and any and all of the shares of this corporation which may hereafter be
authorized, may at any time be issued, optioned, and contracted for sale, and/or
sold and disposed of by direction of the Board of Directors of this corporation
to such persons, and upon such terms and conditions as may to the Board of
Directors seem proper and advisable, without first offering the said shares or
securities or any part thereof to existing shareholders.
D. Stock Rights and Options. The corporation shall have the
power to create and issue rights, warrants, or options entitling the holders
thereof to purchase from the corporation any shares of its capital stock of any
class or classes, upon such terms and conditions and at such time and prices as
the Board of Directors may provide, which terms and conditions shall be
incorporated in an instrument or instruments evidencing such rights. In the
absence of
<PAGE>
-6-
fraud, the judgment of the Directors as to the adequacy of consideration for the
issuance of such rights or options and the sufficiency thereof shall be
conclusive.
FIFTH: The Secretary of Sate is designated as the agent of the
corporation upon whom process against it may be served, and the post office
address to which the Secretary of State shall mail a copy of such process served
upon him is "c/o Murtagh, Cohen & Byrne, 1122 Franklin Avenue, Garden City, New
York 11530."
5. The Restatement of the Certificate of Incorporation was authorized
by the vote of the Board, followed by the affirmative vote of the holders of a
majority of all outstanding shares entitled to vote thereon at a meeting of
shareholders.
IN WITNESS WHEREOF, we have signed this Restated Certificate of
Incorporation on the 22nd day of May, 1989.
---------------------------------
Kennard H. Morganstern, President
---------------------------------
Harvey Cohen, Secretary
STATE OF NEW YORK )
)ss.:
COUNTY OF NASSAU )
On this 22nd day of May, 1989, before me personally came KENNARD H.
MORGANSTERN and HARVEY COHEN, to me known to be the individuals described in and
who executed the foregoing Restated Certificate of Incorporation, and they duly
acknowledge to me that they executed the same.
---------------------------------
Notary Public
<PAGE>
-1-
EXHIBIT D
SERIES A CONVERTIBLE PREFERRED STOCK
1. Number of Shares. The series of Preferred Stock designated and known
as "Series A Convertible Preferred Stock" shall consist of no more than
1,000,000 shares.
2. Voting.
2A. General. Except as may be otherwise provided in these terms of
the Series A Convertible Preferred Stock or by law, the Series A Convertible
Preferred Stock shall vote together with all other classes and series of stock
of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation. Each share of Series A Convertible Preferred
Stock shall entitle the holder thereof to such number of votes per share on each
such action as shall equal the number of shares of Common Stock (including
fractions of a share) into which each share of Series A Convertible Preferred
Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of eleven (11).
2C. Board Seats. The holders of the Series A Convertible Preferred
Stock, voting as a separate series, shall be entitled to elect one (1) director
of the Corporation. The holders of the Common Stock, voting as a separate class,
shall be entitled to elect the remaining directors of the Corporation.
Notwithstanding the foregoing or anything else to the contrary provided in the
Restated Certificate of Incorporation, if the Corporation fails or refuses, for
any reason or for no reason, to redeem on the Redemption Date (as defined in
paragraph 7) all of the then outstanding shares of Series A Convertible
Preferred Stock in accordance with the terms and provisions of paragraph 7, the
holders of the Series A Convertible Preferred Stock, voting as a separate
series, shall be entitled to elect a majority of the directors of the
Corporation. At any meeting (or in a written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of Series A
Convertible Preferred Stock then outstanding shall constitute a quorum of the
Series A Convertible Preferred Stock for the election of directors to be elected
solely by the holders of the Series A Convertible Preferred Stock or jointly by
the holders of the Series A Convertible Preferred Stock and the Common Stock. A
vacancy in any directorship elected by the holders of the Series A Convertible
Preferred Stock shall be filled only by vote or written consent of the holders
of the Series A Convertible Preferred Stock.
3. Dividends. The holders of the Series A Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends at the rate per annum
of $.30 per share (the "Accruing
<PAGE>
-2-
Dividends"). Accruing Dividends shall accrue from day to day, whether or not
earned or declared, and shall be cumulative from the date of issuance of the
Series A Convertible Preferred Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall first be entitled, before any
distribution or payment is made upon any stock ranking on liquidation junior to
the Series A Convertible Preferred Stock, to be paid an amount equal to $3.00
per share plus, in the case of each share, an amount equal to all Accruing
Dividends unpaid thereon (whether or not declared) and any other dividends
declared but unpaid thereon, computed to the date payment thereof is made
available, such amount payable with respect to one share of Series A Convertible
Preferred Stock being sometimes referred to as the "Liquidation Preference
Payment" and with respect to all shares of Series A Convertible Preferred Stock
being sometimes referred to as the "Liquidation Preference Payment" and with
respect to all shares of Series A Convertible Preferred Stock being sometimes
referred to as the "Liquidation Preference Payments". If upon such liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
the assets to be distributed among the holders of Series A Convertible Preferred
Stock shall be insufficient to permit payment in full to the holders of Series A
Convertible Preferred Stock of the Liquidation Preference Payments, then the
entire assets of the Corporation to be so distributed shall be distributed
ratably among the holders of Series A Convertible Preferred Stock. Upon any such
liquidation, dissolution or winding up of the Corporation, immediately after the
holders of Series A Convertible Preferred Stock shall have been paid in full the
Liquidation Preference Payments, the remaining net assets of the Corporation
available for distribution shall be distributed ratably among the holders of
Series A Convertible Preferred Stock and Common Stock (with each share of Series
A Convertible Preferred Stock being deemed, for such purpose, to be equal to the
number of shares of Common Stock (including fractions of a share) into which
such share of Series A Convertible Preferred Stock is convertible immediately
prior to the close of business on the business day fixed for such distribution).
Written notice of such liquidation, dissolution or winding up, stating a payment
date and the place where said payments shall be made, shall be given by mail,
postage prepaid, or by telex to non-U.S. residents, not less than 20 days prior
to the payment date stated therein, to the holders of record of Series A
Convertible Preferred Stock, such notice to be addressed to each such holder at
its address as shown by the records of the Corporation. The consolidation or
merger of the Corporation into or with any other entity or entities which
results in the exchange of outstanding shares of the Corporation for securities
or other consideration issued or paid or caused to be issued or paid by any such
entity or affiliate thereof, and the sale or transfer by the Corporation of all
or substantially all its assets, shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of the
provisions of this paragraph 4. For purposes hereof, the Common Stock shall rank
on liquidation junior to the Series A Convertible Preferred Stock.
5. Restrictions. At any time when shares of Series A Convertible
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Restated Certificate of Incorporation, and in addition to any other vote
required by law or the Restated Certificate of Incorporation, without
<PAGE>
-3-
the approval of the holders of at least two-thirds of the then outstanding
shares of Series A Convertible Preferred Stock, given in writing or by vote at a
meeting, consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series A Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series A Convertible Preferred Stock as to the distribution of assets on
the liquidation, dissolution or winding up of the Corporation, or create or
authorize any obligation or security convertible into shares of Series A
Convertible Preferred Stock or into shares of any other class or series of stock
unless the same ranks junior to the Series A Convertible Preferred Stock as to
the distribution of assets on the liquidation, dissolution or winding up of the
Corporation, whether any such reaction, authorization or increase shall be by
means of amendment to the Restated Certificate of Incorporation or by merger,
consolidation or otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities or
sell or transfer all or substantially all its assets;
5C. Amend, alter or repeal its Restated Certificate of Incorporation
or By-laws in a manner which adversely affects the holders of Series A
Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of stock other than the Series
A Convertible Preferred Stock, except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of Common
Stock and except for the purchase of shares of Common Stock from former
employees of the Corporation who acquired such shares directly from the
Corporation, if each such purchase is made pursuant to contractual rights held
by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of Series A Convertible
Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant
to a purchase offer made pro rata to all holders of the shares of Series A
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series A Convertible Preferred Stock then held by each such holder.
6. Conversions. The holders of shares of Series A Convertible Preferred
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
paragraph 6, the holder of any share or shares of Series A Convertible Preferred
Stock shall have the right, at
<PAGE>
-4-
its option at any time, to convert any such shares of Series A Convertible
Preferred Stock (except that upon any liquidation of the Corporation the right
of conversion shall terminate at the close of business on the business day fixed
for payment of the amount distributable on the Series A Convertible Preferred
Stock) into such number of fully paid and nonassessable shares of Common Stock
as is obtained by (i) multiplying the number of shares of Series A Convertible
Preferred Stock so to be converted by $3.00 and (ii) dividing the result by the
conversion price of $3.00 per share or, in case an adjustment of such price has
taken place pursuant to the further provisions of this paragraph 6, then by the
conversion price as last adjusted and in effect at the date any share or shares
of Series A Convertible Preferred Stock are surrendered for conversion (such
price, or such price as last adjusted, being referred to as the "Conversion
Price"). Such rights of conversion shall be exercised by the holder thereof by
giving written notice that the holder elects to convert a stated number of
shares of Series A Convertible Preferred Stock into Common Stock and by
surrender of a certificate or certificates for the shares so to be converted to
the Corporation at its principal office (or such other office or agency of the
Corporation as the Corporation may designate by notice in writing to the holders
of the Series A Convertible Preferred Stock) at any time during its usual
business hours on the date set forth in such notice, together with a statement
of the name or names (with address) in which the certificate or certificates for
shares of Common Stock shall be issued.
6B. Issuance of Certificates: Time Conversion Effected. Promptly
after the receipt of the written notice referred to in subparagraph 6A and
surrender of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common stock issuable upon the conversion of such
share or shares of Series A Convertible Preferred Stock. To the extent permitted
by law, such conversion shall be deemed to have been effected and the Conversion
Price shall be determined as of the close of business on the date on which such
written notice shall have been received by the Corporation and the certificate
or certificates for such share or shares shall have been surrendered as
aforesaid, and at such time the rights of the holder of such share or shares of
Series A Convertible Preferred Stock shall cease, and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Series A Convertible Preferred Stock
into Common Stock and no payment of adjustment shall be made upon any conversion
on account of any cash dividends on the Common Stock issued upon such
conversion. At the time of each conversion, the Corporation shall pay in cash an
amount equal to all dividends, excluding Accruing Dividends, accrued and unpaid
on the shares of Series A Convertible Preferred Stock surrendered for conversion
to the date upon which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of
<PAGE>
-5-
shares of Series A Convertible Preferred Stock represented by the certificate or
certificates surrendered pursuant to subparagraph 6A exceeds the number of
shares converted, the Corporation shall, upon such conversion, execute and
deliver to the holder, at the expense of the Corporation, a new certificate of
certificates for the number of shares of Series A Convertible Preferred Stock
represented by the certificate or certificates surrendered which are not to be
converted. If any fractional share of Common Stock would, except for the
provisions of the first sentence of this subparagraph 6C, be delivered upon such
conversion, the Corporation, in lieu of delivering such fractional share, shall
pay to the holder surrendering the Series A Convertible Preferred Stock for
conversion an amount in cash equal to the current market price of such
fractional share as determined in good faith by the Board of Directors of the
Corporation.
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraphs 6D(1) through 6D(7), deemed to
have issued or sold, any shares of Common Stock for a consideration per share
less than the Conversion Price in effect immediately prior to the time of such
issue or sale, then, forthwith upon such issue or sale, the Conversion Price
shall be reduced to the price at which the Corporation issued or sold, or is
deemed to have issued or sold, such shares of Common Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options being called
"Options" and such convertible or exchangeable stock or securities
being called "Convertible Securities") whether or not such Options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (1) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options) shall be less than the Conversion Price in effect
immediately prior to the time of the granting of such Options, then the
total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such
price per share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter shall be deemed
to be outstanding. Except as otherwise provided in subparagraph 6D(3),
no adjustment of the Conversion Price shall be made upon the actual
issue of such Common Stock or of
<PAGE>
-6-
such Convertible Securities upon exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing (i) the total amount received or
receivable by the Corporation as consideration for the issue or sale of
such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the
conversion or exchange thereof, by (ii) the total maximum number of
shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Conversion Price in
effect immediately prior to the time of such issue or sale, then the
total maximum number of shares of Common Stock issuable upon conversion
or exchange of all such Convertible Securities shall be deemed to have
been issued for such price per share as of the date of the issue or
sale of such Convertible Securities and thereafter shall be deemed to
be outstanding, provided that (a) except as otherwise provided in
subparagraph 6D(3), no adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon conversion or exchange
of such Convertible Securities and (b) if any such issue or sale of
such Convertible Securities is made upon exercise of any Options to
purchase any such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other
provisions of this subparagraph 6D, no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph
6D(1) or 6D(2), or the rate at which Convertible Securities referred to
in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable for
Common Stock shall change at any time (including, but not limited to,
changes under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is thereby
reduced; and on the expiration of any such Option or the termination of
any such right to convert or exchange such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be increased
to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
<PAGE>
-7-
6D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
6D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection with the issue and
sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to
have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take a record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
6D(7) Treasury Shares. The disposition of any shares of Common
Stock owned or held by or for the account of the Corporation shall be
considered an issue or sale of Common Stock for the purpose of this
subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance of up to an
aggregate of 500,000 shares (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) of Common Stock to directors, officers
or employees of the Corporation in connection with their service as directors of
the Corporation or their employment by the Corporation.
6F. Subdivision of Combination of Common Stock. In case the
Corporation shall at any time subdivide (by any stock split, stock dividend or
otherwise) its outstanding
<PAGE>
-8-
shares of Common Stock into a greater number of shares, the Conversion Price in
effect immediately prior to such subdivision shall be proportionately reduced
and, conversely, in case the outstanding shares of Common Stock shall be
combined into a smaller number of shares, the Conversion Price in effect
immediately prior to such combination shall be proportionately increased.
6G. Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, then, as a condition of such reorganization or reclassification, lawful
and adequate provisions shall be made whereby each holder of a share or shares
of Series A Convertible Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Series A Convertible Preferred Stock,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization or reclassification not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for adjustments of
the Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
6H. Failure to Redeem. If the Corporation fails, for any reason or
for no reason, to redeem on the Redemption Date (as defined in paragraph 7) all
of the then outstanding shares of Series A Convertible Preferred Stock in
accordance with the terms and conditions of paragraph 7, the Conversion Price
then in effect shall be immediately reduced to an amount equal to 90% thereof.
Thereafter, until such redemption has been made in full in accordance with such
terms and conditions, the Conversion Price shall be further reduced on the 90th
day following the Redemption Date and at the end of each 90-day period
thereafter to an amount equal to 90% of the Conversion Price in effect
immediately prior to each such reduction.
6I. Notice of Adjustment. Upon any adjustment of the Conversion
Price, then and in each such case the Corporation shall give written notice
thereof, by first class mail, postage prepaid, or by telex to non-U.S.
residents, addressed to each holder of shares of Series A Convertible Preferred
Stock at the address of such holder as shown on the books of the Corporation,
which notice shall state the Conversion Price resulting from such adjustment,
setting forth in reasonable detail the method upon which such calculation is
based.
