U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - KSB
(Mark One)
( X ) ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from____________________ to _______________
Commission file number 000-18448
AMERICAN CONSOLIDATED LABORATORIES, INC.
(Name of small business issuer in its charter )
FLORIDA 59-2624130
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1640 NORTH MARKET DRIVE, RALEIGH, NORTH CAROLINA 27609
(Address of principal executive offices) (Zip code)
(919) 872- 0744
Issuer's telephone number
Securities registered under Section 12 (d) of the Exchange Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
Common Stock, $0.05 Par Value N/A
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes (X) NO ( )
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB. (X)
Issuer's revenues for the year ended December 31, 1996 were $7,858,315.
The aggregate market value of the voting common stock of issuer held by
non-affiliates as of February 28, 1997 was $581,991.
The number of shares outstanding of the registrants Common Stock, par value
$0.05 per share, at February 28, 1997 was 4,009,956 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders. The Company intends to file
with the Commission a definitive proxy statement under Regulation 14(a) prior to
April 30, 1997.
<PAGE>
1996 FORM 10-KSB
TABLE OF CONTENTS
PART I
PAGE NO.
Item 1. Description of Business 3
Item 2. Description of Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a vote of Security Holders 9
PART II
Item 5. Market for Common Equity and Related Stockholders Matters 9
Item 6. Management's Discussion and Analysis 10
Item 7. Financial Statements 12
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure 12
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance with Section 16 (a) of the Exchange Act 29
Item 10. Executive Compensation 29
Item 11. Security Ownership of Certain Beneficial Owners and Management 29
Item 12. Certain Relationships and Related Transactions 29
Item 13. Exhibits and Reports on Form 8-K 29
2
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
American Consolidated Laboratories, Inc. (the "Company", or "ACL") is a leading
manufacturer of custom contact lenses and is a distributor of commodity lenses.
The Company is headquartered in Raleigh, North Carolina with manufacturing and
distribution operations in Sarasota, Florida and Raleigh, and a sales office in
Philadelphia, Pennsylvania.
ACL is a Florida corporation formed in 1985 under the name Salvatori
Ophthalmics. The name was changed in 1994 to better reflect the Company's
announced acquisition strategy within the contact lens laboratory and
distributor industry segment. ACL is traded over-the- counter under the symbol
EYES.
In December 1994, the Company acquired all the stock of Carolina Contact Lens,
Inc. ("CCL"). CCL is a manufacturer of custom contact lenses and distributor of
commodity lenses for all the major manufacturers. CCL's customers are primarily
located in the mid-Atlantic states. Subsequently the Company moved its
headquarters from Sarasota to Raleigh. In May 1995, the Company acquired certain
assets of Philcon Laboratories, Inc. ("Philcon"). Philcon was a manufacturer of
custom contact lenses and distributor of commodity lenses for all the major
manufacturers. Philcon customers are primarily located in the greater
Philadelphia area.
The contact lens industry today can be divided into two principal segments:
commodity lenses, which are soft lenses mass-produced to industry standard
parameters, and custom lenses, which are custom-made to individual
specifications from primarily Rigid Gas Permeable ("RGP") or soft materials.
ACL manufactures custom lenses in simple to complex lens designs from both RGP
and soft materials. The Company's expertise is in the more complex lens designs
for more difficult to fit eye care situations such as: presbyopia, keratoconus,
post-keratoplasty, radical keratotomy, pediatric aphakia, and high degrees of
myopia, hyperopia, and astigmatism. The Company also distributes a full line of
disposable and non-disposable commodity lenses produced by all the major
manufacturers.
PRINCIPAL PRODUCTS
CUSTOM LENSES The Company manufactures a full line of daily and extended wear
custom lenses in the most technologically advanced designs from over 15
different Food and Drug Administration ("FDA") approved base materials (buttons)
purchased from various suppliers or from proprietary materials. Custom lenses
are made to individual patient specifications. Lens designs range from simple
spheres to complex toric, bi-toric, bifocal, and multifocal lenses. The company
manufactures custom lenses from cylindrical buttons on state-of-the-art
automated lathing equipment.
3
<PAGE>
The raw material buttons are purchased by the Company from two primary
suppliers, Polymer Technologies Corp., a subsidiary of Bausch & Lomb, and
Paragon Vision Sciences. The Company has no difficulty in obtaining an adequate
supply of raw material buttons. The Company produces methafilcon A from
generally available chemicals, under a license agreement with Kontour Kontact
Lens, Inc. which is the raw material used in the production of soft lenses. The
Company purchases polymacon from a supplier in Sarasota, however there are
alternative suppliers available if needed.
The Company utilizes two FDA approved manufacturing facilities located in
Raleigh and Sarasota. The Sarasota site manufactures both soft and rigid lenses,
while the Raleigh facility produces only RGP lenses. The Sarasota facility has
been approved by the FDA for all of the Company's soft custom lens products for
"Rapid Release". This allows for next day shipment of custom soft lenses and is
a significant service advantage in the market place.
All custom lenses are warranted to be free of defects in workmanship, and the
raw material is warranted by each manufacturer.
COMMODITY LENSES The Company distributes virtually every brand of daily wear,
extended wear, disposable, and specialty soft lenses of any consequence
available in the United States. The Company's Raleigh facility includes a
distribution center for commodity lenses manufactured by the principal
commodity lens manufacturers: Bausch & Lomb, Wesley-Jessen, Ciba-Geigy and
Johnson & Johnson. All commodity products are covered by warranties from each
manufacturer.
LENS CARE PRODUCTS The Company distributes the Boston line of RGP lens care
products from Polymer Technology Corp., along with certain other brands.
DISTRIBUTION METHODS
The Company's primary means of distributing its products is regular mail or
overnight service on a daily basis. The method of distribution is determined
based on the customer's preference. To a lesser extent, products are distributed
next day service at the customer's request or in special circumstances. The
cost of distribution is billed to the customer directly on the invoice as a
separate item along with the product and applicable sales tax, if any.
NEW PRODUCTS
MAXIMEYES RGP PLANNED REPLACEMENT PROGRAM In 1997, the Company will introduce
the "MaximEyes" RGP Planned Replacement Program from Paragon Vision Science
featuring the new FluoroPerm 151 material. This program is intended to address
the growing consumer trend towards convenience which has propelled the
significant growth in the disposable segment of the commodity lens market at the
expense of the non-disposable segment of the commodity lenses market. With the
"MaximEyes" Program, the lenses are replaced at regular intervals which provides
for better vision, corneal health, and comfort.
4
<PAGE>
The FluoroPerm 151 material has one of the highest oxygen permeablilities
available in the U.S. today. It promotes optimal corneal health with
approximately four times the oxygen transmission of soft lenses. This makes it
ideal for extended and flexible wear schedules, thick lens profiles, specialty
applications and planned replacements. FluroPerm 151 achieves a balance between
visual acuity, corneal health, and comfort. A lens made of this material offers
safe, extended wear up to 7 days.
CORNEAL MAPPING During 1996 the Company installed the three leading corneal
mapping software systems to enhance its consultant fitting services. This
software permits a real-time transmission to the Company's consultants of a
picture of the patient's cornea. This sophisticated system greatly simplifies
the fitting process by allowing the consultant to assess directly the patient's
corneal shape when working with the eye care professional. Corneal mapping is
the latest technology available and results in a higher initial success rate and
a more cost efficient practice for the eye care professional.
MARKETING
The Company's products are marketed directly to eye care professionals,
ophthalmologists, optometrists and opticians. These eye care professionals are
in individual or group practices, associated with chain stores, or members of
buying groups.
The Company's marketing emphasis is on high margin custom lenses which are more
difficult to fit, such as multifocal, keratoconus, post-keratoplasty, radical
keratotomy, pediatric aphakia, and lenses for high degrees of myopia, hyperopia,
and astigmatisms.
The Company's marketing efforts are focused on tele-marketing directly to the
eye care professional, print advertising in trade publications, trade show
participation, professional seminars, direct mail pieces and incentive programs
based on volume purchased.
Sales and marketing efforts are further supported by highly experienced
consultants that work directly with the eye care professional to fit the lenses.
New sophisticated corneal mapping technology allows the consultant to more
precisely evaluate and offer guidance to the eye care professional resulting in
a better fit for the patient on the first visit, which increases the efficiency
of the eye care professionals practice.
The Company did business in 45 states in 1996. Sales are primarily concentrated
in the Mid-Atlantic states, the Midwest, and the Northeast.
COMPETITION
CUSTOM LENSES In the custom lens segment of the market, ACL is already one of
the 5 largest manufacturers. This segment is highly fragmented, and is
currently comprised of approximately 200 small independent companies.
ACL is a dominant force in its primary markets on the East
5
<PAGE>
Coast. ACL penetration in its primary markets has been based on a combination of
outstanding customer service and price. Outside of its primary markets along the
east coast, the Company does experience competition from other labs on a
regional basis.
There is little competitive threat to the Company from the major manufacturers
because the job-shop production process of custom lenses is not compatible with
the continuous flow, low cost processes required to compete in the commodity
contact lens business.
COMMODITY LENSES The commodity lens segment of the market has two components,
disposable and non-disposable lenses, and is dominated by the four major, well
capitalized manufacturers. The production of commodity lenses requires
sophisticated technology and significant capital investment to allow for large,
low cost production runs. Due to the intense competition in the commodity lens
segment, prices and margins have been declining over the past several years,
especially with respect to disposable lenses.
Disposable commodity lenses are the fastest growing lens type in the contact
lens industry today. In an effort to maintain profit margins, the major
manufacturers are making it more economical for the eye care professional to go
direct to the manufacturer to purchase their disposable commodity lenses. As a
result, the major manufacturers represent more of a competitive threat for sales
of this lens type than do other distributors.
The non-disposable lens business is also competitive. The major competitors for
this lens type are the other authorized distributors and the manufacturers. The
authorized distributors are the Company's direct competition on a daily basis.
The major manufacturers compete with the Company indirectly, as they spend
significant advertising dollars to influence the eye care professional and the
end consumer to the merits of disposable products. This is rapidly shifting
consumers to disposable products from non-disposable. The non-disposable lens
market is quickly becoming a replacement market and should continue to decline.
The growth, if any, in this segment of the business will come as financially
weaker distributors cease doing business.
SIGNIFICANT CUSTOMER
The Company had a multi-year contract with one customer that expired August 31,
1996. The contract was not renewed when it expired. Sales to this customer in
1996 and 1995 were approximately $460,000, or 5.9%, of total sales and $761,000,
or 8.5%, of total sales, respectively. The expiration of this contract has not
had a significant adverse effect on the Company. The Company has no other single
customer which accounts for more than 2.0% of total sales.
PATENTS, TRADEMARKS AND LICENSE
The Company has seven registered U.S. Trademarks, one of which is also
registered in Canada. The registered trademarks currently being used by the
Company are "Allvue", "BiVue", "Consta-Vu", "Sof-form", and "Accuform". The
Company occasionally uses the marks "Comfort Control" and "The Tailors of
Contact Lenses". ACL does not own any patents.
6
<PAGE>
The Company holds three manufacturing licenses. A nonexclusive license, expiring
in 2006, is held from the estate of David Volk, M.D., to manufacture certain
aspheric RGP lenses and a soft multifocal lens sold under the trademark
"Allvue". The Company holds an on going license from Kontour Kontact Lens to
produce Methafilcon A and contact lenses from that material. In addition, the
Company has licenses with Polymer Technology Corp., a division of Bausch & Lomb,
and Paragon Vision Sciences to produce RGP lenses from each individual company's
various polymers. Polymer and Paragon are the industry leaders, however the
Company also has license agreements with every U.S. polymer manufacturer. This
is a competitive advantage which allows ACL to manufacture in any material the
eye care professional prefers.
FDA AND ENVIRONMENTAL REGULATION
Virtually all of the products manufactured or distributed by the Company are
classified as medical devices and are therefore regulated by the U.S. Food and
Drug Administration. FDA regulations govern the Company's products,
manufacturing procedures, and facilities.
All new medical devices must be submitted to the FDA along with supporting
microbiological, toxicoligical, and clinical trial results to obtain approval
for a Pre-Market Application ("PMA"), which must be obtained before the device
can be marketed. The approval process can take several years and be very
expensive. The Company does not currently have any submission with the FDA for
approval.
ACL is an FDA approved alternative manufacturer for virtually every RGP polymer
under each supplier's PMA.
The Company is subject to various environmental laws. Most of these regulations
apply to the proper handling, storage, and disposal of chemicals used in the
manufacturing process. The cost of complying with applicable laws is not
significant to the Company's operation. The Company generates very little
hazardous waste in its manufacturing process. The Company contracts with a
licensed company to properly dispose of any waste generated. The Company is not
aware of any violations of environmental regulations. The Company is not aware
of any pending regulations or legislation that would have an impact on the
Company's business.
RESEARCH AND DEVELOPMENT
The Company's research and development activities are primarily devoted to
developing and enhancing lens designs and qualifying as an FDA approved
alternative manufacturing site for new RGP materials and designs. Total
expenditures in this area have been less than $60,000 per year in both 1996 and
1995. All of the Company's research and development expenditures are funded
internally. No funds are received for research and development from suppliers or
customers.
EMPLOYEES
At December 31, 1996, the Company employed 63 individuals, of which 59 were
full-time employees. The Company is not party to any collective bargaining
agreements and believes that its relations with its employees are good.
7
<PAGE>
ITEM 2. PROPERTIES
The Company leases its facilities in Raleigh, North Carolina, Sarasota, Florida
and Philadelphia, Pennsylvania. The Company owns a facility in Lincoln, Nebraska
which was closed on November 15, 1996. On March 3, 1997 the Company executed an
agreement to sell this facility.
In Raleigh, the Company leases a single purpose, one-story building of
approximately 6,000 square feet from the former owner of CCL who is also an
officer of ACL. The Company manufactures custom RGP lenses and distributes
commodity lenses in this facility. The term of the lease is five years
commencing in December 1994, and provides for monthly rent of $5,000. This
facility is fully utilized at present with no opportunity for expansion. On
November 1, 1995 the Company leased approximately 1,360 square feet of
administrative space in a building adjacent to the manufacturing and
distribution building for a term of five years. This space accommodates the
Company's corporate administration functions. The monthly rent is $963 for the
first three years of the lease and $1,020 in the fourth and fifth years.
In Sarasota, the Company leases approximately 12,000 square feet in a single
story concrete block building. The Company manufactures both custom RGP and Soft
lenses in this facility. The term of the lease is ten years, and terminates on
January 31, 2001, and provides for monthly rent of approximately $8,500 in 1996,
with 3% increases each year of the lease. During 1996, the Company subleased
approximately half of the 12,000 square foot space to one tenant and is
collecting rent under the sublease agreement.
In Philadelphia, the Company leases 2,000 square feet of administrative space in
a multi-purpose facility. The Company operates a sales office out of this
facility. The term of the lease is five years commencing on January 1, 1996, and
provides for monthly rental payments of $2,275, with annual increases of
approximately 3%.
The Company owns two connected buildings comprising approximately 10,800 square
feet in Lincoln from which it operated a custom lens manufacturing facility
until it was closed on November 15, 1996. These two one-story buildings, one of
which is of steel construction and the other of which is brick masonry, are
about 35 years old and are in good condition. The Company has a mortgage loan
from Cornhusker Bank, secured by the property and the buildings. On March 3,
1997, the Company executed an agreement to sell the land and building at a price
in excess of its current carrying value.
The Company's tangible property consists primarily of production equipment and
computer hardware which is either owned or leased. The leased equipment is
subject to liens held by a variety of financing companies, none of which is
material.
ITEM 3. LEGAL PROCEEDINGS
None.
8
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On February 12, 1997 the Company held a Special Meeting of Shareholders at the
Company's offices in Raleigh. The purpose of the meeting was to vote on a
proposal to amend the Company's Articles of Incorporation that would increase
the authorized number of shares of capital stock of the Company by creating a
class of 5,000,000 shares of Preferred Stock with no par value. The proposal was
approved by unanimous vote of the shareholders attending.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRICE RANGE OF COMMON STOCK
The common stock of the Company is reported by The National Association of
Securities Dealers through the NASD OTC Bulletin Board, its automated system for
reporting NON-NASDAQ quotes and National Quotation Bureau's Pink Sheets. The
prices shown are the high and low bid prices for each quarter and do not include
retail markup, markdowns or commissions.
1996 1995
High Low High Low
-------------------------------------------------
First Quarter 1 1/4 2 1/8 1/2
Second Quarter 1 3/4 1/2 5 1 1/2
Third Quarter 1 5/8 1 4 3/8 1 1/2
Fourth Quarter 1 7/16 2 1/2 3/8
As of March 21, 1997, the Company had approximately 231 shareholders of record
of its common stock.
No cash dividends have been declared or paid on the Company's common stock.
Various loan agreements prohibit the Company from paying dividends. Further,
the Company has no plans for payment of cash dividends on stock until operations
generate funds in excess of those required to provide for the growth needs of
the Company.
9
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO DECEMBER 31, 1995
GENERAL
During April of 1996, the Board of Directors of the Company strengthened the
Company's management team by bringing in two seasoned executives to replace the
previous management
On June 28, 1996, the Company closed on an asset-based loan facility with
Fidelity Funding Group that has allowed the Company to repay certain debt and
reopen credit lines with its vendors. This financing allowed the Company to
increase its inventory levels in order to achieve higher customer fill rates and
overall customer satisfaction.
RESULTS OF OPERATIONS
Net sales for the year ended December 31, 1996 ("1996"), totaled $7,858,314, a
decrease of $1,144,915, or 13.7% from the ended December 31, 1995 ("1995"). This
decrease is due to the problems encountered with the change to a new fully
integrated computer software package in August of 1995, which resulted in the
erosion of sales through December of 1995. Monthly sales increased steadily in
1996 from the low in December of 1995.
The Company incurred an operating loss, excluding the impact of restructuring
expenses and write-down of intangible assets of $1,354,263 in 1996 compared to
$1,775,159, in 1995, an improvement of $420,896. The Company attributes the
loss to decisions and actions taken in 1995 by the previous management team
and the residual implications of those decisions and actions which carried
over into 1996. Significant progress was made in the third and fourth quarters
to increase sales and reduce the monthly level of expenses built up by the
previous management team.
Sales of all products were lower for 1996 compared to 1995. This is primarily
the result of the effects of the computer software installation problems
encountered in August 1995, which adversely affected customer service levels,
and the change in philosophy by the major manufacturers to compete directly with
the distributors for the commodity disposable products.
The gross profit for 1996 was $2,469,673, or 31.4%, of net sales compared to
$2,762,654, or 30.7%, of net sales for 1995. This represents the effect of
continued pricing pressures on the commodity disposable products from the major
manufacturers. Management believes pressure on pricing will continue for this
product line as the Company competes with the manufacturers for these sales.
10
<PAGE>
Total operating costs and expenses, excluding restructuring expenses, and
the write-down of Intangible Assets, for 1996 were $3,823,936 compared to
$4,537,813 for 1995. All of the reduction of $713,877 was achieved in the
third and fourth quarters. This is the result of the following actions: 1)
reduction in work force on 10/1/96; 2) closure of the Lincoln facility on
11/15/96; 3) renegotiating with various vendors that provide services to the
Company. In the first quarter of 1996, monthly operating expenses, averaged
approximately $342,000, compared to December 1996 operating expenses, excluding
restructuring expenses, and the write-down of Intangible Assets, of $274,679.
Operating expenses in the first two months of 1997 have averaged less than
$250,000 per month.
Selling expenses are down in 1996 compared to 1995 due to the elimination of the
"National Sales Force", which was established by the previous management team in
1995. This industry does not typically operate with a sales force, but rather
through tele-marketing and other more cost effective methods. Consequently all
but three members of the sales force were terminated in early 1996. The
remaining three sales representatives either resigned or were terminated in the
fourth quarter of 1996.
Marketing activities had been curtailed during 1996 as a result of cash flow
constraints. However, with the closing of the Fidelity credit line in June, the
Company did increase spending for marketing activities in the second half of the
year, including the hiring, late in the year, of a tele-markerter as it begins
to focus on telemarketing.
The Company recorded restructuring expenses of $483,774 in 1996 related to the
closing of the Lincoln facility. The restructuring expenses include the cost to
close the facility, the severance costs related to the layoff of the workforce,
and the write-off of the remaining goodwill associated with the acquisition of
the Lincoln facility. These costs are non-recurring and will not impact future
periods. The Company is already realizing the positive benefits from closing the
Lincoln facility and consolidating it into Sarasota and Raleigh. The Company has
successfully retained a large portion of the Lincoln business while absorbing
the production without increasing costs in either facility. Thus, the Company
has realized a substantial benefit from the costs eliminated by closing the
facility.
The Company recorded a write-down of intangibles in the amount of $883,869 in
the fourth quarter of 1996. Given the uncertainty of the Company's financial
condition at December 31, 1996 and the operating losses incurred in 1996 and
1995 the Company believes the value of its intangible assets have been
impaired.
Interest expense for 1996 totaled $713,248 compared to $214,536 for 1995. The
increase is the result of the additional funds borrowed to support the 1996
loss, and the recognition of $312,000 in interest expense associated with
warrants to purchase the company's stock issued in 1996.
FINANCIAL CONDITION
At December 31, 1996 the Company had a cash overdraft of $16,834, which is
included in accounts payable, compared to cash on hand at December 31, 1995, of
$37,772. Net cash used in operating activities for the year ended December 31,
1996, was $786,142 compared to $456,559 used in operating activities in 1995.
The cash used in operating activities was provided from an asset-based loan with
Fidelity Funding and additional loans from the Company's primary stockholder,
Tullis-Dickerson Capital Focus, L.P.
11
<PAGE>
The Company had a working capital deficit of $3,111,842 compared to a working
capital deficit of $890,227 at December 31, 1995.
Management is working to achieve positive cash flow from operations by reviewing
and adjusting sales prices to provide acceptable profit margins, rescheduling
its current obligations and significantly cutting costs. Management continues to
aggressively pursue obtaining debt or equity financing, as well as acquisitions
in order to improve liquidity and enhance shareholder value. No assurances can
be given that additional financing can be obtained, or that acquisitions will be
consummated. If management is not successful in generating positive cash flow
from operations or raising additional financing the Company may not have
adequate cash to meet its current obligations. The Company's continuation as a
going concern is dependent upon its ability to generate sufficient cash flow to
meet its obligations on a timely basis and attain profitable operations and
positive cash flow.
ITEM 7 FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 1996 and 1995
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1995
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1995
Notes to Consolidated Financial Statements
ITEM 8 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
None
12
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER DECEMBER
31, 1996 31, 1995
----------------- ------------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 37,772
Accounts receivable, less allowance
for doubtful accounts (note 3) 644,157 635,032
Inventories, at lower of cost (first in,
first out) or market (note 4) 708,152 1,094,743
Other current assets 115,408 5,181
----------------- ------------------
Total current assets 1,467,717 1,772,728
----------------- ------------------
PROPERTY AND EQUIPMENT AT COST:
Laboratory equipment 871,167 1,114,567
Office Equipment 216,990 320,607
Leasehold improvements 56,024 60,150
Assets being held for disposition 255,000 255,000
----------------- ------------------
Total property and equipment 1,399,181 1,750,324
Less accumulated depreciation 915,942 1,128,838
----------------- ------------------
Property plant and equipment, net 483,239 621,486
----------------- ------------------
OTHER ASSETS:
Costs in excess of fair value of assets
acquired - 828,419
Other intangible assets - 938,815
Miscellaneous - 91,945
----------------- ------------------
- 1,859,179
Less accumulated amortization - 411,835
----------------- ------------------
Total other assets, net - 1,447,344
----------------- ------------------
TOTAL ASSETS $ 1,950,956 $ 3,841,558
================= ==================
</TABLE>
See notes to consolidated financial statements.
13
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED BALANCE SHEETS (Continued)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
(UNAUDITED)
DECEMBER DECEMBER
31, 1996 31, 1995
----------------- ------------------
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 1,433,469 $ 1,796,484
Accrued expenses (note 5) 742,766 260,097
Current maturities of long-term debt (note 7) 2,012,733 606,374
Revolving credit line (note 6) 390,591 -
----------------- ------------------
Total current liabilities 4,579,559 2,662,955
----------------- ------------------
LONG - TERM DEBT (note 7): 395,171 1,050,639
DEFERRED RENT 52,597 58,238
COMMITMENTS AND CONTINGENCIES (Note 1)
STOCKHOLDERS' EQUITY (DEFICIT) (note 8)
Common stock, $.05 par value, 20,000,000 shares
authorized; 4,621,623 issued and 4,005,623 shares
outstanding at December 31, 1996, and 4,436,927
issued and outstanding at December 31, 1995 231,082 221,847
Capital in excess of par value 6,220,273 5,887,834
Receivable for shares issued as collateral - (225,000)
Treasury Stock (328,000) -
Deficit (9,199,726) (5,814,955)
----------------- ------------------
Total stockholders' equity (deficit) (3,076,371) 69,726
----------------- ------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 1,950,956 $ 3,841,558
================= ==================
</TABLE>
See notes to consolidated financial statements
14
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
(UNAUDITED)
1996 1995
----------------- ------------------
<S> <C> <C>
NET SALES $ 7,858,314 $ 9,003,229
COST OF SALES 5,388,641 6,240,575
----------------- ------------------
Gross profit 2,469,673 2,762,654
----------------- ------------------
OPERATING COSTS AND EXPENSES:
Selling expenses 979,878 1,059,294
Marketing expenses 107,448 153,616
Research and development 54,099 56,435
General and administrative expenses 2,682,511 3,268,468
Restructuring expenses (note 9) 483,774 -
Write-down of intangible assets (note 10) 883,369
---------------- ------------------
Total operating costs and expenses 5,191,079 4,537,813
----------------- ------------------
Operating loss (2,721,406) (1,775,159)
OTHER INCOME (EXPENSES):
Interest expense (Note 8) (913,248) (214,536)
Other income (expense) 49,883 (104,751)
----------------- ------------------
Loss before income taxes (3,384,771) (2,094,446)
INCOME TAXES (Note 11) - -
----------------- ------------------
NET LOSS $ (3,384,771) $ (2,094,446)
================= ==================
Loss per common share (note 1) ($0.81) ($0.51)
================= ==================
Weighted average shares outstanding (note 1) 4,158,141 4,091,549
================= ==================
</TABLE>
See notes to consolidated financial statements
15
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1996 (UNAUDITED) AND 1995
<TABLE>
<CAPTION>
CAPITAL IN RECEIVABLE
EXCESS OF FOR SHARES
COMMON STOCK PAR ISSUED AS TREASURY
SHARES AMOUNT VALUE COLLATERAL DEFICIT STOCK TOTAL
---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, January 1, 1995 3,823,048 191,153 5,282,708 0 (3,720,509) 0 1,753,352
Issuances of common stock 613,879 30,694 605,126 (225,000) - 0 410,820
Net loss - - - 0 (2,094,446) 0 (2,094,446)
---------------------------------------------------------------------------------------------
Balances, December 31, 1995 4,436,927 221,847 5,887,834 (225,000) (5,814,955) - 69,726
Issuances of common stock (unaudited) (431,304) 9,235 (131,917) 225,000 (328,000) (225,682)
Issuance of stock warrants (unaudited) 464,356 464,356
Net loss (unaudited) (3,384,771) (3,384,771)
=============================================================================================
Balances, December 31, 1996 (unaudited) 4,005,623 231,082 6,220,273 - (9,199,726) (328,000) (3,076,371)
=============================================================================================
</TABLE>
See notes to consolidated financial statements
16
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,1996 (UNAUDITED) AND 1995
<TABLE>
<CAPTION>
(UNAUDITED)
1996 1995
---------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,384,771) $ (2,094,447)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 151,316 134,959
Amortization 268,244 321,663
Write-off of Intangibles 1,179,099
Debt extension expense - 8,125
Interest expense related to issuance of warrants 311,508
Loss on disposal of assets 7,066 -
Management fee expense - 18,000
(Increase) decrease in accounts receivable (9,125) 438,875
(increase) decrease in inventories 386,591 (290,884)
(Increase) decrease in other current assets (110,227) 87,307
(Decrease) increase in accounts payable (160,188) 893,484
Increase in accrued expenses 579,986 29,167
(Decrease) in deferred rent (5,641) (2,808)
---------------- ------------------
Net cash used in operating activities (786,142) (456,559)
---------------- ------------------
Cash flows from investing activities:
Additions to property and equipment (20,135) (84,220)
Deferred acquisition costs - (36,117)
Purchase of Philcon Laboratories, Inc. - (95,000)
---------------- ------------------
Net cash used in investing activities (20,135) (215,337)
---------------- ------------------
Cash flows from financing activities:
Net proceeds from asset based loan 455,915 -
Proceeds from borrowings 885,833 592,000
Principal payments on long - term debt (560,480) (242,975)
Principal payments under capital leases (34,563) -
Issuance of common stock 4,966 39,695
---------------- ------------------
Net cash provided by financing activities 751,671 388,720
---------------- ------------------
Net decrease in cash (54,606) (283,176)
Cash beginning of period 37,772 320,948
---------------- ------------------
Cash (overdraft) end of period $ (16,834) $ 37,772
================ ==================
</TABLE>
See notes to consolidated financial statements
17
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996 (UNAUDITED) AND 1995
- --------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
The following activities are applicable to the year ended December 31, 1996:
The Company purchased a total of 600,000 shares of common stock from two former
officers pursuant to the Share Purchase and Stockholder Agreement dated August
15, 1994, between the Company and the former officers. Under the terms of the
agreement the Company purchased these shares at $0.50 per share, or $150,000
payable to each in twenty equal quarterly installments, along with interest at
5.53% on one note and 6.21% on the other note. These shares are being held in
Treasury.
