<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 26, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STERI-OSS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3843 13-3915553
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
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22895 EASTPARK DRIVE
YORBA LINDA, CALIFORNIA 92887
(714) 282-6515
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
KENNETH A. DARIENZO
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
STERI-OSS, INC.
22895 EASTPARK DRIVE
YORBA LINDA, CALIFORNIA 92887
(714) 282-6515
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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FREDERIC A. RANDALL, JR., ESQ. ALISON S. RESSLER, ESQ.
BROBECK, PHLEGER & HARRISON LLP SULLIVAN & CROMWELL
4675 MACARTHUR COURT, SUITE 1000 444 S. FLOWER STREET, SUITE 1200
NEWPORT BEACH, CALIFORNIA 92660 LOS ANGELES, CALIFORNIA 90071
(714) 752-7535 (213) 955-8000
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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========================================================================================================================
TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PRICE PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------------------------
Common Stock................................ 5,405,000 $16.00 $86,480,000 $26,204
========================================================================================================================
</TABLE>
(1) Includes up to 705,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(a) solely for the purpose of calculating the
registration fee.
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 26, 1997
PROSPECTUS
, 1997
4,700,000 SHARES
[STERI-OSS LOGO]
COMMON STOCK
All of the 4,700,000 shares of Common Stock, $.0001 par value per share
(the "Common Stock"), offered hereby are being sold by Steri-Oss, Inc.
("Steri-Oss" or the "Company").
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price.
The Company will apply to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "STRI."
SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE
COMMON STOCK. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------------
Per Share......................... $ $ $
Total (3)......................... $ $ $
- -------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the Underwriters.
(2) Before deducting expenses of the Offering estimated at $700,000, which will
be paid by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an aggregate of 705,000 additional shares of Common Stock at the Price
to the Public less Underwriting Discounts and Commissions, solely to cover
over-allotments, if any. If such option is exercised in full, the total
Price to the Public, Underwriting Discounts and Commissions and Proceeds to
the Company will be $ , $ and $ , respectively.
See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters
when, as and if delivered to and accepted by the Underwriters and subject to
various prior conditions, including the right to reject orders in whole or in
part. It is expected that delivery of certificates representing the shares of
Common Stock will be made against payment in New York, New York on or about
, 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
UBS SECURITIES
FURMAN SELZ
<PAGE> 3
[COLOR PHOTOS AND ART WORK]
Steri-Oss(R), EZ Steps(TM) and Replace(TM) are trademarks of the Company.
This Prospectus also includes trademarks of companies other than the Company.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. THE
UNDERWRITERS ARE NOT REQUIRED TO ENGAGE IN THESE ACTIVITIES, AND MAY END ANY OF
THESE ACTIVITIES AT ANY TIME. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE
"UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the Consolidated Financial Statements
and Notes thereto appearing elsewhere in this Prospectus. Except as otherwise
indicated, the information contained in this Prospectus gives effect to the
50-for-1 stock split to be effected in August 1997 and assumes (i) the
conversion (the "Preferred Stock Conversion") of 17,471 shares of the Company's
Class A 8.8% Cumulative Redeemable Preferred Stock (the "Class A Preferred
Stock") and 2,527 shares of the Company's Class C 8.0% Junior Cumulative
Redeemable Preferred Stock (the "Class C Preferred Stock") into an aggregate of
1,433,547 shares of Common Stock upon consummation of the Offering (assuming an
initial public offering price of $15.00 per share), (ii) the redemption upon
consummation of the Offering of all outstanding shares of Class A Preferred
Stock, Class B 8.0% Cumulative Convertible Preferred Stock (the "Class B
Preferred Stock") and Class C Preferred Stock not converting into Common Stock
in the Preferred Stock Conversion, (iii) the exercise of outstanding warrants to
purchase 4,750,000 shares of Common Stock prior to the consummation of the
Offering, (iv) no exercise of outstanding options to purchase 959,350 shares of
Common Stock and (v) no exercise of the Underwriters' over-allotment option.
Unless otherwise indicated, all references to the "Company" and "Steri-Oss"
refer to Steri-Oss, Inc. and its combined subsidiaries and predecessors. Because
the Company uses a 52/53 week fiscal year, fiscal periods may not end on the
same day as the end of the respective calendar periods. For convenience of
presentation, the consolidated financial data throughout this Prospectus has
been shown as of and for the last day of the applicable period unless otherwise
indicated.
THE COMPANY
Steri-Oss, Inc. is a leading developer, manufacturer and marketer of a
broad line of dental implant systems, which include implants, abutments and
related surgical instruments. A dental implant is a small titanium screw or
cylinder that is surgically placed directly into the jaw and serves as a
foundation for a replacement tooth. An abutment is a small titanium attachment
that is typically screwed into or onto the implant and connects the artificial
tooth to the implant. The Company believes that its dental implant systems are
superior to traditional restorative treatments such as bridges and dentures
because the permanent nature of dental implants permits patients to regain most
of the functionality of their natural teeth. Dental implants also may reduce the
progressive atrophy of the jaw often caused by the absence of teeth. The Company
has demonstrated the safety and reliability of its implants at success rates of
over 96% (representing full integration of the implant with the bone) in seven
years of clinical studies involving more than 1,600 implant patients.
The Company has experienced significant growth over the last several years.
The Company's net sales increased 22.8% to $19.3 million for the six months
ended June 30, 1997 from $15.7 million for the comparable six month period in
1996. Net sales also increased to $32.2 million for 1996 from $12.7 million for
1992, reflecting a five year compounded annual growth rate of 26.1%. The
Company's earnings before interest, taxes, depreciation and amortization
("EBITDA") increased 15.3% to $3.3 million for the six months ended June 30,
1997 from $2.9 million for the comparable six month period in 1996. EBITDA also
increased to $6.1 million for 1996 from $1.5 million for 1992, reflecting a five
year compounded annual growth rate of 42.1%.
The American Dental Association estimates that 110 million people in the
United States are missing one or more teeth, representing approximately 40% of
the United States population. Traditional restorative alternatives to address
tooth loss have consisted primarily of dentures and bridges. Since the
introduction of the first modern root form implants in 1982, implants have
continued to gain acceptance as an attractive alternative to dentures and
bridges. Medical Data International ("MDI") estimates that dental implant sales
in the United States exceeded $130 million in 1996 and are expected to grow at a
rate of approximately 6% per year. The Company estimates that sales of dental
implants outside the United States were approximately $250 million in 1996 and
are expected to grow at a rate of approximately 10% per year.
3
<PAGE> 5
The Company markets its products to dental professionals involved in the
implant procedure, including oral surgeons, periodontists and implantologists
who typically perform the implant surgery, as well as general dentists and
prosthodontists who often prepare the crown or other prosthetic device that is
affixed on top of the abutment. The Company currently distributes its products
in the United States and Canada through its direct sales force consisting of
more than 40 persons, which the Company believes is the largest North American
direct sales force for dental implant products. The Company markets its products
internationally (outside the United States and Canada) in more than 35 countries
through 26 independent distributors who do not sell competing implant products.
The Company's predecessor sold its first dental implant in 1986 and was
acquired by the Company from Bausch & Lomb Incorporated ("Bausch & Lomb") in
November 1996 (the "Acquisition"). In connection with the Acquisition, the
Company incurred $39.5 million of debt and issued $35.2 million of mandatorily
redeemable Preferred Stock. Upon consummation of the Offering, approximately
$43.0 million of debt will be retired and approximately $15.2 million of
Preferred Stock will be redeemed, together with accrued interest and dividends.
The holders of Class A Preferred Stock and Class C Preferred Stock have agreed
to convert the remaining $20.0 million of their Preferred Stock into Common
Stock upon consummation of the Offering, in lieu of exercising their redemption
rights. Certain key members of the Company's senior management team, including
its Chief Executive Officer, President and Executive Vice President, Operations,
have operated the Company's business since 1990.
STRATEGY
The Company's objective is to become the leading worldwide developer,
manufacturer and marketer of dental implants and related products, while
increasing its profitability. The Company believes that over the last three
years, it has been one of the fastest growing participants in the United States
implant market. Furthermore, as a result of the Company's acquisition of the
dental business of Interpore International ("Interpore") in May 1997, the
Company believes its implant unit sales, on a combined basis in the United
States in 1996, exceeded those of any of its competitors. The key elements of
the Company's strategy include the following:
- Increase Market Share in the United States and Foreign Markets. Steri-Oss
has established itself as a worldwide leader in the dental implant market. The
Company intends to capitalize on its reputation for quality products and service
to continue to increase its market share both domestically and internationally.
Increased utilization of the Company's implants by dental professionals is
necessary for continued market penetration. Accordingly, Steri-Oss intends to
increase its involvement in sponsoring and providing educational and training
programs for dental professionals and to expand marketing support to its 26
independent international distributors.
- Continue to Develop Innovative Implant Products. The Company intends to
utilize its expertise in dental implant technology and to work closely with
clinicians to continue to develop new and enhanced dental implants and related
products. New and enhanced products have historically constituted a significant
portion of the Company's net sales. The Company was the first to introduce a
variety of innovative products, including precleaned sterile implants,
hydroxylapatite ("HA") coated threaded implants and a tapered, color-coded
implant system. The Company intends to continue to develop enhanced implant
products to meet evolving market needs, incorporate technological advancements
and satisfy clinicians' preferences.
- Expand into Additional Dental Specialty Markets. The Company intends to
take advantage of its broad distribution channels and strong reputation in the
dental industry to market additional dental specialty products to its customers.
The Company plans to focus on products that enhance the professionals' practices
and address the needs of growing markets, particularly the periodontal market.
In furtherance of this strategy, the Company recently commenced marketing two
products owned and manufactured by third parties, a periodontal tissue
monitoring kit and an HA bone filler for periodontal defects. The Company
intends to acquire, license or distribute additional dental specialty products
and to market these products through its existing distribution channels.
4
<PAGE> 6
- Acquire Complementary Dental Implant Businesses, Products and
Technologies. The Company believes that consolidation opportunities exist in the
dental implant market that will enable the Company to increase its penetration
of this market. For example, in May 1997, the Company acquired the dental
operations of Interpore, a manufacturer and distributor of dental implant
products and other periodontal products. The Company intends to continue to
expand its product offerings, distribution channels and market share through
acquisitions in the dental implant market.
- Continue to Improve Operating Efficiencies. By manufacturing a greater
proportion of its products in-house, the Company has been able to operate more
cost-effectively and benefit from greater economies of scale. Primarily as a
result of actions taken by the Company to reduce manufacturing costs and
increase operating efficiencies, the Company has reduced its cost of sales as a
percentage of net sales to 27.3% for 1996 from 31.7% for 1992. The Company
intends to continue to improve operating efficiencies primarily by expanding and
refining its manufacturing processes.
The Company's principal executive offices are located at 22895 Eastpark
Drive, Yorba Linda, California 92887. The Company's telephone number is (714)
282-6515.
THE OFFERING
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Common Stock offered by the Company........... 4,700,000 shares
Common Stock to be outstanding after the 10,933,547 shares (1)
Offering....................................
Use of Proceeds............................... The Company intends to use the net proceeds
from the Offering to redeem all outstanding
shares of Class A Preferred Stock, Class B
Preferred Stock and Class C Preferred Stock
that have not converted into Common Stock in
the Preferred Stock Conversion, to repay
indebtedness and for general corporate
purposes, including working capital
requirements. See "Use of Proceeds."
Proposed Nasdaq National Market Symbol........ STRI
</TABLE>
- ---------------
(1) Excludes (i) 400,000 shares of Common Stock reserved for issuance under the
1997 Stock Incentive Issuance Plan (the "1997 Plan"), which includes options
to purchase 226,000 shares of Common Stock that were granted at an exercise
price equal to the initial public offering price in the Offering and (ii)
outstanding options to purchase 733,350 shares of Common Stock granted at a
weighted average exercise price of $0.58 per share. See Note 9 of Notes to
Consolidated Financial Statements.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
The following summary historical and pro forma consolidated financial data
for the Company and its predecessors should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Company's Consolidated Financial Statements and Notes thereto
and the Unaudited Pro Forma Consolidated Financial Statements and Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
COMPANY
-----------------------
PREDECESSOR(1) COMPANY
------------------------------------- ------------ PRO FORMA
PRO FORMA SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, YEAR ENDED 30,
------------------------------------- DECEMBER 31, -----------------------
1992 1993 1994 1995 1996(2) 1996(3) 1997(3)(4)
------- ------- ------- ------- ------------ ---------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
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STATEMENT OF OPERATIONS DATA:
Net sales...................... $12,735 $16,845 $22,168.. $27,361 $ 32,197 $ 15,744 $ 19,334
Gross profit................... 8,693 11,718 15,502.. 19,496 23,411 11,518 14,186
Selling, general and
administrative expense....... 6,164 8,698 11,393 14,241 17,221 8,509 10,966
Research and development
expense...................... 1,218 1,618 1,781 2,225 2,468 1,255 1,322
Noncash compensation expense... -- -- -- -- -- -- 354
Income from operations......... 1,311 1,402 2,328 3,030 3,722 1,754 1,544
Interest expense............... 45 50 -- -- -- -- --
Income before income taxes..... 1,266 1,352 2,328 3,030 3,722 1,754 1,544
Net income..................... $ 760 $ 516 $ 1,075 $ 1,458 $ 2,233 $ 1,052 $ 926
======= ======= ======= ======= ========== ========== ==========
Net income per share(5)........ $ 0.19 $ 0.09 $ 0.08
========== ========== ==========
Shares outstanding(5).......... 11,638,541 11,638,541 11,638,541
OTHER DATA:
EBITDA(6)...................... $ 1,492 $ 2,301 $ 3,523 $ 4,481 $ 6,076 $ 2,896 $ 2,988
Depreciation................... 181 161 363 595 844 352 575
Amortization(7)................ -- 738 832 856 1,510 790 869
Capital expenditures........... 191 311 1,702 1,190 2,207 1,286 1,018
</TABLE>
<TABLE>
<CAPTION>
AT JUNE 30, 1997
----------------------
ACTUAL PRO FORMA(8)
------- ------------
(IN THOUSANDS)
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BALANCE SHEET DATA:
Cash and cash equivalents..................................................... $ 61 $ 2,408
Working capital............................................................... 4,549 10,668
Total assets.................................................................. 83,406 82,745
Total long-term debt and mandatorily redeemable Preferred Stock(9)............ 78,859 --
Total stockholders' equity (deficit).......................................... (1,146) 77,555
</TABLE>
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(1) Represents the historical financial data of the Company's predecessor,
Steri-Oss, Inc. ("S-O"), a wholly-owned subsidiary of Bausch & Lomb. For
1992, represents the historical financial data of S-O's predecessor.
(2) Includes the results of operations of S-O subsequent to the Acquisition in
November 1996. The Acquisition was accounted for as a purchase for financial
reporting purposes. The financial data for the period from January 1, 1996
through November 15, 1996 for S-O and from November 16, 1996 through
December 31, 1996 for the Company has been combined and adjusted to give
effect to the Acquisition, the Preferred Stock Conversion, the Offering and
the application of the net proceeds of the Offering, as if each had occurred
on January 1, 1996, to present the pro forma operating results for the year
ended December 31, 1996.
(3) The pro forma statement of operations data for the six months ended June 30,
1996 reflects adjustments as if the Acquisition, the Preferred Stock
Conversion, the Offering and the application of the net proceeds
6
<PAGE> 8
of the Offering had occurred on January 1, 1996. The pro forma statement of
operations data for the six months ended June 30, 1997 reflects adjustments as
if the Preferred Stock Conversion, the Offering and the application of the net
proceeds of the Offering had occurred on January 1, 1997. Excludes the
effect of the extraordinary charge discussed in footnote 8 below.
(4) Includes the results of operations of the dental business of Interpore
subsequent to its acquisition in May 1997. This acquisition was accounted
for as a purchase for financial reporting purposes.
(5) Share and per share data are not considered meaningful since S-O operated as
a wholly-owned subsidiary of Bausch & Lomb from 1993 through November 15,
1996. Computed based on weighted average shares outstanding assuming the
Preferred Stock Conversion and the Offering and the application of the net
proceeds therefrom were consummated on January 1, 1996. Also includes the
effect of Common Stock and equivalents issued within one year from the
filing of the Registration Statement of which this Prospectus is a part at
prices per share below the initial public offering price, using the treasury
stock method using an assumed initial public offering price of $15.00 per
share.
(6) The Company believes that EBITDA provides a useful comparison of period to
period income; however, EBITDA should not be considered acceptable reporting
under generally accepted accounting principles or as an alternative to
income from operations or net income as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity.
(7) Pro forma data includes the effect of amortization of $59.2 million of
goodwill recorded in connection with the Acquisition, which amounts to
approximately $1.5 million annually, is being amortized over a 40 year
period and is tax deductible.
(8) The pro forma balance sheet data reflects adjustments as if the Preferred
Stock Conversion and the Offering and the application of the net proceeds
therefrom had occurred on June 30, 1997. Includes the effect of an
extraordinary charge of $7.8 million, net of the related tax benefit,
relating to (i) the elimination of deferred financing costs associated with
the repayment of the Company's 16% Series A Subordinated Notes and 14%
Series B Subordinated Notes (collectively, the "Subordinated Notes") and the
Company's secured credit facility with Union Bank of California, N.A. and
First Source Financial LLP (the "Bank Facility") and the conversion and/or
redemption of all mandatorily redeemable Preferred Stock, (ii) the charge
related to the Preferred Stock Conversion and (iii) the prepayment penalties
incurred in connection with the repayment of the Subordinated Notes. Also
includes a compensation charge related to options granted below the fair
value per share at the date of grant, which options vest immediately upon
consummation of the Offering. See "Unaudited Pro Forma Consolidated
Financial Data."
(9) Includes current portion of long-term debt.
7
<PAGE> 9
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully the
following risk factors, in addition to the other information contained in this
Prospectus, before making an investment in the Common Stock.
COMPETITION
The dental implant industry is characterized by intense competition.
Steri-Oss competes directly with a number of companies offering dental implants
and related products both in the United States and abroad, including Nobel
Biocare AB, Friatec AG, Implant Innovations, Inc. ("3i") and Sulzer Calcitek
Inc., certain of which have substantially greater financial, marketing, sales,
distribution and development resources than the Company. Such competitors may be
able to devote greater resources to the development, promotion, sale and support
of their products than the Company. Certain of the Company's competitors also
have established a greater international presence than the Company. In several
countries, including Germany and Switzerland, the Company competes with
companies that are based in such countries. The competitors' local presence in
such markets may provide them with a competitive advantage over the Company. In
addition, several competitors in foreign markets sell directly in such markets,
which may be more effective than the Company's indirect distribution channels in
such markets. Increased competition or the failure to compete effectively in the
dental implant industry may result in price reductions, reduced profit margins
and loss of market share, all of which could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Company's products also compete against alternative restorative
treatments such as bridges and dentures, which are generally less expensive to
the patient, are less invasive and can be implemented more quickly. New
restorative technologies may be developed that are as effective as, or more
effective or easier to use than, those offered by the Company, which could
render the Company's products less competitive or obsolete. See
"Business -- Competition."
GOVERNMENT REGULATION
The Company's products are subject to extensive regulation by the United
States Food and Drug Administration (the "FDA") and certain other federal, state
and local governmental authorities and similar regulatory agencies in other
countries. Such regulations cover the testing, manufacture, labeling,
distribution and promotion of medical devices and record-keeping with respect
thereto. The process of obtaining marketing clearances and approvals from the
FDA for new products or enhancements to existing products can be time consuming
and expensive, and there is no assurance that such clearances will be granted or
that FDA review will not involve delays adversely affecting the marketing and
sale of products by the Company. Since January 1, 1994, the Company has obtained
39 Section 510(k) premarket notifications ("510(k)") covering a broad range of
products. In addition, in the future, the FDA may require the submission of a
premarket approval application ("PMA") for certain dental implants, which
approval process is time-consuming, costly and would result in a diversion of
management's efforts. While the Company has been collecting clinical data to
support a potential PMA, there can be no assurance that the Company would
receive a PMA approval, if required, for its dental implant products on a timely
basis, if at all.
Governmental regulation may also prevent or substantially delay the
marketing of the Company's proposed products, cause the Company to undertake
costly procedures and furnish a competitive advantage to certain of the
Company's competitors who have greater financial, administrative and research
and development resources. After approval, the FDA may require post-marketing
approval surveillance programs to monitor the effects of an approved medical
device. FDA approval may be withdrawn for noncompliance with regulatory
standards or the occurrence of unforeseen problems following initial marketing.
In addition, product modifications may require the submission of a new 510(k) or
PMA supplement and future products may require 501(k) clearance or PMA approval.
There can be no assurance that marketing clearances or approvals will be
obtained on a timely basis or at all. Delays in receiving, the failure to
receive or the cost of complying
8
<PAGE> 10
with such clearances or approvals could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company is also subject to periodic inspection by the FDA and state
agencies such as the Food and Drug Branch of the California Department of Health
Services to determine whether the Company is in compliance with various
regulations relating to medical device manufacturing, including the FDA's
Quality System Regulations ("QSR"), formerly known as the Good Manufacturing
Practices regulations, which govern manufacturing, testing, quality control and
product labeling of medical devices. In connection with the FDA's inspection of
the Company's facilities in April 1997, the FDA issued a warning letter to the
Company citing the Company's failure to comply with certain provisions of the
current QSR regulations. The warning letter did not prohibit the Company from
obtaining premarket clearance or approval for new products nor did it require
the Company to withdraw or remove any of its products from the market. While the
Company believes that it has taken appropriate corrective actions to address
each of the violations cited in the warning letter, there can be no assurance
that the FDA will issue a compliance letter on a timely basis, if at all. Any
failure by the Company to remedy the citations in the warning letter to the
satisfaction of the FDA could prevent or significantly limit the Company's
ability to market its products in the United States until such citations have
been corrected to the satisfaction of the FDA and result in the recall or
seizure of products, the total or partial suspension of production, civil
penalties, fines or criminal prosecution.
The Company must comply with similar registration requirements of foreign
governments and with import and export regulations when distributing its
products to foreign nations. Each foreign country's regulatory requirements for
product approval and distribution are unique and may require the expenditure of
substantial time, money and effort to obtain and maintain. The regulation of
medical devices in a number of such jurisdictions, particularly in the European
Union, continues to develop and there can be no assurance that new laws or
regulations will not have a material adverse effect on the Company's business,
financial condition and results of operations. Noncompliance with state, local,
federal or foreign regulatory requirements can result in fines, injunctions,
civil penalties, recall or seizure of products, total or partial suspension of
production, delay or denial or withdrawal of premarket clearance or approval of
devices and criminal prosecution. See "Business -- Government Regulation."
RISKS ASSOCIATED WITH ACQUISITIONS; FUTURE CAPITAL REQUIREMENTS
The Company's business strategy includes the expansion of its product
offerings, distribution channels, and market share through acquisitions.
Acquisitions involve numerous risks, such as difficulties in the assimilation of
the operations, products and personnel of the acquired companies, the ability to
manage effectively geographically remote units, the diversion of management's
attention from other business concerns, risks of entering markets in which the
Company has limited or no direct experience, and the potential loss of key
employees of the acquired companies. In addition, acquisitions may result in
dilutive issuances of equity securities, the incurrence of additional debt,
reduction of existing cash balances, amortization expenses related to goodwill
and other intangible assets and other changes to operations that may materially
adversely affect the Company's results of operations. Although management
expects to analyze any opportunity carefully before committing the Company's
resources, no assurances can be given as to the effect of any acquisition on the
Company's business, financial condition and results of operations.
The Company expects to continue to expend additional funds to pursue
acquisition opportunities and to expand its operations, particularly its
manufacturing capabilities and marketing efforts. After the net proceeds of the
Offering are applied to repay indebtedness and to redeem all shares of Preferred
Stock not converting into Common Stock, the Company expects that no indebtedness
will remain outstanding on a pro forma basis under the Bank Facility and
approximately $23.3 million will be available for borrowings under the Bank
Facility, subject to certain restrictions and limitations. The Company's future
capital requirements and the adequacy of available funds will depend on numerous
factors that are difficult to predict, including the timing and cost of
acquisitions. If cash from operations and available funds under the Bank
Facility are insufficient to meet the Company's capital needs in the future, the
Company will be required to obtain additional funds through equity or debt
financings or through other sources. The Bank Facility currently limits the
Company's ability to incur any other debt. There can be no assurance that
additional funding, if necessary, will be
9
<PAGE> 11
available on acceptable terms, if at all. If adequate funds are not available,
the Company may be required to forego strategic acquisitions or delay, reduce or
eliminate certain aspects of its operations, which could have a material adverse
effect on the Company's business, financial condition, results of operations and
cash flows. See "Use of Proceeds," "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Business -- Strategy."
DEPENDENCE ON INDEPENDENT INTERNATIONAL DISTRIBUTORS
In addition to utilizing a direct sales force in North America, the Company
markets and sells its products through 26 independent distributors in more than
35 foreign countries. Approximately 41.2% and 41.1% of the Company's net sales
during 1996 and for the six month period ended June 30, 1997, respectively, were
generated in international markets. The Company anticipates that a significant
percentage of its net sales will come from international markets in the future.
The Company relies on its international distributors to obtain any necessary
regulatory approvals in the foreign countries in which they operate. The Company
does not have any long-term distribution agreements with any of its
distributors, and there can be no assurance that the Company's distributors will
continue to market the Company's products or have the financial stability to
assure their continuing presence in their respective markets. A distributor's
inability or unwillingness to perform its obligations, or a disruption in the
Company's relationship with a distributor could result in a substantial delay in
the Company's international distribution efforts in the distributor's applicable
territory. There can be no assurance that the Company will be able to replace
any of its current distributors or that any such replacement will be able to
obtain the necessary regulatory approvals to conduct business in the applicable
territory. There can also be no assurance that the Company can retain qualified
distributors in any additional territories targeted by the Company. As a result,
there can be no assurance that the Company will maintain or increase its market
share for dental implants in international markets. See "Business -- Customers,
Marketing and Sales."
RISKS RELATING TO INTERNATIONAL OPERATIONS
International operations involve a number of significant risks, including,
but not limited to, governmental regulations, export license requirements,
political instability, trade restrictions, changes in tariffs, difficulties in
managing international operations, import restrictions and fluctuations in
foreign currency exchange rates. Although the Company's international sales are
currently denominated in United States dollars, fluctuations in currency
exchange rates could cause the Company's products to become relatively more
expensive to customers in a particular country, leading to a reduction in the
Company's net sales or profitability in that country. Furthermore, future
international activity may result in foreign currency denominated sales and, in
such event, gains and losses on the conversion to United States dollars of
accounts receivable and accounts payable arising from international operations
may contribute to fluctuations in the Company's results of operations. The
international nature of the Company's business subjects it and its distributors
to the laws and regulations of the foreign jurisdictions in which they operate
and in which the Company's products are sold. See "Business -- Government
Regulation."
CUSTOMER CONCENTRATION
Metaux Precieux Metalor Deutschland GmbH ("Metalor"), a distributor of
dental alloys and instruments, accounted for approximately 8.2% of the Company's
net sales during 1996 and 10.5% during the six month period ended June 30, 1997.
In 1990, the Company entered into an exclusive one year distribution agreement
with Metalor to distribute the Company's products in Germany and the
Netherlands, which agreement automatically renews for successive one year terms
unless either the Company or Metalor gives prior notice of its intention not to
renew the agreement for an additional term. The Company also entered into
similar exclusive distribution agreements with certain affiliates of Metalor who
distribute the Company's products in France, Switzerland and the United Kingdom.
Metalor and its three affiliates collectively accounted for approximately 12.2%
of the Company's net sales during 1996 and 13.9% of the Company's net sales
during the six months ended June 30, 1997. If Metalor and its affiliates were to
cease marketing the Company's
10
<PAGE> 12
products for any reason, the Company's business, financial condition and results
of operations would be materially and adversely affected. See
"Business -- Customers, Marketing and Sales."
PRODUCT LIABILITY RISKS
The nature of the Company's business subjects the Company to the risk of
product liability claims that may involve significant defense costs. From time
to time, the Company has been the subject of such claims. Bausch & Lomb has
agreed to indemnify the Company up to an aggregate amount of $28.5 million
against any claims and losses from defects in the design, manufacture or
production of any product sold by S-O prior to the Acquisition. While the
Company currently has one product liability claim pending, Bausch & Lomb is
contractually obligated to indemnify the Company for this claim. There can be no
assurance that product liability claims will not be asserted against the Company
in the future. Although the Company maintains product liability insurance with
coverage limits of $1.0 million per occurrence and $1.0 million in the aggregate
per year, there can be no assurance that this coverage will be adequate to
protect the Company against future product liability claims. In addition,
product liability insurance is expensive and there can be no assurance that, in
the future, product liability insurance will be available to the Company in
amounts or on terms satisfactory to the Company, if at all. A successful product
liability claim or series of claims brought against the Company in excess of its
insurance coverage could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business -- Product Liability and Legal Proceedings; Insurance."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS
The Company has experienced and may in the future experience significant
fluctuations in revenues and operating results from quarter to quarter as a
result of a number of factors including, without limitation, competition;
changes in regulatory requirements or other regulatory issues; the volume and
timing of orders from, and shipments to, international distributors; market
acceptance of the Company's products; changes in pricing policies or price
reductions by the Company or its competitors; variations in the Company's
distribution channels or the mix of product sales; the timing of new product
announcements and product introductions by the Company or its competitors;
product obsolescence resulting from new product introductions or changes in
customer demand; expenses associated with the acquisition of technologies or
businesses and currency fluctuations. While the Company engages in price
discounting from time to time, significant discounts in a particular quarter
could adversely affect the results of operations for such quarter. In addition,
significant and continuing discounts due to competition or other factors could
adversely affect the Company's business, operating results and financial
condition. The Company has from time to time experienced decreased net sales in
the third quarter of each year when compared to the second quarter due in part
to fewer implant procedures performed during the summer vacation months. The
Company has also experienced flat to slightly decreased net sales in the first
quarter of each year when compared to the prior fourth quarter due in part to
some increases in net sales during the fourth quarter largely as a result of the
Company's increased marketing activities in the latter portion of the year. The
impact of the foregoing factors may cause the Company's operating results to be
below the expectations of public market analysts and investors. In such event,
the price of the Company's Common Stock could be materially adversely affected.
Quarterly results are not necessarily indicative of future performance for any
particular period, and there can be no assurance that the Company will attain or
sustain growth in net sales and profitability on a quarterly or annual basis.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAIN MARKET ACCEPTANCE; LIMITED INSURANCE COVERAGE
Dental implants have historically constituted a small percentage of the
total market for dental restorative products and represent a relatively new form
of dental restorative treatment. The dental implant procedure is invasive and
typically takes three to six months to complete, and may take up to nine months
in certain circumstances. This procedure also involves several consultations
with the patient's dentist and one or more surgical procedures. In addition, in
the United States and most other countries, the dental implants and related
procedures generally are not covered under private or government sponsored
health care plans, or, if
11
<PAGE> 13
covered, are subject to a cap on coverage that only covers a portion of the cost
to the patient. Many competing products, such as bridges and dentures, are
covered under such plans and are, in general, less expensive than dental
implants. There can be no assurance concerning the extent to which the Company's
implant products will be reimbursed under health care plans in the future. The
absence of insurance coverage and the cost of implants may adversely impact the
market for dental implants. Due to the foregoing factors, there can be no
assurance that the demand for implant products such as the Company's will
continue at current levels or will increase relative to the demand for
alternative restorative products. See "Business -- Industry Background" and
"-- Customers, Marketing and Sales."
RISK OF INTERRUPTION OF MANUFACTURING
The Company's manufacturing facilities include a Class 10,000 clean room
and extensive specialized equipment and are subject to the current QSR
regulations. The cutting, machining and initial cleaning of the Company's
products take place at leased facilities a short distance from the Company's
headquarters in Yorba Linda, California. Final cleaning, sterilization, assembly
(in certain circumstances), packaging, coating and testing take place at the
Company's headquarters. If a disaster (such as an earthquake or fire) were to
destroy or significantly damage this facility, the Company would need to repair
its existing facility or develop a new facility and obtain the necessary
regulatory approvals of the facility, which could take a substantial period of
time. Customer orders would have to be supplied from limited inventory. While
the Company has business interruption insurance to cover a portion of this loss,
such insurance would not compensate the Company for the loss of opportunity and
the potential adverse impact on relations with existing customers created by an
inability to deliver its products. In addition, certain of the leases for the
Company's manufacturing facilities expire in December 1997 or can be terminated
on relatively short notice. The loss of the Company's manufacturing capability
from a disaster or the untimely termination of any of the leases for the
Company's manufacturing facilities would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business -- Manufacturing."
DEPENDENCE ON PROPRIETARY RIGHTS
The Company relies to some extent on proprietary technology, which it
protects primarily through trade secret and other intellectual property laws,
proprietary know-how, licensing arrangements, patents and non-disclosure
agreements with employees. The Company currently holds five United States
patents relating to its products and has applications pending for seven
additional United States patents. In addition, the Company currently licenses a
number of patents relating to the DIA Anatomic Abutment and Bio-Esthetic
Abutment systems and the Immediate Impression Implant. There can be no assurance
that any future patents or licenses will be issued, that any issued patents or
other intellectual property rights of the Company will provide meaningful
protection for the Company's proprietary technology or that the steps taken by
the Company to protect its proprietary technologies will be adequate to prevent
misappropriation by third parties in the United States or abroad. In addition,
there can be no assurances that infringement claims will not be asserted against
the Company in the future. Any such claims, with or without merit, could be
time-consuming, result in costly litigation and a diversion of management's
efforts, cause product shipment delays or require the Company to enter into
royalty or licensing agreements. Such royalty or licensing agreements, if
required, may not be available on terms acceptable to the Company, if at all.
Furthermore, if infringement was established, the Company could be required to
pay damages or be enjoined from making, using or selling the infringing product.
Any of the foregoing could have a material adverse effect upon the Company's
business, financial condition and results of operations. See
"Business -- Proprietary Rights."
DEPENDENCE UPON KEY PERSONNEL
The Company's success depends in significant part upon the continued
service of its key management and marketing personnel, particularly its
executive officers. The Company is dependent on its ability to identify, hire,
train, integrate, retain and motivate high quality personnel. The industry in
which the Company competes is characterized by intense competition for skilled
personnel. The Company's employees may terminate their employment with the
Company at any time. Accordingly, there can be no assurance that any
12
<PAGE> 14
of the Company's current employees will continue to work for the Company. Loss
of services of key employees could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Management."
CONTROL BY DIRECTORS, EXECUTIVE OFFICERS AND AFFILIATED ENTITIES
The Company's directors, executive officers and certain of their affiliates
will, in the aggregate, beneficially own approximately 41.6% of the Company's
outstanding shares of Common Stock following the completion of the Offering (or
approximately 39.2% if the Underwriters exercise their over-allotment option in
full). The 1818 Fund II, L.P., which is represented by three members of the
Company's Board of Directors, will beneficially own 38.0% of the Company's
outstanding shares of Common Stock following the completion of the Offering.
These stockholders, if acting together, would be able to significantly influence
all matters requiring approval by the stockholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. See "Certain Transactions" and "Principal Stockholders."
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or be sustained for the Common Stock after the Offering or that the market price
of the Common Stock will not decline below the initial public offering price.
The initial public offering price will be determined by negotiations among the
Company and representatives of the Underwriters. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price. The stock market has experienced extreme price and volume
fluctuations that have in the past particularly affected the market price for
many medical device companies, and that have, on occasion, been unrelated to the
operating performance of these companies. These broad market fluctuations, as
well as other factors, may adversely affect the market price of the Company's
Common Stock. The Company's net sales or results of operations in future
quarters may be below the expectations of public market securities analysts and
investors. In such event, the price of the Company's Common Stock would likely
decline, perhaps substantially. Furthermore, factors such as announcements of
acquisitions; general economic conditions; quarterly fluctuations in financial
results and market conditions for stocks similar to that of the Company; new
products or product enhancements by the Company or its competitors; developments
in patents or other intellectual property rights; changes in the Company's
relationships with distributors and suppliers and other factors could have
significant impact on the market price of the Common Stock.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of governmental regulations relating to
the use, storage, discharge, handling and disposal of toxic or other hazardous
substances, chemicals, materials or waste. Small amounts of hazardous substances
are used in the Company's manufacturing process, and the Company contracts with
third parties for the disposal of such waste. Any failure to comply with current
or future regulations could result in civil penalties or criminal fines being
imposed on the Company, or its officers, directors or employees, suspension of
production, alteration of its manufacturing process or cessation of operations.
Such regulations could require the Company to acquire expensive remediation or
abatement equipment or to incur expenses to comply with environmental
regulations. Any failure by the Company to properly manage the use, disposal or
storage of, or adequately restrict the release of, hazardous or toxic substances
could subject the Company to significant liabilities. See
"Business -- Manufacturing."
POTENTIAL ANTI-TAKEOVER EFFECTS OF DELAWARE LAW AND THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
The Company's Board of Directors has the authority, without further action
by the stockholders, to issue from time to time up to 5,000,000 shares of
Preferred Stock in one or more classes or series, and to fix the rights and
preferences of such Preferred Stock. The Company's Certificate of Incorporation,
as amended, (the "Certificate") provides for staggered terms for members of the
Board of Directors and does not permit
13
<PAGE> 15
stockholders to act without a meeting. The Company is also subject to provisions
of Delaware corporate law that, subject to certain exceptions, will prohibit the
Company from engaging in any "business combination" with a person who, together
with affiliates and associates, owns 15% or more of the Company's Common Stock
(an "Interested Stockholder") for a period of three years following the time
that such person became an Interested Stockholder, unless the business
combination is approved in a prescribed manner. In addition, the Company's
bylaws, as amended (the "Bylaws"), establish an advance notice procedure for
stockholder proposals and for nominating candidates for election as directors.
These provisions of Delaware law and of the Company's Certificate and Bylaws may
have the effect of delaying, deterring or preventing a change in control of the
Company, may discourage bids for the Common Stock at a premium over the
prevailing market price and may adversely affect the market price, and the
voting and other rights of the holders, of the Common Stock. See "Description of
Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market after the
Offering could adversely affect the market price of the Common Stock. Upon the
completion of the Offering, the Company will have a total of 10,933,547 shares
of Common Stock outstanding, of which only the 4,700,000 shares offered hereby
will be freely tradeable without restriction under the Securities Act of 1933,
as amended (the "Securities Act"). All of the remaining 6,233,547 shares are
"restricted securities" as defined by Rule 144 promulgated under the Securities
Act, of which 4,800,000 shares will be eligible for sale in the public market in
reliance on Rule 144 (subject to the volume and other applicable restrictions of
Rule 144) commencing 90 days following the date of this Prospectus. The holders
of all of such shares, however, have agreed not to dispose of their shares until
180 days after the date of this Prospectus. Upon the consummation of the
Offering, approximately 959,350 shares will be issuable upon exercise of
outstanding options. Following the Offering, the Company intends to file a
registration statement covering shares of Common Stock reserved for issuance
under outstanding options and under the 1997 Plan. Subject to Rule 144 volume
limitations applicable to affiliates, such shares will be available for sale in
the open market at the time they are exercised by the holder thereof. See
"Management -- Compensation Plans and Arrangements," "Principal Stockholders"
and "Shares Eligible for Future Sale."
DILUTION
Purchasers of the Common Stock in the Offering will suffer an immediate and
substantial dilution of $13.43 per share in the pro forma net tangible book
value of the Common Stock from the initial public offering price. Moreover, to
the extent outstanding options or warrants to purchase the Company's Common
Stock are exercised in the future, there will be further dilution. See
"Dilution."
14
<PAGE> 16
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of the
4,700,000 shares of Common Stock offered hereby, after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, are estimated to be approximately $64.9 million ($74.7 million if the
Underwriters' over-allotment option is exercised in full), assuming an initial
public offering price of $15.00 per share.
The Company intends to use approximately $15.2 million of the net proceeds
from the Offering to redeem all outstanding shares of Class A Preferred Stock,
Class B Preferred Stock and Class C Preferred Stock not converting into Common
Stock in the Preferred Stock Conversion upon consummation of the Offering. The
Company also intends to use approximately $12.8 million of the net proceeds of
the Offering to repay the Subordinated Notes. Assuming the Offering closes on
October 31, 1997, the Company estimates that it will be required to pay $2.9
million of accrued dividends on the Preferred Stock and $1.7 million and $1.8
million of accrued interest and prepayment penalties, respectively, in
connection with the early retirement of the Subordinated Notes. Interest on the
Subordinated Notes is payable in quarterly installments and the outstanding
principal amounts are due and payable in May 2003. The proceeds from the
Subordinated Notes were used to fund the acquisition of the Company in November
1996. See "Certain Transactions."
The Company intends to use any remaining net proceeds of the Offering to
repay the outstanding indebtedness under the Bank Facility, which includes an
$18.3 million revolving credit line, $7.5 million term loan, $5.0 million
working capital line and $3.0 million capital expenditure line. Interest accrues
on such indebtedness as follows: (i) the reference rate announced by the First
Bank of Chicago as its base rate (the "Reference Rate") plus 1.5% per annum or
the LIBOR rate plus 3.0% per annum on the revolving credit line, (ii) the
Reference Rate plus 2.0% per annum or the LIBOR rate plus 3.75% per annum on the
term loan, (iii) the Reference Rate plus 1.5% per annum or the LIBOR rate plus
2.75% per annum on the working capital line and (iv) the Reference Rate plus
1.5% per annum or the LIBOR rate plus 3.0% per annum on the capital expenditure
line. The outstanding principal amounts on the revolving credit line, term loan,
working capital line and capital expenditure line are due on November 15, 2001,
November 15, 2002, November 15, 1999 and November 15, 2002, respectively. The
proceeds of the Bank Facility, other than the working capital and capital
expenditure lines, were used to fund the Acquisition in November 1996.
Any remaining proceeds from the Offering will be used for working capital
and other general corporate purposes. Pending the uses outlined above, the net
proceeds are expected to be invested in short-term, interest-bearing investment
grade or United States government securities.
DIVIDEND POLICY
The Company has never declared or paid a cash dividend on its Common Stock.
The Company currently intends to retain earnings to finance its operations and
future growth and does not anticipate paying any cash dividends on its Common
Stock in the foreseeable future. The Company's Bank Facility prohibits the
payment of dividends without the consent of the lenders thereunder.
15
<PAGE> 17
CAPITALIZATION
The following table sets forth the actual and pro forma capitalization of
the Company as of June 30, 1997. See "Use of Proceeds," "Unaudited Pro Forma
Consolidated Financial Data" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF JUNE 30, 1997
------------------------
ACTUAL PRO FORMA(1)
------- ------------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents............................................ $ 61 $ 2,408
======= ========
Long-term debt (including current portion)(2):
Bank Facility...................................................... $30,376 --
16% Series A Subordinated Notes.................................... 10,168 --
14% Series B Subordinated Notes.................................... 2,501 --
Class A 8.8% Cumulative Redeemable Preferred Stock, $.0001 par
value, 100,000 shares authorized; 22,000 shares issued and
outstanding actual; and no shares issued and outstanding pro
forma........................................................... 22,161 --
Class B 8.0% Cumulative Convertible Preferred Stock, $.0001 par
value, 10,000 shares authorized, issued and outstanding actual;
and no shares issued and outstanding pro forma.................. 10,500 --
Class C 8.0% Junior Cumulative Redeemable Preferred Stock, $.0001
par value, 3,200 shares authorized, 3,185 shares issued and
outstanding actual; and no shares issued and outstanding pro
forma........................................................... 3,153 --
Stockholder's equity (deficit):
Common Stock, $.0001 par value, 35,000,000 shares authorized;
50,000(3) issued and outstanding actual; and 10,933,547(4)
shares issued and outstanding pro forma......................... -- $ 1
Additional paid-in capital......................................... 1,909 88,659
Accumulated deficit............................................. (3,055) (11,105)(5)
------- --------
Total stockholders' equity (deficit)....................... (1,146) 77,555
------- --------
Total capitalization....................................... $77,713 $ 77,555
======= ========
</TABLE>
- ---------------
(1) Gives effect to the Preferred Stock Conversion and the Offering and the
application of the estimated proceeds therefrom. See "Use of Proceeds" and
"Unaudited Pro Forma Consolidated Financial Data."
(2) Net of unamortized debt discount.
(3) Excludes 4,750,000 shares of Common Stock issuable upon the exercise of
outstanding warrants, 733,350 shares of Common Stock issuable upon the
exercise of outstanding options and 1,433,547 shares of Common Stock
issuable in connection with the Preferred Stock Conversion.
(4) Excludes 959,350 shares of Common Stock issuable upon the exercise of
outstanding options.
(5) Includes the effect of an extraordinary charge of $7.8 million, net of
related tax benefit, relating to (i) the elimination of deferred financing
costs associated with the repayment of the Subordinated Notes and the Bank
Facility and the conversion and/or redemption of all mandatorily redeemable
Preferred Stock, (ii) the charge related to the Preferred Stock Conversion
and (iii) the prepayment penalties incurred in connection with the repayment
of the Subordinated Notes. Also includes a compensation charge related to
options granted below the fair value per share at the date of grant, which
options vest immediately upon consummation of the Offering.
