<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15
OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 31, 1995
-----------------------------
BIOMAGNETIC TECHNOLOGIES, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
California 1-10285 95-2647755
- ------------------------------------------------------------------------------
(State or other jurisdiction Commission File Number (I.R.S.Employer
of incorporation) Identification No.)
9727 Pacific Heights Boulevard, San Diego, California 92121-3719
- ------------------------------------------------------------------------------
(Address of principal executive offices) (zip code)
(619) 453-6300
- ------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
<PAGE>
ITEM 1. CHANGES IN CONTROL OF REGISTRANT.
On March 31, 1995, Biomagnetic Technologies Inc. (the "Company") completed the
sale of 25,000,000 newly issued shares of Common Stock of the Company to
Dassesta International S.A. ("Dassesta"), a foreign investment group, for
$15,000,000. Following the closing, Dassesta is the beneficial owner of
approximately 71% of the outstanding shares of the Company (63% considering the
effect of the expected conversion of short-term notes payable to Common Stock
discussed in Item 2.). The shares issued to Dassesta have identical rights,
preferences and privileges as all other outstanding shares of Common Stock of
the Company.
The Company's By-laws provide that the authorized number of directors shall not
be less than five nor more than nine and the exact number of directors presently
authorized and serving is seven. It is anticipated that the exact number of
directors authorized will be increased to eight or nine and that any vacancies
then existing would be filled by designees of Dassesta.
The Company is not aware of any arrangement which, at a subsequent date, would
result in a change in control of the Company.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On March 31, 1995, the Company completed the sale of 25,000,000 newly issued
shares of Common Stock of the Company to Dassesta for $15,000,000 in cash. See
Item 1.
In connection with the Dassesta transaction, the Company has arranged with
certain holders of short-term debt to either retire such debt using a portion of
the proceeds from the Dassesta transaction or convert such debt to shares of
Common Stock of the Company under certain negotiated terms. The accompanying
Unaudited Pro Forma Condensed Financial Statements are presented to show the pro
forma effect on the Company's historical consolidated financial position and
results of operations of i) the sale of Common Stock to Dassesta and the net
proceeds therefrom, ii) the March 31, 1995 retirement of $500,000 short-term
notes payable and accrued interest thereon and iii) the expected conversion of
$2,210,000 of short-term notes payable plus accrued interest and additional
principal of $221,000 to approximately 4,800,000 shares of Common
Stock of the Company at a rate of $0.54 per share.
2
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1994
-----------------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS (UNAUDITED)
--------- --------------- -----------
<S> <C> <C> <C>
Total revenues $ 3,344 $ 3,344
Cost of product sales 2,572 2,572
Contract research costs 10 10
Research and development 6,725 6,725
Marketing, general and administrative 3,959 3,959
Interest expenses 391 (330)(a) 61
-------- -------
Total expenses 13,657 13,327
-------- -------
NET LOSS $(10,313) $(9,983)
======== =======
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31, 1994 (UNAUDITED)
----------------------------------------
PRO FORMA
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ----------
<S> <C> <C> <C>
Total revenues $ 2,796 $ 2,796
Cost of sales 1,525 1,525
Research and development 1,251 1,251
Marketing, general and administrative 1,093 1,093
Interest expense 236 (228)(a) 8
-------- -------
Total expenses 4,105 3,877
-------- -------
NET LOSS $ (1,309) $(1,081)
======== =======
</TABLE>
(a) Represents elimination of: interest on notes payable, amortization of debt
issue discount and amortization of debt issuance costs.
(b) The expected conversion of certain short-term debt at a discount to the
market price of common stock will result in a extraordinary loss of
approximately $782,000. Such extraordinary losses are excluded from pro
forma statements of operations in accordance with the rules of the SEC.
3
<PAGE>
BIOMAGNETIC TECHNOLOGIES, INC.
PRO FORMA CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1994
-----------------------------------------
PRO FORMA PRO FORMA
ACTUAL ADJUSTMENTS (UNAUDITED)
--------- --------------- -----------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 2,324 14,795(a) $ 16,589
(530)(b)
Restricted cash 1,195 1,195
Accounts receivable 76 76
Inventories 1,952 1,952
Prepaid expenses and other current assets 324 (79)(c) 245
-------- --------
Total current assets 5,871 20,057
Property and equipment - net 2,412 2,412
Restricted cash 1,422 1,422
Other assets 523 523
-------- --------
Total assets $ 10,228 $ 24,414
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable $ 975 $ 975
Accrued liabilities 1,700 (30)(b) 1,537
(133)(c)
Accrued salaries and employee benefits 443 443
Customer deposits 2,650 2,650
Notes payable to related parties 798 (798)(c) ----
Short-term debt 2,246 (500)(b) 500
(1,246)(c)
-------- --------
Total current liabilities 8,812 6,105
Other liabilities 442 442
-------- --------
Total liabilities 9,254 6,547
SHAREHOLDERS' EQUITY
Common stock 60,658 14,795 (a) 78,333
2,880 (c)
Accumulated deficit (59,684) (782)(c) (60,466)
-------- --------
Total shareholders' equity 974 17,867
-------- --------
Total liabilities and shareholders' equity $ 10,228 $ 24,414
======== ========
</TABLE>
(a) Reflects the sale of Common Stock to Dassesta and the net proceeds
therefrom.
(b) Reflects retirement of principal balance of $500,000 and payment of accrued
interest thereon.
(c) Reflects noteholders converting $2,210,000 of principal plus additional
principal of $221,000 plus $133,000 accrued interest to Common Stock at
$0.54 per share.
Item 7. Financial Statements and Exhibits
(b) Pro forma financial information is presented in Item 2.
(c) Exhibits:
2.1 Offshore Stock Subscription Agreement.
2.2 Form of Offer Letter to Holders of Short-term Debt.
4
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
BIOMAGNETIC TECHNOLOGIES, INC.
Date: April 14, 1995 By: /S/ Peter L. Millikin
----------------------- -----------------------------
Peter L. Millikin
Vice President and Controller
5
<PAGE>
EXHIBIT 2.1
OFFSHORE STOCK SUBSCRIPTION AGREEMENT
-------------------------------------
This Stock Subscription Agreement (the "Agreement"), dated March 31,
---------
1995, is entered into by and between Biomagnetic Technologies, Inc., a
California corporation (the "Company"), and Dassesta International S.A., a
-------
British Virgin Islands corporation (the "Purchaser").
---------
The Company has offered for sale outside the United States (as that
term is defined in Regulation S ("Regulation S") under the United States
------------
Securities Act of 1933, as amended (the "Securities Act")) to the Purchaser
--------------
25,000,000 shares of its common stock, no par value.
Capitalized terms used herein and not defined herein shall have the
meanings given to them in Regulation S.