6J. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
<PAGE>
-9-
(2) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class or
other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of all
or substantially all its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non-U.S. residents, addressed to
each holder of any shares of Series A Convertible Preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Convertible Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Convertible Preferred
Stock. The Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the Common Stock is at all times equal to or
less than the Conversion Price in effect at the time. The Corporation will take
all such action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the Common
Stock may be listed. The Corporation will not take any action which results in
any adjustment of the Conversion Price if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Series A
Convertible Preferred Stock would exceed the total number of shares of Common
Stock then authorized by the Restated Certificate of Incorporation.
<PAGE>
-10-
6L. No Reissuance of Series A Convertible Preferred Stock. Shares of
Series A Convertible Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
6M. Issue Tax. The issuance of certificates for shares of Common
Stock upon conversion of Series A Convertible Preferred Stock shall be made
without charge to the holders thereof for any issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series A Convertible
Preferred Stock which is being converted.
6N. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Convertible Preferred Stock in any manner which interferes
with the timely conversion of such Series A Convertible Preferred Stock, except
as may otherwise be required to comply with applicable securities laws.
6O. Definition of Common Stock. As used in this paragraph 6, the
term "Common Stock" shall mean and include the Corporation's authorized Common
Stock, par value $.01 per share, as constituted on the date of filing of these
terms of the Series A Convertible Preferred Stock, and shall also include any
capital stock of any class of the Corporation thereafter authorized which shall
not be limited to a fixed sum or percentage of par value in respect of the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; provided that the shares of Common Stock receivable upon
conversion of shares of Series A Convertible Preferred Stock shall include only
shares designated as Common Stock of the Corporation on the date of filing of
this instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6P. Mandatory Conversion. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Common Stock
in which (i) the aggregate price paid for such shares by the public shall be at
least $5,000,000 and (ii) the price paid by the public for such shares shall be
at least $10.50 per share (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F), then effective upon the closing of the
sale of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Common Stock.
7. Redemption. The shares of Series A Convertible Preferred Stock shall
be redeemed as follows:
7A. Mandatory Redemption. On December 31, 1994, the Corporations
hall redeem from each holder of shares of Series A Convertible Preferred Stock,
all oft he shares of Series A Convertible Preferred Stock held by such holder on
the Redemption Date.
<PAGE>
-11-
7B. Optional Redemption. At any time after December 31, 1992, the
Corporation shall have the right, at its sole option, to redeem from each holder
of shares of Series A Convertible Preferred Stock, all of the shares of Series A
Convertible Preferred Stock held by such holder on the date of such redemption.
The date of a redemption pursuant to Section 7A or 7B is hereinafter referred to
as the "Redemption Date."
7C. Redemption Price and Payment. The Series A Convertible Preferred
Stock to be redeemed on the Redemption Date shall be redeemed by paying for each
share in cash an amount equal to $3.00 per share plus, in the case of each
share, an amount equal to all Accruing Dividends unpaid thereon (whether or not
declared) and any other dividends declared but unpaid thereon, computed to the
Redemption Date, such amount being referred to as the "Redemption Price". Such
payment shall be made in full on the Redemption Date to the holders entitled
thereto.
7D. Redemption Mechanics. At least 20 but not more than 30 days
prior to the Redemption Date, written notice (the "Redemption Notice") shall be
given by the Corporation by mail, postage prepaid, or by telex to non-U.S.
residents, to each holder of record (at the close of business on the business
day next preceding the day on which the Redemption Notice is given) of shares of
Series A Convertible Preferred Stock notifying such holder of the redemption and
specifying the Redemption Price, the Redemption Date and the place where said
Redemption Price shall be payable. The Redemption Notice shall be addressed to
each holder at his address as shown by the records of the Corporation. From and
after the close of business on the Redemption date, unless there shall have been
a default in the payment of the Redemption Price, all rights of holders of
shares of Series A Convertible Preferred Stock (except the right to receive the
Redemption Price) shall cease with respect to such shares, and such shares shall
not thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Series A Convertible Preferred Stock on
the Redemption Date are insufficient to redeem the total number of outstanding
shares of Series A Convertible Preferred Stock, the holders of shares of Series
A Convertible Preferred Stock shall share ratably in any funds legally available
for redemption of such shares according to the respective amounts which would be
payable with respect to the full number of shares owned by them if all such
outstanding shares were redeemed in full. The shares of Series A Convertible
Preferred Stock not redeemed shall remain outstanding and entitled to all rights
and preferences provided herein. At any time thereafter when additional funds of
the Corporation are legally available for the redemption of such shares of
Series A Convertible Preferred Stock, such funds will be used, at the end of the
next succeeding fiscal quarter, to redeem the balance of such shares, or such
portion thereof for which funds are then legally available, on the basis set
forth above.
7E. Redeemed or Otherwise Acquired Shares to be Retired. Any shares
of Series A Convertible Preferred Stock redeemed pursuant to this paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever shall be canceled
and shall not under any circumstances be reissued; and the Corporation may from
time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of Series A Convertible
Preferred Stock.
<PAGE>
-12-
8. Amendments. No provision of these terms of the Series A Convertible
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock.
<PAGE>
-1-
Exhibit E
REGISTRATION RIGHTS AGREEMENT
December 30, 1989
To each of the several Purchasers named
in Schedule I to the Preferred Stock
and Warrant Purchase Agreement of even
date herewith
Dear Sirs:
This will confirm that in consideration of your agreement on the date
hereof to purchase an aggregate of 1,500,000 shares of Series A Convertible
Preferred Stock (the "Preferred Stock") for the sum of $1,500,000 and Common
Stock Purchase Warrants (the "Warrants") for the purchase (subject to adjustment
as provided therein) of 1,500,000 shares of the Common Stock of Medical
Sterilization, Inc., a New York corporation (the "Company"), pursuant to the
Preferred Stock and Warrant Purchase Agreement of even date herewith (the
"Purchase Agreement") between the Company and you and as an inducement to you to
consummate the transactions contemplated by the Purchase Agreement, the Company
covenants and agrees with each of you as follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or
any other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the Common Stock, $.01 par value, of the
Company, as constituted as of the date of this Agreement.
"Common Conversion Shares" shall mean shares of Common Stock issued
upon exercise of the Warrants.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Preferred Stock" shall mean shares of the Company's Series A
Convertible Preferred stock.
"Preferred Conversion Shares" shall mean shares of Common Stock
issued upon conversion of the Preferred Stock.
<PAGE>
-2-
"Registration Expenses" shall mean the expenses so described in
Section 8.
"Restricted Stock" shall mean the Common and Preferred Conversion
Shares excluding such Conversion Shares which have been (a) registered under the
Securities Act pursuant to an effective registration statement filed thereunder
and disposed of in accordance with the registration statement covering them, (b)
publicly sold pursuant to Rule 144 under the Securities Act or (c) registered
under the Securities Act pursuant to an effective registration statement on Form
S-1 or Form S-3 filed thereunder in connection with which the Company and the
Investors shall have executed an agreement (i) providing that the Company shall
use its best efforts to cause such registration statement to remain effective
until such time as all of the Common and Preferred Conversion Shares covered by
such registration statement have been disposed of in accordance therewith and
(ii) containing the terms set forth in Sections 7 (other than Section 7(a), 8
and 9 hereof (the "Evergreen Registration").
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean the expenses so described in Section
8.
2. Restrictive Legend. Each certificate representing Shares of
Preferred Stock or Common or Preferred Conversion Shares shall, except as
otherwise provided in this Section 2 or in Section 3, be stamped or otherwise
imprinted with a legend substantially in the following form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
AND MAY NOT BE TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS IT HAS BEEN
REGISTERED UNDER THAT ACT OR AN EXEMPTION FROM REGISTRATION IS
AVAILABLE."
A certificate shall bear such legend if in the opinion of counsel satisfactory
to the Company the securities being sold thereby may be publicly sold without
registration under the Securities Act.
3. Notice of Proposed Transfer. Prior to any proposed transfer of any
Shares of Preferred Stock or Common or Preferred Conversion Shares (other than
under the circumstances described in Sections 4, 5 or 6 or under the Evergreen
Registration), the holder thereof shall give written notice to the Company of
the holder's intention to effect such transfer. Each such notice shall describe
the manner of the proposed transfer, and if requested by the Company, shall be
accompanied by an opinion of counsel satisfactory to the Company to the effect
that the proposed transfer may be effected without registration under the
Securities Act, whereupon the holder of such stock shall be entitled to transfer
such stock in accordance with the terms of its notice; provided, however, that
no such opinion of counsel shall be required for a transfer to one or more
partners of the transferor (in the case of a transferor that is a partnership)
or to an
<PAGE>
-3-
affiliated corporation (in the case of a transferor that is a corporation). Each
certificate for Preferred Stock or Common or Preferred Conversion shares
transferred as above provided shall bear the legend set forth in Section 2,
except that such certificate shall not bear such legend if (i) such transfer is
in accordance with the provisions of Rule 144 (or any other rule permitting
public sale without registration under the Securities Act) or (ii) the opinion
of counsel referred to above is to the further effect that the transferee and
any subsequent transferee (other than an affiliate of the Company) would be
entitled to transfer such securities in a public sale without registration under
the Securities Act. The restrictions provided for in this Section 3 shall not
apply to securities which are not required to bear the legend prescribed by
Section 2 in accordance with the provisions of that Section.
4. Required Registration. (a) The holders of Restricted Stock
constituting at least 40% of the total shares of Restricted Stock then
outstanding may request the Company to register under the Securities Act all or
any portion of the shares of Restricted Stock held by such requesting holder or
holders for sale in the manner specified in such notice, provided that the
shares of Restricted Stock for which registration has been requested shall
constitute at least 20% of the total shares of Restricted Stock originally
issued if such holder or holders shall request the registration of less than all
shares of restricted Stock then held by such holder or holders (or any lesser
percentage if the reasonably anticipated aggregate price to the public of such
public offering would exceed $2,000,000). For purposes of this Section 4 and
Sections 5, 6, 13(a) and 13(d), the term "Restricted Stock" shall be deemed to
include the number of shares of Restricted Stock which would be issuable to a
holder of Preferred Stock upon conversion of all shares of Preferred Stock held
by such holder at such time, provided, however, that the only securities which
the Company shall be required to register pursuant hereto shall be shares of
Common Stock, and provided, further, however, that in any underwritten public
offering contemplated by this Section 4 or Sections 5 and 6, the holders of
Preferred Stock shall be entitled to sell such Preferred Stock to the
underwriters for conversion and sale of the shares of Common Stock issued upon
conversion thereof. Notwithstanding anything to the contrary contained herein,
no request may be made under this Section 4 within 180 days after the effective
date of a registration statement filed by the Company covering a firm commitment
underwritten public offering in which the holders of Restricted Stock shall have
been entitled to join pursuant to Sections 5 or 6 and in which there shall have
been effectively registered all shares of restricted Stock as to which
registration shall have been requested.
(b) Following receipt of any notice under this Section 4, the
Company shall immediately notify all holders of Restricted Stock from whom
notice has not been received and shall use its best efforts to register under
the Securities Act, for public sale in accordance with the method of disposition
specified in such notice from requesting holders, the number of shares of
Restricted Stock specified in such notice (and in all notices received by the
Company from other holders within 30 days after the giving of such notice by the
Company). If such method of disposition shall be an underwritten public
offering, the holders of a majority of the shares of Restricted Stock to be sold
in such offering may designate the managing underwriter of such offering,
subject to the approval of the Company, which approval shall not be unreasonably
withheld or delayed. The company shall be obligated to register Restricted Stock
pursuant to this Section 4 of two occasions only, provided, however, that such
obligation shall be deemed
<PAGE>
-4-
satisfied only when a registration statement covering all shares of Restricted
Stock specified in notices received as aforesaid, for sale in accordance with
the method of disposition specified by the requesting holders, shall have become
effective and, if such method of disposition is a firm commitment underwritten
public offering, all such shares shall have been sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 4, for sale in accordance with the method
of disposition specified by the requesting holders, shares of Common Stock to be
sold by the Company for its own account, except as and to the extent, that, in
the opinion of the managing underwriter (if such method of disposition shall be
an underwritten public offering), such inclusion would adversely affect the
marketing of the Restricted Stock to be sold. Except for registration statements
on Form S-4, S-8 or nay successor thereto, or except for a registration
statement of shares of Common Stock underlying warrants, options, preferred
stock and shares sold on private placement wherein the Company committed to
include such shares in a registration statement, the Company will not file with
the Commission any other registration statement with respect to its Common
Stock, whether for its own account or that of other shareholders, from the date
of receipt of a notice from requesting holders pursuant to this Section 4 until
the completion of the period of distribution of the registration contemplated
thereby.
5. Incidental Registration. If the Company at any time (other than
pursuant to Section 4 or Section 6) proposes to register any of its securities
under the Securities Act for sale to the pubic, whether for its own account or
for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the Restricted Stock for sale to the public), each such time it will
give written notice to all holders of outstanding Restricted Stock of its
intention so to do. Upon the written request of any such holder, received by the
Company within 30 days after the giving of any such notice by the Company, to
register any of its Restricted Stock (which request shall state the intended
method of disposition thereof), the Company will use its best efforts to cause
the Restricted Stock as to which registration shall have been so requested t be
included in the securities to be covered by the registration statement proposed
to be filed by the Company, all to the extent requisite to permit the sale or
other disposition by the holder (in accordance with its written request) of such
Restricted Stock so registered. In the event that nay registration pursuant to
this Section 5 shall be, in whole or in part, an underwritten public offering of
Common Stock, the number of shares of Restricted Stock to be included in such an
underwriting may be reduced (pro rata among the requesting holders based upon
the number of shares of Restricted Stock owned by such holders) if and to the
extent that the managing underwriter shall be of the opinion that such inclusion
would adversely affect the marketing of the securities to be sold by the Company
therein provided, however, that such number of shares of Restricted Stock shall
not be reduced if any shares are to be included in such underwriting for the
account of any person other than the Company or requesting holders of Restricted
Stock, and provided, further, however, that in no event may less than one-third
of the total number of shares of Common Stock to be included in such
underwriting be made available for shares of Restricted Stock. Notwithstanding
the foregoing provisions, the Company may withdraw any registration statement
referred to in this Section 5 without thereby incurring any liability to the
holders of Restricted Stock.
<PAGE>
-5-
6. Registration on Form S-3. If at any time (i) a holder or holders of
Preferred Stock (other than Preferred Stock covered under the Evergreen
Registration) or Restricted Stock request that the Company file a registration
statement on Form S-3 or any successor thereto for a public offering of all or
any portion of the shares of Restricted Stock held by such requesting holder or
holders, the reasonably anticipated aggregate price to the public of which would
exceed $500,000, and (ii) the Company is a registrant entitled to use Form S-3
or any successor thereto to register such shares, then the Company shall use its
best efforts to register under the Securities Act on Form S-3 or any successor
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Restricted Stock specified in such
notice. Whenever the Company is required by this Section 6 to use its best
efforts to effect the registration of Restricted Stock, each of the procedures
and requirements of Section 4 (including but not limited to the requirement that
the company notify all holders of Restricted Stock from whom notice has not been
received and provide them with the opportunity to participate in the offering)
shall apply to such registration, provided, however, that the requirements
contained in the first sentence of Section 4(a) shall not apply to any
registration on Form S-3 which may be requested and obtained under this Section
6. The Company shall be obligated to register Restricted Stock pursuant to this
Section 6 on ten occasions only, provided, however, that such obligation shall
be deemed satisfied only when a registration statement covering all shares of
Restricted Stock specified in notices received as aforesaid, for sale in
accordance with the method of disposition specified by the requesting holders,
shall have become effective and, if such method of disposition is a firm
commitment public offering, all such shares shall have been sold pursuant
thereto.