16
<PAGE> 18
DILUTION
As of June 30, 1997, the net tangible book value (deficit) of the Company
was approximately $(45,913,000), or $(7.37) per share of Common Stock. "Net
tangible book value" per share represents the amount of total tangible assets of
the Company reduced by the amount of its total liabilities, divided by the
number of shares of Common Stock outstanding, assuming the conversion of 17,471
shares of Class A Preferred Stock and 2,527 shares of Class C Preferred Stock
into 1,433,547 shares of Common Stock on that date. After giving effect to the
sale of 4,700,000 shares of Common Stock offered by the Company hereby and the
receipt of the net proceeds therefrom at an assumed initial public offering
price of $15.00 per share, the pro forma net tangible book value of the Company
as of June 30, 1997, would have been approximately $16,560,000 or $1.57 per
share of Common Stock. This represents an immediate increase in net tangible
book value of $8.94 per share to existing stockholders and an immediate dilution
of $13.43 per share to new investors. The following table illustrates this per
share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................... $15.00
Net tangible book value (deficit) per share before the
Offering...................................................... $(7.37)
Increase per share attributable to new investors................. 8.94
------
Pro forma net tangible book value per share after the Offering..... 1.57
------
Dilution per share to new investors................................ $13.43
======
</TABLE>
As of August 26, 1997, options to purchase an aggregate of 733,350 shares
of Common Stock were outstanding at a weighted average exercise price of $0.58
per share. The computations in the foregoing table assume no exercise of these
stock options. To the extent these options or warrants are exercised, there will
be further dilution to new investors. See Note 9 of Notes to Consolidated
Financial Statements.
The following table summarizes, on a pro forma basis as of June 30, 1997,
the differences between the number of shares of Common Stock purchased from the
Company, the total consideration paid and the average price per share paid by
existing stockholders and by new investors purchasing shares in the Offering
(assuming an initial public offering price of $15.00 per share and before
deducting underwriting discounts and commissions and estimated offering
expenses).
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
---------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 6,233,547 57.0% $20,000,960 22.1% $ 3.21
New investors............. 4,700,000 43.0 70,500,000 77.9 15.00
---------- ----- ----------- -----
Total........... 10,933,547 100.0% $90,500,960 100.0%
========== ===== =========== =====
</TABLE>
17
<PAGE> 19
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited condensed consolidated pro forma financial data
(the "Unaudited Pro Forma Financial Data") as of June 30, 1997 and for the six
months ended June 30, 1996 and 1997 is prepared from the application of pro
forma adjustments to data derived from the unaudited historical consolidated
financial statements of the Company. The unaudited condensed consolidated pro
forma financial data for the year ended December 31, 1996 is prepared from the
application of pro forma adjustments to data derived from the audited historical
consolidated financial statements for the period from January 1 through November
15, 1996 of the Company's predecessor, S-O, a wholly-owned subsidiary of Bausch
& Lomb, and the period from November 16, 1996 through December 31, 1996 of the
Company. The unaudited pro forma condensed consolidated statement of operations
for the six months ended June 30, 1996 and the year ended December 31, 1996
gives effect to: (i) the Acquisition, (ii) the Preferred Stock Conversion and
(iii) the Offering and application of the net proceeds therefrom, as if each
transaction had occurred on January 1, 1996. The unaudited pro forma condensed
consolidated statement of operations for the six months ended June 30, 1997
gives effect to (ii) and (iii) as if each had occurred on January 1, 1997. The
unaudited pro forma condensed consolidated balance sheet gives effect to (ii)
and (iii) as if each had occurred on June 30, 1997. The adjustments are
described in the accompanying footnotes. The Unaudited Pro Forma Financial Data
does not purport to represent what the Company's results of operations actually
would have been if those transactions had been consummated on the date or for
the periods indicated, or what such results will be for any future date or for
any future period. The Unaudited Pro Forma Financial Data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Registration Statement.
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
JAN. 1, NOV. 16,
1996 1996
THROUGH THROUGH COMBINED
NOV. 15, DEC. 31, YEAR ENDED
1996 1996 DECEMBER 31, ACQUISITION OFFERING
(PREDECESSOR) (COMPANY) 1996 ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- --------- ------------ ----------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $28,108 $ 4,089 $ 32,197 $ $ $ 32,197
Cost of sales.................... 7,430 1,356 8,786 8,786
------- ------ ------- ------- ------- ----------
Gross profit..................... 20,678 2,733 23,411 23,411
Selling, general and
administrative expense......... 14,791 1,929 16,720 501(1) 17,221
Research and development
expense........................ 2,116 352 2,468 2,468
Interest expense................. 1,065 1,065 7,612(2) (8,677)(3) --
------- ------ ------- ------- ------- ----------
Income (loss) before income
taxes.......................... 3,771 (613) 3,158 (8,113) 8,677 3,722
Income taxes..................... 1,852 1,852 (363)(4) 1,489
------- ------ ------- ------- ------- ----------
Net income (loss)(5)............. $ 1,919 $ (613) $ 1,306 $(8,113) $ 9,040 $ 2,233
======= ====== ======= ======= ======= ==========
Net income per share(5)(6)....... $ 0.19
==========
Shares outstanding(6)............ 11,638,541
OTHER DATA:
EBITDA(7)........................ $ 6,076
Depreciation..................... 844
Amortization..................... 1,510
Capital expenditures............. 2,207
</TABLE>
- ---------------
(1) Reflects the effect of additional amortization of $59.2 million of
tax-deductible goodwill recorded in connection with the Acquisition, which
amounts to approximately $1.5 million annually, for the period from January
1, 1996 through November 15, 1996.
18
<PAGE> 20
(2) Reflects the increase in interest expense and amortization of deferred
financing costs related to the Subordinated Notes, the Bank Facility and the
mandatorily redeemable Preferred Stock issued in connection with the
Acquisition assuming the Acquisition occurred on January 1, 1996.
(3) Reflects the reduction in interest expense as a result of the redemption of
all outstanding shares of mandatorily redeemable Preferred Stock not
converting into Common Stock in the Preferred Stock Conversion and the
repayment of the Subordinated Notes and the Bank Facility. Also reflects a
reduction in interest expense due to the elimination of dividends on the
mandatorily redeemable Preferred Stock as a result of the Preferred Stock
Conversion.
(4) Reflects adjustment to increase pro forma income tax expense to result in an
effective income tax rate of 40%.
(5) Excludes the effect of an extraordinary charge of $7.8 million, net of the
related tax benefit, relating to (i) the elimination of deferred financing
costs associated with the repayment of the Subordinated Notes and the Bank
Facility and the conversion and/or redemption of all mandatorily redeemable
Preferred Stock, (ii) the charge related to the Preferred Stock Conversion
and (iii) the prepayment penalties incurred in connection with the repayment
of Subordinated Notes.
(6) Computed based on weighted average shares outstanding assuming the Preferred
Stock Conversion and the Offering and the application of the net proceeds
therefrom were consummated on January 1, 1996. Also includes the effect of
Common Stock and equivalents issued within one year from the filing of the
Registration Statement of which this Prospectus is a part at prices per
share below the initial public offering price, using the treasury stock
method using an assumed initial public offering price of $15.00 per share.
(7) The Company believes that EBITDA provides a useful comparison of period to
period income; however, EBITDA should not be considered acceptable reporting
under generally accepted accounting principles or as an alternative to
income from operations or net income (loss) as an indicator of the Company's
operating performance or to cash flows as a measure of liquidity.
19
<PAGE> 21
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
SIX MONTHS
ENDED OFFERING
JUNE 30, 1997 ADJUSTMENTS PRO FORMA
------------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE
DATA)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................................ $19,334 $ $ 19,334
Cost of sales........................................ 5,148 5,148
------- ------- ----------
Gross profit......................................... 14,186 14,186
Selling, general and administrative expense.......... 10,966 10,966
Noncash compensation expense......................... 8 346(1) 354
Research and development expense..................... 1,322 1,322
Interest expense..................................... 4,332 (4,332)(2)
------- ------- ----------
Income (loss) before income taxes.................... (2,442) 3,986 1,544
Income taxes......................................... -- 618(3) 618
------- ------- ----------
Net income (loss)(4)................................. $(2,442) $ 3,368 $ 926
======= ======= ==========
Net income per share(4)(5)........................... $ 0.08
==========
Shares outstanding(5)................................ 11,638,541
OTHER DATA:
EBITDA(6)............................................ $ 2,988
Depreciation......................................... 575
Amortization......................................... 869
Capital expenditures................................. 1,018
</TABLE>
- ---------------
(1) Reflects compensation expense in connection with options granted in May 1997
below the fair value per share at the date of grant, which options vest
immediately upon consummation of the Offering.
(2) Reflects the reduction in interest expense as a result of the redemption of
all outstanding shares of mandatorily redeemable Preferred Stock not
converting into Common Stock in the Preferred Stock Conversion and the
repayment of the Subordinated Notes and the Bank Facility. Also reflects a
reduction in interest expense due to the elimination of dividends on the
mandatorily redeemable Preferred Stock as a result of the Preferred Stock
Conversion.
(3) Reflects adjustment to increase pro forma income tax expense to result in an
effective income tax rate of 40%.
(4) Excludes the effect of an extraordinary charge of $7.8 million, net of the
related tax benefit, relating to (i) the elimination of deferred financing
costs associated with the repayment of the Subordinated Notes and the Bank
Facility and the conversion and/or redemption of all mandatorily redeemable
Preferred Stock, (ii) the charge related to the Preferred Stock Conversion
and (iii) the prepayment penalties incurred in connection with the repayment
of Subordinated Notes.
(5) Computed based on weighted average shares outstanding assuming the Preferred
Stock Conversion and the Offering and application of the net proceeds
therefrom were consummated on January 1, 1997. Also includes the effect of
Common Stock and equivalents issued within one year from the filing of the
Registration Statement of which this Prospectus is a part at prices per
share below the initial public offering price, using the treasury stock
method using an assumed initial public offering price of $15.00 per share.
(6) The Company believes that EBITDA provides a useful comparison of period to
period income; however, EBITDA should not be considered acceptable reporting
under generally accepted accounting principles or as an alternative to
income (loss) from operations or net income (loss) as an indicator of the
Company's operating performance or to cash flows as a measure of liquidity.
20
<PAGE> 22
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
SIX MONTHS
ENDED ACQUISITION OFFERING
JUNE 30, 1996 ADJUSTMENTS ADJUSTMENTS PRO FORMA
------------- ----------- ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $15,744 $ $ $ 15,744
Cost of sales.............................. 4,226 4,226
------- ------- ------- ----------
Gross profit............................... 11,518 11,518
Selling, general and administrative 8,224 285(1) 8,509
expense..................................
Research and development expense........... 1,255 1,255
Noncash compensation expense...............
Interest expense........................... 4,318(2) (4,318)(3) --
------- ------- ------- ----------
Income (loss) before income taxes.......... 2,039 (4,603) 4,318 1,754
Income taxes............................... 1,003 (301)(4) 702
------- ------- ------- ----------
Net income................................. $ 1,036 $ (4,603) $ 4,619 $ 1,052
======= ======= ======= ==========
Net income per share(5).................... $ 0.09
==========
Shares outstanding(5)...................... 11,638,541
OTHER DATA:
EBITDA(6).................................. $ 2,896
Depreciation............................... 352
Amortization............................... 790
Capital expenditures....................... 1,286
</TABLE>
- ---------------
(1) Reflects the effect of additional amortization of $59.2 million of
tax-deductible goodwill recorded in connection with the Acquisition, which
amounts to approximately $1.5 million annually, for the period from January
1, 1996 through June 30, 1996.
(2) Reflects the increase in interest expense and amortization of deferred
financing costs related to the Subordinated Notes, the Bank Facility and
mandatorily redeemable Preferred Stock issued in connection with the
Acquisition assuming the Acquisition had occurred on January 1, 1996.
(3) Reflects the reduction in interest expense as a result of the redemption of
all outstanding shares of mandatorily redeemable Preferred Stock not
converting into Common Stock in the Preferred Stock Conversion and the
repayment of the Subordinated Notes and the Bank Facility. Also reflects a
reduction in interest expense due to the elimination of dividends on the
mandatorily redeemable Preferred Stock as a result of the Preferred Stock
Conversion.
(4) Reflects adjustment to increase pro forma income tax expense to result in an
effective income tax rate of 40%.
(5) Computed based on weighted average shares outstanding assuming the Preferred
Stock Conversion and the Offering and the application of proceeds therefrom
were consummated on January 1, 1996. Also includes the effect of Common
Stock and equivalents issued within one year from the filing of the
Registration Statement of which this Prospectus is a part at prices per
share below the initial public offering price, using the treasury stock
method using an assumed initial public offering price of $15.00 per share.
(6) The Company believes that EBITDA provides a useful comparison of period to
period income; however, EBITDA should not be considered acceptable reporting
under generally accepted accounting principles or as an alternative to
income (loss) from operations or net income (loss) as an indicator of the
Company's operating performance or to cash flows as a measure of liquidity.
21
<PAGE> 23
UNAUDITED CONDENSED CONSOLIDATED PRO FORMA BALANCE SHEET
JUNE 30, 1997
ASSETS
<TABLE>
<CAPTION>
AT JUNE PREFERRED STOCK
30, CONVERSION OFFERING
1997 ADJUSTMENTS ADJUSTMENTS PRO FORMA
------- --------------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents............ $ 61 $ $ 2,347(1) $ 2,408
Accounts receivable, net............. 7,083 7,083
Inventories.......................... 6,062 6,062
Prepaid expenses and other current
assets............................ 305 305
------- -------- -------- --------
Total current assets.............. 13,511 2,347 15,858
Fixed assets, net...................... 5,128 5,128
Goodwill, net.......................... 59,352 59,352
Other assets........................... 5,415 (3,008)(2) 2,407
------- -------- -------- --------
Total assets...................... $83,406 $ $ (661) $ 82,745
======= ======== ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities
Current portion of long-term debt.... $ 3,269 $ $ (3,269)(3) $
Accounts payable..................... 2,091 2,091
Accrued liabilities.................. 3,114 (503)(3) 2,611
Customer advances.................... 488 488
------- -------- -------- --------
Total current liabilities......... 8,962 (3,772) 5,190
Long-term debt......................... 39,776 (39,776)(3)
Mandatorily redeemable Preferred
Stock................................ 35,814 (20,000)(4) (15,814)(5)
------- -------- -------- --------
Total liabilities................. 84,552 (20,000) (59,362) 5,190
------- -------- -------- --------
Stockholders' equity (deficit)
Common Stock and additional paid-in
capital........................... 1,909 21,505(4) 65,246(6) 88,660
Accumulated deficit.................. (3,055) (1,505)(4)(7) (6,545)(7) (11,105)
------- -------- -------- --------
Total stockholders' equity
(deficit)....................... (1,146) 20,000 58,701 77,555
------- -------- -------- --------
Total liabilities and
stockholders' equity............ $83,406 $ $ (661) $ 82,745
======= ======== ======== ========
</TABLE>
- ---------------
(1) Reflects the increase in cash and cash equivalents equal to the net proceeds
from the Offering less the redemption of mandatorily redeemable Preferred
Stock and repayment of the Subordinated Notes and the Bank Facility upon
consummation of the Offering.
(2) Reflects write-off of debt issue costs and Preferred Stock issue costs of
$4.8 million, less deferred income tax asset of $1.6 million recorded for
the extraordinary charge discussed in footnote 7.
(3) Reflects the repayment of the Subordinated Notes and the Bank Facility upon
consummation of the Offering.
(4) Reflects the Preferred Stock Conversion upon consummation of the Offering
and the extraordinary charge related thereto.
(5) Reflects the redemption upon consummation of the Offering of all shares of
mandatorily redeemable Preferred Stock not converting into Common Stock in
the Preferred Stock Conversion.
(6) Reflects the application of the net proceeds from the Offering and the value
of options issued below fair value at the date of grant, which options vest
immediately upon consummation of the Offering.
(7) Reflects an extraordinary charge of $7.8 million, net of the related tax
benefit, relating to the elimination of deferred finance costs associated
with (i) the repayment of the Subordinated Notes and the Bank Facility and
the conversion and redemption of all mandatorily redeemable Preferred Stock,
(ii) the charge related to the Preferred Stock Conversion and (iii) the
prepayment penalties incurred in connection with the repayment of the
Subordinated Notes. Also reflects a compensation charge related to options
granted in May 1997 below the fair value per share at the date of grant,
which options vest immediately upon consummation of the Offering.
22
<PAGE> 24
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
years ended December 31, 1994 and 1995, the period January 1, 1996 through
November 15, 1996, the period November 16, 1996 through December 31, 1996 and
the selected consolidated balance sheet data as of December 31, 1995 and 1996
are derived from the audited Consolidated Financial Statements included
elsewhere in this Prospectus. The selected consolidated statement of operations
data for the six months ended June 30, 1996 and 1997 and the selected
consolidated balance sheet data as of June 30, 1996 and 1997 are derived from
unaudited Consolidated Financial Statements included elsewhere in this
Prospectus. The selected consolidated statement of operations data for the years
ended December 31, 1992 and 1993 and the selected consolidated balance sheet
data as of December 31, 1992 and 1993, are derived from the unaudited
Consolidated Financial Statements not included in this Prospectus, which
Consolidated Financial Statements were prepared by management of the Company on
the same basis as the audited Consolidated Financial Statements included
elsewhere herein and, in the opinion of the Company, include all adjustments
(consisting of only normal recurring adjustments) necessary to present fairly
the information set forth below. The following selected consolidated financial
data should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. The Company
uses a 52/53 week fiscal year ending on the last Saturday in December. As a
result, fiscal periods may not end on the same day as the end of the respective
calendar periods.
<TABLE>
<CAPTION>
COMPANY
PREDECESSOR(1) ------------ PREDECESSOR COMPANY
---------------------------------------------------- NOVEMBER 16, ----------- ----------
JANUARY 1, 1996 SIX MONTHS SIX MONTHS
YEAR ENDED DECEMBER 31, THROUGH THROUGH ENDED ENDED
------------------------------------- NOVEMBER 15, DECEMBER 31, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996 1996(2) 1996 1997(3)
------- ------- ------- ------- ------------ ------------ ----------- ----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $12,735 $16,845 $22,168 $27,361 $ 28,108 $ 4,089 $15,744 $ 19,334
Cost of sales.................. 4,042 5,127 6,666 7,865 7,430 1,356 4,226 5,148
------- ------- ------- ------- ------- ----------- ------- -----------
Gross profit................... 8,693 11,718 15,502 19,496 20,678 2,733 11,518 14,186
Selling, general and
administrative expense....... 6,164 8,698 11,393 14,241 14,791 1,929 8,224 10,974
Research and development
expense...................... 1,218 1,618 1,781 2,225 2,116 352 1,255 1,322
------- ------- ------- ------- ------- ----------- ------- -----------
Income from operations......... 1,311 1,402 2,328 3,030 3,771 452 2,039 1,890
Interest expense............... 45 50 -- -- -- 1,065 -- 4,332
------- ------- ------- ------- ------- ----------- ------- -----------
Income (loss) before income
taxes........................ 1,266 1,352 2,328 3,030 3,771 (613) 2,039 (2,442)
Income taxes................... 506 836 1,253 1,572 1,852 -- 1,003 --
------- ------- ------- ------- ------- ----------- ------- -----------
Net income (loss).............. $ 760 $ 516 $ 1,075 $ 1,458 $ 1,919 $ (613) $ 1,036 $ (2,442)
======= ======= ======= ======= ======= =========== ======= ===========
Net (loss) per share(4)........ $ (0.05) $ (0.20)
=========== ===========
Shares outstanding(4).......... 11,638,541 11,638,541
OTHER DATA:
EBITDA(5)...................... $ 1,492 $ 2,301 $ 3,523 $ 4,481 $ 5,281 $ 795 $ 2,896 $ 3,334
Depreciation................... 181 161 363 595 712 132 352 575
Amortization(6)................ -- 738 832 856 798 211 505 869
Capital expenditures........... 191 311 1,702 1,190 1,957 250 1,286 1,018
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR(1)
------------------------------------ COMPANY
----------------------
DECEMBER 31, JUNE
------------------------------------ DECEMBER 31, 30,
1992 1993 1994 1995 1996(2) 1997(3)
------ ------- ------- ------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....................................... $ -- $ -- $ 155 $ 120 $ 220 $ 61
Working capital................................................. 502 1,629 4,585 4,706 2,357 4,549
Total assets.................................................... 4,266 31,796 33,764 35,648 79,627 83,406
Total long-term debt and mandatorily redeemable Preferred
Stock(7)...................................................... -- -- -- -- 73,642 78,859
Total stockholder's equity (deficit)/Predecessor equity......... 1,058 27,220 30,698 32,588 1,288 (1,146)
</TABLE>
- ---------------
(1) Represents the historical financial data of the Company's predecessor, S-O,
a wholly-owned subsidiary of Bausch & Lomb. For 1992, represents the
historical financial data of S-O's predecessor.
(2) Includes the results of operations and the assets of S-O subsequent to the
Acquisition in November 1996.
(3) Includes the results of operations of the dental business of Interpore
subsequent to its acquisition in May 1997.
(4) Share and per share data are not considered meaningful since S-O operated as
a wholly-owned subsidiary of Bausch & Lomb from 1993 through November 15,
1996.
(5) The Company believes that EBITDA provides a useful comparison of period to
period income; however, EBITDA should not be considered acceptable reporting
under generally accepted accounting principles or as an alternative to
income (loss) from operations or net income (loss) as an indicator of the
Company's operating performance or to cash flows as a measure of liquidity.
(6) Includes the effect of amortization of $59.2 million of goodwill recorded in
connection with the Acquisition, which is being amortized over a 40 year
period and is tax deductible.
(7) Includes current portion of long-term debt.
23
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with, and is
qualified in its entirety by, the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus. Historical and pro forma results
of operations, percentage relationships and any trends that may be inferred from
the discussion below are not necessarily indicative of the operating results for
any future period.
GENERAL
Steri-Oss develops, manufactures and markets a broad line of dental
implants, abutments and related surgical instruments for distribution in North
America, Europe/the Middle East, Asia and Central and South America. The
Company's products are used by oral surgeons, periodontists and implantologists
who typically perform the implant surgery, as well as general practitioners and
prosthodontists who usually prepare the crown or other prosthetic device that
fits on the abutment. In North America, the Company sells its products through
its direct sales force consisting of over 40 persons. Internationally, the
Company sells its products through 26 independent distributors in more than 35
countries.
The Company's predecessor sold its first dental implant in 1986 and was
acquired by the Company from Bausch & Lomb in November 1996. In May 1997, the
Company acquired the dental operations of Interpore. The Company accounted for
each of its acquisitions as a purchase for financial reporting purposes and, as
a result, the Company's consolidated statement of operations data includes the
operating results of the acquired companies and assets from their respective
dates of acquisition. In connection with the Acquisition, the Company recorded
$59.2 million in goodwill, which is being amortized by the Company over a
40-year period, resulting in tax-deductible amortization of approximately $1.5
million per year.
The Company's products are purchased by dental professionals who bill the
patients directly for the implant procedure. In the United States and most other
countries, implants generally are not covered by health insurance and, as a
result, the patient is responsible for payment to the dental professional. While
certain competitive implants are less expensive than the Company's implants, the
Company believes its prices are competitive with other high-quality implant
products. Due in part to the importance of quality and customer service and to
the minor cost of the implant relative to the cost of the implant procedure, the
Company does not believe that price is a major competitive factor. The Company
does, however, provide its customers, particularly its international
distributors, with discounts. The Company uses such discounts to encourage
international distributors to increase their marketing activities and training
programs. The Company has experienced some decline in the average selling price
of its products over the last several years, the effect of which has been
partially offset by a reduction in the Company's cost of goods sold as a
percentage of net sales. While the Company does not anticipate any material
declines in its average selling prices, any such declines could adversely affect
the Company's net sales, results of operations and cash flows.
Approximately 53.2% of the Company's net sales for the six months ended
June 30, 1997 were attributable to dental implants, while abutments and surgical
instrument sales accounted for approximately 30.4% and 16.4% of net sales,
respectively, for the same period. In general, dental implants have the highest
gross margins followed by abutments, which have slightly lower gross margins.
The gross margins on surgical instruments are significantly lower than on dental
implants and abutments because the Company often discounts its surgical
instruments to encourage dental professionals using competitors' products to
switch to the Company's implant systems. The Company generally experiences
higher gross margins on new products and the Company seeks to generate a
significant portion of its net sales in any particular year from recently
introduced products.
International sales (sales outside the United States and Canada)
constituted approximately 41.2% and 41.1% of the Company's net sales during 1996
and for the six months ended June 30, 1997, respectively. The Company
anticipates that international sales will continue to constitute a significant
portion of the Company's net sales in the future. Substantially all of the
Company's international net sales are to independent distributors. In
particular, Metalor and its affiliates accounted for approximately 12.2% of the
Company's net sales during 1996 and 13.9% for the six months ended June 30,
1997. Although the Company's international sales are currently denominated in
United States dollars, fluctuations in currency exchange rates could impact the
Company's net sales or profitability in certain countries.
24
<PAGE> 26
Prior to 1993, the Company outsourced most of its manufacturing to
independent vendors. In 1993, the Company leased a new manufacturing facility
and purchased equipment for the purpose of bringing its manufacturing in-house.
In addition, the Company undertook other measures designed to reduce
manufacturing costs and increase operating efficiencies. Primarily as a result
of these actions, the Company reduced cost of sales from 30.1% in 1994 to 26.6%
for the six months ended June 30, 1997. Currently, the Company manufactures
substantially all of its implants.
While the Company's annual net sales have increased 152.8% from 1992 to
1996, reflecting a five year compounded annual growth rate of 26.1%, the
Company's net sales and results of operations have experienced quarterly
fluctuations. The Company's sales in the third quarter of each year have been
historically lower than in the prior quarter. The Company believes the lower
third quarter sales are due in part to fewer implant procedures performed during
the summer vacation months. The Company has also experienced some increases in
net sales during the fourth quarter followed by lower to flat first quarter
sales primarily due to the Company's increased marketing activities in the
latter portion of the year.
The Company's results of operations are affected by a variety of factors.
If the Company were to experience pricing pressure, an adverse shift in product
mix, increased cost of sales, increased discounts to distributors, increased
manufacturing costs or adverse changes in governmental regulations, such factors
could adversely affect the Company's financial condition and results of
operations.
RESULTS OF OPERATIONS
Effective November 16, 1996, the Company acquired its predecessor, S-O. The
historical data of S-O and the Company are not comparable in certain respects.
Accounting for the acquisition of S-O and the Company have resulted in material
differences due to a change in the basis of accounting between S-O and the
Company. The Company's results of operations since November 16, 1996 have been
affected by an increase in interest expense, amortization of goodwill and debt
issuance costs, and depreciation of fixed assets having a new cost basis. The
income tax expense shown in the statement of operations data for the periods
prior to the acquisition of the Company is the estimated amount that the
Company's predecessor would have incurred on a stand-alone basis. The results of
operations of the Company's predecessor for the period January 1, 1996 through
November 15, 1996 have been combined with the results of operations of the
Company for the period November 16, 1996 through December 31, 1996 to present
the results of operations for the year ended December 31, 1996. See "Unaudited
Pro Forma Consolidated Financial Data."
The following table sets forth for the periods indicated certain
consolidated statements of operations data, as a percentage of the Company's net
sales:
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------- ---------------
1994 1995 1996 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 30.1 28.7 27.3 26.8 26.6
----- ----- ----- ----- -----
Gross profit....................................... 69.9 71.3 72.7 73.2 73.4
Selling, general and administrative expense........ 51.4 52.1 51.9 52.2 56.8
Research and development expense................... 8.0 8.1 7.7 8.0 6.8
----- ----- ----- ----- -----
Income from operations............................. 10.5 11.1 13.1 13.0 9.8
Interest expense................................... -- -- 3.3 -- 22.4
Income (loss) before income taxes.................. 10.5 11.1 9.8 13.0 (12.6)
Income taxes....................................... 5.7 5.8 5.8 6.4 --
----- ----- ----- ----- -----
Net income (loss).................................. 4.8% 5.3% 4.0% 6.6% (12.6)%
===== ===== ===== ===== =====
OTHER DATA:
EBITDA............................................. 15.9% 16.4% 18.9% 18.4% 17.2%
Amortization....................................... 3.8 3.1 3.1 3.2 4.5
Depreciation....................................... 1.6 2.2 2.6 2.2 3.0
</TABLE>
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<PAGE> 27
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1997
Net Sales. Net sales increased 22.8% from $15.7 million for the six months
ended June 30, 1996 to $19.3 million for the six months ended June 30, 1997,
primarily reflecting increased unit sales of dental implants and abutments.
North American net sales increased by 25.2% for the six month period ended June
30, 1997 as compared to the comparable period in 1996 primarily due to sales of
the Company's Replace Implant System introduced in March 1997 and, to a lesser
extent, net sales attributable to the dental operations acquired from Interpore.
International net sales increased by 19.5% during the six months ended June 30,
1997 as compared to the six months ended June 30, 1996, primarily due to
increased sales in Germany, Korea, Japan and Taiwan.
Gross Profit. Gross profit increased 23.2% from $11.5 million, or 73.2% of
net sales, for the six months ended June 30, 1996 to $14.2 million, or 73.4% of
net sales, for the six months ended June 30, 1997. The increase in gross profit
was primarily due to the increase in sales across all product lines. The
Company's expansion of its manufacturing capacity to include surgical drills and
related products resulted in lower product costs. This margin improvement was
partially offset by increased sales of Interpore products, which generally have
lower margins than certain of the Company's other products.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 33.4% from $8.2 million, or 52.2% of net sales,
for the six months ended June 30, 1996 to $11.0 million, or 56.8% of net sales,
for the six months ended June 30, 1997. This increase was primarily due to the
amortization of tax-deductible goodwill recorded in connection with the
Acquisition, the addition of new sales and marketing personnel, and an increase
in marketing, educational, accounting and financial expenses necessary to
accommodate the Company's growth.
Research and Development Expense. Although research and development expense
remained constant at $1.3 million for each of the six month periods ended June
30, 1996 and 1997, research and development expense decreased as a percentage of
net sales from 8.0% for the six months ended June 30, 1996 to 6.8% for the
comparable six month period in 1997. Research and development expense during the
six month period ended June 30, 1997 primarily consisted of compensation for
engineering and regulatory personnel, project material costs, and clinical
studies and FDA testing related to development activities. The Company expenses
research and development costs when incurred.
Interest Expense. Interest expense for the six months ended June 30, 1997
was $4.3 million, of which $2.3 million consisted of interest on indebtedness
under the Company's Bank Facility and Subordinated Notes, $1.5 million consisted
of accrued dividends on mandatorily redeemable Preferred Stock and $506,000
consisted of the amortization of deferred financing costs incurred in connection
with the Acquisition. The Company had no interest expense during the six months
ended June 30, 1996.
Income Taxes. Income taxes were of $1.0 million for the six months ended
June 30, 1996 reflecting the estimated amount the Company's predecessor would
have incurred on a stand-alone basis. Prior to November 16, 1996, the Company's
results of operations were included in the consolidated returns of Bausch &
Lomb. The Company did not incur any income tax expense during the six months
ended June 30, 1997 as a result of the Company's losses in that period. At June
30, 1997, the Company had net operating loss carryforwards of $2.0 million and
$1.0 million for federal and California purposes, respectively, reflecting the
amortization of tax-deductible goodwill recorded in connection with the
Acquisition.
Net Income (Loss). Net loss was $2.4 million, or (12.6)% of net sales, for
the six months ended June 30, 1997 compared to net income of $1.0 million, or
6.6% of net sales, for the six months ended June 30, 1996, primarily as a result
of increased interest expense and the amortization of tax-deductible goodwill
recorded in connection with the Acquisition in November 1996.
EBITDA. EBITDA increased 15.1% from $2.9 million for the six months ended
June 30, 1996 to $3.3 million for the six months ended June 30, 1997. EBITDA
represented 18.4% of the Company's net sales for the six months ended June 30,
1996 as compared to 17.2% of net sales for the comparable period in 1997.
26
<PAGE> 28
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Net Sales. Net sales increased 17.7% from $27.4 million for the year ended
December 31, 1995 to $32.2 million for the year ended December 31, 1996. North
American net sales increased by 13.8% for the year ended December 31, 1996 as
compared to the prior year due, in part, to the addition of new sales and
marketing personnel to support new sales regions. International net sales
increased by 23.7% in 1996 over 1995, reflecting growth in each of the Company's
major sales regions. Sales of implant products increased by approximately $2.6
million in 1996 as compared to the prior year largely due to the introduction of
implants coated with titanium plasma spray ("TPS") and increased sales and
marketing support. In addition, the Company's continued marketing efforts
towards improving sales of abutments resulted in an increase of approximately
$2.2 million in net sales for such products.
Gross Profit. Gross profit increased 20.1% from $19.5 million, or 71.3% of
net sales, for the year ended December 31, 1995 to $23.4 million, or 72.7% of
net sales, for the year ended December 31, 1996. The increase in gross margin
was due to a shift in the Company's product mix toward higher margin implants
and abutments. This improvement in gross margin was also due to the Company's
1996 expansion of its manufacturing capacity to increase its production of
implants and abutments, resulting in lower product costs.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 17.4% from $14.2 million, or 52.1% of net
sales, for the year ended December 31, 1995 to $16.7 million, or 51.9% of net
sales, for the year ended December 31, 1996. This increase was primarily the
result of the addition of new personnel in the Company's sales, marketing and
education and accounting departments, increased charges from Bausch & Lomb as
reimbursement for certain increased employee benefits, and increased media and
advertising expenses.
Research and Development Expense. Research and development expense
increased 10.9% from $2.2 million, or 8.1% of net sales, for the year ended
December 31, 1995 to $2.5 million, or 7.7% of net sales, for the year ended
December 31, 1996, reflecting increased compensation for three additional
engineering personnel as well as increased expenses associated with continued
clinical studies and FDA testing.
Interest Expense. Interest expense for the year ended December 31, 1996 was
$1.1 million, reflecting interest on the Company's Bank Facility and
Subordinated Notes and accrued dividends on mandatorily redeemable Preferred
Stock, incurred and issued as part of the Acquisition. The Company had no
interest expense prior to November 16, 1996.
Income Taxes. Income taxes were $1.6 million and $1.9 million for the years
ended December 31, 1995 and 1996, respectively, reflecting the amounts the
Company's predecessor would have incurred on a stand-alone basis.
Net Income. Net income decreased 10.4% from $1.5 million, or 5.3% of net
sales, for the year ended December 31, 1995 to $1.3 million, or 4.0% of net
sales, for the year ended December 31, 1996, primarily as a result of increased
interest expense and amortization of tax-deductible goodwill recorded in
connection with the Acquisition in November 1996.
EBITDA. EBITDA increased 35.6% from $4.5 million for the year ended
December 31, 1995 as compared to $6.1 million for the year ended December 31,
1996. This increase reflected increased gross profit commensurate with increased
sales and operating efficiencies.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales increased 23.4% from $22.2 million for the year ended
December 31, 1994 to $27.4 million for the year ended December 31, 1995. North
American net sales increased by 18.3% for the year ended December 31, 1995 as
compared to the prior year. International net sales improved by 32.4% in 1995 as
compared to 1994. Growth in net sales occurred in each of the Company's major
sales regions, in particular in the Middle East, reflecting the Company's
expansion into Israel in March 1995. Sales of implant products increased by
approximately $2.4 million in 1995 as compared to the prior year primarily due
to the
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<PAGE> 29
expansion of the Company's product line. In addition, the Company's strategic
focus on improving sales of abutments generated approximately $2.3 million in
net sales for such products.
Gross Profit. Gross profit increased 25.8% from $15.5 million, or 69.9% of
net sales, for the year ended December 31, 1994 to $19.5 million, or 71.3% of
net sales, for the year ended December 31, 1995. The increase in gross profit is
primarily due to increased sales of implants and abutments. The improvement in
gross margin was primarily due to the development and expansion of the Company's
implant manufacturing capacities and to a lesser extent due to increased
efficiencies resulting from the implementation of new materials forecasting and
master production scheduling software applications.
Selling, General and Administrative Expense. Selling, general and
administrative expense increased 25.0% from $11.4 million, or 51.4% of net
sales, for the year ended December 31, 1994 to $14.2 million, or 52.1% of net
sales, for the year ended December 31, 1995. This increase was primarily the
result of hiring additional personnel in the sales and education, customer
support and information systems departments. The Company also incurred increased
expenses for additional international travel, consulting expenses for marketing
projects and advertising related to the Company's ten year warranty program, the
introduction of the DIA Anatomic Abutment System and the Company's sponsorship
of an international conference in May 1995.
Research and Development Expense. Research and development expense
increased 24.9% from $1.8 million, or 8.0% of net sales, for the year ended
December 31, 1994 to $2.2 million, or 8.1% of net sales, for the year ended
December 31, 1995. This increase was primarily due to increases in clinical
studies and FDA testing relating to new products.
Income Taxes. Income taxes were $1.3 million and $1.6 million for the years
ended December 31, 1994 and 1995, respectively, reflecting the amount the
Company's predecessor would have incurred on a stand-alone basis.
Net Income. Net income increased 35.6% from $1.1 million, or 4.8% of net
sales, for the year ended December 31, 1994 to $1.5 million, or 5.3% of net
sales, for the year ended December 31, 1995.
EBITDA. EBITDA increased 27.2% from $3.5 million for the year ended
December 31, 1994 to $4.5 million for the year ended December 31, 1995. This
increase is commensurate with the increase in sales and operating efficiencies
achieved during 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's predecessor was a wholly-owned subsidiary of Bausch & Lomb
from 1993 until the Acquisition in November 1996, and during that time financed
working capital from cash flows from operations. In order to finance the
Acquisition, the Company issued Class A Preferred Stock, Class B Preferred Stock
and Class C Preferred Stock and Subordinated Notes and made an initial draw down
under the Bank Facility. Following the Acquisition, the Company financed working
capital and the acquisition of the dental business of Interpore with cash from
operations and borrowings under the Bank Facility.
At June 30, 1997, the Company had outstanding long term debt of $10.2
million under its 16% Series A Senior Subordinated Notes, $2.5 million under its
14% Series B Senior Subordinated Notes, and combined short and long-term
borrowings of $30.4 million under the Bank Facility. The Company also had
outstanding $35.2 million of mandatorily redeemable Preferred Stock, together
with accrued dividends of $1.9 million at June 30, 1997. The Company intends to
apply a portion of the net proceeds of the Offering to repay in full the
Subordinated Notes and its outstanding indebtedness under the Bank Facility. In
addition, the Company intends to apply a portion of net proceeds of the Offering
to redeem in full all of its outstanding shares of Class B Preferred Stock and
all of its outstanding shares of Class A Preferred Stock and Class C Preferred
Stock not converting into Common Stock in the Preferred Stock Conversion. Upon
consummation of the Offering, the Company will record an extraordinary charge of
$7.8 million, net of the related tax benefit, resulting from the redemption and
conversion of Preferred Stock and the repayment of the Subordinated Notes and
Bank Facility. See "Use of Proceeds." Following the Offering, the Company will
have no outstanding indebtedness.
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<PAGE> 30
Following the repayment of indebtedness and redemption of Preferred Stock
with the proceeds of the Offering, the Company will have approximately $23.3
million available for additional borrowings under the Bank Facility after giving
effect to reductions in the amount available that are required in connection
with the Offering. The availability of borrowings under the Bank Facility will
be automatically reduced as frequently as each quarter in increasing amounts
until the final maturity in November 2002 when all loans under the Bank Facility
must be repaid and no more borrowing can be made. The Bank Facility is secured
by substantially all of the Company's assets. The Bank Facility requires the
Company to maintain certain financial ratios and limits the Company's ability to
incur additional debt, to repurchase its stock and to pay dividends. The Company
was in compliance with all such financial ratios and covenants as of July 31,
1997.
The Company's capital expenditures consist primarily of purchases of fixed
assets relating to its manufacturing operations. Capital expenditures decreased
to $1.0 million for the six months ended June 30, 1997 from $1.3 million for the
comparable period in 1996. Capital expenditures for the years ended December 31,
1994, 1995 and 1996 were $1.7 million, $1.2 million and $2.2 million,
respectively. Capital expenditures increased in 1996 as a result of acquiring
Computer Numerical Controlled ("CNC") machines and upgrading its information
systems.
The Company anticipates making capital expenditures of approximately $1.8
million during the next twelve months, to expand its manufacturing operations
and bring the TPS-coating capabilities in-house. The Company has also entered
into several agreements with universities to provide financing for research and
development and promotional studies related to the Company's products. The
Company is required to make future minimum payments under such agreements in the
aggregate of approximately $1.2 million through the year ending December 31,
1999. In addition, in January 1998, the Company must make a deferred cash
payment of up to $538,000 to Interpore to fund the balance of the purchase price
for the Company's acquisition of the dental operations of Interpore in May 1997.
The Company believes that anticipated cash flows from operations and
amounts available under the Bank Facility will be sufficient to finance working
capital and meet its anticipated capital expenditures for at least the next
twelve months. There can be no assurance, however, that during this period there
will not be unanticipated acquisition opportunities or capital expenditure
requirements that create the need for additional cash, that the Company will
meet the financial targets under the Bank Facility to enable the Company to
borrow under the facility or that additional funds will be available at
favorable rates, if at all.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS
No. 128 establishes a different method of computing net income per share than is
currently required under the provisions of Accounting Principles Board Opinion
No. 15. Under SFAS No. 128, the Company will be required to present both basic
net income per share and diluted net income per share. Basic net income per
share is expected to be higher than the currently presented net income per share
as the effect of dilutive stock options will not be considered in computing
basic net income per share. The impact on diluted net income per share is not
expected to be material.
The Company plans to adopt SFAS No. 128 in its fiscal quarter ending
December 31, 1997, and at that time all historical net income per share data
presented will be restated to conform to the provisions of SFAS No. 128.
29
<PAGE> 31
BUSINESS
OVERVIEW
Steri-Oss is a leading developer, manufacturer and marketer of a broad line
of dental implant systems, which include implants, abutments and related
surgical instruments. A dental implant is a small titanium screw or cylinder
that is surgically placed directly into the jaw and serves as a foundation for a
replacement tooth. An abutment is a small titanium attachment that is typically
screwed into or onto the implant and connects the artificial tooth to the
implant. The Company believes that its dental implant systems are superior to
traditional restorative treatments such as bridges and dentures because the
permanent nature of dental implants permits patients to regain most of the
functionality of their natural teeth. Dental implants also may reduce the
progressive atrophy of the jaw often caused by the absence of teeth. The Company
has demonstrated the safety and reliability of its implants at success rates of
over 96% (representing full integration of the implant with the bone) in seven
years of clinical studies involving more than 1,600 implant patients.
INDUSTRY BACKGROUND
The American Dental Association estimates that 110 million people in the
United States are missing one or more teeth, representing approximately 40% of
the United States population. Tooth loss is caused by a variety of factors,
including trauma and periodontal disease, which is a leading cause of
destruction of tooth-supporting structures, such as bone, gingiva and
periodontal ligament. MDI estimates that 70% to 80% of all adults in the United
States have some form of periodontal disease.
Traditional restorative alternatives to address tooth loss have consisted
primarily of dentures and bridges. Since the introduction of the first modern
root form implants in 1982, dental implants have continued to gain acceptance as
an attractive alternative to dentures and bridges. According to MDI, the number
of implants placed annually by dental professionals in the United States has
more than tripled in less than a decade growing from approximately 120,000
implants placed in 1987 to approximately 415,000 implants placed in 1995. MDI
estimates that an average of 2.5 to 3.0 implants are placed in each implant
procedure. MDI estimates dental implant sales in the United States exceeded $130
million in 1996 and are expected to grow at a rate of approximately 6% per year.
The Company estimates that sales of dental implants outside the United States
were approximately $250 million in 1996 and estimates that the international
dental implant market is growing at a rate of approximately 10% per year.
Utilization of dental implants by dental professionals and patients has
increased over the past few years, and the Company believes that significant
opportunities for growth still exist in the dental implant market because only
2% of patients in the United States who are missing one or more teeth have
undergone the implant procedure. Dental implants offer significant advantages
over other restorative products such as dentures and bridges. Dentures are
artificial teeth that may be attached to the surface of a patient's gum with an
adhesive. The adhesives used to attach dentures generally do not provide
long-term fixation to the gum and must be periodically reapplied. Dentures also
tend to move around in a patient's mouth, which may restrict the wearer's
ability to eat certain foods, and can trap food, which may lead to the
degradation of the adjacent natural teeth. A bridge generally consists of one or
more artificial teeth that are attached to a patient's natural teeth to span a
gap caused by missing teeth. In order to place a bridge into a patient's mouth,
the dental practitioner must grind or cut down the adjacent healthy, natural
teeth to prepare them to accommodate the bridge. Natural teeth that have been
ground down and shaped may deteriorate more rapidly than other healthy teeth.
Wearers of full or partial dentures do not benefit from the essential
stimulation and support that tooth roots provide to the surrounding jaw. This
can result in atrophy of the jaw and over time, unsightly malformation of the
jaw.
Dental implants, in contrast, serve as permanent replacements for a
patient's missing teeth and reduce the likelihood of bone resorption. Once
dental implants are surgically placed in the jaw, the bone typically fuses to
the implant, creating a secure, permanent anchor for an artificial tooth. The
secure nature of implants permits patients to regain most of the functionality
of their natural teeth. In addition, the implant procedure does not
30
<PAGE> 32
require the destruction of the adjacent healthy teeth. Furthermore, implants
typically stimulate bone growth and allow a patient's jaw to retain its shape
and features.