The parties hereto agree as follows:
i. Purchase and Sale of Shares. Upon the basis of the
---------------------------
representations and warranties, and subject to the terms and conditions, set
forth in this Agreement, the Company covenants and agrees to sell to the
Purchaser on the Closing Date (as hereinafter defined), 25,000,000 shares of its
common stock, no par value (the "Shares"), at a price equal to $.60 per share
------
(the "Purchase Price"), and upon the basis of the representations and
--------------
warranties, and subject to the terms and conditions, set forth in this
Agreement, the Purchaser covenants and agrees to purchase from the Company on
the Closing Date the Shares at the Purchase Price.
ii. Closing. The closing of the purchase and sale of the Shares
-------
pursuant to Section 1 (the "Closing") hereof shall take place within fifteen
-------
days of the date of approval by the shareholders of the Company of the
transactions contemplated by this Agreement, but in any event, no later than
April 15, 1995, at the offices of Coutts & Co AG, New York Branch ("Coutts"),
located at 65 East 55th Street, New York, New York, or at such other date, time
and place as the Purchaser and the Company may agree upon in writing (such time
and date for the closing, the "Closing Date"). The certificates representing
------------
the Shares to be purchased by the Purchaser shall be delivered by, or on behalf
of, the Company at the above-mentioned offices of Coutts, against payment of the
Purchase Price therefor in immediately available funds by, or on behalf of, the
Purchaser to the Company's account (No. 0009942411) at Coutts. Delivery of such
Shares shall be in accordance with the instructions of the Purchaser, and in
such names as the Purchaser shall instruct, subject to customary settlement
procedures.
iii. Representations and Warranties of the Company. The Company
---------------------------------------------
represents and warrants to, and agrees with, the Purchaser that (except as set
forth on a Disclosure Schedule previously delivered to the Purchaser and
attached hereto):
(1) Organization and Qualification. Each of the Company and
------------------------------
Biomagnetic Technologies GmbH, a corporation organized under the laws of Germany
(the "Subsidiary"), is a corporation duly organized, validly existing and in
----------
good standing under the laws of its jurisdiction of incorporation and has full
corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its assets and properties. Each of the
Company and its Subsidiary is duly qualified, licensed or admitted to do
business and is in good standing in each jurisdiction in which the ownership,
use or leasing of its assets and properties, or the conduct or nature of its
business, makes such qualification, licensing or admission necessary, except for
such failures to be so qualified, licensed or admitted and in good standing
which, individually or in the aggregate, (i) are not having and could not be
reasonably expected to have a material adverse effect on the Company and its
Subsidiary taken as a whole, and (ii) could not be reasonably expected to have a
material adverse effect on the validity or enforceability of this Agreement or
on the ability of the Company to perform its obligations hereunder. Except for
the Subsidiary, the Company does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or
<PAGE>
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or entity.
(2) Capital Stock of the Company. (i) The authorized capital stock
----------------------------
of the Company consists solely of 60,000,000 shares of Company common stock. As
of December 31, 1994, 10,027,697 shares of Company common stock were issued and
outstanding, no shares were held in the treasury of the Company and (i)
1,857,382 shares of Common Stock were reserved for issuance upon the exercise of
outstanding stock options; (ii) 308,618 shares of Common Stock were reserved for
issuance pursuant to future grants under stock option plans; and (iii) 212,232
shares of Common Stock were reserved for issuance under the Company's 1992
Employee Stock Purchase Plan. There has been no change in the number of issued
and outstanding shares of Company common stock or shares of Company common stock
reserved for issuance since such date. All of the issued and outstanding shares
of Company common stock are, and all shares reserved for issuance will be, upon
issuance in accordance with the terms specified in the instruments or agreements
pursuant to which they are issuable, duly authorized, validly issued, fully paid
and nonassessable. Except pursuant to this Agreement, there are no outstanding
Options obligating the Company or its Subsidiary to issue or sell any shares of
capital stock of the Company or to grant, extend or enter into any Option with
respect thereto.
(3) Capital Stock of the Subsidiary. All of the outstanding shares of
-------------------------------
capital stock of the Subsidiary of the Company are duly authorized, validly
issued, fully paid and nonassessable and are owned, beneficially and of record,
by the Company, free and clear of any Lien and there are no (i) outstanding
Options obligating the Company or its Subsidiary to issue or sell any shares of
capital stock of the Subsidiary or to grant, extend or enter into any such
Option or (ii) voting trusts, proxies or other commitments, understandings,
restrictions or arrangements in favor of any Person other than the Company or
its Subsidiary with respect to the voting of or the right to participate in
dividends or other earnings on any capital stock of the Subsidiary.
(4) Contractual Obligations. There are no outstanding contractual
-----------------------
obligations of the Company or its Subsidiary to repurchase, redeem or otherwise
acquire any shares of Company common stock or any capital stock of the
Subsidiary or to provide funds to, or make any investment (in the form of a
loan, capital contribution or otherwise) in, the Subsidiary or any other Person.
(5) Absence of Certain Changes or Events. Except as disclosed in the
------------------------------------
Company SEC Reports (as defined in Section 3(l)) filed prior to the date of this
Agreement, (a) since September 30, 1994, there has not been any change, event or
development having, or that could be reasonably expected to have, individually
or in the aggregate, a material adverse effect on the Company and its Subsidiary
taken as a whole and (b) between such date and the date hereof (i) the Company
and its Subsidiary have conducted their respective businesses only in the
ordinary course consistent with past practice and (ii) neither the Company nor
its Subsidiary has taken any action which, if taken after the date hereof, would
constitute a breach of any provision of clause (ii) of Section 5(c).
(6) Absence of Undisclosed Liabilities. Neither the Company nor its
----------------------------------
Subsidiary had at September 30, 1994, or has incurred since such date, any
liabilities or obligations (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due) of any nature, except liabilities or
obligations (i) which were incurred in the ordinary course of business
consistent with past practice and (ii) which have not been, and could not be
reasonably expected to be, individually or in the aggregate, materially adverse
to the Company and its Subsidiary taken as a whole.
(7) Validity of the Agreement. This Agreement has been duly
-------------------------
authorized, executed and delivered by the Company and is a valid and binding
agreement enforceable in accordance with its terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar laws of
general applicability relating to or affecting creditors' rights generally and
to general principles of equity; and the Company has full corporate power and
authority necessary to enter into this Agreement and to perform its obligations
hereunder.
(8) No Consents Required. No consent, approval, authorization or
--------------------
order of any Governmental or Regulatory Authority having jurisdiction over the
Company or its Subsidiary is required for execution of this Agreement,
including, without limitation, the issuance and sale of the Shares, or the
2
<PAGE>
performance of its obligations hereunder.
(9) Non-contravention. Neither the sale of the Shares pursuant to,
-----------------
nor the performance of its obligations under, this Agreement by the Company
will:
(a) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of notice or
the lapse of time or both would be reasonably likely to constitute a
default) under (A) the articles of incorporation, charter or by-laws
of the Company or its Subsidiary, (B) any decree, judgment, order,
law, treaty, rule, regulation or determination applicable to the
Company or its Subsidiary of any Governmental or Regulatory Authority
having jurisdiction over the Company or its Subsidiary or over the
properties or assets of the Company or its Subsidiary, (C) the terms
of any bond, debenture, note or any other evidence of indebtedness, or
any agreement, stock option or other similar plan, indenture, lease,
mortgage, deed of trust or other instrument to which the Company or
its Subsidiary is a party, by which the Company or its Subsidiary is
bound, or to which any of the properties of the Company or its
Subsidiary is subject, or (D) the terms of any "lock-up" or similar
provision of any underwriting or similar agreement to which the
Company or its Subsidiary is a party; or
(b) result in the creation or imposition of any Lien upon
the Shares or any of the assets of the Company or its Subsidiary.
(10) The Shares. The Shares:
----------
(a) are free and clear of any Liens;
(b) have been duly and validly authorized and on the Closing
Date will be duly and validly issued, fully paid and nonassessable;
(c) will not have been, individually and collectively,
issued or sold in violation of any preemptive or other similar rights
of the holders of any securities of the Company;
(d) will not subject the holders thereof to personal
liability by reason of being such holders; and
(e) are quoted on, and will be, following the completion of
the Restricted Period (if sold in accordance with the provisions of
this Agreement), eligible for trading on, the National Association of
Securities Dealers Automated Quotations system (NASDAQ).
(11) Reporting Company. The Company is a Reporting Company and has
-----------------
filed all reports required to be filed by Section 13(a) or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act") during the preceding 12
------------
months and has been subject to such filing requirements for the past 90 days.