7. Registration Procedures. If and whenever the Company is required by
the provisions of Sections 4, 5 or 6 to use its best efforts to effect the
registration of any shares of Restricted Stock under the Securities Act, the
Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 4,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use its best efforts to cause such registration statements to
become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file with the commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
the period specified in paragraph (a) above and comply with the provisions of
the Securities Act with respect to the disposition of all Restricted Stock
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Restricted Stock and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Restricted Stock covered by such registration statement;
<PAGE>
-6-
(d) use its best efforts to register or qualify the Restricted Stock
covered by such registration statement under the securities or "blue sky" laws
of such jurisdictions as the sellers of Restricted Stock, or, in the case of an
underwritten public offering, the managing underwriter reasonably shall request,
provided, however, that the Company shall not for any such purpose be required
to qualify generally to transact business as a foreign corporation in any
jurisdiction where it is not so qualified or to consent to general service of
process in any such jurisdiction;
(e) use its best efforts to list the Restricted Stock covered by
such registration statement with any securities exchange on which the Common
Stock of the Company is then listed;
(f) immediately notify each seller of Restricted Stock and each
underwriter under such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event of which the Company has knowledge as a result of which
the prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing;
(g) if the offering is underwritten and at the request of any seller
of Restricted Stock, use its best efforts to furnish on the date that such
Restricted Stock is delivered to the underwriters for sale pursuant to such
registration: (i) an opinion dated such date of counsel representing the Company
for the purposes of such registration, addressed to the underwriters and to such
seller, stating that such registration statement has become effective under the
Securities Act and that (A) to the best knowledge of such counsel, no stop order
suspending the effectiveness thereof has been issued and no proceedings for that
purpose have been instituted or are pending or contemplated under the Securities
Act, (B) the registration statement, the related prospectus and each amendment
or supplement thereof comply as to conform in all material respects with the
requirements of the Securities Act (except that such counsel need not express
any opinion as to financial statements contained therein) and (C) to such other
effects as reasonably may be requested by counsel for the underwriters or by
such seller or its counsel and (ii) a letter dated such date from the
independent public accountants retained by the Company, addressed to the
underwriters and to such seller, stating that they are independent public
accountants within the meaning of the Securities Act and that, in the opinion of
such accountants, the financial statements of the Company included in the
registration statement or the prospectus, or any amendment or supplement
thereof, comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to such registration as such underwriters reasonably may request;
and
(h) make available for inspection by each seller of Restricted
Stock, any underwriter participating in any distribution pursuant to such
registration statement, and any
<PAGE>
-7-
attorney, accountant or other agent retained by such seller or underwriter, all
financial and other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
For purposes of Section 7(a) and 7(b) and of Section 4(c), the period
of distribution of Restricted Stock in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Restricted Stock in any other registration shall be deemed to extend until
the earlier of the sale of all Restricted Stock covered thereby and 120 days
after the effective date thereof.
In connection with each registration hereunder, the sellers of
Restricted Stock will furnish to the Company in writing such information with
respect to themselves and the proposed distribution by them as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws.
In connection with each registration pursuant to Sections 4, 5 or 6
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
8. Expenses. All expenses incurred by the Company in complying with
Sections 4, 5 and 6, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
fees of the National Association of Securities Dealers, Inc., transfer taxes,
fees of transfer agents and registrars, costs of insurance and fees and
disbursements of one counsel for the sellers of Restricted Stock, but excluding
any Selling Expenses, are called "Registration Expenses." All underwriting
discounts and selling commissions applicable to the sale of Restricted Stock are
called "Selling Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement under Section 4, 5 or 6; provided, however, that the
total amount of all such Registration Expenses borne by the Company shall not
exceed $100,000. All Selling Expenses in connection with each registration
statement under Section 4, 5 or 6 shall be borne by the participating sellers in
proportion to the number of shares sold by each, or by such participating
sellers other than the company (except to the extent the Company shall be a
seller) as they may agree.
9. Indemnification and Contribution. (a) In the event of a registration
of any of the Restricted Stock under the Securities Act pursuant to Section 4, 5
or 6, the Company will indemnify and hold harmless each seller of such
Restricted Stock thereunder, each underwriter of such Restricted Stock
thereunder and each other person, if any, who controls such seller or
<PAGE>
-8-
underwriter within the meaning of the Securities Act, against any losses,
claims, damages or liabilities, joint or several, to which such seller,
underwriter or controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such Restricted Stock was registered under the Securities Act
pursuant to Section 4, 5 or 6, any preliminary prospectus or final prospectus
contained therein, or any amendment or supplement 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, and will reimburse each such seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim, damage,
liability or action, provided, however, that the Company will not be liable in
any such case if and to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with information
furnished by any such seller, any such underwriter or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Restricted Stock
under the Securities Act pursuant to Sections 4, 5 or 6, each seller of such
Restricted Stock thereunder, severally and not jointly, will indemnify and hold
harmless the Company, each person, if any, who controls the Company within the
meaning of the Securities Act, each officer of the Company who signs the
registration statement, each director of the Company, each underwriter and each
person who controls any underwriter within the meaning of the Securities Act,
against all losses, claims, damages or liabilities, joint or several, to which
the Company or such officer, director, underwriter or controlling person may
become subject under Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise out of or
are based upon any untrue statement or alleged untrue statement of any material
fact contained in the registration statement under which such Restricted Stock
was registered under the Securities Act pursuant to Sections 4, 5 or 6, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement 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, and will reimburse the
Company and each such officer, director, underwriter and controlling person for
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action,
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
pertaining to such seller, as such, furnished in writing to the Company by such
seller specifically for use in such registration statement or prospectus, and
provided, further, however, that the liability of each seller hereunder shall be
limited to the proportion of any such loss, claim, damage, liability or expense
which is equal to the proportion that the public offering price of the shares
sold by such seller under such registration statement bears to the total public
offering price of all securities
<PAGE>
-9-
sold thereunder, but not in any event to exceed the proceeds received by such
seller from the sale of Restricted Stock covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder 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 hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability which it may have
to such indemnified party other than under this Section 9 and shall only relieve
it from any liability which it may have to such indemnified party under this
Section 9 if and to the extent the indemnifying party is prejudiced by such
omission. In case any such action shall be brought against any indemnified party
and it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate in and, to the extent it
shall wish, to assume and undertake the defense thereof with counsel
satisfactory to such indemnified party, and, after notice from the indemnifying
party to such indemnified party of its election so to assume and undertake the
defense thereof, the indemnifying party shall not be liable to such indemnified
party under this Section 9 for any legal expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation and of liaison with counsel so selected, provided,
however, that, if the defendants in any such action include both the indemnified
party and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred.
(d) In order to provide for just and equitable contribution to joint
liability under the Securities Act in any case in which either (i) any holder of
Restricted Stock exercising rights under this Agreement or any controlling
person of any such holder, makes a claim for indemnification pursuant to this
Section 9 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 9 provides for
indemnification in such case, or (ii) contribution under the Securities Act may
be required on the part of any such selling holder or any such controlling
person in circumstances for which indemnification is provided under this Section
9; then, and in each such case, the Company and such holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such holder
is responsible for the portion represented by the percentage that the public
offering price of its Restricted Stock offered by the registration statement
bears to the public offering price of all securities offered by such
registration statement, and the Company is responsible for the remaining
portion; provided, however, that, in any such case, (A) no such holder will be
required to contribute any amount in excess of the public offering price of all
such Restricted Stock offered by it pursuant to such registration statement; and
(B) no person or entity guilty of fraudulent misrepresentation (within the
meaning
<PAGE>
-10-
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
10. Changes in Common Stock or Preferred Stock. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination or reclassification, or through a merger,
consolidation, reorganization or recapitalization, or by any other means,
appropriate adjustment shall be made in the provisions hereof so that the rights
and privileges granted hereby shall continue with respect to the Common Stock or
the Preferred Stock as so changed.
11. Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Stock to the public without registration, at all times
after 90 days after any registration statement covering a public offering of
securities of the Company under the Securities Act shall have become effective,
the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act;
(b) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(c) furnish to each holder of Restricted Stock forthwith upon
request a written statement by the Company as to its compliance with the
reporting requirements of such Rule 144 and of the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as such
holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such holder to sell any Restricted Stock without
registration.
12. Representations and Warranties of the company. The Company
represents and warrants to you as follows:
(a) The execution, delivery and performance of this Agreement by
the Company have been duly authorized by all requisite corporate action and will
not violate any provision of law, any order of any court or other agency of
government, the Restated Certificate of Incorporation or By-laws of the Company
or any provision of any indenture, agreement or other instrument to which it or
any of its properties or assets is bound, conflict with, result in a breach of
or constitute (with due notice or lapse of time or both) a default under any
such indenture, agreement or other instrument or result in the creation or
imposition of any lien, charge or encumbrance of any nature whatsoever upon any
of the properties or assets of the Company.
<PAGE>
-11-
(b) This Agreement has been duly executed and delivered by the
Company and constitutes the legal, valid and binding obligation of the Company,
enforceable in accordance with its terms.
13. Miscellaneous.
(a) All covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto shall bind and inure to the benefit of
the respective successors and assigns of the parties hereto (including without
limitation transferees of any Preferred Stock or Restricted Stock), whether so
expressed or not, provided, however, that registration rights conferred herein
on the holders of Preferred Stock or Restricted Stock shall only inure to the
benefit of a transferee of Preferred Stock or Restricted Stock if (i) there is
transferred to such transferee at least 20% of the total shares of Restricted
Stock originally issued pursuant to the Purchase Agreement to the direct or
indirect transferor of such transferee or (ii) such transferee is a partner,
shareholder or affiliate of a party hereto.
(b) All notices, requests, consents and other communications
hereunder shall be in writing and shall be mailed by certified or registered
mail, return receipt requested, postage prepaid, or telexed, in the case of
non-U.S. residents, addressed as follows:
(i) if to the Company or any other party hereto, at the address
of such party set forth in the Purchase Agreement;
(ii) if to any subsequent holder of Preferred Stock or
Restricted Stock, to it at such address as may have been furnished to the
Company in writing by such holder;
or, in any case, at such other address or addresses as shall have been furnished
in writing to the Company (in the case of a holder of Preferred Stock or
Restricted Stock) or to the holders of Preferred Stock or Restricted Stock (in
the case of the Company in accordance with the provisions of this paragraph).
(c) This Agreement shall be governed by and construed in accordance
with the laws of the State of New York.
(d) This Agreement may not be amended or modified, and no provision
hereof may be waived, without the written consent of the Company and the holders
of at least two-thirds of the outstanding shares of Restricted Stock.
(e) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
(f) The obligations of the Company to register the shares of
Restricted Stock under Sections 4, 5 or 6 shall terminate on the fifteenth
anniversary of the date of this Agreement.
<PAGE>
-12-
(g) If requested in writing by the underwriters for the initial
underwritten public offering of securities of the Company, each holder of
Restricted Stock who is a party to this Agreement shall agree not to sell
publicly any shares of Restricted Stock or any other shares of Common Stock
(other than shares of Restricted Stock or other shares of Common Stock being
registered in such offering), without the consent of such underwriters, for a
period of not more than 90 days following the effective date of the registration
statement relating to such offering; provided, however, that all persons
entitled to registration rights with respect to shares of Common Stock who are
not parties to this Agreement, all other persons selling shares of Common Stock
in such offering and all executive officers and directors of the Company shall
also have agreed not to sell publicly their Common Stock under the circumstances
and pursuant to the terms set forth in this Section 13(g).
(h) Notwithstanding the provisions of Section 7(a), the Company's
obligation to file a registration statement, or cause such registration
statement to become and remain effective, shall be suspended for a period not to
exceed 90 days in any 24-month period if there exists at the time material
non-public information relating to the Company which, in the reasonable opinion
of the Company, should not be disclosed.
(i) The Company shall not grant to any third party any registration
rights more favorable than any of those contained herein, so long as any of the
registration rights under this Agreement remains in effect.
(j) If any provision of this Agreement shall be held to be illegal,
invalid or unenforceable, such illegality, invalidity or unenforceability shall
attach only to such provision and shall not in any manner affect or render
illegal, invalid or unenforceable any other provision of this Agreement, and
this Agreement shall be carried out as if any such illegal, invalid or
unenforceable provision were not contained herein.
Please indicate your acceptance of the foregoing by signing and
returning the enclosed counterpart of this letter, whereupon this Agreement
shall be a binding agreement between the Company and you.
Very truly yours,
MEDICAL STERILIZATION, INC.
By:_________________________________
Title: President
______________________________
AGREED TO AND ACCEPTED as of
the date first above written.
OXFORD VENTURE FUND II,
LIMITED PARTNERSHIP
<PAGE>
-13-
By: Oxford Partners II, Its General Partner
By:_________________________________
KENNETH W. RIND
Its General Partner
____________________________________
BERNARD S. LIVINGSTON
____________________________________
CONSTANCE K. LIVINGSTON
____________________________________
WILLIAM C. CARTINHOUR, JR.
____________________________________
KENNARD H. MORGANSTERN
____________________________________
HARVEY COHEN
<PAGE>
-1-
Exhibit F
STOCK RESTRICTION AGREEMENT
AGREEMENT, made as of the 30th day of December, 1989, by and among
Medical Sterilization, Inc., a New York corporation (the "Company"), Kennard H.
Morganstern (the "Shareholder"), and the persons listed as Investors in the
signature pages hereto (collectively, the "Investors" and individually, an
"Investor").
WHEREAS, the shareholder is the holder of an aggregate of 257,900
shares of common stock, $.01 par value, of the Company (the "Common Stock");
WHEREAS, the Investors are acquiring an aggregate of 1,500,00 shares of
Series A Convertible Preferred Stock (the "Preferred Stock") and Common Stock
Purchase Warrants (the "Warrants") for the purchase (subject to adjustment as
provided therein) of 1,500,000 shares of Common Stock, pursuant to the terms of
a Preferred Stock and Warrant Purchase Agreement dated the date hereof between
the Company and the Investors (the "Purchase Agreement"); and
WHEREAS, it is a condition to the obligations of the Investors under
the Purchase Agreement that this Agreement be executed by the parties hereto,
and the parties are willing to execute this Agreement and to be bound by the
provisions hereof;
NOW THEREFORE, in consideration of the foregoing, the agreements set
forth below, and the parties' desire to provide for continuity of ownership of
the Company to further the interests of the Company and its present and future
shareholders, the parties hereby agree with each other as follows:
1. Certain Defined Terms. As used in this Agreement, the following
terms shall have the following respective meanings:
(a) "Stock" shall mean and include all shares of Common Stock, and
all other securities of the Company which may be issued in exchange for or in
respect of shares of Common Stock (whether by way of stock split, stock
dividend, combination, reclassification, reorganization, or any other means).
(b) "Shares" shall mean and include all shares of Stock now owned or
hereafter acquired by either (I) the Shareholder or (ii) any Investor.