STRATEGY
The Company's objective is to become the leading worldwide developer,
manufacturer and marketer of dental implants and related products, while
increasing its profitability. The Company believes that over the last three
years, it has been one of the fastest growing participants in the United States
implant market. Furthermore, as a result of the Company's acquisition of the
dental business of Interpore in May 1997, the Company believes its implant unit
sales, on a combined basis in the United States in 1996, exceeded those of any
of its competitors. The key elements of the Company's strategy include the
following:
- Increase Market Share in the United States and Foreign Markets. Steri-Oss
has established itself as a worldwide leader in the dental implant market. The
Company intends to capitalize on its reputation for quality products and service
to continue to increase its market share both domestically and internationally.
Increased utilization of the Company's implants by dental professionals is
necessary for continued market penetration. Accordingly, Steri-Oss intends to
increase its involvement in sponsoring and providing educational and training
programs for dental professionals and to expand marketing support to its 26
independent international distributors.
- Continue to Develop Innovative Implant Products. The Company intends to
utilize its expertise in dental implant technology and to work closely with
clinicians to continue to develop new and enhanced dental implants and related
products. New and enhanced products have historically constituted a significant
portion of the Company's net sales. The Company was the first to introduce a
variety of innovative products, including precleaned sterile implants, HA-coated
threaded implants and a tapered, color-coded implant system. The Company intends
to continue to develop enhanced implant products to meet evolving market needs,
incorporate technological advancements and satisfy clinicians' preferences.
- Expand into Additional Dental Specialty Markets. The Company intends to
take advantage of its broad distribution channels and strong reputation in the
dental industry to market additional dental specialty products to its customers.
The Company plans to focus on products that enhance the professionals' practice
and address the needs of growing markets, particularly the periodontal market.
In furtherance of this strategy, the Company recently commenced marketing two
products owned and manufactured by third parties, a periodontal tissue
monitoring kit and an HA bone filler for periodontal defects. The Company
intends to acquire, license or distribute additional dental specialty products
and to market these products through its existing distribution channels.
- Acquire Complementary Dental Implant Businesses, Products and
Technologies. The Company believes that consolidation opportunities exist in the
dental implant market that will enable the Company to increase its penetration
of this market. For example, in May 1997, the Company acquired the dental
operations of Interpore, a manufacturer and distributor of dental implant
products and other periodontal products. The Company intends to continue to
expand its product offerings, distribution channels and market share through
acquisitions in the dental implant market.
- Continue to Improve Operating Efficiencies. By manufacturing a greater
proportion of its products in-house, the Company has been able to operate more
cost-effectively and benefit from greater economies of scale. Primarily as a
result of actions taken by the Company to reduce manufacturing costs and
increase operating efficiencies, the Company has reduced its cost of sales as a
percentage of net sales to 27.3% for 1996 from 31.7% for 1992. The Company
intends to continue to improve operating efficiencies primarily by expanding and
refining its manufacturing processes.
THE IMPLANT PROCEDURE
The implant procedure involves a number of steps. During the initial step,
which typically is performed under a local anesthetic, an oral surgeon or
periodontist drills a hole in the patient's jaw and surgically inserts the
implant directly into the jaw. The implant typically integrates with the
patient's bone over the three to six
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<PAGE> 33
months following the initial surgery. Once the implant has attached itself
firmly to the jaw, the general dentist or prosthodontist then screws an abutment
into or onto the implant. The dental professional makes an impression of the
patient's teeth and jaws so that an artificial tooth can be fabricated for the
patient. In the final step of the implant procedure, the general dentist or the
prosthodontist affixes an artificial tooth, which is usually fabricated at a
dental laboratory, onto the abutment.
PRODUCTS
The Company manufactures and markets a broad line of implant systems, which
include: (i) titanium implants that are surgically placed into the patient's
jaw; (ii) titanium abutments that are attached to the implants to serve as
connectors onto which artificial teeth are attached; and (iii) surgical
instruments that are used to insert and place implants and abutments, including
surgical consoles, drills and dental wrenches. Implants, abutments and surgical
instruments accounted for approximately 55.8%, 32.4% and 11.8%, respectively, of
the Company's net sales in 1996. Steri-Oss believes its product lines,
consisting of over 1,400 products, are sufficiently broad to meet the
requirements of most dental professionals. The Company continues to work closely
with clinicians to enhance its existing product lines and create new product
offerings. See "-- Product Innovations."
Implants
The Company currently manufactures 16 types of implants in various sizes.
All of the Company's implants are manufactured from titanium because it promotes
the best possible integration with surrounding jawbone ("osseointegration"), and
generally will not be rejected by the surrounding tissue due to titanium's
biocompatible nature. The list prices in the United States for the Company's
implants range from approximately $200 to $250 per unit.
The Company's implants are offered in both threaded and cylindrical form in
a variety of diameters, lengths and shapes in order to suit the varying needs of
implant patients and dental professionals. The appropriate size and shape
required for a particular patient will depend on the structure of the patient's
jaw, the location of the implant site in the patient's jaw, the angle of
insertion and the bone density at the implant site. The Company's implants are
also offered uncoated or with one of two different coatings to suit differing
preferences among dental professionals and their patients.
The Company currently makes implants in diameters ranging from 3.25 mm to 6
mm and in lengths ranging from 8 mm to 18 mm in the following categories:
- Threaded Implants. Threaded implants are screwed into the patient's
jawbone. The Company uses a proprietary thread design that enhances
osseointegration by increasing the amount of bone volume between threads by 32%
over traditional V-shaped threads.
- Cylindrical Implants. Cylindrical implants are smooth and have a simpler
surgical implantation protocol than threaded implants. Cylindrical implants
contain an indentation at the bottom of the implant and/or a depression running
length-wise up the implant to promote osseointegration.
- Coated Implants (Threaded or Cylindrical). In addition to uncoated
implants, the Company offers both threaded and cylindrical implants with two
different rough coatings, HA and TPS. The Company was the first to market an
HA-coated threaded implant and has the only HA-coated threaded implant that has
been granted provisional approval by the American Dental Association. HA is a
bio-active ceramic coating commonly used with orthopedic implants that
facilitates osseointegration. Approximately 53% of the Company's implant sales
during 1996 were HA-coated. The Company estimates that the worldwide market for
HA-coated implants is currently 20% of the total implant market, and the Company
believes it is the largest manufacturer of HA-coated implants. TPS was first
introduced by the Company in 1995 and creates a highly textured titanium
surface, which increases the surface area of the implants and the contact with
bone. Approximately 16.4% of the Company's implant sales during 1996 were
TPS-coated.
- Replace Implant System. The Replace Implant System was introduced in
March 1997 and incorporates a tapered design that closely resembles the shape of
a tooth root. The tapered implants are particularly
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beneficial for immediate extraction sites in the anterior section of the mouth,
between converging implants or roots of adjacent teeth and wherever anatomically
limiting conditions exist. The implant products in the Replace Implant System
are color-coded for simple identification by the various professionals involved
in implant procedure. Replace implants are also offered in various lengths and
diameters, either uncoated or with HA or TPS coatings.
Abutments
Steri-Oss designs, manufactures and markets abutments that are typically
screwed into or onto the implants after the implants have fused with the jaw.
Abutments serve as connectors on which artificial teeth may be placed. The
Company has designed a variety of abutments to meet the requirements and
preferences of surgeons, restorative dentists and patients. In the past few
years, the Company has also commenced marketing two new types of abutments that
the Company licenses from Dental Imaging Associates, Inc. ("DIA"). The DIA
Anatomic Abutment is designed to accommodate the natural tooth diameter, tissue
depth and gingival tissue configurations. The second type of abutment, the
Bio-Esthetic Abutment, is designed to match natural root contours and requires
minimal preparation. Bio-Esthetic Abutments typically offer a superior aesthetic
result.
The Company's abutments are designed to provide maximum flexibility and
optimal aesthetic design, which the Company believes are critical to dentists in
developing treatment plans for their patients. The Company has designed its
abutments to be compatible with other companies' implants. The list prices in
the United States for the Company's abutments range from $35 to $160 per unit.
Surgical Instruments
The Company designs and manufactures, or has manufactured for it, surgical
tools and instruments for use with its implants and abutments. These instruments
include: (i) surgical instrument sets, including drills, dental wrenches and
kits for sizing abutments, which are typically packaged in containers for easy
sterilization and are color-coded and labeled for ease of use and storage, and
(ii) surgical consoles and hand tools to perform and monitor drilling and
placement procedures. The Company's instrument sets are designed to be used with
a variety of the Company's implants. While the list prices in the United States
for the Company's instrument sets range from $2,000 to $3,250 per set, the
Company may discount its surgical instruments to encourage practitioners to
switch to the Company's products.
PRODUCT INNOVATIONS
Product innovations in the dental implant market usually consist of
refinements or enhancements of existing dental implant or abutment designs or
related products. Over the past few years, the Company has developed several
innovative new products. For example, Steri-Oss was the first dental implant
manufacturer to introduce precleaned sterile implants, HA-coated threaded
implants and a tapered, color-coded implant system.
The Company's most recent product innovations include: (i) the Replace
Implant System, which consists of tapered implants and corresponding abutments
and instrument kits that are color-coded for simple identification by the
various professionals involved in the implant procedure; (ii) the 6 mm implant,
a wider diameter implant line, enabling the Company to offer expanded treatment
options that allow for improved aesthetics; and (iii) the Immediate Impression
Implant System, a sterile insertion instrument licensed from a third party that
allows the dental professional to take an immediate impression upon implant
insertion, which may reduce the number of patient visits.
The Company derives a significant portion of its net sales each year from
sales of new products. The Company has focused its product development efforts
on both broadening its existing product lines and introducing new products. In
both cases, the objective is to offer enhanced implant solutions to patients and
professionals. The Company's research and development staff consists of five
employees who focus on new product concepts and eight employees who focus on
product engineering and the technical aspects of product
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design. The Company also provided funding to several universities to finance
research and promotional studies related to the Company's products.
The Company's development efforts are the result of concepts developed
internally or through the Company's relationships with leading dental
professionals, including customers who provide feedback to the Company on their
preferences and needs. The Company also actively seeks licensing arrangements
with dental professionals or researchers to secure the right to manufacture and
market new product innovations created by such groups. For example, the Company
holds an exclusive license to manufacture and market the DIA Anatomic Abutments
and Bio-Esthetic Abutments under a licensing arrangement with a group of well
known prosthodontists and periodontists. Such licensing arrangements create
important relationships with dentists and academic institutions, thereby
enhancing the Company's reputation and visibility within the dental community.
MANUFACTURING
The Company manufactures substantially all of its implants at its two ISO
9001 certified facilities in Yorba Linda, California. The Company has made a
substantial investment in these facilities, which include a Class 10,000 clean
room (a clean room with fewer than 10,000 particles which are five microns or
larger per cubic foot), precision automated equipment, including CNC machines,
and a robotically controlled coating area for the Company's proprietary HA
coating system.
The Company's facilities are subject to applicable regulatory requirements.
The FDA periodically inspects the Company's manufacturing systems to confirm
continued compliance with the FDA's current QSR regulations. The Company's
facilities are also subject to regulation and periodic inspection by the State
of California. See "-- Government Regulation."
The Company has received certification of conformance to ISO 9001 Standards
and Medical Device Directives, as well as the Commission Europeen (CE) Mark of
Conformity from TUV Product Services of Munich, Germany. These approvals
represent international symbols of quality system assurance and compliance with
applicable European Medical Device Directives, which assist the international
marketing of the Company's products.
The Company has substantially increased its manufacturing capabilities
since 1993 in an effort to enhance profit margins and increase quality. The
Company currently manufactures a substantial portion of its own products and
performs all of the HA-coating for its products, but currently relies on outside
suppliers to coat its TPS-coated implants and to manufacture certain components
including electrical consoles, hand tools, and those short-run products for
which the Company cannot achieve cost efficiencies. The Company plans to bring
TPS-coating capabilities in-house. The Company's manufacturing activities
primarily consist of (i) cutting, machining and initial cleaning, which are
performed at a leased facility close to its headquarters, and (ii) final
cleaning, sterilization, assembly (in certain circumstances), packaging, coating
and testing, which are conducted at the Company's headquarters. The principal
raw materials used in the Company's products, including titanium and HA, are
available from a number of suppliers. The Company does not maintain any
long-term supply contracts with any of its suppliers. The Company currently
operates three shifts per day, five days per week. The Company believes that it
may require additional manufacturing facilities within the next year to
accommodate anticipated growth.
The Company also uses small amounts of hazardous substances in its
manufacturing processes. As a result, the Company is subject to a variety of
governmental regulations relating to the use, storage, discharge, handling and
disposal of toxic or other hazardous substances, chemicals, materials or waste.
The Company has engaged a third party contractor to handle the removal of such
hazardous substances.
Steri-Oss has established a number of quality control procedures to
maintain the quality of its products. All products manufactured by the Company
undergo a series of inspections and tests throughout the manufacturing process
to ensure that each product complies with the Company's product specifications
and aesthetic requirements. For example, each implant manufactured by Steri-Oss
will receive no fewer than nine separate inspections. Any product that does not
conform to the Company's visual, functional and aesthetic
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requirements will be rejected. In addition, all products purchased by outside
suppliers are inspected by the Company's personnel. Steri-Oss also conducts
periodic self audits to review and ensure its compliance with the Company's
quality controls and QSR and environmental regulations.
CUSTOMERS, MARKETING AND SALES
Dental Professionals
The Company sells its products directly to dental professionals in the
United States and Canada through its sales representatives and uses independent
distributors to sell its products to dental professionals abroad. Because the
dental implant procedure involves a number of steps and requires the use of
surgical as well as restorative techniques, several professionals are usually
involved in the implant process. Accordingly, the Company's customers include
practitioners from multiple disciplines in dentistry, including oral surgeons,
periodontists, implantologists, prosthodontists and general dentists.
Typically, a general dentist will refer a patient to an oral surgeon or
periodontist to perform the initial implant surgery. After the oral surgeon or
periodontist has inserted the implant, the general dentist will usually perform
all or part of the restorative work (i.e., the final placement of the artificial
tooth) or will refer the patient to a prosthodontist for such work. Less
frequently, a general dentist will perform the entire implant procedure alone.
Such a general dentist is commonly referred to as an implantologist. The actual
artificial tooth used by the general dentist, prosthodontist or implantologist
is usually fabricated at a dental laboratory. In Europe, where specialization is
less common, the general practitioner typically performs most, if not all, of
the implant procedure.
According to the American Dental Association, there are approximately 6,800
oral surgeons, 4,700 periodontists, 2,900 prosthodontists and 115,000 general
dentists in the United States.
Marketing
The Company markets its products to all dental professionals involved in
the implant procedure. Steri-Oss has historically targeted oral surgeons,
periodontists and implantologists as its primary customers because approximately
88% of all oral surgeons and 68% of all periodontists in the United States have
performed a dental implant procedure. The Company has also focused its marketing
efforts on general dentists by encouraging them to participate in and recommend
dental implants to their patients. The Company has chosen to target this market
segment because general dentists usually have the most contact with potential
implant patients and often serve as a referral source for oral surgeons and
periodontists. In addition, the Company believes that a large number of general
dentists have yet to use dental implants on a regular basis and represent a
significant number of potential new customers. Because the Company's customers
have varying experience with dental implants, the Company's marketing efforts
must address the particular needs and requirements of professionals who already
practice implant dentistry as well as general practitioners who may not be
familiar with the implant procedure.
The Company's marketing efforts are directed towards three distinct goals:
(i) encourage dental professionals using competitor's products to switch to the
Company's products, (ii) service existing customers by introducing additional
products and providing training and educational programs to them, and (iii)
introduce implants more broadly to a large population of dental professionals
who have yet to realize the advantages of dental implants. In addition to
utilizing a direct sales force in North America and distributors abroad, the
Company has initiated a variety of different marketing programs to accomplish
each of these goals, including:
- Educational and Training Programs. The Company sponsors several
introductory level educational programs both in the United States and abroad and
holds training seminars and surgery training programs at its own facilities. The
Company also offers a number of advanced courses tailored to the needs of
professionals who regularly perform implant procedures. Although the Company
historically has focused its efforts on providing educational and training
programs to clinicians in North America, it intends to expand its involvement in
providing such programs abroad. In 1996, over 18,000 members of the dental
community
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attended educational programs sponsored by the Company. The Company works with
major dental organizations (American Association of Oral Maxillofacial Surgeons,
American Association of Periodontists and Academy of Osseointegration), dental
schools, key customers, international distributors and leading clinicians to
maximize exposure of the Company's products at continuing education programs
worldwide. In addition, the Company promotes educational programs at select
private practices, which offer the opportunity to witness live surgical
procedures. In 1995, the Company added a training facility and surgical suite to
its Yorba Linda headquarters. The Company has entered into a consulting
agreement with Dr. Jack Hahn, a general dentist and dental implant specialist,
to conduct training programs for the Company and advise the Company on technical
issues. Dr. Hahn is a well renowned worldwide lecturer on dental implant.
- International Conferences. The Company has sponsored four major
international conferences within the past five years that have attracted many
members of the global dental implant community. In 1997, the Company held a four
day international conference on "Exceeding Patients' Expectations: An Integrated
Surgical, Prosthetic and Marketing Approach to Excellence in Implant Dentistry"
in Orlando, Florida. This conference was attended by more than 600 dental
professionals from 20 countries representing various dental disciplines.
- Strategic Relationships with Vendors and Clinicians. The Company has
formed strategic relationships with key vendors, clinicians, dental publishers,
dental advertising agencies, and dental practice management consulting groups.
The Company believes its strategic relationships enable it to gain and maintain
brand recognition among all types of dental practitioners.
- Printed Advertising Materials and Video Tapes. Using its in-house
graphics department and outside consultants, the Company has developed extensive
training videos and printed promotional materials. The Company distributes such
materials to dental professionals through its sales representatives and
international distributors, as well as through direct mail advertising
campaigns.
- Newsletter. The Company publishes a newsletter three times each year
containing information relating to recent developments in the dental implant
market, the Company's products, training and educational programs on dental
implant procedures and results from clinical studies on dental implants. This
newsletter is distributed to over 25,000 dental professionals in the United
States and Canada. The Company publishes a similar newsletter twice each year
that is translated into German, French, Italian, Spanish, Japanese and Korean
and distributed to approximately 15,000 dental professionals in foreign
countries.
- Journal of Dental Symposia. In order to promote a broad understanding of
the Company's educational efforts, the Company has entered into a collaborative
effort with a publisher to publish the Journal of Dental Symposia, which is
distributed annually to more than 10,000 dental professionals, including
approximately 3,000 members of the Academy of Osseointegration. This journal
includes academic articles relating to topics discussed at seminars and
workshops at the Company's international conferences.
Sales and Distribution
The Company currently employs over 40 sales representatives throughout the
United States and Canada who call directly on oral surgeons, periodontists,
prosthodontists and implantologists, as well as select general dentists and
dental laboratories. The Company believes that its direct sales force is
essential to its ability to maintain brand loyalty among its customers in North
America and to increase its market share. The Company's sales force is currently
organized by geographic regions into five different territories. The Company
plans to increase its direct sales force commensurate with sales increases in
North America.
The Company also markets and sells its products through 26 independent
distributors in more than 35 foreign countries, including Australia, Belgium,
Brazil, France, Germany, Italy, Japan, Israel, Korea, Mexico, the Netherlands,
New Zealand, Portugal, Spain, Switzerland and the United Kingdom.
Metalor, the Company's distributor in Germany and the Netherlands, has
agreed to dedicate 24 members of its sales staff in 1997 to the sale of the
Company's products exclusively. Metalor accounted for approximately 8.2% of the
Company's net sales during 1996 and 10.5% of net sales for the six months ended
June 30, 1997. In 1990, the Company entered into an exclusive one year
distribution agreement that automatically renews for successive one year terms
unless either the Company or Metalor gives prior notice of
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its intention not to renew the agreement for an additional term. This agreement
prohibits Metalor from selling any competitor's dental implants or related
products within Metalor's territory. The Company also entered into similar one
year distribution agreements with three affiliates of Metalor who distribute the
Company's products in France, Switzerland and the United Kingdom. Metalor and
its affiliates collectively accounted for approximately 12.2% of the Company's
net sales during 1996 and 13.9% of net sales for the six months ended June 30,
1997.
The Company believes that the international dental implant market will
continue to grow at a more rapid rate than North American dental implant market
for the next few years, particularly in Europe where dental implants have a
longer history. In an effort to take advantage of the anticipated growth in
international markets, the Company intends to continue to provide increased
marketing support to its international distributors.
CUSTOMER SERVICE AND SUPPORT
The Company seeks to build upon customer loyalty by providing high quality
customer service and support. In addition to its educational courses and
training seminars, the Company offers to send a technical sales representative
to assist dental professionals with their first implant procedure using
Steri-Oss products. The Company also employs a full-time staff dentist and three
full-time certified dental technicians to respond to customers' technical
questions regarding the Company's products and the implant procedure. In
addition, Steri-Oss employs both domestic and international customer support
representatives to answer general customer inquiries and to assist customers
with order and re-order information. The Company maintains a direct relationship
with its dental community customers by handling all shipping and invoicing
functions through its customer support organization.
The Company offers a ten year warranty on all of its implants and
abutments. If a product fails prior to the expiration of the warranty, the
Company agrees to replace it at no cost and to give the customer a credit
towards the purchase of new products. Since the introduction of this program in
1993, the Company has not experienced any significant warranty expenses.
COMPETITION
The dental implant industry is characterized by intense competition.
Steri-Oss competes directly with a number of companies offering dental implants
and related products both in the United States and abroad, including Nobel
Biocare AB, Friatec AG, 3i and Sulzer Calcitek Inc., certain of which have
substantially greater financial, marketing, sales, distribution and development
resources than the Company. Certain of the Company's competitors also have
established a greater international presence than the Company. In several
countries, including Germany and Switzerland, the Company competes with
companies that are based in such countries. The competitors' local presence in
such markets may provide them with a competitive advantage over the Company. In
addition, several competitors in foreign markets sell directly in such markets,
which may be more effective than the Company's indirect distribution channels in
such markets.
The Company believes the principal competitive factors in the dental
implant market are product performance, breadth of product line, brand name
recognition, customer loyalty, scope of regulatory approvals and clinical
trials, price and sales and marketing capabilities. The Company believes its
prices are competitive with other high-quality implant products. Due in part to
the importance of quality and customer service and to the minor cost of the
implant relative to the implant procedure, the Company does not believe that
price is a major competitive factor.
The Company believes that it competes favorably against other dental
implant companies due to the fact that the Company offers a broad range of
quality dental implants and related products and provides extensive training and
educational programs to dental professionals. Increased competition or the
failure to compete effectively in the implant industry may result in price
reductions, reduced gross margins and loss of market share, all of which could
have a material adverse effect on the Company's business, financial condition
and results of operations.
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The Company's products also compete against alternative restorative
treatments such as bridges and dentures, which are generally less expensive to
the patient, are less invasive and can be implemented more quickly. New
restorative technologies may be developed that are as effective as, or more
effective or easier to use than, those offered by the Company, which could
render the Company's products noncompetitive or obsolete.
GOVERNMENT REGULATION
The Company's products are subject to extensive regulation by the FDA and
certain other federal, state and local governmental authorities and similar
regulatory agencies in other countries. Such regulations cover the preclinical
and clinical testing, manufacture, labelling, distribution and promotion of
medical devices and record keeping with respect thereto. The FDA generally
classifies medical devices in commercial distribution into one of three classes:
Class I, Class II or Class III devices, which classifications are based upon the
controls the FDA deems necessary to reasonably ensure the safety and
effectiveness of the medical devices. A new medical device cannot be
commercially distributed until the FDA has accepted for review and cleared a
510(k) or has approved a PMA on such medical device or implant.
The 510(k) process requires a manufacturer to demonstrate that the new
product is substantially equivalent (in terms of safety, efficacy and intended
use) to certain 510(k) Class I, Class II or pre-1976 Class III medical devices
(for which the FDA has not called for a PMA) that are already commercially
available and lawfully being sold on the market. The PMA approval process is
more time consuming and burdensome than the 510(k) process and generally
requires more detailed preclinical and clinical studies, as well as
manufacturing data and other information.
Class I and Class II devices may be approved pursuant to a 510(k)
notification process as opposed to the lengthy PMA process required for most
post-1976 Class III products. While dental implants are technically classified
as Class III products, to date, the FDA has permitted the manufacturers of
dental implants to use the 510(k) notification to clear the commercial sale of
the dental implants. Since January 1, 1994, the Company has obtained 39 510(k)
clearances from the FDA covering a broad range of the Company's products.
In 1990, Congress enacted the Safe Medical Device Act of 1990, which
required the FDA to either down-classify certain Class III devices (including
dental implants) to Class I or II, or publish a date for the call for PMAs for
any remaining Class III devices on the market. The Company expects that at some
future date certain dental implants will be down-classified to Class II, but
others will remain as Class III. There is a possibility that some of the
Company's dental implants may remain Class III and that a PMA will be required
to continue marketing some or all of the Company's dental implant products. The
Company has been collecting clinical data to support a potential PMA. There can
be no assurance that if the FDA calls for a PMA for dental implants, the Company
would receive a PMA approval, if required, for its dental implants on a timely
basis, if at all.
Governmental regulation may also prevent or substantially delay the
marketing of the Company's proposed products, cause the Company to undertake
costly procedures and furnish a competitive advantage to certain of the
Company's competitors who have greater financial, administrative and research
and development resources. After approval, the FDA may require post-marketing
approval surveillance programs to monitor the effects of an approved medical
device. FDA approval may be withdrawn for noncompliance with regulatory
standards or the occurrence of unforeseen problems following initial marketing.
In addition, product modifications may require the submission of a new 510(k)
notification or PMA supplement and future products may require 510(k) clearance
or PMA approval. There can be no assurance that marketing clearances or
approvals will be obtained on a timely basis or at all. Delays in receiving, the
failure to receive or the cost of complying with such clearances could have a
material adverse effect on the Company's business, financial condition and
results of operations.
The Company is also registered as a medical device manufacturer with the
FDA and with state agencies such as the Food and Drug Branch of the California
Department of Health Services. The FDA and state agencies inspect the Company
from time to time to determine whether the Company is in compliance with
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various regulations relating to medical device manufacturing, including the
FDA's QSR regulations that govern manufacturing, testing, quality control and
product labeling of medical devices. In connection with the FDA's inspection of
the Company's facilities in April 1997, the FDA issued a warning letter to the
Company citing the Company's failure to comply with certain provisions of the
current QSR regulations. The Company believes that it has taken appropriate
corrective actions to address each of the violations cited in the warning
letter. The warning letter did not prohibit the Company from obtaining premarket
clearance or approval for new products nor did it require the Company to
withdraw or remove any of its products from the market.
The Company must also comply with similar registration requirements of
foreign governments and with import and export regulations when distributing its
products to foreign nations. Each foreign country's regulatory requirements for
product approval and distribution are unique and may require the expenditure of
substantial time, money and effort to obtain and maintain.
PROPRIETARY RIGHTS
The Company relies to some extent on proprietary technology, which it
protects primarily through trade secret and other intellectual property laws,
proprietary know-how, licensing arrangements, patents and non-disclosure
agreements with employees. The Company currently holds five United States
patents relating to its products and has applications pending for seven
additional United States patents. The Company's patents expire beginning in
August 2006. The Company believes that although the patents often are necessary
to protect its technology and products, the extensive FDA approval and
compliance requirements, proprietary manufacturing processes, customer loyalty
and access to distribution channels provide significant barriers to entry into
the dental implant market.
The Company licenses certain of its core technology pursuant to exclusive
and semi-exclusive licenses. In April 1994, the Company entered into a five year
exclusive, worldwide license to manufacture and market the DIA Anatomic Abutment
System and the Bio-Esthetic Abutment System and the Immediate Impression Implant
(covered by nine United States patents). The Company pays royalties to DIA based
on a percentage of the Company's net sales of the licensed products, subject to
a certain annual minimum royalties. The Company also licenses two dental
implants (covered by seven United States patents) from VentPlant, pursuant to a
semiexclusive license agreement entered into in September 1991 that provides for
a fixed royalty per unit sold. This agreement terminates upon the expiration of
the licensed patents, subject to earlier termination for cause. In addition, the
Company has entered into a letter of intent with Dr. Axel Kirsch, a world
renowned oral surgeon and the inventor of the IMZ Dental Implant System, to
distribute the IMZ products in the United States. The Company is currently
distributing such products pursuant to an oral agreement that is cancelable by
either party upon 30 days prior notice. If the Company is required to obtain
licenses under patents or proprietary rights of others, there can be no
assurance that any required licenses would be made available on terms acceptable
to the Company, if at all.
There can be no assurance that any future patents or licenses will be
issued, that any issued patents or other intellectual property rights of the
Company will provide meaningful protection for the Company's proprietary
technology or that the steps taken by the Company to protect its proprietary
technologies will be adequate to prevent misappropriation by third parties in
the United States or abroad. In addition, the laws of some foreign countries do
not protect the Company's proprietary rights as fully as do the laws of the
United States. Accordingly, effective protection of intellectual property may be
unavailable or limited in certain foreign countries.
Litigation may be necessary in the future to enforce the Company's
intellectual property rights, to determine the validity and scope of the
proprietary rights of others or to defend the Company against claims of
infringement or invalidity by others. The cost of addressing any intellectual
property litigation claim, both in terms of legal fees and expenses and the
diversion of management's efforts, regardless of whether the claim is valid,
could be significant. An adverse outcome in such litigation or similar
proceedings could subject the Company to significant liabilities to third
parties, require disputed rights to be licensed from others, or require the
Company to cease marketing or using certain products, any of which could have a
material adverse effect on the Company's business, financial condition and
results of operations.
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The Company requires each of its employees to enter into a proprietary
rights and nondisclosure agreement pursuant to which the employee agrees to
maintain the confidentiality of all of the Company's proprietary information
and, subject to certain exceptions, to assign to the Company all rights in any
proprietary information or technology made or contributed by the employee during
his or her employment. In addition, the Company regularly enters into
nondisclosure agreements with third parties, such as consultants and suppliers.
In spite of these precautions, it may be possible for third parties to copy,
develop or otherwise obtain and use the Company's proprietary technology without
authorization or to develop similar technology independently.
EMPLOYEES
As of July 31, 1997, the Company had 232 full-time employees, including 13
employees engaged in research and development, 82 engaged in manufacturing, 22
engaged in regulatory affairs and quality assurance, 67 engaged in sales and
marketing, 15 engaged in customer service and support and 33 engaged in general
administration and finance activities. None of these employees is represented by
a union, and the Company has never experienced a work stoppage or strike. The
Company considers its employee relations to be good.
FACILITIES
The Company leases three facilities, which have approximately 35,000 square
feet, 7,100 square feet and 2,000 square feet, respectively, in Yorba Linda,
California, pursuant to four leases that expire in December 1997. These
buildings are used as the Company's headquarters and include administration,
manufacturing, marketing and sales, storage, customer service and distribution
facilities. The Company also leases approximately 1,500 square feet in Toronto,
Canada, which is used for distribution, training and sales. The Company is
negotiating extensions on its leases in Yorba Linda and actively seeking
additional leased space in order to expand its manufacturing capabilities.
PRODUCT LIABILITY AND LEGAL PROCEEDINGS; INSURANCE
The Company is subject to an inherent risk of product liability claims that
may involve significant defense costs. Bausch & Lomb has agreed to indemnify the
Company up to an aggregate amount of $28.5 million against any claims and losses
from defects in the design, manufacture or production of any product sold by S-O
prior to the Acquisition. In August 1995, one implant patient filed an action in
the Superior Court of California, County of Riverside, alleging that a defect in
the manufacturing of the Company's implants caused the implant to fracture.
Bausch & Lomb is contractually obligated to indemnify the Company for this claim
and has assumed the defense of this matter. The Company currently has product
liability insurance with coverage limits of $1.0 million per occurrence and $1.0
million in the aggregate per year. In the event the Company is held liable for
damages in excess of its insurance coverage limits or outside of its insurance
coverage, which damages are not indemnified by Bausch & Lomb, the Company's
business, financial condition and results of operations could be materially and
adversely affected.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Set forth below is certain information regarding the directors and
executive officers of the Company as of August 1997.
<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- ---- ----------------------------------------------------------
<S> <C> <C>
Kenneth A. Darienzo 58 Chairman of the Board and Chief Executive Officer
Martin J. Dymek 41 President
Kenneth Krueger 51 Executive Vice President, Operations
Bruce D. Nye 53 Vice President, Chief Financial Officer and Corporate
Secretary
Andrew C. Cowen(1)(2) 27 Director
Walter W. Grist(1)(2) 57 Director
T. Michael Long(2) 54 Director
Douglas E. Rogers(2) 43 Director
Frederic M. Seegal(1) 49 Director
Henry Wendt 64 Director
</TABLE>
- ---------------
(1) Member of Audit Committee
(2) Member of Compensation Committee
KENNETH A. DARIENZO has served as the Chief Executive Officer of the
Company and its predecessors since August 1989 and has been a Director of the
Company since the Acquisition in November 1996. Mr. Darienzo served as the
President of the Company until the appointment of Mr. Dymek in May 1997 and
became the Company's Chairman of the Board in August 1997. From 1988 to 1989,
Mr. Darienzo was the General Manager of Unitek, a global orthodontic company and
a subsidiary of the Minnesota Mining & Manufacturing Co. ("3M"). Mr. Darienzo
also served in a number of management positions with 3M from 1975 to 1988,
including positions as the Marketing Director for its Dental Division and the
National Sales Manager of its orthopedic business.
MARTIN J. DYMEK has been the President of the Company since May 1997, and
prior to that served as the Senior Vice President, Marketing and Sales of the
Company and its predecessor since 1995, as Vice President of Marketing of the
Company's predecessor from 1991 to 1995 and as International Sales Manager of
the Company's predecessor in 1990 and 1991. Mr. Dymek continues to be
responsible for the Company's sales and marketing activities. Prior to joining
S-O, Mr. Dymek held marketing and sales positions with Shofu Dental, a Japanese
dental manufacturing company, from 1982 to 1990. Mr. Dymek is currently a member
of the International Congress of Oral Implantologists and is active in the
Dental Manufacturers of America.
KENNETH KRUEGER has been the Executive Vice President, Operations of the
Company and its predecessors since 1987. Prior to that, Mr. Krueger served in a
number of operational and general management positions at the Company's
predecessor from 1984 to 1987. From 1981 to 1984, Mr. Krueger was the Manager of
the Cardiovascular Research and Development Division of Shiley, Inc., a Pfizer
company, and from 1966 to 1981, he served in management positions in operations,
research and development, production technology and production engineering with
Shiley, Inc. Mr. Krueger is currently a member of the Society for Biomaterials,
the International Congress of Oral Implantologists, the American Society of
Testing Material, the Academy of Implant Dentistry and the International
Association for Dental Research.
BRUCE D. NYE joined the Company in May 1997 as its Vice President, Chief
Financial Officer and Corporate Secretary. Prior to joining the Company, Mr. Nye
was the Senior Vice President of Corporate Development and prior to that Vice
President and Chief Financial Officer of The Cerplex Group, Inc., a company that
provides repair services for electronic equipment, from August 1993 to May 1997.
From 1992 to July 1993, Mr. Nye was Vice President and Chief Financial Officer
for Sparta, Inc. and from 1991 to 1992, he acted as an independent consultant
and principal in an asset acquisition for Aluminum Precision Products. Mr. Nye
was Senior Vice President and Chief Financial Officer for Hadson Defense
Systems, Inc. from 1983 to 1990. Prior to 1983, he was a Senior Audit Manager
with Price Waterhouse LLP.
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ANDREW C. COWEN has been a member of the Company's Board of Directors since
the Acquisition in November 1996. Mr. Cowen is currently an Assistant Manager of
Brown Brothers Harriman & Co., a private banking and investment management
company ("Brown Brothers"), where he has been employed for the past five years.
Brown Brothers is the general partner of The 1818 Fund II, L.P., a New York
limited partnership. Mr. Cowen is also a director of Computerized Medical
Systems, Inc.
WALTER W. GRIST has been a member of the Board of Directors of the Company
since the Acquisition in November 1996. For more than the past five years, Mr.
Grist has been a Senior Manager of Brown Brothers. Mr. Grist is also a director
of Computerized Medical Systems, Inc. and WellCare Management Group, Inc.
T. MICHAEL LONG has been a member of the Board of Directors of the Company
since the Acquisition in November 1996. Mr. Long is currently a partner of Brown
Brothers, where he has been employed since 1971. He is the co-manager of The
1818 Fund, L.P. and The 1818 Fund II, L.P. Mr. Long is also a director of
Columbia/HCA Healthcare Corp., Computerized Medical Systems, Inc., Ecko Group,
Inc., Gulf Canada Resources, Ltd., Nuevo Energy Company and Sports Holdings
Corporation. Mr. Long is a Trustee of The Hospital Chaplainry, Inc., a nonprofit
agency that trains chaplains from over 50 religious traditions.
DOUGLAS E. ROGERS has served as a member of the Board of Directors of the
Company since the Acquisition in November 1996. Mr. Rogers is currently a
Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ")
and DLJ Merchant Banking II, Inc., an affiliate of DLJ. Since 1992, Mr. Rogers
has been engaged in the development, organization and financing of numerous
health care companies. From 1995 to 1997, he was a Managing Director of
Lighthouse Capital Partners and its affiliates, which were involved in providing
financial services and advice to small to medium sized medical product and
dental companies. From 1987 to 1992, he was a Director of Baring Brothers & Co.,
Inc. where he was responsible for United States investment banking activities.
From 1983 to 1987, Mr. Rogers was a Senior Vice President at Lehman Brothers.
Prior to that, Mr. Rogers was a Vice President and founder of the Health Care
Group at Kidder, Peabody & Co. Mr. Rogers is also a founder of several
pharmaceutical research companies, including Neurogen Corporation and Texas
Biotechnology Group. Mr. Rogers is also a Director of Wilson Greatbatch Ltd. and
Computerized Medical Systems, Inc. and has served as a Director of Cold Spring
Harbor Laboratory Associates.
FREDERIC M. SEEGAL has been a member of the Company's Board of Directors
since January 1997. Mr. Seegal is currently the President of Wasserstein Perella
Group, Inc., an investment banking firm, where he has been employed for three
years. From 1990 to 1994, Mr. Seegal was a managing director of Salomon
Brothers. Prior to that Mr. Seegal was a Managing Director of Lehman Brothers
where he was employed from 1974 to 1990.
HENRY WENDT has served as a member of the Board of Directors of the Company
since the Acquisition in November 1996 and was the Chairman of the Board of the
Company until August 1997. He is currently a Managing Director of DLJ and DLJ
Merchant Banking II, Inc. From 1995 to 1997, he was a Managing Director of
Lighthouse Capital Partners and its affiliates. Mr. Wendt was Chairman of the
Board of SmithKline Beecham p.l.c., a pharmaceutical company, and its
subsidiary, SmithKline Beecham Corporation, from 1989 until his retirement in
1994. Mr. Wendt is also a director of Allergan, Inc., Atlantic Richfield Co.,
Availl, Inc., The Egypt Investment Company and West Marine Corp. He is a trustee
of the Trilateral Commission and Trustee Emeritus of the American Enterprise
Institute. In 1994 Mr. Wendt was awarded the Order of the Rising Sun Gold and
Silver Star by the Government of Japan, the highest honor given to a foreigner.
In 1995 he was named as Honorary Commander of the British Empire by HRM Queen
Elizabeth II.
The Company's Certificate provides for the Board of Directors to be divided
into three classes, with each class to be as nearly equal in number of directors
as possible. At each annual meeting of the stockholders, the successors to the
class of directors whose term expires at the time are elected to hold office for
a term of three years, and until their respective successors are elected and
qualified, so that the term of one class of directors expires at each such
annual meeting. The terms of office of the Company's directors expire as
follows: Messrs. Cowen and Grist in 1998; Messrs. Long and Rogers in 1999; and
Messrs. Darienzo, Seegal and Wendt
42
<PAGE> 44
in 2000. See "Description of Capital Stock -- Certain Provisions of the
Company's Certificate of Incorporation and Bylaws."
The Board of Directors has a Compensation Committee (the "Compensation
Committee"), which is responsible for making recommendations regarding salaries,
bonuses and other compensation matters for the Company's executive officers. The
Compensation Committee serves as the administrator of the 1997 Plan. The members
of the Compensation Committee are Messrs. Cowen, Grist, Long and Rogers. None of
these individuals were at any time during 1996 an officer or employee of the
Company.
The Board of Directors also has an Audit Committee (the "Audit Committee"),
which supervises and makes recommendations and decisions with respect to the
periodic audits of the Company's financial results. The members of the Audit
Committee are Messrs. Cowen, Grist and Seegal.
DIRECTOR COMPENSATION
Except as described below, the directors do not receive cash compensation
for services on the Board of Directors or any Committee thereof. All
non-employee Board members are reimbursed for their out-of-pocket expenses
incurred in connection with serving on the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned by the Company's Chief Executive Officer and its three other
most highly compensated executive officers (the "Named Executive Officers")
whose total salary and bonus for 1996 exceeded $100,000 for services rendered to
the Company and its predecessors in all capacities during that year. The Named
Executive Officers are the only executive officers of the Company.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND --------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITIONS(S) SALARY BONUS OPTIONS(1) COMPENSATION
- ----------------------------------------- -------- -------- ------------ ------------
<S> <C> <C> <C> <C>
Kenneth A. Darienzo...................... $219,615 $198,103 -- $
Chairman of the Board and
Chief Executive Officer
Martin J. Dymek.......................... 131,000 70,356 --
President
Kenneth Krueger.......................... 136,000 45,420 --
Executive Vice President, Operations
Bruce D. Nye (3)......................... -- -- -- --
Vice President, Chief Financial Officer
and Corporate Secretary
</TABLE>
- ---------------
(1) While the Company did not make any restricted stock grants or option grants
to any of the Named Executive Officers during the year ended December 31,
1996, the Company granted non-qualified stock options to purchase Common
Stock to each of the Named Executive Officers in January and May 1997, some
of which were fully vested and the remaining options will vest at the
earlier of the consummation of the Offering or in equal annual installments
if the Company attains certain financial criteria in the year. All of the
options were granted at an exercise price of $0.40, and the fully vested
options will terminate in January 2007 and the performance options will
terminate in May 2007. In August 1997, the Company granted incentive stock
options ("ISOs") to the Named Executive Officers at an exercise price equal
to the initial public offering price. Such options vest in four equal annual
installments commencing in August 1998 and terminate in August 2007. The
options granted to the Named Executive Officers are as follows: Mr. Darienzo
(100,000 fully vested options, 134,411 performance options and 30,000 ISOs),
Mr. Dymek (50,000 fully vested options, 53,825 performance options and
21,000 ISOs), Mr. Krueger (50,000 fully vested options, 53,825 performance
options and 16,000 ISOs) and Mr. Nye (16,055 performance options and 10,000
ISOs).
43
<PAGE> 45
(2) Consists of .
(3) Mr. Nye joined the Company as its Vice President, Chief Financial Officer
and Corporate Secretary in May 1997. He is currently paid an annual salary
of $160,000. In May 1997, Mr. Nye was granted options to purchase 16,055
shares of Common Stock which will vest at the earlier of the consummation of
the Offering or in equal annual installments if the Company attains certain
financial objectives. All of such options were granted at an exercise price
of $0.40, and such options will terminate in May 2007.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the Board of
Directors or Compensation Committee of any entity that has one or more executive
officers serving as a member of the Company's Board of Directors or Compensation
Committee.
COMPENSATION PLANS AND ARRANGEMENTS
Employment Contracts
In November 1996, the Company entered into an employment agreement with
each of Messrs. Darienzo, Dymek and Krueger for a term ending December 31, 1999.
The annual base salaries of Messrs. Darienzo, Dymek and Krueger as of the date
hereof are $300,000, $199,000 and $155,000, respectively. Each of such officers
is also eligible to receive a bonus based upon the Company's attainment of
certain performance criteria, which bonus will not exceed 100% of such officer's
annual base salary. The employment agreements provide that the Board may
increase the annual base salaries and bonuses of such officers as appropriate.
In the event the Company terminates any such agreement other than for cause, the
Company must pay to such officer, in addition to all accrued and unpaid salary
and benefits, his salary and certain benefits for 18 months from the date of
such termination. If the Company terminates such officer's employment for cause
or if such officer terminates his employment for any reason whatsoever, then the
officer will be entitled to receive only accrued but unpaid salary through the
date of such termination.
1997 Stock Incentive Plan
The Company's 1997 Plan is intended to serve as a comprehensive equity
incentive program for the employees, non-employee members of the Company's Board
of Directors (the "Board") or the board of directors of any parent or subsidiary
of the Company, and independent consultants who provide valuable services to the
Company. The 1997 Plan became effective on August 20, 1997 upon adoption by the
Board and was subsequently approved by the stockholders in August 1997. A total
of 400,000 shares of Common Stock has been reserved for issuance under the 1997
Plan. The share reserve will be increased automatically on the first day of
January of each calendar year, beginning in January 1998, by a number of shares
equal to 2% of the number of shares of Common Stock outstanding on the last day
of the immediately preceding calendar year. In no event may any one participant
in the 1997 Plan receive option grants or direct stock issuances for more than
200,000 shares in the aggregate per calendar year.