(12) SEC Reports and Financial Statements. The Company delivered to
------------------------------------
the Purchaser prior to the execution of this Agreement a true and complete copy
of each form, report, schedule, registration statement, definitive proxy
statement and other document (together with all amendments thereof and
supplements thereto) filed by the Company or its Subsidiary with the Securities
and Exchange Commission (the "SEC") since September 30, 1993 (as such documents
---
have since the time of their filing been amended or supplemented, the "Company
-------
SEC Reports"), which are all the documents (other than preliminary material)
- -----------
that the Company and its Subsidiary were required to file with the SEC since
such date. As of their respective dates, the Company SEC Reports (i) complied
as to form in all material respects with the requirements of the Securities Act
and the rules and regulations thereunder, or the Exchange Act, as the case may
be, and (ii) did not contain any untrue statement of a material fact or omit 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. The audited consolidated financial statements and
unaudited interim consolidated financial statements (including, in each case,
the notes, if any,
3
<PAGE>
thereto) included in the Company SEC Reports (the "Company Financial
-----------------
Statements") complied as to form in all material respects with the published
rules and regulations of the SEC with respect thereto, were prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated therein or in the
notes thereto and except with respect to unaudited statements as permitted by
Form 10-Q of the SEC) and fairly present (subject, in the case of the unaudited
interim financial statements, to normal, recurring year-end audit adjustments)
the consolidated financial position of the Company and its Subsidiary as at the
respective dates thereof and the consolidated results of their operations and
cash flows for the respective periods then ended.
(13) No Pending Proceeding. There is no pending or, to the best
---------------------
knowledge of the Company, threatened action, suit, proceeding or investigation
before any Governmental or Regulatory Authority having jurisdiction over the
Company or its Subsidiary that would materially affect the execution by the
Company of, or the performance by the Company of its obligations under, this
Agreement.
(14) No Material Misstatement or Omission. The Company, any Person
------------------------------------
representing the Company, and, to the best knowledge of the Company, any other
Person selling or offering to sell the Shares in connection with the transaction
contemplated by this Agreement, have not made, at any time from November 1, 1994
through and including the date hereof, any written communication in connection
with the offer or sale of the Shares which contained any untrue statement of a
material fact or omitted to state any material fact necessary in order to make
the statements, in the light of the circumstances under which they were made,
not misleading.
(15) Non-Public Information. The Company is not in possession of any
----------------------
material non-public information which has not been disclosed to the Purchaser
that, if disclosed, would, or could reasonably be expected to have, an effect on
the price of the Shares.
(16) Regulation S.
------------
(i) The sale of the Shares pursuant to this Agreement will be
made in accordance with the provisions and requirements of Regulation S and any
applicable state law.
(ii) No offer to buy the Shares was made to the Company by
any Person in the United States.
(iii) None of the Company, its Subsidiary, or any Representative
has engaged, or will engage, in any Directed Selling Efforts with respect to the
Shares.
(iv) The transactions contemplated by this Agreement (A) have not
been pre-arranged by the Company with a purchaser which is in the United States
or is a U.S. Person; and (B) are not part of a plan or scheme of the Company to
evade the registration provisions of the Act.
(v) The Company has not issued, and after the Closing Date will
not issue, any stop transfer order or other order impeding the sale and delivery
of the Shares except for a stop order restricting the sale of the Shares into
the United States or to, or for the account or benefit of, U.S. Persons during
the Restricted Period; provided, however, that in the event that subsequent to
the Closing Date the SEC promulgates any revision to, or issues any release
reinterpreting, Regulation S which affects this Agreement, the Company may issue
such stop transfer order as is necessary to comply with such revision or
release.
(vi) The Company has not offered to sell or sold any warrants
convertible into its common stock in a transaction involving Regulation S in the
past year; and there are no outstanding warrants convertible into its common
stock which have been sold in a transaction involving Regulation S.
(17) ERISA. Neither the Company nor any entity required to be
-----
aggregated with the Company ("Affiliate") under Sections 414(b), (c), (m) or
---------
(o) of the Internal Revenue Code of 1986, as amended, (the "Code") or the
----
federal Employee Retirement Income Security Act of 1974,
4
<PAGE>
as amended ("ERISA") (S) 4001 has sponsored, maintained, had any obligation to
-----
contribute to, or has had liability under or with respect to, or has otherwise
been a party to, any employee benefit plan within the meaning of ERISA, whether
or not subject to ERISA ("Plan"), nor within the last five years has done so or
----
been such a party. With respect to each Plan listed on the Disclosure Schedule,
to the extent applicable:
(1) Each such Plan has been maintained and operated in
compliance in all material respects with its terms and with applicable
provisions of ERISA, the Code, all regulations, rulings and other authority
issued thereunder, and all other applicable governmental laws and
regulations, including, without limitation, all tax rules for which
favorable tax treatment is intended, bonding requirements and requirements
for the filing of applicable reports, documents, and notices with the
Secretary of Labor or the Secretary of the Treasury and the furnishing of
documents to the participants or beneficiaries of each such Plan;
(2) No such Plan is or has ever been a "pension plan" as defined
for purposes of ERISA, whether or not subject to ERISA or otherwise
provides deferred compensation of any kind, and without limiting the
generality of the foregoing, no such Plan is, or ever has been, subject to
Title IV of ERISA;
(3) (A) No Plan that is a "welfare benefit plan" as defined in
ERISA (S) 3(1) provides for continuing benefits or coverage for any
participant or beneficiary of a participant after such participant's
termination of employment, except to the extent required by law; (B) there
has been no violation of Code (S) 4980B or ERISA (S)(S) 601-608 with
respect to any such Plan that could result in any material liability; (C)
no such Plans are "multiple employer welfare arrangements" within the
meaning of ERISA (S) 3(40); (D) the Company does not maintain and does not
have any obligation to contribute to any "voluntary employees' beneficiary
association" within the meaning of Code (S) 501(c)(9) or other funding
arrangement for the provision of welfare benefits (such disclosure to
include the amount of any such funding); (E) no such Plan is intended to
satisfy Code (S) 125; and (F) no amounts are required in connection with
any such Plan to be included in income under Code (S) 105(h);
No event has occurred and no condition exists, with respect to any Plan (whether
or not listed on the Disclosure Schedule, that has subjected or could subject
the Company or any of its Affiliates, or the Purchaser (by virtue of the
transactions contemplated hereby), or any successor Plan to be maintained by the
Purchaser or the Company, to any tax, fine, penalty or other liability (other
than a liability to the Company, an Affiliate or a Plan disclosed on the
Disclosure Schedule arising in the normal course to make contributions or
payments, as applicable, when ordinarily due under such Plan). No Plan exists
which could result in the payment of money or any other property or rights, or
accelerate or provide any other rights or benefits, to any current or former
employee of the Company (or other current or former service provider thereto)
that would not have been required but for the transactions provided for herein,
and neither the Company nor any of its Affiliates or Associates is a party to
any plan, program, arrangement or understanding that would result, separately or
in the aggregate, in the payment (whether in connection with any termination of
employment or otherwise) of any "excess parachute payment" within the meaning of
Code (S) 280G with respect to a current or former employee of, or current or
former independent contractor to, the Company. No condition exists with respect
to any Plan that could result in liability under ERISA Sections 4069 or 4212(c)
to the Company or any of its Affiliates or, by virtue of the transactions
contemplated hereby, to the Purchaser.
(18) Environmental Matters. Each of the Company and its Subsidiary
---------------------
has obtained all licenses, permits, authorizations, approvals and consents from
Governmental or Regulatory Authorities which are required in respect of its
business, operations, assets or properties under any applicable Environmental
Law (as defined below). Each of the Company and its Subsidiary is in compliance
in all material respects with the terms and conditions of all such licenses,
permits, authorizations, approvals and consents and with any applicable
Environmental Law.