2. Prohibited Transfers. The Shareholder shall not sell, assign,
transfer, pledge, hypothecate, mortgage, encumber or dispose of an aggregate of
more than five (5%) percent of his Shares, in any twelve month period without
the prior written consent of Investors owning at least two-thirds of the Shares
owned by all Investors. Notwithstanding the foregoing, the Shareholder may (a)
transfer all or any of his shares (i) by way of gift to any member of his family
or to any trust for the benefit of any such family member of the Shareholder,
provided that any such transferee shall agree in writing with the Company and
the Investors, as a condition to
<PAGE>
-2-
such transfer, to be bound by all of the provisions of this Agreement to the
same extent as if such transferee were the Shareholder, or (ii) by will or the
laws of descent and distribution, in which event each such transferee shall be
bound by all of the provisions of this Agreement to the same extent as if such
transferee were the Shareholder or (b) pledge any or all of his Shares to a bank
or other institutional lender as security for the payment by the Company of any
amount owed by the Company to such Bank or institutional lender. As used herein,
the word "family" shall include any spouse, lineal ancestor or descendant,
brother or sister.
3. Further Limitation as to Transfers by the Shareholder. In addition
to the other restrictions provided in this Agreement, the Shareholder agrees
that he shall not sell any Shares at a price per share of less than $7.00
(subject to equitable adjustment for any stock split, stock dividend,
combination of shares or the like and based upon Common Stock or Common Stock
equivalents).
4. Term. This Agreement shall terminate ((a) immediately prior to the
consummation of a firm commitment underwritten public offering pursuant to an
effective registration statement on Form S-1 or Form S-3 (or their then
equivalents) under the Securities Act of 1933, as amended, pursuant to which the
aggregate price paid by the public for the purchase of Stock is at least
$5,000,000 and the price paid by the public for each share of Common Stock is
$10.50 (subject to equitable adjustment for any stock split, stock dividend,
combination of shares or the like and based on Common Stock and Common Stock
equivalents) or (b) the tenth anniversary of the date of this Agreement,
whichever occurs first.
5. Specific Enforcement. The Shareholder expressly agrees that the
Investors and the Company will be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by the Shareholder, the Investors
and the Company shall, in addition to all other remedies, each be entitled to a
temporary or permanent injunction, without showing any actual damage, and/or a
decree for specific performance, in accordance with the provisions hereof.
6. Legend. Each certificate evidencing any of the Shares shall bear a
legend substantially as follows:
"The shares represented by this certificate are subject to
restrictions on transfer and may not be sold, exchanged, transferred, pledged,
hypothecated or otherwise disposed of except in accordance with and subject to
all the terms and conditions of a certain Stock Restriction Agreement dated as
of , 1989, a copy of which the Company will furnish to the holder of this
certificate upon request and without charge."
7. Notices. Notices given hereunder shall be deemed to have been duly
given on the date of personal delivery or on the date of postmark if mailed by
certified or registered mail, return receipt requested, to the party being
notified at his or its address specified on the applicable signature page hereto
or such other address as the addressee may subsequently notify the other parties
of in writing.
<PAGE>
-3-
8. Entire Agreement and Amendments. This Agreement constitutes the
entire agreement of the parties with respect to the subject matter hereof and
neither this Agreement nor any provision hereof may be waived, modified, amended
or terminated except by a written agreement signed by the parties hereto;
provided, however, that Investors owning at least two-thirds of the Shares owned
by all Investors may effect any such waiver, modification, amendment or
termination on behalf of all of the Investors. To the extent any term or other
provision of any other indenture, agreement, or instrument by which any party
hereto is bound conflicts with this Agreement, this Agreement shall have
precedence over such conflicting term or provision.
9. Governing Law; Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall be binding upon the
heirs, personal representatives, executors, administrators, successors and
assigns of the parties.
10. Waivers. No waiver of any breach or default hereunder shall be
considered valid unless in writing, and no such waiver shall be deemed a waiver
of any subsequent breach or default of the same or similar nature.
11. Severability. If any provision of this Agreement shall be held to
be illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
12. Captions. Captions are for convenience only and are not deemed to
be part of this Agreement.
13. Continuation of Employment. Nothing in this Agreement shall create
an obligation on the Company or the Investors to continue the Shareholder's
employment with the Company.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, this Agreement has been executed as of the date and
year first above written.
MEDICAL STERILIZATION, INC.
By:_______________________
Title: President
____________________
<PAGE>
-4-
OXFORD VENTURE FUND II, LIMITED
PARTNERSHIP
By: Oxford Partners II, Its General Partner
By:______________________________
Kenneth W. Rind
Its General Partner
____________________________________
BERNARD S. LIVINGSTON
____________________________________
CONSTANCE K. LIVINGSTON
____________________________________
WILLIAM C. CARTINHOUR, JR.
____________________________________
KENNARD H. MORGANSTERN
____________________________________
HARVEY COHEN
<PAGE>
-1-
Exhibit G
MEDICAL STERILIZATION, INC. (MSI)
AGREEMENT
In consideration of the compensation and other benefits of my
employment by MSI, and of other valuable consideration, I agree with MSI as
follows:
EMPLOYMENT BY MSI
During my MSI employment I shall devote my working time and best
efforts to the service of MSI and shall comply with the policies and procedures
of MSI, including those relating to security and employee conduct, and I shall
not engage in any planning or other business or technical activity, competitive
with or in conflict with the business interests of MSI.
CONFIDENTIAL INFORMATION
As used herein, "Confidential Information" means all technical and
business information of MSI, whether patentable or not, which is of a
confidential, trade secret and/or proprietary character and which is either
developed by me (alone or with others) or to which I have had access during my
employment. "Confidential Information" shall also include confidential
evaluations of, and the confidential use of non-use by MSI, of technical or
business information in the public domain.
I shall use my best efforts and diligence both during and after my MSI
employment to protect the confidential, trade secret and/or proprietary
character of all Confidential Information. I shall not, directly or indirectly,
use (for myself or another) or disclose any Confidential Information for so long
as it shall remain proprietary or protectible as confidential or trade secret
information, except as may be necessary for the performance of my MSI duties.
I shall deliver promptly to MSI, at the termination of my employment,
or at any other time at MSI's request, without retaining any copies, all
documents and other material in my possession relating, directly or indirectly,
to any Confidential Information.
Each of my obligations in this section shall also apply to the
confidential, trade secret and proprietary information learned or acquired by me
during my employment from others with whom MSI has a business relationship.
I understand that I am not to disclose to MSI, or use for its benefit,
any of the confidential, trade secret or proprietary information of others
including any of my former employers.
<PAGE>
-2-
COMPETITIVE ACTIVITY
I shall not, directly or indirectly (whether as owner, partner,
consultant, employee or otherwise), at any time during the period of my
employment with MSI, engage in or contribute my knowledge to any work or
activity that involves a product, process, apparatus, service or development
which is then competitive with or similar to a product, process, apparatus,
service or development on which I worked or with respect to which I had access
to Confidential Information while at MSI at any time during the period of my
employment ("Competitive Work"). Following the expiration of my employment, I
shall continue to be obligated under the "Confidential Information" section of
this Agreement not to use or to disclose Confidential Information so long as it
shall remain proprietary or protectible as confidential or trade secret
information.
During my employment by MSI, and for a period of two years there after,
I shall not, directly or indirectly, induce or attempt to induce a salaried
employee of MSI to accept employment or affiliation involving Competitive Work
with another firm or corporation of which I am an employee, owner, partner or
consultant.
IDEAS, INVENTIONS OR DISCOVERIES
I shall promptly disclose to MSI all ideas, inventions or discoveries,
whether or not patentable, which I may conceive or make, alone or with others,
during my employment, whether or not during working hours, and which directly or
indirectly
(a) relate to matters within the scope of my duties or field of
responsibility during my employment by MSI; or
(b) are based on my knowledge of the actual or anticipated business
or interests of MSI; or
(c) are aided by the use of time, materials, facilities or
information of MSI.
Without further compensation but at MSI's expense, I shall give all
testimony and execute all patent applications, rights of priority, assignments
and other documents and in general do all lawful things requested of me by MSI
to enable MSI to obtain, maintain and enforce protection of such ideas,
inventions and discoveries for and in the name of MSI , or its nominee, in all
countries of the world. However, should I render any of these services following
termination of my employment, I shall be compensated at a rate per hour equal to
the base salary I received from MSI at the time of termination and shall be
reimbursed for reasonable out-of-pocket expenses incurred in rendering the
services.
MISCELLANEOUS
<PAGE>
-3-
This Agreement shall be construed under the laws of the State of New
York and shall be binding upon and enforceable against my heirs and legal
representatives and the assignees of any idea, invention or discovery conceived
or made by me.
To the extent this Agreement is legally enforceable, it shall supersede
all previous agreements covering this subject matter between me and MSI, but
shall not relieve me or such other party form any obligations incurred under any
such previous agreement while in force.
If any provision of this Agreement is held invalid in any respect, it
shall not affect the validity of any other provision of this Agreement. If any
provision of this Agreement is held to be unreasonable as to time, scope or
otherwise, it shall be construed by limiting and reducing it so as to be
enforceable under then applicable law.
This Agreement is signed in duplicate, as of the day of 19 .
MEDICAL STERILIZATION, INC.
By_____________________________ __________________________________
Signature of Employee
Title__________________________ __________________________________
Typed Name of Employee
<PAGE>
-1-
Exhibit H
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MEDICAL STERILIZATION, INC.
Under Section 805 of the Business Corporation Law
We, Kennard H. Morganstern and Harvey Cohen, being respectively the
President and Secretary of Medical Sterilization, Inc., hereby certify:
(1) The name of the Corporation is
MEDICAL STERILIZATION, INC.
(2) The Certificate of Incorporation was filed on May 27, 1982 under
the name General Sterilization, Inc. Restated Certificates of Incorporation were
filed on May 12, 1983, August 5, 1983 and May 24, 1989.
(3) The Certificate of Incorporation is amended by the addition of a
provision stating the number, designation, relative rights, preferences and
limitations of Preferred Shares of a series of the par value of $.01 per share,
as fixed by the Board of Directors before the issuance of such series, under
authority contained in the Certificate of Incorporation and as permitted by
Section 502 of the Business Corporation Law as follows:
"1. Number of Shares. One Million (1,000,000) shares of authorized
Preferred Stock of the par value of $.01 each shall be issued in and as a series
to be designated "Series A Convertible Preferred Stock". The term Preferred
Stock, as used herein, shall include all of the shares of Preferred Stock
authorized by the Certificate of Incorporation, of which Series A Convertible
Preferred Stock is the first series.
<PAGE>
-2-
2. Voting.
2A. General. Except as may be otherwise provided in these terms of
the Series A Convertible Preferred Stock or by law, the Series A Convertible
Preferred Stock shall vote together with all other classes and series of stock
of the Corporation as a single class on all actions to be taken by the
stockholders of the Corporation. Each share of Series A Convertible Preferred
Stock shall entitle the holder thereof to such number of votes per share on each
such action as shall equal the number of shares of Common Stock (including
fractions of a share) into which each share of a Series A Convertible Preferred
Stock is then convertible.
2B. Board Size. The Corporation shall not, without the written
consent or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock, given in writing or
by vote at a meeting, consenting or voting (as the case may be) separately as a
series, increase the maximum number of directors constituting the Board of
Directors to a number in excess of eleven (11).
2C. Board Seats. The holders of the Series A Convertible Preferred
Stock, voting as a separate series, shall be entitled to elect one (1) director
of the Corporation. The holders of the Common Stock, voting as a separate class,
shall be entitled to elect the remaining directors of the Corporation.
Notwithstanding the foregoing or anything else to the contrary provided in the
Restated Certificate of Incorporation, if the Corporation fails or refuses, for
any reason or for no reason, to redeem on the Redemption Date (as defined in
paragraph 7) all of the then outstanding shares of Series A Convertible
Preferred Stock in accordance with the terms and provisions of paragraph 7, the
holders of the Series A Convertible Preferred Stock, voting as a separate
series, shall be entitled to elect a majority of the directors of the
Corporation. At any meeting (or in a written consent in lieu thereof) held for
the purpose of electing directors, the presence in person or by proxy (or the
written consent) of the holders of a majority of the shares of Series A
Convertible Preferred Stock then outstanding shall constituent a quorum of the
Series A Convertible Preferred Stock for the election of directors to be elected
solely by the holders of the Series A Convertible Preferred Stock or jointly by
the holders of the Series A Convertible Preferred Stock and the Common Stock. A
vacancy in any directorship elected by the holders of the Series A Convertible
Preferred Stock shall be filled only by vote or written consent of the holders
of the Series A Convertible Preferred Stock.
3. Dividends. The holders of the Series A Convertible Preferred Stock
shall be entitled to receive, out of funds legally available therefor, when and
if declared by the Board of Directors, quarterly dividends at the rate per annum
of $.30 per share (the "Accruing Dividends"). Accruing dividends shall accrue
from day to day, whether or not earned or declared and shall be cumulative from
the date of issuance of the Series A Convertible Preferred Stock.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock made upon any stock ranking on liquidation
junior to the Series A Convertible Preferred Stock, to be paid an amount
<PAGE>
-3-
equal to $3.00 per share plus, in the case of each share, an amount equal to all
Accruing Dividends unpaid thereof (whether or not declared) and any other
dividends declared but unpaid thereof, computed to the date payment thereof is
made available such amount payable with respect to one share of Series A
Convertible Preferred Stock being sometimes referred to as the "Liquidation
Preference Payment" and with respect to all shares of Series A Convertible
Preferred Stock being sometimes referred to as the "Liquidation Preferred Stock
being sometimes referred to as the "Liquidation Preference Payments". If upon
such liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the assets to be distributed among the holders of
Series A Convertible Preferred Stock shall be insufficient to permit payment in
full to the holders of Series A Convertible Preferred Stock of the Liquidation
Preference Payments, then the entire assets of the corporation to be so
distributed shall be distributed ratably among the holders of Series A
Convertible Preferred Stock. Upon any such liquidation, dissolution or winding
up of the Corporation, immediately after the holders of Series A Convertible
Preferred Stock shall have been paid in full the Liquidation Preference
Payments, the remaining net assets of the Corporation available for distribution
shall be distributed ratably among the holders of Series A Convertible Preferred
Stock and Common Stock (with each share of Series A Convertible Preferred Stock
being deemed, for such purpose, to be equal to the number of shares of Common
Stock (including fractions of a share) into which such share of Series A
Convertible Preferred Stock is convertible immediately prior to the close of
business on the business day fixed for such distribution). Written notice of
such liquidation, dissolution or winding up, stating a payment date and the
place where said payments shall be made, shall be given by mail, postage
prepaid, or by telex to non-U.S. residents, not less than 20 days prior to the
payment date stated therein, to the holders of record of Series A Convertible
Preferred Stock, such notice to be addressed to each such holder at its address
as shown by the records of the Corporation. The consolidation or merger of the
Corporation into or with any other entity or entities which results in the
exchange of outstanding shares of the Corporation for securities or other
consideration issued or paid or caused to be issued or paid by any such entity
or affiliate thereof, and the sale or transfer by the Corporation of all or
substantially all its assets, shall be deemed to be a liquidation, dissolution
or winding up of the Corporation within the meaning of the provisions of this
paragraph 4. For purposes hereof, the Common Stock shall rank on liquidation
junior to the Series A Convertible Preferred Stock.