The 1997 Plan is divided into four separate incentive programs: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers and other employees,
non-employee Board members and independent consultants) may, at the discretion
of the Plan Administrator, be granted options to purchase shares of Common Stock
at an exercise price not less than 85% of their fair market value on the grant
date, (ii) the Stock Issuance Program under which such individuals may, in the
Plan Administrator's discretion, be issued shares of Common Stock directly
through the purchase of such shares at a price not less than 100% of their fair
market value at the time of issuance or as a bonus tied to the performance of
services, (iii) the Salary Investment Option Grant Program under which executive
officers and other highly compensated employees may elect to apply a portion of
their base salary to the acquisition of special stock option grants, and (iv)
the Director Fee Option Grant Program pursuant to which the non-employee Board
members may apply a portion of the annual retainer fee otherwise payable to them
in cash each year to the acquisition of special stock option grants.
44
<PAGE> 46
The Discretionary Option Grant, Stock Issuance and Salary Investment Option
Grant Programs will be administered by the Compensation Committee. The
Compensation Committee, as Plan Administrator, will have complete discretion to
determine which eligible individuals are to receive option grants or stock
issuances, the time or times when such option grants or stock issuances are to
be made, the number of shares subject to each such grant or issuance, the
vesting schedule to be in effect for the option grants or stock issuances, the
maximum term for which any granted option is to remain outstanding and the
status of any granted option as either an incentive stock option or a
non-statutory stock option under the federal tax laws, except that all options
granted under the Salary Investment Option Grant Program will be non-statutory
stock options. The administration of the Director Fee Option Grant Program will
be self-executing in accordance with the express provisions of that program.
The exercise price for the shares of Common Stock subject to option grants
made under the 1997 Plan may be paid in cash or in shares of Common Stock valued
at fair market value on the exercise date. The option may also be exercised
through a same-day sale program without any cash outlay by the optionee. In
addition, the Plan Administrator may provide financial assistance to one or more
optionees in the exercise of their outstanding options by allowing such
individuals to deliver a full-recourse, interest-bearing promissory note in
payment of the exercise price and any associated withholding taxes incurred in
connection with such exercise.
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation will automatically accelerate in full,
and all unvested shares under the Stock Issuance Program will immediately vest,
except to the extent the Company's repurchase rights with respect to those
shares are to be assigned to the successor corporation. The Plan Administrator
will have the authority under the Discretionary Option Grant and Stock Issuance
Programs to grant options and to structure repurchase rights so that the shares
subject to those options or repurchase rights will automatically vest in the
event the individual's service is terminated, whether involuntarily or through a
resignation for good reason, within a specified period (not to exceed eighteen
(18) months) following (i) a merger or asset sale in which those options are
assumed or those repurchase rights are assigned or (ii) a change in control of
the Company effected by a successful tender offer for more than 50% of the
outstanding voting stock or by proxy contest for the election of Board members.
The Plan Administrator will also have the discretion to provide for the
automatic acceleration of options and the lapse of any repurchase rights upon
(i) a change in control of the Company effected by a successful tender offer for
more than 50% of the Company's outstanding voting stock or by proxy contest for
the election of Board members or (ii) the termination of the individual's
service, whether involuntarily or through a resignation for good reason, within
a specified period (not to exceed eighteen (18) months) following such a change
in control.
Stock appreciation rights may be issued in tandem with option grants made
under the Discretionary Option Grant Program. The holders of such rights will
have the opportunity to elect between the exercise of their outstanding stock
options for shares of Common Stock or the surrender of those options for an
appreciation distribution from the Company equal to the excess of (i) the fair
market value of the vested shares of Common Stock subject to the surrendered
option over (ii) the aggregate exercise price payable for such shares. Such
appreciation distribution may be made in cash or in shares of Common Stock.
The Plan Administrator has the authority to effect the cancellation of
outstanding options under the Discretionary Option Grant Program in return for
the grant of new options for the same or different number of option shares with
an exercise price per share based upon the fair market value of the Common Stock
on the new grant date.
In the event the Plan Administrator elects to activate the Salary
Investment Option Grant Program, each executive officer and other highly
compensated employee of the Company selected for participation may elect, prior
to the start of the calendar year, to reduce his or her base salary for that
calendar year by a specified dollar amount not less than $10,000 nor more than
$50,000. If such election is approved by the Plan Administrator, the officer
will be granted, on or before the last trading day in January in the calendar
year for which the salary reduction is to be in effect, a non-statutory option
to purchase that number of shares of
45
<PAGE> 47
Common Stock determined by dividing the salary reduction amount by two-thirds of
the fair market value per share of Common Stock on the grant date. The option
will be exercisable at a price per share equal to one-third of the fair market
value of the option shares on the grant date. As a result, the total spread on
the option shares at the time of grant will be equal to the amount of salary
invested in that option. The option will vest in a series of twelve (12) equal
monthly installments over the calendar year for which the salary reduction is in
effect and will be subject to full and immediate vesting upon certain changes in
the ownership or control of the Company.
In the event the Director Fee Option Grant Program is activated in the
future, each non-employee Board member would have the opportunity to apply all
or a portion of any annual retainer fee otherwise payable in cash to the
acquisition of a below-market option grant. The option grant would automatically
be made on the first trading day in January in the year for which the retainer
fee would otherwise be payable in cash. The option will have an exercise price
per share equal to one-third of the fair market value of the option shares on
the grant date, and the number of shares subject to the option will be
determined by dividing the amount of the retainer fee applied to the program by
two-thirds of the fair market value per share of Common Stock on the grant date.
As a result, the total spread on the option (the fair market value of the option
shares on the grant date less the aggregate exercise price payable for those
shares) will be equal to the portion of the retainer fee invested in that
option. The option will become exercisable for the option shares in a series of
twelve (12) equal monthly installments over the calendar year for which the
election is in effect. However, the option will become immediately exercisable
for all the option shares upon (i) certain changes in the ownership or control
of the Company or (ii) the death or disability of the optionee while serving as
a Board member.
The Board may amend or modify the 1997 Plan at any time. The 1997 Plan will
terminate on August 19, 2007, unless sooner terminated by the Board.
On August 20, 1997, the Board granted options to purchase an aggregate of
226,000 shares of Common Stock under the 1997 Plan to certain employees of the
Company, including the following executive officers: Kenneth Darienzo - 30,000
options; Martin Dymek - 21,000 options; Kenneth Krueger - 16,000 options and
Bruce Nye - 10,000 options. These options vest in four equal annual installments
commencing in August 1998 and have an exercise price equal to the initial public
offering price.
401(K) PROFIT SHARING PLAN
The Company has an employee profit sharing plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code
(the "401(k) Plan"). The 401(k) Plan allows eligible employees to defer up to
15% of their pretax earnings, subject to the Internal Revenue Service annual
contribution limit. The Company makes matching contributions equal to 100% of
employee contributions up to 4% of the participant's eligible compensation. The
Company's contributions to the 401(k) Plan for 1996 totaled $33,000.
LIMITATION OF LIABILITY AND INDEMNIFICATION
The Company's Certificate provides that, pursuant to Delaware law, the
Company's directors shall not be liable for monetary damages for breach of the
directors' fiduciary duty of care to the Company and its stockholders. This
provision in the Certificate does not eliminate the duty of care, and in
appropriate circumstances equitable remedies such as injunctive or other forms
of non-monetary relief against the directors will remain available under
Delaware law. In addition, each director will continue to be subject to
liability for breach of the director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct or knowing violations of law, for actions leading to improper
personal benefit to the director, and for payment of dividends or approval of
stock repurchases or redemptions that are unlawful under Delaware law. The
provision also does not affect a director's responsibilities under any other
law, such as the federal securities laws or state or federal environmental laws.
Under Section 145 of the Delaware General Corporation Law, the Company can
indemnify its directors and officers against liabilities they may incur in such
capacities, including liabilities under the Securities Act. The Company's Bylaws
provide that the Company will indemnify its directors and officers to the
fullest extent
46
<PAGE> 48
permitted by law and require the Company to advance litigation expenses upon
receipt by the Company of an undertaking by the director or officer to repay
such advances if it is ultimately determined that the director or officer is not
entitled to indemnification. The Bylaws further provide that rights conferred
under such Bylaws do not exclude any other right such persons may have or
acquire under any bylaw, agreement, vote of the stockholders or disinterested
directors or otherwise.
The Company has entered into agreements to indemnify its executive officers
and all of its directors in addition to the indemnification provided for in the
Bylaws. These agreements will, among other things, indemnify those parties for
certain expenses (including attorneys' fees), judgments, fines and settlement
amounts incurred by such person in any action or proceeding, including any
action by or in the right of the Company, on account of services by such person
as an officer or a director of the Company, or as an officer or a director of
any other company or enterprise to which the person provides services at the
request of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the indemnification agreements or the Company's charter documents,
the Company has been informed that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.
The Company has also obtained directors' and officers' liability insurance
for its directors and executive officers.
47
<PAGE> 49
CERTAIN TRANSACTIONS
ACQUISITION
In November 1996, the Company acquired certain of the assets of its
predecessor, S-O, from Bausch & Lomb. In conjunction with the Acquisition, the
Company entered into a Securities Purchase Agreement (the "Securities Purchase
Agreement") with The 1818 Fund II, L.P. (the "Fund"), pursuant to which the
Company sold 22,000 shares of Class A Preferred Stock and warrants to purchase
2,900,000 shares of Common Stock at a nominal exercise price to the Fund for
$22.0 million. T. Michael Long, Walter W. Grist and Andrew Cowen, directors of
the Company, are a partner, senior manager and associate manager, respectively,
of Brown Brothers, which is the general partner of the Fund, and were elected to
the Company's Board pursuant to rights granted to the Fund in connection with
the Acquisition. The Fund's right to require the Company to nominate up to three
individuals designated by it as directors terminates upon the consummation of
the Offering.
In conjunction with the Acquisition, the Company also sold (i) 3,185 shares
of Class C Preferred Stock and warrants to purchase 477,750 shares of Common
Stock at a nominal exercise price to Exeter Venture Lenders, L.P. and Exeter
Equity Partners, L.P. (collectively, "Exeter") and S-O Acquisition LLC for $3.2
million, and (ii) 50,000 shares of Common Stock and warrants to purchase 745,400
shares of Common Stock to S-O Management LLC at a nominal exercise price for
$1,000. Henry Wendt, one of the Company's directors, owns an equity interest in
S-O Acquisition LLC and S-O Management LLC (collectively, the "S-O Parties"). An
affiliate of Furman Selz LLC, one of the Underwriters, is the general partner of
Anvers L.P., which also owns an equity interest in S-O Acquisition LLC. In
addition, Douglas E. Rogers, a director of the Company, and Richard Gumer, a
Managing Director of Furman Selz LLC, own equity interests in S-O Management
LLC. Wasserstein Perella Group, Inc. owns an equity interest in S-O Acquisition
LLC. Frederic M. Seegal, a director of the Company, is President of Wasserstein
Perella Group, Inc. The Company pays S-O Management LLC $250,000 per year
pursuant to a Management Services Agreement that terminates upon consummation of
the Offering.
In addition, in connection with the Acquisition, the Company entered into
Note and Warrant Purchase Agreements with Equitable Life Assurance Society of
the United States ("Equitable Life") and Exeter. Under the terms of the Note and
Warrant Purchase Agreements, the Company sold (i) $10.0 million aggregate
principal amount of its 16% Series A Subordinated Notes and warrants to purchase
240,000 shares of Common Stock at a nominal exercise price to Equitable Life and
(ii) $2.5 million aggregate principal amount of its 14% Series B Subordinated
Notes and warrants to purchase 88,000 shares of Common Stock at a nominal
exercise price to Exeter. Equitable Life is a wholly-owned subsidiary of The
Equitable Companies Incorporated, which owns approximately 77% of DLJ, one of
the Underwriters.
Concurrently with the Acquisition, the Company entered into a registration
rights agreement with the Fund, S-O Parties, Exeter and Equitable Life and a
stockholders agreement, which terminates upon consummation of the Offering, with
such parties and Messrs. Wendt, Rogers and Gumer. See "Description of Capital
Stock."
DIRECTOR OPTIONS
In January 1997, the Company granted each member of the Company's Board of
Directors (other than Mr. Darienzo) a stock option to acquire 35,700 shares of
the Company's Common Stock at an exercise price of $1.00 per share.
PREFERRED STOCK CONVERSION
On August 21, 1997, the Company and the holders of Class A Preferred Stock
and Class C Preferred Stock agreed to amend the rights of the Class A Preferred
Stock and Class C Preferred Stock so that 17,471 shares of Class A Preferred
Stock and 2,527 shares of Class C Preferred Stock will automatically convert
into an aggregate of 1,433,547 shares of Common Stock concurrently with the
closing of the Offering, in lieu of mandatory redemption. The conversion price
will be equal to 93% of the initial public offering price in this Offering. The
remaining outstanding Class A Preferred Stock and Class C Preferred Stock will
be redeemed
48
<PAGE> 50
out of the proceeds of the Offering. As discussed above, certain affiliates of
the Company are holders of such shares of Class A Preferred Stock and Class B
Preferred Stock.
RELATIONSHIPS BETWEEN THE COMPANY, CERTAIN DIRECTORS AND THE UNDERWRITERS
Each of Mr. Rogers and Mr. Wendt, directors of the Company, is a Managing
Director of DLJ and DLJ Merchant Banking II, Inc., an affiliate of DLJ. Mr.
Rogers beneficially owns (i) 35,700 shares of Common Stock issuable upon
exercise of fully-vested stock options, (ii) 295,093 shares of Common Stock
owned by S-O Management LLC and (iii) 1,920 shares of Common Stock owned by S-O
Acquisition LLC, including 528 shares issuable upon conversion of Class C
Preferred Stock. Mr. Wendt beneficially owns (i) 35,700 shares of Common Stock
issuable upon exercise of fully-vested stock options, (ii) 302,252 shares of
Common Stock owned by S-O Management LLC and (iii) 102,301 shares of Common
Stock owned by S-O Acquisition LLC, including 28,172 shares issuable upon
conversion of 393 shares of Class C Preferred Stock. The remaining 102 shares of
Class C Preferred Stock beneficially owned by Mr. Wendt will be redeemed with
net proceeds of the Offering for approximately $102,000.
Equitable Life beneficially owns (i) warrants to purchase approximately
211,200 shares of Common Stock and (ii) $10.0 million aggregate principal amount
of 16% Series A Subordinated Notes of the Company. The Company intends to use a
portion of the net proceeds of the Offering to repay all outstanding
indebtedness under the 16% Series A Subordinated Notes. Equitable Life is a
wholly owned subsidiary of The Equitable Companies Incorporated, which owns
approximately 77% of DLJ.
An affiliate of Furman Selz LLC, one of the Underwriters, is the general
partner of Anvers, L.P., which beneficially owns (i) warrants to purchase
approximately 75,000 shares of Common Stock of the Company and (ii) 500 shares
of Class C Preferred Stock of the Company. 396 shares of such Class C Preferred
Stock will be converted into 28,387 shares of Common Stock and the remaining
shares will be redeemed for approximately $103,000.
Mr. Gumer, a Managing Director of Furman Selz LLC, beneficially owns (i)
10,500 shares of Common Stock, (ii) warrants to purchase approximately 156,534
shares of Common Stock and (iii) 5 shares of Class C Preferred Stock of the
Company.
The Offering is being made pursuant to Rule 2720 of the Conduct Rules of
the National Association of Securities Dealers, Inc. ("NASD"), because certain
associates of DLJ and Furman Selz LLC beneficially own in excess of 10% of the
Common Stock of the Company prior to the Offering and affiliates of DLJ will
receive in excess of 10% of the proceeds of the Offering as a result of the
redemption of the Class C Preferred Stock and the repayment of the 16% Series A
Subordinated Notes of the Company. Rule 2720 provides that, among other things,
when a NASD member participates in the underwriting of equity securities of a
company with which there exists a conflict of interest, the price at which such
equity securities are to be distributed to the public can be no higher than that
recommended by a "qualified independent underwriter" meeting certain standards
("QIU"). UBS Securities LLC will assume the responsibilities of acting as the
QIU in connection with the Offering.
49
<PAGE> 51
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock (as adjusted to reflect the
Preferred Stock Conversion and the sale of the shares offered by the Company in
the Offering) by (i) each person (or group of affiliated persons) known by the
Company to beneficially own more than five percent of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers and (iv) all directors and executive officers of the Company
as a group. Except as otherwise indicated, the Company believes that the
beneficial owners listed below have sole investment and voting power with
respect to such shares, subject to community property laws, where applicable.
<TABLE>
<CAPTION>
PERCENTAGE OF
CLASS(1)
NUMBER ---------------------
BENEFICIALLY BEFORE AFTER
OWNED(1) OFFERING OFFERING
------------ -------- --------
<S> <C> <C> <C>
The 1818 Fund II, L.P.(2)...................................... 4,152,401 66.6% 38.0%
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, NY 10005
S-O Management LLC(3).......................................... 800,573 12.8 7.3
4900 West Dry Creek Road
Healdsburg, CA 95448
S-O Acquisition LLC(4)......................................... 348,592 5.6 3.2
4900 West Dry Creek Road
Healdsburg, CA 95448
Kenneth A. Darienzo(5)......................................... 234,411 3.6 2.1
Martin J. Dymek(6)............................................. 103,825 1.6 *
Kenneth Krueger(7)............................................. 103,825 1.6 *
Bruce D. Nye(8)................................................ 16,055 * *
Andrew C. Cowen(9)............................................. 35,700 * *
Walter W. Grist(10)............................................ 35,700 * *
T. Michael Long(11)............................................ 4,188,101 6.8 38.2
Douglas E. Rogers(12).......................................... 332,713 5.3 3.0
Frederic M. Seegal(13)......................................... 37,500 * *
Henry Wendt(14)................................................ 440,253 7.0 4.0
All directors and executive officers as a group (9
persons)(15)................................................. 4,824,717 69.9% 41.6%
</TABLE>
- ---------------
* Less than one percent.
(1) Beneficial ownership is based on 6,233,547 shares of Common Stock
outstanding as of August 26, 1997 and 10,933,547 shares of Common Stock
outstanding after completion of the Offering. Shares of Common Stock
subject to options that are currently exercisable or exercisable within 60
days of the date of this Prospectus are deemed to be outstanding and
beneficially owned by the person holding such option for the purpose of
computing beneficial ownership of such person, but are not treated as
outstanding for the purposes of computing the percentage ownership of any
other person. Each owner of an equity interest in S-O Acquisition LLC and
S-O Management LLC, respectively, is presented as beneficially owning a
percentage of the shares of Common Stock owned by S-O Acquisition LLC and
S-O Management LLC, respectively, equal to such owner's proportionate
equity interest in each such entity.
(2) The general partner of the 1818 Fund II, L.P. is Brown Brothers. T. Michael
Long, a director of the Company, is a general partner of Brown Brothers.
See footnote 11.
(3) The members of S-O Management LLC have indicated that they intend to
liquidate S-O Management LLC prior to the consummation of the Offering and
distribute all of the Company's securities held by such limited liability
company to its members. S-O Management LLC's shares (i) include 5,173
shares of Common Stock owned by S-O Acquisition LLC, representing S-O
Management LLC's proportionate interest in the 348,592 shares of Common
Stock owned by S-O Acquisition LLC, and (ii) exclude the remaining 343,419
shares of Common Stock owned of record by S-O Acquisition LLC, which S-O
Management LLC may be deemed to own beneficially because it has sole voting
power of the shares of Common Stock owned by S-O Acquisition LLC. S-O
Management LLC disclaims beneficial ownership of all shares referenced in
(ii) above.
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<PAGE> 52
(4) The members of S-O Acquisition LLC have indicated that they intend to
liquidate S-O Acquisition LLC prior to the consummation of the Offering and
distribute all of the Company's securities held by such limited liability
company to its members.
(5) Mr. Darienzo's shares include (i) 100,000 shares of Common Stock issuable
upon exercise of fully-vested stock options and (ii) 134,411 shares of
Common Stock issuable upon exercise of stock options that will vest upon
consummation of the Offering.
(6) Mr. Dymek's shares include (i) 50,000 shares of Common Stock issuable upon
exercise of fully-vested stock options and (ii) 53,825 shares of Common
Stock issuable upon exercise of stock options that will vest upon
consummation of the Offering.
(7) Mr. Krueger's shares include (i) 50,000 shares of Common Stock issuable
upon exercise of fully-vested stock options and (ii) 53,825 shares of
Common Stock issuable upon exercise of stock options that will vest upon
consummation of the Offering.
(8) Mr. Nye's shares include 16,055 shares of Common Stock issuable upon
exercise of stock options that will vest upon consummation of the Offering.
(9) Mr. Cowen's shares include 35,700 shares of Common Stock issuable upon
exercise of fully-vested stock options.
(10) Mr. Grist's shares include 35,700 shares of Common Stock issuable upon
exercise of fully-vested stock options.
(11) Mr. Long's shares (i) include 35,700 shares of Common Stock issuable upon
exercise of fully-vested stock options and (ii) exclude the 4,152,401
shares of Common Stock owned by the Fund, which Mr. Long may be deemed to
beneficially own because he has voting power of the Fund's shares of Common
Stock. Mr. Long disclaims beneficial ownership of all shares referenced in
(ii) above.
(12) Mr. Rogers' shares (i) include (A) 35,700 shares of Common Stock issuable
upon exercise of fully-vested stock options, (B) 295,093 shares of Common
Stock owned by S-O Management LLC, representing his proportionate interest
in the 795,400 shares of Common Stock owned directly by S-O Management LLC,
and (C) 1,920 shares of Common Stock owned by S-O Acquisition LLC,
representing his proportionate interest in S-O Management's proportionate
interest in the 348,592 shares of Common Stock owned by S-O Acquisition
LLC, and (ii) exclude the remaining 500,307 shares of Common Stock owned by
S-O Management LLC and the remaining 346,672 shares of Common Stock owned
by S-O Acquisition LLC, which Mr. Rogers may be deemed to beneficially own
because he has voting power over the shares of Common Stock held by each
such entity. Mr. Rogers disclaims beneficial ownership of all shares
referenced in (ii) above.
(13) Mr. Seegal's shares include 35,700 shares of Common Stock issuable upon
exercise of fully-vested stock options.
(14) Mr. Wendt's shares (i) include (A) 35,700 shares of Common Stock issuable
upon exercise of fully-vested stock options, (B) 302,252 shares of Common
Stock owned by S-O Management LLC, representing his proportionate interest
in the 795,400 shares of Common Stock owned by S-O Management LLC, (C)
100,335 shares of Common Stock owned by S-O Acquisition LLC, representing
his proportionate interest in the 348,592 shares of Common Stock owned by
S-O Acquisition LLC, and (D) 1,966 shares of Common Stock owned by S-O
Acquisition LLC, representing his proportionate interest in S-O
Management's proportionate interest in the shares of Common Stock owned by
S-O Acquisition LLC, and (ii) exclude the remaining 493,148 shares of
Common Stock owned by S-O Management LLC and the remaining 246,291 shares
of Common Stock owned by S-O Acquisition LLC which Mr. Wendt may be deemed
to beneficially own because he currently has voting power over the shares
of Common Stock held by each such entity. Mr. Wendt disclaims beneficial
ownership of all shares referenced in (ii) above.
(15) The shares held by the officers and directors as a group include 672,316
shares of Common Stock issuable upon exercise of options exercisable within
60 days of the date of this Prospectus.
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<PAGE> 53
DESCRIPTION OF CAPITAL STOCK
Upon completion of the Offering and the concurrent exercise of all
outstanding warrants to acquire Common Stock, and conversion to Common Stock or
redemption of all outstanding shares of Preferred Stock, the authorized capital
stock of the Company will consist of 35,000,000 shares of Common Stock, $.0001
par value per share, of which 10,933,547 shares will be outstanding, and
5,000,000 shares of Preferred Stock, $.0001 par value per share, none of which
will be outstanding. The following description of the capital stock of the
Company and certain provisions of the Company's Certificate and Bylaws gives
effect to the exercise of all outstanding warrants and the conversion to Common
Stock or redemption of all outstanding shares of Preferred Stock. The
description below is a summary and is qualified in its entirety by the
provisions of the Certificate and Bylaws, copies of which have been filed as
exhibits to the Registration Statement of which this Prospectus is a part.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Following the Offering, the holders of Common Stock, voting as a single class,
will be entitled to elect all of the directors of the Company. Holders of Common
Stock are entitled to receive ratably such dividends as may be declared by the
Board of Directors out of funds legally available therefor. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
would be entitled to share ratably in the Company's assets remaining after the
payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any outstanding shares of Preferred Stock. Holders of
Common Stock have no preemptive or other subscription rights. The shares of
Common Stock are not convertible into any other security. The outstanding shares
of Common Stock are, and the shares being offered hereby will be, upon issuance
and sale, fully paid and nonassessable.
DELAWARE LAW
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, the statute prohibits
a publicly held Delaware corporation from engaging in a "business combination"
with an "interested stockholder" for a period of three years after the date that
the person became an interested stockholder unless (with certain exceptions) the
business combination or the transaction in which the person became an interested
stockholder is approved in a prescribed manner. Generally, a "business
combination" includes a merger, asset or stock sale, or other transaction
resulting in a financial benefit to the stockholder. Generally, an "interested
stockholder" is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of a corporation's outstanding
voting stock. This provision may have the effect of delaying, deferring or
preventing a change in control of the Company without further action by the
stockholders.
CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF INCORPORATION AND BYLAWS
Provisions of the Company's Certificate and Bylaws may make more difficult
the acquisition of control of the Company by various means, such as a tender
offer, open market purchases not approved by the Company's Board of Directors, a
proxy contest or otherwise and could thereby deprive the stockholders of
opportunities to realize a premium on their Common Stock. In addition, they may
adversely affect the prevailing market price of the stock. These provisions are
intended to enhance the likelihood of continuity and stability in the
composition of the Board of Directors of the Company and in the policies
formulated by the Board of Directors and to discourage certain types of
transactions, described below, which may involve an actual or threatened change
in control of the Company. The provisions are also intended to discourage
certain tactics that may be used in proxy fights. These provisions also
encourage persons seeking to acquire control of the Company to consult first
with the Company's Board of Directors to negotiate the terms of any proposed
business combination or offer. The provisions are designed to reduce the
vulnerability of the Company to an unsolicited proposal for a takeover that does
not contemplate the acquisition of all outstanding shares of the Company or that
is otherwise unfair to stockholders of the Company. The Board of Directors
believes that, as a general rule, such takeover proposals would not be in the
best interests of the Company and its stockholders.
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<PAGE> 54
See "Risk Factors -- Potential Anti-Takeover Effects of Delaware Law and the
Company's Certificate of Incorporation and Bylaws."
Directors; Classified Board; Removal; Filling Vacancies and Amendment. The
Certificate provides that the number of directors will be fixed from time to
time by resolution adopted by a majority of the directors then in office.
Currently, the number is set at seven. The Certificate provides for the Board of
Directors to be divided into three classes, with each class to be as nearly
equal in number of directors as possible. Further, subject to the rights of the
holders of any series of Preferred Stock then outstanding, the Certificate
authorizes only the Board of Directors to fill vacancies, including newly
created directorships. Accordingly, this provision could prevent a stockholder
from obtaining majority representation on the Board of Directors by enlarging
the Board of Directors and filling the new directorships with its own nominees.
The Certificate also provides that directors of the Company may be removed by
stockholders only for cause and only by the affirmative vote of holders of
two-thirds of the outstanding shares of voting stock.
Special Stockholder Meetings. The Certificate provides that special
meetings of the stockholders, for any purpose or purposes, unless required by
law, shall be called by the President or Secretary pursuant to a request in
writing of the President, a majority of the entire Board of Directors or
stockholders owning not less than 50% of the entire voting stock of the Company
then issued and outstanding. A special meeting may not be held absent such a
written request. The request shall state the purpose or purposes of the proposed
meeting. Such limitation on the right of stockholders to call a special meeting
could make it more difficult for stockholders to initiate action that is opposed
by the Board of Directors. Such action on the part of stockholders could include
the removal of an incumbent director, the election of a stockholder nominee as a
director or the implementation of a rule requiring stockholder ratification of
specific defensive strategies that have been adopted by the Board of Directors
with respect to unsolicited takeover bids. In addition, the limited ability of
the stockholders to call a special meeting of stockholders may make it more
difficult to change the existing Board of Directors and management.
Preferred Stock. The Certificate authorizes 5,000,000 shares of Preferred
Stock that may be issued in series from time to time with such designations,
relative rights, priorities, preferences, qualifications, limitations and
restrictions thereof, to the extent that such are not fixed in the Company's
Certificate, as the Board of Directors determines. The rights, preferences,
limitations and restrictions of different series of Preferred Stock may differ
with respect to dividend rates, amounts payable on liquidation, voting rights,
conversion rights, redemption provisions, sinking fund provisions and other
matters. The Board of Directors may authorize the issuance of Preferred Stock
that ranks senior to the Common Stock with respect to the payment of dividends
and the distribution of assets on liquidation. In addition, the Board of
Directors is authorized to fix the limitations and restrictions, if any, upon
the payment of dividends on Common Stock to be effective while any shares of
Preferred Stock are outstanding. The Board of Directors, without stockholder
approval, can issue Preferred Stock with voting and conversion rights which
could adversely affect the voting power of the holders of Common Stock. The
Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financings and
acquisitions, and in meeting other corporate needs that might arise. Having such
authorized shares available for issuance will allow the Company to issue shares
of Preferred Stock without the expense and delay of a special stockholders'
meeting. Although the Company's Board of Directors has no intention at the
present time of doing so, it could issue a series of Preferred Stock, the terms
of which, subject to certain limitations imposed by the securities laws, could
impede the completion of a merger, tender offer or other takeover attempt. The
Company's Board of Directors will make any determination to issue such shares
based on its judgment as to the best interests of the Company and its
stockholders at the time of issuance. The Company's Board of Directors, in so
acting, could issue Preferred Stock having terms that could discourage an
acquisition attempt or other transaction that some, or a majority, of the
stockholders might believe to be in their best interests or in which
stockholders might receive a premium for their stock over the then market price
of such stock.
Advance Notice Requirements for Stockholder Proposals and Director
Nominations. The Certificate establishes an advance notice procedure for the
nomination, other than by or at the discretion of the Board of Directors or a
committee thereof, of candidates for election as directors as well as for other
stockholder proposals to be considered at special or annual stockholders'
meetings. Notice of stockholder proposals and
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<PAGE> 55
director nominations must be timely given in writing to the Secretary of the
Company prior to the meeting at which the matters are to be acted upon or the
directors are to be elected. To be timely, notice must be received in general at
the principal offices of the Company not less than 60, nor more than 90, days
prior to the meeting of stockholders. The purpose of requiring advance notice is
to afford the Board of Directors an opportunity to consider the qualifications
of the proposed nominees or the merits of other stockholder proposals and, to
the extent deemed necessary or desirable by the Board of Directors, to inform
stockholders about those matters.
Written Consent; Special Meetings of Stockholders. The Certificate
prohibits the taking of stockholder action by written consent without a meeting.
These provisions will make it more difficult for stockholders to take action
opposed by the Board of Directors.
Amendment of Certain Provisions of the Certificate. The Certificate
generally requires the affirmative vote of the holders of at least two-thirds of
the outstanding voting stock in order to amend any provisions of the Certificate
concerning (i) the removal or appointment of directors, (ii) the authority of
stockholders to act by written consent, (iii) the required vote to amend the
Certificate, (iv) calling a special meeting of stockholders, (v) procedure and
content of stockholder proposals concerning business to be conducted at a
meeting of stockholders, and (vi) director nominations by stockholders. These
voting requirements will make it more difficult for minority stockholders to
make changes in the Certificate that could be designed to facilitate the
exercise of control over the Company. On the other hand, the requirement for
approval by at least a two-thirds stockholder vote will enable the holders of a
minority of the voting stock of the Company to prevent the holders of a majority
or more of such securities from amending such provisions of the Certificate.
Following the completion of the offering, the Company's present directors and
executive officers and their respective affiliates will beneficially own
approximately % of the outstanding Common Stock, giving them veto power with
respect to any stockholder action or approval requiring a two-thirds vote.
REGISTRATION RIGHTS
After the Offering, pursuant to registration rights agreements (the
"Registration Rights Agreements") entered into in connection with the
Acquisition, holders (the "Holders") of approximately 6,233,547 shares of Common
Stock will be entitled to certain demand and piggy-back registration rights with
respect to such shares. Pursuant to the Registration Rights Agreements, as
modified by certain waivers of rights thereunder that were agreed upon in
connection with the Offering, certain Holders may, commencing six months after
the Offering, request that the Company file a registration statement under the
Securities Act and, upon such request and subject to certain conditions and
restrictions, the Company generally will be required to use its best efforts to
effect one such registration. Additionally, within twenty-four months of the
Offering, the Company must file a shelf registration statement on Form S-3 to
register 2,900,000 shares of Common Stock acquired as a result of the exercise
of warrants held by the Class A Preferred Stock investors; however, such
required registration is subject to postponement if it would interfere with
certain material transactions of the Company then under consideration. In
addition, if the Company proposes to register any of its securities either for
its own account or for the account of other stockholders, the Company is
required, with certain exceptions, to notify the Holders and, subject to certain
limitations, include in any underwritten registration all of the shares of
Common Stock requested to be included by the Holders. The Company is generally
obligated to bear the expenses, other than underwriting discounts and sales
commissions, of these registrations.
TRANSFER AGENT AND REGISTRATION
The transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation.
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<PAGE> 56
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 10,933,547 shares of
Common Stock outstanding. Of these shares, the 4,700,000 shares sold in the
Offering (plus any additional shares sold upon the Underwriters' exercise of
their over-allotment option) will be freely transferable immediately following
the Offering without restriction under the Securities Act. Of the remaining
6,233,547 shares of Common Stock, 4,800,000 will become transferable 90 days
following the date of this Prospectus subject to compliance with the applicable
provisions of Rule 144, assuming the lock-up discussed below is not applicable.
Each of the Company, its executive officers and directors and certain
stockholders of the Company who in the aggregate beneficially own 100% of the
total number of outstanding shares of Common Stock not sold in the Offering, has
agreed (except, in the case of the Company, for the grant of options or issuance
of stock under the 1997 Plan or upon conversion of the Preferred Stock) not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) (the "Lock-Up") for a
period of 180 days (the "Lock-up Period") after the date of this Prospectus
without the prior written consent of DLJ.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least one
year is entitled to sell within any three-month period commencing 90 days after
the date of this Prospectus a number of shares that does not exceed the greater
of (i) 1% of the then outstanding shares of the Common Stock (approximately
109,335 shares immediately after the Offering) or (ii) the average weekly
trading volume during the four calendar weeks preceding such sale, subject to
the filing of a Form 144 with respect to such sale (the "Volume Limitations"). A
person (or persons whose shares are aggregated) who is not deemed to have been
an affiliate of the Company at any time during the 90 days immediately preceding
the sale who has beneficially owned his or her shares for at least two years is
entitled to sell such shares pursuant to Rule 144(k) without regard to the
limitations described above. Persons deemed to be affiliates of the Company must
always sell pursuant to the volume limitations under Rule 144, even after the
applicable holding periods have been satisfied.
The Company is unable to estimate the number of shares that will be sold
under Rule 144, since this will depend on the market price for the Common Stock
of the Company, the personal circumstances of the sellers and other factors.
Prior to the Offering, there has been no public market for the Common Stock, and
there can be no assurance that a significant public market for the Common Stock
will develop or be sustained after the Offering. Any future sale of substantial
amounts of Common Stock in the open market may adversely affect the market price
of the Common Stock offered hereby.
Pursuant to the Registration Rights Agreements, holders of 6,233,547 shares
of Common Stock will be entitled to certain demand and piggy-back registration
rights with respect to such shares. See "Certain Transactions -- Acquisition"
and "Description of Capital Stock -- Registration Rights." During the Lock-up
Period, the Company has agreed not to file any registration statement with
respect to, and each of its executive officers, directors and certain
stockholders of the Company has agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable into Common Stock,
other than a registration statement on Form S-8 covering securities issuable
under the 1997 Plan, without DLJ's prior written consent.
The Company intends to file registration statements on Form S-8 under the
Securities Act to register shares of Common Stock issuable upon exercise of
options pursuant to outstanding or future grants under the 1997 Plan. However,
all holders of all such options have agreed to the Lock-Up.
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<PAGE> 57
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement dated
, 1997 (the "Underwriting Agreement"), the Underwriters named below,
who are represented by Donaldson, Lufkin & Jenrette Securities Corporation, UBS
Securities LLC and Furman Selz LLC (the "Representatives"), have severally
agreed to purchase from the Company the respective number of shares of Common
Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ---------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation...............
UBS Securities LLC................................................
Furman Selz LLC...................................................
---------
Total................................................... 4,700,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to certain conditions. The Underwriters are obligated
to purchase and accept delivery of all the shares of Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including the
Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow, and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the Common Stock, the public offering price and other
selling terms may be changed by the Representatives at any time without notice.
The Underwriters do not intend to confirm sales to any accounts over which they
exercise discretionary authority.
The Company has granted to the Underwriters an option, exercisable within
30 days after the date of this Prospectus, to purchase, from time to time, in
whole or in part, up to an aggregate of 705,000 additional shares of Common
Stock at the initial public offering price less underwriting discounts and
commissions. The Underwriters may exercise such option solely to cover
over-allotments, if any, made in connection with the Offering. To the extent
that the Underwriters exercise such option, each Underwriter will become
obligated, subject to certain conditions, to purchase its pro rata portion of
such additional shares based on such Underwriter's percentage underwriting
commitment as indicated in the preceding table.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
stockholders of the Company has agreed (except, in the case of the Company, for
the grant of options or issuance of stock under the Company's 1997 Plan) not to
(i) offer, pledge, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of, directly or indirectly,
any shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers all or a portion of the economic consequences associated with the
ownership of any Common Stock (regardless of whether any of the transactions
described in clause (i) or (ii) is to be settled by the delivery of Common
Stock, or such other securities, in cash or otherwise) for a period of 180 days
after the date of this Prospectus without the prior written consent of DLJ. In
addition, during such period, the Company has also agreed not to file any
registration statement with respect to, and each of its executive officers,
directors and certain
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<PAGE> 58
stockholders of the Company has agreed not to make any demand for, or exercise
any right with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock
without DLJ's prior written consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial public
offering price include the history of and the prospects for the industry in
which the Company competes, the past and present operations of the Company, the
historical results of operations of the Company, the prospects of future
earnings of the Company, the recent market price of securities of generally
comparable companies and the general condition of the securities markets at the
time of the Offering.
Other than in the United States, no action has been taken by the Company or
the Underwriters that permits a public offering of the shares of Common Stock
offered hereby in any jurisdiction where action for that purpose is required.
The shares of Common Stock offered hereby may not be offered or sold, directly
or indirectly, nor may this Prospectus or any other offering material or
advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the Offering and the distribution of this Prospectus. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of Common Stock offered hereby in any jurisdiction in which such
an offer or solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may over-allot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market to cover such syndicate short position
or to stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members if the
syndicate repurchases previously distributed Common Stock in syndicate covering
transactions, in stabilizing transactions or otherwise. These activities may
stabilize or maintain the market price of the Common Stock above independent
market levels. The Underwriters are not required to engage in these activities,
and may end any of these activities at any time.
The Offering is being made pursuant to Rule 2720 of the Conduct Rules of
the NASD, because certain associates of DLJ and Furman Selz LLC own in excess of
10% of the Common Stock of the Company prior to the Offering and affiliates of
DLJ will receive in excess of 10% of the proceeds of the Offering as a result of
the redemption of the Class C Preferred Stock and the repayment of the 16%
Series A Subordinated Notes of the Company. Rule 2720 provides that, among other
things, when an NASD member participates in the underwriting of equity
securities of a company in which there exists a conflict of interest, the price
at which such equity securities are to be distributed to the public can be no
higher than that recommended by a "qualified independent underwriter" meeting
certain standards. UBS Securities LLC will assume the responsibilities of acting
as the QIU in connection with the Offering.
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<PAGE> 59
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Brobeck, Phleger & Harrison LLP, Newport Beach,
California and for the Underwriters by Sullivan & Cromwell, Los Angeles,
California.
EXPERTS
The consolidated financial statements as of December 31, 1996 and 1995, for
the years ended December 31, 1995 and 1994, for the period January 1, 1996
through November 15, 1996 and the period November 16, 1996 through December 31,
1996 included in this Prospectus have been so included in reliance on the
reports of Price Waterhouse LLP, independent accountants, given on the authority
of said firm as experts in auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 under the Securities Act (the
"Registration Statement") with respect to the Common Stock offered hereby. This
Prospectus does not contain all of the information set forth in the Registration
Statement and the exhibits and schedules thereto. For further information with
respect to the Company and the Common Stock, reference is made to the
Registration Statement and the exhibits and schedules filed therewith.
Statements contained in this Prospectus as to the contents of any contract of
other document referred to are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement, each statement being qualified in all
respects by such reference. The Registration Statement, including the exhibits
and schedules thereto, may be inspected without charge at the principal office
of the Commission in Washington, D.C. and copies of all or any part of which may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and at
the Commission's Regional Offices located at Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade Center, Suite
1300, New York, New York 10048. Copies of such material may be obtained at
prescribed rates by mail from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549. In addition, the Commission
maintains an Internet site at http://www.sec.gov that contains reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically with the Commission.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent auditors and will
make available quarterly reports for the first three quarters of each year
following the end of each such quarter.
58
<PAGE> 60
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants -- The Company...................................... F-2
Report of Independent Accountants -- The Predecessor.................................. F-3
Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997
(unaudited)......................................................................... F-4
Consolidated Statements of Operations for the years ended December 31, 1994 and 1995,
the period January 1, 1996 through November 15, 1996, the period November 16, 1996
through December 31, 1996, the six months ended June 30, 1996 (unaudited) and the
six months ended June 30, 1997 (unaudited).......................................... F-5
Consolidated Statements of Stockholders' Equity (Deficit)/Predecessor Equity for the
years ended December 31, 1994 and 1995, the period January 1, 1996 through November
15, 1996, the period November 16, 1996 through December 31, 1996 and the six months
ended June 30, 1997 (unaudited)..................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1994 and 1995,
the period January 1, 1996 through November 15, 1996, the period November 16, 1996
through December 31, 1996, the six months ended June 30, 1996 (unaudited) and the
six months ended June 30, 1997 (unaudited).......................................... F-7
Notes to Consolidated Financial Statements............................................ F-8
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Steri-Oss, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity (deficit) and of
cash flows present fairly, in all material respects, the financial position of
Steri-Oss, Inc. (the "Company") and its subsidiaries at December 31, 1996 and
the results of their operations and their cash flows for the period from
November 16, 1996 through December 31, 1996 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
of these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, effective
November 16, 1996 the Company acquired certain assets and assumed certain
liabilities of the Predecessor in a transaction accounted for as a purchase. As
a result of the acquisition, the consolidated financial information for the
period after the acquisition is presented on a different cost basis than that
for the periods before the acquisition and is, therefore, not comparable.
PRICE WATERHOUSE LLP
Costa Mesa, California
July 31, 1997, except for Notes 1, 9 and 14,
as to which the date is August 26, 1997
F-2
<PAGE> 62
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and
Stockholder of Steri-Oss, Inc.
In our opinion, the accompanying balance sheet and the related statements
of operations, Predecessor equity and of cash flows present fairly, in all
material respects, the financial position of Steri-Oss, a wholly owned
subsidiary of Bausch and Lomb Incorporated, as described in Note 1 (the
"Predecessor") at December 31, 1995, and the results of its operations and its
cash flows for the years ended December 31, 1994 and 1995 and for the period
from January 1, 1996 through November 15, 1996 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Predecessor's management; our responsibility is to express
an opinion on these financial statements based on our audit. We conducted our
audit of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for the opinion expressed above.
As discussed in Note 1 to the consolidated financial statements, effective
November 16, 1996 the Company acquired certain assets and assumed certain
liabilities of the Predecessor in a transaction accounted for as a purchase. As
a result of the acquisition, the consolidated financial information for the
period after the acquisition is presented on a different cost basis than that
for the periods before the acquisition and is, therefore, not comparable.
PRICE WATERHOUSE LLP
Costa Mesa, California
July 31, 1997, except for Notes 1, 9 and 14,
as to which the date is August 26, 1997
F-3
<PAGE> 63
STERI-OSS, INC.