(i) No Order has been issued, no complaint has been filed, no
penalty has been assessed and no investigation or review is pending or, to
the knowledge of the Company and its Subsidiary, threatened by any
Governmental or Regulatory Authority with respect to any alleged failure by
the Company or its Subsidiary to have any license, permit, authorization,
approval or
5
<PAGE>
consent from Governmental or Regulatory Authorities required under any
applicable Environmental Law in connection with the conduct of the business
or operations of the Company or its Subsidiary or with respect to any
treatment, storage, recycling, transportation, disposal or "release" as
defined in 42 U.S.C. (S) 9601(22) ("Release"), by the Company or its
-------
Subsidiary of any Hazardous Material (as defined below), which Order,
complaint, penalty or investigation, individually or in the aggregate, is
having or could be reasonably expected to have a material adverse effect on
the Company and its Subsidiary taken as a whole, and neither the Company
nor its Subsidiary is aware of any facts or circumstances which could be
reasonably expected to form the basis for any such Order, complaint,
penalty or investigation.
(ii) Neither the Company nor its Subsidiary nor, to the
knowledge of the Company and its Subsidiary, any prior owner or lessee of
any property now or previously owned or leased by the Company or its
Subsidiary has handled any Hazardous Material on any property now or
previously owned or leased by the Company or its Subsidiary.
(iii) Neither the Company nor its Subsidiary has transported or
arranged for the transportation of any Hazardous Material to any location
which is the subject of any action, suit, arbitration or proceeding that
could be reasonably expected to lead to claims against the Company or its
Subsidiary for clean-up costs, remedial work, damages to natural resources
or personal injury claims, including, but not limited to, claims under the
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended, and the rules and regulations promulgated thereunder
("CERCLA"), which could be reasonably expected to be material to the
--------
Company and its Subsidiary taken as a whole.
(iv) There are no Liens arising under or pursuant to any
Environmental Law on any real property owned or leased by the Company or
its Subsidiary, other than any such real property not individually or in
the aggregate material to the Company and its Subsidiary taken as a whole,
and no action of any Governmental or Regulatory Authority has been taken
or, to the knowledge of the Company and its Subsidiary, is in process which
could subject any of such properties to such Liens, and neither the Company
nor its Subsidiary would be required to place any notice or restriction
relating to the presence of Hazardous Material at any such property owned
by it in any deed to such property.
(v) There have been no environmental investigations, studies,
audits, tests, reviews or other analyses conducted by, or which are in the
possession of, the Company or its Subsidiary in relation to any property or
facility now or previously owned or leased by the Company or its Subsidiary
which have not been delivered to the Purchaser prior to the execution of
this Agreement.
(vi) As used herein:
(A) "Environmental Law" means any Law of any Governmental or
-----------------
Regulatory Authority relating to human health, safety or protection of
the environment or to emissions, discharges, releases or threatened
releases of pollutants, contaminants or Hazardous Materials in the
environment (including, without limitation, ambient air, surface
water, ground water, land surface or subsurface strata), or otherwise
relating to the treatment, storage, disposal, transport or handling of
any Hazardous Material; and
(B) "Hazardous Material" means (1) any petroleum or
------------------
petroleum products, radioactive materials, asbestos in any form that
is or could become friable, urea formaldehyde foam insulation and
transformers or other equipment that contain dielectric fluid
containing levels of polychlorinated biphenyls (PCBs); (2) any
chemicals, materials, substances or wastes which are now or hereafter
become defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants" or words of similar import, under any Environmental
Law; and (3) any other chemical, material, substance or waste,
exposure to which is now or hereafter prohibited, limited or regulated
by any Governmental or Regulatory Authority.
6
<PAGE>
(19) Intellectual Property Rights. The Company or its Subsidiary
----------------------------
either has all right, title and interest in or a valid and binding license to
use all Intellectual Property which the Company or its Subsidiary has interests
in or uses and which is material to the business of the Company and its
Subsidiary taken as a whole, all of which is listed in the Disclosure Schedule.
Furthermore, (i) the Company or its Subsidiary has the exclusive right to use
the Intellectual Property disclosed in the Disclosure Schedule, (ii) all
-----------------------
registrations with and applications to Governmental or Regulatory Authorities in
respect of such Intellectual Property are valid and in full force and effect and
are not subject to the payment of any taxes or maintenance fees or the taking of
any other actions by the Company or its Subsidiary to maintain their validity or
effectiveness, (iii) there are no restrictions on the direct or indirect
transfer of any license, or any interest therein, held by the Company or its
Subsidiary in respect of such Intellectual Property, (iv) the Company has
delivered to the Purchaser prior to the execution of this Agreement information
with respect to each material invention, process, design, computer program or
other know-how or trade secret included in such Intellectual Property, which
information is accurate in all material respects, (v) the Company and its
Subsidiary have taken reasonable security measures to protect the secrecy,
confidentiality and value of their trade secrets, (vi) neither the Company nor
its Subsidiary is, or has received any notice that it is, in default (or with
the giving of notice or lapse of time or both, would be in default) under any
license to use such Intellectual Property and (vii) neither the Company nor its
Subsidiary has any knowledge that such Intellectual Property is being infringed
by any other Person. Neither the Company nor its Subsidiary has received notice
that the Company or its Subsidiary is infringing any Intellectual Property of
any other Person, no claim is pending or, to the knowledge of the Company and
its Subsidiary, has been made to such effect that has not been resolved and, to
the knowledge of the Company and its Subsidiary, neither the Company nor its
Subsidiary is infringing any Intellectual Property rights of any other Person.
(20) Licenses. The Disclosure Schedule contains a true and complete
--------
list of all Licenses used in and material to the business or operations of the
Company or its Subsidiary, setting forth the owner, the function and the
expiration and renewal date of each. Prior to the execution of this Agreement,
the Company has delivered to the Purchaser true and complete copies of all such
Licenses.
(i) The Company and its Subsidiary owns or validly holds all
Licenses that are material to its business or operations;
(ii) each License listed in the Disclosure Schedule is valid,
binding and in full force and effect; and
(iii) neither the Company nor its Subsidiary is, or has received
any notice that it is, in default (or with the giving of notice or
lapse of time or both, would be in default) under any such License.
(u) Company Stockholders' Meeting; Other Acts. The Company has,
-----------------------------------------
through its Board of Directors, duly called, given notice of, convened and held
a meeting of its stockholders (the "Company Stockholders' Meeting") for the
-----------------------------
purpose of voting on approval of the business transaction which is contemplated
by this Agreement. The Company has, through its Board of Directors, included in
the Proxy Statement the recommendation of the Board of Directors of the Company
that the stockholders of the Company adopt this Agreement, and has used its best
efforts to obtain such adoption. The Company has amended its articles of
incorporation or bylaws to bring into effect the increase in the number of
authorized shares as required for the transactions contemplated by this
Agreement.
iv. Representations and Warranties of the Purchaser. The Purchaser
-----------------------------------------------
understands, and represents and warrants to, and agrees with, the Company, that:
(1) The Purchaser understands that no federal or state agency has
passed on or made any recommendation or endorsement of the Shares.
7
<PAGE>
(2) The Purchaser acknowledges that, in making the decision to
purchase the Shares, it has relied solely upon independent investigations made
by it and not upon any representations made by the Company with respect to the
Company or the Shares.
(3) The Purchaser understands that the Shares are being offered and
sold to it in reliance on specific exemptions or non-application from the
registration requirements of federal and state securities laws and that the
Company is relying upon the truth and accuracy of the representations,
warranties, agreements, acknowledgements and understandings of the Purchaser set
forth herein in order to determine the applicability of such exemptions and the
suitability of the Purchaser to acquire the Shares.
(4) The Purchaser is not a U.S. Person (as defined in Regulation S)
and is not an affiliate of the Company.
(5) No offer of the Shares was made to the Purchaser in the United
States.
(6) At the time the buy order for the Shares was originated the
Purchaser was located outside the United States.
(7) None of the Purchaser, its Subsidiary or any Person acting on
behalf of the Purchaser or any such affiliate has engaged, or will engage, in
any Directed Selling Efforts with respect to the Shares; and the Purchaser and
its Subsidiary have complied, and will comply, with the Offering Restrictions,
and any other requirements, of Regulation S.