5. Restrictions. At any time when shares of Series A Convertible
Preferred Stock are outstanding, except where the vote or written consent of the
holders of a greater number of shares of the Corporation is required by law or
by the Restated Certificate of Incorporation, and in addition to any other vote
required by law or the Restated Certificate of Incorporation, without the
approval of the holders of at least two-thirds of the then outstanding shares of
Series A Convertible Preferred Stock, given in writing or by vote at a meeting,
consenting or voting (as the case may be) separately as a series, the
Corporation will not:
5A. Create or authorize the creation of any additional class or
series of shares of stock unless the same ranks junior to the Series A
Convertible Preferred Stock as to the distribution of assets on the liquidation,
dissolution or winding up of the Corporation, or increase the authorized amount
of the Series A Convertible Preferred Stock or increase the authorized amount of
any additional class or series of shares of stock unless the same ranks junior
to the Series A Convertible Preferred Stock as to the distribution of assets on
the liquidation,
<PAGE>
-4-
dissolution or winding up of the Corporation, or create or authorize any
obligation or security convertible into shares of Series A Convertible Preferred
Stock or into shares of any other class or series of stock unless the same ranks
junior to the Series A Convertible Preferred Stock as to the distribution of
assets on the liquidation, dissolution or winding up of the Corporation, whether
any such creation, authorization or increase shall be by means of amendment to
the Restated Certificate of Incorporation or by merger, consolidation or
otherwise;
5B. Consent to any liquidation, dissolution or winding up of the
Corporation or consolidate or merge into or with any other entity or entities or
sell or transfer all or substantially all its assets;
5C. Amend, alter or repeal its Restated Certificate of Incorporation
or By-laws in a manner which adversely affects the holders of Series A
Convertible Preferred Stock;
5D. Purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of Stock other than the Series
A Convertible Preferred Stock, except for dividends or other distributions
payable on the Common Stock solely in the form of additional shares of Common
Stock and except for the purchase of shares of Common Stock from former
employees of the Corporation who acquired such shares directly from the
corporation, if each such purchase is made pursuant to contractual rights held
by the Corporation relating to the termination of employment of such former
employee and the purchase price does not exceed the original issue price paid by
such former employee to the Corporation for such shares; or
5E. Redeem or otherwise acquire any shares of Series A Convertible
Preferred Stock except as expressly authorized in paragraph 7 hereof or pursuant
to a purchase offer made pro rata to all holders of the shares of Series A
Convertible Preferred Stock on the basis of the aggregate number of outstanding
shares of Series A Convertible Preferred Stock then held by each such holder.
6. Conversions. The holders of shares of Series A Convertible Preferred
Stock shall have the following conversion rights:
6A. Right to Convert. Subject to the terms and conditions of this
paragraph 6, the holder of any share or shares of Series A Convertible Preferred
Stock shall have the right, at its option at any time, to convert any such
shares of Series A Convertible Preferred Stock (except that upon any liquidation
of the Corporation the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount distributable on
the Series A Convertible Preferred Stock) into such number of fully paid and
nonassessable shares of Common Stock as is obtained by (I) multiplying the
number of shares of Series A Convertible Preferred Stock so to be converted by
$3.00 Series A Convertible Preferred Stock so to be converted by $3.00 and (ii)
dividing the result by the conversion price of $3.00 per share or, in case an
adjustment of such price has taken place pursuant to the further provisions of
this paragraph 6, thereby the conversion price as last adjusted and in effect at
the date any share or shares of Series A Convertible Preferred Stock are
surrendered for conversion (such price, or
<PAGE>
-5-
such price as last adjusted, being referred to as the "Conversion Price"). Such
rights of conversion shall be exercised by the holder thereof by giving written
notice that the holder elects to convert a stated number of shares of Series A
Convertible Preferred Stock into Common Stock and by surrender of a certificate
or certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series A
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in such notice, together with a statement of the name or names
(with address) in which the certificate or certificates for shares of Common
Stock shall be issued.
6B. Issuance of Certificates; Time Conversion Effected. Promptly after
the receipt of the written notice referred to in subparagraph 6A and surrender
of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock issuable upon the conversion of such
shares of Common Stock issuable upon the conversion of such share or shares of
Series A Convertible Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected and the Conversion Price shall
be determined as of the close of business on the date on which such written
notice shall have been received by the Corporation and the certificate or
certificates for such share or shares shall have been surrendered as aforesaid,
and at such time the rights of the holder of such share or shares of Series A
Convertible Preferred Stock shall cease, and the person or persons in whose name
or names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares represented thereby.
6C. Fractional Shares; Dividends; Partial Conversion. No fractional
shares shall be issued upon conversion of Series A Convertible Preferred Stock
into Common Stock and no payment or adjustment shall be made upon any conversion
on account of any cash dividends on the Common Stock issued upon such
conversion. At the time of each conversion, the Corporation shall pay in cash an
amount equal to all dividends, excluding Accruing Dividends, accrued and unpaid
on the shares of Series A Convertible Preferred Stock surrendered for conversion
to the date upon which such conversion is deemed to take place as provided in
subparagraph 6B. In case the number of shares of Series A Convertible Preferred
Stock represented by the certificate or certificates surrendered pursuant to
subparagraph 6A exceeds the number of shares converted, the Corporation shall,
upon such conversion, execute and deliver to the holder, at the expense of the
Corporation, a new certificate or certificates for the number of shares of
Series A Convertible Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional share
of Common Stock would, except for the delivered upon such conversion, the
Corporation, in lieu of delivering such fractional share, shall pay to the
holder surrendering the Series A Convertible Preferred Stock for conversion an
amount in cash equal to the current market price of such fractional share as
determined in good faith by the Board of Directors of the Corporation.
<PAGE>
-6-
6D. Adjustment of Price Upon Issuance of Common Stock. Except as
provided in subparagraph 6E, if and whenever the Corporation shall issue or
sell, or is, in accordance with subparagraph 6D(1) through 6D(7), deemed to have
issued or sold, any shares of Common Stock for a consideration per share less
than the Conversion Price in effect immediately prior to the time of such issue
or sale, then, forthwith upon such issue or sale, the Conversion Price shall be
reduced to the price at which the Corporation issued or sold, or is deemed to
have issued or sold, such shares of Common Stock.
For purposes of this subparagraph 6D, the following subparagraphs 6D(1)
to 6D(7) shall also be applicable:
6D(1) Issuance of Rights or Options. In case at any time the
Corporation shall in any manner grant (whether directly or by
assumption in a merger or otherwise) any warrants or other rights to
subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or security convertible into or exchangeable
for Common Stock (such warrants, rights or options being called
"Options" and such convertible or exchangeable stock or securities
being called "Convertible Securities") whether or not such Options or
the right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such Options or upon the conversion or
exchange of such Convertible Securities (determined by dividing (i) the
total amount, if any, received or receivable by the Corporation as
consideration for the granting of such Options, plus the minimum
aggregate amount of additional consideration payable to the Corporation
upon the exercise of all such Options, plus, in the case of such
Options which relate to Convertible Securities, the minimum aggregate
amount of additional consideration, if any, payable upon the issue or
sale or such convertible Securities and upon the conversion or exchange
thereof, by (ii) the total maximum number of shares of Common Stock
issuable upon the exercise of such Options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such Options) shall be less than the Conversion price in effect
immediately prior to the time of the granting of such Options, then the
total maximum number of shares of Common Stock issuable upon the
exercise of such Options or upon conversion or exchange or the total
maximum amount of such Convertible Securities issuable upon the
exercise of such Options shall be deemed to have been issued for such
price per share as of the date of granting of such Options or the
issuance of such Convertible Securities and thereafter shall be deemed
to be outstanding. Except as the Conversion Price shall be made upon
the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such Options or upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities.
6D(2) Issuance of Convertible Securities. In case the
Corporation shall in any manner issue (whether directly or by
assumption in a merger or otherwise) or sell any Convertible
Securities, whether or not the rights to exchange or convert any such
Convertible Securities are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or
exchange (determined by dividing
<PAGE>
-7-
(i) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by
(ii) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall be
less than the Conversion Price in effect immediately prior to the time
of such issue or sale, then the total maximum number of shares of
Common Stock issuable upon conversion or exchange of all such
Convertible Securities shall be deemed to have been issued for such
price per share as of the date of the issue or sale of such Convertible
Securities shall be deemed to have been issued for such price per share
as of the date of the issue or sale of such Convertible Securities and
thereafter shall be deemed to be outstanding, provided that (a) except
as otherwise provided in subparagraph 6D(3), no adjustment of the
Conversion Price shall be made upon the actual issue of such Common
Stock upon conversion or exchange of such Convertible Securities and
(b) if any such issue or sale of such Convertible Securities is made
upon exercise of any options to purchase any such Convertible
Securities for which adjustments of the Conversion Price have been or
are to be made pursuant to other provisions of this subparagraph 6D, no
further adjustment of the Conversion Price shall be made by reason of
such issue or sale.
6D(3) Change in Option Price or Conversion Rate. Upon the
happening of any of the following events, namely, if the purchase price
provided for in any Option referred to in subparagraph 6D(1), the
additional consideration, if any, payable upon the conversion or
exchange of any Convertible Securities referred to in subparagraph
6D(1) or 6D(2), or the rate at which Convertible Securities referred to
in subparagraph 6D(1) or 6D(2) are convertible into or exchangeable of
Common Stock shall change at any time (including, but not limited to,
changes under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such event
shall forthwith be readjusted to the Conversion Price which would have
been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or conversion rate, as the case may be, at the time
initially granted, issued or sold, but only if as a result of such
adjustment the Conversion Price then in effect hereunder is thereby
reduced; and on the expiration of any such Option or the termination of
any such right to convert or exchange such Convertible Securities, the
Conversion Price then in effect hereunder shall forthwith be increased
to the Conversion Price which would have been in effect at the time of
such expiration or termination had such Option or Convertible
Securities, to the extent outstanding immediately prior to such
expiration or termination, never been issued.
6D(4) Stock Dividends. In case the Corporation shall declare a
dividend or make any other distribution upon any stock of the
Corporation payable in Common Stock (except for dividends or
distributions upon the Common Stock), Options or Convertible
Securities, any Common Stock, Options or Convertible Securities, as the
case may be, issuable in payment of such dividend or distribution shall
be deemed to have been issued or sold without consideration.
<PAGE>
-8-
6D(5) Consideration for Stock. In case any shares of Common
Stock, Options or Convertible Securities shall be issued or sold for
cash, the consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deduction
therefrom of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation, without
deduction of any expenses incurred or any underwriting commissions or
concessions paid or allowed by the Corporation in connection therewith.
In case any Options shall be issued in connection with the issue and
sale of other securities of the Corporation, together comprising one
integral transaction in which no specific consideration is allocated to
such Options by the parties thereto, such Options shall be deemed to
have been issued for such consideration as determined in good faith by
the Board of Directors of the Corporation.
6D(6) Record Date. In case the Corporation shall take record
of the holders of its Common Stock for the purpose of entitling them
(i) to receive a dividend or other distribution payable in Common
Stock, Options or Convertible Securities or (ii) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such
record date shall be deemed to be the date of the issue or sale of the
shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution
or the date of the granting of such right of subscription or purchase,
as the case may be.
6D(7) Treasury Shares. The disposition of any shares of Common
Stock owned or held by or for the account of the Corporation shall be
considered an issue or sale of Common Stock for the purpose of this
subparagraph 6D.
6E. Certain Issues of Common Stock Excepted. Anything herein to the
contrary notwithstanding, the Corporation shall not be required to make any
adjustment of the Conversion Price in the case of the issuance of up to an
aggregate of 500,000 shares (appropriately adjusted to reflect the occurrence of
any event described in subparagraph 6F) of Common Stock to directors, officers
or employees of the Corporation in connection with their service as directors of
the Corporation or their employment by the Corporation.
6F. Subdivision or Combination of Common Stock. In case the Corporation
shall at any time subdivide (by any stock split, stock dividend or otherwise)
its outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the Conversion
Price in effect immediately prior to such combination shall be proportionately
increased.
6G. Reorganization or Reclassification. If any capital reorganization
or reclassification of the capital stock of the Corporation shall be effected in
such a way that holders of Common
<PAGE>
-9-
Stock shall be entitled to receive stock, securities or assets with respect to
or in exchange for Common Stock, then, as a condition of such reorganization or
reclassification, lawful and adequate provisions shall be made whereby each
holder of a share or shares of Series A Convertible Preferred Stock shall
thereupon have the right to receive, upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore receivable upon the conversion of such share or shares
of Series A Convertible Preferred Stock, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for a number
of outstanding shares of such Common Stock equal to the number of shares of such
Common Stock immediately theretofore receivable upon such conversion had such
reorganization or reclassification not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
such holder to the end that the provisions hereof (including without limitation
provisions hereof (including without limitation provisions for adjustments of
the Conversion price) shall thereafter be applicable, as nearly as may be, in
relation to any shares of stock, securities or assets thereafter deliverable
upon the exercise of such conversion rights.
6H. Failure to Redeem. If the Corporation fails, for any reason or for
no reason, to redeem on the Redemption Date (as defined in paragraph 7) all of
the then outstanding shares of Series A Convertible Preferred Stock in
accordance with the terms and conditions of paragraph 7, the Conversion Price
then in effect shall be immediately reduced to an amount equal to 90% thereof.
Thereafter, until such redemption has been made in full in accordance with such
terms and conditions, the Conversion Price shall be further reduced on the 90th
day following the Redemption Date and at the end of each 90-day period
thereafter to an amount equal to 90% of the Conversion Price in effect
immediately prior to each such reduction.
6I. Notice of Adjustment. Upon any adjustment of the Conversion Price,
then and in each such case the Corporation shall give written notice thereof, by
first class mail, postage prepaid, or by telex to non-U.S. residents, addressed
to each holder of shares of Series a Convertible preferred Stock at the address
of such holder as shown on the books of the Corporation, which notice shall
state the Conversion Price resulting from such adjustment, setting forth in
reasonable detail the method upon which such calculation is based.
6J. Other Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Common
Stock payable in cash or stock or make any other distribution to the
holders of its Common Stock;
(2) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares to stock of any
class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a
consolidation or merger of the Corporation with or into, or a sale of
all or substantially all its assets to, another entity or entities; or
<PAGE>
-10-
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex to non-U.S. residents, addressed to
each holder of any shares of Series A Convertible preferred Stock at the address
of such holder as shown on the books of the Corporation, (a) at least 20 days'
prior written notice of the date on which the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or subscription
rights or for determining rights to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least 20
days' prior written notice of the date when the same shall take place. Such
notice in accordance with the foregoing clause (a) shall also specify, in the
case of any such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto and such notice in
accordance with the foregoing clause (b) shall also specify the date on which
the holders of Common Stock shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
6K. Stock to be Reserved. The Corporation will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issuance upon the conversion of Series A Convertible Preferred Stock a herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Series A Convertible Preferred
Stock. the Corporation covenants that all shares of Common Stock which shall be
so issued shall be duly and validly issued and fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue thereof, and,
without limiting the generality of the foregoing, the Corporation covenants that
it will from time to time take all such action as may be requisite to assure
that the par value per share of the common Stock is at all times equal to or
less than the Conversion Price in effect at the time. The Corporation will take
all such action as may be necessary to assure that all such shares of Common
Stock may be so issued without violation of any applicable law or regulation, or
of any requirement of any national securities exchange upon which the Common
Stock may be listed. The Corporation will not take any action which results in
any adjustment of the Conversion Price if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Series A
Convertible Preferred Stock would exceed the total number of shares of Common
Stock then authorized by the Restated Certificate of Incorporation.