In May the Company issued 40,000 shares of common stock to one of its vendors as
payment of $40,000 owed that vendor.
The Company converted $36,000 in management fees owed to Tullis-Dickerson & Co.
into common stock in June 1996. The Company issued 53,327 shares as payment for
the amount owed.
Tullis-Dickerson Capital Focus Limited Partnership ("TDCFLP") exercised warrants
at various times between May and August of 1996 in accordance with the
provisions of the loan agreement for advances made to the Company in late 1995
and in 1996. A total of 199,503 shares where issued at an exercise price of $.10
per share. A portion of the interest owed by the Company to TDCFLP was used to
offset the $19,950 cost of exercising the warrants by TDCFLP.
During 1996 the Company issued warrants in conjunction with certain financing
arrangements and recorded a discount of $253,440.
The following activities are applicable to the year ended December 31, 1995:
The issuance of a note payable in the amount of $125,000 to a shareholder of
Philcon Laboratories in conjunction with the purchase of certain assets of
Philcon Laboratories.
The issuance of 8,117 shares of common stock valued at $20,000 in conjunction
with the purchase of certain assets of Philcon Laboratories.
The issuance of 166,666 shares of common stock for the conversion of notes
payable to three employees in the aggregate amount of $250,000.
The issuance of 100,000 shares of common stock valued at $75,000 for the
conversion of a $55,000 note payable to a stockholder of the Company and
forgiveness of $20,000 of accrued interest payable.
The issuance of 150,000 shares of common stock valued at $225,000 and recording
of a receivable for $225,000 as collateral for a $150,000 term loan.
18
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996 (UNAUDITED) AND 1995
1. BASIS OF PRESENTATION AND DESCRIPTION OF BUSINESS
NATURE OF BUSINESS
American Consolidated Laboratories, Inc. ("the Company") or ("ACL) is
in the business of manufacturing and distribution of contact lenses. The Company
is headquartered in Raleigh, North Carolina with operations in Sarasota, Florida
and Philadelphia, Pennsylvania. The accompanying consolidated financial
statements have been prepared on a going concern basis, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The consolidated financial statements do not include any
adjustments relating to the recoverability and reclassification of assets and
liabilities that might be necessary should the Company be unable to continue as
a going concern.
The Company has made significant progress since December 31, 1995.
Management successfully closed on a revolving line of credit with Fidelity
Funding during the second quarter of 1996. This line of credit provided the
funds to allow the Company to meet its current obligations.
Management has significantly reduced operating expenses, especially during the
second half of 1996. The Company's continuation as a going concern is dependent
upon its ability to generate sufficient cash flow to meet its obligations on a
timely basis and attain profitable operations and positive cash flow.
Management continues to aggressively pursue securing additional debt or
equity financing, as well as an acquisition of a profitable entity.
Accomplishment of any of the foregoing could provide the resources to allow the
Company to continue as a going concern.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the
Company and its subsidiaries, Salvatori Ophthalmic Manufacturing Corporation
("SOMC"), S-O Nebraska, Inc. ("Lincoln"), and Carolina Contact Lens, Inc.
("CCL").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist
the reader in understanding and evaluating the accompanying financial
statements. These policies are in conformity with generally accepted accounting
principles and have been consistently applied unless otherwise noted.
19
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenue and
expenses during the period. Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
All significant intercompany accounts and transactions have been
eliminated in consolidation.
REVENUE RECOGNITION
Revenues are recognized when product is shipped. Net sales includes
returns and allowances in accordance with Company policies. The Company grants
credit terms to its customers consistent with normal industry practices.
INVENTORIES
Inventories are stated at lower of cost, determined by the first-in,
first-out method, or market. Consideration is given to deterioration,
obsolescence and other factors in determining market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is recorded at cost. Depreciation is
determined using the straight-line method for both financial statement and
income tax purposes. Cost in excess of the fair value of assets are being
amortized on the straight-line method over five to ten years.
INTANGIBLE ASSETS
In accordance with Financial Accounting Standards Board Statement No.
121, Accounting for the Impairment of Long-lived Assets, the Company assesses
the recoverability of the excess of cost over fair market value of net assets
acquired and other intangible assets based on management's estimates of future
cash flows.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes," (SFAS
#109) which is an asset and liability method of accounting for income taxes.
Under this method, deferred tax assets and liabilities are recognized for the
tax consequences of temporary differences by applying statutory rates to
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities.
20
<PAGE>
ACCOUNTS PAYABLE
The accounts payable balance at December 31, 1996 includes a cash
overdraft in the amount of $16,834.
LOSS PER SHARE
Loss per share was computed based upon the weighted average number of
shares outstanding during the period. Loss per share is presented on a primary
basis only, since on a fully diluted basis it would be anti-dilutive.
RECLASSIFICATIONS
Certain amounts for 1995 have been reclassified to conform to the 1996
presentation.
3. ACCOUNTS RECEIVABLE
Accounts receivable consists of the following at December 31, 1996 and
1995:
1996 1995
Trade receivables $ 976,693 $ 1,127,537
Less allowances:
Doubtful accounts 156,780 215,728
Sales returns 175,756 276,778
------- -------
Net receivables $ 644,157 $ 635,032
------- -------
4. INVENTORIES
Inventories consist of the following at December 31, 1996 and 1995:
1996 1995
---- ----
Raw materials $ 171,738 $ 180,913
Work in process 21,562 29,154
Finished goods 514,852 884,676
------- -------
Total $ 708,152 $1,094,743
------- ---------
21
<PAGE>
5. ACCRUED EXPENSES
Accrued expenses consist of the following at December 31, 1996 and
1995:
1996 1995
---- ----
Interest $ 364,829 $ 99,975
Restructuring costs 90,684 -
Royalties 72,451 15,029
Payroll 57,032 86,756
Vacation pay 24,787 47,570
Other 132,983 10,767
------- --------
Total $ 742,766 $ 260,097
------- -------
6. REVOLVING CREDIT LINE
On June 28, 1996 the Company closed on a $2,000,000 revolving line of
credit with Fidelity Funding of California, Inc. The line of credit is secured
by the first positions in the Company's accounts receivable and inventory. The
interest rate on the loan is 1.5% over the prime rate. The line of credit is for
a term of three years and has prepayment penalties. The proceeds from the loan
were used for working capital purposes. The Company is prohibited from paying
dividends without Fidelity's consent. In connection with this line of credit,
Fidelity also received 150,000 warrants to purchase the Company's common stock
which is discussed in more detail in note 8. The outstanding balance in the
consolidated balance sheet is net of an unamortized discount of $65,324.
7. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Notes payable to Tullis-Dickerson Capital Focus L.P.,
Net of unamortized discount of $87,524 $ 1,065,309 $ 272,000
Secured Convertible Term Promissory Note payable
to Tullis-Dickerson Capital Focus L.P. 800,000 800,000
Note payable to The Oncologic Foundation, Inc. 7,500 22,500
Obligation under capital lease, payable to IBM Credit - 27,762
Note payable to David Dougherty - 55,000
Note payable to Joe Kelly 104,809 125,000
Note payable to SouthTrust - 25,400
Note payable to Cornhusker 167,786 172,550
Note payable to The Caribou Bridge Fund - 150,000
Note payable to Grady Deal 120,000 -
Note payable to Estate of Wayne Smith 142,500 -
Long-term debt, other - 6,801
------------ ------------
Total debt 2,407,904 1,657,013
Less current maturities 2,012,733 606,374
---------- -------
$ 395,171 $1,050,639
---------- ---------
</TABLE>
22
<PAGE>
In November and December 1995 Tullis-Dickerson Capital Focus L.P.
(TDCFLP) provided financing to the Company in the amount of $267,000. TDCFLP
continued to advance funds in 1996 under the same terms and conditions. Each
advance has a maturity date six months from the date of the advance. Interest is
payable until maturity at 13.5%, and at 19.5% after maturity. On the last
$550,000 of advances, TDCFLP received 550,000 warrants to purchase the Company's
common stock, see Note 8.
In order to complete the CCL acquisition, TDCFLP loaned the Company
$800,000 in the form of a bridge loan. The secured Convertible Term Promissory
Note is due September 30, 1997. Interest is payable quarterly at a rate of 25%.
The loan was amended effective February 15, 1996, to allow TDCFLP to convert the
note into common stock of the Company at the conversion price of one dollar
($1.00) per share of Common Stock and after the Maturity Date shall be Fifty
Cents ($0.50) per share of Common Stock.
All the TDCFLP debt is secured by the accounts receivable, inventory
and property and equipment. In addition, the Company is prohibited from paying
any dividends under the terms of the TDCFLP loan agreements.
At December 31, 1996 and 1995 interest owed and unpaid to TDCFLP was
$363,714 and $85,000, respectively.
In accordance with Grady Deal and Wayne Smith's (former officers of
Company) termination agreements dated April 18, 1996, and July 10, 1996,
respectively, they each exercised their option to put to the Company 300,000
shares each of common stock. Pursuant to the Share Purchase and Stockholder
Agreement dated August 15, 1994 the Company had to purchase these shares at
$0.50 per share, or $150,000 payable to each in twenty equal quarterly
installments, along with interest at 5.53% on the Deal note and 6.21% on
the Smith note.
8. STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
The Company's authorized capital stock consists of 20,000,000 shares of
Common Stock, par value $0.05 per share. There are 4,621,623 shares issued of
which 4,005,623 are outstanding at December 31, 1996. There are 616,000 shares
held in Treasury at December 31, 1996.
As part of the Deal and Smith termination agreements, discussed in note
7, the Company purchased a total of 600,000 shares of common stock from these
individuals. These shares are being held in Treasury.
In May the Company issued 40,000 shares of common stock to one of its
vendors as payment of amounts owed that vendor.
23
<PAGE>
The Company converted $36,000 in management fees owed to
Tullis-Dickerson & Co. into common stock in June 1996. The Company issued 53,327
shares as payment for the amount owed.
The Caribou Bridge Fund (Caribou) exercised a warrant to purchase
20,000 shares of common stock at $.10 per share in May 1996. In accordance
with the loan agreement with Caribou, these shares if not registered by the
Company by June 1996, provided for additional shares to be issued each month
for which they remained unregistered. The Company negotiated the repurchase of
these shares. To date, four payments have been made with the final payment to
be made in 1997. The shares repurchased, 16,000 to date, are being held in
Treasury. The 150,000 shares held as collateral by Caribou were returned to
the Company in 1996.
In December, the Company issued 10,000 shares of stock to a former
employee in payment for services provided to the Company as an outside
consultant.
The Company issued 11,866 shares to employees who exercised options in
accordance with the Company's Stock Option Plan.
WARRANTS
During 1996, TDCFLP was granted certain warrants to purchase common
stock of the Company at an exercise price of $.10 per share in accordance with
the provisions of the Convertible Promissory note dated February 15, 1996. The
Company recorded the issuance of such warrants based on the fair value of the
warrants. The fair value was determined based on the market price of the
Company's stock at the exercise date. The total value of the warrants, $210,916
was charged to interest expense during 1996 as the terms of the related advances
had expired. A total of 199,503 shares were issued at an exercise price of $.10
per share. A portion of the interest owed by the Company to TDCFLP was used to
offset the cost of exercising the warrants by TDCFLP.
TDCFLP received 550,000 warrants to purchase the Company's common stock
at $.25 per share with an expiration date in 2001, in connection with TDCFLP's
most recent loan advances to the Company in 1996. The warrants were valued using
the Black-Scholes pricing model. The value of the warrants was approximately
$175,047 and is being amortized to expense over the term of the loan.
Fidelity Funding received 150,000 warrants to purchase the Company's
common stock at $.50 per share with an expiration date in 2001, in connection
with an asset-based loan to the Company in June of 1996. The warrants were
valued using the Black-Scholes pricing model. The value of the warrants was
approximately $77,762 and is being amortized to expense over the term of the
loan.
24
<PAGE>
STOCK OPTIONS
As permitted, the Company applies Accounting Principles Board Opinion
25 and related Interpretations in accounting for its stock-based compensation
plan. Stock options are primarily granted at fair market value of the common
stock at the grant date. Accordingly, no compensation expense has been
recognized for stock option awards. Had compensation cost for the Company's
stock-based compensation plan been determined based on the fair value at the
grant dates for awards under the plan consistent with the alternative method of
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," (SFAS 123) the effect on the Company's net loss for the
periods ended December 31, 1996 is estimated to have increased the Company's
net loss by approximately $186,000. The estimated impact of the fair value of
the options awarded in 1996 on compensation expense of approximately $186,000
is calculated using the Black-Scholes option-pricing model with the following
assumptions applied individually to each option award:
Market price of stock equaled exercise price of option award at date of
grant.
Expected life in years 2 to 5 years
Annualized volitility 115%
Annualized quarterly dividends $40.000
Discount rate-Bond Equivalent Yield 5.00%
The Pro-Forma impact on the Net Loss and Earnings Per Share in 1996 using the
fair value method of SFAS 123 is detailed in the table below. The Pro-forma
impact in 1995 is not material.
Net loss 1996
----
As reported $3,384,771
Pro-Forma $3,570,771
Loss per share
As reported $0.81
Pro-Forma $0.86
The Company, has over the years, granted to certain officers,
directors, employees and advisors stock options for the purchase of the
Company's common stock. The options granted have expiration dates of five or ten
year's after date of grant. In some instances the option vests over a period of
years. At December 31, 1996, there are no options outstanding that vest over a
period in excess of four years. The weighted average price of the options
outstanding at December 31, 1996 was $0.62 per share and the weighted average
life of the options was 8.5 years.
25
<PAGE>
The table below summarizes stock options granted and outstanding for the
years ended December 31, 1996 and 1995:
Number Price
of Shares Per Share
Outstanding, December 31, 1994 685,000 $0.125 to $3.00
Granted 0
Exercised 109,390 $0.125 to $0.50
Expired 0
------------
Outstanding, December 31, 1995 575,610 $0.125 to $3.00
Granted 913,010 $0.25 to $0.76
Exercised 31,866 $0.10 to $0.50
Expired 499,410 $0.50 to $3.00
-------
Outstanding, December 31.1996 957,344 $0.125 to $1.125
-------
Of the 913,010 options granted in 1996, 765,000 were granted to the
three members of the new management team and 148,010 were issued to employees.
In February all the employees received varying numbers of stock options, based
on compensation levels, under the Company's 1994 Incentive and Non-Statutory
Stock Option Plan ("the Plan"). Under the Plan, the Company has 810,000
registered shares. The Company is proposing to make substantial modifications
to the Plan. The proposed modifications will be put to a vote of the
shareholders at the next annual meeting.
9. RESTRUCTURING EXPENSES
On November 15, 1996 the Company closed its Lincoln, Nebraska facility
and consolidated that production and customer base into its Raleigh and Sarasota
manufacturing facilities. The Company incurred costs in 1996 associated with the
closure and accrued for the remaining expenses. Of the $483,774 in expenses
charged against income in 1996, $188,043 relate to the expenses incurred to
close the facility and $295,731 relate to the write-off of the remaining book
value of the goodwill and intangibles recorded for the Lincoln facility.
10. WRITE-DOWN OF INTANGIBLES
Given the uncertainty of the Company's financial condition at
December 31, 1996 and the operating losses incurred in 1996 and 1995 the Company
believes the value of its intangible assets have been impaired. Accordingly, the
Company has taken a write-down for the net book value of the intangible assets
at December 31, 1996.
11. INCOME TAXES
The Company files a consolidated Federal income tax return. Due to its
net loss position, the Company recorded no provision for income taxes in 1996
and 1995.
26
<PAGE>
The Federal net operating loss carryforward ("NOL") at December 31,
1996 is approximately $6,206,000. The Company had an ownership change in 1990
as defined by the Internal Revenue Code Section 382. The Company has to
date not been able to utilize approximately $670,000 of the pre-ownership change
NOL subject to annual limitations. The NOL of approximately $5,536,000 generated
after the ownership change is not subject to any annual limitation. The NOL
carryforwards expire between 2003 and 2011.
As of December 31, 1996, state NOL carryforwards totaled approximately
$4,900,000 and are also subject to various Section 382 limitations.
The components of the net deferred tax assets under SFAS 109 consist of
the following at December 31, 1996 and 1995:
1996 1995
---- ----
Federal net operating loss $ 2,110,174 $ 1,712,174
State net operating loss 216,826 134,583
Other 394,127 128,677
------------- -------------
Total deferred tax assets $ 2,721,127 $ 1,975,434
Less: valuation allowance (2,721,127) (1,975,434)
----------- -------------
Net deferred tax assets $ 0 $ 0
------------ ------------
These net deferred tax assets are subject to a valuation allowance, as
the realization of the deferred tax asset is uncertain given the Company's
current financial condition. The Company has established a valuation allowance
equal to the deferred tax asset.
12. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has executed operating leases for manufacturing and or
office space related to each of its three locations. Future minimum lease
payments under non-cancelable operating leases at December 31, 1996 are as
follows:
Year
Ending Amount
------ ------
1997 $ 241,403
1998 223,210
1999 198,294
2000 142,844
2001 0
----------
Total $ 805,751
---------
Operating lease expense for these leases approximated $238,000 in 1996
and $185,000 in 1995.
27
<PAGE>
During the third quarter of 1996 the Company entered into a sub-lease
arrangement for a portion of the space in its Sarasota facility. The Company
will receive approximately $54,000 annually under the sub-lease arrangement. The
payments received from the sub-lease tenant are being recorded as other income.
The above listing of future minimum lease payments reflects the gross amount of
rental the Company is obligated to pay the landlord and has not been reduced by
the sub-lease contractual obligation.
The Company leases its North Carolina manufacturing facility from the
former owner of Carolina Contact Lens and the current President of the Company.
The lease calls for monthly rental payments of $5,000 through December 14, 1999.
The real property taxes and insurance are the responsibility of the Lessor.
LITIGATION
The Company is not a party to any litigation, and has no knowledge of
any threatened or pending litigation.
13. SUBSEQUENT EVENTS
On February 12, 1997 the Company held a Special Meeting of Shareholders
at the Company's offices in Raleigh. The purpose of the meeting was to vote on a
proposal to amend the Company's Articles of Incorporation that would increase
the authorized number of shares of capital stock of the Company by creating a
class of 5,000,000 shares of Preferred Stock with no par value. The proposal was
approved by unanimous vote.
Due to the current financial condition of the Company it was necessary
for management to approach its vendors to avoid serious cash flow constraints in
the second quarter of 1997. In March 1997, the Company executed notes with
various suppliers to defer payment of existing trade payable obligations. These
notes vary in term and provide for interest at rates no higher than 10.25%.
28
<PAGE>
PART III
THE INFORMATION REQUESTED BY PART III OF FORM 10-KSB IS CONTAINED IN AND
INCORPORATED BY REFERENCE TO THE ISSURER'S DEFINITIVE PROXY STATEMENT TO BE
FILED PURSUANT TO REGULATION 14A FOR THE REGISTRANT'S ANNUAL MEETING OF
SHAREHOLDERS.
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
Information with respect to this section is included in the Proxy Statement and
is herein incorporated by reference.
ITEM 10. EXECUTIVE COMPENSATION.
Information with respect to this section is included in the Proxy Statement and
is herein incorporated by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information with respect to this section is included in the Proxy Statement and
is herein incorporated by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information with respect to this section is included in the Proxy Statement and
is herein incorporated by reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The Exhibits filed herewith are listed on accompanying
Index to Exhibits
(b) Reports on Form 8-K
The registrant did not file any reports on Form 8-K during
1996.
29
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
American Consolidated Laboratories, Inc.
Date : ___________________ By : ______________________________
Joseph A. Arena
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
Signature Title
/s/ Thomas P. Dickerson Chairman of the Board
Thomas P. Dickerson
/s/ Timothy M. Buono Director
Timothy M. Buono
/s/ Joan P. Neuscheler Director
Joan P. Neuscheler
/s/ James L. L. Tullis Director
James L. L. Tullis
/s/ Joseph A. Arena Chief Executive Officer and Director
Joseph A. Arena
/s/ Kenneth C. Kirkham Chief Financial Officer
Kenneth C. Kirkham
30
<PAGE>
ITEM 13 (a) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Incorporated by reference
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
4.1 Term Note between Registrant Exhibit 10.2 to quarterly Report on Form 10-Q for
and TDCFLP, September 16, quarter ended September 30, 1991
1991
4.2 Secured Convertible Term Exhibit 6 to Current Report on Form 8-K, dated
Promissory Note between December 29, 1994
Registrant and TDCFLP December
15, 1994; and Stock Purchase
and Term Loan Agreement
between Registrant and TDCFLP,
dated August 15, 1994
4.3 Secured Convertible Term Exhibit to Form 10-KSB for the year ended
Promissory Note dated as of December 31, 1995
December 14, 1994, (as
amended and restated as of
June 15, 1995) between
the Company and TDCFLP
and amendment of
Promissory Note dated February
15, 1996
4.4 Amended and Restated Exhibit to Form 10-KSB for the year ended
Convertible Promissory December 31, 1995
Note dated February 15,
1996 from the Company to
TDCFLP and related
Warrants
4.5 Loan and Security agreement
between Carolina Contact Lens,
Inc. and Fidelity Funding of
California, dated as of June 25,
1996
4.6 Loan and Security agreement
between Salvatori Ophthalmic
Manufacturing Corporation and
Fidelity Funding of California,
Inc. dated as of June 25,
1996
4.7 Warrant for Purchase of
securities of American
Consolidated Laboratories,
Inc. issued to Fidelity Funding
of California, Inc. in conjunction
with the Loan in Exhibits 10.9
and 10.10 for 150,000 shares
4.8 Warrant for Purchase of
securities of American
Consolidated Laboratories,
Inc. issued to TDCFLP
in conjunction with Loan
advances in 1996 for
550,000 shares
31
<PAGE>
10.1 Employment Contract between Exhibit 10(a) to Form 10-QSB for the quarter ended
Joseph A. Arena and the September 31, 1996
Company dated April 11, 1996
10.2 Employment Contract between Exhibit 10(a) to Form 10-QSB for the quarter ended
Kenneth C. Kirkham and the September 31, 1996
Company dated April 11, 1996
10.3 Financing Agreement between Exhibit 10.1 to Quarterly Report on Form 10-Q for the
the Company, S-O Nebraska, quarter ended September 30, 1991
Inc. and TDCFLP, dated Sep-
tember 13, 1991
10.4 1994 Incentive and Non- Exhibit 4.1 to Form 10-KSB for the Fiscal year ended
Statutory Stock Option Plan December 31, 1994
21 Listing of Subsidiaries
27 Financial Data Schedule
</TABLE>
32
. LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement"), dated as of June 25,
1996, is entered into by and between Carolina Contact Lens, Inc., a North
Carolina corporation (the "Company"), and Fidelity Funding of California, Inc.,
a California corporation ("Fidelity"). In consideration of the mutual covenants
and agreements contained herein, the Company and Fidelity hereby agree as
follows:
Section 1. Definitions and Construction.
1.1 When used herein, the following terms shall have the following
meanings:
"Account" means the right of the Company to payment for goods sold or
leased or for services rendered which is not evidenced by an instrument or
chattel paper, whether or not earned by performance.
"Account Debtor" means the Person obligated to make payment on an Account.
"Advance" has the meaning given to it in Section 2.1.
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls, or is controlled by or under common control
with, such Person.
"Affiliate Advance" means any "Advance" made to the other Affiliate Company
pursuant to Section 2.1 of the other Affiliate Agreement.
"Affiliate Agreements" means this Agreement and the Loan and Security
Agreement dated of even date herewith between Salvatori Opthalmic Manufacturing
Corporation and Fidelity.
"Affiliated Account" means an "Account" as defined in the other Affiliate
Agreement.
"Affiliated Companies" means the Company and Salvatori Opthalmic
Manufacturing Corporation.
"Borrowing Base" means an amount determined by Fidelity from time to time
in its sole discretion, equal to 65% of the face amount of Eligible Accounts.
"Borrowing Base Certificate" means a certificate in the form attached
hereto as Exhibit A, duly executed by an authorized officer of the Company.
"Cash Collateral" has the meaning given to it in Section 7.
"Commitment" means $2,000,000.
"Concentration Limit" means, as of any date, an amount equal to 20% of the
face amount of Accounts and Affiliated Accounts outstanding on such date.
"Contract Rate" means a rate of interest equal to the lesser of (a) the
Prime Rate in effect from time to time plus 1.50% per annum and (b) the maximum
rate permitted by applicable law. The Contract Rate shall be automatically
increased or decreased, as the case may be, without notice to the Company from
time to time as of the effective date of each change in the Prime Rate.
"Current Assets" means, as of any date, only those assets of the Company
that may, in the ordinary course of business, be converted into cash within a
period of one year from such date, but excluding (a) amounts due from employees,
officers, shareholders or directors of the Company, (b) prepaid expenses for
services or for supplies that are not purchased for resale, and (c) amounts due
from Affiliates of the Company.
"Current Liabilities" means, as of any date, all obligations of the Company
that are due within one year from such date.
"Debt" means, with respect to any Person, all indebtedness, obligations and
liabilities of such Person, including without limitation: (a) all liabilities
which would be reflected on a balance sheet of such Person prepared in
accordance with GAAP, (b) all obligations of such Person in respect of any
guaranty of any Debt of another Person, or (c) all obligations, indebtedness and
liabilities secured by any lien on or security interest in any property or
assets of such Person.
"Eligible Accounts" means, at the time of determination thereof, all
Accounts other than (i) any Account which is payable more than 30 days from
invoice date (unless the Account Debtor is America's Best Contacts, in which
case, any such Account which is payable more than 60 days from invoice date),
(ii) any Account which has been outstanding for more than 90 days from invoice
date, (iii) any Account as to which Fidelity does not have a valid and
perfected, first priority security interest, (iv) to the extent that the
outstanding Accounts owed by any single Account Debtor exceeds the
Concentration Limit, any Account owed by such Account Debtor, (v) any Account
that is owed by an Account Debtor that is an Affiliate of the Company or an
officer or employee of the Company, (vi) any Account that arises out of a sale
made or services performed outside of the United States or that is owed by an
Account Debtor located outside the United States, (vii) any Account that is owed
by a creditor or supplier of the Company or with respect to which any defense,
counterclaim or right of set off has been asserted, (viii) any Account owed by
an Account Debtor if more than 25% (in dollar amount) of such Account Debtor's
Accounts are 90 or more days past due, (ix) any Account that is owed by the
United States or any department, agency or instrumentality thereof, unless the
right to payment under such Account is assigned to Fidelity as Collateral in
full compliance with the Assignment of Claims Act of 1940, as amended (31 U.S.C.
3727), and (x) any Account that has not been approved by Fidelity, in its sole
and absolute discretion, for inclusion in the Borrowing Base.
<PAGE>
"Environmental Laws" means any and all federal, state and local and foreign
statutes, laws, regulations, rules, orders, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants or industrial, toxic or hazardous
substances into the environment, or otherwise relating to the manufacture,
processing, treatment, transport or handling of pollutants or industrial, toxic
or hazardous substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA Plan" means any pension benefit plan subject to Title IV of
ERISA maintained by the Company or any Affiliate thereof with respect to which
the Company has a fixed or contingent liability.
"Event of Default" has the meaning given it in Section 9.
"GAAP" means generally accepted accounting principles and practices as
promulgated by the American Institute of Certified Public Accountants, applied
on basis consistent with past practices.
"Indemnified Claims" means any and all claims, demands, actions, causes of
action, judgments, liabilities, damages and consequential damages, penalties,
fines, costs, fees, expenses and disbursements (including, without limitation,
fees and expenses of attorneys and other professional consultants and experts in
connection with any investigation or defense) of every kind, known or unknown,
existing or hereafter arising, foreseeable or unforeseeable, which may be
imposed upon, threatened or asserted against or incurred or paid by any
Indemnified Person at any time and from time to time, because of, resulting
from, in connection with or arising out of any transaction, act, omission, event
or circumstance in any way connected with the Collateral or the Transaction
Documents (including but not limited to enforcement of Fidelity's rights
thereunder or the defense of Fidelity's actions thereunder), excluding with
respect to any Indemnified Persons, any of the foregoing resulting from such
Indemnified Person's gross negligence or willful misconduct.
"Indemnified Persons" means Fidelity and its officers, directors,
shareholders, employees, attorneys, representatives and Affiliates.
"Intangible Assets" means such of the Company's assets as are treated as
intangible pursuant to GAAP, including without limitation: (a)obligations owing
by officers, directors, shareholders, employees, subsidiaries, Affiliates, or
any Person in which any officer, director, shareholder, employee, subsidiary, or
Affiliate owns any interest and (b) any asset which is intangible or lacks
intrinsic or marketable value or collectibility, including but not limited to,
goodwill, noncompetition agreements, patents, copyrights, trademarks,
franchises, organization or research and development costs.
"Inventory" means all goods, now owned or hereafter acquired by the
Company, wherever located, that are held for sale or lease or are to be
furnished under any contract of service (including, but not limited to raw
materials, work in process, finished goods and materials used or consumed in the
manufacture or production therof, goods in which the Company has an interest in
mass or a joint or other interest or rights of any kind, and goods which have
been returned to or repossessed or stopped in transit by the Company).
"Late Payment Rate" means a per annum rate of interest equal to the lesser
of (a) the Contract Rate plus four percent and (b) the maximum rate permitted by
applicable law.