(8) The Purchaser is aware that the Shares have not been and will not
be registered under the Act and may only be offered or sold pursuant to
registration under the Act or an available exemption therefrom.
(9) The Purchaser:
(a) will not, during the period commencing on the Closing
Date and ending on the day 40 days after the Closing Date (the
"Restricted Period"), offer or sell the Shares in the United States,
------------------
to a U.S. Person or for the account or benefit of a U.S. Person or
other than in accordance with Rule 903 or Rule 904 of Regulation S;
and
(b) will, after the expiration of the Restricted Period,
offer, sell, pledge or otherwise transfer the Shares only pursuant to
registration under the Act or an available exemption therefrom and, in
any case, in accordance with applicable state securities laws.
(10) If the Purchaser offers and sells the Shares during the
Restricted Period, then it will do so only: in accordance with the provisions
of Regulation S; pursuant to registration of the Shares under the Act; or
pursuant to an available exemption from the registration requirements of the
Act.
(11) The transactions contemplated by this Agreement:
(a) have not been pre-arranged with a purchaser who is
located in the United States or is a U.S. Person; and
(b) are not part of a plan or scheme to evade the
registration provisions of the Act.
(12) The Purchaser is purchasing the Shares for its own account for
the purpose of investment and not (A) with a view to, or for sale in connection
with, any distribution thereof or (B) for the account or on behalf of any U.S.
Person.
8
<PAGE>
v. Covenants of the Company. The Company covenants and agrees with
------------------------
the Purchaser as follows:
(1) Regulation S. The Company shall, and the Company shall cause
------------
its Subsidiary to:
(a) continue to comply with all applicable reporting
requirements of the Exchange Act;
(b) refrain from offering to sell or selling any shares of
common stock, or warrants or other securities convertible into its
common stock, in a transaction involving Regulation S for a period of
180 days following the date hereof;
(c) refrain from publishing or disseminating any material
(other than press releases approved in advance by the Purchaser and
periodic reports and proxy materials required to be filed with the SEC
under the United States Securities Laws) in connection with the
offering of the Shares;
(d) ensure that all Offering Restrictions applicable to the
sale of Shares pursuant to this Agreement are thoroughly complied with
and satisfied; and
(e) refrain from engaging, and insure that its Subsidiary
will refrain from engaging, in any Directed Selling Efforts with
respect to the Shares.
(2) Ordinary Course. Until the Closing, the Company and its
---------------
Subsidiary shall conduct their respective businesses only in, and neither the
Company nor its Subsidiary shall take any action except in, the ordinary course
consistent with past practice.
(3) Other Covenants Relating to the Company's Business. Without
--------------------------------------------------
limiting the generality of paragraph (b) of this Section, until the Closing(i)
the Company and its Subsidiary shall use all commercially reasonable efforts to
preserve intact in all material respects their present business organizations
and reputation, to keep available the services of their key officers and
employees, to maintain their assets and properties in good working order and
condition, ordinary wear and tear excepted, to maintain insurance on their
tangible assets and businesses in such amounts and against such risks and losses
as are currently in effect, to preserve their relationships with customers and
suppliers and others having significant business dealings with them and to
comply in all material respects with any Laws or any Order of any Governmental
or Regulatory Authority applicable to them, and (ii) the Company shall not, nor
shall it permit its Subsidiary to:
(A) amend or propose to amend its articles of incorporation
or bylaws;
(B) (1) declare, set aside or pay any dividends on or make
other distributions in respect of any of its capital stock, (2) split,
combine, reclassify or take similar action with respect to any of its
capital stock or issue or authorize or propose the issuance of any
other securities in respect of, in lieu of or in substitution for
shares of its capital stock, (3) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such
liquidation or a dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization or (4) directly or indirectly
redeem, repurchase or otherwise acquire any shares of its capital
stock or any Option with respect thereto;
(C) issue, deliver or sell, or authorize or propose the
issuance, delivery or sale of, any shares of its capital stock or any
Option with respect thereto; provided,
9
<PAGE>
however, that the Company may issue up to 4,882,477 shares and up to
464,200 Options at an exercise price of $0.60 per share in accordance
with Annex A pursuant to certain Senior Secured Promissory Notes,
dated June 15, 1994 (the "Notes"), the Purchase Option Agreement,
dated June 15, 1994 (the "Option Agreement"), and the Offer Letter,
dated March 1, 1995 (the "Offer Letter"), as described in Section 3(b)
of the Disclosure Schedule, in exchange for the retirement of the
Notes;
(D) acquire (by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion
of the assets of, or by any other manner) any business or any
corporation, partnership, association or other business organization
or division thereof or otherwise acquire or agree to acquire any
assets;
(E) other than dispositions in the ordinary course of its
business consistent with past practice of assets which are not,
individually or in the aggregate, material to the Company and its
Subsidiary taken as a whole, sell, lease, grant any security interest
in or otherwise dispose of or encumber any of its assets or
properties;
(F) except to the extent required by applicable law, (1)
permit any material change in (aa) any pricing, marketing, purchasing,
investment, accounting, financial reporting, inventory, credit,
allowance or tax practice or policy or (bb) any method of calculating
any bad debt, contingency or other reserve for accounting, financial
reporting or tax purposes or (2) make any material tax election or
settle or compromise any material income tax liability with any
Governmental or Regulatory Authority;
(G) incur (which shall not be deemed to include entering
into credit agreements, lines of credit or similar arrangements until
borrowings are made under such arrangements) any indebtedness for
borrowed money or guarantee any such indebtedness other than in the
ordinary course of its business consistent with past practice (net of
any amounts of any such indebtedness discharged during such period);
(H) enter into any contract or amend or modify any existing
contract, or engage in any new transaction outside the ordinary course
of business consistent with past practice or not on an arm's length
basis, with any affiliate of the Company or its Subsidiary;
(I) make any capital expenditures or commitments for
additions to plant, property or equipment constituting capital assets
except in the ordinary course of business consistent with past
practice; or
(J) enter into any contract, agreement, commitment or
arrangement to do or engage in any of the foregoing.
(4) Advice of Changes. The Company shall confer on a regular and
-----------------
frequent basis with the Purchaser with respect to its business and operations
and other matters relevant to the Agreement, and shall promptly advise the
Purchaser, orally and in writing, of any change or event, including, without
limitation, any complaint, investigation or hearing by any Governmental or
Regulatory Authority (or communication indicating the same may be contemplated)
or the institution or threat of litigation, having, or which, insofar as can be
reasonably foreseen, could have, a material adverse effect on the Company and
its Subsidiary taken as a whole or on the ability of the Company, as the case
may be, to consummate the transactions contemplated hereby.
(5) No Solicitations. Neither the Company nor its Subsidiary will
----------------
take, or authorize any Representative to take, directly or indirectly, any
action to initiate, assist, solicit, receive, negotiate, encourage or accept any
offer or inquiry from any Person (i) to engage in any Business Combination (as
defined below) with the Company or its Subsidiary, (ii) to reach any agreement
or
10
<PAGE>
understanding (whether or not such agreement or understanding is absolute,
revocable, contingent or conditional) for, or otherwise attempt to consummate,
any Business Combination with the Company or its Subsidiary or (iii) to furnish
or cause to be furnished any information with respect to the Company or its
Subsidiary to any Person (other than as contemplated by Section 5(f) hereof) who
the Company, its Subsidiary (or any such Person acting for or on their behalf)
knows or has reason to believe is in the process of considering any Business
Combination with the Company or its Subsidiary. If the Company or its
Subsidiary (or any such Person acting for or on their behalf) receives from any
Person (other than the Purchaser or any other Person referred to in Section 5(f)
hereof) any offer, inquiry or informational request referred to above, the
Company will promptly advise such Person, by written notice, of the terms of
this Section 5(e) and will promptly, orally and in writing, advise the Purchaser
of such offer, inquiry or request and deliver a copy of such notice to the
Purchaser.