CONSOLIDATED BALANCE SHEETS
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
ASSETS
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ------------------------------------------
DECEMBER 31, DECEMBER 31, JUNE 30, PRO FORMA
1995 1996 1997 JUNE 30, 1997
------------ ------------ ----------- -------------
(UNAUDITED) (UNAUDITED)
(NOTE 2)
<S> <C> <C> <C> <C>
Current assets
Cash and cash equivalents.................... $ 120 $ 220 $ 61 $ 61
Accounts receivable, net of allowance for
doubtful accounts of $79, $0 and $237,
respectively.............................. 3,649 5,114 7,083 7,083
Inventories (Note 4)......................... 3,749 4,426 6,062 6,062
Prepaid expenses and other current assets.... 248 314 305 305
------- ------- ------- -------
Total current assets...................... 7,766 10,074 13,511 13,511
Fixed assets, net (Note 5)..................... 2,857 4,674 5,128 5,128
Goodwill, net of accumulated amortization of
$1,820, $183 and $954, respectively.......... 24,646 58,971 59,352 59,352
Other assets (Notes 6 and 7)................... 379 5,908 5,415 5,415
------- ------- ------- -------
$ 35,648 $ 79,627 $83,406 $83,406
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)/PREDECESSOR EQUITY
Current liabilities
Current portion of long-term debt (Note 6)... $ $ 3,020 $ 3,269 $ 3,269
Accounts payable............................. 506 712 2,091 2,091
Accrued liabilities.......................... 2,511 2,890 3,114 3,114
Customer advances............................ 43 1,095 488 488
------- ------- ------- -------
Total current liabilities................. 3,060 7,717 8,962 8,962
Long-term debt (Note 6)........................ 36,396 39,776 39,776
Mandatorily redeemable preferred stock (Notes 7
and 14)...................................... 34,226 35,814 15,814
Commitments and contingencies (Note 8)
Stockholders' equity (deficit)/predecessor
equity (Notes 1, 2, 9 and 14)
Common stock $0.0001 par value, 35,000,000
shares authorized, 50,000 shares issued
and outstanding at December 31, 1996 and
June 30, 1997 (unaudited), respectively,
and 1,483,547 shares issued and
outstanding on a pro forma basis at June
30, 1997 (unaudited)......................
Additional paid-in capital................... 1,901 1,909 23,414
Accumulated deficit.......................... (613) (3,055) (4,560)
Predecessor equity........................... 32,588
------- ------- ------- -------
Total stockholders' equity
(deficit)/predecessor equity............ 32,588 1,288 (1,146) 18,854
------- ------- ------- -------
$ 35,648 $ 79,627 $83,406 $83,406
======= ======= ======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-4
<PAGE> 64
STERI-OSS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------- COMPANY PREDECESSOR COMPANY
------------ ---------- ----------
YEAR ENDED JANUARY 1, NOVEMBER 16, SIX MONTHS SIX MONTHS
DECEMBER 31, THROUGH THROUGH ENDED ENDED
----------------- NOVEMBER 15, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------ ------------ ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Net sales............................... $22,168 $27,361 $ 28,108 $ 4,089 $ 15,744 $ 19,334
Cost of sales........................... 6,666 7,865 7,430 1,356 4,226 5,148
------- ------- ------- ---------- ------- ----------
Gross profit.......................... 15,502 19,496 20,678 2,733 11,518 14,186
Selling, general and administrative
expense............................... 11,393 14,241 14,791 1,929 8,224 10,974
Research and development expense........ 1,781 2,225 2,116 352 1,255 1,322
------- ------- ------- ---------- ------- ----------
Income from operations.................. 2,328 3,030 3,771 452 2,039 1,890
Interest expense........................ 1,065 4,332
------- ------- ------- ---------- ------- ----------
Income (loss) before income taxes..... 2,328 3,030 3,771 (613) 2,039 (2,442)
Income taxes............................ 1,253 1,572 1,852 1,003
------- ------- ------- ---------- ------- ----------
Net income (loss)..................... $ 1,075 $ 1,458 $ 1,919 $ (613) $ 1,036 $ (2,442)
======= ======= ======= ========== ======= ==========
Unaudited per share information (Notes 2
and 14)
Pro forma net loss per share.......... $ (0.05) $ (0.20)
========== ==========
Weighted average shares outstanding... 6,938,541 6,938,541
========== ==========
Supplemental net income per share..... $ 0.02 $ 0.10
========== ==========
Weighted average shares outstanding... 11,638,541 11,638,541
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-5
<PAGE> 65
STERI-OSS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)/PREDECESSOR EQUITY
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
COMMON
STOCK ADDITIONAL
---------------- PAID-IN ACCUMULATED PREDECESSOR
SHARES AMOUNT CAPITAL DEFICIT EQUITY TOTAL
------ ------- ------ ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Balances at January 1, 1994.................... $ $ $ $ 27,220 $ 27,220
Net income................................... 1,075 1,075
Net transfer from Bausch & Lomb.............. 2,403 2,403
------ ------- ------ ------- -------- --------
Balances at December 31, 1994.................. 30,698 30,698
Net income................................... 1,458 1,458
Net transfer from Bausch & Lomb.............. 432 432
------ ------- ------ ------- -------- --------
Balances at December 31, 1995.................. 32,588 32,588
Net income................................... 1,919 1,919
Net transfer to Bausch & Lomb................ (634) (634)
------ ------- ------ ------- -------- --------
Balances at November 15, 1996.................. 33,873 33,873
Change in ownership in connection with the
formation of the Company.................. (33,873) (33,873)
Issuance of stock in connection with the
formation of the Company.................. 50,000 1 1
Issuance of warrants to purchase common
stock..................................... 1,900 1,900
Net loss..................................... (613) (613)
------ ------- ------ ------- -------- --------
Balances at December 31, 1996.................. 50,000 1,901 (613) 1,288
Issuance of options to purchase common
stock..................................... 8 8
Net loss..................................... (2,442) (2,442)
====== ======= ====== ======= ======== ========
Balances at June 30, 1997 (Unaudited).......... 50,000 $ $1,909 $(3,055) $ $ (1,146)
====== ======= ====== ======= ======== ========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-6
<PAGE> 66
STERI-OSS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------- COMPANY PREDECESSOR COMPANY
------------ ----------- -----------
YEAR ENDED JANUARY 1, NOVEMBER 16, SIX MONTHS SIX MONTHS
DECEMBER 31, THROUGH THROUGH ENDED ENDED
----------------- NOVEMBER 15, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)............................ $ 1,075 $ 1,458 $ 1,919 $ (613) $ 1,036 $(2,442)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities
Depreciation and amortization.............. 1,195 1,451 1,510 343 857 1,444
Compensation expense on issuance of stock
options.................................. 8
Dividends and interest on redeemable
preferred stock and subordinated debt.... 542 2,247
Provision for income taxes of
Predecessor.............................. 1,253 1,572 1,852 1,003
Changes in operating assets and
liabilities, net of acquisitions
Accounts receivable...................... (178) (1,202) (879) (585) (1,085) (1,398)
Inventories.............................. (677) (864) (823) 351 (224) (1,010)
Prepaid expenses and other current
assets................................ (408) (115) (43) (26) (165) 24
Accounts payable......................... (403) 114 974 (472) 40 785
Accrued liabilities...................... 263 856 (522) 936 376 172
Customer advances........................ (440) 43 1,446 (394) 806 (607)
------- ------- ------- -------- ------- -------
Net cash provided by (used in) operating
activities............................... 1,680 3,313 5,434 82 2,644 (777)
Cash flows from investing activities
Payment for purchase of net assets from
Bausch and Lomb............................ (58,744)
Interpore.................................. (1,737)
Purchases of fixed assets, net............. (1,702) (1,190) (1,957) (250) (1,286) (1,018)
------- ------- ------- -------- ------- -------
Net cash used in investing activities...... (1,702) (1,190) (1,957) (58,994) (1,286) (2,755)
Cash flows from financing activities
Proceeds from issuance of mandatorily
redeemable preferred stock................. 22,448
Payment of note payable to Bausch & Lomb..... (714)
Proceeds from issuance of long-term debt..... 38,823 4,087
Payment of issue costs....................... (2,140)
Advances from (to) Bausch & Lomb............. 177 (2,158) (3,597) (805)
Proceeds from issuance of common stock....... 1
------- ------- ------- -------- ------- -------
Net cash provided by (used in) financing
activities............................... 177 (2,158) (3,597) 59,132 (805) 3,373
------- ------- ------- -------- ------- -------
Net increase (decrease) in cash and cash
equivalents.................................. 155 (35) (120) 220 553 (159)
Cash and cash equivalents, beginning of
period....................................... 155 120 120 220
------- ------- ------- -------- ------- -------
Cash and cash equivalents, end of period....... $ 155 $ 120 $ $ 220 $ 673 $ 61
======= ======= ======= ======== ======= =======
Supplemental disclosure of cash flow
information
Cash paid for
Interest................................... $ -- $ -- $ -- $ 122 $ -- $ 1,961
======= ======= ======= ======== ======= =======
</TABLE>
Supplemental schedule of noncash investing and financing activities:
As described in Notes 3 and 7, the Company issued mandatorily redeemable
preferred stock totaling $10,000 directly to Bausch & Lomb as partial
consideration for the purchase of net assets of the Predecessor.
See accompanying Notes to Consolidated Financial Statements.
F-7
<PAGE> 67
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
1. ORGANIZATION AND BUSINESS
Steri-Oss Inc. was incorporated in Delaware on October 17, 1996. Steri-Oss
Inc. is a wholly owned subsidiary of S-O Acquisition Corp., which was
incorporated in Delaware on July 12, 1996. On August 22, 1997, S-O Acquisition
Corp. changed its name to Steri-Oss, Inc. (the "Company").
Effective November 16, 1996, the Company acquired the assets and
liabilities of the Steri-Oss subsidiary (the "Predecessor") of Bausch & Lomb
Incorporated ("Bausch & Lomb"). For financial statement purposes the acquisition
was accounted for as a purchase and, accordingly, the results of the Predecessor
are included in the consolidated financial statements of the Company from the
date of acquisition.
Effective May 1, 1997, the Company acquired certain assets and liabilities
relating to the dental operations of Interpore Dental, Inc. ("Interpore"). For
financial statement purposes, the acquisition was accounted for using the
purchase method of accounting and, accordingly, the purchase price has been
allocated to the assets purchased and the liabilities assumed based upon the
fair values at the date of acquisition. This acquisition was not material to the
results of operations, financial position or customer base of the Company.
The Company manufactures dental implants and related products. The
Company's business activity is largely concentrated directly with dental implant
specialists in North America and with independent distributors in Europe and the
Middle East, Asia, and Central and South America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany transactions and
balances have been eliminated.
Revenue Recognition
Revenues from the sale of dental implants and related products are
recognized when products are shipped.
Cash and Cash Equivalents
Cash and cash equivalents are comprised of cash on hand and short-term,
liquid investments with original maturities of three months or less.
Disclosures About Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable and accounts payable
approximate fair value because of the short maturity of these instruments. The
carrying amounts of the Company's senior and subordinated notes payable and
mandatorily redeemable preferred stock approximate fair value based upon the
current rates offered to the Company for obligations of the same remaining
maturities.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost
is determined on the first-in, first-out method.
F-8
<PAGE> 68
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
Fixed Assets
Additions and expenditures which substantially increase the useful lives of
assets are capitalized at cost, while maintenance and repair costs are expensed
as incurred. Depreciation is provided on a straight-line basis over the
estimated useful lives of the assets, which range from three to eight years.
Goodwill
Goodwill is the excess of the cost of net assets acquired over their fair
value and is amortized on a straight-line basis over the expected periods to be
benefited. It is the Company's policy to periodically evaluate the carrying
value of its operating assets, including goodwill, and to recognize impairments
when the estimated future undiscounted net operating cash flows from the use of
assets are less than their carrying value.
Debt Issuance Costs and Debt Discounts
Debt issuance costs are recorded as deferred charges and are amortized over
the term of the related debt by a charge to interest expense. Debt discounts are
reflected as a deduction in the carrying value of the related note and amortized
using the effective interest method.
Research and Development
Research and development costs incurred by the Company are charged to
operations as incurred.
Income Taxes
Income taxes are provided based on the liability method of accounting
pursuant to Statement of Financial Accounting Standards No. 109 ("SFAS No.
109"), "Accounting for Income Taxes." SFAS No. 109 is an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. In estimating future tax
consequences, SFAS No. 109 generally considers all expected future events
including enactment of changes in tax laws or rates. A valuation allowance is
provided for deferred tax assets when it is more likely than not that such
assets will not be realized through future operations.
Income taxes during the years ended December 31, 1994, 1995 and for the
period from January 1, 1996 through November 15, 1996, were provided on a
separate return basis. The Predecessor was included in the consolidated income
tax returns of Bausch & Lomb.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the consolidated financial
statements and related notes to financial statements. Changes in such estimates
may affect amounts reported in future periods.
Unaudited Per Share Information
Unaudited pro forma net loss per share is based on the weighted average
common shares outstanding after retroactively reflecting the 50 for one stock
split (Note 14). In accordance with Staff Accounting Bulletin ("SAB") No. 83
issued by the Securities and Exchange Commission (the "Commission"), all common
stock and common stock equivalents issued within one year of the initial filing
of a registration statement at per share prices below the initial public
offering (the "Offering") price per share are included in the number of shares
outstanding at the beginning of the respective period, using the treasury stock
method of
F-9
<PAGE> 69
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
accounting using an assumed Offering price per share of $15, even though their
effects may be antidilutive. The Company has also included the effects of the
conversion of Class A 8.8% mandatorily redeemable preferred stock totaling
$17,471 and Class C 8.0% mandatorily redeemable preferred stock totaling $2,529,
into 1,433,547 shares of common stock as if the conversion was consummated at
the date of issuance. The assumed conversion of the preferred stock reduced the
Company's net loss by $268 and $1,067 for the period from November 16, 1996
through December 31, 1996 and the six months ended June 30, 1997, respectively.
Management does not believe that historical per share information is meaningful
and accordingly, such information is not presented.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share." SFAS No. 128 simplifies the standards for computing Earnings Per Share
("EPS"), eliminating the presentation of primary EPS (currently required by
Accounting Principles Board Opinion No. 15, "Earnings Per Share") and requiring
dual presentation of basic and diluted EPS on the face of the income statement
for all public corporations with complex capital structures. SFAS No. 128 is
effective for financial statements for both interim and annual periods ending
after December 15, 1997. Early adoption is not permitted, although pro forma
disclosure is optional. SFAS No. 128 is not expected to have a significant
impact on per share data.
Unaudited Supplemental Data
Unaudited supplemental net income per share adjusts the pro forma net
income per share to give effect to the repayment of approximately $59,900 of
mandatorily redeemable preferred stock and long-term debt using a portion of the
proceeds from the Offering. The assumed repayment of mandatorily redeemable
preferred stock and long-term debt increased the Company's pro forma net income
by $616 and $2,509 for the periods ended December 31, 1996 and June 30, 1997,
respectively.
Unaudited Pro Forma Balance Sheet Data
Unaudited pro forma balance sheet data adjusts the historical June 30, 1997
(unaudited) balance sheet to reflect the conversion of $20,000 of Class A and
Class C mandatorily redeemable preferred stock into 1,433,547 shares of common
stock.
Accounting for Stock-Based Compensation
The Company accounts for employee stock-based compensation in accordance
with Accounting Principles Board Opinion No. 25 and related interpretations. The
disclosures required by Statement of Financial Accounting Standards No. 123
("SFAS No. 123"), "Accounting for Stock-Based Compensation," have been included
in Note 9.
Fiscal Periods
The Company uses a fifty-two/fifty-three week fiscal year ending on the
last Saturday in December. Fiscal year 1994 was a fifty-three week year and
fiscal years 1995 and 1996 were fifty-two week years. As a result, fiscal
periods may not end on the same day as the end of the respective calendar
period. Fiscal years 1994, 1995 and 1996 ended on December 31, December 30 and
December 28, respectively. The first six months of 1996 and 1997 ended on June
29 and June 28, respectively. For convenience of presentation, the financial
statements are shown as ending on December 31, and June 30.
Reclassifications
Certain prior period amounts have been reclassified to conform with current
period presentations.
F-10
<PAGE> 70
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
Unaudited Interim Financial Information
The accompanying interim statements of operations, stockholders' equity
(deficit) and cash flows for the six months ended June 30, 1996 and 1997 are
unaudited but include all adjustments, consisting only of normal recurring
adjustments, which management considers necessary for a fair presentation of
results of operations, stockholders' equity (deficit) and of cash flows. The
results of operations and cash flows for the six months ended June 30, 1997 are
not necessarily indicative of the results of operations and cash flows for the
full year.
3. ACQUISITIONS
Steri-Oss
The aggregate purchase price of $69,000 in connection with the Company's
acquisition of the Predecessor on November 16, 1996 (Note 1) was allocated to
acquired assets based upon their respective fair market values as follows:
<TABLE>
<S> <C>
Current assets..................................... $ 9,800
Fixed assets....................................... 4,500
Goodwill........................................... 59,200
Current liabilities................................ (4,500)
-------
$69,000
=======
</TABLE>
Goodwill is being amortized over 40 years. Amortization for the period
November 16, 1996 to December 31, 1996 and the six month period ended June 30,
1997 (unaudited) amounted to $183 and $741, respectively. The acquisition was
financed by the issuance of mandatorily redeemable preferred stock, subordinated
debt and the Bank Facility (Note 7).
Bausch & Lomb purchased the Predecessor in 1993 for an initial price of
approximately $26,000 subject to an earn-out provision based on profitability.
During the years ended December 31, 1994 and 1995, and for the period from
January 1, 1996 through November 15, 1996, earn-outs of $973, $1,018 and $1,111,
respectively, were incurred and capitalized to goodwill. The aggregate purchase
price paid by Bausch & Lomb, including direct acquisition costs, amounted to
approximately $31,000. Bausch & Lomb allocated the excess cost over fair value
of the net assets acquired to goodwill, which prior to November 15, 1996 was
being amortized over 40 years. Amortization expense for the years ended December
31, 1994 and 1995, and for the period January 1, 1996 through November 15, 1996
amounted to $832, $856 and $798, respectively.
4. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ----------------------------
DECEMBER 31, DECEMBER 31,
1995 1996 JUNE 30,
------------ ------------ 1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials......................... $1,824 $2,036 $ 2,536
Work-in process....................... 507 583 990
Finished goods........................ 1,418 1,807 2,536
------ ------ ------
$3,749 $4,426 $ 6,062
====== ====== ======
</TABLE>
F-11
<PAGE> 71
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
5. FIXED ASSETS:
Fixed assets consist of the following:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ----------------------------
DECEMBER 31, DECEMBER 31,
1995 1996 JUNE 30,
------------ ------------ 1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Leasehold improvements................ $ 230 $ 297 $ 315
Machinery and equipment............... 2,168 2,829 4,447
Office furniture and fixtures......... 1,256 1,439 754
Construction in progress.............. 87 241 324
------ ------ ------
3,741 4,806 5,840
Less: accumulated depreciation........ (884) (132) (712)
------ ------ ------
$2,857 $4,674 $ 5,128
====== ====== ======
</TABLE>
Depreciation expense for the years ended December 31, 1994 and 1995, the
period January 1 through November 15, 1996, the period November 16 through
December 31, 1996, the six months ended June 30, 1996 (unaudited) and six months
ended June 30, 1997 (unaudited) totaled $363, $595, $712, $132, $352 and $575,
respectively.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
COMPANY
---------------------------
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
Working Capital Loan which expires on November 15, 1999; variable interest
rate based on a bank's referenced base rate (the "Reference Rate") plus
1.5% per annum (9.75% at June 30, 1997) or LIBOR plus 2.75% per annum.
Maximum borrowing under this loan is $5,000................................ $ 1,323 $ 3,404
Revolving Term Loan due in quarterly installments ranging from $750 to $1,000
through November 15, 2001; interest rate based on the Reference Rate plus
1.5% per annum (9.75% at June 30, 1997) or LIBOR plus 3.0% per annum.
Maximum borrowing under this loan is $17,500 and $18,250, respectively..... 17,500 18,250
Term Loan due in quarterly installments of $19 through January 1, 2001, at
which time such payments increase in the range of $550 to $1,700 through
November 15, 2002; variable interest rate based on the Reference Rate plus
2.0% per annum (10.25% at June 30, 1997) or LIBOR plus 3.75% per annum; net
of unamortized discount of $39 and $35 at December 31, 1996 and June 30,
1997, respectively......................................................... 7,461 7,447
Capital Expenditure Loan which expires on November 15, 2002; variable
interest rate based on the Reference Rate plus 1.5% per annum (9.75% at
June 30, 1997) or LIBOR plus 3.0% per annum. Maximum borrowing under this
loan is $3,000............................................................. 1,275
16% Series A Senior Subordinated Notes due in one lump sum on May 15, 2003,
with an acceleration clause of 25% of outstanding principal upon an initial
public offering, with an effective interest rate of 16.99%; net of
unamortized discount of $103 and $95 at December 31, 1996 and June 30,
1997, respectively......................................................... 9,947 10,168
14% Series B Senior Subordinated Notes due in one lump sum on May 15, 2003,
with an acceleration clause of 25% of outstanding principal upon an initial
public offering, with an effective interest rate of 14.75%; net of
unamortized discount of $35 and $33 at December 31, 1996 and June 30, 1997,
respectively............................................................... 2,471 2,501
10.25% acquisition note payable to Bausch & Lomb, repaid February 14, 1997... 714
------- -------
Total long-term debt..................................................... 39,416 43,045
Less current portion..................................................... (3,020) (3,269)
------- -------
Long-term debt........................................................... $ 36,396 $39,776
======= =======
</TABLE>
F-12
<PAGE> 72
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
The Working Capital Loan, Revolving Term Loan, Term Loan and Capital
Expenditure Loan (collectively the "Bank Facility") are senior to all
indebtedness of the Company and are secured by substantially all of the
Company's assets. The Company is obligated to pay a commitment fee of 0.5% per
annum of the unused portion of the Working Capital Loan, Revolving Term Loan and
Capital Expenditure Loan. Under the provisions of the Company's credit
agreements the Company is required to adhere to certain restrictive covenants
including the maintenance of certain financial ratios. Credit agreements also
prohibit, among other things, the payment of dividends without the consent of
the Company's lenders.
The Bank Facility loans and Senior Subordinated Notes were issued with
detachable warrants for the purchase of common stock. The fair value of these
warrants has been recorded as additional paid-in capital of the Company with a
corresponding reduction in the carrying value of the notes. Such reductions have
been treated as debt discount. Debt issue costs aggregating $2,105 and $1,898 at
December 31, 1996 and June 30, 1997 (unaudited), respectively, are included in
other assets in the consolidated balance sheets. Interest accrued on the Bank
Facility and Senior Subordinated Notes aggregated $430 and $503 at December 31,
1996 and June 30, 1997 (unaudited), respectively.
Scheduled future annual maturities of long-term debt as of June 30, 1997
(unaudited) are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1997............................................. $ 1,667
1998............................................. 3,739
1999............................................. 7,359
2000............................................. 4,308
2001............................................. 6,513
Thereafter....................................... 19,459
-------
$43,045
=======
</TABLE>
7. MANDATORILY REDEEMABLE PREFERRED STOCK
In conjunction with the acquisition of net assets from Bausch & Lomb as
described in Notes 1 and 3, the Company issued cumulative mandatorily redeemable
preferred stock in the aggregate liquidation amount of $35,200. This consisted
of 22,000 shares of Class A, 10,000 shares of Class B and 3,185 shares of Class
C mandatorily redeemable preferred stock ($0.01 par value), with face amounts of
$22,000, $10,000 and $3,185 and dividend rates of 8.8%, 8.0% and 8.0%,
respectively. Class B preferred stock was issued to Bausch & Lomb in the amount
of $10,000 as partial consideration for the purchase price. The Class B
preferred stock is convertible, at the option of the holder, into common stock
at the time the Company first sells shares in an initial public offering. All
classes of such preferred stock are mandatorily redeemable on September 15, 2003
and have voting rights as a separate class. The Company records accrued
dividends on this redeemable preferred stock to increase the carrying value of
the preferred stock with a corresponding charge to interest expense. At December
31, 1996 and June 30, 1997 (unaudited) accrued interest on mandatorily
redeemable preferred stock included in the carrying value of such preferred
stock amounted to $374 and $1,869, respectively.
The Class A and Class C mandatorily redeemable preferred stock was issued
with detachable warrants for the purchase of the Company's common stock. The
fair value of these warrants has been recorded as additional paid-in capital of
the Company, with a corresponding reduction to the carrying value of such
preferred stock. Such reduction has been treated as a discount that is being
accreted to increase the carrying value to the redemption value of the preferred
stock with a corresponding charge to interest expense. The
F-13
<PAGE> 73
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
Company also incurred costs of approximately $2,900 relating to the issuance of
the preferred stock. These costs have been capitalized as debt issue costs and
included in other assets in the accompanying consolidated balance sheets at
December 31, 1996 and June 30, 1997 and included as interest expense in the
related consolidated statements of operations. The unamortized debt issue costs
related to mandatorily redeemable preferred stock at December 31, 1996 and June
30, 1997 (unaudited) aggregated $2,886 and $2,696, respectively.
8. COMMITMENTS AND CONTINGENCIES
Commitments
The principal operating leases of the Company are for its manufacturing
facility and certain equipment. The facility lease provides that the Company
shall pay for utilities, insurance, taxes and maintenance. The manufacturing
facility lease currently expires on December 31, 1997. Management intends to
renew the lease prior to the termination of the lease. The remaining leases
expire through the year 1999, with renewal options available.
Future annual minimum rental payments required under noncancelable
operating leases that have initial or remaining lease terms in excess of one
year as of June 30, 1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1997.............................................. $ 129
1998.............................................. 7
1999.............................................. 7
------
$ 143
======
</TABLE>
The Company has also entered into several agreements to provide financing
for research and development and promotional studies related to the Company's
products. Future annual minimum payments under these agreements as of June 30,
1997 (unaudited) are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
DECEMBER 31,
- ------------
<S> <C>
1997.............................................. $ 239
1998.............................................. 425
1999.............................................. 487
2000.............................................. 327
2001.............................................. 162
Thereafter........................................ 13
------
$1,653
======
</TABLE>
Legal Contingencies
The Company is subject to various claims and actions which arise in the
ordinary course of business. Management is unaware of any claims or actions
which would have a material adverse effect upon the Company's financial
position, results of operations or cash flows. Bausch & Lomb has agreed to
indemnify the Company, subject to certain exceptions, against any claims and
losses from defects in the design, manufacture or production of any product sold
prior to the acquisition of the Predecessor in November 1996.
F-14
<PAGE> 74
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
9. STOCKHOLDERS' EQUITY
Stock Options
On January 8, 1997, the Company issued options to purchase 242,061 shares
of common stock pursuant to Performance Stock Option Agreements at $0.40 per
share. These options vest over a period of six years, which can be accelerated
upon the attainment of certain performance criteria over three years, or vest
immediately upon the consummation of a public offering of the stock of the
Company. These options expire in 2007.
On January 8, 1997, the Company issued options to purchase 200,000 shares
of common stock to certain officers at $0.40 per share pursuant to Executive
Officer NonQualified Stock Option Agreements. All options immediately vested on
the date of grant, January 8, 1997. These options expire in 2007.
On January 8, 1997, the Company granted certain of its Board members
options to purchase 214,200 shares of common stock at $1.00 per share pursuant
to Director Stock Option Agreements. These options vested immediately on the
date of grant.
On May 16, 1997, the Company issued options to purchase 77,089 shares of
common stock pursuant to Performance Stock Option Agreements at $0.40 per share.
These options vest over a period of six years, which can be accelerated upon the
attainment of certain performance criteria over three years, or vest immediately
upon the consummation of a public offering of the stock of the Company.
Compensation has been charged to operations during the six months ended June 30,
1997 (unaudited) for such options based on an independent valuation of such
options.
The Company accounts for these plans under Accounting Principles Board
Opinion No. 25. Had compensation cost for these plans been determined consistent
with SFAS No. 123, using the Black-Scholes Option Pricing Model with the
following assumptions: 0% expected dividend yield; 6.81% risk free interest
rate; 10 year expected life of options, the Company's net loss and earnings per
share would have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
JUNE 30,
1997
-----------
(UNAUDITED)
<S> <C>
Net loss:
As reported.................................................... $(2,442)
=======
Pro Forma...................................................... $(2,435)
=======
Pro forma net loss per share:
As reported.................................................... $ (0.20)
=======
Pro Forma...................................................... $ (0.20)
=======
Supplemental net income per share:
As reported.................................................... $ 0.10
=======
Pro forma...................................................... $ 0.10
=======
</TABLE>
F-15
<PAGE> 75
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
A summary of activity of the Plan at June 30, 1997 (unaudited) and during
the period then ended is presented in the table below:
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
WEIGHTED
NUMBER AVERAGE
OF EXERCISE
SHARES PRICE PER SHARE
------- ---------------
(UNAUDITED)
<S> <C> <C>
Outstanding at beginning of period.................. $
Granted............................................. 733,350 0.58
------- -----
Outstanding at end of period........................ 733,350 0.58
------- -----
Exercisable at end of period........................ 414,200 $0.58
------- -----
Weighted average fair value of options granted...... $0.58
=====
</TABLE>
Stock Warrants
In connection with the issuance of long-term debt (Note 6) and mandatorily
redeemable preferred stock (Note 7), the Company issued warrants to purchase
4,750,000 shares of common stock at $0.0002. In August 1997, warrants to
purchase 4,750,000 shares were exercised.
10. INCOME TAXES
The components of income taxes for the periods presented are as follows:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------------- COMPANY
---------------------------
YEAR ENDED JANUARY 1, NOVEMBER 16, SIX MONTHS
DECEMBER 31, THROUGH THROUGH ENDED
----------------- NOVEMBER 15, DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1997
------ ------ ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Current:
Federal................... $ 599 $ 670 $1,292
State..................... 246 252 385
Deferred:
Federal................... 378 558 145 $(46) $ (371)
State..................... 30 92 30 6 (54)
------ ------ ------ ---- -----
1,253 1,572 1,852 (40) (425)
Valuation allowance......... 40 425
------ ------ ------ ---- -----
$1,253 $1,572 $1,852 $ -- $ --
====== ====== ====== ==== =====
</TABLE>
The Company has recorded a full valuation allowance for net deferred tax
assets based on future reversal of temporary differences and the uncertainty of
future taxable income.
Income taxes for the six months ended June 30, 1996 (unaudited) and 1997
(unaudited), are based on the effective income tax rate for the respective year.
F-16
<PAGE> 76
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
The difference between the income taxes computed at the statutory Federal
rate of 34% and the amount in the consolidated statements of operations is
primarily attributable to the following:
<TABLE>
<CAPTION>
PREDECESSOR
---------------------------- COMPANY
-------------------------
YEAR ENDED JANUARY 1, NOVEMBER 16, SIX MONTHS
DECEMBER 31, THROUGH THROUGH ENDED
------------- NOVEMBER 15, DECEMBER 31, JUNE 30,
1994 1995 1996 1996 1997
---- ---- ------------ ------------ ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal tax at statutory rate................. 34.0% 34.0% 34.0% (34.0%) (34.0%)
State taxes, net.............................. 7.8 7.5 7.2 0.0 0.0
Amortization of intangibles................... 12.1 9.6 7.2 0.0 0.0
Preferred stock dividends..................... 0.0 0.0 0.0 28.4 19.0
Research and development credit............... (1.5) (0.6) (0.2) 0.0 (2.0)
Increase in valuation allowance............... 0.0 0.0 0.0 6.6 17.4
Other, net.................................... 1.4 1.4 0.9 (1.0) (0.4)
---- ---- ---- ----- -----
Income taxes at the Company's effective
rate........................................ 53.8% 51.9% 49.1% 0.0% 0.0%
==== ==== ==== ===== =====
</TABLE>
Deferred taxes reflect the impact of future tax consequences associated
with temporary differences between the amount of assets and liabilities recorded
for tax and financial accounting purposes. Temporary differences and
carryforwards which give rise to a significant portion of deferred tax assets
and liabilities are as follows:
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ---------------------------
DECEMBER 31, DECEMBER 31,
1995 1996 JUNE 30,
------------ ------------ 1997
-----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax liabilities:
Fixed assets.................................. $ (426) $ (32) $(155)
Goodwill...................................... (118) (615)
----- ----- -----
Total deferred tax liabilities............. (426) (150) (770)
----- ----- -----
Deferred tax assets:
Net operating loss carryforward............... 96 130 733
Reserves and accruals......................... 570 60 411
Research and development credit
carryforward............................... 91
----- ----- -----
Total deferred tax assets.................. 666 190 1,235
----- ----- -----
Valuation allowance............................. (40) (465)
----- ----- -----
Net deferred tax assets.................... $ 240 $ -- $ --
===== ===== =====
</TABLE>
At June 30, 1997 (unaudited), the Company has net operating loss ("NOL")
carryforwards of $1,980 and $990 for Federal and California purposes,
respectively. The losses begin to expire in 2011 and 2001 for Federal and
California purposes, respectively. The Company also has research and development
tax credit carryforwards of $52 and $39 for Federal and California purposes at
June 30, 1997 (unaudited), respectively. These credits begin to expire in 2012
for both Federal and California purposes.
The Internal Revenue Code of 1986, as amended, includes provisions that
limit a company's ability to utilize NOL and tax credit carryforwards when there
is a significant change in ownership. Should such a change in ownership occur,
the amount of NOL and tax credit carryforwards that may be utilized in any given
year will be subject to an annual limitation based on the value of the company
on the date immediately preceding such ownership change.
F-17
<PAGE> 77
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
11. PROFIT SHARING PLAN
The Company has an employee profit sharing plan that qualifies as a
deferred salary arrangement under Section 401(k) of the Internal Revenue Code
(the "401(k) Plan"). The Company makes matching contributions equal to employee
contributions up to 4% of the participant's eligible compensation. The Company's
contributions to the 401(k) Plan for the period November 16, 1996 through
December 31, 1996 and the six months ended June 30, 1997 (unaudited) totaled $33
and $169, respectively.
12. SEGMENT INFORMATION AND CONCENTRATIONS OF CREDIT RISK
The Company operates in one segment -- dental implants and related
products. Presented below is net sales information on the geographic areas in
which the Company operates:
<TABLE>
<CAPTION>
PREDECESSOR
-------------------------------- COMPANY PREDECESSOR COMPANY
------------ ------------ ------------
YEAR ENDED JANUARY 1 NOVEMBER 16, SIX MONTHS SIX MONTHS
DECEMBER 31, THROUGH THROUGH ENDED ENDED
----------------- NOVEMBER 15, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1996 1997
------- ------- ------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
North America............... $14,068 $16,640 $ 16,673 $2,259 $ 9,090 $ 11,381
Europe and the Middle
East...................... 4,599 5,588 5,883 957 3,778 4,246
Asia........................ 2,427 3,208 3,325 610 1,727 2,309
Other....................... 1,074 1,925 2,227 263 1,149 1,398
------- ------- ------- ------ ------- -------
$22,168 $27,361 $ 28,108 $4,089 $ 15,744 $ 19,334
======= ======= ======= ====== ======= =======
</TABLE>
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of trade receivables. A
concentration of credit risk may exist with respect to trade receivables as
substantially all customers are affiliated with the dental industry. However,
the Company's customer base is made up of a large number of geographically
diverse worldwide customers, except for one European distributor and its
affiliates which account for 11%, 12%, 12%, 12%, 13% and 14% of sales for the
years ended December 31, 1994 and 1995, the period January 1, 1996 through
November 15, 1996, the period November 16, 1996 through December 31, 1996, and
six months ended June 30, 1996 (unaudited) and 1997 (unaudited), respectively.
The Company controls credit risk through credit approvals, credit limits and
monitoring procedures.
13. RELATED PARTY TRANSACTIONS
Effective November 16, 1996, the Company entered into a five year
management services agreement with S-O Management LLC, the sole stockholder of
the Company. The agreement provides for management and other advisory services
to the Company for an annual fee of $250. Such agreement terminates upon
consummation of an initial public offering of the Company's Common Stock.
Bausch & Lomb provided certain payroll related benefits to the employees of
the Predecessor. Such costs have been charged to the Predecessor by Bausch &
Lomb based on a percentage of payroll and are included in the consolidated
statements of operations as selling, general and administrative expense for the
years ended December 31, 1994 and 1995 and the period January 1 through November
15, 1996 in the amounts of $108, $649 and $1,390, respectively. Management
believes that the method used to charge these expenses reasonably reflects the
actual costs of such benefits provided and that such expenses on a stand-alone
basis would not produce materially different results.
F-18
<PAGE> 78
STERI-OSS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE RELATED DATA)
14. SUBSEQUENT EVENT
On August 20, 1997, the Company amended its Restated and Amended
Certificate of Incorporation to (i) increase the number of authorized shares of
Common Stock from 1,000 to 35,000,000, (ii) decrease the par value per share of
the common stock from $.01 to $.0001, (iii) amend the conversion rights on the
Class B Preferred Stock to delay automatic conversion until the later of the
closing of the Company's initial public offering or March 31, 1998, and (iv)
provide for the automatic conversion of 17,471 shares of Class A mandatorily
redeemable preferred stock and 2,527 shares of Class C mandatorily redeemable
preferred stock.
On August 21, 1997, the Board of Directors declared a 50-for-one split of
its common stock. All share and per share data for the Company have been
adjusted to give retroactive effect for this stock split.
On August 21, 1997, the Board of Directors authorized the filing of a
registration statement for the Offering of the Company's $0.0001 par value
common stock.
On August 21, 1997, stockholders of the Company's Class A and Class C
mandatorily redeemable preferred stock agreed to convert $20,000 into 1,433,547
shares of common stock at 93% of the Offering price, upon consummation of the
Offering, in lieu of exercising their redemption rights. The remaining $15,200
of mandatorily redeemable preferred stock will be redeemed by using the proceeds
from the Offering.
On August 21, 1997, the Board of Directors established a stock option plan
("Plan"). The Plan is divided into the following separate components: (i) the
Discretionary Option Grant Program under which eligible individuals in the
Company's employ or service (including officers, non-employee Board Members and
consultants) may be granted options to purchase shares of common stock at an
exercise price not less than their fair market value on the grant date, (ii) the
Stock Investment Option Grant Program under which executive officers and other
highly compensated employees may elect to apply a portion of their base salary
to the acquisition of special stock option grants, and (iv) the Director Fee
Option Grant Program, pursuant to which the non-employee Board members may apply
a portion of the annual retainer fee otherwise payable to them in cash each year
to the acquisition of special stock option grants.
On August 21, 1997, the Board of Directors granted options to purchase
226,000 shares of common stock under the Plan at an exercise price equal to the
Offering price. These options vest in four equal annual increments commencing
one year following the grant date.
F-19
<PAGE> 79
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED BY
REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY, THE SHARES BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY OFFER OR SALE MADE HEREUNDER SHALL CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary................... 3
Risk Factors......................... 8
Use of Proceeds...................... 15
Dividend Policy...................... 15
Capitalization....................... 16
Dilution............................. 17
Unaudited Pro Forma Consolidated
Financial Data..................... 18
Selected Historical Consolidated
Financial Data..................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 24
Business............................. 30
Management........................... 41
Certain Transactions................. 48
Principal Stockholders............... 50
Description of Capital Stock......... 52
Shares Eligible for Future Sale...... 55
Underwriting......................... 56
Legal Matters........................ 58
Experts.............................. 58
Additional Information............... 58
Index to Consolidated Financial
Statements......................... F-1
</TABLE>
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
4,700,000 SHARES
[STERI-OSS LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
UBS SECURITIES
FURMAN SELZ
, 1997
======================================================
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission and NASD registration fees. All of
the expenses below will be paid by the Registrant.
<TABLE>
<CAPTION>
ITEM
---------------------------------------------------------------------------
<S> <C>
Registration fee........................................................... $26,204
NASD Filing Fee............................................................ 9,148
Nasdaq National Market listing fee......................................... *
Blue sky fees and expenses................................................. *
Printing and engraving expenses............................................ *
Legal fees and expenses.................................................... *
Accounting fees and expenses............................................... *
Transfer Agent and Registrar fees.......................................... *
Miscellaneous.............................................................. *
-------
Total............................................................ $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Section 145 of the Delaware General Corporation Law the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933. The Registrant's Bylaws (Exhibit 3.2 hereto) provide that the
Registrant shall indemnify its directors and officers to the fullest extent
permitted by Delaware law. The Bylaws require the Registrant, subject to certain
limitations, to advance litigation expenses in the case of stockholder
derivative actions or other actions, against an undertaking by the directors and
officers to repay such advances if it is ultimately determined that the
directors or officers are not entitled to indemnification. The Bylaws further
provide that rights conferred under such Bylaws shall not be deemed to be
exclusive of any other right such persons may have or acquire under any
agreement, vote of stockholders or disinterested directors, or otherwise. The
Registrant believes that indemnification under its Bylaws covers at least
negligence and gross negligence.
In addition, the Registrant's Certificate (Exhibit 3.1 hereto) provides
that the Registrant shall indemnify its directors and officers if such persons
acted (i) in good faith, (ii) in a manner reasonably believed to be in or not
opposed to the best interests of the Registrant, and (iii) with respect to any
criminal action or proceeding, with reasonable cause to believe such conduct was
lawful. The Certificate also provides that, pursuant to Delaware law, its
directors shall not be liable for monetary damages for breach of the directors'
fiduciary duty of care to the Registrant and its stockholders. This provision in
the Certificate does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as injunctive or other forms of
non-monetary relief will remain available under Delaware law. In addition, each
director will continue to be subject to liability for breach of the director's
duty of loyalty to the Registrant for acts or omissions not in good faith or
involving intentional misconduct, for knowing violations of law, for actions
leading to improper personal benefit to the director, and for payment of
dividends or approval of stock repurchases or redemptions that are unlawful
under Delaware law. The provision also does not affect a director's
responsibilities under any other law, such as the federal securities laws or
state or federal environmental laws. The Certificate further provides that the
Registrant is authorized to indemnify its directors and officers to the fullest
extent permitted by law through the Bylaws, agreement, vote of stockholders or
disinterested directors, or otherwise.
II-1
<PAGE> 81
The Registrant intends to obtain directors' and officers' liability
insurance in connection with the Offering.
In addition, the Registrant has entered or, concurrently with the Offering,
will enter, into agreements to indemnify its directors and certain of its
officers in addition to the indemnification provided for in the Certificate of
Incorporation and Bylaws. These agreements will, among other things, indemnify
the Registrant's directors and certain of its officers for certain expenses
(including attorneys fees), judgments, fines and settlement amounts incurred by
such person in any action or proceeding, including any action by or in the right
of the Registrant, on account of services by that person as a director or
officer of the Registrant or as a director or officer of any subsidiary of the
Registrant, or as a director or officer of any other company or enterprise that
the person provides services to at the request of the Registrant.
The Underwriting Agreement (Exhibit 1.1 hereto) provides for
indemnification by the Underwriters of the Registrant and its officers and
directors, and by the Registrant of the Underwriters, for certain liabilities
arising under the Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Registrant during the
last three years preceding the date of this Registration Statement involving
sales of the Registrant's securities that were not registered under the
Securities Act:
1. In November 1996 in connection with the Acquisition, the
Registrant issued (i) 22,000 shares of Class A Preferred Stock and warrants
to purchase 2,900,000 shares of Common Stock at an exercise price of
$0.0002 per share to one accredited investor for an aggregate consideration
of $22.0 million; (ii) 10,000 shares of Class B Preferred Stock to Bausch &
Lomb in consideration for the payment of a portion of the purchase price
for the assets of S-O ($10.0 million); (iii) 3,185 shares of Class C
Preferred Stock and warrants to purchase 477,750 shares of Common Stock at
an exercise price of $0.0002 per share to three accredited investors for an
aggregate consideration of $3.2 million, which included the cancellation of
indebtedness in the amount of $10,000; (iv) 50,000 shares of Common Stock
and warrants to purchase 745,400 shares of Common Stock at an exercise
price of $0.0002 per share to one accredited investor for an aggregate
consideration of $1,000; and (v) warrants to purchase an aggregate of
428,000 shares of Common Stock at an exercise price of $0.0002 per share
granted to the Registrant's senior lenders and subordinated lenders in
consideration for making loans to the Registrant. The foregoing issuances
were exempt from the registration requirements of the Securities Act on the
basis that such transactions did not involve any public offering. No
underwriters fees or broker's commissions were paid in connection with such
transactions.
2. In January 1997, the Registrant granted performance stock options
and executive stock options to certain members of the Company's senior
management team for the purchase of up to an aggregate of 442,061 shares of
Common Stock at an exercise price equal to $0.40 per share. The executive
stock options are fully vested and the performance options will vest in
full upon consummation of the Offering. In January 1997, the Registrant
also granted options to purchase an aggregate of 214,200 shares of Common
Stock to the Directors of the Registrant at an exercise price of $1.00 per
share. Such options are fully-vested. In May 1997, the Registrant granted
performance options to purchase an aggregate of 77,089 shares of Common
Stock at an exercise price of $0.40 per share to certain other employees of
the Registrant. Such options will vest in full upon consummation of the
Offering. In August 1997, the Registrant granted stock options under the
1997 Plan to certain employees of the Registrant at an exercise price per
share equal to the initial public offering price. Such options vest in four
equal annual installments commencing one year following the grant date.
None of the optionees referred to in this Item 2 paid any cash
consideration for these options. The grant of all of such options did not
involve a "sale" of securities and, therefore, no registration was
required. The issuance of Common Stock upon exercise of such options is
exempt by reason of Section 4(2) of the Securities Act and Rule 701
thereunder.
II-2
<PAGE> 82
3. In August 1997, the Registrant amended its Certificate of
Incorporation and Certificates of Designation to (i) effect a 50-for-1
stock split on its Common Stock, (ii) reduce the authorized par value of
the Registrant's Common Stock and Preferred Stock from $.01 per share to
$0.0001 per share and (iii) provide for the automatic conversion of a
portion of the Registrant's Class A Preferred Stock and Class C Preferred
Stock upon consummation of the Offering. Such transaction was exempt from
registration pursuant to Section 2(3) of the Securities Act on the basis
that such transaction did not involve a "sale" of securities. The issuance
of shares of Common Stock upon conversion of the mandatorily redeemable
Preferred Stock in the Preferred Stock Conversion will not be registered
under the Securities Act by reason of the exemption provided by Section
3(a)(9) thereof.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following Exhibits are attached hereto and incorporated herein by
reference.