6L. No Reissuance of Series A Convertible Preferred Stock. Shares of
Series A Convertible Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
6M. Issue Tax. The issuance of certificates for shares of Common Stock
upon conversion of Series A Convertible Preferred Stock shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect to any transfer involved in the issuance and
<PAGE>
-11-
delivery of any certificate in a name other than that of the holder of the
Series A Convertible Preferred Stock which is being converted.
6N. Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Common Stock issued or issuable upon the conversion of any
shares of Series A Convertible Preferred Stock in any manner which interferes
with the time conversion of such Series A Convertible Preferred Stock, except as
may otherwise be required to comply with applicable securities laws.
60. Definition of Common Stock. As used in this paragraph 6, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
par value $.0 per share, as constituted on the date of filing of these terms of
the Series A Convertible Preferred Stock, and shall also include any capital
stock of any class of the Corporation thereafter authorized which shall not be
limited t a fixed sum or percentage of par value in respect of the rights of the
holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; provided that the shares of Common Stock receivable upon conversion
of shares of Series A Convertible Preferred Stock shall include only shares
designated as Common Stock of the Corporation on the date of filing of this
instrument, or in case of any reorganization or reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
subparagraph 6G.
6P. Mandatory Conversion. If at any time the Corporation shall effect a
firm commitment underwritten public offering of shares of Common Stock in which
(i) the aggregate price paid for such shares by the public shall be at least
$5,000,000 and (ii) the price paid by the public for such shares shall be at
least $10.50 per share (appropriately adjusted to reflect the occurrence of any
event described in subparagraph 6F), then effective upon the closing of the sale
of such shares by the Corporation pursuant to such public offering, all
outstanding shares of Series A Convertible Preferred Stock shall automatically
convert to shares of Common Stock.
7. Redemption. The shares of Series A Convertible Preferred Stock shall
be redeemed as follows:
7A. Mandatory Redemption. On December 31, 1994, the Corporation
shall redeem from each holder of shares of Series A Convertible Preferred Stock,
all of the shares of Series A Convertible Preferred Stock held by such holder on
the Redemption Date.
7B. Optional Redemption. At any time after December 31, 1992, the
Corporation shall have the right, at its sole option, to redeem from each holder
of shares of Series A Convertible Preferred Stock, all of the shares of Series A
Convertible Preferred Stock held by such holder on the date of such redemption.
The date of a redemption pursuant to Section 7A or 7B is hereinafter referred to
as the "Redemption Date."
7C. Redemption Price and Payment. The Series A Convertible Preferred
Stock to be redeemed on the Redemption Date shall be redeemed by paying for each
share in cash an amount equal to $3.00 per share plus, in the case of each
share, an amount equal to all Accruing
<PAGE>
-12-
Dividends unpaid thereon (whether or not declared) and any other dividends
declared but unpaid thereon, computed to the Redemption Date, such amount being
referred to as the "Redemption Price". Such payment shall be made in full on the
Redemption Date to the holders entitled thereto.
7D. Redemption Mechanics. At least 20 but not more than 30 days
prior to the Redemption Date, written notice (the "Redemption Notice") shall be
given by the Corporation by mail, holder of record (at the close of business on
the business day next preceding the day on which the Redemption Notice is given)
of shares of Series A convertible Preferred Stock notifying such holder of the
redemption and specifying the Redemption Price, the Redemption date and the
place where said Redemption Price shall be payable. The Redemption Notice shall
be addressed to each holder at his address as shown by the records of the
Corporation. From and after the close of business on the Redemption Date, unless
there shall have been a default in the payment of the Redemption Price, all
rights of holders of shares of Series A Convertible Preferred Stock (except the
right to receive the Redemption Price) shall cease with respect to such shares,
and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever. If the
funds of the Corporation legally available for the redemption of shares of
Series A Convertible Preferred Stock on the Redemption Date are insufficient to
redeem the total number of outstanding shares of Series A convertible Preferred
Stock, the holders of shares of Series A convertible Preferred Stock shall share
ratably in any funds legally available for redemption of such shares according
to the respective amounts which would be payable with respect to the full number
of shares owned by them if all such outstanding shares were redeemed in full.
The shares of Series A Convertible Preferred Stock not redeemed shall remain
outstanding and entitled to all rights and preferences provided herein. At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of such shares of Series A Convertible Preferred Stock, such
funds will be used, at the end of the next succeeding fiscal quarter, to redeem
the balance of such shares, or such portion thereof for which funds are then
legally available, on the basis set forth above.
7E. Redeemed or Otherwise Acquired Shares to be Retired. Any shares
of Series A Convertible Preferred Stock redeemed pursuant to this paragraph 7 or
otherwise acquired by the Corporation in any manner whatsoever shall be canceled
and shall not under any circumstances be reissued; and the Corporation may from
time to time take such appropriate corporate action as may be necessary to
reduce accordingly the number of authorized shares of Series A Convertible
Preferred Stock.
8. Amendments. No provision of these terms of the Series A Convertible
Preferred Stock may be amended, modified or waived without the written consent
or affirmative vote of the holders of at least two-thirds of the then
outstanding shares of Series A Convertible Preferred Stock."
(4) The foregoing amendment to the Certificate of Incorporation was
authorized by the Board of Directors at a meeting of the Board duly held on
December 12, 1989.
<PAGE>
-13-
IN WITNESS WHEREOF, we have hereunto subscribed this Certificate this
29th day of December, 1989.
---------------------------------
Kennard H. Morganstern, President
<PAGE>
-14-
---------------------------------
Harvey Cohen, Secretary
STATE OF NEW YORK )
) ss.:
COUNTY OF NASSAU )
On this 29th day of December, 1989, before me personally came KENNARD
H. MORGANSTERN and HARVEY COHEN, to me known to be the individuals describe din
and who executed the foregoing Certificate of Amendment, and they duly
acknowledged to me that they executed the same.
---------------------------------
Notary Public
393LMM5962/1.198407-1
- 1 -
Exhibit 10.12
AGREEMENT MODIFYING AND EXTENDING THE TOLL PROCESSING
AGREEMENT BETWEEN MSI AND SHAMROCK
-----------------------------------------------------------
1) This is an extension of the existing Toll Processing
Agreement. The terms of such Agreement shall remain in full force and effect
except as modified hereby.
2) The Term of this Agreement shall be eighteen (18) months commencing
January 1, 1996 and expiring on June 30, 1997.
3) This agreement can be further extended by Shamrock in three (3)
month increments until December 31, 1997 by giving MSI written notice ninety
(90) days prior to the commencement of the extended period.
4) MSI shall provide Shamrock (and Shamrock guarantees the usage of)
5,000 Beam hours per twelve (12) month period. The volume shall be approximately
416 Beam hours per month for the length of the Agreement and Shamrock shall
deliver sufficient PTFE for processing so that the usage of the Beam shall be
approximately 416 Beam hours per month.
4.1 The prices to be in effect during the extension period are:
Item Price
- - ---- -----
a) Blender Irradiation $450 hr.
(up to 150 Kilowatts per hr.)
b) Tray Irradiation $ configured by the formula (Megarad
dose x $.0096 per pound) + $.15 per
pound x .75
c) Chopping $.015 per lb.
d) Grinding $.45 per lb.
5) If Shamrock wishes to use more than 5,000 Beam hours per twelve
month period, they shall give MSI ninety (90) days written notice, and MSI will
discuss Shamrock's requirements based upon the availability of Beam time.
5.1 If Shamrock uses additional hours over the 5,000 per year, the
billing rate on the additional hours shall be at a 20% premium over existing
prices of as follows.
The prices per Beam hour shall be:
a) Blender irradiation $540 hr.
b) Tray Irradiation The formula price as set forth in
Paragraph 4.1(b) plus 20%
6) MSI has occasional cyclical short term periods of underutilization
of its Beam during a month. MSI shall notify Shamrock of the availability of
such Beam time and at Shamrock's request shall make available such short term be
as set forth in Paragraph 4.1.
7) MSI shall provide Shamrock with approximately 45,000 - 50,000 square
feet of space in its facility. The area basically referred to is the back of the
building, and Shamrock shall have discrete entrance areas.
<PAGE>
-2-
7.1 MSI shall see to it that all property belonging to Dukal Corp.,
("Dukal") and/or MSI shall be cleared from Bay H3, I3, J3, and K1 on or before
November 15, 1995.
7.2 MSI presently has a sublease with Dukal, which terminates on June
1, 1996. Prior to June 1, 1996, MSI will construct fencing to restrict the
access of Dukal's employees to the Shamrock teflon area. MSI agrees that it will
not extend its sublease with Dukal and will see to it that Dukal will vacate its
subleased space no later than June 1, 1996. After such space is vacated by
Dukal, it will be allocated to Shamrock for the teflon processing operation.
Agreed: Agreed:
Medical Sterilization, Inc. Shamrock Technologies, Inc.
- - ---------------------------------- --------------------------------------
D. Michael Deignan Date Robert Luniewski Date
Exhibit 10.16
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement"), dated July 22, 1987,
BETWEEN MEDICAL STERILIZATION, INC., a New York corporation
("MSI"), with offices at 225 Underhill Boulevard,
Syosset, New York 11791
AND SUMITOMO HEAVY INDUSTRIES, LTD., a Japanese
corporation ("SHI"), with offices at 2-1, Ohtemachi
2-chome, Chiyoda-Ku, Tokyo 100, Japan
W I T N E S S E T H:
WHEREAS, the authorized capital stock of MSI consists of 5,000,000
shares of common stock, par value $.01 per share, of which there is issued and
outstanding 2,207,400 shares of common stock, and MSI plans to issue 271,429
shares of its common stock to SHI.
WHEREAS, SHI desires to purchase and MSI desires to sell 271,429 shares
of its common stock, Par Value $.01 per share (the "Stock") on the terms and
conditions herein set forth;
NOW, THEREFORE, in consideration of the premises, and the mutual
covenants and agreements herein contained, the parties hereby agree as follows:
1. ISSUE AND SALE OF STOCK; CLOSING.
1.1 Sale of Stock; Closing. MSI agrees to issue and sell to SHI
271,429 shares of its Stock for a purchase price of $3.50 per share or a total
purchase price for the 271,429 shares of $950,001.50.
1.1.1 Delivery of the certificates evidencing the Stock to be
purchased by the Purchaser will be made at a closing (the "Closing"), at the
offices of SHI, 1 World Trade Center, Suite 3669, New York, New York, at 10:00
a.m., local time, on July 30, 1987 or at such other date, time or place as the
parties hereto may agree (the "Closing Date"), against SHI's payment of the
purchase price therefor in the amount of $950,001.50.
<PAGE>
-2-
1.2 Stock Certificate. MSI will deliver to SHI at the Closing one
stock certificate (the "Certificate") for 271,429 shares of Stock registered in
SHI's name.
1.2.1 The Certificate evidencing the Stock to be delivered to
SHI at the Closing shall bear the following legend, in addition to any legends
required by New York law:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEE REGISTERED
UNDER THE SECURITIES ACT OF 1933. THE SHARES REPRESENTED BY THIS
CERTIFICATE MAY NOT BE TRANSFERRED, SOLD, OFFERED FOR SALE, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (A) THEY ARE COVERED BY
A REGISTRATION STATEMENT, OR POST-EFFECTIVE AMENDMENT THERETO,
EFFECTIVE UNDER THE SECURITIES ACT OF 1933 OR (B) IN THE OPINION OF
COUNSEL SATISFACTORY TO MSI, SUCH TRANSFER, SALE, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION IS EXEMPT FROM THE PROVISIONS OF
SECTION 5 OF THAT ACT OR (C) A NO-ACTION LETTER FROM THE SECURITIES
AND EXCHANGE COMMISSION, SATISFACTORY TO COUNSEL FOR MSI, SHALL HAVE
BEEN OBTAINED WITH RESPECT TO SUCH TRANSFER, SALE, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION.
1.3 Payment. At the Closing, SHI shall pay to MSI the sum of US
$905,001.50 by bank check.
2. CLOSING CONDITIONS. SHI's obligation to purchase the Stock provided
for herein shall be subject to the performance by MSI of its agreements in form
and substance satisfactory to SHI which by the terms hereof are to be performed
at or prior to the Closing and to the satisfaction of the following conditions
at or before the Closing:
2.1 Purchase Permitted by Applicable Laws; Legal Investment. SHI's
purchase of and payment for the Stock (i) shall not be prohibited by Regulations
G, T, U or X of the Board of Governors of the Federal Reserve System, (ii) shall
not be prohibited by any applicable law or governmental regulation, (iii) shall
not subject SHI to any penalty or, in the reasonable judgment of SHI, other
onerous condition under or pursuant to any applicable law or governmental
regulation, and (iv) shall be permitted by the laws and regulations of the
jurisdictions to which SHI is subject.
<PAGE>
-3-
2.2 Proceedings and Documents. All proceedings taken in connection
with the transactions contemplated by this Agreement, and all documents
necessary to the consummation thereof, shall be satisfactory in form and
substance to SHI.
2.3 Payment of Fees. All fees and taxes in connection with the
offer, issue, sale and delivery of the Stock and the Certificate or in
connection with the execution, delivery and performance of this Agreement
payable to any governmental or administrative board or body shall have been paid
by MSI.
2.4 Litigation. At the Closing Date, no suit, action, investigation
or other proceeding will be pending or threatened before any court or
administrative or governmental agency which seeks (or, in the case of an
investigation, may lead to a suit, action or proceeding which seeks) to
restrain, prohibit or obtain damages or other relief in connection with the
consummation of the transaction contemplated by this Agreement.
2.5 Board of Directors. Immediately after the Closing, a designee of
SHI will be proposed by SHI for the election to the Board of Directors of MSI,
and MSI ensures that such designee will be elected as a board member of MSI at a
special directors meeting to be held as soon as practicably possible after the
Closing.
2.6 Consents and Approvals. All consents and approvals required by
any court, administrative, governmental authority or regulatory agency to
consummate the proposed transaction will have been obtained.
2.7 Accuracy of Representations and Warranties. The representations
and warranties of MSI herein contained will be true and correct on the Closing
Date as though made on and as of such date.
2.8 Actions and Proceedings. MSI shall have performed or complied
with all provisions of this agreement required to be performed or complied with
before the Closing Date, and all actions, proceedings, instruments and documents
required to carry out the transactions contemplated by this Agreement or
incidental hereto and all other related legal matters shall have been completed
in form and substance satisfactory to SHI, and SHI shall have received
<PAGE>
-4-
counterpart originals and/or certified or other copies of such documents as SHI
shall reasonably request relative to this Agreement.