"Obligations" means all indebtedness, obligations and liabilities of the
Company to Fidelity arising under the Transaction Documents, all other
indebtedness, obligations and liabilities of the Company to Fidelity, whether
presently existing or hereafter arising, direct or indirect, primary or
secondary, joint or several, fixed or contingent, and whether originally payable
to Fidelity or to a third party and subsequently acquired by Fidelity, and all
indebtedness and obligations of American Consolidated Laboratories, Inc. to
Fidelity under the Warrant, dated as of the date hereof, issued by American
Consolidated Laboratories, Inc. to Fidelity for the purchase of 150,000 shares
of the Common Stock of American Consolidated Laboratories, Inc.
"Person" means any individual, corporation, joint venture, partnership,
trust, unincorporated organization or governmental entity or agency.
"Prime Rate" means the rate per annum published from time to time by THE
WALL STREET JOURNAL as the base rate for corporate loans at large commercial
banks (or, if more than one such rate is published, the higher or highest of the
rates so published). If such rate is no longer published by THE WALL STREET
JOURNAL, then Fidelity shall, in its sole discretion substitute the base or
prime rate for corporate loans at a large commercial bank for the base rate
published in THE WALL STREET JOURNAL. Such rate may not necessarily be the
lowest or best rate actually charged to any customer of such commercial bank.
"Remittance Address" means such address as Fidelity shall direct the
Company from time to time in writing in accordance with the terms hereof.
"Shareholders Equity" means, as of any date, the shareholders' equity of
the Company as of such date determined in accordance with GAAP.
"Tangible Net Worth" means, as of any date, the amount obtained by
subtracting the Company's Intangible Assets as of such date from the Company's
Shareholders' Equity as of such date.
"Term" has the meaning given to it in Section 11.4.
"Termination Event" means (a) the occurrence with respect to any ERISA Plan
of (i) a reportable event described in Sections 4043(b)(5) of ERISA or (ii) any
other reportable event described in Section 4043(b) of ERISA other than a
reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA or (b) the withdrawal of the Company or any Affiliate
of the Company from any ERISA Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) any
event or condition which might constitute
2
<PAGE>
grounds under Section 4042 of ERISA for termination of, or the appointment of
a trustee to administer, any ERISA Plan.
"Transaction Documents" means this Agreement and all other documents and
instruments executed and delivered in connection therewith.
"UCC" means the Uniform Commercial Code as in effect in the applicable
jurisdiction.
"Working Capital" means, as of any date, the excess of Current Assets over
Current Liabilities as of such date.
1.2 Terms defined in the UCC and used but not defined herein shall have the
meanings ascribed to them in the UCC.
1.3 References herein to a particular agreement, instrument or document
also shall be deemed to refer to and include all renewals, extensions and
modifications of such agreement, instrument or document. All addenda, exhibits
and schedules attached to this Agreement are a part hereof for all purposes.
Words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.
1.4 All interest accruing hereunder shall be calculated on the basis of
actual days elapsed (including the first but excluding the last day) plus five
business days and a year of 360 days. Unless otherwise expressly provided herein
or unless Fidelity otherwise consents, all financial statements and reports
furnished to Fidelity hereunder shall be prepared, and all financial
computations and determinations pursuant hereto shall be made, in accordance
with GAAP. All payments received by Fidelity after its internally established
time for closing business on any business day shall be applied as of the next
succeeding business day. Any payment which is due on a day which is not a
business day shall instead be deemed to be due on the next succeeding business
day, and interest thereon shall accrue and be payable at the then applicable
rate during the time of such extension. Fidelity's records in respect of loans
advanced, accrued interest, payments received and applied and other matters in
respect of calculation of the amount of the Obligations shall be deemed
conclusive absent demonstration of error. All statements of account rendered by
Fidelity to the Company relating to principal, accrued interest or costs owing
by the Company under this Agreement shall be presumed to be correct and accurate
unless, within 30 days after receipt thereof, the Company shall notify Fidelity
in writing of any claimed error therein.
Section 2. Advances.
2.1 Subject to the terms of this Agreement, including, without limitation,
Section 3, Fidelity shall make advances to the Company (each an "Advance and
collectively the "Advances") from time to time during the Term; provided,
however, that the aggregate principal amount of Advances outstanding at any time
shall not exceed the lesser of the (i) Borrowing Base determined by Fidelity
from time to time and (ii) the difference obtained by subtracting the aggregate
principal balance of all Affiliate Advances then outstanding from the
Commitment. Each Advance must be greater than or equal to $5,000 or must equal
the unadvanced portion of the Borrowing Base. The Company hereby agrees to repay
to Fidelity all Advances made to the Company hereunder, together with interest
thereon, in the manner provided herein. The principal owing hereunder in respect
of the Advances at any given time shall equal the aggregate amount of Advances
made hereunder minus all principal payments thereon received by Fidelity
hereunder. Subject to the terms and conditions hereof, the Company may borrow,
repay and reborrow under this Agreement.
2.2 Each request by the Company to Fidelity for an Advance hereunder must
be in writing or promptly confirmed in writing. Each such written request or
confirmation shall be accompanied by a "Borrowing Base Certificate" in the form
attached hereto as Exhibit "A," together with the sales journal for each Account
included in such Borrowing Base Certificate and such other information with
respect thereto as Fidelity shall request in its sole and absolute discretion.
2.3 Promptly after receiving each Borrowing Base Certificate, Fidelity
shall, based upon such Borrowing Base Certificate and such other information
available to Fidelity, redetermine the Borrowing Base, which redetermination
shall take effect immediately and remain in effect until the next such
redetermination. If all conditions precedent to any Advance requested have been
met, Fidelity will on the date requested make such Advance available to the
Company by wire transfer to the account designated in writing by the Company. In
the event Fidelity does not receive an appropriately completed Borrowing Base
Certificate, Fidelity shall have no obligation to redetermine the Borrowing Base
or make any additional Advances hereunder.
2.4 If the aggregate unpaid principal balance of the Advances exceeds the
Borrowing Base at any time, the Company shall, upon receipt of notice thereof
from Fidelity, immediately repay the principal of the Advances in an amount at
least equal to such excess. Any principal repaid pursuant to this Section 2.4
shall be in addition to, and not in lieu of, all payments otherwise required to
be paid under the Transaction Documents.
2.5 The aggregate unpaid principal balance of the Advances plus all accrued
but unpaid interest thereon shall be payable by the Company to Fidelity on
demand, or if no demand is made, on the last day of the Term.
2.6 The aggregate unpaid principal balance of all Advances shall bear
interest at the Contract Rate in effect from time to time. Except as provided in
Section 2.5, all accrued but unpaid interest thereon shall be due and payable by
the Company to Fidelity on the last day of each calendar month.
2.7 The Affiliated Companies shall, pursuant to this Agreement and the
other Affiliate Agreement, pay to Fidelity an aggregate initial commitment fee
in the amount of 1.5% of the Commitment, payable on each anniversary of the date
hereof during the Term. The Company hereby authorizes Fidelity, at its sole
discretion, to deduct the commitment fee from any Advance hereunder.
2.8 As consideration for Fidelity's commitment to make Advances hereunder
and Affiliate Advances under the other Affiliate Agreement, the Affiliated
Companies shall, pursuant to this Agreement and the other Affiliate Agreement,
pay to Fidelity an aggregate minimum usage fee (in this section called the
"Minimum Usage
3
<PAGE>
Fee") of not less than $8,400 for each calendar month (or fraction thereof,
on a prorated basis) during the Term for interest and fees payable pursuant
to Sections 2.6 and 2.9 hereof and Sections 2.6 and 2.9 of the other Affiliate
Agreement. In the event that the income earned by Fidelity during any calendar
month (or fraction thereof on a prorated basis) pursuant to Sections 2.6 and
2.9 hereof and Sections 2.6 and 2.9 of the other Affiliate Agreement is less
than the Minimum Usage Fee, the Affiliated Companies shall, pursuant to this
Agreement and the other Affiliate Agreement, pay to Fidelity the difference
between the amount so earned by Fidelity and the Minimum Usage Fee, regardless
of Fidelity's prior compensation. The Minimum Usage Fee for each calendar
month shall be due and payable on the first day of the next calendar month.
2.9 The Affiliated Companies shall, pursuant to this Agreement and the
other Affiliate Agreement, pay to Fidelity an aggregate collateral monitoring
fee in the amount of $3,500 for each calendar month. The collateral monitoring
fee for each calendar month shall be due and payable on the first day of the
next calendar month.
2.10 In addition to, and not in lieu of, any termination fee required by
Section 11.4, the Affiliated Companies shall pay to Fidelity a liquidation fee
(in this section called the "Liquidation Fee") in the amount of five percent of
the face amount of each Eligible Account included in the Borrowing Base that is
outstanding at any time during the Liquidation Period (as defined below). The
Liquidation Fee shall be payable on the earlier to occur of (i) the date on
which Fidelity collects the applicable Eligible Account and (ii) the ninetieth
day after the invoice date of the applicable Eligible Account. For purposes of
this section, the term "Liquidation Period" means a period beginning on the
earliest of (i) the date of commencement against or by any of the Affiliated
Companies of any voluntary or involuntary case under the federal Bankruptcy
Code, (ii) the date of any general assignment by any of the Affiliated Companies
for the benefit of its creditors; (iii) the date of any appointment or taking
possession by a receiver, liquidator, assignee, custodian or similar official of
all or a substantial part of any of the Affiliated Companies' assets, or (iv)
the date of the cessation of business of any of the Affiliated Companies, and
ending on the date on which Fidelity has actually received all fees, costs,
expenses and other amounts owing to it hereunder.
2.11 Contemporaneously with the execution and delivery hereof, the
Affiliated Companies shall, pursuant to this Agreement and the other Affiliate
Agreement, pay to Fidelity an aggregate fee of $7,500 to cover the costs of the
negotiation, preparation, execution and delivery of the Transaction Documents,
including the fees, if any, of outside legal counsel. In addition, the
Affiliated Companies shall pay or reimburse Fidelity upon demand for all other
costs and expenses incurred by Fidelity in connection with its due diligence
review of the Affiliated Companies and the closing of the transaction
contemplated hereby, all documentary stamp taxes and intangible Documents and
all reasonable attorney's fees, court costs and other expenses incurred by
Fidelity (whether or not litigation is commenced or judgment issued, and if
litigation is commenced whether at trial or any appellate level) in connection
with the enforcement by Fidelity of this Agreement or any other Transaction
Document, the protection or enforcement of Fidelity's interest in the
Collateral, the collection by Fidelity of the Collateral, or the representation
of Fidelity in connection with any bankruptcy case or insolvency proceeding
involving the Company, the Collateral, any Affiliated Company or any Account
Debtor, including, without limitation, any representation involving relief from
a stay motion, a cash collateral dispute, an assumption or rejection motion or a
dispute concerning any proposed disclosure statement and plan proposed in any
such proceeding.
2.12 Fidelity shall be entitled to collect upon demand its normal and
customary charges for the following routine services provided or obtained in the
course of performing its functions with respect to the Collateral: appraisals,
lock box charges, long-distance telephone charges, postage, credit reports, wire
transfers, check copying charges, overnight mail delivery, UCC, judgment,
litigation and tax lien searches and filings.
2.13 All interest, fees and other amounts due to Fidelity pursuant to this
Section 2 shall be payable on demand, and may, in Fidelity's sole discretion, be
deducted from Advances or paid from the Cash Collateral. All past due amounts
owed hereunder, including but not limited to, past due interest, fees and other
amounts, that are not paid when due shall bear interest from the date due until
paid at the Late Payment Rate.
2.14 Should any interest or other charges paid hereunder result in the
computation or earning of interest in excess of the maximum rate or amount of
interest permitted by applicable law, such excess interest and charges shall be
and hereby are waived by Fidelity, and the amount of such excess interest and
charges shall be automatically credited against, and be deemed to have been
payments in reduction of, the principal then due hereunder, and any portion of
such excess which exceeds the principal then due hereunder shall be paid by
Fidelity to the Company.
SECTION 3. CONDITIONS PRECEDENT TO ADVANCES.
3.1 Fidelity shall not be obligated to make any Advance hereunder
(including the first) until it shall have received the following documents, duly
executed in form and substance satisfactory to Fidelity and its counsel:
(a) continuing unconditional and absolute guarantees by American
Consolidated Laboratories, Inc., Salvatori Opthalmic Manufacturing
Corporation, S-O Nebraska, Inc. and Wolcon Laboratories, Inc. of all
Obligations, and a security agreement (the "Security Agreement")
executed by S-O Nebraska, Inc. pursuant to which S-O Nebraska, Inc.
pledges substantially all of its assets to Fidelity to secure the
payment of the Obligations;
(b) a certificate executed by the President and the Secretary of the
Company certifying (i) the names and signatures of the officers of the
Company authorized to execute Transaction Documents, (ii) the
resolutions duly adopted by the Board of Directors of the Company
authorizing the execution of this Agreement and the other Transaction
Documents, and (iii) correctness and completeness of the copy of the
bylaws of the Company attached thereto;
(c) a certificate executed by the President and the Chief Financial Officer
of the Company certifying the satisfaction of the conditions set forth
in Section 3.2:
4
<PAGE>
(d) certificates regarding the due formation, valid existence and good
standing of the Company in the state of its organization issued by the
appropriate governmental authorities in such jurisdiction;
(e) releases executed by Bausch & Lomb and Polymer Technology releasing all
liens and security interests of Bausch & Lomb and Polymer Technology in
the Collateral;
(f) landlord's lien waivers subordinating the security interest of Jimmy
Gray O'Neal and 1996 Pavilion Associates, L.P. in the Collateral to the
security interest therein of Fideltiy granted herein;
(g) an intercreditor agreement with Tullis-Dickerson Capital Focus L.P.
pursuant to which Tullis-Dickerson Capital Focus L.P. subordinates its
right to receive payment of the Debt owed by American Consolidated
Laboratories, Inc. to it to the payment and performance by American
Consolidated Laboratories, Inc. of its obligations to Fidelity under
the general continuing guaranty referred to in Section 3.1(a) (the
"Guaranty"), and an intercreditor agreement with Tullis-Dickerson
Capital Focus L.P., pursuant to which Tullis-Dickerson Capital Focus
L.P. subordinates its right to receive payment of the Debt owed by the
Company to it to the payment and performance by the Company of the
Obligations;
(h) an intercreditor agreement with American Consolidated Laboratories,
Inc., pursuant to which American Consolidated Laboratories, Inc.
subordinates its right to receive payment of the Debt owed by the
Company to it to the payment of the Obligations;
(i) a favorable opinion of Schifino Fleischer, counsel for the Company,
covering such matters as Fidelity may request in its sole discretion;
(j) endorsements naming Fidelity as an additional insured or loss payee, as
appropriate, on all liability insurance and all property insurance
policies of the Company;
(k) a warrant (the "Warrant") executed by American Consolidated
Laboratories, Inc. initially for the purchase of 150,000 shares of the
common stock of American Consolidated Laboratories, Inc.; and
(l) an assignment executed by American Consolidated Laboratories assigning
and conveying to the Company all Accounts of American Consolidated
Laboratories, Inc.
3.2 Furthermore, Fidelity shall not be obligated to make any Advance
hereunder (including the first), unless: (i) all representations and warranties
made by the Company in the Transaction Documents are true on and as of the date
of such Advance as if such representations and warranties had been made as of
the date of such Advance, (ii) the Company has performed and complied with all
agreements and conditions required in the Transaction Documents to be performed
or complied with by it on or prior to the date of such Advance, (iii) no Event
of Default or any event or circumstance that, with the passage of time, the
giving of notice or both, would become an Event of Default shall have occurred,
(iv) such Advance shall not be prohibited by any law or any regulation or any
order of any court or governmental agency or authority, (v) the Company shall
have not repudiated or made any anticipatory breach of any of its obligations
under any Transaction Document, and (vi) Fidelity shall have approved such
Advance in its sole discretion.
SECTION 4. THE COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company
represents and warrants to Fidelity on the date hereof, and shall be deemed to
represent and warrant to Fidelity on each date on which an Advance is made to
the Company hereunder; that:
4.1 The Company is a corporation duly organized, validly existing and in
good standing under the laws of the state of its incorporation, with all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is a party
and to conduct its business as presently conducted. The Company is duly
qualified and authorized to do business as a foreign corporation and is in good
standing in all states in which such qualification and good standing are
necessary or desirable for the conduct by the Company of its business or the
performance by the Company of its obligations hereunder. The execution, delivery
and performance by the Company of this Agreement and the other Transaction
Documents to which it is a party do not and will not constitute (a) a violation
of any applicable law or the Company's articles or certificate of incorporation
or bylaws or (b) a material breach of any other document, agreement or
instrument to which the Company is a party or by which the Company is bound.
This Agreement and the other Transaction Documents to which the Company is a
party have been duly authorized, executed and delivered by the Company, and are
legal, valid and binding obligations of the Company enforceable against the
Company in accordance with their terms. No consent of, approval by, registration
or filing with or authorization from any governmental authority or agency is
required in connection with the execution, delivery or performance by the
Company of this Agreement or the other Transaction Documents to which it is a
party.
4.2 None of the Eligible Accounts or any other Collateral is subject to any
lien, encumbrance, security interest or other claim of any kind or nature. The
Company has not transferred, sold, pledged or given a security interest in any
of its Accounts, Inventory, machinery or equipment to anyone other than
Fidelity. There are no financing statements on file in any public office
governing any property of the Company of any kind, real or personal, in which
the Company is named in or has signed as the debtor, except the financing
statement or statements filed or to be filed in respect of this Agreement or
those statements on file that were disclosed in writing by the Company to
Fidelity prior to the execution and delivery of this Agreement.
4.3 The Company is the sole owner and holder of, and has good and
marketable title to, all Collateral.
4.4 The amount of each Eligible Account is due and owing to the Company and
represents an accurate statement of a bona fide sale, delivery and acceptance of
Inventory or performance of service by the Company to or for an Account Debtor.
The terms for payment of the Eligible Accounts are 30 days from date of invoice
and the payment of the Eligible Accounts is not contingent upon the fulfillment
by the Company of any
5
<PAGE>
further performance of any nature whatsoever. Except for set-offs,
allowances, dicounts, deductions and counterclaims arising in the ordinary
course of business that are accurately reflected in all Borrowing Base
Certificates delivered after they arise, there are no set-offs, allowances,
discounts, deductions, counterclaims against the Eligible Accounts or any claims
by Account Debtors, of any kind whatsoever, valid or invalid, that have been or
may be asserted as a basis for refusing to pay an Eligible Account, in whole or
in part, either at the time it is accepted by Fidelity for inclusion in the
Borrowing Base or prior to the date it is to be paid. To the best of the
Company's knowledge, each Account Debtor's business is solvent. The Company has
served or caused to be served any and all preliminary notices required by law to
perfect or enforce any mechanic's lien or stop notice or bonded stop notice for
the Eligible Accounts and the information contained in those notices is true and
correct to the best of the Company's knowledge.
4.5 The address set forth below the Company's signature hereon is, and for
at least the last six months has been, the Company's mailing address, its chief
executive office, its principal place of business, the office where all of the
books and records concerning the Eligible Accounts are maintained and the
location of all Collateral. The Company does not transact business, and has not
transacted business during the past five years, under any trade, fictitious or
assumed name other than those set forth under the Company's signature hereon.
During the past five years, the Company has not been a party to a merger or
consolidation and has not acquired all or substantially all of the assets of any
Person other than the acquisition of substantially all of the assets of Philcon
Laboratories, Inc. in May of 1995.
4.6 The Company has filed all tax reports and returns required to be filed
by it and has paid all federal, state and local taxes and governmental charges
imposed upon the Company, other than taxes which are not yet due and payable,
and other than those contested in good faith and for which adequate reserves
have been established in accordance with GAAP.
4.7 The Company is in compliance with ERISA, and is not required to
contribute to any "multiemployer plan" as defined in Section 4001 of ERISA. The
Company has conducted its business in material compliance with all applicable
laws, including but not limited to, applicable Environmental Laws, and maintains
and is in compliance with all licenses and permits required under any such laws
to conduct its business and perform its obligations hereunder. The Company does
not have any known material contingent liability under any Environmental Law.
4.8 The application made by the Company to Fidelity in connection with this
Agreement and the statements made therein and in any materials furnished in
connection therewith are true and correct as of the date hereof. All financial
statements furnished by the Company to Fidelity in connection with such
application were prepared in accordance with GAAP, except to the extent provided
in the notes to such financial statements, and fairly present the financial
condition and results of operations of the Company as of the dates and for the
periods indicated therein.
4.9 There is no fact which the Company has not disclosed to Fidelity in
writing which could materially adversely affect the properties, business or
financial condition of the Company, or any of the Collateral, or which it is
necessary to disclose in order to keep the foregoing representations and
warranties from being misleading.
SECTION 5. COVENANTS OF THE COMPANY. From the date hereof and until the
payment and performance is full of all of the Obligations, the Company covenants
with Fidelity that:
5.1 The Company shall preserve and maintain its corporate existence, good
standing and authority to transact business in all jurisdiction where necessary
for the proper conduct of its business, and shall maintain all of its
properties, rights, privileges and franchises necessary or desirable in the
normal conduct of its business.
5.2 The Company shall permit Fidelity and its representatives, including
any appraisers, auditors and accountants selected by Fidelity, to inspect any of
the Collateral at any time during normal business hours. In addition, Fidelity
shall have the right, from time to time, to audit the Company's books and
records upon reasonable notice to the Company. The Company shall pay all costs
associated with any such audits at the rate of $700 per day per auditor plus
reasonable out-of-pocket expenses.
5.3 The Company shall maintain its books and records in accordance with
GAAP. The Company shall furnish Fidelity, upon request, such information and
statements as Fidelity shall request from time to time regarding the Company's
business affairs, financial condition and results of its operations. Without
limiting the generality of the foregoing, the Company shall provide Fidelity, on
or prior to the last day of each month, unaudited consolidated and consolidating
financial statements with respect to the prior month and, within 90 days after
the end of each of the Company's fiscal years, audited annual consolidated and
consolidating financial statements and such certificates relating to the
foregoing as Fidelity may request including, without limitation, a monthly
certificate from the president and chief financial officer of the Company
stating whether any Events of Default have occurred and stating in detail the
nature thereof. The Company shall provide Fidelity a Borrowing Base Certificate,
appropriately completed and with all attachments, at any time that Fidelity
shall request and on or before the last day of any calendar week in which the
Company does not request an Advance. In addition, the Company shall furnish to
Fidelity upon request a current listing of all open and unpaid accounts payable
and accounts receivable, names, addresses and contact persons for Account
Debtors, and such other items of information that Fidelity may deem necessary or
appropriate from time to time. The Company immediately shall notify Fidelity in
writing upon becoming aware of the existence of any condition or circumstance
that constitutes an Event of Default or that would, with the giving of notice,
the passage of time or both, constitute an Event of Default. Any such written
notice shall specify the nature of such condition or circumstance, the period of
the existence thereof and the action that the Company proposes to take with
respect thereto.
5.4 The Company promptly shall notify Fidelity of any attachment or any
other legal process levied against the Company and any action, suit, proceeding
or other similar claim initiated against the Company.
5.5 The Company shall keep and maintain adequate insurance by insurers
acceptable to Fidelity with respect to its business and all Collateral. Such
insurance shall cover loss, damages and liability of amounts not less than
reasonably requested by Fidelity and shall include, at a minimum, insurance for
workers compensation, general liability, fire, casualty, theft and all risk. The
Company shall cause Fidelity to be an additional insured and
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loss payee under all policies of insurance covering any of the Collateral, to
the extent of Fidelity's interest. The Company shall deliver copies of each
insurance policy to Fidelity upon request.
5.6 The Company shall file all tax reports and returns required to be filed
by it in the manner and at the times required by applicable law, and shall pay
all federal, state and local taxes and charges imposed upon the Company when
due; provided, that the Company will not be required to pay any such tax or
charge which is being contested in good faith and by proper proceedings if it
has maintained adequate reserves with respect thereto in accordance with GAAP.
5.7 The Company shall comply with ERISA and shall not become required to
contribute to any "multiemployee plan" as defined in Section 4001 of ERISA. The
Company shall conduct its business in material compliance with all applicable
laws, and shall maintain and comply with all licenses and permits required under
any such laws to conduct its business and perform its obligations hereunder.
Without limiting the generality of the foregoing, the Company shall comply in
all material respects with all Environmental Laws now or hereafter applicable to
the Company and shall obtain, at or prior to the time required by applicable
Environmental Laws, all environmental, health and safety permits, licenses and
other authorizations necessary for its operations. The Company promptly shall
furnish to Fidelity all written notices of violation, complaints, penalty
assessments, suits or other proceedings received by the Company with respect to
any alleged violation of or non-compliance with any Environmental Laws.
5.8 The Affiliated Companies shall together at all times maintain finished
goods Inventory on hand having a value of at least $700,000 until August 31,
1996 and at least $750,000 after August 31, 1996, in either case, valued at the
lower of cost or market.
5.9 The Company shall not grant, create or allow to exist any security
interest, lien or other encumbrance on any of the Collateral other (a) than the
lien and security interest granted to Fidelity herein; (b) inchoate liens for
taxes, assessments or governmental charges or levies not yet due or liens for
taxes, assessments or governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves have been
established in accordance with GAAP; (c) liens arising from precautionary UCC
financing statements filed regarding operating leases; (d) liens arising from
judgments, decrees or attachments in circumstances not constituting an Event of
Default under Section 9(f) or (j); and (e) liens (whether arising from UCC
financing statements, security agreements, mortgages, etc.) in existence on the
date hereof granted to Tullis-Dickerson Capital Focus, L.P.,
("Tullis-Dickerson"), which liens have been subordinated to the liens granted to
Fidelity herein pursuant to the Subordination Agreement, dated as of the date
hereof, among Tullis-Dickerson, Fidelity and the Company, and the Company shall
not execute any financing statement (other than as provided herein) in favor of
any Person other than Fidelity. The Company shall not change its mailing
address, chief executive office, principal place of business or place where such
records are maintained, open any new place of business, close any existing place
of business or change the location of any of the Collateral or transact business
under any trade, fictitious or assumed name other than those set forth under the
Company's signature hereon without providing at least 30 days' prior written
notice thereof to Fidelity.
5.10 The Company shall not accept any returns or grant any allowance or
credit (other than those returns, allowances and credits accepted or granted in
the ordinary course of the Company's business) to any Account Debtor without
notice to and the prior written approval of Fidelity. The Company shall provide
to Fidelity for each Account Debtor on Eligible Accounts a weekly report, in
form and substance satisfactory to Fidelity, itemizing all such returns and
allowances made during the previous week with respect to such Eligible Accounts.
5.11 The Company shall not incur, directly or indirectly, any Debt for
money borrowed, other than in favor of Fidelity or in the normal and ordinary
course of the Company's business.
5.12 The Company shall not use any of the funds paid to the Company
hereunder directly or indirectly for personal, family, household or agricultural
purposes.
5.13 The Company shall not directly or indirectly become liable in
connection with the Debt of any Person, whether by guarantee, surety,
endorsement (other than endorsement of negotiable instruments for collection in
the ordinary course of business), agreement to purchase or repurchase, agreement
to make investments, agreement to provide funds or maintain working capital, or
any agreement to assure a creditor against loss, other than in favor of
Fidelity.
5.14 Without the prior written consent of Fidelity (which consent shall not
be unreasonably withheld), the Company shall not discontinue, or make any
material change in, its business as currently established, or enter any new or
different line of business not directly related to the Company's existing line
of business.
5.15 The Company shall not declare, pay or issue any dividends or other
distributions in respect of its capital stock or distribute, reserve, secure, or
otherwise make or commit distributions on account of its capital stock, or make
any payment on account of the purchase, redemption or other acquisition or
retirement of any shares of its capital stock.
5.16 The Company shall not make any loans or advances to or for the benefit
of any officer, director or shareholder of the Company except advances for
routine expense allowances in the ordinary course of business. The Company shall
not make any loans or advances to or for the benefit of any Affiliate of the
Company. The Company shall not make any payment on any obligation owing to any
officer, director, shareholder or Affiliate of the Company.
5.17 Without the prior written consent of Fidelity (which consent shall not
be unreasonably withheld), the Company shall not purchase or otherwise acquire
assets from any Person outside the ordinary course of business of the Company.
5.18 The Company shall not invest in or otherwise purchase or acquire the
securities of any Person.
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5.19 The Company shall not sell or dispose of any of its assets other than
the sale of Inventory in the ordinary course of business, and the Company shall
not dissolve or liquidate or become a party to any merger or consolidation with
any Person.
5.20 The Company immediately shall terminate its practice of billing
Account Debtors under the name "American Consolidated Laboratories, Inc." for
Inventory sold by the Company.
SECTION 6. COLLATERAL. In order to secure the payment of all Obligations
and all other indebtedness and obligations of the other Affiliated Company to
Fidelity, whether arising under the other Affiliate Agreement or otherwise, the
Company hereby grants to Fidelity a security interest in and lien upon all of
the Company's right, title and interest in and to (a) all Accounts, contract
rights and general intangibles, receivables and claims whether now or hereafter
arising, all guaranties and security therefor and all of the Company's right
title and interest in the goods purchased and represented thereby including all
of the Company's rights in and to returned goods and rights of stoppage in
transit, replevin and reclamation as unpaid vendor; (b) all Inventory and all
accessions thereto and products thereof and documents therefor; (c) all
equipment and machinery, wherever located and whether now or hereafter existing,
and all parts thereof, accessions thereto, and replacements therefor and all
documents and general intangibles covering or relating thereto; (d) all books
and records pertaining to the foregoing, including but not limited to computer
programs, data, certificates, records, circulation lists, subscriber lists,
advertiser lists, supplier lists, customer lists, customer and supplier
contracts, sales orders, and purchasing records; and (e) all proceeds of the
foregoing (collectively, the "Collateral"). The Company agrees to comply with
all appropriate laws in order and to take all actions necessary or desirable in
Fidelity's judgment to perfect Fidelity's security interest in and to the
Collateral, to execute any financing statement or additional documents as
Fidelity may request and to deliver to Fidelity a list of all locations of its
Inventory, equipment and machinery and landlord and or mortgagee lien waivers
with respect to each site where Inventory, equipment or machinery is located and
which is either leased by the Company or has been mortgaged by the Company, upon
request by Fidelity.