<TABLE>
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Amendment of Restated Certificate of Incorporation as filed
with the Delaware Secretary of State on August 25, 1997.
3.2 Amended and Restated Certificate of Incorporation to be filed with the
Delaware Secretary of State upon consummation of the Offering.
3.3* Amended and Restated Bylaws of the Registrant.
4.1* Specimen certificate representing shares of Common Stock of the
Registrant.
4.2 1997 Stock Incentive Plan, together with form of related Stock Option
Agreement (and related Notice of Grant of Option) and Stock Issuance
Agreement.
4.3 Form of Performance Stock Option.
4.4 Form of Executive Officer Non-Qualified Stock Option Agreement.
4.5 Form of Director Stock Option Agreement.
5.1* Form of Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Form of Indemnification Agreement.
10.2 Securities Purchase Agreement dated November 15, 1996, by and between the
Registrant and The 1818 Fund II, L.P.
10.3* Secured Credit Agreement dated November 15, 1996, by and among the
Registrant, First Source Financial LLP and Union Bank of California, N.A.
(the "Lenders"), together with Security Agreement dated November 15, 1996
by and between the Registrant and First Source Financial LLP, as
Collateral Agent for the Lenders, and Pledge Agreement dated November 15,
1996, by and between the Registrant and First Source Financial LLP, as
Collateral Agent for the Lenders.
10.4 Registration Rights Agreement dated November 15, 1996, by and among the
Registrant, The 1818 Fund II, L.P., S-O Acquisition LLC, S-O Management
LLC, Larkspur Capital Corporation, First Source Financial LLP, Union Bank
of California, N.A., The Equitable Life Assurance Society of the United
States, Exeter Venture Lenders, L.P. and Exeter Equity Partners, L.P.
10.5 Form of Warrant to Purchase Shares of Common Stock
10.6* Letter Agreement dated July 19, 1990, by and between the Registrant and
Metaux Precieux Metalor Deutschland Gmbh.
10.7* License Agreement dated September 4, 1991, by and between the Registrant
and Vent-Plant Corporation.
10.8* License Agreement dated April 28, 1994, by and between the Registrant and
Dental Imaging Associates, Inc., together with Addendum thereto dated
April 11, 1995 by and between the Registrant and Dental Imaging
Associates, Inc.
10.9 Employment Agreement dated November 15, 1996, by and between the
Registrant and Kenneth A. Darienzo.
</TABLE>
II-3
<PAGE> 83
<TABLE>
<S> <C>
10.10 Employment Agreement dated November 15, 1996, by and between the
Registrant and Martin J. Dymek.
10.11 Employment Agreement dated November 15, 1996, by and between the
Registrant and Kenneth Krueger.
10.12* Sublease dated January 6, 1993, by and between the Registrant and Great
Western Real Estate.
10.13 Asset Purchase Agreement dated July 22, 1996, by and between the
Registrant, S-O and Bausch & Lomb.
10.14 Distribution Agreement dated April 18, 1997, by and between Registrant and
Interpore Orthopaedics, Inc.
10.15 License Agreement dated April 18, 1997, by and between the Registrant and
Interpore International.
11.1 Statement Regarding Computation of Pro Forma Net Loss Per Share.
11.2 Statement Regarding Computation of Supplemental Net Income Per Share.
23.1 Consent of Price Waterhouse LLP, Independent Auditors.
23.2 Consent of Price Waterhouse LLP, Independent Auditors.
23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit 5.1).
24.1 Power of Attorney (contained on signature page on page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by Amendment.
(B) FINANCIAL STATEMENT SCHEDULES
(1) Schedule II. Valuation and Qualifying Accounts and Reserves.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes to provide to the Underwriters at the
closing specified in the Underwriting Agreements certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit, or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus as filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Yorba Linda, State of
California, on August 26, 1997.
STERI-OSS, INC.
By: /s/ KENNETH A. DARIENZO
------------------------------------
Kenneth A. Darienzo
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute and
appoint Kenneth A. Darienzo and Bruce D. Nye, and each of them, his true and
lawful attorney-in-fact and agent, each with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this Registration Statement, or any related registration statement filed
pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same,
with exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that each of said attorneys-in-fact and agents, or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<S> <C> <C>
/s/ KENNETH A. DARIENZO Chairman of the Board and August 26, 1997
- --------------------------------------------- Chief Executive Officer
Kenneth A. Darienzo (Principal Executive
Officer)
/s/ HENRY WENDT Director August 26, 1997
- ---------------------------------------------
Henry Wendt
/s/ WALTER W. GRIST Director August 26, 1997
- ---------------------------------------------
Walter W. Grist
/s/ T. MICHAEL LONG Director August 26, 1997
- ---------------------------------------------
T. Michael Long
/s/ DOUGLAS E. ROGERS Director August 26, 1997
- ---------------------------------------------
Douglas E. Rogers
/s/ ANDREW C. COWEN Director August 26, 1997
- ---------------------------------------------
Andrew C. Cowen
/s/ FREDRIC M. SEEGAL Director August 26, 1997
- ---------------------------------------------
Fredric M. Seegal
/s/ BRUCE D. NYE Vice President and Chief August 26, 1997
- --------------------------------------------- Financial Officer(Principal
Bruce D. Nye Accounting and Financial
Officer)
</TABLE>
II-5
<PAGE> 85
SCHEDULE II
STERI-OSS INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
<CAPTION>
BEGINNING BAD DEBT ENDING
DESCRIPTION BALANCE EXPENSE WRITE-OFFS BALANCE
- ---------------------------------------------------- --------- -------- ---------- -------
<S> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS
Year ended December 31, 1994........................ 55 36 (28) 63
Year ended December 31, 1995........................ 63 27 (11) 79
January 1, 1996 through November 15, 1996........... 79 179 (108) 150
November 16, 1996 through December 31, 1996......... -- -- -- --
</TABLE>
DEFERRED TAX VALUATION ALLOWANCE
<TABLE>
<CAPTION>
BEGINNING INCOME TAX ENDING
BALANCE EXPENSE BALANCE
--------- ---------- -------
<S> <C> <C> <C>
November 16, 1996 through December 31, 1996.................. -- 40 40
</TABLE>
<PAGE> 86
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement.
3.1 Certificate of Amendment of Restated Certificate of Incorporation as
filed with the Delaware Secretary of State on August 25, 1997.
3.2 Amended and Restated Certificate of Incorporation to be filed with
the Delaware Secretary of State upon consummation of the Offering.
3.3* Amended and Restated Bylaws of the Registrant.
4.1* Specimen certificate representing shares of Common Stock of the
Registrant.
4.2 1997 Stock Incentive Plan, together with form of related Stock Option
Agreement (and related Notice of Grant of Option) and Stock Issuance
Agreement.
4.3 Form of Performance Stock Option.
4.4 Form of Executive Officer Non-Qualified Stock Option Agreement.
4.5 Form of Director Stock Option Agreement.
5.1* Form of Opinion of Brobeck, Phleger & Harrison LLP.
10.1 Form of Indemnification Agreement.
10.2 Securities Purchase Agreement dated November 15, 1996, by and between
the Registrant and The 1818 Fund II, L.P.
10.3* Secured Credit Agreement dated November 15, 1996, by and among the
Registrant, First Source Financial LLP and Union Bank of California,
N.A. (the "Lenders"), together with Security Agreement dated November
15, 1996 by and between the Registrant and First Source Financial
LLP, as Collateral Agent for the Lenders, and Pledge Agreement dated
November 15, 1996, by and between the Registrant and First Source
Financial LLP, as Collateral Agent for the Lenders.
10.4 Registration Rights Agreement dated November 15, 1996, by and among
the Registrant, The 1818 Fund II, L.P., S-O Acquisition LLC, S-O
Management LLC, Larkspur Capital Corporation, First Source Financial
LLP, Union Bank of California, N.A., The Equitable Life Assurance
Society of the United States, Exeter Venture Lenders, L.P. and Exeter
Equity Partners, L.P.
10.5 Form of Warrant to Purchase Shares of Common Stock
10.6* Letter Agreement dated July 19, 1990, by and between the Registrant
and Metaux Precieux Metalor Deutschland Gmbh.
10.7* License Agreement dated September 4, 1991, by and between the
Registrant and Vent-Plant Corporation.
10.8* License Agreement dated April 28, 1994, by and between the Registrant
and Dental Imaging Associates, Inc., together with Addendum thereto
dated April 11, 1995 by and between the Registrant and Dental Imaging
Associates, Inc.
10.9 Employment Agreement dated November 15, 1996, by and between the
Registrant and Kenneth A. Darienzo.
10.10 Employment Agreement dated November 15, 1996, by and between the
Registrant and Martin J. Dymek.
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------ --------------------------------------------------------------------- ------------
<C> <S> <C>
10.11 Employment Agreement dated November 15, 1996, by and between the
Registrant and Kenneth Krueger.
10.12* Sublease dated January 6, 1993, by and between the Registrant and
Great Western Real Estate.
10.13 Asset Purchase Agreement dated July 22, 1996, by and between the
Registrant, S-O and Bausch & Lomb.
10.14 Distribution Agreement dated April 18, 1997, by and between
Registrant and Interpore Orthopaedics, Inc.
10.15 License Agreement dated April 18, 1997, by and between the Registrant
and Interpore International.
11.1 Statement Regarding Computation of Pro Forma Net Loss Per Share.
11.2 Statement Regarding Computation of Supplemental Net Income Per Share.
23.1 Consent of Price Waterhouse LLP, Independent Auditors.
23.2 Consent of Price Waterhouse LLP, Independent Auditors.
23.3* Consent of Brobeck, Phleger & Harrison LLP (contained in Exhibit
5.1).
24.1 Power of Attorney (contained on signature page on page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by Amendment.
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
S-O ACQUISITION CORP.
Kenneth A. Darienzo and Bruce D. Nye do hereby certify that:
1. They are the Chief Executive Officer and Secretary, respectively, of
S-O Acquisition Corp., a Delaware corporation (the "Corporation").
2. The original Certificate of Incorporation of the Corporation (the
"Original Certificate") was filed with the Secretary of State of Delaware on
July 11, 1996. On November 15, 1996, the Corporation filed a Restated
Certificate of Incorporation (the "Certificate of Incorporation") to amend and
restate the Original Certificate.
3. On August 20, 1997, the Corporation's Board of Directors adopted
resolutions setting forth proposed amendments to the Certificate of
Incorporation and declaring such amendments to be advisable. The resolutions
setting forth the proposed amendments are set forth in full as follows:
NOW, THEREFORE, BE IT RESOLVED, that Section 1 of this
Corporation's Certificate of Incorporation be amended in its entirety
to read in full as follows:
"1. The name of this Corporation is Steri-Oss, Inc."
RESOLVED FURTHER, that the first paragraph of Section 4 of
this Corporation's Certificate of Incorporation be deleted in its
entirety and replaced with the following:
"The total number of shares of capital stock which
the Corporation shall have authority to issue is (i)
35,000,000 shares of Common Stock with a par value of $.0001
per share (the "Common Stock") and (ii) 5,000,000 shares of
Preferred Stock with a par value of $.0001 per share (the
"Preferred Stock"), of which 100,000 shares are Preferred
Stock, Class A, 10,000 shares Preferred Stock, Class B and
3,200 shares are Preferred Stock, Class C. 4,886,800 shares
of Preferred Stock shall be undesignated.
The Preferred Stock, Class A shall have such voting
powers, designations, preferences and other rights,
qualifications, limitations and restrictions as designated by
the Board of Directors from time
<PAGE> 2
to time. The Preferred Stock, Class C shall have such voting
powers, designations, preferences and other rights,
qualifications, limitations and restrictions as designated by
the Board of Directors from time to time. The Preferred Stock,
Class B shall have the following voting powers, designations,
preferences and other rights, qualifications, limitations and
restrictions:"
RESOLVED FURTHER, that Section 4(e)(1) of this Corporation's
Certificate of Incorporation be amended in its entirety to read in full
as follows:
"(1) Conversion to Common Stock at Option of Holder.
The holders of shares of Preferred Stock, Class B shall have
the right at their option, to convert each share of Preferred
Stock, Class B into shares of Common Stock of the Corporation
("Shares") at any time after the later to occur of (i)
December 27, 1997 or (ii) the date on which the Corporation,
or holders of Shares, first sells Shares in an initial public
offering registered under the Securities Act of 1933 (the
"IPO") and lists the Shares on a United States national
securities exchange or for quotation on the National
Association of Securities Dealers NASDAQ quotation system (the
"listing"), by giving notice to the Corporation (which may be
by facsimile) at the principal executive office of the
Corporation at 22895 Eastpark Drive, Yorba Linda, California
92887, Attention: President (a "Conversion Notice") and
surrendering the certificates therefor in accordance with
Section 4(e)(9). The date of receipt by the Corporation of
such notice shall be referred to herein as the "Conversion
Date." The Corporation shall send a notice to the holders of
the Preferred Stock, Class B that the Corporation proposes to
list the Common Stock not less than 10 nor more than 60 days
prior to the date of listing.
For purposes of this Restated Certificate of
Incorporation, the term Business Day shall mean any day that
is not Saturday, Sunday or a national holiday."
RESOLVED FURTHER, that the following new sections shall be
added immediately following Section 4(g)(3) of this Corporation's
Certificate of Incorporation which shall read in full as follows:
"(4) On the date of any redemption being made
pursuant to Section 4(g), the Corporation shall deposit for
the benefit of the holders of shares of Preferred Stock, Class
B to be redeemed the
<PAGE> 3
funds necessary for such redemption with a bank or trust
company in the Borough of Manhattan, The City of New York,
having a capital and surplus of at least $100,000,000. Any
moneys so deposited by the Corporation and unclaimed at the
end of two years from the date designated for such redemption
shall revert to the general funds of the Corporation. After
such reversion, any such bank or trust company shall, upon
demand, pay over to the Corporation such unclaimed amounts,
and thereupon such bank or trust company shall be relieved of
all responsibility in respect thereof and any holder of shares
of Preferred Stock, Class B to be redeemed shall look only to
the Corporation for the payment of the redemption price. Any
interest accrued on funds deposited pursuant to this Section
4(g)(4) shall be paid from time to time to the Corporation for
its own account.
(5) Upon the deposit of funds pursuant to Section
4(g)(4) in respect of shares of Preferred Stock, Class B to be
redeemed pursuant to Section 4(g), notwithstanding that any
certificates for such shares shall not have been surrendered
for cancellation, from and after the date of the redemption
(i) the shares of Preferred Stock, Class B represented thereby
shall no longer be deemed outstanding, (ii) the rights to
receive dividends thereon shall cease to accrue and (iii) all
rights of the holders of Preferred Stock, Class B to be
redeemed shall cease and terminate, excepting only the right
to receive the redemption price therefor. In the event the
Corporation shall default in the payment of the redemption
price, the shares of Preferred Stock, Class B that were to be
redeemed shall thereafter be deemed to be outstanding and the
holders thereof shall have all of the rights of a holder of
Preferred Stock, Class B until such time as such default shall
have been waived by holders of at least a majority of
outstanding shares of Preferred Stock, Class B."
RESOLVED FURTHER, that a new section be added immediately
following Section 4(o) of this Corporation's Certificate of
Incorporation which shall read in full as follows:
"(p) Reacquired Shares. No share of Preferred Stock,
Class B acquired by the Corporation by reason of redemption,
purchase, conversion or otherwise shall be reissued, and all
such shares shall be cancelled, retired and eliminated from
the shares which the Corporation shall be authorized to
issue."
RESOLVED FURTHER, that a new section be added immediately
following Section 11 of this Corporation's Certificate of Incorporation
which shall read in full as follows:
<PAGE> 4
"12. Upon the consummation of the IPO and the
conversion or redemption of all shares of Preferred Stock,
Class A, Preferred Stock, Class B and Preferred Stock, Class C
then outstanding:
(a) The Corporation's Certificate of
Incorporation shall be amended in its entirety to read in full
as follows:
'ARTICLE 1
The name of this corporation is Steri-Oss, Inc.
ARTICLE 2
The address of the registered office of the
corporation in the State of Delaware is Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of the corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE 3
The nature of the business or purposes to be
conducted or promoted is to engage in any lawful act or
activity for which corporations may be organized under the
Delaware General Corporation Law.
ARTICLE 4
The corporation is authorized to issue two classes of
stock to be designated, respectively, "Common Stock" and
"Preferred Stock." The total number of shares which the
corporation is authorized to issue is Forty Million
(40,000,000) shares, of which Thirty-Five Million (35,000,000)
shares shall be Common Stock, par value $.0001 per share, and
Five Million (5,000,000) shares shall be Preferred Stock, par
value $.0001 per share.
A. Rights, Preferences and Restrictions of Preferred
Stock
The Preferred Stock authorized by this Certificate of
Incorporation may be issued from time to time in one or more
series without further stockholder approval. The Board of
Directors of the corporation is hereby authorized, within the
limitations and restrictions stated in this Certificate of
Incorporation, to fix or alter the rights, preferences,
privileges and restrictions granted to or imposed upon the
Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them. The
rights, preferences, privileges and restrictions of any
<PAGE> 5
such series may be subordinated to, pari passu with
(including, without limitation, inclusion in provisions with
respect to dividend rights and liquidation preferences,
redemption and/or approval of matters by vote), or senior to
any of those of any present or future class or series of
Preferred Stock or Common Stock. The Board of Directors is
also authorized to increase or decrease the number of shares
of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then
outstanding. In case the number of shares of any series shall
be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such
series.
B. Common Stock
1. Issuance of Common Stock. The Board of Directors
is hereby authorized to cause shares of Common Stock to be
issued from time to time for such consideration as may be
fixed from time to time by the Board of Directors, or by way
of stock split pro rata to the holders of Common Stock. The
Board of Directors may also determine the proportion of the
proceeds received from the sale of such stock which shall be
credited upon the books of the corporation to capital or
capital surplus. Each share of Common Stock shall be equal in
all respects to every other share of Common Stock. No holder
of shares of Common Stock shall be entitled as such as a
matter of right to subscribe for or purchase any part of any
new or additional issues of stock, or securities convertible
into stock, of any class whatsoever, whether now or hereafter
authorized, and whether issued for cash, property services or
otherwise.
2. Dividends. Subject to the preferential rights, if
any, of any present or future series of Preferred Stock, the
holders of shares of Common Stock shall be entitled to
receive, when, if and as declared by the Board of Directors,
out of the assets of the corporation legally available
therefor, dividends payable either in cash, in property or in
shares of Common Stock or other securities of the corporation.
3. Voting Rights. At every annual or special meeting
of stockholders of the corporation, every holder of Common
Stock shall be entitled to one vote, in person or by proxy,
for each share of Common Stock registered in his or her name
on the books of the corporation.
4. Liquidation, Dissolution or Winding Up. In the
event of any voluntary or involuntary liquidation, dissolution
or winding up of the affairs of the corporation, after payment
or provision for payment of the debts and other liabilities of
the corporation and of the preferential
<PAGE> 6
amounts, if any, to which the holders of any present of future
series of Preferred Stock may be entitled, the holders of all
outstanding shares of Common Stock shall be entitled to
receive all remaining assets of the corporation, tangible and
intangible, of whatever kind available for distribution to
stockholders, ratably in proportion to the number of shares of
Common Stock held by each such holder.
ARTICLE 5
The business and affairs of the corporation shall be
managed by or under the direction of the Board of Directors.
The Board of Directors may exercise all such authority and
powers of the corporation and do all such lawful acts and
things as are not by statute or this Certificate of
Incorporation directed or required to be exercised or done by
the stockholders.
A. Number of Directors
The number of directors of the corporation (exclusive
of directors, if any, to be elected by the holders of one or
more series of Preferred Stock of the corporation which may be
outstanding, voting separately as a series or class) shall be
fixed from time to time by action of not less than a majority
of the members of the Board of Directors then in office,
though less than a quorum.
B. Classes
Subject to the rights, if any, of any series of
Preferred Stock then outstanding, the directors shall be
divided into three classes, designated Class I, Class II and
Class III, respectively. The number of directors in each class
shall be as nearly equal as possible. The term of office of
each director shall expire on the third annual meeting of
stockholders following the annual meeting at which such
director was elected; provided, however, that the term of
directors first elected to Class I shall expire at the 1998
annual meeting of stockholders, the term of directors first
elected to Class II shall expire at the 1999 annual meeting of
stockholders and the term of directors first elected to Class
III shall expire at the 2000 annual meeting of stockholders.
Notwithstanding the foregoing, each director shall serve until
his successor is duly elected and qualified, or until his
earlier death, resignation, disqualification or removal.
At each annual election, directors chosen to succeed
those whose terms then expire shall be of the same class as
the directors they succeed, unless by reason of any
intervening changes in the authorized number of
<PAGE> 7
directors, the Board shall designate one or more directorships
whose term then expires as directorships of another class in
order to ensure that the number of directors in each class is
as nearly equal as possible.
Notwithstanding the rule that the three classes shall
be as nearly equal in number of directors as possible, in the
event of any change in the authorized number of directors,
each director then serving as such shall nevertheless continue
as a director of the class of which he is a member until the
expiration of his current term, or until his earlier death,
resignation, disqualification or removal. If any newly created
directorship may, consistently with the rule that the three
classes shall be as nearly equal in number of directors as
possible, be allocated to one of two or more classes, the
Board shall allocate it to that of the available classes whose
term of office is due to expire at the earliest date following
such allocation.
C. Vacancies
Subject to the rights, if any, of the holders of any
series of Preferred Stock then outstanding, newly created
directorships resulting from any increase in the authorized
number of directors or any vacancies in the Board of Directors
resulting from death, resignation, disqualification or removal
may be filled only by a majority vote of the directors then in
office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which
they have been elected expires and until such director's
successor shall have been duly elected and qualified.
D. Removal
Any director or the entire Board of Directors may be
removed only for cause and only by the vote of the holders of
two-thirds (2/3) of the voting securities of the corporation
then entitled to vote at an election of directors.
E. Elections
Elections of directors need not be by written ballot
unless the Bylaws of the corporation shall otherwise provide.
ARTICLE 6
The corporation is to have perpetual existence.
<PAGE> 8
ARTICLE 7
Nominations of persons for election to the Board of
Directors may be made at an annual meeting of stockholders or
special meeting of stockholders called by the Board of
Directors for the purpose of electing directors (i) by or at
the direction of the Board of Directors or (ii) by any
stockholder of the corporation entitled to vote for the
election of directors at such meeting who complies with the
notice procedures set forth in this Article 7. Such
nomination, other than those made by or at the direction of
the Board, shall be made pursuant to timely notice in writing
to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the corporation
not less than 60 days nor more than 90 days prior to the
scheduled date of the meeting, regardless of any postponement,
deferral or adjournment of that meeting to a later date;
provided, however, that if less than 70 days notice or prior
public disclosure of the date of the meeting is given or made
to stockholders, notice by the stockholder to be timely must
be so delivered or received not later than the close of
business on the 10th day following the earlier of (i) the day
on which such notice of the date of the meeting was mailed or
(ii) the day on which such public disclosure was made.
A stockholder's notice to the Secretary shall set
forth (i) as to each person whom the stockholder proposes to
nominate for election or reelection as a director (a) the
name, age, business address and residence address of such
person, (b) the principal occupation or employment of such
person, (c) the class and number of shares of the corporation
which are beneficially owned by such person on the date of
such stockholder's notice and (d) any other information
relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended, or any
successor statute thereto (including, without limitation, such
person's written consent to being named in the proxy statement
as a nominee and to serving as a director if elected); (ii) as
to the stockholder giving notice (a) the name and address, as
such information appears on the corporation's books, of such
stockholder and any other stockholders known by such
stockholder to be supporting such nominee(s), (b) the class
and number of shares of the corporation which are beneficially
owned by such stockholder and each other stockholder known by
such stockholder to be supporting such nominee(s) on the date
of such stockholders notice, (c) a representation that the
stockholder is a holder of record of stock of the corporation
entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to nominate the person or
persons specified in the notice; and (iii) a description of
all arrangements or understandings between the stockholder and
each nominee and other person or persons (naming such person
or
<PAGE> 9
persons) pursuant to which the nomination or nominations are
to be made by the stockholder.
Subject to the rights, if any, of the holders of any
series of Preferred Stock then outstanding, no person shall be
eligible for election as a director of the corporation unless
nominated in accordance with the procedures set forth in this
Article 7. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a
nomination was not made in accordance with the procedures
prescribed by this Article 7 and if he should so determine, he
shall so declare to the meeting and the defective nomination
shall be disregarded.
<PAGE> 10
ARTICLE 8
At an annual meeting of stockholders, only such
business shall be conducted, and only such proposals shall be
acted upon, as shall have been properly brought before the
annual meeting of stockholders (i) pursuant to the
corporation's notice of meeting, (ii) by or at the direction
of the Board of Directors or (ii) by a stockholder of the
corporation who is a stockholder of record at the time of
giving of the notice provided for in this Article 8, who shall
be entitled to vote at the meeting and who complies with the
procedures set forth in this Article 8. For business or a
proposal to be properly brought before an annual meeting of
stockholders by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the
corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive
offices of the corporation not less than 60 days nor more than
90 days prior to the scheduled date of the annual meeting,
regardless of any postponement, deferral or adjournment of
that meeting to a later date; provided, however, that if less
than 70 days' notice or prior public disclosure of the date of
the annual meeting is given or made to stockholders, notice by
the stockholder to be timely must be so delivered or mailed
and received not later than the close of business on the 10th
day following the earlier of (i) the day on which such notice
of the date of the meeting was mailed or (ii) the day on which
such public disclosure was made.
A stockholder's notice to the Secretary shall set
forth as to each matter the stockholder proposes to bring
before an annual meeting of stockholders (i) a description, in
500 words or less, of the business desired to be brought
before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as
such information appears on the corporation's books, of the
stockholder proposing such business and any other stockholders
known by such stockholder to be supporting such proposal,
(iii) the class and number of shares of the corporation that
are beneficially owned by such stockholder and each other
stockholder known by such stockholder to be supporting such
proposal on the date of such stockholder's notice, (iv) a
description, in 500 words or less, of any interest of the
stockholder in such proposal and (v) a representation that the
stockholder is a holder of record of stock of the corporation
and intends to appear in person or by proxy at the meeting to
present the proposal specified in the notice. Notwithstanding
the foregoing, nothing in this Article 8 shall be interpreted
or construed to require the inclusion of information about any
such proposal in any proxy statement distributed by, at the
direction of, or on behalf of, the Board of Directors.
<PAGE> 11
The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that the
business was not properly brought before the meeting and in
accordance with the procedures prescribed by this Article 8,
and if he should so determine, he shall so declare to the
meeting and any such business not properly brought before the
meeting shall not be transacted. Notwithstanding the foregoing
provisions of this Article 8, a stockholder shall also comply
with all applicable requirements of the Securities Exchange
Act of 1934, as amended, and the rules and regulations
thereunder with respect to the matters set forth in this
Article 8.
ARTICLE 9
Any action required or permitted to be taken at any
annual or special meeting of stockholders may only be taken
upon the vote of the stockholders at an annual or special
meeting duly called and may not be taken by written consent of
the stockholders.
ARTICLE 10
Except as otherwise required by law, special meetings
of the stockholders of the corporation, for any purpose or
purposes, may be called only by the Chairman of the Board on
his or her own initiative or by the Chief Executive Officer on
his or her own initiative, and shall be called by the Chairman
of the Board, Chief Executive Officer or Secretary at the
request in writing of a majority of the entire Board of
Directors or at the request in writing of stockholders owning
not less than fifty percent (50%) of the entire voting stock
of the corporation issued and outstanding. Such request shall
state the purpose or purposes of the proposed meeting.
ARTICLE 11
The Board of Directors is expressly authorized to
adopt, amend or repeal the Bylaws of the corporation. Any
Bylaws made by the directors under the powers conferred hereby
may be amended or repealed by the stockholders; provided,
however, that notwithstanding the foregoing or anything else
contained in this Certificate of Incorporation to the
contrary, the Bylaws shall not be amended or repealed by the
stockholders, and no Bylaw provision inconsistent with Bylaw
provisions adopted by the Board of Directors shall be adopted
by the stockholders, without the affirmative vote of the
holders of at least two-thirds (2/3) of the voting power of
all outstanding shares of capital stock of the corporation
then entitled to vote generally in the election of directors
voting together as a single class.
<PAGE> 12
ARTICLE 12
The Board of Directors, each committee of the Board
of Directors and each individual director, in discharging
their respective duties under applicable law and this
Certificate of Incorporation and in determining what they each
believe to be in the best interests of the corporation and its
stockholders, may consider the effects, both short-term and
long-term, of any action or proposed action taken or to be
taken by the corporation, the Board of Directors or any
committee of the Board of Directors on the interests of (i)
the employees, franchises, associates, customers, suppliers
and/or creditors of the corporation and its subsidiaries and
(ii) the communities in which the corporation and its
subsidiaries own or lease property or conduct business, all to
the extent that the Board of Directors, any committee of the
Board of Directors or any individual director deems pertinent
under the circumstances (including the possibility that the
interests of the corporation may best be served by the
continued independence of the corporation); provided, however,
that the provisions of this Article 12 shall not limit in any
way the right of the Board of Directors to consider any other
lawful factors in making its determinations, including,
without limitation, the effects, both short-term and
long-term, of any action or proposed action on the corporation
or its stockholders directly; and provided further, that this
Article 12 shall be deemed solely to grant discretionary
authority to the Board of Directors, each committee of the
Board of Directors and each individual director and shall not
be deemed to provide to any specific constituency any right to
be considered.
ARTICLE 13
A director of the corporation shall not be personally
liable to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director; provided,
however, that the foregoing shall not eliminate or limit the
liability of a director (i) for any breach of the director's
duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii)
under Section 174 of the General Corporation Law of Delaware
or (iv) for any transaction from which the director derived an
improper personal benefit. If the General Corporation Law of
Delaware is hereafter amended to permit further elimination or
limitation of the personal liability of directors, then the
liability of a director of the corporation shall be eliminated
or limited to the fullest extent permitted by the General
Corporation Law of Delaware as so amended. Any repeal or
modification of this Article 13 shall not adversely affect any
right or protection of a director of the corporation existing
at the time of such repeal or modification.
<PAGE> 13
ARTICLE 14
To the fullest extent permitted by applicable law,
the corporation is also authorized to provide indemnification
of (and advancement of expenses to) its directors and officers
(and any other person to which Delaware law permits the
corporation to provide indemnification) through Bylaw
provisions, agreements with such agents or other persons, vote
of stockholders or disinterested directors or otherwise, in
excess of the indemnification and advancement otherwise
permitted by Section 145 of the Delaware General Corporation
Law, subject only to limits created by applicable Delaware law
(statutory or non-statutory), with respect to actions for
breach of duty to the corporation, its stockholders, and
others. Any repeal or modification of any of the foregoing
provisions of this Article 14 shall not adversely affect any
right or protection of a director, officer, agent or other
person existing at the time of, or increase the liability of
any director of the corporation with respect to any acts or
omissions of such director, officer or agent occurring prior
to such repeal or modification.
ARTICLE 15
Notwithstanding any other provision of this
Certificate of Incorporation or the Bylaws of the corporation
(and in addition to any other vote that may be required by
law, this Certificate of Incorporation or the Bylaws), the
provisions set forth in this Article 15 and in Articles 5, 7,
8, 9, 10 and 11 hereof may not be repealed, altered or amended
in any respect, unless such action is approved by the
affirmative vote of the holders of at least two-thirds (2/3)
of the outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors
(considered for this purpose as one class). Subject to the
limitations set forth in this Article 15 and otherwise in this
Certificate of Incorporation, the corporation reserves the
right to amend, alter, change or repeal any provision
contained in this Certificate of Incorporation, in the manner
now or hereafter prescribed by statute, and all rights
conferred upon stockholders herein are granted subject to this
reservation.'
(b) The Board of Directors of this
Corporation shall be, and it hereby is, expressly authorized
to take such additional actions, including the filing of a
Restated Certificate of Incorporation setting forth the
provisions described in Section 12(a) above with the Secretary
of State of Delaware, to effect the amendment of the
Certificate of Incorporation of this Corporation in the manner
specified in this Section 12."
RESOLVED FURTHER, that the officers of this Corporation be,
and they hereby are, authorized to take such additional actions,
including the filing of any
<PAGE> 14
certificates or other instruments required by applicable law, to effect
the amendment of the Certificate of Incorporation of this Corporation
in the manner specified above.
4. Following the adoption of the resolutions referenced above by the
Corporation's Board of Directors, such resolutions were approved by the
Stockholders of the Corporation entitled to vote thereon by unanimous written
consent in accordance with Section 228 of the Delaware General Corporation Law.
5. The amendment described above was duly adopted in accordance with
the provisions of Section 242 of the Delaware General Corporation Law.
<PAGE> 15
IN WITNESS WHEREOF, the Board of Directors of the Corporation has
caused this Certificate to be signed by Kenneth A. Darienzo, its President, and
attested by Bruce D. Nye, its Secretary, this ____ day of August 1997.
S-O ACQUISITION CORP.
By:
----------------------------------
Kenneth A. Darienzo
Chief Executive Officer
ATTEST:
By:
----------------------------------
Bruce D. Nye
Secretary
Kenneth A. Darienzo and Bruce D. Nye declare under penalty of perjury
that they have read the foregoing instrument and know the contents thereof, and
that the same is true of their own knowledge and constitutes an authorized act
of the Company.
Executed at Yorba Linda, California, on August __, 1997.
----------------------------------
Kenneth A. Darienzo
----------------------------------
Bruce D. Nye
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
STERI-OSS, INC.
Kenneth A. Darienzo and Bruce D. Nye hereby certify that:
1. They are the Chief Executive Officer and Secretary, respectively,
of Steri-Oss, Inc., a Delaware corporation.
2. This Amended and Restated Certificate of Incorporation amends and
restates the provisions of the Certificate of Incorporation of the corporation,
as amended to date, and was duly adopted pursuant to Sections 242 and 245 of the
General Corporation Law of the State of Delaware.
3. The text of the corporation's Certificate of Incorporation as
heretofore amended or supplemented is hereby restated and further amended to
read in its entirety as follows:
ARTICLE 1
The name of this corporation is Steri-Oss, Inc.
ARTICLE 2
The address of the registered office of the corporation in the State
of Delaware is Corporation Trust Center, 1209 Orange Street, in the City of
Wilmington, County of New Castle. The name of the corporation's registered agent
at such address is The Corporation Trust Company.
ARTICLE 3
The nature of the business or purposes to be conducted or promoted is
to engage in any lawful act or activity for which corporations may be organized
under the Delaware General Corporation Law.
ARTICLE 4
The corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total number
of shares which the corporation is authorized to issue is Forty Million
(40,000,000) shares, of which Thirty-Five Million (35,000,000) shares shall be
Common Stock, par value $.0001 per share, and Five Million (5,000,000) shares
shall be Preferred Stock, par value $.0001 per share.
1.
<PAGE> 2
A. Rights, Preferences and Restrictions of Preferred Stock
The Preferred Stock authorized by this Certificate of Incorporation
may be issued from time to time in one or more series without further
stockholder approval. The Board of Directors of the corporation is hereby
authorized, within the limitations and restrictions stated in this Certificate
of Incorporation, to fix or alter the rights, preferences, privileges and
restrictions granted to or imposed upon the Preferred Stock, and the number of
shares constituting any such series and the designation thereof, or any of them.
The rights, preferences, privileges and restrictions of any such series may be
subordinated to, pari passu with (including, without limitation, inclusion in
provisions with respect to dividend rights and liquidation preferences,
redemption and/or approval of matters by vote), or senior to any of those of any
present or future class or series of Preferred Stock or Common Stock. The Board
of Directors is also authorized to increase or decrease the number of shares of
any series subsequent to the issuance of shares of that series, but not below
the number of shares of such series then outstanding. In case the number of
shares of any series shall be so decreased, the shares constituting such
decrease shall resume the status which they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
B. Common Stock
1. Issuance of Common Stock. The Board of Directors is hereby
authorized to cause shares of Common Stock to be issued from time to time for
such consideration as may be fixed from time to time by the Board of Directors,
or by way of stock split pro rata to the holders of Common Stock. The Board of
Directors may also determine the proportion of the proceeds received from the
sale of such stock which shall be credited upon the books of the corporation to
capital or capital surplus. Each share of Common Stock shall be equal in all
respects to every other share of Common Stock. No holder of shares of Common
Stock shall be entitled as such as a matter of right to subscribe for or
purchase any part of any new or additional issues of stock, or securities
convertible into stock, of any class whatsoever, whether now or hereafter
authorized, and whether issued for cash, property services or otherwise.
2. Dividends. Subject to the preferential rights, if any, of any
present or future series of Preferred Stock, the holders of shares of Common
Stock shall be entitled to receive, when, if and as declared by the Board of
Directors, out of the assets of the corporation legally available therefor,
dividends payable either in cash, in property or in shares of Common Stock or
other securities of the corporation.
3. Voting Rights. At every annual or special meeting of stockholders
of the corporation, every holder of Common Stock shall be entitled to one vote,
in person or by proxy, for each share of Common Stock registered in his or her
name on the books of the corporation.
2.
<PAGE> 3
4. Liquidation, Dissolution or Winding Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the affairs
of the corporation, after payment or provision for payment of the debts and
other liabilities of the corporation and of the preferential amounts, if any, to
which the holders of any present of future series of Preferred Stock may be
entitled, the holders of all outstanding shares of Common Stock shall be
entitled to receive all remaining assets of the corporation, tangible and
intangible, of whatever kind available for distribution to stockholders, ratably
in proportion to the number of shares of Common Stock held by each such holder.
ARTICLE 5
The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors. The Board of Directors may
exercise all such authority and powers of the corporation and do all such lawful
acts and things as are not by statute or this Certificate of Incorporation
directed or required to be exercised or done by the stockholders.
A. Number of Directors
The number of directors of the corporation (exclusive of directors, if
any, to be elected by the holders of one or more series of Preferred Stock of
the corporation which may be outstanding, voting separately as a series or
class) shall be fixed from time to time by action of not less than a majority of
the members of the Board of Directors then in office, though less than a quorum.
B. Classes
Subject to the rights, if any, of any series of Preferred Stock then
outstanding, the directors shall be divided into three classes, designated Class
I, Class II and Class III, respectively. The number of directors in each class
shall be as nearly equal as possible. The term of office of each director shall
expire on the third annual meeting of stockholders following the annual meeting
at which such director was elected; provided, however, that the term of
directors first elected to Class I shall expire at the 1998 annual meeting of
stockholders, the term of directors first elected to Class II shall expire at
the 1999 annual meeting of stockholders and the term of directors first elected
to Class III shall expire at the 2000 annual meeting of stockholders.
Notwithstanding the foregoing, each director shall serve until his successor is
duly elected and qualified, or until his earlier death, resignation,
disqualification or removal.
At each annual election, directors chosen to succeed those whose terms
then expire shall be of the same class as the directors they succeed, unless by
reason of any intervening changes in the authorized number of directors, the
Board shall designate one or more directorships whose term then expires as
directorships of another class in order to ensure that the number of directors
in each class is as nearly equal as possible.
3.
<PAGE> 4
Notwithstanding the rule that the three classes shall be as nearly
equal in number of directors as possible, in the event of any change in the
authorized number of directors, each director then serving as such shall
nevertheless continue as a director of the class of which he is a member until
the expiration of his current term, or until his earlier death, resignation,
disqualification or removal. If any newly created directorship may, consistently
with the rule that the three classes shall be as nearly equal in number of
directors as possible, be allocated to one of two or more classes, the Board
shall allocate it to that of the available classes whose term of office is due
to expire at the earliest date following such allocation.
C. Vacancies
Subject to the rights, if any, of the holders of any series of
Preferred Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, disqualification or removal may be
filled only by a majority vote of the directors then in office, though less than
a quorum, and directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such director's successor shall have
been duly elected and qualified.
D. Removal
Any director or the entire Board of Directors may be removed only for
cause and only by the vote of the holders of two-thirds (2/3) of the voting
securities of the corporation then entitled to vote at an election of directors.
E. Elections
Elections of directors need not be by written ballot unless the Bylaws
of the corporation shall otherwise provide.
ARTICLE 6
The corporation is to have perpetual existence.
ARTICLE 7
Nominations of persons for election to the Board of Directors may be
made at an annual meeting of stockholders or special meeting of stockholders
called by the Board of Directors for the purpose of electing directors (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of the
corporation entitled to vote for the election of directors at such meeting who
complies with the notice procedures set forth in this Article 7. Such
nomination, other than those made by or at the direction of the Board, shall be
made
4.
<PAGE> 5
pursuant to timely notice in writing to the Secretary of the corporation. To be
timely, a stockholder's notice must be delivered to or mailed and received at
the principal executive offices of the corporation not less than 60 days nor
more than 90 days prior to the scheduled date of the meeting, regardless of any
postponement, deferral or adjournment of that meeting to a later date; provided,
however, that if less than 70 days notice or prior public disclosure of the date
of the meeting is given or made to stockholders, notice by the stockholder to be
timely must be so delivered or received not later than the close of business on
the 10th day following the earlier of (i) the day on which such notice of the
date of the meeting was mailed or (ii) the day on which such public disclosure
was made.
A stockholder's notice to the Secretary shall set forth (i) as to each
person whom the stockholder proposes to nominate for election or reelection as a
director (a) the name, age, business address and residence address of such
person, (b) the principal occupation or employment of such person, (c) the class
and number of shares of the corporation which are beneficially owned by such
person on the date of such stockholder's notice and (d) any other information
relating to such person that is required to be disclosed in solicitations of
proxies for election of directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended, or any successor statute thereto (including, without limitation, such
person's written consent to being named in the proxy statement as a nominee and
to serving as a director if elected); (ii) as to the stockholder giving notice
(a) the name and address, as such information appears on the corporation's
books, of such stockholder and any other stockholders known by such stockholder
to be supporting such nominee(s), (b) the class and number of shares of the
corporation which are beneficially owned by such stockholder and each other
stockholder known by such stockholder to be supporting such nominee(s) on the
date of such stockholders notice, (c) a representation that the stockholder is a
holder of record of stock of the corporation entitled to vote at such meeting
and intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice; and (iii) a description of all
arrangements or understandings between the stockholder and each nominee and
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder.
Subject to the rights, if any, of the holders of any series of
Preferred Stock then outstanding, no person shall be eligible for election as a
director of the corporation unless nominated in accordance with the procedures
set forth in this Article 7. The chairman of the meeting shall, if the facts
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by this Article 7 and if he should so
determine, he shall so declare to the meeting and the defective nomination shall
be disregarded.
ARTICLE 8
At an annual meeting of stockholders, only such business shall be
conducted, and only such proposals shall be acted upon, as shall have been
properly brought before the annual meeting of stockholders (i) pursuant to the
corporation's notice of meeting, (ii) by or at
5.
<PAGE> 6
the direction of the Board of Directors or (ii) by a stockholder of the
corporation who is a stockholder of record at the time of giving of the notice
provided for in this Article 8, who shall be entitled to vote at the meeting and
who complies with the procedures set forth in this Article 8. For business or a
proposal to be properly brought before an annual meeting of stockholders by a
stockholder, the stockholder must have given timely notice thereof in writing to
the Secretary of the corporation. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of the
corporation not less than 60 days nor more than 90 days prior to the scheduled
date of the annual meeting, regardless of any postponement, deferral or
adjournment of that meeting to a later date; provided, however, that if less
than 70 days' notice or prior public disclosure of the date of the annual
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so delivered or mailed and received not later than the close of business
on the 10th day following the earlier of (i) the day on which such notice of the
date of the meeting was mailed or (ii) the day on which such public disclosure
was made.
A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before an annual meeting of
stockholders (i) a description, in 500 words or less, of the business desired to
be brought before the annual meeting and the reasons for conducting such
business at the annual meeting, (ii) the name and address, as such information
appears on the corporation's books, of the stockholder proposing such business
and any other stockholders known by such stockholder to be supporting such
proposal, (iii) the class and number of shares of the corporation that are
beneficially owned by such stockholder and each other stockholder known by such
stockholder to be supporting such proposal on the date of such stockholder's
notice, (iv) a description, in 500 words or less, of any interest of the
stockholder in such proposal and (v) a representation that the stockholder is a
holder of record of stock of the corporation and intends to appear in person or
by proxy at the meeting to present the proposal specified in the notice.
Notwithstanding the foregoing, nothing in this Article 8 shall be interpreted or
construed to require the inclusion of information about any such proposal in any
proxy statement distributed by, at the direction of, or on behalf of, the Board
of Directors.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that the business was not properly brought before the
meeting and in accordance with the procedures prescribed by this Article 8, and
if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
Notwithstanding the foregoing provisions of this Article 8, a stockholder shall
also comply with all applicable requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations thereunder with respect to the
matters set forth in this Article 8.
ARTICLE 9
Any action required or permitted to be taken at any annual or special
meeting of stockholders may only be taken upon the vote of the stockholders at
an annual or special meeting duly called and may not be taken by written consent
of the stockholders.
6.