3. REPRESENTATIONS AND WARRANTIES.
3.1 Representations of SHI. SHI represents and warrants to MSI that:
3.1.1 The Stock to be acquired by SHI hereunder is being
acquired for its own account (as principal and not as trustee or agent) and is
being acquired by it for investment and not with a view to, or for sale in
connection with, any distribution thereof, but without prejudice, however, to
SHI's right that the disposition of such Stock shall at all times be within its
control. SHI hereby acknowledges that the Stock may be sold only upon
registration thereof under the Securities Act of 1933 as amended (the
"Securities Act"), or in accordance with an available exemption from the
registration requirements thereof, and that the Stock is not registered under
the Securities Act.
3.1.2 SHI has full legal right, power and authority to enter
into and perform this Agreement and the execution and delivery of this Agreement
by SHI and the consummation of the transactions contemplated hereby have been
duly authorized by the Board of Directors of SHI, and no consent, waiver or
authorization, or filing with any person (including, without limitation, any
governmental authority) is required in connection with the execution, delivery,
performance by or the validity or enforceability against SHI of this Agreement.
This Agreement has been duly executed and delivered by SHI and constitutes a
legal, valid and binding obligation of SHI, enforceable against it in accordance
with its terms, except to the extent that its enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally and by general equity
principles.
3.2 Representations of MSI. MSI represents and warrants to SHI that:
3.2.1 MSI is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York, with all the requisite
corporate power and authority to own its properties and to conduct its business
as now and proposed to be conducted.
<PAGE>
-5-
MSI is duly qualified to transact business in and is in good standing in each
jurisdiction in which the failure so to qualify would have a material adverse
effect on its business or properties. Copies of MSI's Restated Certificate of
Incorporation and By-Laws have been delivered to SHI.
3.2.2 As of the close of business on the day before the Closing
Date, the authorized capital stock of MSI will consist of 5,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"), of which 2,207,400
shares will be issued and outstanding, and 2,000,000 authorized shares of
preferred stock, par value $.01 per share, of which 1,064 shares will be issued
and outstanding. Except as set forth in the Notes to the Financial Statements in
the Annual Report for the year ended December 31, 1986 and the Quarterly Report
for the quarter ended March 31, 1987, no options, warrants or other rights to
purchase, agreements or other obligations to issue, or agreements or other
rights to convert any obligation into, any shares of capital stock of MSI have
been granted or entered into by MSI except warrants to purchase 53,333 shares of
Common Stock granted to Bernard Livingston, Ben Shames and Michael L. Morris and
options to purchase 50,000 shares of Common Stock granted to Kennard H.
Morganstern and Robert S. Luniewski.
3.2.3 The Stock, when issued and delivered by MSI and paid for
by SHI pursuant to the terms of this Agreement, will be duly authorized, validly
issued, fully paid and non-assessable, free and clear of all liens,
encumbrances, charges and claims, and subject to no restriction on transfer
except as contemplated by this Agreement and will be issued in compliance with
all federal and state securities laws with no personal liability attaching to
the ownership thereof and shall be entitled to all of the special rights set
forth herein.
3.2.4 MSI has full legal right, power and authority to enter
into and perform this Agreement, and the execution and delivery of this
Agreement by MSI and the consummation of the transactions contemplated hereby
including any increase in shares of Common Stock issued have been duly
authorized by the Board of Directors of MSI and all corporate action on the part
of MSI, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the performance of
all obligations
<PAGE>
-6-
hereunder and the authorization, issuance and delivery of the Stock being sold
hereunder has been taken prior to the Closing Date and no consent, waiver or
authorization, or filing with any person (including without limitation, any
court, regulatory or administrative agency or governmental authority) is
required in connection with the execution, delivery, performance by, or the
validity or enforceability against MSI of this Agreement. This Agreement has
been duly executed and delivered by MSI and constitutes a legal, valid and
binding obligation of MSI, enforceable against it in accordance with its terms,
except to the extent that its enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally and by general equity principles.
3.2.5 The execution, delivery and performance of this Agreement
and the consummation of the transactions contemplated hereby do not and will not
(i) violate any provisions of MSI's Restated Certificate of Incorporation or
By-Laws, or (ii) contravene any law, rule or regulation of any state or the
United States or any political subdivision thereof or therein, or any order,
writ, judgment, injunction, decree, determination or award presently in effect,
or (iii) result in, or require, the creation or imposition of any lien, charge,
encumbrance or claim on any of its properties or revenues pursuant to any
contractual obligation to which MSI is a party or by which any of its assets may
be bound or affected.
3.2.6 No action, suit, litigation, investigation or proceeding
of or before any arbitrator or governmental authority is pending or (to the best
of MSI's knowledge) threatened by or against MSI or against any of its
properties or revenues (i) with respect to this Agreement or any of the
transactions contemplated hereby, or (ii) which, if adversely determined, would
have a material adverse effect on the business, operations, property, prospects
or condition (financial or otherwise) of MSI.
3.2.7 MSI is not in violation of or default under any provision
of its Restated Certificate of Incorporation or By-Laws or of any contract,
instrument, judgment, order, writ or decree to which it is a party or by which
it is bound or of any provision of any federal or state statute, rule or
regulation applicable to MSI which could be materially adverse to the
<PAGE>
-7-
business, operations, property, prospects or condition (financial or otherwise)
of MSI, or which could materially adversely affect the ability of MSI to perform
its obligations under this Agreement and the transactions contemplated hereby.
3.2.8 At the Closing Date, MSI will be in compliance, in all
material respects, with all material laws, ordinances, governmental rules and
regulations to which it is subject, where the failure to so comply would have a
material adverse effect on the business of MSI or would have an effect on the
enforceability against MSI of this Agreement.
3.2.9 The offer and sale of the Stock hereunder is exempt from
the registration and prospectus delivery requirements of the Securities Act, and
the rules and regulations thereunder and any other applicable securities laws.
3.2.10 MSI has heretofore delivered to SHI a copy of its 1986
Annual Report to shareholders and its Annual Report on Form 10-K, both
containing (i) its audited balance sheet as of December 31, 1986, and the
related audited statement of loss, statement of shareholders' equity and
statement of changes in financial position for the fiscal year ended December
31, 1986, accompanied by the report of MSI's independent public accountants
thereon, and (ii) its quarterly report on Form 10-Q containing an unaudited
balance sheet at March 31, 1987, and the related unaudited statement of loss for
the three months ended March 31, 1987. Such financial statements fairly present
the financial position of MSI as of the respective dates thereof and the results
of its operations and (to the extent covered thereby) changes in its financial
position and shareholders' equity for the periods indicated, in accordance with
generally accepted accounting principles in U.S.A., which, except as disclosed
therein, have been consistently applied. Except as disclosed in the financial
statements, including the notes thereto, referred to above, since March 31,
1987, there has not been any material adverse change in the general business
affairs, financial position or results of operations of MSI. MSI has no material
liability or obligation, absolute or contingent.
3.2.11 This Agreement, representations and warranties by MSI and
any exhibits, schedules, attachments, documents, certificates and other written
items and materials
<PAGE>
-8-
prepared and supplied to SHI by or on behalf of MSI, with respect to the
transactions contemplated hereby, do not and will not, as the case may be,
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements contained therein not misleading in the
context made. There is no fact known to MSI which MSI has not disclosed to SHI
in writing and which is reasonably likely to have a material adverse effect on
the financial condition, operating results, assets or business prospects of MSI
or would have an effect on the enforceability against MSI of this Agreement or
any material contract, agreement or instrument to which MSI is a party.
3.2.12 Copies of MSI's Restated Certificates of Incorporation
and By-Laws heretofore delivered to SHI are true and correct.
3.2.13 MSI has all governmental licenses and permits necessary
to conduct its business.
4. REGISTRATION UNDER THE SECURITIES ACT OF 1933.
4.1 MSI agrees that prior to any filing by it of a registration
statement under the Securities Act, it will, at least 30 days prior to such
filing, notify SHI of its intention to file such registration statement and,
upon the request of SHI, will include in such registration the shares of Stock
issued to SHI, if, in the opinion of counsel for MSI such registration statement
is required to permit sale of such Stock in the manner contemplated by SHI.
4.2 Whenever pursuant to Paragraph 4.1 a registration statement
relating to any Stock is filed under the Securities Act, amended or
supplemented, MSI shall indemnify and hold harmless SHI and SHI's officers and
directors (or SHI's assignees if SHI can assign registration rights) and
underwriter for SHI, within the meaning of the Securities Act, who may purchase
from or sell for SHI any shares of Stock from and against any and all losses,
claims, damages and liabilities joint or several caused by any untrue statement
or alleged untrue statement of a material fact contained in the registration
statement or any post-effective amendment or supplement thereto or any
registration statement under the Securities Act or any prospectus included
therein required to be filed or furnished by reason of this Paragraph 4 or
<PAGE>
-9-
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statement therein not
misleading, and MSI will reimburse SHI, each officer, director, underwriter
(within the meaning of the Securities Act) or controlling person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action, except insofar
as such losses, claims, damages or liabilities are caused by any such untrue
statement or alleged untrue statement or omission or alleged omission based upon
information furnished or required to be furnished in writing to MSI by SHI or
underwriter for SHI expressly for use therein, which indemnification shall
include each person, if any, who controls any such underwriter within the
meaning of such Securities Act; provided, however, that MSI shall not be obliged
so to indemnify SHI or underwriter or controlling person unless SHI or such
underwriter shall at the same time indemnify MSI, its directors, each officer
signing the related registration statement and each person, if any, who controls
MSI within the meaning of such Securities Act, from and against any and all
losses, claims, damages and liabilities caused by any untrue statement or
alleged untrue statement of a material fact contained in any registration
statement or any prospectus required to be filed or furnished by reason of this
Paragraph 4 or caused by any omission to state therein a material fact required
to be stated therein or necessary to make the statement therein not misleading,
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or alleged untrue statement or omission based upon information
furnished in writing to MSI by SHI or underwriter expressly for use therein.
4.3 MSI will assist SHI in its filing of a registration statement
relating to the Stock with the Securities and Exchange Commission under the
Securities Act if and when SHI informs MSI of its desire to transfer, sell or
dispose of the Stock, in part or in whole. Any such filing will be at SHI's sole
cost and expense.
5. COVENANTS OF MSI.
5.1 Delivery of Financial Statements to SHI. MSI shall deliver to
SHI, so long as SHI holds any common stock;
<PAGE>
-10-
5.1.1 as soon as practicable after the end of each fiscal year
of MSI, but in any event within 90 days thereafter, a balance sheet of MSI as of
the end of such fiscal year and the related income (loss) statement, statement
of shareholders' equity and statement of changes in financial position for such
fiscal year, together with related notes, all audited and certified by
independent public accountants of nationally recognized standing selected by
MSI;
5.1.2 as soon as practicable after the end of each of the first
three quarters of each fiscal year of MSI, but in no event within 45 days
thereafter, an unaudited balance sheet as of the end of such quarter together
with related unaudited income (loss) statement and unaudited statement of
changes in financial position for such quarter.
5.1.3 With respect to the financial statements required by
Paragraph 5.1.2, MSI shall deliver to SHI a certificate executed by the chief
financial officer or President of MSI certifying that such financial statements
were prepared in accordance with generally accepted accounting principles
applied consistently with prior practice for earlier periods and fairly present
the financial condition of MSI and its results of operations for the period
specified, subject to year-end audit adjustments.
5.2 Delivery of Other Financial Information. MSI shall deliver to
SHI's nominee on the Board of Directors of MSI as such director;
5.2.1 within 30 days after the end of each month, an unaudited
balance sheet as of the end of such month together with the related income
(loss) statement for such month;
5.2.2 not later than sixty (60) days prior to the beginning of
each fiscal year of MSI, an annual business plan prepared on a monthly basis and
promptly after preparation, any revisions to such forecasts;
5.2.3 from time to time, but on a timely basis such other
information and materials, such as reports of adverse developments, copies of
management letters, press releases and registration statements;
<PAGE>
-11-
5.2.4 such other information relating to the financial
condition, business, prospects or affairs of MSI as may be provided to the Board
of Directors, provided, however, that MSI shall not be obligated to provide
information which it reasonably considers to be confidential.
5.3 Inspection. MSI shall cooperate with SHI and shall make its
books of account and records and personnel reasonably available to SHI so as to
enable them, at their expense, to conduct a legal and financial audit of MSI
prior to the Closing if they or any of them elect to do so.
6. MISCELLANEOUS.
6.1 Expenses. Whether or not the transactions contemplated hereby
are consummated, all cost and expenses incurred by SHI in connection with this
Agreement and the transactions contemplated hereby shall be paid by it and all
expenses incurred by MSI in connection with this Agreement and the transactions
contemplated hereby shall be paid by it.
6.2 Notices.
6.2.1 All communications under this Agreement shall be in
writing and shall be mailed by first class mail, postage prepaid,
(i) if to SHI, to:
Sumitomo Heavy Industries, Ltd.
2-1, Ohtemachi 2-chome, Chiyoda-Ku
Tokyo 100, Japan
Attn: Managing Director
or at such other address as it may have furnished MSI in writing, or
(ii) if to MSI, to:
Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, New York 11791
Attn: President
<PAGE>
-12-
with a copy to:
Murtagh, Cohen & Byrne
1122 Franklin Avenue
Garden City, New York 11530
Attn: Harvey Cohen, Esq.
or at such other address as MSI may have furnished in writing to SHI.
6.2.2 Any notice so addressed and mailed by registered or
certified mail shall be deemed to have been given when mailed.
6.3 Survival. All warranties, representations, and covenants made
herein or in any certificate or other instrument delivered by the parties hereto
or on their behalf under this Agreement shall be considered to have been relied
upon and shall survive the delivery of the Stock and payment therefor,
regardless of any investigation made by any such party or on its behalf. All
statements in any such certificate or other instrument shall constitute
warranties and representations by such party hereunder.
6.4 Amendments, Modifications and Waivers. Any covenant, agreement,
provision or condition of this Agreement may be amended or modified, or
compliance therewith may be waived (either generally or in any particular
instance and either retroactively or prospectively), by (and only by) an
instrument in writing signed by SHI and MSI.
6.5 Assignability; Successors and Assigns. This Agreement shall not
be assignable by MSI without the prior written consent of SHI or by SHI without
the prior written consent of MSI; provided, however, that SHI may assign its
interest in this Agreement to any of its affiliates if such affiliate undertakes
to perform SHI's obligations hereunder. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns.
6.6 Severability. Should any part of this Agreement for any reason
be declared invalid, such decision shall not affect the validity of any
remaining portion, which remaining portion shall remain in full force and effect
as if this Agreement had been executed
<PAGE>
-13-
with the invalid portion thereof eliminated and it is hereby declared the
intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part or parts which
may, for any reason, be hereafter declared invalid.
6.7 Captions. The descriptive headings of the various Paragraphs or
parts of this Agreement are for convenience only and shall not affect the
meaning or construction of any of the provisions hereof.
6.8 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
6.9 Entire Agreement. This Agreement, together with the Stock, is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties and undertakings, other than
those set forth or referred to herein and therein. This Agreement, together with
the Stock, supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
MEDICAL STERILIZATION, INC.
By:________________________________
Kennard H. Morganstern
Chairman and President
SUMITOMO HEAVY INDUSTRIES, LTD.
By:________________________________
Atsushi Naito
Managing Director
<PAGE>
-14-
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized on March 27, 1989.
(Registrant) MEDICAL
STERILIZATION, INC.