SECTION 7. COLLECTION. Each invoice representing an Account shall state on
its face that amounts payable thereunder are payable only at the Remittance
Address. Fidelity shall have the right at any time, either before or after the
occurrence of an Event of Default and without notice to the Company, to notify
any or all Account Debtors on the Collateral of the assignment of the Collateral
to Fidelity and to direct such Account Debtors to make payment of all amounts
due or to become due to the Company directly to Fidelity, and to the extent
permitted by law, to enforce collection of any Collateral and to adjust, settle
or compromise the amount or payment thereof. So long as no Event of Default or
event that, with the passage of time, the giving of notice or both, would become
an Event of Default has occurred and is continuing, all collections of
Collateral received by Fidelity shall be applied by Fidelity to the payment of
the Obligations of the Company to Fidelity whether or not then due and any
remaining funds shall be delivered to the Company. Upon the occurrence of an
Event of Default or an event that, with the passage of time, the giving of
notice or both, would become an Event of Default, any such remaining funds may
be held by Fidelity as cash collateral ("Cash Collateral") until all Obligations
have been paid in full and Fidelity has no further obligation to advance funds
to the Company. All amounts and proceeds (including instruments and writings)
received by the Company in respect of the Collateral shall be received in trust
for the benefit of Fidelity hereunder, shall be segregated from other funds of
the Company and shall be promptly paid over to Fidelity in the same form as
received (with any necessary endorsement) to be applied in the same manner as
payments received directly by Fidelity.
SECTION 8. POWER OF ATTORNEY. The Company grants to Fidelity an irrevocable
power of attorney coupled with an interest authorizing and permitting Fidelity,
at its option, with or without notice to the Company, to do any or all of the
following: (a) endorse the name of the Company on any checks or other evidences
of payment whatsoever that may come into the possession of Fidelity regarding
Collateral, including checks received by Fidelity pursuant to Section 7 hereof;
(b) receive, open and forward any mail addressed to the Company and put
Fidelity's address on any statements mailed to Account Debtors; (C) pay, settle,
compromise, prosecute or defend any action, claim, conditional waiver and
release, or proceeding relating to Collateral; (d) upon the occurrence of an
Event of Default, notify, in the name of the Company, the U.S. Post Office to
change the address for delivery of mail addressed to the Company to such address
as Fidelity may designate (provided that Fidelity shall turn over to the Company
all such mail not relating to Collateral); (e) verify, sign, acknowledge,
record, file for recording, serve as required by law, any claim of mechanic's
lien, stop notice or bonded stop notice in the sole and absolute discretion of
Fidelity relating to any Collateral; (f) insert all recording or service
information in any mechanic's lien or assignment of rights under stop
notice/bonded stop notice which the Company has signed in connection with this
Agreement, recorded or served to enforce payment of the Collateral; (g) execute
and file on behalf of the Company any financing statement, amendment thereto or
continuation thereof (i) deemed necessary or appropriate by Fidelity to protect
Fidelity's interest in and to the Collateral or (ii) required or permitted under
any provision of this Agreement; and (h) do all other things necessary and
proper in order to carry out this Agreement. The authority granted to Fidelity
herein is irrevocable until this Agreement is terminated and all amounts due to
Fidelity hereunder have been paid in full.
SECTION 9. DEFAULT. An event of default ("Event of Default") shall be
deemed to have occurred hereunder, Fidelity shall have no further obligation to
make any further Advances and may immediately exercise its rights and remedies
with respect to the Collateral under this Agreement, the Uniform Commercial Code
and applicable law, upon the happening of one or more of the following:
(a) The Company shall fail to pay on demand or otherwise as and when due
any amount owed by the Company to Fidelity, whether hereunder or otherwise.
(b) The Company shall breach any covenant or agreement made herein or in
any other Transaction Document and the same shall not be cured to Fidelity's
satisfaction within ten days after such covenant or agreement is breached.
(c) Any warranty or representation made herein or in any other Transaction
Document shall be untrue when made or any report, certificate, schedule,
financial statement, profit and loss statement or other statement furnished by
the Company, or by any other person on behalf of the Company, to Fidelity is not
true and correct when furnished.
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(d) There shall be commenced by or against the Company or any guarantor of
the Obligations any voluntary or involuntary case under the federal Bankruptcy
Code, or the Company or any guarantor of the Obligations shall make an
assignment for the benefit of its creditors, or of a receiver or custodian shall
be appointed for the Company or any guarantor of the Obligations for a
substantial portion of its assets.
(e) The Company shall become insolvent in that its debts are greater than
the fair value of its assets, or the Company is generally not paying its debts
as they become due.
(f) Any involuntary lien, garnishment, attachment or the like shall be
issued against or shall attach to the Collateral and the same is not released
within ten days.
(g) An event or circumstance shall have occurred which Fidelity believes
has or may result in a material adverse change in the Company's financial
condition, business or operations.
(h ) The Company shall have a federal or state tax lien filed against any
of its properties, or shall fail to pay any federal or state tax when due, or
shall fail to file any federal or state tax form or report within 30 days after
the date due.
(i) Either (i) any "accumulated funding deficiency" (as defined in Section
412(a) of the Internal Revenue Code of 1986, as amended) in excess of $25,000
exists with respect to any ERISA Plan, or (ii) any Termination Event occurs with
respect to any ERISA Plan and the then current value of such ERISA Plan's
benefit liabilities exceeds the then current value of such ERISA Plan's assets
available for the payment of such benefit liabilities by more than $25,000.
(j) The Company shall suffer the entry against it a final judgment for the
payment of money in excess of $25,000.
(k) Fidelity shall believe that the prospect for payment or performance of
the Obligations has become impaired.
(l) Any guarantor of the Obligations shall repudiate his, her or its
obligations in respect of such guaranty.
(m) American Consolidated Laboratories, Inc., shall cease to own at least
100% of the outstanding capital stock of the company.
(n) An Event of Default shall occur under the other Affiliate Agreement.
(o) American Consolidated Laboratories, Inc. shall breach any covenant or
agreement made in the Warrant or the Guaranty, and the same shall not be cured
to Fidelity's satisfaction within ten days after such covenant or agreement is
breached.
(p) An event of default shall have occurred under the Security Agreement.
Upon the occurrence of an Event of Default described in subsections (d) or (c)
of this section, all of the Obligations owing by the Company to Fidelity under
any of the Transaction Documents shall thereupon be immediately due and payable,
without demand, presentment, notice of demand or of dishonor and nonpayment, or
any other notice or declaration of any kind, all of which are hereby expressly
waived by the Company. During the continuation of any other Event of Default,
Fidelity, at any time and from time to time, may declare any or all of the
Obligations owing by the Company to Fidelity under any of the Transaction
Documents immediately due and payable, all without notice, demand, presentment,
notice of demand or of dishonor and nonpayment, or any notice or declaration of
any kind, all of which are hereby expressly waived by the Company. After any
such acceleration (whether automatic or due to declaration by Fidelity), any
obligation of Fidelity to make any further Advances or loans of any kind under
this Agreement or any other agreement with the Company shall terminate.
The enumeration of Events of Default shall not impair the nature of the
Obligations as demand obligations, at all times payable upon demand pursuant
hereto. All Advances hereunder are subject to approval by Fidelity in its sole
discretion, and may be declined in whole or in part, without prior notice to the
Company, whether or not an Event of Default may then be in existence.
SECTION 10. REMEDIES AND APPLICATION OF PROCEEDS.
10.1 In addition to, and without limitation of, the foregoing provisions of
this Agreement, if an Event of Default shall have occurred and be continuing,
Fidelity may from time to time in its discretion, without limitation and without
notice except as expressly herein; (a) exercise in respect of the Collateral, in
addition to other rights and remedies provided for herein, under the other
Transaction Documents or otherwise available to it, all the rights and remedies
of a secured party on default under the UCC (whether or not the UCC applies to
the affected Collateral); (b) require the Company to, and the Company hereby
agrees that it will at its expense, assemble all or part of the Collateral as
directed by Fidelity and make it available to Fidelity at a place to be
designated by Fidelity that is reasonably convenient to both parties; (c) reduce
its claim to judgment or foreclose or otherwise enforce, in whole or in part,
the security interest created hereby by any available judicial procedure; (d)
dispose of, at its office, on the premises or the Company or elsewhere, all or
any part of the Collateral, as a unit or in parcels, by public or private
proceedings; (e) buy the Collateral, or any part thereof, at any public sale, or
at any private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type that is the subject to widely distributed
standard price quotations; (f) apply by appropriate judicial proceedings for
appointment of a receiver for the Collateral, or any part thereof, and the
Company hereby consents to any such appointment; and (g) at its discretion,
retain the Collateral in satisfaction of the Obligations whenever the
circumstances are such that Fidelity is entitled to do so under the UCC or
otherwise. The Company agrees that, to the extent notice of sale shall be
required by law, at least five day's notice to the Company of the time and place
of any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Fidelity shall not be obligated to make any
sale of Collateral regardless of whether any notice of sale has been
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given. Fidelity may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
10.2 If any Event of Default shall have occurred and be continuing,
Fidelity may in its discretion apply any Cash Collateral, and any cash proceeds
received by Fidelity in respect of any sale of, collection from, or other
realization upon all or any part of the Collateral, to any or all of the
following in such order as Fidelity may elect: (a) the repayment of all or any
portion of the Obligations or any "Obligations" owed to Fidelity by the other
Affiliate Company under the other Affiliate Agreement; (b) the repayment of
reasonable costs and expenses, including reasonable attorneys' fees and legal
expenses, incurred by Fidelity (whether or not litigation has been commenced or
a judgment has been issued, and if litigation has been commenced, whether at
trial or any appellate level) in connection with (i) the administration of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from, or other realization upon, any Collateral, (iii) the exercise
or enforcement of any of the rights of Fidelity hereunder, or (iv) the failure
of the Company to perform or observe any of the provisions hereof, (c) the
payment or other satisfaction of any liens and other encumbrances upon any of
the Collateral; (d) the reimbursement of Fidelity for the amount of any
obligations of the Company paid or discharged by Fidelity, and of any expenses
of Fidelity payable by the Company hereunder or under the other Transaction
Documents, (e) by holding the same as Collateral; (f) the payment of any other
amounts required by applicable law (including, without limitation, Part 5 of
Article 9 of the UCC or any successor or similar applicable statutory
provision); and (g) by delivery to the Company or to whomsoever shall be
lawfully entitled to receive the same or as a court of competent jurisdiction
shall direct.
SECTION 11. MISCELLANEOUS.
11.1 In the event that the Company commits any act or omission that
prevents or unreasonably interferes with (a) Fidelity's exercise of the rights
and privileges arising under the power of attorney granted in Section 8 of this
Agreement or (b) Fidelity's perfection of or levy upon the security interest
granted in the Collateral, including any seizure of any Collateral, the Company
acknowledges that such conduct will cause immediate, severe, incalculable and
irreparable harm and injury, and agrees that such conduct shall constitute
sufficient grounds to entitle Fidelity to an injunction, writ of possession, or
other applicable relief in equity, and to make such application for such relief
in any court of competent jurisdiction, without any prior notice to the Company.
11.2 All rights, remedies and powers granted to Fidelity in this Agreement,
or in any other instrument or agreement given by the Company to Fidelity or
otherwise available to Fidelity in equity or at law, are cumulative and may be
exercised singularly or concurrently with such other rights as Fidelity may
have. These rights may be exercised from time to time as to all or any part of
the Collateral as Fidelity in its discretion may determine. In the event that
Fidelity elects to purchase the Eligible Accounts hereunder, such transaction
shall constitute a purchase of Accounts under the UCC, and the Company shall be
deemed to have sold, assigned, transferred, conveyed and delivered to Fidelity,
as absolute owner, all of the rights, title and interest of the Company in and
to all Eligible Accounts. No waiver by Fidelity of its rights and remedies shall
be effective unless the waiver is in writing and signed by Fidelity. A waiver by
Fidelity of a right or remedy under this Agreement or any other Transaction
Document on one occasion shall not be deemed to be a waiver of such right or
remedy on any subsequent occasion. An Advance by Fidelity during the
continuation of an Event of Default shall not obligate Fidelity to make any
further Advances during the continuation of such Event of Default.
11.3 Any notice or communication with respect to this Agreement or any
other Transaction Document shall be given in writing, sent by (i) personal
delivery, (ii) expedited delivery service with proof of delivery, (iii) United
States mail, postage prepaid, registered or certified mail, or (iv) prepaid
telegram, telex or telecopy, addressed to each party hereto at its address set
forth below its signature hereon or to such other address or to the attention of
such other Person as hereafter shall be designated in writing by the applicable
party sent in accordance herewith. Any such notice or communication shall be
deemed to have been given either at the time of personal delivery or, in the
case of delivery service or mail, as of the date of first attempted delivery at
the address and in the manner provided herein, or in the case of telegram, telex
or telecopy, upon receipt. The Company hereby agrees that Fidelity may publicize
the transaction contemplated by this Agreement in newspapers, trade and similar
publications including, without limitation, the publication of a "tombstone".
11.4 The term of this Agreement shall be for three years from the date
hereof (the "Term") (the original term and any extension thereof are herein
called the "Term") and from year to year thereafter unless either party hereto
gives notice to the other party hereto not more than 90 days or less than 60
days prior to the end of the Term; provided, however, that Fidelity may
terminate this Agreement at any time effective immediately upon the occurrence
of an Event of Default. The Affiliated Companies acknowledge that they shall
have no right to terminate this Agreement or the other Affiliate Agreement prior
to the end of the Term, that termination of the Agreement or the other Affiliate
Agreement at any time prior to the end of the Term would result in the loss by
Fidelity of benefits under this Agreement and the other Affiliate Agreement and
that the damages incurred by Fidelity as a result of such termination would be
difficult and impractical to ascertain. Therefore, in the event this Agreement
or the other Affiliate Agreement is terminated for any reason during the first
year of the Term, the Affiliated Companies shall, pursuant to this Agreement and
the other Affiliate Agreement, pay to Fidelity an early termination fee in the
aggregate amount of three percent of the Commitment; if this Agreement or the
other Affiliate Agreement is terminated for any reason during the second year of
the Term, the Affiliated Companies shall, pursuant to this Agreement and the
other Affiliate Agreement, pay to Fidelity an early termination fee in the
amount of two percent of the Commitment; and if this Agreement or the other
Affiliate Agreement is terminated for any reason thereafter during the Term, the
Affiliated Companies shall, pursuant to this Agreement and the other Affiliate
Agreement, pay to Fidelity an early termination fee in the amount of one percent
of the Commitment, in each case to the maximum extent permitted by applicable
law. Any termination of this Agreement shall not affect Fidelity's security
interest in the Collateral, and this Agreement shall continue to be effective,
until all transactions entered into and obligations incurred hereunder have been
completed and satisfied in full.
11.5 Each and every provision, condition, covenant and representation
contained in this Agreement is, and shall be construed, to be a separate and
independent covenant and agreement. If any term or provision of this Agreement
shall to any extent be invalid or unenforceable, the remainder of the Agreement
shall not be affected thereby.
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11.6 The Company hereby indemnifies and agrees to hold harmless and
defend all Indemnified Persons from and against any and all Indemnified Claims.
THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH INDEMNIFIED CLAIMS
ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN PART, UNDER ANY CLAIM OR
THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN WHOLE OR IN PART, BY ANY NEGLIGENT
ACT OR OMISSION OF ANY INDEMNIFIED PERSON. Upon notification and demand, the
Company agrees to provide defense of any Indemnified Claim and to pay all costs
and expenses of counsel selected by any Indemnified Person in respect thereof.
Any Indemnified Person against whom any Indemnified Claim may be asserted
reserves the right to settle or compromise any such Indemnified Claim as such
Indemnified Person may determine in its sole discretion, and the obligations of
such Indemnified Person, if any, pursuant to any such settlement or compromise
shall be deemed included within the Indemnified Claims. Except as specifically
provided in this section, the Company waives all notices from any Indemnified
Person. The provisions of this Section 11.6 shall survive the termination of
this Agreement.
11.7 All grants, covenants and agreements contained in this Agreement shall
bind and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Company may not delegate or
assign any of its duties or obligations under this Agreement without the prior
written consent of Fidelity. FIDELITY RESERVES THE RIGHT TO ASSIGN ITS RIGHTS
AND OBLIGATIONS UNDER THIS AGREEMENT IN WHOLE OR IN PART TO ANY PERSON OR
ENTITY; PROVIDED, HOWEVER, THAT SO LONG AS THE COMPANY IS NOT THE SUBJECT OF ANY
BANKRUPTCY OR INSOLVENCY PROCEEDING OR ANY RECEIVERSHIP, FIDELITY SHALL NOT
ASSIGN ITS RIGHTS OR OBLIGATIONS HEREUNDER TO ANY DIRECT COMPETITOR OF THE
COMPANY. Without limiting the generality of the foregoing, Fidelity may from
time to time grant participants in all or any part of the Obligations to any
Person on such terms and conditions as may be determined by Fidelity in its sole
and absolute discretion, provided that the grant of such participation shall not
relieve Fidelity of its obligations hereunder nor create any additional
obligation of the Company.
11.8 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REFERENCE TO THE
RULES THEREOF RELATING TO CONFLICTS OF LAW. THE COMPANY HEREBY IRREVOCABLY
SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE STATE AND FEDERAL COURTS
LOCATED IN NORTH CAROLINA, AND AGREES AND CONSENTS THAT SERVICE OF PROCESS MAY
BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO THIS AGREEMENT, ANY
BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN FIDELITY AND THE COMPANY
BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW. ANY LEGAL PROCEEDING ARISING
OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY
OTHER RELATIONSHIP BETWEEN FIDELITY AND THE COMPANY SHALL BE BROUGHT AND
LITIGATED EXCLUSIVELY IN ANY ONE OF THE STATE OR FEDERAL COURTS LOCATED IN THE
STATE OF NORTH CAROLINA HAVING JURSIDICTION. THE PARTIES HERETO HEREBY WAIVE AND
AGREE NOT TO ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF IS
IMPROPER.
11.9 EACH OF THE COMPANY AND FIDELITY HEREBY (A) IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY
JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME ARISING OUT
OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVES, TO THE MAXIMUM EXTENT NOT
PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR RECOVER IN ANY SUCH
LITIGATION ANY SPECIAL, EXEMPLARY, PUNITIVE OR CONSEQUENTIAL DAMAGES, OR DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES (C) CERTIFIES THAT NO PARTY HERETO
NOR ANY REPRESENTATIVE OR AGENT OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF
LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS CONTAINED IN
THIS PARAGRAPH.
11.10 THIS AGREEMENT, THE SECURITY DOCUMENTS DESCRIBED HEREIN AND THE
ACKNOWLEDGEMENT DELIVERED IN CONNECTION HEREWITH SET FORTH THE ENTIRE
UNDERSTANDING AND AGREEMENT OF THE PARTIES HERETO WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. NO
MODIFICATION OR AMENDMENT OF OR SUPPLEMENT TO THIS AGREEMENT OR TO SUCH
ACKNOWLEDGEMENT SHALL BE VALID OR EFFECTIVE UNLESS THE SAME IS IN WRITING AND
SIGNED BY THE PARTY AGAINST WHOM IS IT SOUGHT TO BE ENFORCED.
11
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The undersigned have entered into this Agreement as of the date first
written above.
FIDELITY FUNDING OF CALIFORNIA, INC., CAROLINA CONTACT LENS, INC.,
a California corporation a North Carolina corporation
By: Michael D. Haddad By: Joseph A. Arena
Name: Michael D. Haddad Name: Joseph A. Arena
Title: President Title: Chief Excecutive Officer
Mailing Address: 275 East Baker Street, Suite A 1640 North Market Drive
Costa Mesa, California 92626 Raleigh, North Carolina 27609
Street Address: 275 East Baker Street, Suite A 1640 North Market Drive
Costa Mesa, California 92626 Raleigh, North Carolina 27609
Other Business Addresses:
261 Old York Road
Jenkintown, Pennsylvania 19046
Trade, Fictitious and Assumed
Names used by the Company:
None
12
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EXHIBIT A
FORM OF BORROWING BASE CERTIFICATE
CAROLINA CONTACT LENS, INC.
REPORT NUMBER: DATE:
COLLATERAL ACCOUNTS RECEIVABLE
1. Gross Collateral as of last report #__________________
Dated: (line 6 from prior report)
2. ADD Sales Assignment per attached
3. ADD Debit Memos, Other Adj. Per attached
4. LESS Cash Collections (received by FFOC since prior report)
5. LESS Discounts, CMs, Other Adj. Per attached
6. GROSS COLLATERAL THIS REPORT
7. Ineligible A/R
i. Past Due (over 90 days after invoice date)
ii. Credit (over 30 days from invoice date)
iii. Cross Aging 25%
iv. COD Sales
v. Foreign
vi. Interco., Contra Accounts
vii. Unreconciled A/R Overage
viii. Other
8. TOTAL INELIGIBLE PER THIS REPORT (sum of 7i through viii)
9. NET ELIGIBLE COLLATERAL (line 6 minus 8)
10. Advance Rate 65%
11. Collateral Availability (line 9 times 10)
12. Aggregate Availability
Lesser of (i) Collateral Availability and (ii) Commitment
($2,000,000) less Affiliate Advances outstanding
13. LESS Special Reserve
14. NET AVAILABILITY BEFORE LOAN BALANCE (line 12 minus 13)
LOAN
15. Loan Balance per last report (line 21 from prior report)
16. LESS Payments from Collections (same as line 4)
17. BALANCE per FFOC Report prior to new activity
18. LESS Additional Payments (Other than Collections)
19. ADD Loan Adjustments: specify_____ (Interest, Fees, NSF, etc.)
20. ADD Advance Request per this report
21. NEW LOAN BALANCE (not to exceed line 14)
22. EXCESS AVAILABILITY (line 14 minus 21)
The undersigned hereby certifies to Fidelity Funding of California, Inc.
("Fidelity") that:
1. He is the duly elected, qualified and acting of Carolina Contact Lens, Inc.
(the "Company"), is familiar with the facts herein and is duly authorized to
certify such facts and make and deliver this Borrowing Base Certificate for
and on behalf of the Company pursuant to that certain Loan and Security
Agreement (as from time to time supplemented or amended, the "Agreement"),
dated as of June 25, 1996, between the Company and Fidelity.
2. All representations and warranties made by the Company in the Agreement or
any other instrument, document, certificate or other agreement executed in
connection therewith (collectively, the "Transaction Documents") delivered
on or before the date hereof are true on and as of the date hereof as if
such representations and warranties had been made as of the date hereof.
3. No Event of Default or any event that, with the giving of notice, the
passage of time or both, would constitute an Event of Default has occurred
and is existing.
4. The Company has performed and complied with all agreements and conditions
required in the Transaction Documents to be performed or complied with by it
on or prior to the funding of the Advance requested hereby.
5. After Fidelity makes the Advance requested hereby, the aggregate amount of
all outstanding Advances will not exceed the lesser of (i) the Commitment
and (ii) the Borrowing Base.
6. All information contained in this Borrowing Base Certificate is true,
correct and complete.
Capitalized terms used and not otherwise defined herein shall have the meanings
assigned to them in the Agreement.
IN WITNESS WHEREOF, this instrument is executed by the undersigned as
of , 199 .
Carolina Contact Lens, Inc.
By:
Name:
Title:
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement (this "Agreement"), dated as of June
25, 1996, is entered into by and between Salvatori Opthalmic Manufacturing
Corporation, a Florida corporation (the "Company"), and Fidelity Funding of
California, Inc., a California corporation ("Fidelity"). In consideration of the
mutual covenants and agreements contained herein, the Company and Fidelity
hereby agree as follows:
SECTION 1. DEFINITIONS AND CONSTRUCTION.
1.1 When used herein, the following terms shall have the following
meanings:
"ACCOUNT" means the right of the Company to payment for goods sold or
leased or for services rendered which is not evidenced by an instrument or
chattel paper, whether or not earned by performance.
"ACCOUNT DEBTOR" means the Person obligated to make payment on an
Account.
"ADVANCE" has the meaning given to it in Section 2.1.
"AFFILIATE" means, with respect to any Person, any other Person that
directly or indirectly controls, or is controlled by or under common control
with, such Person.
"AFFILIATE ADVANCE" means any "Advance" made to the other Affiliate
Company pursuant to Section 2.1 of the Affiliate Agreement.
"AFFILIATE AGREEMENTS" means this Agreement and the Loan and Security
Agreement dated of even date herewith between Carolina Contact Lens, Inc. and
Fidelity.
"AFFILIATED ACCOUNT" means an "Account" as defined in the other
Affiliate Agreement.
"AFFILIATED COMPANIES" means the Company and Carolina Contact Lens, Inc.
"BORROWING BASE" means an amount determined by Fidelity from time to
time in its sole discretion, equal to 65% of the face amount of Eligible
Accounts.
"BORROWING BASE CERTIFICATE" means a certificate in the form attached
hereto as Exhibit A, duly executed by an authorized officer of the Company.
"CASH COLLATERAL" has the meaning given to it in Section 7.
"COMMITMENT" means $2,000,000.
"CONCENTRATION LIMIT" means, as of any date, an amount equal to 20% of
the face amount of Accounts and Affiliated Accounts outstanding on such date.
"CONTRACT RATE" means a rate of interest equal to the lesser of (a) the
Prime Rate in effect from time to time plus 1.50% per annum and (b) the maximum
rate permitted by applicable law. The Contract Rate shall be automatically
increased or decreased, as the case may be, without notice to the Company from
time to time as of the effective date of each change in the Prime Rate.
"CURRENT ASSETS" means, as of any date, only those assets of the
Company that may, in the ordinary course of business, be converted into cash
within a period of one year from such date, but excluding (a) amounts due from
employees, officers, shareholders or directors of the Company, (b) prepaid
expenses for services or for supplies that are not purchased for resale, and (C)
amounts due from Affiliates of the Company.
"CURRENT LIABILITIES" means, as of any date, all obligations of the
Company that are due within one year from such date.
"DEBT" means, with respect to any Person, all indebtedness, obligations
and liabilities of such Person, including without limitation: (a) all
liabilities which would be reflected on a balance sheet of such Person prepared
in accordance with GAAP, (b) all obligations of such Person in respect of any
guaranty of any Debt of another person, or (c) all obligations, indebtedness and
liabilities secured by any lien on or security interest in any property or
assets of such Person.
"ELIGIBLE ACCOUNTS" means, at the time of determination thereof, all
Accounts other than (i) any Account which is payable more than 30 days from
invoice date (unless the Account Debtor is America's Best Contacts, in which
case, any such Account, which is payable more than 60 days from invoice date),
(ii) any Account which has been outstanding for more than 90 days from invoice
date, (iii) any Account as to which Fidelity does not have a valid and
perfected, first priority security interest, (iv) to the extent that the
aggregate outstanding Accounts owed by any single Account Debtor exceeds the
Concentration Limit, any Account owed by such Account Debtor, (v) any Account
that is owed by an Account Debtor that is an Affiliate of the Company or an
officer or employee of the Company, (vi) any Account that arises out of a sale
made or services performed outside of the United States or that
<PAGE>
is owed by an Account Debtor located outside the United States, (vii) any
Account that is owed by a creditor or supplier of the Company or with respect to
which any defense, counterclaim or right of set off has been asserted, (viii)
any Account owed by an Account Debtor if more than 25% (in dollar amount) of
such Account Debtor's Accounts are 90 or more days past due, (ix) any Account
that is owed by the United States or any department, agency or instrumentality
thereof, unless the right to payment under such Account is assigned to Fidelity
as Collateral in full compliance with the Assignment of Claims Act of 1940, as
amended (31 U.S.C. 3727), and (x) any Account that has not been approved by
Fidelity, in its sole and absolute discretion, for inclusion in the Borrowing
Base.
"ENVIRONMENTAL LAWS" means any and all federal, state, local and
foreign statutes, laws, regulations, rules, orders, licenses, agreements or
other governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants or industrial, toxic or hazardous
substances into the environment, or otherwise relating to the manufacture,
processing, treatment, transport or handling of pollutants or industrial, toxic
or hazardous substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, together with all rules and regulations promulgated
with respect thereto.
"ERISA PLAN" means any pension benefit plan subject to Title IV of
ERISA maintained by the Company or any Affiliate thereof with respect to which
the Company has a fixed or contingent liability.
"EVENT OF DEFAULT" has the meaning given it in Section 9.
"GAAP" means generally accepted accounting principles and practices as
promulgated by the American Institute of Certified Public Accountants, applied
on basis consistent with past practices.
"INDEMNIFIED CLAIMS" means any and all claims, demands, actions, causes
of action, judgments, liabilities, damages and consequential damages, penalties,
fines, costs, fees, expenses and disbursements (including, without limitation,
fees and expenses of attorneys and other professional consultants and experts in
connection with any investigation or defense) of every kind, known or unknown,
existing or hereafter arising, foreseeable or unforeseeable, which may be
imposed upon, threatened or asserted against or incurred or paid by any
Indemnified Person at any time and from time to time, because of, resulting
from, in connection with or arising out of any transaction, act, omission, event
or circumstance in any way connected with the Collateral or the Transaction
Documents (including but not limited to enforcement of Fidelity's rights
thereunder or the defense of Fidelity's actions thereunder), excluding with
respect to any Indemnified Persons, any of the foregoing resulting from such
Indemnified Person's gross negligence or willful misconduct.