<PAGE> 7
ARTICLE 10
Except as otherwise required by law, special meetings of the
stockholders of the corporation, for any purpose or purposes, may be called only
by the Chairman of the Board on his or her own initiative or by the Chief
Executive Officer on his or her own initiative, and shall be called by the
Chairman of the Board, Chief Executive Officer or Secretary at the request in
writing of a majority of the entire Board of Directors or at the request in
writing of stockholders owning not less than fifty percent (50%) of the entire
voting stock of the corporation issued and outstanding. Such request shall state
the purpose or purposes of the proposed meeting.
ARTICLE 11
The Board of Directors is expressly authorized to adopt, amend or
repeal the Bylaws of the corporation. Any Bylaws made by the directors under the
powers conferred hereby may be amended or repealed by the stockholders;
provided, however, that notwithstanding the foregoing or anything else contained
in this Certificate of Incorporation to the contrary, the Bylaws shall not be
amended or repealed by the stockholders, and no Bylaw provision inconsistent
with Bylaw provisions adopted by the Board of Directors shall be adopted by the
stockholders, without the affirmative vote of the holders of at least two-thirds
(2/3) of the voting power of all outstanding shares of capital stock of the
corporation then entitled to vote generally in the election of directors voting
together as a single class.
ARTICLE 12
The Board of Directors, each committee of the Board of Directors and
each individual director, in discharging their respective duties under
applicable law and this Certificate of Incorporation and in determining what
they each believe to be in the best interests of the corporation and its
stockholders, may consider the effects, both short-term and long-term, of any
action or proposed action taken or to be taken by the corporation, the Board of
Directors or any committee of the Board of Directors on the interests of (i) the
employees, franchises, associates, customers, suppliers and/or creditors of the
corporation and its subsidiaries and (ii) the communities in which the
corporation and its subsidiaries own or lease property or conduct business, all
to the extent that the Board of Directors, any committee of the Board of
Directors or any individual director deems pertinent under the circumstances
(including the possibility that the interests of the corporation may best be
served by the continued independence of the corporation); provided, however,
that the provisions of this Article 12 shall not limit in any way the right of
the Board of Directors to consider any other lawful factors in making its
determinations, including, without limitation, the effects, both short-term and
long-term, of any action or proposed action on the corporation or its
stockholders directly; and provided further, that this Article 12 shall be
deemed solely to grant discretionary authority to the Board of Directors, each
committee of the Board of Directors and each individual director and shall not
be deemed to provide to any specific constituency any right to be considered.
7.
<PAGE> 8
ARTICLE 13
A director of the corporation shall not be personally liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director; provided, however, that the foregoing shall not eliminate or
limit the liability of a director (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of Delaware or (iv)
for any transaction from which the director derived an improper personal
benefit. If the General Corporation Law of Delaware is hereafter amended to
permit further elimination or limitation of the personal liability of directors,
then the liability of a director of the corporation shall be eliminated or
limited to the fullest extent permitted by the General Corporation Law of
Delaware as so amended. Any repeal or modification of this Article 13 shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
ARTICLE 14
To the fullest extent permitted by applicable law, the corporation is
also authorized to provide indemnification of (and advancement of expenses to)
its directors and officers (and any other person to which Delaware law permits
the corporation to provide indemnification) through Bylaw provisions, agreements
with such agents or other persons, vote of stockholders or disinterested
directors or otherwise, in excess of the indemnification and advancement
otherwise permitted by Section 145 of the Delaware General Corporation Law,
subject only to limits created by applicable Delaware law (statutory or
non-statutory), with respect to actions for breach of duty to the corporation,
its stockholders, and others. Any repeal or modification of any of the foregoing
provisions of this Article 14 shall not adversely affect any right or protection
of a director, officer, agent or other person existing at the time of, or
increase the liability of any director of the corporation with respect to any
acts or omissions of such director, officer or agent occurring prior to such
repeal or modification.
ARTICLE 15
Notwithstanding any other provision of this Certificate of
Incorporation or the Bylaws of the corporation (and in addition to any other
vote that may be required by law, this Certificate of Incorporation or the
Bylaws), the provisions set forth in this Article 15 and in Articles 5, 7, 8, 9,
10 and 11 hereof may not be repealed, altered or amended in any respect, unless
such action is approved by the affirmative vote of the holders of at least
two-thirds (2/3) of the outstanding shares of capital stock of the corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class). Subject to the limitations set forth in this Article 15
and otherwise in this Certificate of Incorporation, the corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by
statute, and all rights conferred upon stockholders herein are granted subject
to this reservation.
8.
<PAGE> 9
4. The foregoing Amended and Restated Certificate of Incorporation has
been duly adopted by the corporation's Board of Directors in accordance with the
applicable provisions of Sections 242 and 245 of the General Corporation Law of
the State of Delaware. In addition, said Amended and Restated Certificate of
Incorporation has been duly adopted by unanimous written consent of the
stockholders of the corporation in lieu of a meeting in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
9.
<PAGE> 10
IN WITNESS WHEREOF, the Board of Directors of Steri-Oss, Inc. has
caused this Certificate to be signed by Kenneth Darienzo, its President, and
attested by Bruce D. Nye, its Secretary, this 25th day of August 1997.
--------------------------------
Kenneth Darienzo
Chief Executive Officer
ATTEST: --------------------------------
Bruce D. Nye
Secretary
Kenneth A. Darienzo and Bruce D. Nye declare under penalty of perjury
that they have read the foregoing instrument and know the contents thereof, and
that the same is true of their own knowledge and constitutes an authorized act
of the Company.
Executed at Yorba Linda, California, on August __, 1997.
--------------------------------
Kenneth Darienzo
--------------------------------
Bruce D. Nye
10.
<PAGE> 1
EXHIBIT 4.2
S-O ACQUISITION CORP.
1997 STOCK INCENTIVE PLAN
ARTICLE ONE
GENERAL PROVISIONS
I. PURPOSE OF THE PLAN
This 1997 Stock Incentive Plan is intended to promote the
interests of S-O Acquisition Corp., a Delaware corporation, by providing
eligible persons with the opportunity to acquire a proprietary interest, or
otherwise increase their proprietary interest, in the Corporation as an
incentive for them to remain in the service of the Corporation.
Capitalized terms shall have the meanings assigned to such
terms in the attached Appendix.
II. STRUCTURE OF THE PLAN
A. The Plan shall be divided into four separate equity
programs:
(i) the Discretionary Option Grant
Program under which eligible persons may, at the discretion of the Plan
Administrator, be granted options to purchase shares of Common Stock,
(ii) the Salary Investment Option Grant
Program under which eligible employees may elect to have a portion of their
base salary invested each year in special option grants,
(iii) the Stock Issuance Program under
which eligible persons may, at the discretion of the Plan Administrator, be
issued shares of Common Stock directly, either through the immediate purchase
of such shares or as a bonus for services rendered the Corporation (or any
Parent or Subsidiary), and
(iv) the Director Fee Option Grant
Program under which non-employee Board members may elect to have all or any
portion of their annual retainer fee otherwise payable in cash applied to a
special option grant.
B. The provisions of Articles One and Six shall apply to
all equity programs under the Plan and shall govern the interests of all
persons under the Plan.
<PAGE> 2
III. ADMINISTRATION OF THE PLAN
A. Prior to the Section 12 Registration Date, the
Discretionary Option Grant and Stock Issuance Programs shall be administered by
the Board. Beginning with the Section 12 Registration Date, the Primary
Committee shall have sole and exclusive authority to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and shall have sole and exclusive authority to administer the
Salary Investment Option Grant Program with respect to all eligible
individuals.
B. Administration of the Discretionary Option Grant and
Stock Issuance Programs with respect to all other persons eligible to
participate in those programs may, at the Board's discretion, be vested in the
Primary Committee or a Secondary Committee, or the Board may retain the power
to administer those programs with respect to all such persons.
C. Members of the Primary Committee or any Secondary
Committee shall serve for such period of time as the Board may determine and
may be removed by the Board at any time. The Board may also at any time
terminate the functions of any Secondary Committee and reassume all powers and
authority previously delegated to such committee.
D. Each Plan Administrator shall, within the scope of
its administrative functions under the Plan, have full power and authority
(subject to the provisions of the Plan) to establish such rules and regulations
as it may deem appropriate for proper administration of the Discretionary
Option Grant, Salary Investment Option Grant and Stock Issuance Programs and to
make such determinations under, and issue such interpretations of, the
provisions of such programs and any outstanding options or stock issuances
thereunder as it may deem necessary or advisable. Decisions of the Plan
Administrator within the scope of its administrative functions under the Plan
shall be final and binding on all parties who have an interest in the
Discretionary Option Grant, Salary Investment Option Grant and Stock Issuance
Programs under its jurisdiction or any option or stock issuance thereunder.
E. Service on the Primary Committee or the Secondary
Committee shall constitute service as a Board member, and members of each such
committee shall accordingly be entitled to full indemnification and
reimbursement as Board members for their service on such committee. No member
of the Primary Committee or the Secondary Committee shall be liable for any act
or omission made in good faith with respect to the Plan or any option grants or
stock issuances under the Plan.
F. Administration of the Director Fee Option Grant
Program shall be self-executing in accordance with the terms of that program,
and no Plan Administrator shall exercise any discretionary functions with
respect to any option grants or stock issuances made under that program.
2.
<PAGE> 3
IV. ELIGIBILITY
A. The persons eligible to participate in the
Discretionary Option Grant and Stock Issuance Programs are as follows:
(i) Employees,
(ii) non-employee members of the Board or
the board of directors of any Parent or Subsidiary, and
(iii) consultants and other independent
advisors who provide services to the Corporation (or any Parent or
Subsidiary).
B. Only Employees who are Section 16 Insiders or other
highly compensated individuals shall be eligible to participate in the Salary
Investment Option Grant Program.
C. Each Plan Administrator shall, within the scope of
its administrative jurisdiction under the Plan, have full authority to
determine, (i) with respect to the option grants under the Discretionary Option
Grant Program, which eligible persons are to receive option grants, the time or
times when such option grants are to be made, the number of shares to be
covered by each such grant, the status of the granted option as either an
Incentive Option or a Non-Statutory Option, the time or times when each option
is to become exercisable, the vesting schedule (if any) applicable to the
option shares and the maximum term for which the option is to remain
outstanding and (ii) with respect to stock issuances under the Stock Issuance
Program, which eligible persons are to receive stock issuances, the time or
times when such issuances are to be made, the number of shares to be issued to
each Participant, the vesting schedule (if any) applicable to the issued shares
and the consideration for such shares.
D. The Plan Administrator shall have the absolute
discretion either to grant options in accordance with the Discretionary Option
Grant Program or to effect stock issuances in accordance with the Stock
Issuance Program.
E. All non-employee Board members shall also be eligible
to participate in the Director Fee Option Grant Program.
V. STOCK SUBJECT TO THE PLAN
A. The stock issuable under the Plan shall be shares of
authorized but unissued or reacquired Common Stock, including shares
repurchased by the Corporation on the open market. The maximum number of
shares of Common Stock initially reserved for issuance over the term of the
Plan shall not exceed 8,000 shares.
3.
<PAGE> 4
B. The number of shares of Common Stock available for
issuance under the Plan shall automatically increase on January 1st of each
calendar year during the term of the Plan, beginning with the 1998 calendar
year, by an amount equal to two percent (2%) of the shares of Common Stock
outstanding on December 31st of the immediately preceding calendar year. No
Incentive Options may be granted on the basis of the additional shares of
Common Stock resulting from such annual increases.
C. No one person participating in the Plan may receive
options, separately exercisable stock appreciation rights and direct stock
issuances for more than 4,000 shares of Common Stock in the aggregate per
calendar year.
D. Shares of Common Stock subject to outstanding options
shall be available for subsequent issuance under the Plan to the extent those
options expire or terminate for any reason prior to exercise in full. Unvested
shares issued under the Plan and subsequently repurchased by the Corporation,
at the original exercise or issue price paid per share, pursuant to the
Corporation's repurchase rights under the Plan shall be added back to the
number of shares of Common Stock reserved for issuance under the Plan and shall
accordingly be available for reissuance through one or more subsequent option
grants or direct stock issuances under the Plan. However, should the exercise
price of an option under the Plan be paid with shares of Common Stock or should
shares of Common Stock otherwise issuable under the Plan be withheld by the
Corporation in satisfaction of the withholding taxes incurred in connection
with the exercise of an option or the vesting of a stock issuance under the
Plan, then the number of shares of Common Stock available for issuance under
the Plan shall be reduced by the gross number of shares for which the option is
exercised or which vest under the stock issuance, and not by the net number of
shares of Common Stock issued to the holder of such option or stock issuance.
E. If any change is made to the Common Stock by reason
of any stock split, stock dividend, recapitalization, combination of shares,
exchange of shares or other change affecting the outstanding Common Stock as a
class without the Corporation's receipt of consideration, appropriate
adjustments shall be made to (i) the maximum number and/or class of securities
issuable under the Plan, (ii) the number and/or class of securities for which
any one person may be granted stock options, separately exercisable stock
appreciation rights and direct stock issuances under this Plan per calendar
year, and (iii) the number and/or class of securities and the exercise price
per share in effect under each outstanding option under the Plan. Such
adjustments to the outstanding options are to be effected in a manner which
shall preclude the enlargement or dilution of rights and benefits under such
options. The adjustments determined by the Plan Administrator shall be final,
binding and conclusive.
4.
<PAGE> 5
ARTICLE TWO
DISCRETIONARY OPTION GRANT PROGRAM
I. OPTION TERMS
Each option shall be evidenced by one or more documents in the
form approved by the Plan Administrator; provided, however, that each such
document shall comply with the terms specified below. Each document evidencing
an Incentive Option shall, in addition, be subject to the provisions of the
Plan applicable to such options.
A. EXERCISE PRICE.
1. The exercise price per share shall be fixed
by the Plan Administrator but shall not be less than eighty-five percent (85%)
of the Fair Market Value per share of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall, subject to the provisions of Section
I of Article Six and the documents evidencing the option, be payable in one or
more of the forms specified below:
(i) cash or check made payable to the
Corporation,
(ii) shares of Common Stock held for the
requisite period necessary to avoid a charge to the Corporation's
earnings for financial reporting purposes and valued at Fair Market
Value on the Exercise Date, or
(iii) to the extent the option is
exercised for vested shares, through a special sale and remittance
procedure pursuant to which the Optionee shall concurrently provide
irrevocable instructions to (a) a Corporation- designated brokerage
firm to effect the immediate sale of the purchased shares and remit to
the Corporation, out of the sale proceeds available on the settlement
date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable Federal, state and local
income and employment taxes required to be withheld by the Corporation
by reason of such exercise and (b) the Corporation to deliver the
certificates for the purchased shares directly to such brokerage firm
in order to complete the sale.
Except to the extent such sale and remittance procedure is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
5.
<PAGE> 6
B. EXERCISE AND TERM OF OPTIONS. Each option shall be
exercisable at such time or times, during such period and for such number of
shares as shall be determined by the Plan Administrator and set forth in the
documents evidencing the option. However, no option shall have a term in
excess of ten (10) years measured from the option grant date.
C. EFFECT OF TERMINATION OF SERVICE.
1. The following provisions shall govern the
exercise of any options held by the Optionee at the time of cessation of
Service or death:
(i) Any option outstanding at the time
of the Optionee's cessation of Service for any reason shall remain
exercisable for such period of time thereafter as shall be determined
by the Plan Administrator and set forth in the documents evidencing
the option, but no such option shall be exercisable after the
expiration of the option term.
(ii) Any option exercisable in whole or
in part by the Optionee at the time of death may be subsequently
exercised by the personal representative of the Optionee's estate or
by the person or persons to whom the option is transferred pursuant to
the Optionee's will or in accordance with the laws of descent and
distribution.
(iii) Should the Optionee's Service be
terminated for Misconduct, then all outstanding options held by the
Optionee shall terminate immediately and cease to be outstanding.
(iv) During the applicable post-Service
exercise period, the option may not be exercised in the aggregate for
more than the number of vested shares for which the option is
exercisable on the date of the Optionee's cessation of Service. Upon
the expiration of the applicable exercise period or (if earlier) upon
the expiration of the option term, the option shall terminate and
cease to be outstanding for any vested shares for which the option has
not been exercised. However, the option shall, immediately upon the
Optionee's cessation of Service, terminate and cease to be outstanding
to the extent the option is not otherwise at that time exercisable for
vested shares.
2. The Plan Administrator shall have complete
discretion, exercisable either at the time an option is granted or at any time
while the option remains outstanding, to:
6.
<PAGE> 7
(i) extend the period of time for which
the option is to remain exercisable following the Optionee's cessation
of Service from the limited exercise period otherwise in effect for
that option to such greater period of time as the Plan Administrator
shall deem appropriate, but in no event beyond the expiration of the
option term, and/or
(ii) permit the option to be exercised,
during the applicable post-Service exercise period, not only with
respect to the number of vested shares of Common Stock for which such
option is exercisable at the time of the Optionee's cessation of
Service but also with respect to one or more additional installments
in which the Optionee would have vested had the Optionee continued in
Service.
D. STOCKHOLDER RIGHTS. The holder of an option shall
have no stockholder rights with respect to the shares subject to the option
until such person shall have exercised the option, paid the exercise price and
become a holder of record of the purchased shares.
E. REPURCHASE RIGHTS. The Plan Administrator shall have
the discretion to grant options which are exercisable for unvested shares of
Common Stock. Should the Optionee cease Service while holding such unvested
shares, the Corporation shall have the right to repurchase, at the exercise
price paid per share, any or all of those unvested shares. The terms upon
which such repurchase right shall be exercisable (including the period and
procedure for exercise and the appropriate vesting schedule for the purchased
shares) shall be established by the Plan Administrator and set forth in the
document evidencing such repurchase right.
F. LIMITED TRANSFERABILITY OF OPTIONS. During the
lifetime of the Optionee, Incentive Options shall be exercisable only by the
Optionee and shall not be assignable or transferable other than by will or by
the laws of descent and distribution following the Optionee's death. However,
a Non-Statutory Option may, in connection with the Optionee's estate plan, be
assigned in whole or in part during the Optionee's lifetime to one or more
members of the Optionee's immediate family or to a trust established
exclusively for one or more such family members. The assigned portion may only
be exercised by the person or persons who acquire a proprietary interest in the
option pursuant to the assignment. The terms applicable to the assigned portion
shall be the same as those in effect for the option immediately prior to such
assignment and shall be set forth in such documents issued to the assignee as
the Plan Administrator may deem appropriate.
7.
<PAGE> 8
II. INCENTIVE OPTIONS
The terms specified below shall be applicable to all Incentive
Options. Except as modified by the provisions of this Section II, all the
provisions of Articles One, Two and Six shall be applicable to Incentive
Options. Options which are specifically designated as Non-Statutory Options
when issued under the Plan shall not be subject to the terms of this Section
II.
A. ELIGIBILITY. Incentive Options may only be granted
to Employees.
B. EXERCISE PRICE. The exercise price per share shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the option grant date.
C. DOLLAR LIMITATION. The aggregate Fair Market Value
of the shares of Common Stock (determined as of the respective date or dates of
grant) for which one or more options granted to any Employee under the Plan (or
any other option plan of the Corporation or any Parent or Subsidiary) may for
the first time become exercisable as Incentive Options during any one calendar
year shall not exceed the sum of One Hundred Thousand Dollars ($100,000). To
the extent the Employee holds two (2) or more such options which become
exercisable for the first time in the same calendar year, the foregoing
limitation on the exercisability of such options as Incentive Options shall be
applied on the basis of the order in which such options are granted.
D. 10% STOCKHOLDER. If any Employee to whom an
Incentive Option is granted is a 10% Stockholder, then the exercise price per
share shall not be less than one hundred ten percent (110%) of the Fair Market
Value per share of Common Stock on the option grant date, and the option term
shall not exceed five (5) years measured from the option grant date.
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction, each
outstanding option shall automatically accelerate so that each such option
shall, immediately prior to the effective date of the Corporate Transaction,
become fully exercisable with respect to the total number of shares of Common
Stock at the time subject to such option and may be exercised for any or all of
those shares as fully-vested shares of Common Stock. However, an outstanding
option shall not so accelerate if and to the extent: (i) such option is, in
connection with the Corporate Transaction, either to be assumed by the
successor corporation (or parent thereof) or to be replaced with a comparable
option to purchase shares of the capital stock of the successor corporation (or
parent thereof), (ii) such option is to be replaced with a cash incentive
program of the successor corporation which preserves the spread existing on the
unvested option shares at the time of the Corporate Transaction and provides
for subsequent payout in accordance with the same vesting schedule applicable
8.
<PAGE> 9
to those option shares or (iii) the acceleration of such option is subject to
other limitations imposed by the Plan Administrator at the time of the option
grant. The determination of option comparability under clause (i) above shall
be made by the Plan Administrator, and its determination shall be final,
binding and conclusive.
B. All outstanding repurchase rights shall also
terminate automatically, and the shares of Common Stock subject to those
terminated rights shall immediately vest in full, in the event of any Corporate
Transaction, except to the extent: (i) those repurchase rights are to be
assigned to the successor corporation (or parent thereof) in connection with
such Corporate Transaction or (ii) such accelerated vesting is precluded by
other limitations imposed by the Plan Administrator at the time the repurchase
right is issued.
C. Immediately following the consummation of the
Corporate Transaction, all outstanding options shall terminate and cease to be
outstanding, except to the extent assumed by the successor corporation (or
parent thereof).
D. Each option which is assumed in connection with a
Corporate Transaction shall be appropriately adjusted, immediately after such
Corporate Transaction, to apply to the number and class of securities which
would have been issuable to the Optionee in consummation of such Corporate
Transaction had the option been exercised immediately prior to such Corporate
Transaction. Appropriate adjustments to reflect such Corporate Transaction
shall also be made to (i) the exercise price payable per share under each
outstanding option, provided the aggregate exercise price payable for such
securities shall remain the same, (ii) the maximum number and/or class of
securities available for issuance over the remaining term of the Plan and (iii)
the maximum number and/or class of securities for which any one person may be
granted stock options, separately exercisable stock appreciation rights and
direct stock issuances under the Plan per calendar year.
E. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the option is granted or at any time
while the option remains outstanding, to provide for the automatic acceleration
of one or more outstanding options under the Discretionary Option Grant Program
so that each such option shall, immediately prior to the effect date of such
Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to that option and may be
exercised for any or all of those shares as fully vested shares of Common
Stock. In addition, the Plan Administrator shall have the discretionary
authority to structure one or more of the Corporation's repurchase rights under
the Discretionary Option Grant Program so that those rights shall not be
assignable in connection with such Corporate Transaction and shall accordingly
terminate upon the consummation of such Corporate Transaction, and the shares
subject to those terminated rights shall thereupon vest in full.
F. The Plan Administrator shall have full power and
authority exercisable, either at the time the option is granted or at any time
while the option remains outstanding, to provide for the automatic acceleration
of one or more outstanding options under the
9.
<PAGE> 10
Discretionary Option Grant Program in the event the Optionee's Service
subsequently terminates by reason of an Involuntary Termination within a
designated period (not to exceed eighteen (18) months) following the effective
date of any Corporate Transaction in which those options are assumed or
replaced and do not otherwise accelerate. Any options so accelerated shall
remain exercisable for fully-vested shares until the earlier of (i) the
expiration of the option term or (ii) the expiration of the one (1)-year period
measured from the effective date of the Involuntary Termination. In addition,
the Plan Administrator may provide that one or more of the Corporation's
outstanding repurchase rights with respect to shares held by the Optionee at
the time of such Involuntary Termination shall immediately terminate, and the
shares subject to those terminated repurchase rights shall accordingly vest in
full.
G. The Plan Administrator shall have full power and
authority exercisable, either at the time the option is granted or at any time
while the option remains outstanding, to provide for the automatic acceleration
of one ore more outstanding options under the Discretionary Option Grant
Program upon (i) a Change in Control or (ii) the subsequent termination of the
Optionee's Service by reason of an Involuntary Termination within a designated
period (not to exceed eighteen (18) months) following the effective date of
such Change in Control. Each option so accelerated shall remain exercisable
for fully-vested shares until the earlier of (i) the expiration of the option
term or (ii) the expiration of the one (1)-year period measured from the
effective date of the Optionee's cessation of Service. In addition, the Plan
Administrator may provide that one or more of the Corporation's outstanding
repurchase rights with respect to shares held by the Optionee at the time of
such Change in Control or Involuntary Termination shall immediately terminate,
and the shares subject to those terminated repurchase rights shall accordingly
vest in full.
H. The portion of any Incentive Option accelerated in
connection with a Corporate Transaction or Change in Control shall remain
exercisable as an Incentive Option only to the extent the applicable One
Hundred Thousand Dollar limitation is not exceeded. To the extent such dollar
limitation is exceeded, the accelerated portion of such option shall be
exercisable as a Non-Statutory Option under the Federal tax laws.
I. The outstanding options shall in no way affect the
right of the Corporation to adjust, reclassify, reorganize or otherwise change
its capital or business structure or to merge, consolidate, dissolve, liquidate
or sell or transfer all or any part of its business or assets.
IV. CANCELLATION AND REGRANT OF OPTIONS
The Plan Administrator shall have the authority to effect, at
any time and from time to time, with the consent of the affected option
holders, the cancellation of any or all outstanding options under the
Discretionary Option Grant Program and to grant in
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<PAGE> 11
substitution new options covering the same or different number of shares of
Common Stock but with an exercise price per share based on the Fair Market
Value per share of Common Stock on the new grant date.
V. STOCK APPRECIATION RIGHTS
A. The Plan Administrator shall have full power and
authority to grant to selected Optionees tandem stock appreciation rights
and/or limited stock appreciation rights.
B. The following terms shall govern the grant and
exercise of tandem stock appreciation rights:
(i) One or more Optionees may be granted
the right, exercisable upon such terms as the Plan Administrator may
establish, to elect between the exercise of the underlying option for
shares of Common Stock and the surrender of that option in exchange
for a distribution from the Corporation in an amount equal to the
excess of (a) the Fair Market Value (on the option surrender date) of
the number of shares in which the Optionee is at the time vested under
the surrendered option (or surrendered portion) over (b) the aggregate
exercise price payable for such shares.
(ii) No such option surrender shall be
effective unless it is approved by the Plan Administrator, either at
the time of the actual option surrender or at any earlier time. If
the surrender is so approved, then the distribution to which the
Optionee shall be entitled may be made in shares of Common Stock
valued at Fair Market Value on the option surrender date, in cash, or
partly in shares and partly in cash, as the Plan Administrator shall
in its sole discretion deem appropriate.
(iii) If the surrender of an option is not
approved by the Plan Administrator, then the Optionee shall retain
whatever rights the Optionee had under the surrendered option (or
surrendered portion) on the option surrender date and may exercise
such rights at any time prior to the later of (a) five (5) business
days after the receipt of the rejection notice or (b) the last day on
which the option is otherwise exercisable in accordance with the terms
of the documents evidencing such option, but in no event may such
rights be exercised more than ten (10) years after the option grant
date.
C. The following terms shall govern the grant and
exercise of limited stock appreciation rights:
11.
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(i) One or more Section 16 Insiders may
be granted limited stock appreciation rights with respect to their
outstanding options.
(ii) Upon the occurrence of a Hostile
Take-Over, each individual holding one or more options with such a
limited stock appreciation right shall have the unconditional right
(exercisable for a thirty (30)-day period following such Hostile
Take-Over) to surrender each such option to the Corporation, to the
extent the option is at the time exercisable for vested shares of
Common Stock. In return for the surrendered option, the Optionee
shall receive a cash distribution from the Corporation in an amount
equal to the excess of (A) the Take-Over Price of the shares of Common
Stock which are at the time vested under each surrendered option (or
surrendered portion) over (B) the aggregate exercise price payable for
those shares. Such cash distribution shall be paid within five (5)
days following the option surrender date.
(iii) The Plan Administrator shall
pre-approve, at the time the limited right is granted, the subsequent
exercise of that right in accordance with the terms of the grant and
the provisions of this Section V.C. No additional approval of the
Plan Administrator or the Board shall be required at the time of the
actual option surrender and cash distribution.
(iv) The balance of the option (if any)
shall remain outstanding and exercisable in accordance with the
documents evidencing such option.
12.
<PAGE> 13
ARTICLE THREE
SALARY INVESTMENT OPTION GRANT PROGRAM
I. OPTION GRANTS
The Primary Committee shall have the sole and exclusive
authority to implement the Salary Investment Option Grant Program for one or
more calendar years beginning after the Underwriting Date and to select the
Section 16 Insiders and other highly compensated Employees eligible to
participate in the Salary Investment Option Grant Program for each such
calendar year. Each selected individual who elects to participate in the
Salary Investment Option Grant Program must, prior to the start of each
calendar year of participation, file with the Plan Administrator (or its
designate) an irrevocable authorization directing the Corporation to reduce his
or her base salary for that calendar year by an amount not less than Ten
Thousand Dollars ($10,000.00) nor more than Fifty Thousand Dollars
($50,000.00). The Primary Committee shall have complete discretion to
determine whether to approve the filed authorization in whole or in part. To
the extent the Primary Committee approves the authorization, the individual who
filed that authorization shall be granted an option under the Salary Investment
Grant Program on or before the last trading day in January for the calendar
year for which the salary reduction is to be in effect. All grants under the
Salary Investment Option Grant Program shall be at the sole discretion of the
Primary Committee.
II. OPTION TERMS
Each option shall be a Non-Statutory Option evidenced by one
or more documents in the form approved by the Plan Administrator; provided,
however, that each such document shall comply with the terms specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
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<PAGE> 14
B. NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
A is the dollar amount of the approved reduction in
the Optionee's base salary for the calendar year, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall
become exercisable in a series of twelve (12) successive equal monthly
installments upon the Optionee's completion of each calendar month of Service
in the calendar year for which the salary reduction is in effect. Each option
shall have a maximum term of ten (10) years measured from the option grant
date.
D. EFFECT OF TERMINATION OF SERVICE. Should the
Optionee cease Service for any reason while holding one or more options under
this Article Three, then each such option shall remain exercisable, for any or
all of the shares for which the option is exercisable at the time of such
cessation of Service, until the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the expiration of the three (3)-year period
measured from the date of such cessation of Service. Should the Optionee die
while holding one or more options under this Article Three, then each such
option may be exercised, for any or all of the shares for which the option is
exercisable at the time of the Optionee's cessation of Service (less any shares
subsequently purchased by Optionee prior to death), by the personal
representative of the Optionee's estate or by the person or persons to whom the
option is transferred pursuant to the Optionee's will or in accordance with the
laws of descent and distribution. Such right of exercise shall lapse, and the
option shall terminate, upon the earlier of (i) the expiration of the ten
(10)-year option term or (ii) the three (3)-year period measured from the date
of the Optionee's cessation of Service. However, the option shall, immediately
upon the Optionee's cessation of Service for any reason, terminate and cease to
remain outstanding with respect to any and all shares of Common Stock for which
the option is not otherwise at that time exercisable.
III . CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall, immediately prior to the effective
date of the Corporate Transaction, become fully
14.
<PAGE> 15
exercisable with respect to the total number of shares of Common Stock at the
time subject to such option and may be exercised for any or all of those shares
as fully-vested shares of Common Stock. Each such outstanding option shall be
assumed by the successor corporation (or parent thereof) in the Corporate
Transaction and shall remain exercisable for the fully-vested shares until the
earlier of (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
B. In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Salary Investment Option Grant Program shall automatically
accelerate so that each such option shall immediately become fully exercisable
with respect to the total number of shares of Common Stock at the time subject
to such option and may be exercised for any or all of those shares as
fully-vested shares of Common Stock. The option shall remain so exercisable
until the earlier or (i) the expiration of the ten (10)-year option term or
(ii) the expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding option grants. The Optionee shall
in return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to each surrendered option (whether or not the optionee is
otherwise at the time exercisable for those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
The Plan Administrator shall pre-approve, at the time the option is granted,
the subsequent surrender of that option, in accordance with the terms of the
grant and the provisions of this Section III, upon the occurrence of a Hostile
Take-Over. No additional approval of the Plan Administrator or of the Board
shall be required in connection with such option surrender and cash
distribution.
D. The grant of options under the Salary Investment
Option Grant Program shall in no way affect the right of the Corporation to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.
III. REMAINING TERMS
The remaining terms of each option granted under the Salary
Investment Option Grant Program shall be the same as the terms in effect for
option grants made under the Discretionary Option Grant Program.
15.
<PAGE> 16
ARTICLE FOUR
STOCK ISSUANCE PROGRAM
I. STOCK ISSUANCE TERMS
Shares of Common Stock may be issued under the Stock Issuance
Program through direct and immediate issuances without any intervening option
grants. Each such stock issuance shall be evidenced by a Stock Issuance
Agreement which complies with the terms specified below. Shares of Common
Stock may also be issued under the Stock Issuance Program pursuant to share
right awards which entitle the recipients to receive those shares upon the
attainment of designated performance goals.
A. Purchase Price.
1. The purchase price per share of Common Stock
subject to direct issuance shall be fixed by the Plan Administrator, but shall
not be less than one hundred percent (100%) of the Fair Market Value per share
of Common Stock on the issuance date.
2. Shares of Common Stock may be issued under
the Stock Issuance Program for any of the following items of consideration
which the Plan Administrator may deem appropriate in each individual instance:
(i) cash or check made payable to the
Corporation, or
(ii) past services rendered to the
Corporation (or any Parent or Subsidiary).
B. Vesting/Issuance Provisions.
1. The Plan Administrator may issue shares of
Common Stock under the Stock Issuance Program which are fully and immediately
vested upon issuance or which are to vest in one or more installments over the
Participant's period of Service or upon attainment of specified performance
objectives. Alternatively, the Plan Administrator may issue share right awards
under the Stock Issuance Program which shall entitle the recipient to receive a
specified number of shares of Common Stock upon the attainment of one or more
performance goals established by the Plan Administrator. Upon the attainment
of such performance goals, fully-vested shares of Common Stock shall be issued
in satisfaction of those share right awards.
2. Any new, substituted or additional securities
or other property (including money paid other than as a regular cash dividend)
which the Participant may have the right to receive with respect to his or her
unvested shares of Common Stock by
16.
<PAGE> 17
reason of any stock dividend, stock split, recapitalization, combination of
shares, exchange of shares or other change affecting the outstanding Common
Stock as a class without the Corporation's receipt of consideration shall be
issued subject to (i) the same vesting requirements applicable to the
Participant's unvested shares of Common Stock and (ii) such escrow arrangements
as the Plan Administrator shall deem appropriate.
3. The Participant shall have full stockholder
rights with respect to any shares of Common Stock issued to the Participant
under the Stock Issuance Program, whether or not the Participant's interest in
those shares is vested. Accordingly, the Participant shall have the right to
vote such shares and to receive any regular cash dividends paid on such shares.
4. Should the Participant cease to remain in
Service while holding one or more unvested shares of Common Stock issued under
the Stock Issuance Program or should the performance objectives not be attained
with respect to one or more such unvested shares of Common Stock, then those
shares shall be immediately surrendered to the Corporation for cancellation,
and the Participant shall have no further stockholder rights with respect to
those shares. To the extent the surrendered shares were previously issued to
the Participant for consideration paid in cash or cash equivalent (including
the Participant's purchase money indebtedness), the Corporation shall repay to
the Participant the cash consideration paid for the surrendered shares and
shall cancel the unpaid principal balance of any outstanding purchase money
note of the Participant attributable to the surrendered shares.
5. The Plan Administrator may in its discretion
waive the surrender and cancellation of one or more unvested shares of Common
Stock (or other assets attributable thereto) which would otherwise occur upon
the cessation of the Participant's Service or the non-attainment of the
performance objectives applicable to those shares. Such waiver shall result in
the immediate vesting of the Participant's interest in the shares of Common
Stock as to which the waiver applies. Such waiver may be effected at any time,
whether before or after the Participant's cessation of Service or the
attainment or non-attainment of the applicable performance objectives.
6. Outstanding share right awards under the
Stock Issuance Program shall automatically terminate, and no shares of Common
Stock shall actually be issued in satisfaction of those awards, if the
performance goals established for such awards are not attained. The Plan
Administrator, however, shall have the discretionary authority to issue shares
of Common Stock in satisfaction of one or more outstanding share right awards
as to which the designated performance goals are not attained.
17.
<PAGE> 18
II. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. All of the Corporation's outstanding repurchase
rights under the Stock Issuance Program shall terminate automatically, and all
the shares of Common Stock subject to those terminated rights shall immediately
vest in full, in the event of any Corporate Transaction, except to the extent
(i) those repurchase rights are to be assigned to the successor corporation (or
parent thereof) in connection with such Corporate Transaction or (ii) such
accelerated vesting is precluded by other limitations imposed in the Stock
Issuance Agreement.
B. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights remain outstanding under the
Stock Issuance Program, to provide for the automatic termination of one or more
of those outstanding rights and the immediate vesting of the shares of Common
Stock subject to those terminated rights upon the occurrence of a Corporate
Transaction.
C. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest, in the event the Participant's
Service should subsequently terminate by reason of an Involuntary Termination
within eighteen (18) months following the effective date of any Corporate
Transaction in which those repurchase rights are assigned to the successor
corporation (or parent thereof).
D. The Plan Administrator shall have the discretionary
authority, exercisable either at the time the unvested shares are issued or any
time while the Corporation's repurchase rights remain outstanding under the
Stock Issuance Program, to provide that those rights shall automatically
terminate in whole or in part, and the shares of Common Stock subject to those
terminated rights shall immediately vest upon (i) a Change in Control or (ii)
the subsequent termination of the Participant's Service by reason of an
Involuntary Termination within a designated period (not to exceed eighteen (18)
months) following the effective date of such Change in Control or Involuntary
Termination.
III. SHARE ESCROW/LEGENDS
Unvested shares may, in the Plan Administrator's discretion,
be held in escrow by the Corporation until the Participant's interest in such
shares vests or may be issued directly to the Participant with restrictive
legends on the certificates evidencing those unvested shares.
18.
<PAGE> 19
ARTICLE FIVE
DIRECTOR FEE OPTION GRANT PROGRAM
I. OPTION GRANTS
The Board shall have the sole and exclusive authority to
implement the Director Fee Option Grant Program as of the first day of any
calendar year beginning after the Underwriting Date. Upon such implementation
of the Program, each non-employee Board member may elect to apply all or any
portion of the annual retainer fee otherwise payable in cash for his or her
service on the Board to the acquisition of a special option grant under this
Director Fee Option Grant Program. Such election must be filed with the
Corporation's Chief Financial Officer prior to the first day of the calendar
year for which the annual retainer fee which is the subject of that election is
otherwise payable. Each non-employee Board member who files such a timely
election shall automatically be granted an option under this Director Fee
Option Grant Program on the first trading day in January in the calendar year
for which the annual retainer fee which is the subject of that election would
otherwise be payable.
II. OPTION TERMS
Each option shall be a Non-Statutory Option governed by the
terms and conditions specified below.
A. EXERCISE PRICE.
1. The exercise price per share shall be
thirty-three and one-third percent (33-1/3%) of the Fair Market Value per share
of Common Stock on the option grant date.
2. The exercise price shall become immediately
due upon exercise of the option and shall be payable in one or more of the
alternative forms authorized under the Discretionary Option Grant Program.
Except to the extent the sale and remittance procedure specified thereunder is
utilized, payment of the exercise price for the purchased shares must be made
on the Exercise Date.
B. NUMBER OF OPTION SHARES. The number of shares of
Common Stock subject to the option shall be determined pursuant to the
following formula (rounded down to the nearest whole number):
X = A / (B x 66-2/3%), where
X is the number of option shares,
19.
<PAGE> 20
A is the portion of the annual retainer fee subject
to the non-employee Board member's election, and
B is the Fair Market Value per share of Common Stock
on the option grant date.
C. EXERCISE AND TERM OF OPTIONS. The option shall
become exercisable in a series of twelve (12) successive equal monthly
installments upon the Optionee's completion of each calendar month of Board
service in the calendar year for which his or her election under this Director
Fee Option Grant Program is in effect. Each option shall have a maximum term
of ten (10) years measured from the option grant date.
D. TERMINATION OF BOARD SERVICE. Should the Optionee
cease Board service for any reason (other than death or Permanent Disability)
while holding one or more options under this Director Fee Option Grant Program,
then each such option shall remain exercisable, for any or all of the shares
for which the option is exercisable at the time of such cessation of Board
service, until the earlier of (i) the expiration of the ten (10)-year option
term or (ii) the expiration of the three (3)-year period measured from the date
of such cessation of Board service. However, each option held by the Optionee
under this Director Fee Option Grant Program at the time of such her cessation
of Board service shall immediately terminate and cease to remain outstanding
with respect to any and all shares of Common Stock for which the option is not
otherwise at that time exercisable.
E. DEATH OR PERMANENT DISABILITY. Should the Optionee's
service as a Board member cease by reason of death or Permanent Disability,
then each option held by such Optionee under this Director Fee Option Grant
Program shall immediately become exercisable for all the shares of Common Stock
at the time subject to that option, and the option may be exercised for any or
all of those shares as fully-vested shares until the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the expiration of the three
(3)-year period measured from the date of such cessation of Board service.
Should the Optionee die after cessation of Board service but
while holding one or more options under this Director Fee Option Grant Program,
then each such option may be exercised, for any or all of the shares for which
the option is exercisable at the time of the Optionee's cessation of Board
service (less any shares subsequently purchased by Optionee prior to death), by
the personal representative of the Optionee's estate or by the person or
persons to whom the option is transferred pursuant to the Optionee's will or in
accordance with the laws of descent and distribution. Such right of exercise
shall lapse, and the option shall terminate, upon the earlier of (i) the
expiration of the ten (10)-year option term or (ii) the three (3)-year period
measured from the date of the Optionee's cessation of Board service.
20.
<PAGE> 21
III. CORPORATE TRANSACTION/CHANGE IN CONTROL
A. In the event of any Corporate Transaction while the
Optionee remains a Board member, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall, immediately prior to the effective date of the
Corporate Transaction, become fully exercisable with respect to the total
number of shares of Common Stock at the time subject to such option and may be
exercised for any or all of those shares as fully-vested shares of Common
Stock. Each such outstanding option shall be assumed by the successor
corporation (or parent thereof) in the Corporate Transaction and shall remain
exercisable for the fully-vested shares until the earlier of (i) the expiration
of the ten (10)-year option term or (ii) the expiration of the three (3)-year
period measured from the date of the Optionee's cessation of Board service.
B. In the event of a Change in Control while the
Optionee remains in Service, each outstanding option held by such Optionee
under this Director Fee Option Grant Program shall automatically accelerate so
that each such option shall immediately become fully exercisable with respect
to the total number of shares of Common Stock at the time subject to such
option and may be exercised for any or all of those shares as fully-vested
shares of Common Stock. The option shall remain so exercisable until the
earlier or (i) the expiration of the ten (10)-year option term or (ii) the
expiration of the three (3)-year period measured from the date of the
Optionee's cessation of Service.
C. Upon the occurrence of a Hostile Take-Over, the
Optionee shall have a thirty (30)-day period in which to surrender to the
Corporation each of his or her outstanding option grants. The Optionee shall
in return be entitled to a cash distribution from the Corporation in an amount
equal to the excess of (i) the Take-Over Price of the shares of Common Stock at
the time subject to each surrendered option (whether or not the option is
otherwise at the time exercisable for those shares) over (ii) the aggregate
exercise price payable for such shares. Such cash distribution shall be paid
within five (5) days following the surrender of the option to the Corporation.
Stockholder approval of the Plan on the Plan Effective Date shall constitute
pre-approval of the grant of each such option surrender right under this
Director Fee Option Grant Program and the subsequent exercise of such right in
accordance with the terms and provisions of this Section III.C. No additional
approval or consent of the Plan Administrator or the Board shall be required at
the time of the actual option surrender and cash distribution.
D. The grant of options under the Director Fee Option
Grant Program shall in no way affect the right of the Corporation to adjust,
reclassify, reorganize or otherwise change its capital or business structure or
to merge, consolidate, dissolve, liquidate or sell or transfer all or any part
of its business or assets.
21.
<PAGE> 22
IV. REMAINING TERMS
The remaining terms of each option granted under this Director
Fee Option Grant Program shall be the same as the terms in effect for option
grants made under the Discretionary Option Grant Program.
22.
<PAGE> 23
ARTICLE SIX
MISCELLANEOUS
I. FINANCING
The Plan Administrator may permit any Optionee or Participant
to pay the option exercise price under the Discretionary Option Grant Program
or the purchase price of shares issued under the Stock Issuance Program by
delivering a full-recourse, interest bearing promissory note payable in one or
more installments. The terms of any such promissory note (including the
interest rate and the terms of repayment) shall be established by the Plan
Administrator in its sole discretion. In no event may the maximum credit
available to the Optionee or Participant exceed the sum of (i) the aggregate
option exercise price or purchase price payable for the purchased shares plus
(ii) any Federal, state and local income and employment tax liability incurred
by the Optionee or the Participant in connection with the option exercise or
share purchase.
II. TAX WITHHOLDING
A. The Corporation's obligation to deliver shares of
Common Stock upon the exercise of options or the issuance or vesting of such
shares under the Plan shall be subject to the satisfaction of all applicable
Federal, state and local income and employment tax withholding requirements.