(6) Access to Information; Confidentiality. (i) The Company shall,
--------------------------------------
and shall cause its Subsidiary to, throughout the period from the date hereof to
the Closing Date, (A) provide the Purchaser and its Representatives with full
access, upon reasonable prior notice and during normal business hours, to all
officers, employees, agents and accountants of the Company and its Subsidiary
and their respective assets, properties, books and records, and (B) furnish
promptly to such persons (1) a copy of each report, statement, schedule and
other document filed or received by the Company or its Subsidiary pursuant to
the requirements of federal or state securities laws or filed with any other
Governmental or Regulatory Authority, and (2) all such information and data
(including, without limitation, copies of contracts, Company Plans and other
books and records) concerning the business and operations of the Company and its
Subsidiary as the Purchaser or any of such other persons reasonably may request.
(7) Notice and Cure. The Company will notify the Purchaser promptly
---------------
in writing of, and contemporaneously will provide the Purchaser with true and
complete copies of any and all information or documents relating to, and will
use all commercially reasonable efforts to cure before the Closing, any event,
transaction or circumstance occurring after the date of this Agreement that
causes or will cause any covenant or agreement of the Company under this
Agreement to be breached or that renders or will render untrue any
representation or warranty the Company contained in this Agreement as if the
same were made on or as of the date of such event, transaction or circumstance.
The Company also will notify the Purchaser promptly in writing of, and will use
all commercially reasonable efforts to cure, before the Closing, any violation
or breach of any representation, warranty, covenant or agreement made by the
Company in this Agreement, whether occurring or arising prior to, on or after
the date of this Agreement. No notice given pursuant to this Section shall have
any effect on the representations, warranties, covenants or agreements contained
in this Agreement for purposes of determining satisfaction of any condition
contained herein.
(8) Fulfillment of Conditions. Subject to the terms and conditions of
-------------------------
this Agreement, the Company will take or cause to be taken all commercially
reasonable steps necessary or desirable and proceed diligently and in good faith
to satisfy each condition to the Purchaser's obligations contained in this
Agreement and to consummate and make effective the transactions contemplated by
this Agreement, and Company will not, nor will it permit its Subsidiary to, take
or fail to take any action that could be reasonably expected to result in the
nonfulfillment of any such condition.
vi. Covenants of the Purchaser. The Purchaser covenants and agrees
--------------------------
that at all times prior to the Closing and thereafter, the Purchaser will hold,
and will use its best efforts to cause its Representatives to hold, in strict
confidence, unless (i) compelled to disclose by judicial or administrative
process or by other requirements of applicable Laws of Governmental or
Regulatory Authorities (including, without limitation, in connection with
obtaining the necessary approvals of this Agreement or the transactions
contemplated hereby of Governmental or Regulatory Authorities), or (ii)
disclosed in an action or proceeding brought by a party hereto in pursuit of its
rights or in the exercise of its remedies hereunder, all documents and
information concerning trade secrets of the Company and its Subsidiary furnished
to it by the Company or its Representatives in connection with this Agreement or
the transactions contemplated hereby, except to the extent that such documents
or information can be shown to have been (A) previously known by the Purchaser
or its Representatives, (B) in the public domain (either prior to or after the
furnishing of such
11
<PAGE>
documents or information hereunder) through no fault of the Purchaser and its
Representatives or (C) later acquired by the Purchaser or its Representatives
from another source if the Purchaser or such Representative is not aware that
such source is under an obligation to keep such documents and information
confidential. In the event that this Agreement is terminated without the
transactions contemplated hereby having been consummated, upon the request of
the Company, the Purchaser will, and will cause its Representatives to, promptly
(and in no event later than five (5) days after such request) redeliver or cause
to be redelivered all copies of such documents and information furnished by the
Company or its Representatives to the Purchaser and its Representatives in
connection with this Agreement or the transactions contemplated hereby and
destroy or cause to be destroyed all notes, memoranda, summaries, analyses,
compilations and other writings related thereto or based thereon prepared by the
Purchaser or its Representatives.
vii. Conditions Precedent to the Purchaser's Obligations. The
---------------------------------------------------
obligations of the Purchaser hereunder are subject to the performance by the
Company of its obligations hereunder and to the satisfaction of the following
additional conditions precedent:
(1) The representations and warranties made by the Company in
this Agreement shall, unless waived by the Purchaser, be in all material
respects true and correct as of the date hereof and at the Closing Date, with
the same force and effect as if they had been made on and as of the Closing
Date.
(2) The Company will provide an opinion of counsel in form and
substance acceptable to the Purchaser.
(3) All consents, approvals and actions of, filings with and
notices to any Governmental or Regulatory Authority, and the National
Association of Securities Dealers, necessary to permit the Purchaser and the
Company to perform their obligations under this Agreement and to consummate the
transactions contemplated hereby (i) shall have been duly obtained, made or
given, (ii) shall be in form and substance reasonably satisfactory to the
Purchaser, (iii) shall not be subject to the satisfaction of any condition that
has not been satisfied or waived and (iv) shall be in full force and effect, and
all terminations or expirations of waiting periods imposed by any Governmental
or Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement shall have occurred.
viii. Conditions Precedent to the Company's Obligations. The
-------------------------------------------------
obligations of the Company hereunder are subject to the performance by the
Purchaser of its obligations hereunder and to the satisfaction of the following
additional condition precedent:
(1) The representations and warranties made by the Purchaser in
this Agreement shall, unless waived by the Company, be in all material respects
true and correct as of the date hereof and at the Closing Date, with the same
force and effect as if they had been made on and as of the Closing Date.
ix. Fees and Expenses.
-----------------
(a) Except as set forth in Section 14(b), each of the Purchaser
and the Company agrees to pay its own expenses incident to the performance of
its obligations hereunder, including, but not limited to, the fees, expenses and
disbursements of such party's counsel.
(b) The Purchaser hereby acknowledges and consents to the payment
by the Company to Coutts of one percent (1%) of the Purchase Price in
consideration for services rendered by Coutts to the Company in connection with
the transaction contemplated by this Agreement.
x. Definitions. As used in this Agreement, the following defined
-----------
terms shall have the
12
<PAGE>
meanings indicated below:
(a) "Business Combination" means with respect to any Person any
--------------------
merger, consolidation or combination to which such Person is a party, any sale,
dividend, split or other disposition of capital stock or other equity interests
of such Person or any sale, dividend or other disposition of all or
substantially all of the assets and properties of such Person, except the
issuance of up to 4,882,477 shares and up to 464,200 Options at an exercise
price of $0.60 per share in accordance with Annex A pursuant to the Notes, the
Option Agreement, and the Offer Letter, as described in Section 3(b) of the
Disclosure Schedule, in exchange for the retirement of the Notes.
(b) "Governmental or Regulatory Authority" means any court, tribunal,
------------------------------------
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any state, county, city or other
political subdivision.
(c) "Intellectual Property" means all patents and patent rights,
---------------------
trademarks and trademark rights, trade names and trade name rights, service
marks and service mark rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source code) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how and all pending applications for
and registrations of patents, trademarks, service marks and copyrights.
(d) "Law" means all laws, statutes, rules, regulations, ordinances and
---
other pronouncements having the effect of law of the United States, any foreign
country or any domestic or foreign state, county, city or other political
subdivision or of any Governmental or Regulatory Authority.
(e) "Lien" means any lien, claim, mortgage, encumbrance, pledge,
----
security interest, equity or charge of any kind.
(f) "Licenses" means all licenses, permits, certificates of authority,
--------
authorizations, approvals, registrations, franchises and similar consents
granted or issued by any Governmental or Regulatory Authority.