"INDEMNIFIED PERSONS" means Fidelity and its officers, directors,
shareholders, employees, attorneys, representatives and Affiliates.
"INTANGIBLE ASSETS" means such of the Company's assets as are treated
as intangible pursuant to GAAP, including without limitation: (a) obligations
owing by officers, directors, shareholders, employees, subsidiaries, Affiliates
or any Person in which any such officer, director, shareholder, employee,
subsidiary, or Affiliate owns any interest and (b) any asset which is intangible
or lacks intrinsic or marketable value or collectibility, including but not
limited to, goodwill, noncompetition agreements, patents, copyrights,
trademarks, franchises, organization or research and development costs.
"INVENTORY" means all goods, now owned or hereafter acquired by the
Company, wherever located, that are held for sale or lease or are to be
furnished under any contract of service (including, but not limited to raw
materials, work in process, finished goods and materials used or consumed in the
manufacture or production thereof, goods in which the Company has an interest in
mass or a joint or other interest or rights of any kind, and goods which have
been returned to or repossessed or stopped in transit by the Company).
"LATE PAYMENT RATE" means a per annum rate of interest equal to the
lesser of (a) the Contract Rate plus four percent and (b) the maximum rate
permitted by applicable law.
"OBLIGATIONS" means all indebtedness, obligations and liabilities of
the Company to Fidelity arising under the Transaction Documents, all other
indebtedness, obligations and liabilities of the Company to Fidelity, whether
presently existing or hereafter arising, direct or indirect, primary or
secondary, joint or several, fixed or contingent, and whether originally payable
to Fidelity or to a third party and subsequently acquired by Fidelity, and all
indebtedness and obligations of American Consolidated Laboratories, Inc. to
Fidelity under the Warrant, dated as of the date hereof, issued by American
Consolidated Laboratories, Inc. to Fidelity for the purchase of 150,000 shares
of the Common Stock of American Consolidated Laboratories, Inc.
"PERSON" means any individual, corporation, joint venture, partnership,
trust, unincorporated organization or governmental entity or agency.
"PRIME RATE" means the rate per annum published from time to time by
THE WALL STREET JOURNAL as the base rate for corporate loans at large commercial
banks (or, if more than one such rate is published, the higher or highest of the
rates so published). If such rate is no longer published by THE WALL STREET
JOURNAL, then Fidelity shall, in its sole discretion substitute the base or
prime rate for corporate loans at a large commercial bank for the
2
<PAGE>
base rate published in THE WALL STREET JOURNAL. Such rate may not necessarily be
the lowest or best rate actually charged to any customer of such commercial
bank.
"REMITTANCE ADDRESS" means such address as Fidelity shall direct the
Company from time to time in writing in accordance with the terms hereof.
"SHAREHOLDERS EQUITY" means, as of any date, the shareholders' equity
of the Company as of such date determined in accordance with GAAP.
"TANGIBLE NET WORTH" means, as of any date, the amount obtained by
subtracting the Company's Intangible Assets as of such date from the Company's
Shareholders' Equity as of such date.
"TERM" has the meaning given to it in Section 11.4.
"TERMINATION EVENT" means (a) the occurrence with respect to any ERISA
Plan of (i) a reportable event described in Sections 4043(b)(5) of ERISA or (ii)
any other reportable event described in Section 4043(b) of ERISA other than a
reportable event not subject to the provision for 30-day notice to the Pension
Benefit Guaranty Corporation pursuant to a waiver by such corporation under
Section 4043(a) of ERISA or (b) the withdrawal of the Company or any Affiliate
of the Company from any ERISA Plan during a plan year in which it was a
"substantial employer" as defined in Section 4001(a)(2) of ERISA, or (c) any
event or condition which might constitute grounds under Section 4042 of ERISA
for the termination, or the appointment of a trustee to administer, any ERISA
plan.
"TRANSACTION DOCUMENTS" means this Agreement and all other documents
and instruments executed and delivered in connection therewith.
"UCC" means the Uniform Commercial Code as in effect in the applicable
jurisdiction.
"WORKING CAPITAL" means, as of any date, the excess of Current Assets
over Current Liabilities as of such date.
1.2 Terms defined in the UCC and used but not defined herein shall have
the meanings ascribed to them in the UCC.
1.3 References herein to a particular agreement, instrument or document
also shall be deemed to refer to and include all renewals, extensions and
modifications of such agreement, instrument or document. All addenda, exhibits
and schedules attached to this Agreement are a part hereof for all purposes.
Words in the singular form shall be construed to include the plural and vice
versa, unless the context otherwise requires.
1.4 All interest accruing hereunder shall be calculated on the basis of
actual days elapsed (including the first but excluding the last day) plus five
business days and a year of 360 days. Unless otherwise expressly provided herein
or unless Fidelity otherwise consents, all financial statements and reports
furnished to Fidelity hereunder shall be prepared, and all financial
computations and determinations pursuant hereto shall be made, in accordance
with GAAP. All payments received by Fidelity after its internally established
time for closing business on any business day shall be applied as of the next
succeeding business day. Any payment which is due on a day which is not a
business day shall instead be deemed to be due on the next succeeding business
day, and interest thereon shall accrue and be payable at the then applicable
rate during the time of such extension. Fidelity's records in respect of loans
advanced, accrued interest, payments received and applied and other matters in
respect of calculation of the amount of the Obligations shall be deemed
conclusive absent demonstration of error. All statements of account rendered by
Fidelity to the Company relating to principal, accrued interest or costs owing
by the Company under this Agreement shall be presumed to be correct and accurate
unless, within 30 days after receipt thereof, the Company shall notify Fidelity
in writing of any claimed error therein.
SECTION 2. ADVANCES.
2.1 Subject to the terms of this Agreement, including without
limitation, Section 3, Fidelity shall make advances to the Company (each an
"Advance and collectively the "Advances") from time to time during the Term;
provided, however, that the aggregate principal amount of Advances outstanding
at any time shall not exceed the lesser of the (i) Borrowing Base determined by
Fidelity from time to time and (ii) the difference obtained by subtracting the
aggregate principal balance of all Affiliate Advances then outstanding from the
Commitment. Each Advance must be greater than or equal to $5,000 or must equal
the unadvanced portion of the Borrowing Base. The Company hereby agrees to repay
to Fidelity all Advances made to the Company hereunder, together with interest
thereon, in the manner provided herein. The principal owing hereunder in respect
of the Advances at any given time shall equal the aggregate amount of Advances
made hereunder minus all principal payments thereon received by Fidelity
hereunder. Subject to the terms and conditions hereof, the Company may borrow,
repay and reborrow under this Agreement.
2.2 Each request by the Company to Fidelity for an Advance hereunder
must be in writing or promptly confirmed in writing. Each such written request
or confirmation shall be accompanied by a "Borrowing Base Certificate" in the
form attached hereto as Exhibit "A," together with the sales journal for each
Account included in such Borrowing Base Certificate and such other information
with respect thereto as Fidelity shall request in its sole and absolute
discretion.
3
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2.3 Promptly after receiving each Borrowing Base Certificate, Fidelity
shall, based upon such Borrowing Base Certificate and such other information
available to Fidelity, redetermine the Borrowing Base, which redetermination
shall take effect immediately and remain in effect until the next such
redetermination. If all conditions precedent to any Advance requested have been
met, Fidelity will on the date requested make such Advance available to the
Company by wire transfer to the account designated in writing by the Company. In
the event Fidelity does not receive an appropriately completed Borrowing Base
Certificate, Fidelity shall have no obligation to redetermine the Borrowing Base
or made any additional Advances hereunder.
2.4 If the aggregate unpaid principal balance of the Advances exceeds
the Borrowing Base at any time, the Company shall, upon receipt of notice
thereof from Fidelity, immediately repay the principal of the Advances in an
amount at least equal to such excess. Any principal repaid pursuant to this
Section 2.4 shall be in addition to, and not in lieu of, all payments otherwise
required to be paid under the Transaction Documents.
2.5 The aggregate unpaid principal balance of the Advances plus all
accrued but unpaid interest thereon shall be payable by the Company to Fidelity
on demand, or if no demand is made, on the last day of the Term.
2.6 The aggregate unpaid principal balance of all Advances shall bear
interest at the Contract Rate in effect from time to time. Except as provided in
Section 2.5, all accrued but unpaid interest thereon shall be due and payable by
the Company to Fidelity on the last day of each calendar month.
2.7 The Affiliated Companies shall, pursuant to this Agreement and the
other Affiliate Agreement, pay to Fidelity an aggregate initial commitment fee
in the amount of 1.5% of the Commitment, payable on the date hereof, and an
aggregate annual commitment fee in the amount of 1.0% of Commitment, payable on
each anniversary of the date hereof during the Term. The Company hereby
authorizes Fidelity, at its sole discretion, to deduct the commitment fee from
any Advance hereunder.
2.8 As consideration for Fidelity's commitment to make Advances
hereunder and Affiliate Advances under the other Affiliate Agreement, the
Affiliated Companies shall, pursuant to this Agreement and the other Affiliate
Agreement, pay to Fidelity an aggregate minimum usage fee (in this section
called the "Minimum Usage Fee" of not less than $8,400 for each calendar month
(or fraction thereof, on a prorated basis) during the Term for interest and fees
payable pursuant to Sections 2.6 and 2.9 hereof and Sections 2.6 and 2.9 of the
other Affiliate Agreement. In the event that the income earned by Fidelity
during any calendar month (or fraction thereof on a prorated basis) pursuant to
Sections 2.6 and 2.9 hereof and Sections 2.6 and 2.9 of the other Affiliate
Agreement is less than the Minimum Usage Fee, the Affiliated Companies shall,
pursuant to this Agreement and the other Affiliate Agreement, pay to Fidelity
the difference between the amount so earned by Fidelity and the Minimum Usage
Fee, regardless of Fidelity's prior compensation. The Minimum Usage Fee for each
calendar month shall be due and payable on the first day of the next calendar
month.
2.9 The Affiliated Companies shall, pursuant to this Agreement and the
other Affiliate Agreement, pay to Fidelity an aggregate collateral monitoring
fee in the amount of $3,500 for each calendar month. The collateral monitoring
fee for each calendar month shall be due and payable on the first day of the
next calendar month.
2.10 In addition to, and not in lieu of, any termination fee required
by Section 11.4, the Affiliated Companies shall pay to Fidelity a liquidation
fee (in this section called the "Liquidation Fee") in the amount of five percent
of the face amount of each Eligible Account included in the Borrowing Base that
is outstanding at any time during the Liquidation Period (as defined below). The
Liquidation Fee shall be payable on the earlier to occur of (I) the date on
which Fidelity collects the applicable Eligible Account and (ii) the ninetieth
day after the invoice date of the applicable Eligible Account. For purposes of
this section, the term "Liquidation Period" means a period beginning on the
earliest of (I) the date of commencement against or by any of the Affiliated
Companies of any voluntary or involuntary case under the federal Bankruptcy
Code, (ii) the date of any general assignment by any of the Affiliated Companies
for the benefit of its creditors; (iii) the date of any appointment or taking
possession by a receiver, liquidator, assignee, custodian or similar official of
all or a substantial part of any of the Affiliated Companies' assets, or (iv)
the date of the cessation s of business of any of the Affiliated Companies, and
ending on the date on which Fidelity as actually received all fees, costs,
expenses and other amounts owing to it hereunder.
2.11 Contemporaneously with the execution and delivery hereof, the
Affiliated Companies shall, pursuant to this Agreement and the other Affiliate
Agreement, pay to Fidelity an aggregate fee of $7,500 to cover the costs of the
negotiation, preparation, execution and delivery of the Transaction Documents,
including the fees, if any, of outside legal counsel. In addition, the
Affiliated Companies shall pay or reimburse Fidelity upon demand for all other
costs and expenses incurred by Fidelity in connection with its due diligence
review of the Affiliated Companies and the closing of the transactions
contemplated hereby, all documentary stamp taxes and intangible taxes, if any,
payable under Florida law in connection with the execution and delivery of the
Transaction Documents and all reasonable attorney's fees, court costs and other
expenses incurred by Fidelity (whether or not litigation is commenced or
judgment issued, and if litigation is commenced whether at trial or any
appellate level) in connection with the enforcement by Fidelity of this
Agreement or any other Transaction Document, the protection or enforcement of
Fidelity's interest in the Collateral, the collection by Fidelity of the
Collateral, or the representation of Fidelity in connection with any bankruptcy
case or insolvency proceeding involving the Company, the Collateral, any
Affiliated Company or any Account Debtor, including, without limitation, any
representation involving relief from a stay motion, a cash collateral dispute,
an assumption or rejection motion or a dispute concerning any proposed
disclosure statement and plan proposed in any such proceeding.
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2.12 Fidelity shall be entitled to collect upon demand its normal and
customary charges for the following routine services provided or obtained in the
course of performing its functions with respect to the Collateral: appraisals,
lock box charges, long-distance telephone charges, postage, credit reports, wire
transfers, check copying charges, overnight mail delivery, UCC, judgment,
litigation and tax lien searches and filings.
2.13 All interest fees and other amounts due to Fidelity pursuant to
this Section 2 shall be payable on demand, and may, in Fidelity's sole
discretion, be deducted from Advances paid from the Cash Collateral. All past
due amounts owed hereunder, including but not limited to, past due interest,
fees and other amounts, that are not paid when due shall bear interest from the
date due until paid at the Late Payment Rate.
2.14 Should any interest or other charges paid hereunder result in the
computation or earning of interest in excess of the maximum rate or amount of
interest permitted by applicable law, such excess interest and charges shall be
and hereby are waived by Fidelity, and the amount of such excess interest and
charges shall be automatically credited against, and be deemed to have been
payments in reduction of, the principal then due hereunder, and any portion of
such excess which exceeds the principal then due hereunder shall be paid by
Fidelity to the Company.
SECTION 3. CONDITIONS PRECEDENT TO ADVANCES.
SECTION 3. CONDITIONS PRECEDENT TO ADVANCES.
3.1 Fidelity shall not be obligated to make any Advance hereunder
(including the first) until it shall have received the following documents,
duly executed in form and substance satisfactory to Fidelity and its
counsel:
(a) continuing unconditional and absolute guarantees by American
Consolidated Laboratories, Inc., Carolina Contact Lens, Inc., S-O
Nebraska, Inc. and Wolcon Laboratories, Inc. of all Obligations,
and a security agreement (the "Security Agreement") executed by
S-O Nebraska, Inc. pursuant to which S-O Nebraska, Inc. pledges
substantially all of its assets to Fidelity to secure the payment
of the Obligations.
(b) a certificate executed by the President and the Secretary of the
Company certifying (i) the names and signatures of the officers of
the Company authorized to execute Transaction Documents, (ii) the
resolutions duly adopted by the Board of Directors of the Company
authorizing the execution of this Agreement and the other
Transaction Documents, and (iii) correctness and completeness of
the copy of the bylaws of the Company attached thereto;
(c) a certificate executed by the President and the Chief Financial
Officer of the Company certifying the satisfaction of the conditions
set forth in Section 3.2;
(d) certificates regarding the due formation, valid existence and
good standing of the Company in the state of its organization issued
by the appropriate governmental authorities in such jurisdiction;
(e) releases executed by Bausch & Lomb and Polymer Technology releasing
all liens and security interests of Bausch & Lomb and Polymer
Technology in the Collateral;
(f) a landlord's lien waiver subordinating the security interest of
High Associates, Ltd. in the Collateral to the security interest
therein of Fidelity granted herein;
(g) an intercreditor agreement with Tullis-Dickerson Capital Focus
L.P., pursuant to which Tullis-Dickerson Captial Focus L.P.
subordinates its right to receive payment of the Debt
owed by American Consolidated Laboratories, Inc. to it
to the payment and performance by American Consolidated
Laboratories, Inc. of its obligations to
Fidelity under the general continuing guaranty referred to in
Section 3.1(a) (the "Guaranty");
(h) an intercreditor agreement with American Consolidated Laboratories,
Inc. pursuant to which American Consolidated Laboratories,
Inc. subordinates its right to receive payment of the Debt
owed by the Company to it to the payment of the Obligations;
(i) a favorable opinion of Schifino Fleischer, counsel for the Company,
covering such matters as Fidelity may request in its sole discretion;
(j) endorsements naming Fidelity as an additional insured or loss
payee, as appropriate, on all liability insurance and all property
insurance policies of the Company; and
(k) a warrant (the "Warrant") executed by American Consolidated
Laboratories, Inc. initially for the purchase of 150,000 shares
of the common stock of American Consolidated Laboratories, Inc.
3.2 Furthermore, Fidelity shall not be obligated to make any Advance
hereunder (including the first), unless: (i) all representatives and
warranties made by the Company in the Transaction Documents are true on and
as of the date of such Advance as if such representations and warranties had
been made as of the date of such Advance, (ii) the Company has performed and
compiled with all agreements and conditions required in the Transaction
Documents to be performed or complied with by it on or prior to the date of
such Advance, (iii) no Event of Default or any event or circumstance that,
with the passage of time, the giving of notice or both, would
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become an Event of Default shall have occurred, (iv) such Advance
shall not be prohibited by any law or any regulation or any
order of any court or governmental agency or authority, (v) the
Company shall have not repudiated or made any anticipatory breach
of any of its obligations under any Transaction Document, and (vi)
Fidelity shall have approved such Advance in its sole discretion.
Section 4. The Company's Representations and Warranties. The
Company represents and warrants to Fidelity on the date hereof, and shall
be deemed to represent and warrant to Fidelity on each date on which an
Advance is made to the Company hereunder, that:
4.1 The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation, with all
requisite power and authority to execute, deliver and perform its obligations
under this Agreement and the other Transaction Documents to which it is a
party and to conduct its business as presently conducted. The Company is
duly qualified and authorized to do business as a foreign corporation and is
in good standing in all states in which such qualification and good standing
are necessary or desirable for the conduct by the Company of its business
or the performance by the Company of its obligations hereunder. The
execution, delivery and performance by the Company of this Agreement and the
other Transaction Documents to which it is a party do not and will not
constitute (a) a violation of any applicable law or the Company's
articles or certificate of incorporation or bylaws or (b) a
material breach of any other document, agreement or instrument to
which the Company is a party or by which the Company is bound. This
Agreement and the other Transaction Documents to which the Company is
a party have been duly authorized, executed and delivered by
the Company, and are legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their terms. No consent of,
approval by, registration or filing with or authorization from any governmental
authority or agency is required in connection with the execution, delivery or
performance by the Company of this Agreement or the other
Transaction Documents to which it is a party.
4.2 None of the Eligible Accounts or any other Collateral is subject to
any lien, encumbrance, security interest or other claim of any kind or nature.
The Company has not transferred, sold, pledged or given a security interest
in any of its Accounts, Inventory, machinery or equipment to anyone other than
Fidelity. There are no financing statements on file in any public office
governing any property of the Company of any kind, real or personal, in which
the Company is named in or has signed as the debtor, except the financing
statement or statements filed or to be filed in respect of this Agreement or
those statements on file that were disclosed in writing by the Company to
Fidelity prior to the execution and delivery of this Agreement.
4.3 The Company is the sole owner and holder of, and has good and
marketable title to, all Collateral.
4.4 The amount of each Eligible Account is due and owing to the Company
and represents an accurate statement of a bona fide sale, delivery and
acceptance of Inventory or performance of service by the Company to or for
an Account Debtor. The terms for payment of the Eligible Accounts are
30 days from date of invoice and the payment of the Eligible Accounts is
not contingent upon the fulfillment by the Company of any
further performance of any nature whatsoever.
Except for set-offs, allowances, discounts, deductions and counterclaims
arising in the ordinary course of business that are accurately reflected in all
Borrowing Base Certificates delivered after they arise, there are no set-offs,
allowances, discounts, deductions, counterclaims against the Eligible Accounts
or any claims by Account Debtors, of any kind whatsoever, valid or invalid,
that have been or may be asserted as a basis for refusing to pay an Eligible
Account, in whole or in part, either at the time it is accepted by Fidelity for
inclusion in the Borrowing Base or prior to the date it is to be paid. To
the best of the Company's knowledge, each Account Debtor's business is solvent.
The Company has served or caused to be served any and all preliminary notices
required by law to perfect or enforce any mechanic's lien or stop notice or
bonded stop notice for the Eligible Accounts and the information contained
in those notices is true and correct to be the best of the Company's knowledge.
4.5 The address set forth below the Company's signature hereon is, and for
at least the last six months has been, the Company's mailing address, its
chief executive office, its principal place of business, the office where all
of the books and records concerning the Eligible Accounts are maintained and
the location of all Collateral. The Company does not transact business, and has
not transacted business during the past five years, under any trade, fictitious
or assumed name other than those set forth under the Company's signature
hereon. During the past five years, the Company has not been a party to a
merger or consolidation and has not acquired all or substantially all of
the assets of any Person.
4.6 The Company has filed all tax reports and returns required to be
filed by it and has paid all federal, state and local taxes and governmental
charges imposed upon the Company, other than taxes which are not yet due
and payable, and other than those contested in good faith and for which
adequate reserves have been established in accordance with GAAP.
4.7 The Company is in compliance with ERISA, and is not required to
contribute to any "multiemployer plan" as defined in Section 4001 of ERISA.
The Company has conducted its business in material compliance with all
applicable laws, including but not limited to, applicable Environmental Laws,
and maintains and is in compliance with all licenses and permits required
under any such laws to conduct its business and perform its obligations
hereunder. The Company does not have any known material contingent liability
under any Environmental Law.
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4.8 The application made by the Company to Fidelity in connection with
this Agreement and the statements made therein and in any materials furnished
in connection therewith are true and correct as of the date hereof. All
financial statements furnished by the Company to Fidelity in connection with
such application were prepared in accordance with GAAP, except to the extent
provided in the notes to such financial statements, and fairly present the
financial condition and results of operations of the Company as of the dates
and for the periods indicated therein.
4.9 There is no fact which the Company has not disclosed to Fidelity in
writing which could materially adversely affect the properties, business or
financial condition of the Company, or any of the Collateral, or which it
is necessary to disclose in order to keep the foregoing representations and
warranties from being misleading.
Section 5. Covenants of the Company. From the date hereof and until the
payment and performance is full of all of the Obligations, the Company
covenants with Fidelity that:
5.1 The Company shall preserve and maintain its corporate existence,
good standing and authority to transact business in all jurisdiction where
necessary for the proper conduct of its business, and shall maintain all of
its properties, rights, privileges and franchises necessary or desirable in
the normal conduct of its business.
5.2 The Company shall permit Fidelity and its representatives, including
any appraisers, auditors and accountants selected by Fidelity, to inspect any
of the Collateral at any time during normal business hours. In addition,
Fidelity shall have the right, from time to time, to audit the Company's books
and records upon reasonable notice to the Company. The Company shall pay all
costs associated with any such audits at the rate of $700 per day per auditor
plus reasonable out-of-pocket expenses.
5.3 The Company shall maintain its books and records in accordance with
GAAP. The Company shall furnish Fidelity, upon request, such information and
statements as Fidelity shall request from time to time regarding the Company's
business affairs, financial condition and results of its operations. Without
limiting the generality of the foregoing, the Company shall provide Fidelity,
on or prior to the last day of each month, unaudited consolidated and
consolidating financial statements with respect to the prior month and, within
90 days after the end of each of the Company's fiscal years, audited annual
consolidated and consolidating financial statements and such certificates
relating to the foregoing as Fidelity may request including, without
limitation, a monthly certificate from the president and chief financial
officer of the Company stating whether any Events of Default have occurred
and stating in detail the nature thereof. The Company shall provide Fidelity
a Borrowing Base Certificate, appropriately completed and with all attach-
ments, at any time that Fidelity shall request and on or before the last day
of any calendar week in which the Company does not request an Advance. In
addition, the Company shall furnish to Fidelity upon request a current
listing of all open and unpaid accounts payable and accounts receivable,
names, addresses and contact persons for Account Debtors, and such other items
of information that Fidelity may deem necessary or appropriate from time to
time. The Company immediately shall notify Fidelity in writing upon becoming
aware of the existence of any condition or circumstance that constitutes
an Event of Default or that would, with the giving of notice, the passage of
time or both, constitute an Event of Default. Any such written notice shall
specify the nature of such condition or circumstance, the period of the
existence thereof and the action that the Company proposes to take with
respect thereto.
5.4 The Company promptly shall notify Fidelity of any attachment or any
other legal process levied against the Company and any action, suit,
proceeding or other similar claim initiated against the Company.
5.5 The Company shall keep and maintain adequate insurance by insurers
acceptable to Fidelity with respect to its business and all Collateral. Such
insurance shall cover loss, damages and liability of amounts not less than
reasonably requested by Fidelity and shall include, at a minimum, insurance
for workers compensation, general liability, fire, casualty, theft and all
risk. The Company shall cause Fidelity to be an additional insured and loss
payee under all policies of insurance covering any of the Collateral, to the
extent of Fidelity's interest. The Company shall deliver copies of each
insurance policy to Fidelity upon request.
5.6 The Company shall file all tax reports and returns required to be
filed by it in the manner and at the times required by applicable law, and
shall pay all federal, state and local taxes and charges imposed upon the
Company when due; provided, that the Company will not be required to pay any
such tax or charge which is being contested in good faith and by proper
proceedings if it has maintained adequate reserves with respect thereto in
accordance with GAAP.
5.7 The Company shall comply with ERISA and shall not become required
to contribute to any "multiemployee plan" as defined in Section 4001 of
ERISA. The Company shall conduct its business in material compliance with
all applicable laws, and shall maintain and comply with all licenses and
permits required under any such laws to conduct its business and perform
its obligations hereunder. Without limiting the generality of the foregoing,
the Company shall comply in all material respects with all Environmental Laws
now or hereafter applicable to the Company and shall obtain, at or prior to
the time required by applicable Environmental Laws, all environmental, health
and safety permits, licenses and other authorizations necessary for its
operations. The Company promptly shall furnish to Fidelity all written notices
of violation, complaints, penalty assessments, suits or other proceedings
received by the Company with respect to any alleged violation of or non-
compliance with any Environmental Laws.
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5.8 The Affiliated Companies shall together at all times maintain
finished goods Inventory on hand having a value of at least $700,000 until
August 31, 1996 and at least $750,000 after August 31, 1996, in either case,
valued at the lower of cost or market.
5.9 The Company shall not grant, create or allow to exist any security
interest, lien or other encumbrance on any of the Collateral other than (a) the
lien and security interest granted to Fidelity herein; (b) inchoate liens
for taxes, assessments or governmental charges or levies not yet due or liens
for taxes, assessments or governmental charges or levies being contested in
good faith and by appropriate proceedings for which adequate reserves have
been established in accordance with GAAP; (c) liens arising from precautionary
UCC financing statements filed regarding operating leases; and (d) liens
arising from judgments, decrees or attachments in circumstances not
constituting an Event of Default under Section 9(f) or (j), and the Company
shall not execute any financing statement (other than as provided herein) in
favor of any Person other than Fidelity. The Company shall not change its
mailing address, chief executive office, principal place of business or place
where such records are maintained, open any new place of business, close any
existing place of business or change the location of any of the Collateral or
transact business under any trade, fictitious or assumed name other than those
set forth under the Company's signature hereon without providing at least 30
days' prior written notice thereof to Fidelity.
5.10 The Company shall not accept any returns or grant any allowance or
credit (other than those returns, allowances and credits accepted or granted
in the ordinary course of the Company's business) to any Account Debtor
without notice to and the prior written approval of Fidelity. The Company shall
provide to Fidelity for each Account Debtor on Eligible Accounts a weekly
report, in form and substance satisfactory to Fidelity, itemizing all such
returns and allowances made during the previous week with respect to such
Eligible Accounts.
5.11 The Company shall not incur, directly, or indirectly, any Debt for
money borrowed, other than in favor of Fidelity or in the normal and ordinary
course of the Company's business.
5.12 The Company shall not use any of the funds paid to the Company
hereunder directly or indirectly for personal, family, household or
agricultural purposes.
5.13 The Company shall not directly or indirectly become liable in
connection with the Debt of any Person, whether by guarantee, surety,
endorsement (other than endorsement of negotiable instruments for
collection in the ordinary course of business), agreement to purchase
or repurchase, agreement to make investments, agreement to provide
funds or maintain working capital, or any agreement to assure a
creditor against loss, other than in favor of Fidelity.
5.14 Without the prior written consent of Fidelity (which consent shall
not be unreasonably withheld), the Company shall not discontinue, or make
any material change in, its business as currently established, or enter
any new or different line of business not directly related to the Company's
existing line of business.
5.15 The Company shall not declare, pay or issue any dividends or
other distributions in respect of its capital stock or distribute, reserve,
secure, or otherwise make or commit distributions on account of its
capital stock, or make any payment on account of the purchase, redemption
or other acquisition or retirement of any shares of its capital stock.
5.16 The Company shall not make any loans or advances to or for the
benefit of any officer, director or shareholder of the Company except advances
for routine expense allowances in the ordinary course of business. The
Company shall not make any loans or advances to or for the benefit of any
Affiliate of the Company. The Company shall not make any payment on any
obligation owing to any officer, director, shareholder or Affiliate of the
Company.
5.17 Without the prior written consent of Fidelity (which consent shall
not be unreasonably withheld), the Company shall not purchase or otherwise
acquire assets from any Person outside the ordinary course of business of
the Company.
5.18 The Company shall not invest in or otherwise purchase or acquire
the securities of any Person.
5.19 The Company shall not sell or dispose of any of its assets other
than the sale of Inventory in the ordinary course of business, and the Company
shall not dissolve or liquidate or become a party to any merger or consoli-
dation with any Person.