By:______________________________
Kennard H. Morganstern,
President
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President, Chairman of the Board of Directors, March 27, 1989
_______________________________ Principal Executive Officer & Director
(Kenneth H. Morganstern)
Treasurer, Principal Financial and Accounting March 27, 1989
_______________________________ Officer
(John M. Sharpe, Jr.)
_______________________________
(Harvey Cohen) Director March 27, 1989
_______________________________ Director March 27, 1989
(John R. Hoover)
_______________________________ Director March 27, 1989
(Yoshiyuki Nagashima)
_______________________________ Director March 27, 1989
(Kenneth W. Rind)
_______________________________ Director March 27, 1989
(Albert T. Sommers)
</TABLE>
393LMM5962/1.198711-1
Exhibit 10.19
April 4, 1991
Mr. Jack Sharpe
Medical Sterilization, Inc.
225 Underhill Boulevard
Syosset, NY 11791
Dear Jack,
As we discussed, I am pleased to inform you that Apple Bank for Savings
has approved a $1,100,000 revolving credit facility and a $1,600,000 term loan.
This approval is subject to the following terms and conditions:
Loan A - A revolving line of credit in the amount of $1,100,000 secured by
accounts receivable and medical instruments. This line replaces the existing
$1,300,000 line. Advances under the line will be limited to 75% of eligible
accounts receivable. The interest rate on the line will be Apple Bank for
Savings' Prime plus 2%. The line will expire on April 30, 1992.
Loan B - A 5 year term loan in the amount of $1,600,000. Proceeds will be
used to refinance two existing term loans at Apple Bank having a total balance
of approximately $1,000,000 and to repay existing debt under the company's
revolving line of approximately $600,000. The term loan will be secured by
medical instruments and the company's accelerator beam. The interest rate to be
charged will be Apple Bank's Prime plus 2%.
In additional to the above, we expect bank council to prepare a loan
agreement which will include loan covenants common to this type of transaction.
I am looking forward to our continued relationship.
Sincerely,
Warran R. Mohr
President
WRM:kk
393LMM5962/1.198648-1
Exhibit 10.23
February 7, 1996
Dr. Kennard H. Morganstern
8 Hunter Lane
Roslyn, NY 11576
Dear Ken:
The Board of Directors has approved an agreement with you covering the
"Termination Period", as hereinafter defined. The substance of the agreement is
as follows:
1. You will furnish advice as needed to a Search Committee, consisting of
Kenneth W. Rind, John R. Hoover and Harvey Cohen, which will immediately conduct
a search for a new President. In the event that to acquire a suitable qualified
person as President it is necessary to offer him the position of Chief Executive
Officer as well, you will resign as Chief Executive Officer.
2. Upon the selection of a new President, you will continue to be Chairman
of the Board and Chief Executive Officer except as hereinbefore stated and will
work with the Board and the new President to ensure a successful transition.
3. After the new President has been in office for a period of at least one
year, the Board of Directors will determine if he should be continued, and if
so, will elect him Chief Executive Officer if he has not already been so
elected. The determination to retain the new President by the Board will be the
start of the Termination Period.
4. During the Termination Period, you will continue to serve as Chairman
of the Board, and make yourself available at the option of the new Chief
Executive Officer and provide fifty (50%) percent of your time to perform
similar services to those presently being performed by you.
5. You will be paid at a base salary equal to fifty (50%) percent of your
salary as of the commencement of the Termination Period for the first year with
a Cost of Living adjustment to said base salary for each of the next two years.
The Cost of Living Increase, if any, shall be computed using as a basis of such
computation the "Consumer Price Index - Urban Wage Earners (1995 = 100)
published by the Bureau of Labor Statistics of the United States Department of
Labor.
<PAGE>
Dr. Kennard H. Morganstern
February 7, 1995
Page -2-
6. You will also be entitled to the same benefits provided to other
officers during the Termination Period and for an additional period of two
years, including but not limited to vacation and sick leave, medical and
hospitalization insurance and any 401K Plan or similar plan which might be in
effect during the Termination Period.
6.1 The group life insurance policy insuring you will be maintained
by MSI during the Termination Period and for an additional period of two years
in the same face amount as may exist at the start of the Termination Period.
7. As used herein, "Confidential Information" means all technical and
business information of MSI whether or not patentable, which is of a
confidential, trade secret and/or proprietary character and which is or was
either developed by you (alone or with others) or to which you had access during
your employment by MSI. Confidential Information shall include, but shall not be
limited to, names of customers and suppliers, information contained in bids
and/or proposals, contract progress reports and confidential evaluations of, and
the confidential use or non-use by MSI of, technical or business information in
the public domain.
7.1 During your employment hereunder and thereafter, will not,
directly or indirectly (without MSI's prior written consent), use for yourself
or use for, or disclose to, any party other than MSI, any Confidential
Information for so long as it shall remain proprietary or protectible as
confidential or trade secret information, except as may be necessary for the
performance of your duties for MSI. Each of your obligations in this Paragraph 7
shall also apply to the confidential, trade secret and proprietary information
learned or acquired by you during your employment from others with whom MSI has
a business relationship.
7.2 At the termination of your employment hereunder or at any other
time MSI may request, you shall promptly deliver to MSI all documents or other
material in your possession relating, directly or indirectly, to Confidential
Information without retaining any copies.
8. You shall not, directly or indirectly (whether as owner, partner,
consultant, employee or otherwise), at any time during your employment, and the
period of two years following termination for any reason (except for that
termination which would constitute a breach of this Agreement) of your
employment with MSI, engage in or contribute your knowledge to any business
engaged in any work or activity in which MSI is then currently engaged
("Competitive Work") in the Eastern or Midwestern parts of the United States or
other areas where MSI has commenced operations. You agree that this covenant not
to compete is a reasonable covenant under the circumstances, and further agree
that if
<PAGE>
Dr. Kennard H. Morganstern
February 7, 1995
Page -3-
in the opinion of any Court of competent jurisdiction, such restraint is
not reasonable in any respect, such Court shall have the right, power and
authority to excise such provision or provisions of this covenant as to the
Court shall appear not reasonable and to enforce the remainder of the covenant
as so amended.
8.1 You shall be permitted to engage in such proposed work or
activity and MSI shall furnish you a written consent to that effect signed by an
officer, if you shall have furnished to MSI clear and convincing written
evidence, including assurances from you and your new employer, that the
fulfillment of your duties in such proposed work or activity would not likely
cause you to disclose, base judgments upon, or use any Confidential Information
(and such consent shall not be unreasonably withheld).
8.2 Following the expiration of said two year period, you shall
continue to be obligated under the "Confidential Information" section of this
Agreement not to use or to disclose Confidential Information so long as it shall
remain proprietary or protectible as confidential or trade secret information.
8.3 During your employment by MSI and for a period of two years
thereafter, you shall not, directly or indirectly, induce or attempt to induce a
salaried employee of MSI to accept employment or affiliation involving
Competitive Work with another firm or corporation of which you are or may become
an employee, owner, partner or consultant.
9. This Agreement shall become effective as of the beginning of the
Termination Period and shall continue thereafter for a period of five (5) years,
unless sooner terminated by reason of your death or as herein otherwise
provided.
9.1 MSI may terminate this Agreement by written notice delivered to
you at least five (5) days prior to the date of termination, which notice shall
specify the reasons for such termination, upon the commission by you of an act
or series of acts constituting "Cause". For this purpose, "Cause" means (a) an
act of dishonesty by you resulting or intended to result directly or indirectly
in your gain or your personal enrichment or that of your relatives or associates
at MSI's expense, (b) the deliberate and intentional refusal by you (except by
reason of incapacity due to illness or accident) substantially to perform your
duties hereunder, or (c) the willful violation by you of the provisions of
Paragraphs 7 and 8 of this Agreement. No act on your part shall be considered
"willful" unless done by you not in good faith and without reasonable belief
that such act was in the best interest of MSI.
9.2 If you die, resign, are terminated for "Cause", the Base Salary
and benefits set forth in Paragraphs 5 and 6 above shall be paid through the
date of
<PAGE>
Dr. Kennard H. Morganstern
February 7, 1995
Page -4-
termination, whereupon MSI shall have no further liability to you under
this Agreement for such payments.
9.3 If your employment hereunder is terminated by MSI for any reason
other than those specified in subparagraph 9.2.1 above (it being understood that
a purported termination for disability or Cause which is contested by you and
finally determined not to have been proper, shall be treated as a termination
under this subparagraph 9.3), then the Base Salary and benefits set forth in
Paragraphs 5 and 6 above shall be paid throughout the remainder of the five (5)
year term of this Agreement.
If the foregoing sets forth your understanding of the agreement approved
by the Board of Directors, please sign a copy of this letter under the words
"Agreed To" and return the copy to us.
Very truly yours,
MEDICAL STERILIZATION, INC.
By:_____________________________
Secretary
By Order of the Board of Directors
Agreed To:
- - ----------------------
Kennard H. Morganstern
393LMM5962/1.195553_1
- 1 -
Exhibit 10.24
[ ] indicates material that has been omitted and for which confidential
treatment has been requested. All such omitted material has been filed with the
Commission pursuant to Rule 24b-2
AGREEMENT BETWEEN
PILLING WECK (PW) and MEDICAL STERILIZATION, INC. (MSI)
Pilling Weck agrees to represent and sell MSI's procedure specific
decontamination, reprocessing and/or sterilization services in selective high
population density urban centers and/or in cooperation with MSI to selective IHN
organizations according to the minimum guidelines in Exhibit A. MSI's current
market development efforts, as outlined in Exhibit B, will be excepted from the
terms of this agreement. MSI grants to Pilling Weck exclusive, except as to MSI,
sales and marketing rights in the United States for the next three years
effective 1/5/96.
[bullet] MSI will continue its current account development efforts in the L.I.
business Unit Area, but agrees to exclusive third-party representation
by PW in this area. MSI will train Pilling Weck Sales Representatives
in the L.I. Business Unit Area (90 mile radius). Pilling Weck will
receive a commission of new MSI net billings generated by its
representatives, excepting MSI's current active customer list or
accounts under active development, as indicated in Exhibit C, within 10
days after payment receipt from the customer.
The commission schedule is as follows:
* New Accounts [ ]%
* Endoscopy [ ]%
PW agrees that during the first year, [ ]% of the MSI commission
received and also, [ ]% commission of any MSI purchases of PW
instruments will be paid to its representation in the L.I. Business
Unit Area.
[bullet] Pilling Weck and MSI (The parties are not partners or joint venturers,
but are independent contractors.) agree to cooperate exclusively to
commercialize MSI's procedure specific decontamination, reprocessing
and/or sterilization services throughout North America according to the
minimum guidelines outlined in Exhibit A. Pilling Weck will use its
corporate and national account contacts to identify potential customers
and MSI will support the sales process
<PAGE>
-2-
by making joint presentations with Pilling Weck and coordinating
proposals to the clients in a timely basis.
[bullet] MSI agrees to purchase its surgical instrument needs for current and
future sites from Pilling Weck, and Pilling Weck agrees to supply such
instruments upon request for the duration of this agreement. Specific
customer requests or preferences for other brands of instruments,
however, will be accommodated and excepted from this exclusive
arrangement. Pricing will be provided at Pilling Weck's possible
discount level reflected as VP level pricing. MSI has the option to
purchase such instruments on terms, 60 days from date of invoice or on
operating lease terms, utilizing PW's third party financing facility,
or through use of a MSI financing facility. In the event of termination
of this agreement, PW will not cause termination of any leasing
arrangement in effect.
[bullet] To start offering an endoscopic set to this trade, Pilling Weck agrees
to supply MSI with endoscopic sets at this pricing level.
[bullet] Pilling Weck and MSI agree to review options for contribution of
instruments to new centers, whereby Pilling Weck contributes
instruments as equity, and receives equity as a percentage of total
capitalization for that center.
[bullet] Pilling Weck also agrees to review options to supply instruments to
MSI on a capitated basis, whereby Pilling Weck is paid on a per use
basis for the instruments and ownership of the instruments remains with
Pilling Weck.
[bullet] Pilling Weck will provide on-site instrument repair services for MSI,
as requested by MSI, at VP level pricing at their Syosset, N.Y.
facility. MSI will provide adequate space to Pilling Weck personnel on
a rent free basis.
[bullet] [
].
The term of this agreement is three years. However, in the event of
change of ownership of the business, either party may cancel this agreement
provided one year's notice is given to the other party. After the first year,
either party, by giving thirty (30) days written notice prior to the end of the
year, may terminate the agreement if new MSI/PW generated contracts of at least
[ ] have not been signed or are pending, or MSI has not purchased or committed
to pending purchases of at least [ ] of PW instruments.
<PAGE>
-3-
If Pilling Weck terminates this agreement for reasons other than breach
on MSI's part, Pilling Weck would be bound by an 18 month non-compete in the
geographic areas (180 mile radius) where MSI and Pilling Weck have concluded
contracts.
The non-compete would cover off-site decontamination, reprocessing, and
sterilization of surgical instruments for hospitals in the specific geographic
area covered.
If MSI terminates this agreement for reasons other than breach on
Pilling Weck's part, Pilling Weck would be unrestricted in any business
practices and not be bound by the above mentioned non-compete.
- - --------------------------------- --------------------------------------
Ervin F. Portman D. Michael Deignan
President President
Pilling Weck Medical Sterilization, Inc.
<PAGE>
EXHIBIT A
MEDICAL STERILIZATION, INC./PILLING WECK
NATIONAL REPRESENTATION GUIDELINES
[
]
<PAGE>
EXHIBIT B
NATIONAL ACCOUNT DEVELOPMENT LIST
[
]
<PAGE>
EXHIBIT C
(Excludes Endoscopy)
L.I. BUSINESS UNIT AREA - ACTIVE ACCOUNT LIST:
[
]
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Medical Sterilization, Inc. on Form SB-2 (File No. 33-96330) of our report dated
March 19, 1996, on our audits of the financial statements of Medical
Sterilization, Inc. as of December 31, 1995, and for the years ended December
31, 1995 and 1994, which report is included in this Annual Report on Form
10-KSB.
COOPERS & LYBRAND L.L.P.
Melville, New York
March 19, 1996
393LMM5962/1.199346-1
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<FISCAL-YEAR-END> Dec-31-1995
<PERIOD-END> Dec-31-1995
<CASH> 175,390
<SECURITIES> 0
<RECEIVABLES> 2,890,707
<ALLOWANCES> (34,000)
<INVENTORY> 132,664
<CURRENT-ASSETS> 2,836,517
<PP&E> 11,072,737
<DEPRECIATION> (7,299,715)
<TOTAL-ASSETS> 6,804,868
<CURRENT-LIABILITIES> 1,229,297
<BONDS> 0
<COMMON> 29,804
1,544,400
1,945,625
<OTHER-SE> 109,489
<TOTAL-LIABILITY-AND-EQUITY> 6,804,868
<SALES> 8,772,430
<TOTAL-REVENUES> 8,775,103
<CGS> 6,426,319
<TOTAL-COSTS> 8,248,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 34,000
<INTEREST-EXPENSE> 335,199
<INCOME-PRETAX> 191,573
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 114,400<F1>
<CHANGES> 0
<NET-INCOME> 77,143
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.02
(F1 Dividends are 114,400 for preferred)
</TABLE>