(g) "Option" means any outstanding subscription, option, warrant,
------
right (including "phantom" stock rights), preemptive right or other contract,
commitment, understanding or arrangement, including any right of conversion or
exchange under any outstanding security, instrument or agreement.
(h) "Order" means any writ, judgment, decree, injunction or similar
-----
order of any Governmental or Regulatory Authority.
(i) "Person" means any natural person, corporation, general
------
partnership, limited partnership, proprietorship, other business organization,
trust, union, association or Governmental or Regulatory Authority.
(j) "Proxy Statement" means the proxy statement relating to the
---------------
Company Stockholders' Meeting (as defined in Section 3(u)), as amended or
supplemented from time to time.
(k) "Representative" means any officer, director, employee, investment
--------------
banker, financial advisor, attorney, accountant, agent or other Person retained
by or acting for or on behalf of the Company or its Subsidiary.
xi. Indemnification.
---------------
13
<PAGE>
(1) In the event the Purchaser becomes involved in any capacity in any
action, proceeding or investigation in connection with any matter referred to in
or relating to this Agreement (except as expressly provided for in paragraph (c)
of this Section 11), the Company will reimburse the Purchaser for its reasonable
legal and other expenses (including the cost of any investigation and
preparation) incurred in connection therewith, as such expenses are incurred,
and will indemnify and hold the Purchaser harmless from and against any losses,
claims, damages or liabilities to which it may become subject in connection with
any such action, proceeding, investigation or matter, unless such expenses,
loss, claim, damage or liability results primarily from the Purchaser's gross
negligence, recklessness or bad faith in connection with the subject of this
Agreement.
(2) In the event that the Company becomes involved in any capacity in
any action, proceeding or investigation in connection with any matter referred
to in or relating to this Agreement (except as expressly provided for in
paragraph (c) of this Section 11), the Purchaser will reimburse the Company for
its reasonable legal and other expenses (including the cost of any investigation
and preparation) incurred in connection therewith, as such expenses are
incurred, and will indemnify and hold the Company harmless from and against any
losses, claims, damages or liabilities to which it may become subject in
connection with any such action, proceeding, investigation or matter, to the
extent, but only to the extent, that such loss, claim, damage or liability
results primarily from the Purchaser's gross negligence, recklessness or bad
faith in connection with the subject of this Agreement.
(3) Promptly after receipt by an indemnified party under this Section
11 of notice of the commencement of any action, such indemnified party shall
notify the indemnifying party in writing of the commencement thereof; but the
omission to so notify the indemnifying party shall not relieve the indemnifying
party from any liability which it may have pursuant to this Section 11 unless,
due to the failure to be so notified, the indemnifying party is unable to
contest the losses or claims indemnified against, and such omission shall in no
event relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 11. 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 therein and, to the extent that it may elect by written
notice delivered to such indemnified party promptly after receiving the
aforesaid notice from such indemnified party, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party, (who shall not,
except with the consent of the indemnified party, which consent shall not be
unreasonably withheld, be counsel to the indemnifying party); 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 legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel to assert such legal defenses and otherwise to
participate in the defense of such action on behalf of such indemnified party or
parties. Upon receipt of notice from the indemnifying party to such indemnified
party of its election so to assume the defense of such action and approval by
the indemnified party of counsel, the indemnifying party will not be liable to
such indemnified party under this Section 11 for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof unless (i) the indemnified party shall have employed separate counsel in
connection with the assertion of legal defenses in accordance with the proviso
to the next preceding sentence (it being understood, however, that the
indemnifying party shall not be liable for the expenses of more than one
separate counsel for each indemnified party), (ii) the indemnifying party shall
not have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party; provided further, however, that, if clause (i) or (iii) is
---------------- -------
applicable, such liability shall be only in respect of the counsel referred to
in such clauses (i) or (iii).
xii. Survival of the Representations, Warranties, etc. The respective
------------------------------------------------
agreements, representations, warranties, indemnities and other statements made
by or on behalf of the Company and the Purchaser, respectively, pursuant to this
Agreement, shall remain in full force and effect, regardless of any
14
<PAGE>
investigation made by or on behalf of the other party to this Agreement or any
officer, director or employee of, or Person controlling or under common control
with, such party and will survive delivery of and payment for the Shares.
xiii. Notices. All communications hereunder shall be in writing,
-------
and, if sent to the Purchaser shall be sufficient in all respects if delivered,
sent by registered mail, or by telecopy and confirmed to the Purchaser at:
Dassesta International S.A.
c/o Experta Administration Ltd.
Am Schanzengraben 23
CH-8002 Zurich, Switzerland
Telephone: 41/1 201 71 07
Telecopy: 41/1 201 71 92
or, if sent to the Company, shall be delivered, sent by registered mail or by
telecopy and confirmed to the Company at:
Mr. James Schumacher
President and CEO
Biomagnetic Technologies, Inc.
9727 Pacific Heights Boulevard
San Diego, CA 92121
Telecopy: (619) 458-5698
xiv. Termination. (a) This Agreement may be terminated, and the
-----------
transactions contemplated hereby may be abandoned:
(i) at any time before the Closing, by mutual written agreement of
Company and the Purchaser;
(ii) at any time before the Closing, by the Company or the Purchaser,
in the event (A) of a material breach hereof by the non-terminating party
if such non-terminating party fails to cure such breach within ten (10)
business days following notification thereof by the terminating party or
(B) 10 business days after notification of the non-terminating party by the
terminating party that the satisfaction of any condition to the terminating
party's obligations under this Agreement becomes impossible or
impracticable with the use of commercially reasonable efforts if the
failure of such condition to be satisfied is not caused by a breach hereof
by the terminating party; provided, that the other party may within such
ten (10) business days cure by satisfying or demonstrating the
satisfiability of such condition.
(iii) at any time after April 15, 1995 by the Company or the Purchaser
upon notification of the non-terminating party by the terminating party if
the Closing shall not have occurred on or before such date and such failure
to consummate is not caused by a breach of this Agreement by the
terminating party; or
(iv) by the Purchaser or the Company if there shall have occurred (A)
any general suspension of, or limitation on prices for, trading in
securities on the New York Stock Exchange, (B) a declaration of a banking
moratorium or any suspension of payments in respect to banks in the United
States, (C) a commencement of a war or major armed hostilities directly or
indirectly involving the United States, (D) any limitation by federal or
state authorities on the extension of credit by lending institutions which
materially and adversely affects the Purchaser or (E) in the case of any of
the foregoing existing at the date of this Agreement, a material
acceleration or worsening
15
<PAGE>
thereof, upon notification of the non-terminating party by the terminating
party.
(b) If this Agreement is validly terminated pursuant to Section
14(a), this Agreement will forthwith become null and void, and there will be no
liability or obligation on the part of Company or the Purchaser (or any of their
respective officers, directors, employees, agents or other representatives or
Affiliates), except as provided in the next succeeding sentence and except that
the provisions with respect to confidentiality in Section 6 and expenses in
Section 9 will continue to apply following any such termination.
Notwithstanding any other provision in this Agreement to the contrary, upon
termination of this Agreement pursuant to Section 14(a), the Company will remain
liable to the Purchaser for any breach of this Agreement by the Company existing
at the time of such termination, and the Purchaser will remain liable to the
Company for any breach of this Agreement by the Purchaser existing at the time
of such termination, and the Company or the Purchaser may seek such remedies,
including damages and fees of attorneys, against the other with respect to any
such breach as are provided in this Agreement or as are otherwise available at
Law or in equity.
xv. Miscellaneous.
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(1) This Agreement may be executed in one or more counterparts
and it is not necessary that signatures of all parties appear on the same
counterpart, but such counterparts together shall constitute but one and the
same agreement.
(2) This Agreement shall inure to the benefit of and be binding
upon the parties hereto, their respective successors and, with respect to
Section 11 hereof, the officers, directors and controlling Persons thereof and
each Person under common control therewith, and no other Person shall have any
right or obligation hereunder.