Section 6. Collateral. In order to secure the payment of all
Obligations and all other indebtedness and obligations of the other Affiliated
Company to Fidelity, whether arising under the other Affiliate Agreement or
otherwise, the Company hereby grants to Fidelity a security interest in and
lien upon all of the Company's right, title and interest in and to (a) all
Accounts, contract rights and general intangibles, receivables and claims
whether now or hereafter arising, all guaranties and security therefor and
all of the Company's right title and interest in the goods purchased and
represented thereby including all of the Company's rights in and to returned
goods and rights of stoppage in transit, replevin and reclamation as unpaid
vendor; (b) all Inventory and all accessions thereto and products thereof
and documents therefor; (c) all equipment and machinery, wherever located
and whether now or hereafter existing, and all parts thereof, accessions
thereto, and replacements therefor and all documents and general intangibles
covering or relating thereto; (d) all books and records pertaining to the
foregoing, including but not limited to computer programs, data, certificates,
records, circulation lists, subscriber lists, advertiser lists, supplier
lists, customer lists, customer and supplier contracts, sales orders, and
purchasing records; and (e) all
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proceeds of the foregoing (collectively,
the "Collateral"). The Company agrees to comply with all appropriate laws
in order and to take all actions necessary or desirable in Fidelity's
judgment to perfect Fidelity's security interest in and to the Collateral,
to execute any financing statement or additional documents as Fidelity may
request and to deliver to Fidelity a list of all locations of its Inventory,
equipment and machinery and landlord and or mortgagee lien waivers with
respect to each site where Inventory, equipment or machinery is located and
which is either leased by the Company or has been mortgaged by the Company,
upon request by Fidelity.
Section 7. Collection. Each invoice representing an Account shall
state on its face that amounts payable thereunder are payable only at the
Remittance Address. Fidelity shall have the right at any time, either before
or after the occurrence of an Event of Default and without notice to the
Company, to notify any or all Account Debtors on the Collateral of the
assignment of the Collateral to Fidelity and to direct such Account Debtors
to make payment of all amounts due or to become due to the Company directly
to Fidelity, and to the extent permitted by law, to enforce collection of
any Collateral and to adjust, settle or compromise the amount or payment
thereof. So long as no Event of Default or event that, with the passage of
time, the giving of notice or both, would become an Event of Default has
occurred and is continuing, all collections of Collateral received by
Fidelity shall be applied by Fidelity to the payment of the Obligations
of the Company to Fidelity whether or not then due and any remaining funds
shall be delivered to the Company. Upon the occurrence of an Event of
Default or an event that, with the passage of time, the giving of notice
or both, would become an Event of Default, any such remaining funds may
be held by Fidelity as cash collateral ("Cash Collateral") until all
Obligations have been paid in full and Fidelity has no further obligation
to advance funds to the Company. All amounts and proceeds (including
instruments and writings) received by the Company in respect of the
Collateral shall be received in trust for the benefit of Fidelity
hereunder, shall be segregated from other funds of the Company and shall
be promptly paid over to Fidelity in the same form as received (with any
necessary endorsement) to be applied in the same manner as payments
received directly by Fidelity.
Section 8. Power of Attorney. The Company grants to Fidelity an
irrevocable power of attorney coupled with an interest authorizing and
permitting Fidelity, at its option, with or without notice to the Company,
to do any or all of the following: (a) endorse the name of the Company on
any checks or other evidences of payment whatsoever that may come into the
possession of Fidelity regarding Collateral, including checks received
by Fidelity pursuant to Section 7 hereof; (b) receive, open and forward
any mail addressed to the Company and put Fidelity's address on any
statements mailed to Account Debtors; (c) pay, settle, compromise,
prosecute or defend any action, claim, conditional waiver and release,
or proceeding relating to Collateral; (d) upon the occurrence of an
Event of Default, notify, in the name of the Company, the U.S. Post Office
to change the address for delivery of mail addressed to the Company to
such address as Fidelity may designate (provided that Fidelity shall turn
over to the Company all such mail not relating to Collateral; (e) verify,
sign, acknowledge, record, file for recording, serve as required by law,
any claim of mechanic's lien, stop notice or bonded stop notice in the sole
and absolute discretion of Fidelity relating to any Collateral; (f) insert
all recording or service information in any mechanic's lien or assignment
of rights under stop notice/bonded stop notice which the Company has
signed in connection with this Agreement, recorded or served to enforce
payment of the Collateral; (g) execute and file on behalf of the Company
any financing statement, amendment thereto or continuation thereof (i)
deemed necessary or appropriate by Fidelity to protect Fidelity's interest
in and to the Collateral or (ii) required or permitted under any provision
of this Agreement; and (h) do all other things necessary and proper in order
to carry out this Agreement. The authority granted to Fidelity herein is
irrevocable until this Agreement is terminated and all amounts due to
Fidelity hereunder have been paid in full.
Section 9. Default. An event of default ("Event of Default") shall
be deemed to have occurred hereunder, Fidelity shall have no further
obligation to make any further Advances and may immediately
exercise its rights and remedies with respect to the Collateral under
this Agreement, the Uniform Commercial Code and applicable law,
upon the happening of one or more of the following:
(a) The Company shall fail to pay on demand or otherwise as and when
due any amount owed by the Company to Fidelity, whether hereunder or otherwise.
(b) The Company shall breach any covenant or agreement made herein or
in any other Transaction Document and the same shall not be cured to Fidelity's
satisfaction within ten days after such covenant or agreement is breached.
(c) Any warranty or representation made herein or in any other Transaction
Document shall be untrue when made or any report, certificate, schedule,
financial statement, profit and loss statement or other statement furnished
by the Company, or by any other person on behalf of the Company, to Fidelity
is not true and correct when furnished.
(d) There shall be commenced by or against the Company or any guarantor
of the Obligations any voluntary or involuntary case under the federal
Bankruptcy Code, or the Company or any guarantor of the Obligations shall
make an assignment for the benefit of its creditors, or of a receiver or
custodian shall be appointed for the Company or any guarantor of the
Obligations for a substantial portion of its assets.
(e) The Company shall become insolvent in that its debts are greater
than the fair value of its assets, or the Company is generally not paying
its debts as they become due.
(f) Any involuntary lien, garnishment, attachment or the like shall
be issued against or shall attach to the Collateral and the same is not
released within ten days.
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(g) An event or circumstance shall have occurred which Fidelity believes
has or may result in a material adverse change in the Company's financial
condition, business or operations.
(h) The Company shall have a federal or state tax lien filed against
any of its properties, or shall fail to pay any federal or state tax when
due, or shall fail to file any federal or state tax form or report within 30
days after the date due.
(i) Either (i) any "accumulated funding deficiency" (as defined in
Section 412(a) of the Internal Revenue Code of 1986, as amended) in excess
of $25,000 exists with respect to any ERISA Plan, or (ii) any Termination
Event occurs with respect to any ERISA Plan and the then current value of
such ERISA Plan's benefit liabilities exceeds the then current value of
such ERISA Plan's assets available for the payment of such benefit liabilities
by more than $25,000.
(j) The Company shall suffer the entry against it a final judgement for
the payment of money in excess of $25,000.
(k) Fidelity shall believe that the prospect for payment or performance
of the Obligations has become impaired.
(l) Any guarantor of the Obligations shall repudiate his, her or
its obligations in respect of such guaranty.
(m) American Consolidated Laboratories, Inc. shall cease to own at
least 100% of the outstanding capital stock of the Company.
(n) An Event of Default shall occur under the other Affiliate Agreement.
(o) American Consolidated Laboratories, Inc. shall breach any covenant
or agreement made in the Warrant or the Guaranty, and the same shall not be
cured to Fidelity's satisfaction within ten days after such covenant or
agreement is breached.
(p) An event of default shall have occurred under the Security Agreement.
Upon the occurrence of an Event of Default described in subsections (d) or
(c) of this section, all of the Obligations owing by the Company to Fidelity
under any of the Transaction Documents shall thereupon be immediately due
and payable, without demand, presentment, notice of demand or of dishonor
and nonpayment, or any other notice or declaration of any kind, all of which
are hereby expressly waived by the Company. During the continuation of any
other Event of Default, Fidelity, at any time and from time to time, may
declare any or all of the Obligations owing by the Company to Fidelity
under any of the Transaction Documents immediately due and payable, all
without notice, demand, presentment, notice of demand or of dishonor and
nonpayment, or any notice or declaration of any kind, all of which are
hereby expressly waived by the Company. After any such acceleration (whether
automatic or due to declaration by Fidelity), any obligation of Fidelity to
make any further Advances or loans of any kind under this Agreement or
any other agreement with the Company shall terminate.
The enumeration of Events of Default shall not impair the nature of the
Obligations as demand obligations, at all times payable upon demand pursuant
hereto. All Advances hereunder are subject to approval by Fidelity in its
sole discretion, and may be declined in whole or in part, without prior
notice to the Company, whether or not an Event of Default may then be in
existence.
Section 10. Remedies and Application of Proceeds.
10.1 In addition to, and without limitation of, the foregoing
provisions of this Agreement, if an Event of Default shall have occurred
and be continuing, Fidelity may from time to time in its discretion,
without limitation and without notice except as expressly herein: (a)
exercise in respect of the Collateral, in addition to other rights and
remedies of a secured party on default under the UCC (whether or not the
UCC applies to the affected Collateral); (b) require the Company to, and
the Company hereby agrees that it will at its expense, assemble all or
part of the Collateral as directed by Fidelity and make it available to
Fidelity at a place to be designated by Fidelity that is reasonably
convenient to both parties; (c) reduce its claim to judgment or foreclose
or otherwise enforce, in whole or in part, the security interest created
hereby by any available judicial procedure; (d) dispose of, at its office,
on the premises or the Company or elsewhere, all or any part of the
Collateral, as a unit or in parcels, by public or private proceedings; (e)
buy the Collateral, or any part thereof, at any public sale, or at
any private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type that is the subject to widely
distributed standard price quotations; (f) apply by appropriate judicial
proceedings for appointment of a receiver for the Collateral, or any part
thereof, and the Company hereby consents to any such appointment; and (g)
at its discretion, retain the Collateral in satisfaction of the Obligations
whenever the circumstances are such that Fidelity is entitled to do so
under the UCC or otherwise. The Company agrees that, to the extent notice
of sale shall be required by law, at least five days' notice to the
Company of the time and place of any public sale or the time after which
any private sale is to be made shall constitute reasonable notification.
Fidelity shall not be obligated to make any sale of Collateral regardless
of whether any notice of sale has been given. Fidelity may adjourn any
public or private sale from time to time by announcement at the time and
place fixed therefor, and such sale may, without further notice, be made at
the time and place to which it was so adjourned.
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<PAGE>
10.2 If any Event of Default shall have occurred and be continuing,
Fidelity may in its discretion apply any Cash Collateral, and any cash
proceeds received by Fidelity in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral, to any or all of
the following in such order as Fidelity may elect: (a) the repayment of
all or any portion of the Obligations or any "Obligations" owed to Fidelity
by the other Affiliate Company under the other Affiliate Agreement; (b) the
repayment of reasonable costs and expenses, including reasonable attorneys'
fees and legal expenses, incurred by Fidelity (whether or not litigation
has been commenced or a judgement has been issued, and if litigation has
been commenced, whether at trial or any appellate level) in connection with
(i) the administration of this Agreement, (ii) the custody, preservation,
use or operation of, or the sale of, collection from , or other realization
upon, any Collateral, (iii) the exercise or enforcement of any of the rights
of Fidelity hereunder, or (iv) the failure of the Company to perform or
observe any of the provisions hereof; (c) the payment or other satisfaction
of any liens and other encumbrances upon any of the Collateral; (d) the
reimbursement of Fidelity for the amount of any obligations of the Company
paid or discharged by Fidelity, and of any expenses of Fidelity payable by
the Company hereunder or under the other Transaction Documents; (e) by holding
the same as Collateral; (f) the payment of any other amounts required by
applicable law (including, without limitation, Part 5 of Article 9 of the
UCC or any successor or similar applicable statutory provision); and (g) by
delivery to the Company or to whomsoever shall be lawfully entitled to
receive the same or as a court of competent jurisdiction shall direct.
Section 11. Miscellaneous.
11.1 In the event that the Company commits any act or omission that
prevents or unreasonably interferes with (a) Fidelity's exercise of the
rights and privileges arising under the power of attorney granted in
Section 8 of this Agreement or (b) Fidelity's perfection of or levy upon the
security interest granted in the Collateral, including any seizure of any
Collateral, the Company acknowledges that such conduct will cause immediate,
severe, incalculable and irreparable harm and injury, and agrees that such
conduct shall constitute sufficient grounds to entitle Fidelity to an
injunction, writ of possession, or other applicable relief in equity, and
to make such application for such relief in any court of competent
jurisdiction, without any prior notice to the Company.
11.2 All rights, remedies and powers granted to Fidelity in this
Agreement, or in any other instrument or agreement given by the Company to
Fidelity or otherwise available to Fidelity in equity or at law, are
cumulative and may be exercised singularly or concurrently with such
other rights as Fidelity may have. These rights may be exercised from time
to time as to all or any part of the Collateral as Fidelity in its discretion
may determine. In the event that Fidelity elects to purchase the Eligible
Accounts hereunder, such transaction shall constitute a purchase of
Accounts under the UCC, and the Company shall be deemed to have sold,
assigned, transferred, conveyed and delivered to Fidelity, as absolute owner,
all of the rights, title and interest of the Company in and to all Eligible
Accounts. No waiver by Fidelity of its rights and remedies shall be
effective unless the waiver is in writing and signed by Fidelity.
A waiver by Fidelity of a right or remedy under this Agreement or any
other Transaction Document on one occasion shall not be deemed to be a
waiver of such right or remedy on any subsequent occasion. An Advance
by Fidelity during the continuation of an Event of Default shall not
obligate Fidelity to make any further Advances during the continuation
of such Event of Default.
11.3 Any notice or communication with respect to this Agreement or any
other Transaction Document shall be given in writing, sent by (i) personal
delivery, (ii) expedited delivery service with proof of delivery, (iii)
United States mail, postage prepaid, registered or certified mail, or (iv)
prepaid telegram, telex or telecopy, addressed to each party hereto at its
address set forth below its signature hereon or to such other address or to
the attention of such other Person as hereafter shall be designated in writing
by the applicable party sent in accordance herewith. Any such notice or
communication shall be deemed to have been given either at the time of
personal delivery or, in the case of delivery service or mail, as of the date
of first attempted delivery at the address and in the manner provided
herein, or in the case of telegram, telex or telecopy, upon receipt. The
Company hereby agrees that Fidelity may publicize the transaction contemplated
by this Agreement in newspapers, trade and similar publications including,
without limitation, the publication of a "tombstone".
11.4 The term of this Agreement shall be for three years from the date
hereof (the "Term") (the original term and any extension thereof are herein
called the "Term") and from year to year thereafter unless either party
hereto gives notice to the other party hereto not more than 90 days or less
than 60 days prior to the end of the Term; provided, however, that Fidelity
may terminate this Agreement at any time effective immediately upon the
occurrence of an Event of Default. The Affiliated Companies acknowledge that
they shall have no right to terminate this Agreement or the other Affiliate
Agreement prior to the end of the Term, that termination of this Agreement
or the other Affiliate Agreement at any time prior to the end of the Term
would result in the loss by Fidelity of benefits under this Agreement and
the other Affiliate Agreement and that the damages incurred by Fidelity as
a result of such termination would be difficult and impractical to ascertain.
Therefore, in the event this Agreement or the other Affiliate Agreement is
terminated for any reason during the first year of the Term, the
Affiliated Companies shall, pursuant to this Agreement and the other
Affiliate Agreement, pay to Fidelity an early termination fee in the
aggregate amount of three percent of the Commitment; if this Agreement or
the other Affiliate Agreement is terminated for any reason during the
second year of the Term, the Affiliated Companies shall, pursuant to this
Agreement and the other Affiliate Agreement, pay to Fidelity an early
termination fee in the amount of two percent of the Commitment; and if
this Agreement or the other Affiliate Agreement is terminated for any
reason thereafter during the Term, the Affiliated Companies shall, pursuant
to this Agreement and the other Affiliate Agreement, pay to Fidelity an
early termination fee in the amount of one percent of the Commitment,
in each case to the maximum extent permitted by applicable law. Any
termination of this
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Agreement shall not affect Fidelity's security interest
in the Collateral, and this Agreement shall continue to be effective, until
all transactions entered into and obligations incurred hereunder have been
completed and satisfied in full.
11.5 Each and every provision, condition, covenant and representation
contained in this Agreement is, and shall be construed, to be a separate
and independent covenant and agreement. If any term or provision of this
Agreement shall to any extent be invalid or unenforceable, the remainder
of the Agreement shall not be affected thereby.
11.6 The Company hereby indemnifies and agrees to hold harmless and
defend all Indemnified Persons from and against any and all Indemnified
Claims. THE FOREGOING INDEMNIFICATION SHALL APPLY WHETHER OR NOT SUCH
INDEMNIFIED CLAIMS ARE IN ANY WAY OR TO ANY EXTENT OWED, IN WHOLE OR IN
PART, UNDER ANY CLAIM OR THEORY OF STRICT LIABILITY, OR ARE CAUSED, IN
WHOLE OR PART, BY ANY NEGLIGENT ACT OR OMISSION OF ANY INDEMNIFIED PERSON.
Upon notification and demand, the Company agrees to provide defense of any
Indemnified Claim and to pay all costs and expenses of counsel selected by
any Indemnified Person in respect thereof. Any Indemnified Person against
whom any Indemnified Claim may be asserted reserves the right to settle or
compromise any such Indemnified Claim as such Indemnified Person may
determine in its sole discretion, and the obligations of such Indemnified
person, if any, pursuant to any such settlement or compromise shall be
deemed included within the Indemnified Claims. Except as specifically
provided in this section, the Company waives all notices from any
Indemnified Person. The provisions of this Section 11.6 shall survive the
termination of this Agreement.
11.7 All grants, covenants and agreements contained in this Agreement
shall bind and inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that the Company may not
delegate or assign any of its duties or obligations under this Agreement
without the prior written consent of Fidelity. FIDELITY RESERVES THE
RIGHT TO ASSIGN ITS RIGHTS AND OBLIGATIONS UNDER THIS AGREEMENT IN WHOLE OR
IN PART TO ANY PERSON OR ENTITY; PROVIDED, HOWEVER, THAT SO LONG AS THE
COMPANY IS NOT THE SUBJECT OF ANY BANKRUPTCY OR INSOLVENCY PROCEEDING OR
ANY RECEIVERSHIP, FIDELITY SHALL NOT ASSIGN ITS RIGHTS OR OBLIGATIONS HEREUNDER
TO ANY DIRECT COMPETITOR OF THE COMPANY. Without limiting the generality of
the foregoing, Fidelity may from time to time grant participations in all or
any part of the Obligations to any Person on such terms and conditions as
may be determined by Fidelity in its sole and absolute discretion, provided
that the grant of such participation shall not relieve Fidelity of its
obligations hereunder nor create any additional obligation of the Company.
11.8 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA WITHOUT REFERENCE
TO THE RULES THEREOF RELATING TO CONFLICTS OF LAW. THE COMPANY HEREBY
IRREVOCABLY SUBMITS ITSELF TO THE EXCLUSIVE JURISDICTION OF THE STATE AND
FEDERAL COURTS LOCATED IN NORTH CAROLINA, AND AGREES AND CONSENTS THAT
SERVICE OF PROCESS MAY BE MADE UPON IT IN ANY LEGAL PROCEEDING RELATING TO
THIS AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN
FIDELITY AND THE COMPANY BY ANY MEANS ALLOWED UNDER STATE OR FEDERAL LAW.
ANY LEGAL PROCEEDING ARISING OUT OF OR IN ANY WAY RELATED TO THIS
AGREEMENT, ANY BORROWING HEREUNDER OR ANY OTHER RELATIONSHIP BETWEEN
FIDELITY AND THE COMPANY SHALL BE BROUGHT AND LITIGATED EXCLUSIVELY IN ANY
ONE OF THE STATE OR FEDERAL COURTS LOCATED IN THE STATE OF NORTH CAROLINA
HAVING JURISDICTION. THE PARTIES HERETO HEREBY WAIVE AND AGREE NOT TO
ASSERT, BY WAY OF MOTION, AS A DEFENSE OR OTHERWISE, THAT ANY SUCH
PROCEEDING IS BROUGHT IN AN INCONVENIENT FORUM OR THAT THE VENUE THEREOF
IS IMPROPER.
11.9 EACH OF THE COMPANY AND FIDELITY HEREBY (A) IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO A TRIAL
BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY AT ANY TIME
ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT OR ANY TRANSACTION
CONTEMPLATED HEREBY OR ASSOCIATED HEREWITH; (B) IRREVOCABLY WAIVES, TO THE
MAXIMUM EXTENT NOT PROHIBITED BY LAW, ANY RIGHT IT MAY HAVE TO CLAIM OR
RECOVER IN ANY SUCH LITIGATION ANY SPECIAL, EXEMPLARILY, PUNITIVE OR
CONSEQUENTIAL DAMAGES, OR DAMAGES OTHER THAN, OR IN ADDITION TO, ACTUAL
DAMAGES; (C) CERTIFIES THAT NO PARTY HERETO NOR ANY REPRESENTATIVE OR AGENT
OR COUNSEL FOR ANY PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE,
OR IMPLIED THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
TO ENFORCE THE FOREGOING WAIVERS, AND (D) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT, AND THE TRANSACTIONS CONTEMPLATED
HEREBY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS
CONTAINED IN THIS PARAGRAPH.
11.10 THIS AGREEMENT, THE SECURITY DOCUMENTS DESCRIBED HEREIN AND
THE ACKNOWLEDGMENT DELIVERED IN CONNECTION HEREWITH SET FORTH THE ENTIRE
UNDERSTANDING AND AGREEMENT OF THE PARTIES HERETO WITH RESPECT TO THE
TRANSACTIONS CONTEMPLATED HEREIN AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
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<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("THE ACT"), OR THE SECURITIES
LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED
OR OTHERWISE DISPOSED OF UNLESS THIS WARRANT SHALL HAVE BEEN
REGISTERED UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS OR THE PERSON REQUESTING THE TRANSFER OF THIS WARRANT
SHALL FURNISH, WITH RESPECT TO SUCH TRANSFER, AN OPINION OF
COUNSEL, SATISFACTORY TO AMERICAN CONSOLIDATED LABORATORIES,
INC., TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
DISPOSITION WILL NOT INVOLVE ANY VIOLATION OF THE
REGISTRATION PROVISIONS OF THE ACT OR OF ANY APPLICABLE
STATE SECURITIES LAW.
AMERICAN CONSOLIDATED LABORATORIES, INC.
(a Florida corporation)
Warrant for the purchase of securities of American
Consolidated Laboratories, Inc.
VOID AFTER 5:00 P.M., EASTERN TIME, ON JUNE 25, 2001
FOR VALUE RECEIVED, American Consolidated Laboratories,
Inc., a Florida corporation (the "Company"), hereby grants
to Fidelity Funding of California, Inc., or its assigns (the
"Holder"), the right, subject to the provisions of this
Warrant, to purchase from the Company at any time during the
period commencing on the date hereof and expiring at 5:00
p.m., Eastern Time, on June 25, 2001 (the "Expiration
Date"), 150,000 fully paid and nonassessable shares of the
Company's authorized but unissued Common Stock (as
hereinafter defined) at a price (the "Exercise Price") of
$.50 per share (such Exercise Price and the number of shares
of Common Stock purchasable hereunder being subject to
adjustment as provided herein).
The term "Common Stock" means the common stock of the
Company, together with any other equity securities that may
be issued by the Company in respect thereof or in
substitution therefor. The shares of Common Stock
deliverable or delivered upon such exercise, as adjusted
from time to time, are hereinafter referred to as "Warrant
Stock."
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant certificate and (in the case of
loss, theft or destruction) of reasonably satisfactory
indemnification and upon surrender and cancellation of this
Warrant certificate, if mutilated, the Company shall execute
and deliver a new Warrant of like tenor and date.
1. Exercise of Warrant. This Warrant may be
exercised, subject to the requirements set forth below, in
whole or in part at any time or from time to time prior to
5:00 p.m., Eastern Time, on the Expiration Date, or, if such
a day is a day on which banking institutions in New York,
New York are authorized by law to close, then on the next
succeeding day that shall not be such a day, by presentation
and surrender of this Warrant certificate to the Company at
its principal office, or at the office of its stock transfer
agent, if any, with the Warrant Exercise Form
<PAGE>
attached hereto duly executed and accompanied by payment (either in
cash or by certified or official bank check, payable to the
order of the Company, or by surrender of Warrant Stock) of
the Exercise Price. Upon receipt by the Company of this
Warrant certificate, together with the Exercise Price, at
its office, or by the stock transfer agent, if any, of the
Company, at its offices, in proper form for exercise as
described above, the Holder shall be deemed to be the holder
of record for the shares of Common Stock issuable upon such
exercise, even if the stock transfer books of the Company
shall then be closed or certificates representing such
shares of Common Stock shall not have been delivered to the
Holder. The Holder shall pay any and all documentary stamp
or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of
this Warrant. The Company shall promptly thereafter issue
certificate(s) evidencing the Common Stock so purchased.
2. Reservation of Shares. The Company shall at all
times reserve for issuance and delivery upon exercise of
this Warrant all shares of Common Stock or other shares of
capital stock of the Company (and other securities) from time
to time receivable upon exercise of this Warrant. All such
shares (and other securities) shall be duly authorized and,
when issued upon exercise, shall be validly issued, fully
paid and nonassessable.
3. No Fractional Shares Issued. No fractional shares
or scrip representing fractional shares shall be issued upon
the exercise of this Warrant, but the Company shall pay the
Holder an amount equal to the Fair Value (as hereinafter
defined), on the business day prior to the exercise of this
Warrant, of such fractional share of Common Stock in lieu of
each fraction of a share otherwise called for upon exercise
of this Warrant.
4. Transfer.
(a) Securities Law. Neither this Warrant nor the
Warrant Stock issuable upon the exercise hereof has been
registered under the Securities Act of 1933, as amended (the
"Act"), or under any state securities laws and, unless so
registered, may not be transferred, sold, pledged,
hypothecated or otherwise disposed of unless an exemption
for such registration is available. In the event Holder
desires to transfer this Warrant or any of the Warrant Stock
issued upon the exercise hereof, the Holder must give the
Company prior written notice of such proposed transfer
including the name and address of the proposed transferee.
Such transfer may be made only either (i) upon registration
of the Warrants or Warrant Stock pursuant to the Act and
applicable state securities laws, (ii) upon publication by
the Securities and Exchange Commission (the "Commission")
of a ruling, interpretation, opinion or "no action letter"
based upon facts presented to the Commission, or (iii) upon
receipt by the Company of an opinion of counsel, reasonably
satisfactory to the Company, in the case of either (ii) or
(iii), to the effect that the proposed transfer will not
involve any violation of the registration provisions of the
Act or of any applicable state securities laws.
(b) Transfer. Except as restricted hereby, this
Warrant and the Warrant Stock may be transferred by the
Holder in whole at any time. Upon surrender of this Warrant
certificate to the Company with the Assignment Form annexed
hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and
deliver a new Warrant certificate in the name of the
assignee named in such instrument of assignment, and this
Warrant
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<PAGE>
certificate shall promptly be cancelled. Any
assignment, transfer, pledge, hypothecation or other
disposition of this Warrant attempted contrary to the
provisions of this Warrant, or any levy of execution,
attachment or other process attempted upon this Warrant,
shall be null and void and without effect.
(c) Rule 144A. The Company will take, or will
cause to be taken, such action as the Holder may reasonably
request from time to time to facilitate any sale or
disposition by the Holder of this Warrant or any Warrant
Stock without registration under the Act and/or any
applicable state securities laws within the limitations of
the exemptions of any rule or regulation thereunder,
including, without limitation, Rule 144A under the Act.
5. Rights of Holder. The Holder shall not, by virtue
hereof, be entitled to any rights of a stockholder in the
Company, either at law or in equity, and the rights of the
Holder are limited to those expressed in this Warrant.
6. Anti-Dilution Provisions.
6.1. Adjustment of Number of Shares Purchasable.
Upon any adjustment of the Exercise Price as provided in
Section 6.2, the Holder hereof shall thereafter be entitled
to purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock (calculated
to the nearest 1/100th of a share) obtained by multiplying
the Exercise Price in effect immediately prior to such
adjustment by the number of shares of Common Stock
purchasable hereunder immediately prior to such adjustment
and dividing the product thereof by the Exercise Price
resulting from such adjustment; provided, however, that the
maximum number of shares of Common Stock purchasable
hereunder after all adjustments shall be 225,000.
6.2. Adjustment of Exercise Price. In addition to
any adjustment required under the provisions of Section 6.5
below, and except as otherwise provided in Section 6.2(n)
below, the Exercise Price shall be subject to adjustment
from time to time as set forth in this Section 6.2.
(a) Stock Dividends, Subdivisions and
Combinations. If and whenever the Company subsequent to the
date hereof:
(i) declares a dividend upon, or makes any
distribution in respect of, any of its capital
stock, payable in shares of Common Stock,
Convertible Securities (as hereinafter defined) or
Stock Purchase rights (as hereinafter defined), or
(ii) subdivides its outstanding shares of
Common Stock into a larger number of shares of
Common Stock, or
(iii) combines its outstanding shares of
Common Stock into a smaller number of shares
of Common Stock,
then the Exercise Price shall be adjusted to that price
determined by multiplying the Exercise Price in effect
immediately prior to such event by a fraction (A) the
numerator of which shall be the
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<PAGE>
total number of outstanding shares of Common Stock immediately
prior to such event, and (B) the denominator of which shall
be the total number of outstanding shares of Common Stock
immediately after such event, treating as outstanding all
shares of Common Stock issuable upon conversions or exchanges
of such Convertible Securities and exercises of such Stock
Purchase Rights.
(b) Issuance of Additional Shares of Common
tock. If and whenever the Company subsequent to the date
hereof shall issue or sell any shares of Common Stock
(except as otherwise provided in the last paragraph of this
Section 6.2(b)), for a consideration per share less than the
greater of (x) the Fair Value (as hereinafter defined) per
share and (y) the Exercise Price then in effect (determined,
in each case, as of the date specified in the next
succeeding paragraph), the Exercise Price upon each such
issuance or sale shall be adjusted as of the date specified
in the next succeeding paragraph to the lower of the prices
calculated pursuant to the following clauses (i) and (ii) of
this Section 6.2(b) and shall be determined by:
(i) multiplying the Exercise Price in effect
as of the date specified in the next succeeding
paragraph by a fraction the numerator of which is
(A) the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such issue
or sale multiplied by the Fair Value per share of
Common Stock immediately prior to such issue or
sale plus (2) the aggregate consideration, if any,
received by the Company upon such issue or sale,
divided by (B) the total number of shares of
Common Stock outstanding immediately after such
issue or sale, and the denominator of which is the
Fair Value per share of Common Stock immediately
prior to such issue or sale; and
(ii) multiplying the Exercise Price in effect
as of the date specified in the next succeeding
paragraph by a fraction the numerator of which is
(A) the sum of (1) the number of shares of Common
Stock outstanding immediately prior to such issue
or sale multiplied by the Exercise Price per share
of Common Stock immediately prior to such issue or
sale plus (2) the aggregate consideration, if any,
received by the Company upon such issue or sale,
divided by (B) the total number of shares of
Common Stock outstanding immediately after such
issue or sale, and the denominator of which is the
Exercise Price per share of Common Stock
immediately prior to such issue or sale.
For purposes of this Section 6.2(b), (i) the date
as of which the Exercise Price shall be adjusted and the
date as of which the Fair Value shall be determined shall be
the earlier of (A) the date on which the Company shall enter
into a firm contract for the issuance of such shares of
Common Stock and (B) immediately prior to the date of actual
issuance of such shares of Common Stock and (ii) the date as of
which the Exercise Price then in effect shall be determined shall
be the date of, and immediately prior to, such other sale or
issuance of any such shares of Common Stock.
No adjustment of the Exercise Price shall be made
under this Section 6.2(b) upon the issuance of any shares of
Common Stock which are (i) distributed to holders of Common
Stock pursuant to a stock dividend or subdivision for which
an adjustment shall previously have
4
<PAGE>
been made under Section 6.2(a) or (ii) issued pursuant to the
exercise of any Stock Purchase Rights or pursuant to the
conversion or exchange of any Convertible Securities to
the extent that an adjustment shall previously have been made
upon the issuance of such Stock Purchase Rights or Convertible
Securities pursuant to Sections 6.2(a), (c) or (d).
(c) Issuance of Stock Purchase Rights. If and
whenever the Company subsequent to the date hereof shall
issue or sell any Stock Purchase Rights (except as otherwise
provided in the last paragraph of this Section 6.2(c) and the
consideration per share for which shares of Common Stock may
at any time thereafter be issuable upon exercise thereof
(or, in the case of Stock Purchase Rights exercisable for
the purchase of Convertible Securities, upon the subsequent
conversion or exchange of such Convertible Securities) shall
be less than the greater of (x) the Fair Value per share and
(y) the Exercise Price then in effect (determined, in each
case, as of the date specified in the next succeeding
paragraph), the Exercise Price upon each such issuance or
sale shall be adjusted as provided in Section 6.2(b) as of
the date specified in the next succeeding paragraph on the
basis that the maximum number of shares of Common Stock ever
issuable upon exercise of such Stock Purchase Rights (or
upon conversion or exchange of such Convertible Securities
following such exercise) shall be deemed to have been issued
as of the date of the determination of the Fair Value
specified in the next succeeding paragraph.
For the purposes of this Section 6.2(c), (i) the
date as of which the Exercise Price shall be adjusted and the
date as of which the Fair Value shall be determined shall be
the earlier of (A) the date on which the Company shall enter
into a firm contract for the issuance of such Stock Purchase Rights
and (B) immediately prior to the date of actual issuance of such
Stock Purchase Rights and (ii) the date as of which the Exercise
Price then in effect shall be determined shall be the date of, and
immediately prior to, such other sale or issuance of any such Stock
Purchase Rights.
No adjustment of the Exercise Price shall be made
under this Section 6.2(c) upon the issuance of any Stock
Purchase Rights to the extent that an adjustment shall
previously have been made upon the issuance of such Stock
Purchase Rights pursuant to Section 6.2(a).
(d) Issuance of Convertible Securities. If and
whenever the Company subsequent to the date hereof shall
issue or sell any Convertible Securities (except as
otherwise provided in the last paragraph of this Section
6.2(d)) and the consideration per share for which shares of
Common Stock may at any time thereafter be issuable pursuant
to the terms of such Convertible Securities shall be less
than the greater of (x) the Fair Value per share and (y) the
Exercise Price then in effect (determined, in each case, as
of the date specified in the next succeeding paragraph), the
Exercise Price upon each such issuance or sale shall be
adjusted as provided in Section 6.2(b) as of the date
specified in the next succeeding paragraph on the basis that
the maximum number of shares of Common Stock ever necessary
to effect the conversion or exchange of all such Convertible
Securities shall be deemed to have been issued as of the
date of the determination of the Fair Value specified in the
next succeeding paragraph.
For the purposes of this Section 6.2(d), (i) the
date as of which the Exercise Price shall be adjusted and
the date as of which the Fair Value shall be determined
shall be the earlier of (A) the date on which the Company
shall enter into a firm contract for the issuance of such
5
<PAGE>
Convertible Securities and (B) immediately prior to the date
of actual issuance of such Convertible Securities and (ii)
the date as of which the Exercise Price then in effect shall
be determined shall be the date of, and immediately prior
to, such other sale or issuance of any such Convertible
Securities.
No adjustment of the Exercise Price shall be made
under this Section 6.2(d) upon the issuance of any
convertible Securities which are (I) distributed to holder
of Common Stock pursuant to a stock dividend to the extent
that an adjustment shall previously have been made pursuant
to Section 6.2(a) or (ii) issued pursuant to the exercise of
any Stock Purchase Rights to the extent that an adjustment
shall previously have been made upon the issuance of such
Stock Purchase Rights pursuant to section 6.2(a) or (c).
(e) Minimum Adjustment. If any adjustment of the
Exercise Price pursuant to this Section 6.2 shall result in
an adjustment of less that $.0001, no such adjustment shall
be made, but any such lesser adjustment shall be carried
forward and shall be made at the time and together with the
next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to $.0001;
provided that upon any adjustment of the Exercise Price
resulting from (i) the declaration of a dividend upon, or
the making of any distribution in respect of, any stock of
the Company payable is Common Stock, Stock Purchase Rights
or Convertible Securities or (ii) the reclassification by
subdivision, combination or otherwise, of the Common Stock
into a greater or smaller number of shares, the foregoing
figure of $.0001 per share (or such figure as last adjusted)
shall be proportionately adjusted, and provided, further,
that upon the exercise of this Warrant, the Company shall
make all necessary adjustments (to the nearest $.0001 of a
cent) not theretofore made to the Exercise Price up to and
including the date upon which this Warrant is exercised.
(f) Readjustment of Exercise Price. Upon each
change in (i) the consideration, if any, payable for any
Stock Purchase Rights or Convertible Securities referred to
in Section 6.2(a), (c) or (d), (ii) the consideration, if
any, payable upon exercise of such Stock Purchase Rights or
upon the conversion or exchange of such Convertible
Securities or (iii) the number of shares of Common Stock
issuable upon the exercise of such Stock Purchase Rights or
the rate at which such Convertible Securities are
convertible into or exchangeable for share of Common Stock,
the Exercise Price in effect at the time of such event shall
forthwith the readjusted to the Exercise Price which would
have been in effect at such had such Stock Purchase Rights
or Convertible Securities provided for such changed
consideration, number of shares of Common Stock so issuable
or conversion rate, as the case may be, at the time
initially granted, issued or sold. On the expiration of any
Stock Purchase Rights not exercised, the Exercise Price then
in effect shall forthwith be increased to the Exercise Price
which would have been in effect at the time of such
expiration had such Stock Purchase Rights or Convertible
Securities never been issued. In the event an adjustment is
made to the Exercise Price pursuant to Section 6.2(b),
(c) or (d) upon the entering into by the Company of a firm
contract for the issuance of shares of Common Stock Purchase
Rights or convertible Securities, but the terms of such firm
contract change subsequent to the date on which such firm
contract was entered into (including any reduction in the
number of shares, Stock Purchase Rights or Convertible
Securities issuable thereunder or the consideration payable
therefor under such firm contract), the Exercise Price in
effect on the date
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of such change to such firm contract shall forthwith be adjusted
to the Exercise Price which would have been in effect at the
time of such change had such firm contract been entered into
originally on such changed terms. No readjustment of the Exercise
Price pursuant to this Section 6.2(f) shall (i) increase the
Exercise Price in respect of the issue, sale or grant (or
deemed issue, sale or grant) of the applicable shares of
Common Stock, Stock Purchase Rights or convertible
Securities or (ii) require any adjustment to the amount paid
or number of shares of Warrant Stock received upon any
exercise of this Warrant prior to the date upon which such
readjustment to the Exercise Price shall occur.
(g) Reorganization; Reclassification or
Recapitalization of the Company. If and whenever subsequent
to the date hereof the Company shall effect (i) any
reorganization or reclassification or recapitalization of
the capital stock of the Company (other than in the cases
referred to in section 6.2(a), (ii) any consolidation or
merger of the Company with or into another person or entity,
(iii) the sale, transfer or other disposition of the
property, assets or business of the Company as an entirety
or substantially as an entirety or (iv) any other
transaction (or any other event shall occur) as a result of
which holder of Common Stock become entitled to receive any
shares of stock or other securities and/or property
(including, without limitation, cash) with respect to or in
exchange for the Common Stock, there shall thereafter be
deliverable upon the exercise of this Warrant or any portion
thereof ) in lieu of or in addition to the shares of Warrant
Stock theretofore deliverable, as appropriate) the highest
number of shares of stock or other securities and/or the
greatest amount of property (including, without limitation,
cash) to which the holder of the number of shares of Warrant
Stock which would otherwise have been deliverable upon the
exercise of this Warrant or any portion thereof at the time
would have been entitle upon such reorganization or
reclassification or recapitalization of capital stock,
consolidation, merger, sale, transfer, disposition or any
other transaction or upon the occurrence of such other event
and at the same aggregate Exercise Price.
Prior to and as a condition of the consummation of any
transaction or event described in the preceding sentence,
the Company shall make equitable, written adjustments in the
application of the provisions herein set forth satisfactory
tot he Holder of this Warrant so that the provisions set
forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares of stock or other
securities or other property thereafter deliverable upon
exercise of this Warrant. Any such adjustment shall be made
by and set forth in a supplemental agreement of the Company
and/or the successor entity, as applicable, for the benefit
of and in form and substance acceptable to the Holder of
this Warrant, which agreement shall bind the Company and/or
the successor entity, as applicable, and the Holder hereof
and shall be accompanied by a favorable opinion of the
regular outside counsel to the Company or the successor
entity, as applicable (or such other firm as is reasonable
acceptable to the Holder hereof), as to the enforceability
of such agreement and as to such other matters as the Holder
hereof may reasonable request.
(h) Other Dilutive Events. If any other transaction or
event (other than those explicitly referred to in this Section
6.2), including, without limitation, any issuance, repurchase,
redemption, or other distribution in respect of any shares of
stock or securities of the Company or of any other person or
entity, including any person or entity referred to in Section
6.2(g), shall occur as to which the other provisions of this
Section 6 are not strictly applicable but the failure to
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make any adjustment to the Exercise Price or to any of the other
terms of this Warrant would not fairly protect the purchase
rights and other rights represented by this Warrant in
accordance with the essential intent and principles hereof,
then, and as a condition to the consummation of any such
transaction or event, and in each such case, the Company
shall appoint a firm of independent public accountants of
recognized national standing (which may be the regular auditors
of the Company), which shall give its opinion as to the
adjustment, if any, on a basis consistent with the essential
intent and principles established in this Section 6, necessary
to preserve, without dilution, the rights represented by this
Warrant. The certificate of any such firm of accountants shall be
conclusive evidence of the correctness of any computation made
under this Section 6. The Company shall pay the fees and
expenses of such firm of accountants in connection with any
such opinion. Upon receipt of such opinion, the Company
will promptly deliver a copy thereof to the hold of this
Warrant and shall make the adjustments described therein.
(i) Determination of Consideration. For purposes of this
Section 6, the consideration received or receivable by the Company
for the issuance, sale and grant of shares of Common Stock, Stock
Purchase Rights or Convertible Securities, irrespective of the
accounting treatment of such consideration, shall be valued and
determined as follows.
(i) Cash Payment. In the case of cash, the
gross amount paid by the purchasers without deduction of
any accrued interest or dividends, any reasonable expenses
paid or incurred and any reasonable underwriting commissions
or concessions paid or allowed by the Company in connection
with such issue or sale.
(ii) Non-Cash Payment. In the case of consideration other
than cask, the fair Value thereof (in any case as of the date
immediately preceding the issuance, sale or grant in question).
(iii) Certain Allocations. If shares of Common Stock,
Stock Purchase Rights and/or Convertible Securities are
issued or sold together with other securities or other
assets of the Company for a consideration which covers more
than one of the foregoing categories of securities and
assets, the consideration received or receivable
(computed as provided in clauses (I) and (ii) of this
Section 6.2(I)) shall be allocable to such shares of Common
Stock, Stock Purchase Rights and or Convertible Securities
as reasonably determined in good faith by the board of
directors of the Company (provided such allocation is set
forth in a written resolution and a certified copy thereof
is furnished to the holder of this Warrant promptly (but in
any event within 10 days) following its adoption.
(iv) Dividends in Securities. If the Company shall declare a
dividend or make any other distribution upon any stock of the
Company payable in share of Common Stock, Convertible Securities
or Stock Purchase Rights, such shares of Common Stock,
Convertible Securities or Stock Purchase Rights, as the case
may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without
consideration.
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(v) Stock Purchase Rights and Convertible Securities.
The consideration for which each share of Common Stock shall
be deemed to be issued upon the issuance or sale of any Stock
Purchase Rights or Convertible Securities shall be determined
by dividing (A) the total consideration, if any, received by
the Company as consideration for the Stock Purchase Rights
or the Convertible Securities, as the case may be, plus
the minimum aggregate amount of additional consideration, if
any, ever payable to the Company upon the exercise of such
Stock Purchase Rights and/or upon the conversion or exchange
of such Convertible Securities, as the case may be, but
without deduction of any accrued interest or dividends, any
reasonable expenses paid or incurred and any reasonable
underwriting commissions or concessions paid or allowed by the
Company in connection with such issue or sale; by (B) the
maximum number of shares of Common Stock ever issuable upon
the exercise of such Stock Purchase Rights or upon the
conversion or exchange of such Convertible Securities.
(vi) Merger, Consolidation or Sale of Assets. If any
shares of Common Stock, Convertible Securities or Stock
Purchase Rights are issued in connection with any merger or
consolidation of which the Company is the surviving
corporation, the amount of consideration therefor shall be
deemed to be the Fair Value of such portion of the assets
and business of the non-surviving corporation as shall be
attributable to such Common Stock, Convertible Securities
or Stock Purchase Rights, as the case may be. In the
event of (A) any merger or consolidation of which the
Company is not the surviving corporation or (B) the sale,
transfer or other disposition of the property, assets or
business of the Company as an entirety or substantially as
an entirety for stock or other securities or any other
person or entity, the Company shall be deemed to have issued
the number of shares of Common Stock for stock or securities
of the surviving corporation or such other person or entity,
the Company shall be deemed to have issued the number
of shares of Common Stock for stock or securities of the
surviving corporation or such other person or entity computed on
the basis of the actual exchange ration on which the transaction
was predicated and for a consideration equal to the fair
Value on the date of such transaction of such stock or
securities of the surviving corporation or such other
person or entity, and if any such calculation results in
adjustment of the Exercise Price, the determination of the
number of shares of Warrant Stock issuable upon exercise
of this Warrant immediately prior to such merger, consolidation
or sale, for the purposes of Section 6.2(g), shall be
made after giving effect to such adjustment of the Exercise Price.
(j) Record Date. If the Company shall take a
record of the holders of the Common Stock for the purpose of
entitling them (i) to receive a dividend or other
distribution payable in Common Stock, Convertible Securities
or Stock Purchase Rights or (ii) to subscribe for or
purchase Common Stock, Convertible Securities or Stock
Purchase Rights, then all references in this Section 6 to
the date of the issue or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration of
such dividend or the making of such other distribution or
the date of the granting of such right of subscription or
purchase, as the case may be, shall be deemed to be
references to such record date.
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(k) Shares Outstanding. The number of shares of
Common Stock deemed to be outstanding at any given time
shall not include shares of Common Stock held by the Company
or any subsidiary of the Company.
(l) Maximum Exercise Price. At no time shall the
Exercise Price exceed $0.50 per share except as a result of
an adjustment thereto pursuant to Section 6.2(a)(iii) or
6.2(g).
(m) Application. All subdivisions of this
Section 6.2 are intended to operate independently of one
another. If a transaction or any event occurs that requires
the application of more than one subdivision, all applicable
subdivisions shall be given independent effect so as to
fairly protect the purchase rights and other rights
represented by this Warrant in accordance with the essential
intent and principles hereof.
(n) No Adjustments under Certain Circumstances.
Anything herein to the contrary notwithstanding, no
adjustment to the Exercise Price shall be made in the
case of any issuance of shares of Common Stock upon the
exercise in whole or part of any Warrant.
6.3 Rights Offering. If the Company shall effect an
offering of securities pro rata among its stockholders,
the Holder hereof shall be entitled, at its option, to
elect to participate in each and every such offering as
if this Warrant had been exercised and such Holder were,
at the time of any such rights offering, then a Holder of
that number of shares of Warrant Stock to which such
Holder is then entitled on the exercise hereof.
6.4 Certificates and Notices.
(a) Adjustments to Exercise Price. As promptly
as practicable (but in any event not later than five days)
after the occurrence of any event requiring any adjustment
under this Section 6 to the Exercise Price (or to the number
or kind of securities or other property deliverable upon the
exercise of this Warrant), the Company shall, at its
expense, deliver to the Holder of this Warrant either (i) an
officer's certificate or (ii) a certificate signed by a firm
of independent public accountants of recognized national
standing (which may be the regular auditors of the Company),
setting forth in reasonable detain the vents requiring the
adjustment and the method by which such adjustment was
calculated and specifying the adjusted Exercise Price and
the number of shares of Common Stock purchasable upon
exercise of this Warrant after giving effect to such
adjustment.
(b) Extraordinary Corporate Events. If and
whenever the Company subsequent to the date hereof shall
propose to (i) pay any dividend to the holders of shares of
Common Stock or to make any other distribution to the
holders of shares of Common Stock (including, without
limitation, any cash dividend), (ii) offer to the holders of
shares of Common Stock rights to subscribe for or purchase
any additional shares of any class of stock or any other
rights or options or (iii) effect any reclassification of
the Common Stock (other than a reclassification involving
merely the subdivision or combination of the Common Stock
(other than a reclassification involving merely the
subdivision or combination of outstanding shares of Common
Stock), (iv) engage in any reorganization or
recapitalization or any consolidation or merger (other than
a merger in which no distribution of securities or other
property is to be made to holder of shares of Common Stock),
(v) consummate any sale, transfer or other disposition of
its property,
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<PAGE>
assets and business as an entirety or substantially as
an entirety, (vi) effect any other transaction which might
require an adjustment to the Exercise Price (or to the
number or kind of securities or other property deliverable
upon the exercise of this Warrant), including, without
limitation, any transaction of the kind described in Section
6.2(g) or (vii) commence or effect the liquidation,
dissolution or winding up of the Company, then, in each such
case, the Company shall deliver to the holder of this Warrant
an officer's certificate giving notice of such proposed action,
specifying (A) the date on which the stock transfer books of
the Company shall close, or a record shall be taken, for
determining the holders of Common Stock entitled to receive such
dividend or other distribution or such rights or options, or the
date on which such reclassification, reorganization,
recapitalization, consolidation, merger, sale, transfer,
other disposition, transaction, liquidation, dissolution or
winding up shall take place or commence, as the case may be,
and (B) the date as of which it is expected that holders of
Common Stock of record shall be entitled to receive
securities or other property deliverable upon such action,
if any such date is to be fixed. Such officer's certificate
shall be delivered in the case of any action covered by
clause (i) or (ii) above, at least 20 days prior to the
record date for determining holders of Common Stock for
purposes of receiving such payment or offer, and, in any
other case, at least 20 days prior to the date upon which
such action takes place and 20 days prior to any record date
to determine holders of Common Stock entitled to receive
such securities or other property.
(c) Effect of Failure. Failure to give any
certificate of notice, or any defect in any certificate or
notice required under this Section 6.4 shall not affect the
legality or validity of the adjustment of the Exercise Price
or the number of shares of Warrant Stock purchasable upon
exercise of this Warrant.
6.5 Definitions. The following terms, when used
herein, shall have the following meanings:
"Convertible Securities" shall mean evidences of
indebtedness, shares (including, without limitation,
preferred stock) or stock or other securities which are
convertible into or exchangeable or exercisable for, with or
without payment of addition consideration, shares of Common
Stock, either immediately or upon the arrival of a specified
date or the happening of a specified event.
"Current Market Price" of any security as of any
date herein specified shall mean the average of the daily
closing prices for the 30 consecutive trading days
commencing 45 trading days before the day in question (or in
the event that a security has been traded for less than 45
days, each of the trading days on which such security has
been traded). The closing price for each day shall be (a)
if such security is listed or admitted for trading on any
national securities exchange, the last sale price of such
security, regular way, or the average of the closing bid and
asked prices thereof if no such sale occurred, in each case
as officially reported on the principal securities exchange
on which such security is listed, or (b) if not reported as
described in clause (a), the average of the closing bid and
asked prices of such security as shown by the National
Association of Securities Dealers, Inc. Automated Quotation
System, or any similar system of automated dissemination of
quotations of securities prices then in common use (an
"Automated Quotation System"), is so quoted, as reported
by any member firm of the New York Stock Exchange selected
by the Holder, or (c) if not quoted as described in clause
(b), the average of the
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closing bid and asked prices for such security as reported by
the National Quotation Bureau Incorporated or any similar
successor organization, as reported by any member firm of the
New York Stock Exchange selected by the Holder, provided,
however, if shares of the Common Stock of the Company shall
not be quotes as described in clause (b) above, the "Current
Market Price" of a share of Common Stock shall be deemed to
be an amount equal to the Exercise Price then in effect.
If such security is quoted on a national securities or central
market system in lieu of a market or quotation system described
above, the closing price shall be determined in the manner
set forth in clause (a) of the preceding sentence if bid and
asked prices are reported but actual transactions are not.
In connection with any security being offered to the public
in an initial public offering of the issue, the per share
offering price to the public.
"Fair Value" shall mean the fair value of the
appropriate security, property, assets or business as
determined by (a) in the case of any security, application
of the definition of Current Market Price, or (b) is clause
(a) of this definition is not applicable, a bona fide arm's-
length transaction between the Company or a subsidiary
thereof and an unaffiliated third party, which transaction
involves securities, properties, assets or businesses the
cost or value of which constitutes not less than 5% of all
of the securities, properties, assets or businesses, as the
case may be, of the Company and its subsidiaries taken as a
whole, or (c) if neither clause (a) nor clause (b) of this
definition is applicable, the Board of Directors of the
Company in good faith (a "Board Determination"), provided,
however, that if the Holder hereof shall object to such
valuation under this clause (c), they shall within 10 days
of such unsatisfactory valuation designate an independent
appraiser or investment bank of recognized national standing
reasonably satisfactory to the Company to make an appraisal
in accordance with generally accepted financial practice (an
"Appraisal"). Any such determination reference in the
proviso to clause (c) of the immediately preceding sentence
shall be set forth in writing, and the Company shall,
immediately following such determination, deliver a copy
thereof to the Holder hereof. The determination so made
(except for a Board determination to which the Holder hereof
objects within 10 days) shall be conclusive and binding on
the Company and on such Holder. The Company shall pay all
of the expenses incurred in connection with any such
determination, except for any Appraisal, the cost of which
shall be borne by the Holder.
"Stock Purchase Rights" shall mean any warrants,
options or other rights subscribe for, purchase or otherwise
acquire any shares of Common Stock or any Convertible
Securities, either immediately or upon the arrival of a
specified date or the happening of a specified event.
7. Various Covenants of the Company
7.1 No Impairment or Amendment. The Company
shall not by any action including, without limitation,
amending its charter, any reorganization, recapitalization,
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 this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in
the taking of all such actions as may be necessary or
appropriate to protect the rights of the holder hereof
against impairment. Without limiting the generality of the
foregoing, the Company (a) will not permit the par value of
any shares of Warrant Stock issuable upon exercise of this
Warrant to be greater than
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the amount payable therefor upon such exercise, (b) will
take all such action as may be necessary or appropriate in
order that the Company may validly issue fully paid and
nonassessable shares of Warrant Stock, (c) will obtain and
maintain all such authorizations, exemptions or consents from
any public regulatory body having jurisdiction as may be
necessary to enable the Company to perform its obligations
under this Warrant, and (d) will not issue any capital stock
or enter into any agreement the terms of which would have the
effect, directly or indirectly, of preventing the Company from
honoring its obligations hereunder.
So long as any Warrants or shares of Warrant
Stock are outstanding, the Company will acknowledge in
writing, in form satisfactory to any holder of any such
security, the continued validity of the Company obligations
hereunder.
7.2 Listings on Security Exchanges, etc. At all
times following the exercise of this Warrant, the Company
will use commercially reasonable efforts to maintain the
listing of all shares of Warrant Stock on each security
exchange or market or trading system on which the Common
Stock is then or at any time thereafter listed or traded.
8. Legend and Stop Transfer Orders. Unless the
shares of Warrant Stock have been register under the Act,
upon exercise of any of this Warrant and the issuance of any
of the shares of Warrant Stock, all certificates
representing shares of Warrant Stock shall bear on the face
thereof substantially the following legend, insofar as is
consistent with applicable law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1993, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE,
ASSIGNED, TRANSFERRED, OR OTHERWISE DISPOSED OF
UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF
THAT ACT AND APPLICABLE STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY,
IS OBTAINED STATING THAT SUCH DISPOSITION WILL NOT
INVOLVE ANY VIOLATION OF THE REGISTRATION
PROVISIONS OF THE OR OF ANY APPLICABLE STATE
SECURITIES LAW."
9. Registration.
(a) Piggyback Registrations. Notwithstanding the
provision s set forth above, the Company shall notify the
Holder in writing at least thirty (30) days prior to filing
any registration statement under the Act for purposes of a
public offering of securities of the Company (including, but
not limited to, registration statements relating to
secondary offerings of securities of the Company, but
excluding registration statements relating to employee
benefit plans) and will afford each such Holder an
opportunity to include in such registration statement the
Warrant Stock. If the registration statement is for an
underwritten offering, the Company shall so advise the
Holder and the right of Holder to be included in a
registration shall be subject to reduction in the discretion
of the underwriter (provided that any reduction by such
underwriter shall be effected pro rata with respect to all
persons or entities entitled to piggy-back registration of
their securities in such offering) and conditioned upon such
Holder's participation in such
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underwriting and the inclusion of such Holder's Warrant Stock
and Holders execution of the underwriting agreement.
(b) Payment of Expenses. All expenses incurred
in connection with registration (excluding underwriters'
discounts and commissions), including, without limitation,
all registration, blue sky and qualification fees, printers'
and accounting fees, and fees and disbursements of counsel
for the Company shall be borne by the Company.
(c) Obligations of the Company. Whenever
required to effect the registration of the Warrant Stock,
the Company shall, as expeditiously as reasonably possible:
(i) Prepare and file a registration statement
with respect thereto and use its best
efforts to cause such registration
statement to become effective, and keep
such registration statement effective for
up to one hundred fifty (150) days.
(ii) Prepare and file such amendments and
supplements to such registration statement
and the prospectus used in connection with
such registration statement as may be
necessary to comply with the provisions of
the Act.
(iii) Furnish to the Holder such number of
copies of a prospectus, including a
preliminary prospectus, in conformity with
the requirements of the Act, and such
other documents as may be reasonable
requested.
(iv) Use its best efforts to register and
qualify the securities covered by such
registration statement under such other
securities or Blue Sky laws of such
jurisdictions as shall be reasonable
requested by the Holder, provided that the
Company shall not be required in
connection therewith or as a condition
thereto to qualify to do business or to
file a general consent to service or
process in any such states or
jurisdictions.
(v) In the event of any underwritten public
offering, enter into and perform its
obligations under an underwriting
agreement, in usual and customary form,
with the managing underwriter(s) of such
offering. the Holder participating in
such underwriting shall also enter into
and perform its obligations under such an
agreement.
(vi) Notify the Holder at any time when a
prospectus relating thereto is required to
be delivered under the Act of the
happening of any event as a result of
which the prospectus included in such
registration statement or any document
incorporated therein by reference, as then
in effect, includes and untrue statement
of a material fact or omits to state a
material fact required to be stated
therein or necessary to
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<PAGE>
make the statements therein not misleading in
light of the circumstances then existing.