(3) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York.
(4) The headings of the sections of this document have been
inserted for convenience of reference only and shall not be deemed to be a part
of this Agreement.
16
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement, all as of the day and year first above written.
BIOMAGNETIC TECHNOLOGIES, INC.
By: /s/ James Schumacher
----------------------
James Schumacher
President and CEO
DASSESTA INTERNATIONAL S.A.
/s/ Dassesta International S.A.
-----------------------------------
17
<PAGE>
EXHIBIT 2.2
FORM OF OFFER LETTER TO HOLDERS OF SHORT-TERM DEBT
EXAMPLE
March 1, 1995
ADDRESS
Dear Mr. :
You may be aware that BTi has entered into an agreement with Dassesta
International S.A., a foreign investor ("Dassesta") in which Dassesta has agreed
to purchase 25,000,000 shares of BTi Common Stock at $0.60 per share, for a
total of $15,000,000 ("Proposed Offering"). The Proposed Offering is subject to
a number of conditions, including shareholder approval, and is expected to close
by March 31, 1995.
You have previously indicated your intention to convert your Bridge Loan to
BTI to an investment in Common Stock of the Company on terms set forth in the
Term Sheet, copy of which is attached hereto for your reference.
In order to position BTi for the future, we would like to reconfirm our
prior offer to convert your 10% Senior Secured Promissory Note ("Note") to BTi
Common Stock and simultaneously provide you the additional option to immediately
exercise your Stock Option at a 10% discount per share from the price to be paid
by our foreign investor. The closing of the conversion and related transactions
would be subject to some conditions, including the closing of the Proposed
Offering.
The following is a brief summary of some of the main terms of the
contemplated transaction:
1. CONVERSION. The conversion of your Note into Common Stock would occur
----------
three weeks subsequent to the closing of the Proposed Offering. For purposes of
conversion, the Company will increase the principal amount of your Note by 10%.
The conversion price will be $0.54 per share, a 10% discount off the $0.60 price
per share being paid by Dassesta in the Proposed Offering. (For example, a
$100,000 Note would convert into 203,704 shares of Common Stock.) The interest
accrued on the Note as of the closing would also be converted into BTi Common
Stock at the $0.54 per share rate.
You hold a Note in the principal amount of $100,000 which is dated MAY 2, 1994.
Therefore, with an anticipated closing of April 17, 1995, the conversion of your
Note and the accrued interest thereon would result in the issuance to you of
shares of Common
<PAGE>
Stock as calculated below:
<TABLE>
<S> <C>
Principal amount of Note $100,000.00
10% increase 10,000.00
Interest on principal amount
of Note from issue date to
April 17, 1995 9,590.00
-----------
Total $119,590.00
Divided by the per share
conversion price of: $ 0.54
-----------
COMMON SHARES 221,463
</TABLE>
2. STOCK PURCHASE/STOCK OPTION. As a part of the transaction in which you
---------------------------
purchased your Note, you also received a purchase option agreement ("Existing
Option") to purchase certain securities of BTi. If the Proposed Offering closes
and you do not elect to convert your Note as described in Paragraph 1 above,
then the principal amount of the Note and the accrued interest thereon will be
paid in full and you will continue to hold your Existing Option to purchase
20,000 shares of BTi Common Stock (per $100,000 original Note amount), at $0.60
per share, which in your case amounts to an option to purchase a total of 20,000
shares of BTi Common Stock at $0.60 per share.
However, if you elect to convert your Note as described in Paragraph 1
above, then in lieu of your Existing Option you would have the choice to either:
(a) purchase 22,000 shares of BTi Common Stock at closing of the Note
conversion at $0.54 per share; or
(b) obtain a new five-year option to purchase 22,000 shares of BTi Common
Stock at $0.60 per share.
Your Existing Option would be canceled under both alternatives (a) and
(b). The alternatives described in (a) and (b) ARE ONLY AVAILABLE IF YOU
CONVERT YOUR NOTE PER PARAGRAPH 1.
3. REGISTRATION STATEMENT. If you convert your Note, BTi would commit to
-----------------------
filing a Registration Statement with the SEC covering the converted stock
described in Paragraph 1 and the stock purchased in Paragraph 2 (but not stock
subject to the stock option described in Paragraph 2) within 90 days after the
closing of the transactions described above.
With respect to the above, you will find enclosed the following
documents: (a) a Consent and Waiver relating to the Proposed Offering with
Dassesta; (b) a Stock Purchase Agreement; (c) a Purchase Option Agreement; (d)
two forms UCC-2s and a
<PAGE>
Release of Security Interest in Trademarks, Patents and Copyrights; and (e) for
your information, a set of Risk Factors, as well as BTi's most recent filed Form
10-K and Form 10-Q.
The following summarizes the documents you need to send to BTi in order
to participate in the above described transactions. Even if you decide not to
participate in the transactions, please sign and return the Consent and Waiver
relating to the Proposed Offering with Dassesta as soon as possible.
NOTE CONVERSION. In order to convert your Note, you must send to BTi:
---------------
(a) your existing original Note which will be canceled upon the closing of
----------------------
the conversion. If you have misplaced or lost your original Note, please
immediately advise the undersigned by phone or fax so that we can send you
appropriate documents for signature.
(b) an executed Stock Purchase Agreement (which is enclosed). We have
---------------------------------
included two versions of the Stock Purchase Agreement reflecting the
alternatives ONLY AVAILABLE TO YOU CONCERNING YOUR EXISTING OPTION (SEE
PARAGRAPH 2 ABOVE) IF YOU CONVERT YOUR NOTE.
(1) If you elect to cancel your Existing Option to purchase 20,000 shares of
BTi Common Stock at $0.60 per share and in lieu thereof immediately purchase
22,000 shares at $0.54 per share, you need to sign Stock Purchase Agreement #1
which is enclosed, and initial Schedule A-1 which is attached to Stock Purchase
Agreement #1.
You need also to include a check payable to Biomagnetic Technologies, Inc.
in the amount of $11,880.00 in payment of the shares of Common Stock show
on Schedule A-1 under the heading "Cash Purchase", and return to BTi your
original Purchase Option Agreement.
(2) If you elect to cancel your Existing Stock Option to purchase 20,000
shares of BTi Common Stock at $0.60 per share and in lieu thereof receive a new
Stock Option for 22,000 shares of BTi Common Stock exercisable at $0.60 per
share, you need to sign the enclosed Stock Purchase Agreement #2 and initial
Schedule A-2 which is attached to the Stock Purchase Agreement #2. You need
also to sign and return to BTi the enclosed Purchase Option Agreement and
simultaneously return to BTi your Original Purchase Option Agreement.
(c) the executed Form UCC-2s and Release of Security Interest in Trademarks,
--------------------------------------------------------------------
Patents and Copyrights (the "Release"). Please note that the Release must be
- ----------------------
notarized. Your Note is secured by various property of BTi, and these documents
serve to release the security interest.
(d) the executed Consent and Waiver.
----------------------------
<PAGE>
In order to participate in the described transactions, all appropriate
documents must be received no later than March 17, 1995. All documents should
be sent to Biomagnetic Technologies, Inc., in the return envelope herewith
provided. The closing of the Note conversion is contingent upon the closing of
the Proposed Offering. Shortly after the closing of the Proposed Offering, the
Company will close the Note conversions which we anticipate will take place on
Monday, April 17, 1995, and at that time deposit your check (if applicable) and
deliver to you your Common Stock Certificate and, if applicable, a new
Purchase Option Agreement. The terms of the transaction will be governed by
the provisions of the enclosed documents, which you should review carefully.
If you have any questions concerning the above, please do not hesitate to
contact me or any other officer of this Company at (619) 453-6300.
Sincerely,
/s/ James V. Schumacher
James V. Schumacher
President and Chief Executive Officer
Enclosures