(vii) Afford to the Holder all rights
(including the right to conduct "due
diligence" with respect to the Company)
customarily afforded to selling
stockholders in an underwritten public
offering.
(d) Indemnification. The Company will indemnify
and hold harmless the Holder, the partners,
officers and directors of the Holder, any
underwriter (as defined in the Act) for such
Holder and each person, if any, who controls
such Holder or underwriter with the meaning of
the Act of the Securities Exchange Act of 1934,
as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint
and several) to which they may become subject
under the Act, the 1934 Act, as amended (the
"1934 Act"), against any losses, claims,
damages, or liabilities (joint and several) to
which they may become subject under the Act,
the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof)
arise out of or are based upon any of the
following statements, omissions or violations
(collectively a "violation"): (i) any untrue
statement or alleged untrue statement of a
material fact contained in such registration
statement, including any Preliminary Prospectus
or final prospectus contained therein or any
amendments or supplements thereto, or any
documents incorporated therein by reference,
(ii) the omission or alleged omission to state
therein a material fact contained in such
registration statement, including any
Preliminary Prospectus contained therein or any
amendments or supplements thereto, or any
documents incorporated therein by reference,
(ii) the omission or alleged omission to state
therein a material fact required to be stated
therein, or necessary to make the statements
therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act,
the 1934 Act any state securities law or rule
or regulation promulgated under the Act, the
1934 Act or any state securities law in
connection with the offering covered by such
registration statement: and the Company, at its
option, shall either assume the defense thereof
or will reimburse the Holder, partner, officer,
or director, underwriter or controlling person
for any legal or other expenses reasonably
incurred by them, as incurred, in connection
with investigating or defending any such loss
claim, damage, liability or action; provided,
however, that the indemnity agreement contained
in this subsection shall not apply to amounts
paid in settlement of any such loss, claim,
damage, liability or action if the Holder fails
to promptly notify the Company of such claim or
such settlement is effected without the consent
of the Company (which consent shall not be
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<PAGE>
unreasonably withheld), nor shall the Company
be liable in any such case for any such loss,
claim, damage, liability or action to the
extent that it arises out of or is based upon a
violation which occurs in reliance upon and in
conformity with written information furnished
expressly for use in connection with such
registration by such Holder, partner, officer,
director, underwriter or controlling person of
such Holder. The obligations of the Company
under this paragraph shall survive the
completion of any offering of Warrant Stock.
(e) Survival. The Company's obligations under
this Section 9 shall survive until the third
anniversary of the date hereof.
10. Representation and Warranties. The Company
represents and warrants to the Holder that:
(a) The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, of which
4,136,927 shares of Common Stock were issued and
outstanding on the date hereof. Except for this Warrant
and except as described in writing by the
Company to the Holder on or prior to the date hereof,
(i) there are no outstanding rights, options, warrants or
agreements for the purchase from, or sale or issuance by, the
Company or any of the Company's subsidiaries of any capital
stock or equity interests or securities convertible into or
exercisable or exchangeable for such stock or equity interest;
(ii) there are no agreements on the part of the Company or any of
the Company's subsidiaries to issue, sell or distribute any
securities or equity interests or any assets of the Company
or any of the Company's subsidiaries; (iii) none of the
Company or any of the Company's subsidiaries has any
obligation (contingent or otherwise) to purchase, redeem
or otherwise acquire any of its securities or equity
interests or any interest therein or to pay any
dividend or make any distribution in respect thereof, and
(iv) no person or entity is entitled to (A) any preemptive
or similar right with respect to the issuance of any
securities or equity interests of the Company or any of the
Company's subsidiaries, or (B) any rights with respect to the
registration of any securities or equity interests of the
Company or any of the Company's subsidiaries under the Act.
(b) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state
of its incorporation, with all requisite power
and authority to execute, deliver and perform its
obligations under this Warrant and to conduct its
business as presently conducted. The Company is duly
qualified and authorized to do business as a foreign
corporation and is in good standing in which such qualification
and good standing are necessary or desirable for the conduct
by the Company of its business or the performance by the
Company of its obligations hereunder. The execution, delivery and
performance by the Company of this Warrant do not and will not
constitute (a) a violation of any applicable law or the
Company's articles or certificate of incorporation or
bylaws or (b) a material breach of any other document, agreement or
instrument to which the Company is a party or by
which the Company is bound. This Warrant has been duly authorized,
executed and delivered by the Company, and is
the legal, valid and binding obligation of the
Company enforceable against the Company in
accordance with its terms. No consent of, approval
by, registration or filling with or authorization
from any governmental authority or agency
is required in connection with the
execution, delivery or performance by the
Company of this Warrant.
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<PAGE>
11. Put Rights. The Company hereby irrevocably grants
to Holder the right and option (to "Put") to sell to the
Company this Warrant, on and after July 1, 1997
and prior to the Expiration Date, at a purchase price
(the "Purchase Price") of $75,000. The Purchase Price shall
be due and payable in twelve installments of $6,250
with the first such installment due and payable on the
ninetieth day after the Company's receipt of written notice
from Holder of its exercise of the Put and
subsequent installments shall be due and payable every
three months thereafter until such Purchase Price is paid
in full. Upon payment in full of such Purchase Price, Holder
shall surrender the Warrant to the Company for cancellation. If
the Company fails to pay any installment of the Purchase Price
when due or becomes the subject of any bankruptcy or
insolvency proceeding or receivership, Holder shall be entitled
to demand immediate payment of (and the Company shall be required
to immediately pay) the remainder of the Purchase Price.
12. Prohibitions on Certain Transactions. The Company
shall not, on or after the date hereof, (A) issue or sell an Common
Stock to Tullis-Dickerson Capital Focus, L.P. ("TD") or
any affiliate, officer or director of TD or the Company
(collectively, the "Prohibited Persons") for a consideration
per share less than the greater of (x) the Fair Value
per share and (y) the Exercise Price then in effect;
(B) issue or sell any Stock Purchase Rights to a Prohibited
Person where the consideration per share for which shares of
Common Stock issuable upon the exercise thereof is less than
the greater of (x) the Fair Value per share and (y) the Exercise
Price then if effect; or (c) issue or sell any Convertible
Securities to any Prohibited Person where the consideration
per share for which Common Stock issuable pursuant to the terms
thereof is less than the greater of (x) the Fair Value per share
and (y) the Exercise Price then if effect; provided however, that
the foregoing prohibition shall not apply to the issuance of
any Common Stock to a Prohibited Person pursuant to Stock
Purchase Rights or Convertible Securities issued by the Company
prior to the date hereof.
13. Notice. All notices hereunder shall be in writing
and shall be deemed given (a) when delivered personally,
(b) the next business day when sent by nationally recognized
overnight courier service procuring a return receipt, or
(c) within three business days after mailing when by
certified or registered mail, return receipt requested,
to the Company at American Consolidated Laboratories, Inc.,
1640 N. Market Drive, Raleigh, North Carolina 27609, or
to the Holder at its address on the Company's records or at such
other address of which the Company or Holder has been
advised by notice hereunder.
14. Applicable Law. This Warrant is issued under and shall
for all purposes be governed by and construed in accordance with the
laws of the State of Florida.
15. Miscellaneous. This Warrant represents the entire
agreement of the Company with respect to the subject matter hereof
and may be changed only by a written agreement executed by the Company
and the Holder.
17
<PAGE>
IN WITNESS WHEREOF, the Company has caused this
Warrant to be signed on its behalf, in its
corporate name, by its duly authorized officer,
all as of June 25, 1996.
AMERICAN CONSOLIDATED
LABORATORIES, INC.
By: /s/ Joseph A. Arena
Name: Joseph A. Arena
Title: Chief Executive Officer
18
<PAGE>
ASSIGNMENT FORM
For value received, the undersigned
hereby sells, assigns and transfers all of the rights of the
undersigned under the within Warrant, with respect to the number
of shares of the capital stock covered thereby set forth
below, unto:
Name and address of Assignee Number of Shares
Date:
Name of Holder:
By:
19
<PAGE>
WARRANT EXERCISE FORM
1. The undersigned Warrant Holder of the attached
original, executed Warrant hereby elects to exercise its
purchase right under such Warrant with respect to the Warrant
Stock, as defined in the Warrant of American Consolidated
Laboratories, Inc. (the "Company").
2. The undersigned Warrant Holder elects to pay the
aggregate exercise price for such Warrant Stock in the following
manner:
(a) by lawful money of the United States or the
enclosed certified check or postal or express
money order payable in United States dollars to
the order of the Company in the amount of $ ;
or
(b) by wire transfer of United States funds to the
account of the Company in the amount of $ ,
which transfer has been made before or
simultaneously with the delivery of this Warrant
Exercise Form pursuant to the instructions of the
Company.
(c) by surrendering Holder's rights to that number of
shares of Warrant Stock having a Fair Value (as
defined in the Warrant) equal to the exercise price
of the Warrant Stock being purchased. Accordingly,
upon exercise of this Warrant, Holder would receive
the number of shares of Warrant Stock to which it
would otherwise be entitled upon such exercise,
less the surrendered shares.
3. Please issue a stock certificate or certificates
representing the appropriate number of shares of Warrant Stock
in the name of the undersigned or in such names as is specified
below:
Name:
Address:
Tax Identification No.
HOLDER:
By:
Date:
Note: The signature of the Warrant Holder must conform in all
respects to the name of the Warrant Holder as specified on the
face of the Warrant, or Assignment, without alteration,
enlargement or any change whatsoever.
20
<PAGE>
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED ("THE ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF UNLESS THE PERSON REQUESTING THE
TRANSFER OF THIS WARRANT SHALL FURNISH, WITH RESPECT TO SUCH TRANSFER. AN
OPINION OF COUNSEL, SATISFACTORY TO AMERICAN CONSOLIDATED LABORATORIES, INC.,
TO THE EFFECT THAT SUCH SALE, TRANSFER, ASSIGNMENT OR DISPOSITION WILL NOT
INVOLVE ANY VIOLATION OF THE REGISTRATION PROVISIONS OF THE ACT OR ANY SIMILAR
OR SUPERSEDING STATUTE OR OF ANY APPLICABLE STATE SECURITIES LAW.
AMERICAN CONSOLIDATED LABORATORIES, INC.
(a Florida corporation)
Warrant for the purchase of securities of
American Consolidated Laboratories, Inc.
VOID AFTER 5:00 P.M. EASTERN STANDARD TIME, ON OCTOBER 10, 2001.
FOR VALUE RECEIVED, American Consolidated Laboratories, Inc., a Florida
corporation (the "Company"), hereby certifies that Tullis-Dickerson Capital
Focus, L.P., or assigns (the "Holder"), is entitled, subject to the provisions
of this Warrant, to purchase from the Company at any time during the period
commencing on October 11, 1996 and expiring at 5.00 p.m. Eastern Standard
Time on October 10, 2001 (the "Expiration Date"), up to 550,000 fully paid and
nonassessable shares of the Company's authorized but unissued Common Stock, as
hereinafter defined at a price of $.25 per share (the "Exercise Price").
The term "Common Stock" means the common stock of the Company, together
with any other equity securities that may be issued by the Company in respect
thereof or in substitution therefor. The shares of Common Stock deliverable or
delivered upon such exercise, as adjusted from time to time, are hereinafter
referred to as "Warrant Stock."
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant certificate and (in
the case of loss, theft or destruction) of satisfactory indemnification and upon
surrender and cancellation of this Warrant certificate, if mutilated, the
Company shall execute and deliver a new Warrant of like tenor and date.
1. Exercise of Warrant. This Warrant may be exercised, subject to the
requirements set forth below, in whole or in part at any time or from time to
time prior to 5:00 p.m. Eastern Standard Time on the Expiration Date set forth
above, or, if such a day is a day on which banking institutions in New York,
New York are authorized by law to close, then on the next succeeding day that
shall not be such a day, by presentation and surrender of this Warrant
certificate to the Company at its principal office, or at the office of its
stock transfer agent, if any, with the Warrant Exercise Form attached hereto
duly executed and accompanied by payment (either in cash or by certified or
official bank check, payable to the order of the Company, or by surrender of
Warrant Shares) of the Exercise Price. Upon receipt by the Company of this
Warrant Certificate, together with the Exercise Price, at its office, or by the
stock transfer agent of the Company at its offices, if any, in proper form for
exercise as described above, together with an agreement to comply with the
restrictions on transfer and related covenants contained herein and a
representation as to investment intent and any other matter required by counsel
to the Company, signed by the Holder (and, if other than the original Holder,
accompanied by proof satisfactory to counsel for the Company of the right of
such person or persons to exercise the Warrant), the Holder shall be deemed to
be the holder of record for the shares of Common Stock issuable upon such
exercise, even if the stock transfer books of the Company shall then be closed
or certificates representing such shares of Common Stock shall not have been
delivered to the Holder. The Holder shall pay any and all
<PAGE>
documentary stamp or similar issue or transfer taxes payable in respect of the
issue or delivery of shares of Common Stock on exercise of this Warrant. The
Company shall promptly thereafter issue certificate(s) evidencing the Common
Stock so purchased.
2. Reservation of Shares. The Company shall at all times reserve for
issuance and delivery upon exercise of this Warrant all shares of Common Stock
or other shares of capital stock of the Company (and other securities) from
time to time receivable upon exercise of this Warrant. All such shares (and
other securities) shall be duly authorized and, when issued upon exercise,
shall be validly issued, fully paid and nonassessable.
3. Fractional Shares.
(a) No Fractional Shares Issued. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant, but the Company shall pay the Holder an amount equal to the
Market Price of such fractional share of Common Stock in lieu of each
fraction of a share otherwise called for upon exercise of this Warrant.
(b) Market Price Defined. For purposes of this Warrant, the Market
Price of a share of Common Stock shall mean the average of the closing
prices of the sales of Common Stock on all domestic securities exchanges
on which the Common Stock may at the time be listed, or, if there have
been no sales on any such exchange on any day, the average of the highest
bid and lowest asked prices on all such exchanges at the end of such day,
or, if on any day the Common Stock is not quoted in the Nasdaq System, the
average of the highest bid and lowest asked prices on such day in the
domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such
case on the business day prior to the date of exercise of this Warrant,
provided, that if the Common Stock is listed on any domestic securities
exchange the term "business days" as used in this sentence means business
days on which such exchange or system is open for trading. If at any time
the Common Stock is not listed on any domestic securities exchange or
system is open for trading. If at any time the Common Stock is not listed
on any domestic securities exchange or quoted in the Nasdaq System or the
domestic over-the-counter market, the Market Price will be the fair value
thereof on the business day prior to the date of exercise of this Warrant
as determined by the Company's Board of Directors acting in good faith.
4. Transfer.
(a) Securities Law. Neither this Warrant nor the Warrant Stock
issuable upon the exercise hereof has been registered under the Securities
Act of 1933, as amended (the "Act"), or under any state securities laws
and unless so registered may not be transferred, sold, pledged,
hypothecated or otherwise disposed of unless an exemption for such
registration is available. In the event Holder desires to transfer this
Warrant or any of the Warrant Stock issued, the Holder must give the
Company prior written notice of such proposed transfer including the name
and address of the proposed transferee. Such transfer may be made only
either (i) upon registration of the Warrants pursuant to the Act and
applicable State Securities Laws; or (ii) upon publication by the
Securities and Exchange Commission (the "Commission") of a ruling,
interpretation, opinion or "no action letter" based upon facts presented
to said Commission or (iii) upon receipt by the Company of an opinion of
counsel, satisfactory to the Company, in either case to the effect that
the proposed transfer will not involve any violation of the registration
provisions of the Act or any similar or superseding statute or of any
applicable state securities laws.
(b) Conditions to Transfer. Prior to any such proposed transfer, and
as a condition thereto, if such transfer is not made pursuant to an
effective registration statement under the Act, the Holder will, if
requested by the Company, deliver to the Company (i) an investment
covenant signed by
2
<PAGE>
the proposed transferee, (ii) an agreement by such transferee to the
impression of the restrictive investment legend set forth herein on the
certificate or certificates representing the securities acquired by such
transferee and (iii) an agreement by such transferee that the Company may
place a "stop transfer order" with its transfer agent or registrar.
(c) Transfer. Except as restricted hereby, this Warrant and the
Warrant Stock may be transferred by the Holder in whole at any time. Upon
surrender of this Warrant certificate to the Company with the Assignment
Form annexed hereto duly executed and funds sufficient to pay any transfer
tax, the Company shall, without charge, execute and deliver a new Warrant
certificate in the name of the assignee named in such instrument of
assignment, and this Warrant certificate in the name of the assignee named
in such instrument of assignment, and this Warrant certificate shall
promptly be cancelled. Any assignment, transfer, pledge, hypothecation or
other disposition of this Warrant attempted contrary to the provisions of
this Warrant, or any levy of execution, attachment or other process
attempted upon this Warrant, shall be null and void without effect.
5. Rights of Holder. The Holder shall not, by virtue hereof, be entitled
to any rights of a stockholder in the Company, either at law or in equity, and
the rights of the Holder are limited to those expressed in this Warrant.
6. Anti-Dilution Provisions.
(a) Adjustment for Reorganization, Consolidation, Merger, Etc. In
case of any reorganization of the Company (or any other corporation, the
securities of which are at the time receivable on the exercise of this
Warrant) after the date hereof, or in case after the date hereof the
Company (or any such other corporation) shall consolidate with or merger
into another corporation or convey all or substantially all of its assets
to another corporation, then, all in each such case, the Holder of this
Warrant upon the exercise as provided in Section 1 at any time after the
consummation of such reorganization, consolidation, merger or conveyance,
shall be entitled to receive, in lieu of the securities and property
receivable upon the exercise of this Warrant prior to such consummation,
the securities or property to which such Holder would have been entitled
upon such consummation if such Holder had exercised this Warrant
immediately prior thereto. In each such case, the terms of this Warrant
shall be applicable to the securities or property received upon the
exercise of this Warrant after such consummation.
(b) Certificate as to Adjustments. In each case of an adjustment in
the number of shares of Common Stock receivable on the exercise of this
Warrant, the Company at its expense shall promptly compute such adjustment
in accordance with the terms of the Warrant and prepare a certificate
executed by an officer of the Company setting forth such adjustment and
showing the facts upon which such adjustment is based. The Company shall
forthwith mail a copy of each such certificate to the Holder.
(c) Notices of Record Date, Etc. In case; (i) the Company shall take
record of the Holders of its Common Stock (or other securities at the time
receivable upon the exercise of the Warrant) for the purpose of entitling
them to receive any dividend (other than a cash dividend) or other
distribution of stock, or any rights to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities, or to receive any other right; or (ii) of any voluntary or
involuntary dissolution, liquidation or winding-up of the Company, then
and in each such case, the Company shall mail or cause to be mailed to the
Holder a notice specifying, as the case may be, (A) the date on which
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, or (B) the date on which such reorganization, reclassification,
consolidation, merger, conveyance, dissolution, liquidation or winding-up
is to take place and the time,
3
<PAGE>
if any, to be fixed, as to which of the holders of record of Common Stock
(or such other securities at the time receivable upon the exercise of this
Warrant) shall be entitled to exchange their shares of Common Stock (or
such other securities) for securities or property deliverable upon such
reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up.
7. Legend and Stop Transfer Orders. Unless the shares of Warrant
Stock have been registered under the Act, upon exercise of any of this
Warrant and the issuance of any of the shares of Warrant Stock, the
Company shall instruct its transfer agent enter to stop transfer orders
with respect to such shares, and all certificates representing shares of
Warrant Stock shall bear on the face thereof substantially the following
legend, insofar as is consistent with applicable law:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, OFFERED FOR SALE, ASSIGNED, TRANSFERRED, OR
OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THAT
ACT AND APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE COMPANY, IS OBTAINED STATING THAT SUCH DISPOSITION
WILL NOT INVOLVE ANY VIOLATION OF THE REGISTRATION PROVISIONS OF THE ACT
OR ANY SIMILAR OR SUPERSEDING STATUTE OR OF ANY APPLICABLE STATE
SECURITIES LAWS."
8. Registration.
(a) Demand Registration. The Company agrees that upon demand of the
Holders at any time after January 31, 1997, it shall file a registration
statement under the Securities Act, and the Company shall effect, as soon
as practicable, the registration under the Act of all Warrant Stock. If
the Holder(s) intends to distribute the Warrant Stock by means of an
underwriting, it shall so advise the Company. In the event Company does
not register the Warrant Shares on or before January 31, 1997, Company
hereby irrevocably grants and issues to Holder the right and option to
sell to Company (the "Put") this Warrant at any time after January 31,
1997 and prior to the Expiration Date, at a purchase price (the "Purchase
Price") equal to the fair market value of the Warrant Shares issuable
hereunder upon exercise of this Warrant. The Company shall pay to Holder,
in cash or certified or cashier's check, the Purchase Price in exchange
for delivery to Company of the Warrant, within 30 days of the receipt of
written notice from Holder of its intention to exercise the Put. The fair
market value of each Warrant Share shall be the closing price of Company's
Common Stock as reported on any automated quotation system or stock
exchange on which such stock is listed or reported or the average of the
last bid and last offer for the stock of Company as reported on the Nasdaq
over the counter market, if the stock is not listed on any exchange or
reported on an automated quotation system, on the last full day of trading
immediately preceding the date on which such written notice of Holder's
intention to exercise the Put is received by the Company.
(b) Piggyback Registrations. Notwithstanding the provisions set forth
above, the Company shall notify the Holder(s) in writing at least thirty
(30) days prior to filing any registration statement under the Securities
Act for purposes of a public offering of securities of the Company
(including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding
registration statements relating to employee benefit plans) and will
afford each such Holder an opportunity to include in such registration
statement the Warrant Stock. If the registration statement is for an
underwritten offering, the Company shall so advise the Holder and the
right of Holder to be included in a registration shall be subject to
reduction in the discretion of the underwriter and
4
<PAGE>
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Warrant Stock and Holder's execution of the
underwriting agreement.
(c) All expenses incurred in connection with registration (excluding
underwriters' discounts and commissions), including, without limitation,
all registration and qualification fees, printers' and accounting fees,
and fees and disbursements of counsel for the Company shall be borne by
the Company.
(d) Obligations of the Company. Whenever required to effect the
registration of the Warrant Stock, the Company shall, as expeditiously as
reasonably possible:
(i) Prepare and file a registration statement with respect
thereto and use its best efforts to cause such registration statement
to become effective, and keep such registration statement effective
for up to one hundred twenty (120) days.
(ii) Prepare and file such amendments and supplements to such
registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Act.
(iii) Furnish to the Holder(s) such number of copies of a
prospectus, including a preliminary prospectus, in conformity with
the requirements of the Act, and such other documents as may be
reasonably requested.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested
by the Holder(s), provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any
such states or jurisdictions.
(v) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such
offering. The Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
(vi) Notify the Holder at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of
any event as a result of which the prospectus included 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.
(vii) Furnish, at the request of any Holder requesting
registration on the date that such Warrant Stock is delivered to the
underwriters for sale, if such securities are being sold through
underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with
respect to such securities becomes effective, (i) an
5
<PAGE>
opinion, dated as of such date, of the counsel representing the
Company for the purposes of such registration in form and substance
as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to the Holder, addressed to the
underwriters, if any, and to the Holder and (ii) a letter dated as of
such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to the Holder, addressed
to the underwriters, if any, and to the Holder.
(e) Indemnification. The Company will indemnify and hold harmless the
Holder, the partners, officers and directors of the Holder, any
underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning
of the Act or the Securities Exchange Act of 1934, as amended (the "1934
Act"), against any losses, claims, damages, or liabilities (joint and
several) to which they may become subject under the Act, the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations (collectively a
"violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
Preliminary Prospectus or final Prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
1934 Act, any state securities law or rule or regulation promulgated under
the Securities Act, the 1934 Act or any state securities law in connection
with the offering covered by such registration statement; and the Company,
at its option, shall either assume the defense thereof or will reimburse
the Holder, partner, officer, or director, underwriter or controlling
person for any legal or other expenses reasonably incurred by them, as
incurred, in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if the
Holder fails to promptly notify the Company of such claim or such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage,
liability or action to the extent that it arises out
of or is based upon a violation which occurs in
reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder,
partner, officer, director, underwriter or controlling person of such
Holder. The obligations of the Company under this paragraph shall survive
the completion of any offering of Warrant Stock.
9. Notice. All notices hereunder shall be in writing and shall be deemed
given (a) when delivered personally, (b) the next business day when sent by
nationally recognized overnight courier service procuring a return receipt, or
(c) within three business days after mailing when by certified or registered
mail, return receipt requested, to the Company at American Consolidated
Laboratories, Inc.., 6414 Parkland Drive, Sarasota, Florida 34243, or to the
Holder at his address on the Company's records or at such other address of which
the Company or Holder has been advised by notice hereunder.
10. Applicable Law. This Warrant is issued under and shall for all
purposes be governed by and construed in accordance with the laws of the State
of Florida.
6
<PAGE>
11. Miscellaneous. This Warrant represents the entire agreement of the
Company with respect to the subject matter hereof and may be changed only by a
written agreement executed by the Company and the Holder.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed on
its behalf, in its corporate name, by its duly authorized officer, all as of
October 11, 1996.
AMERICAN CONSOLIDATED LABORATORIES, INC.
By: /s/ Joseph A. Arena
-----------------------
Name: Joseph A. Arena
Title: Chief Executive Officer
7
<PAGE>
ASSIGNMENT FORM
For value received, the undersigned _____________________, hereby sells,
assigns and transfers all of the rights of the undersigned under the within
Warrant, with respect to the number of shares of the capital stock covered
thereby set forth below, unto:
Name and Address of Assignee Number of Shares
Date:
Name of Holder:
By: _________________________________
<PAGE>
WARRANT EXERCISE FORM
1. The undersigned Warrant Holder of the attached original, executed
Warrant hereby elects to exercise its purchase right under such Warrant with
respect to the Warrant Stock, as defined in the Warrant of American Consolidated
Laboratories, Inc. (the "Company").
2. The undersigned Warrant Holder
(a) elects to pay the aggregate exercise price for such Warrant
Stock in the following manner.
(i) by lawful money of the United States or the enclosed
certified check or postal or express money order payable in United
States dollars to the order of the Company in the amount of $
_______________ ; or
(ii) by wire transfer of United States funds to the account of
the Company in the amount of $ ___________ , which transfer has been
made before or simultaneously with the delivery of this Warrant
Exercise Form pursuant to the instructions of the Company.
(iii) by surrendering Holder's rights to that number of Warrant
Shares having a fair market value equal to the exercise price of the
Warrant Shares being purchased. Accordingly, upon exercise of this
Warrant, Holder would receive the number of Warrant Shares to which
it would otherwise be entitled upon such exercise, less the
surrendered shares. For purposes of this provision, the fair market
value of one share of stock shall be the closing price as reported on
any automated quotation system or exchange on which the Company's
stock is listed or reported or the average of the last bid and last
offer for the stock of the Company as reported on the Nasdaq
over-the-counter market, as applicable, on the last full day of
trading immediately preceding such exercise.
3. Please issue a stock certificate or certificates representing the
appropriate number of shares of Warrant Stock in the name of the undersigned or
in such names as is specified below:
Name: ______________________________
Address: ____________________________
Tax Identification No.: ____________________________
HOLDER: _____________________________
By: _________________________________
Date: _________________________________
Note: The signature of the Warrant Holder must conform in all respects to the
name of the Warrant Holder as specified on the face of the Warrant, or
Assignment, without alteration, enlargement or any change whatsoever.
<PAGE>
AMERICAN CONSOLIDATED LABORATORIES, INC.
SCHEDULE - LISTING OF SUBSIDIARIES
1. Salvatori Ophthalmic Manufacturing Corporation
2. S-O Nebraska, Inc.
3. Carolina Contact Lens, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 96,405 481,031 (61,419) 0
<SECURITIES> 0 0 0 0
<RECEIVABLES> 1,042,141 832,802 967,232 976,693
<ALLOWANCES> 216,000 216,000 216,000 332,536
<INVENTORY> 1,013,395 707,116 776,793 708,152
<CURRENT-ASSETS> 1,963,814 1,973,058 1,612,745 1,467,717
<PP&E> 1,763,724 1,767,388 1,613,891 1,399,181
<DEPRECIATION> 1,174,799 1,217,967 1,105,356 915,942
<TOTAL-ASSETS> 3,935,370 3,838,844 3,371,381 1,950,958
<CURRENT-LIABILITIES> 3,179,545 2,399,872 2,455,194 4,732,400
<BONDS> 0 0 0 0
0 0 0 0
0 0 0 0
<COMMON> 221,847 236,544 220,081 231,082
<OTHER-SE> (375,000) (375,000) (307,000) (32,800)
<TOTAL-LIABILITY-AND-EQUITY> 3,935,370 3,838,844 4,555,769 1,950,958
<SALES> 2,028,450 1,979,108 2,073,964 1,778,792
<TOTAL-REVENUES> 2,026,450 1,979,108 2,073,964 1,778,792
<CGS> 1,190,945 1,358,993 1,434,722 1,403,981
<TOTAL-COSTS> 1,025,871 898,385 946,849 2,317,974
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> (59,663) (84,120) (125,255) (444,210)
<INCOME-PRETAX> (235,252) (351,630) (458,655) (2,339,234)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> (235,252) (351,620) (458,655) (2,339,234)
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (235,252) (351,630) (458,655) (2,339,234)
<EPS-PRIMARY> ($0.05) ($0.08) ($0.11) (0.81)
<EPS-DILUTED> 0 0 0 0
</TABLE>