B. The Plan Administrator may, in its discretion,
provide any or all holders of Non-Statutory Options or unvested shares of
Common Stock under the Plan with the right to use shares of Common Stock in
satisfaction of all or part of the Taxes incurred by such holders in connection
with the exercise of their options or the vesting of their shares. Such right
may be provided to any such holder in either or both of the following formats:
Stock Withholding: The election to have the
Corporation withhold, from the shares of Common Stock otherwise issuable upon
the exercise of such Non-Statutory Option or the vesting of such shares, a
portion of those shares with an aggregate Fair Market Value equal to the
percentage of the Taxes (not to exceed one hundred percent (100%)) designated
by the holder.
Stock Delivery: The election to deliver to the
Corporation, at the time the Non-Statutory Option is exercised or the shares
vest, one or more shares of Common Stock previously acquired by such holder
(other than in connection with the option exercise or share vesting triggering
the Taxes) with an aggregate Fair Market Value equal to the percentage of the
Taxes (not to exceed one hundred percent (100%)) designated by the holder.
23.
<PAGE> 24
III. EFFECTIVE DATE AND TERM OF THE PLAN
A. The Discretionary Option Grant and Stock Issuance
Programs shall become effective immediately upon the Plan Effective Date.
However, the Salary Investment Option Grant and Director Fee Option Grant
Programs shall not be implemented until such time after the Underwriting Date
as the Primary Committee may deem appropriate. Options may be granted under
the Discretionary Option Grant Program at any time on or after the Plan
Effective Date. However, no options granted under the Plan may be exercised,
and no shares shall be issued under the Plan, until the Plan is approved by the
Corporation's stockholders. If such stockholder approval is not obtained
within twelve (12) months after the Plan Effective Date, then all options
previously granted under this Plan shall terminate and cease to be outstanding,
and no further options shall be granted and no shares shall be issued under the
Plan.
B. The Plan shall terminate upon the earliest of (i)
August 19, 2007, (ii) the date on which all shares available for issuance
under the Plan shall have been issued as fully-vested shares or (iii) the
termination of all outstanding options in connection with a Corporate
Transaction. Upon such plan termination, all outstanding option grants and
unvested stock issuances shall thereafter continue to have force and effect in
accordance with the provisions of the documents evidencing such grants or
issuances.
IV. AMENDMENT OF THE PLAN
A. The Board shall have complete and exclusive power and
authority to amend or modify the Plan in any or all respects. However, no such
amendment or modification shall adversely affect the rights and obligations
with respect to stock options or unvested stock issuances at the time
outstanding under the Plan unless the Optionee or the Participant consents to
such amendment or modification. In addition, certain amendments may require
stockholder approval pursuant to applicable laws or regulations.
B. Options to purchase shares of Common Stock may be
granted under the Discretionary Option Grant and Salary Investment Option Grant
Programs and shares of Common Stock may be issued under the Stock Issuance
Program that are in each instance in excess of the number of shares then
available for issuance under the Plan, provided any excess shares actually
issued under those programs shall be held in escrow until there is obtained
stockholder approval of an amendment sufficiently increasing the number of
shares of Common Stock available for issuance under the Plan. If such
stockholder approval is not obtained within twelve (12) months after the date
the first such excess issuances are made, then (i) any unexercised options
granted on the basis of such excess shares shall terminate and cease to be
outstanding and (ii) the Corporation shall promptly refund to the Optionees and
the Participants the exercise or purchase price paid for any excess shares
issued under the Plan and held in escrow, together with interest (at the
applicable Short Term Federal Rate) for the period the shares were held in
escrow, and such shares shall thereupon be automatically cancelled and cease to
be outstanding.
24.
<PAGE> 25
V. USE OF PROCEEDS
Any cash proceeds received by the Corporation from the sale of
shares of Common Stock under the Plan shall be used for general corporate
purposes.
VI. REGULATORY APPROVALS
A. The implementation of the Plan, the granting of any
stock option under the Plan and the issuance of any shares of Common Stock (i)
upon the exercise of any granted option or (ii) under the Stock Issuance
Program shall be subject to the Corporation's procurement of all approvals and
permits required by regulatory authorities having jurisdiction over the Plan,
the stock options granted under it and the shares of Common Stock issued
pursuant to it.
B. No shares of Common Stock or other assets shall be
issued or delivered under the Plan unless and until there shall have been
compliance with all applicable requirements of Federal and state securities
laws, including the filing and effectiveness of the Form S-8 registration
statement for the shares of Common Stock issuable under the Plan, and all
applicable listing requirements of any stock exchange (or the Nasdaq National
Market, if applicable) on which Common Stock is then listed for trading.
VII. NO EMPLOYMENT/SERVICE RIGHTS
Nothing in the Plan shall confer upon the Optionee or the
Participant any right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Corporation (or any Parent or Subsidiary employing or retaining such person) or
of the Optionee or the Participant, which rights are hereby expressly reserved
by each, to terminate such person's Service at any time for any reason, with or
without cause.
25.
<PAGE> 26
APPENDIX
The following definitions shall be in effect under the Plan:
A. BOARD shall mean the Corporation's Board of Directors.
B. CHANGE IN CONTROL shall mean a change in ownership or control
of the Corporation effected through either of the following transactions:
(i) the acquisition, directly or indirectly by
any person or related group of persons (other than the Corporation or
a person that directly or indirectly controls, is controlled by, or is
under common control with, the Corporation), of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities pursuant to a tender
or exchange offer made directly to the Corporation's stockholders; or
(ii) a change in the composition of the Board over
a period of thirty-six (36) consecutive months or less such that a
majority of the Board members ceases, by reason of one or more
contested elections for Board membership, to be comprised of
individuals who either (A) have been Board members continuously since
the beginning of such period or (B) have been elected or nominated for
election as Board members during such period by at least a majority of
the Board members described in clause (A) who were still in office at
the time the Board approved such election or nomination.
C. CODE shall mean the Internal Revenue Code of 1986, as amended.
D. COMMON STOCK shall mean the Corporation's common stock.
E. CORPORATE TRANSACTION shall mean either of the following
stockholder-approved transactions to which the Corporation is a party:
(i) a merger or consolidation in which securities
possessing more than fifty percent (50%) of the total combined voting
power of the Corporation's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or
(ii) the sale, transfer or other disposition of
all or substantially all of the Corporation's assets in complete
liquidation or dissolution of the Corporation.
A-1.
<PAGE> 27
F. CORPORATION shall mean S-O Acquisition Corp., a Delaware corporation,
and its successors.
G. DIRECTOR FEE OPTION GRANT PROGRAM shall mean the special stock
option grant in effect for non-employee Board members under Article Five of the
Plan.
H. DISCRETIONARY OPTION GRANT PROGRAM shall mean the
discretionary option grant program in effect under the Plan.
I. EMPLOYEE shall mean an individual who is in the employ of the
Corporation (or any Parent or Subsidiary), subject to the control and direction
of the employer entity as to both the work to be performed and the manner and
method of performance.
J. EXERCISE DATE shall mean the date on which the Corporation
shall have received written notice of the option exercise.
K. FAIR MARKET VALUE per share of Common Stock on any relevant
date shall be determined in accordance with the following provisions:
(i) If the Common Stock is at the time traded on
the Nasdaq National Market, then the Fair Market Value shall be deemed
equal to the closing selling price per share of Common Stock on the
date in question, as such price is reported on the Nasdaq National
Market or any successor system. If there is no closing selling price
for the Common Stock on the date in question, then the Fair Market
Value shall be the closing selling price on the last preceding date
for which such quotation exists.
(ii) If the Common Stock is at the time listed on
any Stock Exchange, then the Fair Market Value shall be deemed equal
to the closing selling price per share of Common Stock on the date in
question on the Stock Exchange determined by the Plan Administrator to
be the primary market for the Common Stock, as such price is
officially quoted in the composite tape of transactions on such
exchange. If there is no closing selling price for the Common Stock
on the date in question, then the Fair Market Value shall be the
closing selling price on the last preceding date for which such
quotation exists.
(iii) For purposes of any option grants made on the
Underwriting Date, the Fair Market Value shall be deemed to be equal
to the price per share at which the Common Stock is to be sold in the
initial public offering pursuant to the Underwriting Agreement.
A-2.
<PAGE> 28
(iv) For purposes of any option grants made prior
to the Underwriting Date, the Fair Market Value shall be determined by
the Plan Administrator, after taking into account such factors as it
deems appropriate.
L. HOSTILE TAKE-OVER shall mean the acquisition, directly or
indirectly, by any person or related group of persons (other than the
Corporation or a person that directly or indirectly controls, is controlled by,
or is under common control with, the Corporation) of beneficial ownership
(within the meaning of Rule 13d-3 of the 1934 Act) of securities possessing
more than fifty percent (50%) of the total combined voting power of the
Corporation's outstanding securities pursuant to a tender or exchange offer
made directly to the Corporation's stockholders which the Board does not
recommend such stockholders to accept.
M. INCENTIVE OPTION shall mean an option which satisfies the
requirements of Code Section 422.
N. INVOLUNTARY TERMINATION shall mean the termination of the
Service of any individual which occurs by reason of:
(i) such individual's involuntary dismissal or
discharge by the Corporation for reasons other than Misconduct, or
(ii) such individual's voluntary resignation
following (A) a change in his or her position with the Corporation
which materially reduces his or her duties and responsibilities or the
level of management to which he or she reports, (B) a reduction in his
or her level of compensation (including base salary, fringe benefits
and target bonus under any performance based bonus or incentive
programs) by more than fifteen percent (15%) or (C) a relocation of
such individual's place of employment by more than fifty (50) miles,
provided and only if such change, reduction or relocation is effected
by the Corporation without the individual's consent.
O. MISCONDUCT shall mean the commission of any act of fraud,
embezzlement or dishonesty by the Optionee or Participant, any unauthorized use
or disclosure by such person of confidential information or trade secrets of
the Corporation (or any Parent or Subsidiary), or any other intentional
misconduct by such person adversely affecting the business or affairs of the
Corporation (or any Parent or Subsidiary) in a material manner. The foregoing
definition shall not be deemed to be inclusive of all the acts or omissions
which the Corporation (or any Parent or Subsidiary) may consider as grounds for
the dismissal or discharge of any Optionee, Participant or other person in the
Service of the Corporation (or any Parent or Subsidiary).
P. 1934 ACT shall mean the Securities Exchange Act of 1934, as
amended.
A-3.
<PAGE> 29
Q. NON-STATUTORY OPTION shall mean an option not intended to
satisfy the requirements of Code Section 422.
R. OPTIONEE shall mean any person to whom an option is granted
under the Discretionary Option Grant, Salary Investment Option Grant, or
Director Fee Option Grant Program.
S. PARENT shall mean any corporation (other than the Corporation)
in an unbroken chain of corporations ending with the Corporation, provided each
corporation in the unbroken chain (other than the Corporation) owns, at the
time of the determination, stock possessing fifty percent (50%) or more of the
total combined voting power of all classes of stock in one of the other
corporations in such chain.
T. PARTICIPANT shall mean any person who is issued shares of
Common Stock under the Stock Issuance Program.
U. PERMANENT DISABILITY OR PERMANENTLY DISABLED shall mean the
inability of the Optionee or the Participant to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment expected to result in death or to be of continuous duration of
twelve (12) months or more. However, solely for purposes of the Director Fee
Option Grant Program, Permanent Disability or Permanently Disabled shall mean
the inability of the non-employee Board member to perform his or her usual
duties as a Board member by reason of any medically determinable physical or
mental impairment expected to result in death or to be of continuous duration
of twelve (12) months or more.
V. PLAN shall mean the Corporation's 1997 Stock Incentive Plan,
as set forth in this document.
W. PLAN ADMINISTRATOR shall mean the particular entity, whether
the Primary Committee, the Board or the Secondary Committee, which is
authorized to administer the Discretionary Option Grant, Salary Investment
Option Grant and Stock Issuance Programs with respect to one or more classes of
eligible persons, to the extent such entity is carrying out its administrative
functions under those programs with respect to the persons under its
jurisdiction.
X. PLAN EFFECTIVE DATE shall mean August 20, 1997, the date on
which the Plan was adopted by the Board.
Y. PRIMARY COMMITTEE shall mean the committee of two (2) or more
non-employee Board members appointed by the Board to administer the
Discretionary Option Grant and Stock Issuance Programs with respect to Section
16 Insiders and to administer the Salary Investment Option Grant Program with
respect to all eligible individuals.
A-4.
<PAGE> 30
Z. SALARY INVESTMENT OPTION GRANT PROGRAM shall mean the salary
investment grant program in effect under the Plan.
AA. SECONDARY COMMITTEE shall mean a committee of one (1) or more
Board members appointed by the Board to administer the Discretionary Option
Grant and Stock Issuance Programs with respect to eligible persons other than
Section 16 Insiders.
AB. SECTION 12 REGISTRATION DATE shall mean the date on which the
Common Stock is first registered under Section 12 of Section 16 of the 1934
Act.
AC. SECTION 16 INSIDER shall mean an officer or director of the
Corporation subject to the short-swing profit liabilities of Section 16 of the
1934 Act.
AD. SERVICE shall mean the performance of services for the
Corporation (or any Parent or Subsidiary) by a person in the capacity of an
Employee, a non-employee member of the board of directors or a consultant or
independent advisor, except to the extent otherwise specifically provided in
the documents evidencing the option grant or stock issuance.
AE. STOCK EXCHANGE shall mean either the American Stock Exchange
or the New York Stock Exchange.
AF. STOCK ISSUANCE AGREEMENT shall mean the agreement entered into
by the Corporation and the Participant at the time of issuance of shares of
Common Stock under the Stock Issuance Program.
AG. STOCK ISSUANCE PROGRAM shall mean the stock issuance program
in effect under the Plan.
AH. SUBSIDIARY shall mean any corporation (other than the
Corporation) in an unbroken chain of corporations beginning with the
Corporation, provided each corporation (other than the last corporation) in the
unbroken chain owns, at the time of the determination, stock possessing fifty
percent (50%) or more of the total combined voting power of all classes of
stock in one of the other corporations in such chain.
AI. TAKE-OVER PRICE shall mean the greater of (i) the Fair Market
Value per share of Common Stock on the date the option is surrendered to the
Corporation in connection with a Hostile Take-Over or (ii) the highest reported
price per share of Common Stock paid by the tender offeror in effecting such
Hostile Take-Over. However, if the surrendered option is an Incentive Option,
the Take-Over Price shall not exceed the clause (i) price per share.
A-5.
<PAGE> 31
AJ. TAXES shall mean the Federal, state and local income and
employment tax liabilities incurred by the holder of Non-Statutory Options or
unvested shares of Common Stock in connection with the exercise of those
options or the vesting of those shares.
AK. 10% STOCKHOLDER shall mean the owner of stock (as determined
under Code Section 424(d)) possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation (or any Parent
or Subsidiary).
AL. UNDERWRITING AGREEMENT shall mean the agreement between the
Corporation and the underwriter or underwriters managing the initial public
offering of the Common Stock.
AM. UNDERWRITING DATE shall mean the date on which the
Underwriting Agreement is executed and priced in connection with an initial
public offering of the Common Stock.
A-6.
<PAGE> 1
EXHIBIT 4.3
THE SECURITIES REPRESENTED BY AND ISSUABLE UPON EXERCISE OF THIS OPTION HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE
SECURITIES LAWS. NO TRANSFER OR SALE OF THESE SECURITIES OR ANY STOCK ISSUABLE
UPON EXERCISE THEREOF MAY BE MADE WITHOUT SUCH REGISTRATION AND QUALIFICATION
UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO IT THAT A PROPOSED TRANSFER OR SALE DOES NOT REQUIRE
REGISTRATION OR QUALIFICATION UNDER APPLICABLE LAW.
S-O ACQUISITION CORP.
PERFORMANCE STOCK OPTION AGREEMENT
This Performance Stock Option Agreement ("Agreement") is entered into
as of __________________, 1997, between S-O Acquisition Corp., a Delaware
corporation (the "Company"), and _____________________ ("Optionee").
RECITAL:
Optionee is an officer of the Company, and the Company considers it
desirable and in its best interest to grant Optionee an inducement to acquire a
proprietary interest in the Company, and thus to promote the future growth,
development and continued success of the Company;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the Company and Optionee agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the right,
privilege and option ("Option") to purchase up to ______________________
(_________) shares of Common Stock of the Company, par value $.01 per share
(collectively, the "Option Shares") at an exercise price per share of twenty
dollars ($20.00), in the manner and subject to the conditions provided herein.
2. MAXIMUM TERM OF OPTION. The maximum term of this Option shall be
for a term ending _______________, 2007.
3. CONDITIONS AND TIME OF EXERCISE OF OPTION. This option shall vest
as to one-third of the Option Shares on each of December 31, 1997, December 31,
1998 and December 31, 1999 (the "Vesting Dates"), provided that the Company's
EBITDA (as that term is defined below) for the calendar year ended on the
Vesting Date equals or exceeds 90% of the EBITDA
<PAGE> 2
shown on the Company's operating plan approved by its Board of Directors for
such year (the "Plan EBITDA"). In the event that the Company's EBITDA for such
calendar year is between 75% and 90% of Plan EBITDA, then 75% of the options
that would otherwise have become vested on the Vesting Date shall become vested.
In the event that the Company's EBITDA for such calendar year is less than 75%
of Plan EBITDA, then none of the options that would otherwise have become vested
on the Vesting Date shall become vested. Any option that vests in accordance
with the preceding sentences may be exercised at such time as the Company's
audited financial statements for such year, establishing that the standards for
vesting have been satisfied with respect to such year, are released and shall
remain so exercisable until the expiration or sooner termination of the option
term.
In the event that all or a portion of the Option Shares do not vest in
the manner described in the preceding paragraph due to shortfalls in EBITDA,
then such Option Shares may nevertheless become vested in two separate ways.
First, to the extent that Option Shares do not vest on any Vesting Date, then
additional Vesting Dates shall be added on December 31, 2000 and December 31,
2001, if necessary to permit vesting of all the Option Shares on the basis of
EBITDA and Plan EBITDA for the calendar year ending on each such date. Second,
in the event that any Option Shares do not vest on a Vesting Date with respect
to a calendar year due to shortfalls in EBITDA for such year, then, at the
option of Optionee, the EBITDA for the immediately subsequent year shall be
combined with the EBITDA for such year, and the sum shall be compared with
combined Plan EBITDA for such years in determining whether the Option Shares
shall vest.
Notwithstanding anything on this Agreement to the contrary, in all
events the Option shall become exercisable for all of the Option Shares upon
Optionee's completion of six (6) years of service with the Company, whether as
an employee, a non-employee Board member or consultant.
Any options that become exercisable under this Agreement shall remain
exercisable as to all of such shares until and including _______________, 2007,
subject however to the provisions of Sections 4 and 7 hereof. Shares as to which
such option becomes exercisable pursuant to the foregoing provision may be
purchased at any time thereafter prior to the expiration or termination of the
option. Notwithstanding the foregoing provisions of this Section 3, all options
granted under this Agreement shall become immediately vested and exercisable
upon (i) the termination of Optionee's employment without cause under Section
6.2 of the Employment Agreement between Optionee and the Company, (ii) a public
offering of securities of the Company with gross proceeds exceeding $10,000,000,
or (iii) upon the consummation of a "Corporate Transaction." A "Corporate
Transaction" shall mean either of the following stockholder-approved
transactions to which the Company is a party: (a) a merger or consolidation in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred to a person
or persons different from the persons holding those securities immediately prior
to such transaction, or (b) the sale, transfer or other disposition of all or
substantially all
-2-
<PAGE> 3
of the Company's assets in complete liquidation or dissolution of the Company.
Except as may be otherwise provided in the agreement reflecting a Corporate
Transaction, this Option shall be assumed by the successor corporation (or
parent thereof) in connection with a Corporate Transaction, and this Option
shall be appropriately adjusted, immediately after such Corporate Transaction,
to apply to the number and class of securities which would have been issuable to
Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction, and appropriate
adjustments shall also be made to the Purchase Price, provided the aggregate
Purchase Price shall remain the same.
As used in this section, the term EBITDA for any year means the
Company's net earnings, as reflected on its audited financial statements for
such year, but without deduction for interest expense, depreciation,
amortization, or state or local income taxes.
4. EFFECT OF TERMINATION OF EMPLOYMENT. No part of this option may be
exercised more than [six (6) months] [one (1) year] after the termination of
Optionee's employment with the Company (including upon death or disability).
This option shall in no way confer upon Optionee any rights to remain in the
employ of the Company. The maximum number of shares as to which this option may
be exercised during the [six (6) months] [one (1) year] period following
termination of employment shall be the remaining number of shares which Optionee
could have purchased, pursuant to Section 3 hereof, on the date of termination
of his employment plus any option shares which were vested at the time of
termination of Optionee's employment but did not become exercisable until the
release of the Company's financial statements.
5. STATUS OF OPTION. The Option covered by this Agreement is not
intended to be an incentive stock option as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall be governed by
the terms of the Code relating to options other than Incentive Stock Options.
6. METHOD OF EXERCISE OF OPTIONS. This Option shall be exercisable in
whole or in part, to the extent then vested and exercisable, by written notice
delivered to the Secretary of the Company stating the number of Option Shares
with respect to which the Option is being exercised, accompanied by payment of
the exercise price by cash or check made payable to the Company. In addition,
should the Option Shares be registered under Section 12(g) of the Securities
Exchange Act of 1934, as amended, at the time the Option is exercised, then the
exercise price may, in the discretion of the Board of Directors of the Company,
also be paid as follows: (i) in shares of Common Stock held by Optionee for the
requisite period necessary to avoid a charge to the Company's earnings for
financial reporting purposes and valued at fair market value on the exercise
date; or (ii) through a special sale and remittance procedure pursuant to which
Optionee shall concurrently provide irrevocable instructions (A) to a
Company-designated brokerage firm to effect the immediate sale of the purchased
shares and remit to the Company, out of the sale proceeds available on the
settlement date, sufficient funds to cover the aggregate exercise price payable
for the purchased shares plus all applicable
-3-
<PAGE> 4
Federal, state and local income and employment taxes required to be withheld by
the Company by reason of such exercise and (B) to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale.
7. NONTRANSFERABILITY OF OPTION; DEATH OF OPTIONEE. This Option shall
be exercisable during Optionee's lifetime only by Optionee, and is
nontransferable by Optionee except by will, by applicable laws of descent and
distribution or by valid nonprobate transfer in connection with the death of
Optionee or pursuant to a qualified domestic relations order. In the event of
Optionee's death, the person or persons to whom the Optionee's right hereunder
shall have passed may exercise this Option, to the extent vested and exercisable
at the date of death (or which are vested as of the date of death but later
become exercisable in accordance with Section 3 of this Agreement) provided,
however, that no Option may be exercised after the first to occur of (i) the
expiration date specified in paragraph 2 hereof, and (ii) the date which is [six
months] [one (1) year] after the date of death of Optionee.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of the
payment of a stock dividend, a split-up or consolidation of shares, or any like
capital adjustment of the Company, then to the extent the Option hereunder
remains outstanding and unexercised, there shall be a corresponding adjustment
as to the number of Option Shares covered under this Option, and in the exercise
price per share, to the end that Optionee shall retain the Optionee's
proportionate interest without change in the total exercise price under this
Option.
9. MARKET STAND-OFF.
(a) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration statement
filed under the Securities Act of 1933, as amended, including the Company's
initial public offering, Optionee shall not sell, make any short sale of, loan,
hypothecate, pledge, grant any option for the purchase of, or otherwise dispose
or transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to, any securities of the Company without the prior
written consent of the Company or its underwriters. Such restriction (the
"Market Stand-Off") shall be in effect for such period of time from and after
the effective date of the final prospectus for the offering as may be requested
by the Company or such underwriters. In no event, however, shall such period
exceed one hundred eighty (180) days.
(b) Optionee agrees to execute any documentation acknowledging
the Market Stand-Off as may be required by the Company or its underwriters.
(c) In order to enforce the Market Stand-Off, the Company may
impose stop-transfer instructions with respect to the securities of the Company
held by Optionee until the end of the applicable stand-off period.
-4-
<PAGE> 5
10. FINANCIAL STATEMENTS. The Company shall deliver to Optionee such
of its financial statements as Optionee shall reasonably request from time to
time in connection with his exercise of this Option or his evaluation of the
advisability of such exercise.
11. LEGENDS. All certificates evidencing Option Shares acquired upon
exercise of this Option shall bear appropriate legends which indicate that the
Option Shares have not been registered under state or federal securities laws.
12. PARENTS, SUBSIDIARIES AND SUCCESSORS OF THE COMPANY. All
references herein to the Company shall be deemed to include any parent or
subsidiary of the Company (as defined in Section 425 of the Code), unless the
context shall otherwise require or indicate.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the Company and Optionee have executed this
Agreement as of the day and year first above written.
"Corporation"
S-O Acquisition Corp.
By:_______________________________
Name: ____________________________
Title: ___________________________
"Optionee"
__________________________________
Name: ____________________________
-6-
<PAGE> 1
EXHIBIT 4.4
THE SECURITIES REPRESENTED BY AND ISSUABLE UPON EXERCISE OF THIS OPTION HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES LAWS. NO TRANSFER OR SALE OF THESE SECURITIES OR ANY STOCK
ISSUABLE UPON EXERCISE THEREOF MAY BE MADE WITHOUT SUCH REGISTRATION AND
QUALIFICATION UNLESS THE ISSUER HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE SATISFACTORY TO IT THAT A PROPOSED TRANSFER OR SALE DOES NOT REQUIRE
REGISTRATION OR QUALIFICATION UNDER APPLICABLE LAW.
S-O ACQUISITION CORP.
EXECUTIVE OFFICER
NON-QUALIFIED STOCK OPTION AGREEMENT
This Non-Qualified Stock Option Agreement ("Agreement") is entered
into as of the 8th day of January, 1997, between S-O Acquisition Corp., a
Delaware corporation (the "Company"), and _________________ (the "Optionee").
RECITAL:
Optionee is an officer of the Company, and the Company considers it
desirable and in its best interest to grant Optionee an inducement to acquire a
proprietary interest in the Company, and thus to promote the future growth,
development and continued success of the Company;
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the Company and Optionee agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee the
right, privilege and option ("Option") to purchase up to ___________ (_____)
shares of Common Stock of the Company, par value $.01 per share (collectively,
the "Option Shares") at an exercise price per share of twenty dollars ($20.00),
in the manner and subject to the conditions provided herein.
2. MAXIMUM TERM OF OPTION. The maximum term of this Option shall
be for a term ending January 7, 2007.
3. CONDITIONS AND TIME OF EXERCISE OF OPTION. This Option is
immediately vested and exercisable as of the date of this Agreement.
4. EFFECT OF TERMINATION OF EMPLOYMENT. Anything herein to the
contrary notwithstanding, in the event that employment of the Optionee with the
Company is terminated
<PAGE> 2
for any reason, including upon the death or disability of the Optionee, then
this Option shall automatically lapse as to all unexercised Option Shares six
[(6) months] [one (1) year] following such termination of employment.
5. STATUS OF OPTION. The Option covered by this Agreement is not
intended to be an incentive stock option as defined in Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"), and shall be governed
by the terms of the Code relating to options other than Incentive Stock
Options.
6. METHOD OF EXERCISE OF OPTIONS. This Option shall be
exercisable in whole or in part, to the extent then vested and exercisable, by
written notice delivered to the Secretary of the Company stating the number of
Option Shares with respect to which the Option is being exercised, accompanied
by payment of the exercise price by cash or check made payable to the Company.
In addition, should the Option Shares be registered under Section 12(g) of the
Securities Exchange Act of 1934, as amended, at the time the Option is
exercised, then the exercise price may, in the discretion of the Board of
Directors of the Company, also be paid as follows: (i) in shares of Common
Stock held by Optionee for the requisite period necessary to avoid a charge to
the Company's earnings for financial reporting purposes and valued at fair
market value on the exercise date; or (ii) through a special sale and
remittance procedure pursuant to which Optionee shall concurrently provide
irrevocable instructions (A) to a Company-designated brokerage firm to effect
the immediate sale of the purchased shares and remit to the Company, out of the
sale proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the purchased shares plus all applicable
Federal, state and local income and employment taxes required to be withheld by
the Company by reason of such exercise and (B) to the Company to deliver the
certificates for the purchased shares directly to such brokerage firm in order
to complete the sale.
7. NONTRANSFERABILITY OF OPTION. This Option shall be
exercisable during Optionee's lifetime only by Optionee, and is nontransferable
by Optionee except by will, by applicable laws of descent and distribution or
by valid nonprobate transfer in connection with the death of Optionee or
pursuant to a qualified domestic relations order. In the event of Optionee's
death, the person or persons to whom the Optionee's right hereunder shall have
passed may exercise this Option, to the extent vested and exercisable at the
date of death; provided, however, that no Option may be exercised after the
first to occur of (i) expiration date specified in paragraph 2 hereof, and (ii)
the date which is six [(6) months] [one (1) year] after the date of death of
Optionee.
8. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of
the payment of a stock dividend, a split-up or consolidation of shares, or any
like capital adjustment of the Company, then to the extent the Option hereunder
remains outstanding and unexercised, there shall be a corresponding adjustment
as to the number of Option Shares covered under this Option, and in the
exercise price per share, to the end that Optionee shall retain the Optionee's
proportionate interest without change in the total exercise price under this
Option.
-2-
<PAGE> 3
9. ASSUMPTION OF OPTION. Except as may be otherwise provided in
the agreement reflecting the Corporate Transaction (as hereinafter defined),
this Option shall be assumed by the successor corporation (or parent thereof)
in connection with a Corporate Transaction, and this Option shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
to the number and class of securities which would have been issuable to
Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction, and appropriate
adjustments shall also be made to the Purchase Price, provided the aggregate
Purchase Price shall remain the same. For purposes of this Section, "Corporate
Transaction" shall mean either of the following stockholder-approved
transactions to which the Company is a party: (i) a merger or consolidation in
which securities possessing more than fifty percent (50%) of the total combined
voting power of the Company's outstanding securities are transferred to a
person or persons different from the persons holding those securities
immediately prior to such transaction, or (ii) the sale, transfer or other
disposition of all or substantially all of the Company's assets in complete
liquidation or dissolution of the Company.
10. MARKET STAND-OFF.
1. In connection with any underwritten public offering
by the Company of its equity securities pursuant to an effective registration
statement filed under the Securities Act of 1933, as amended, including the
Company's initial public offering, Optionee shall not sell, make any short sale
of, loan, hypothecate, pledge, grant any option for the purchase of, or
otherwise dispose or transfer for value or otherwise agree to engage in any of
the foregoing transactions with respect to, any securities of the Company
without the prior written consent of the Company or its underwriters. Such
restriction (the "Market Stand-Off") shall be in effect for such period of time
from and after the effective date of the final prospectus for the offering as
may be requested by the Company or such underwriters. In no event, however,
shall such period exceed one hundred eighty (180) days.
2. Optionee agrees to execute any documentation
acknowledging the Market Stand-Off as may be required by the Company or its
underwriters.
3. In order to enforce the Market Stand-Off, the Company
may impose stop-transfer instructions with respect to the securities of the
Company held by Optionee until the end of the applicable stand-off period.
11. FINANCIAL STATEMENTS. The Company shall deliver to Optionee
such of its financial statements as Optionee shall reasonably request from
time to time in connection with his exercise of this Option or his evaluation
of the advisability of such exercise.
12. LEGENDS. All certificates evidencing Option Shares acquired
upon exercise of this Option shall bear appropriate legends which indicate that
the Option Shares have not been registered under state or federal securities
laws.
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<PAGE> 4
13. PARENTS, SUBSIDIARIES AND SUCCESSORS OF THE COMPANY. All
references herein to the Company shall be deemed to include any parent or
subsidiary of the Company (as defined in Section 425 of the Code), unless the
context shall otherwise require or indicate.
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<PAGE> 5
IN WITNESS WHEREOF, the Company and the Optionee have executed this
Agreement as of the day and year first above written.
"Corporation"
S-O Acquisition Corp.
By:_______________________________
Name:_____________________________
Title:____________________________
"Optionee"
__________________________________
Name: ____________________________
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<PAGE> 1
EXHIBIT 4.5
S-O ACQUISITION CORP.
DIRECTOR STOCK OPTION AGREEMENT
This Agreement is made and entered into as of January 8, 1997
by and between S-O Acquisition Corp., a Delaware corporation (the
"Corporation") and ___________ ("Optionee").
R E C I T A L S
The Corporation's Board of Directors (the "Board") has
approved the execution of this Stock Option Agreement containing the grant of
the option herein set forth to Optionee to purchase shares of the Corporation's
common stock (the "Stock") upon the terms and conditions hereinafter set forth.
NOW THEREFORE, it is agreed as follows:
1. Grant of Option. The Corporation hereby grants to
Optionee as of the date hereof the right and option to purchase, on the terms
and conditions hereinafter set forth, all or any part of an aggregate of 714
shares of Stock (the "Option"), subject to adjustment in accordance with
Section 10 hereof.
2. Option Price. The price to be paid for Stock upon
exercise of the Option or any part thereof shall be Fifty Dollars ($50) per
share (the "Purchase Price").
3. Vesting. The Option shall be fully vested and
immediately exercisable and shall remain exercisable during the term of the
option, as provided in Section 5 below.
4. Securities Law Requirements. No part of the Option
shall be exercised if counsel to the Corporation determines that any applicable
registration requirement (or exemption therefrom) under the Securities Act of
1933, as amended (the "1933 Act"), or any other applicable requirement of
Federal or state law has not been met. Optionee represents and agrees that if
Optionee exercises this Option in whole or in part at a time when there is not
in effect under the 1933 Act a registration statement relating to the shares of
Stock issuable upon exercise hereof, and there is not available for delivery a
prospectus meeting the requirements of Section 10(a)(3) of said Act, (i)
Optionee will acquire the shares of Stock upon such exercise for the purpose of
investment and not with a view to the distribution thereof, (ii) that upon each
such exercise of this Option, Optionee will furnish to the Corporation an
investment letter in form and substance satisfactory to the Corporation, and
(iii) prior to selling or offering for sale any such shares, Optionee will
furnish the Corporation, at its request, an opinion of counsel satisfactory to
it to the effect that the transaction is exempt from registration under
applicable securities laws. Any other person or persons entitled to exercise
this Option under the provision hereof shall furnish to the Corporation
letters, opinions and certificates to the same effect as would otherwise be
required of Optionee.
<PAGE> 2
5. Term of Option. Except as otherwise provided in the
Plan, the Option shall terminate on the earlier of (i) the 10th anniversary of
the date of this Agreement first set forth above or (ii) one (1) year following
the date that Optionee ceases to be an employee, officer, director or
consultant to the Corporation.
6. Nontransferability. Unless the Corporation otherwise
consents in writing, the option and all rights and privileges granted hereunder
shall be non-assignable and non-transferable by Optionee, either voluntarily or
by operation of law, shall not be pledged or hypothecated in any way, and shall
be exercisable during lifetime only by Optionee; provided however, this option
shall be transferable (i) by will or by the laws of descent and distribution
without prior notice to the Corporation and (ii) by Optionee to Optionee's
spouse, immediate family members or issue, including adopted children, or to a
trust for the benefit of Optionee or Optionee's spouse, immediate family
members or issue, including adopted children, so long as the Corporation is
provided with prior notice of such transfer and such transferee agrees, to the
extent requested by the Corporation, to be bound by Optionee's obligations
hereunder. Except as otherwise provided herein, any attempted alienation,
assignment, pledge, hypothecation, attachment, execution or similar process,
whether voluntary or involuntary, with respect to all or any part of the Option
or any right thereunder, shall be null and void and, at the Corporation's
option, shall cause all of Optionee's rights under this Agreement to terminate.
7. Effect of Exercise. Upon exercise of all or any part
of the Option, the number of shares of Stock subject to option under this
Agreement shall be reduced by the number of shares with respect to which such
exercise is made.
8. Method of Exercise. Each exercise of the Option
shall be by means of a written notice of exercise in substantially the form
prescribed from time to time by the Board delivered to the Secretary of the
Corporation at its principal office and accompanied by payment in full of the
Purchase Price for each share of Stock purchased under the Option. Such notice
shall specify the number of shares of Stock with respect to which the Option is
exercised and shall be signed by the person exercising the Option. If the
Option is exercised by a person other than Optionee, such notice shall be
accompanied by proof, reasonably satisfactory to the Corporation, of such
person's right to exercise the Option.
The Purchase Price specified in Section 3 above shall be paid
in full upon the exercise of the Option in one or more of the following forms:
(i) cash or made payable to the Corporation; or (ii) cancellation of
indebtedness owed by the Corporation to the Optionee. In addition, should the
Stock be registered under Section 12(g) of the Securities Exchange Act of 1934,
as amended, at the time the option is exercised, then the Purchase Price may
also be paid as follows: (i) in shares of Stock held by Optionee for the
requisite period necessary to avoid a charge to the Corporation's earnings for
financial reporting purposes and valued at Fair Market Value on the exercise
date; or (ii) through a special sale and remittance procedure pursuant to which
optionee shall concurrently provide irrevocable instructions (A) to a
Corporation-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the
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<PAGE> 3
Corporation, out of the sale proceeds available on the settlement date,
sufficient funds to cover the aggregate Purchase Price payable for the
purchased shares plus any applicable Federal, state and local income taxes
required to be withheld by the Corporation by reason of such exercise and (B)
to the Corporation to deliver the certificates for the purchased shares
directly to such brokerage firm in order to complete the sale.
9. Issuance of Shares. Subject to the foregoing
conditions, the Corporation, as soon as reasonably practicable after receipt of
a proper notice of exercise and without transfer or issue tax or other
incidental expense to the person exercising the Option, shall deliver to such
person at the principal office of the Corporation, or such other location as
may be acceptable to the Corporation and such person, one or more certificates
for the shares of Stock with respect to which the Option has been exercised.
Such shares shall be fully paid and nonassessable and shall be issued in the
name of such person. However, at the request of Optionee, such shares may be
issued in the names of Optionee and his or her spouse (a) as joint tenants with
right of survivorship, (b) as community property, (c) as tenants in common
without right of survivorship, or (d) as trustees of a trust for the benefit of
members of their immediate family.
10. Adjustment in Option Shares. Should any change be
made to the Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares or other change
affecting the outstanding Stock as a class without the Corporation's receipt of
consideration, appropriate adjustments shall be made to (i) the total number
and/or class of securities subject to this option and (ii) the Purchase Price
in order to reflect such change and thereby preclude a dilution or enlargement
of benefits hereunder.
11. Assumption of Option. Except as may be otherwise
provided in the agreement reflecting a Corporate Transaction (as hereinafter
defined), this Option shall be assumed by the successor corporation (or parent
thereof) in connection with a Corporate Transaction, and this Option shall be
appropriately adjusted, immediately after such Corporate Transaction, to apply
to the number and class of securities which would have been issuable to
Optionee in consummation of such Corporate Transaction had the option been
exercised immediately prior to such Corporate Transaction, and appropriate
adjustments shall also be made to the Purchase Price, provided the aggregate
Purchase Price shall remain the same. For purposes of this Section, "Corporate
Transaction" shall mean either of the following stockholder-approved
transactions to which the Corporation is a party: (i) a merger or consolidation
in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Corporation's outstanding securities are
transferred to a person or persons different from the persons holding those
securities immediately prior to such transaction, or (ii) the sale, transfer or
other disposition of all or substantially all of the Corporation's assets in
complete liquidation or dissolution of the Corporation.
12. Limitation of Optionee's Rights. Neither Optionee
nor any person entitled to exercise the Option shall be or have any of the
rights of a shareholder of the Corporation in respect of any share issuable
upon the exercise of the Option unless and until a certificate or
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<PAGE> 4
certificates representing shares of Stock shall have been issued and delivered
upon exercise of the Option in full or in part. No adjustment shall be made
for dividends or other rights for which the record date is prior to the date
such stock certificates are issued.
13. Market Stand-Off.
1. In connection with any underwritten public
offering in whole or in part by the Corporation of its equity securities
pursuant to an effective registration statement filed under the 1933 Act,
including the Corporation's initial public offering, Optionee shall not sell,
make any short sale of, loan, hypothecate, pledge, grant any option for the
purchase of, or otherwise dispose or transfer for value or otherwise agree to
engage in any of the foregoing transactions with respect to, any securities of
the Corporation without the prior written consent of the Corporation or its
underwriters. Such restriction (the "Market Stand-Off") shall be in effect for
such period of time from and after the effective date of the final prospectus
for the offering as may be requested by the Corporation or such underwriters.
In no event, however, shall such period exceed one hundred eighty (180) days.
2. Optionee agrees to execute any documentation
acknowledging the Market Stand-Off as may be required by the Company and its
underwriters.
3. In order to enforce the Market Stand-Off, the
Corporation may impose stop-transfer instructions with respect to the
securities of the Corporation held by Optionee until the end of the applicable
stand-off period.
14. Notices. Any notice to the Corporation contemplated
by this Agreement shall be addressed to it in care of the Board; any notice to
Optionee shall be addressed to him or her at the address on file with the
Corporation on the date hereof or at such other address as Optionee may
hereafter designate in a writing delivered to the Corporation as provided
herein.
15. Interpretation. The interpretation, construction,
performance and enforcement of this Agreement shall lie within the sole
discretion of the Board, and the Board's determinations shall be conclusive and
binding on all interested persons.
16. Attorney's Fees. In the event of any dispute
concerning the subject matter hereof, the prevailing party shall be entitled to
recover its costs and reasonable attorney's fees in litigating or otherwise
resolving the dispute.
17. Venue. Any action arising out of any dispute
concerning the subject matter hereof shall be brought and maintained in a court
of competent jurisdiction in the county in which the Corporation's principal
place of business is located at the time of commencement of the action.
18. Governing Law. This Agreement has been made,
executed and delivered in, and the interpretation, performance and enforcement
hereof shall be governed by and construed
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<PAGE> 5
under the laws of the State of California, without regard to such state's
choice of laws or conflict of laws rules.
19. Entire Agreement. This Agreement represents the
entire agreement between the parties with respect to the subject matter hereof,
and supersedes all prior agreements, representations and understandings.
IN WITNESS WHEREOF, each of the parties hereto has executed
this Agreement as the date first above written.
"Corporation"
S-O Acquisition Corp.
By:_______________________________
Name: ____________________________
Title:____________________________
"Optionee"
__________________________________
Name: ____________________________
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<PAGE> 1
EXHIBIT 10.1
INDEMNIFICATION AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this____
day of August, 1997 between Steri-Oss, Inc., a Delaware corporation (the
"Company") and _____ ______________________ ("Indemnitee").
WITNESSETH THAT:
WHEREAS, Indemnitee performs a valuable service for the Company; and
WHEREAS, the Board of Directors of the Company have adopted a
Certificate of Incorporation (the "Certificate") permitting the Board of
Directors to indemnify the officers and directors of the Company; and
WHEREAS, the Certificate and Section 145 of the Delaware General
Corporation Law, as amended ("Law"), by their nonexclusive nature permit
contracts between the Company and the officers and directors of the Company with
respect to indemnification of such officers and directors; and
WHEREAS, in accordance with the authorization as provided by the Law,
the Company may purchase and maintain a policy or policies of directors' and
officers' liability insurance ("D & O Insurance"), covering certain liabilities
which may be incurred by its officers and directors in the performance of their
obligations as officers and directors of the Company; and
WHEREAS, as a result of recent developments affecting the terms, scope
and availability of D & O Insurance there exists general uncertainty as to the
extent of protection afforded the Company's officers and directors by such D & O
Insurance and said uncertainty also exists under statutory and bylaw
indemnification provisions; and
WHEREAS, in recognition of past services and in order to induce
Indemnitee to continue to serve as an officer and/or a director of the Company,
the Company has determined and agreed to enter into this contract with
Indemnitee;
NOW, THEREFORE, in consideration of Indemnitee's continued service as
an officer and/or a director after the date hereof, the parties hereto agree as
follows:
1. INDEMNITY OF INDEMNITEE. The Company hereby agrees to hold harmless
and indemnify Indemnitee to the full extent authorized or permitted by the
provisions of the Law, as such may be amended from time to time, and the
Certificate, as such may be amended. In furtherance of the foregoing
indemnification, and without limiting the generality thereof:
<PAGE> 2
(a) Proceedings Other Than Proceedings by or in the Right of the
Company. Indemnitee shall be entitled to the rights of indemnification provided
in this Section 1(a) if, by reason of his Corporate Status (as hereinafter
defined), he is, or is threatened to be made, a party to or participant in any
Proceeding (as hereinafter defined) other than a Proceeding by or in the right
of the Company. Pursuant to this Section 1(a), Indemnitee shall be indemnified
against all Expenses (as hereinafter defined), judgments, penalties, fines and
amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such Proceeding or any claim, issue or matter therein,
if he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company and, with respect to any criminal
Proceeding, had no reasonable cause to believe his conduct was unlawful.
(b) Proceedings by or in the Right of the Company. Indemnitee
shall be entitled to the rights of indemnification provided in this Section 1(b)
if, by reason of his Corporate Status, he is, or is threatened to be made, a
party to or participant in any Proceeding brought by or in the right of the
Company to procure a judgment in its favor. Pursuant to this Section 1(b),
Indemnitee shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection with such Proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company; provided, however, that, if applicable law so
provides, no indemnification against such Expenses shall be made in respect of
any claim, issue or matter in such Proceeding as to which Indemnitee shall have
been adjudged to be liable to the Company unless and to the extent that the
Court of Chancery of the State of Delaware, or the court in which such
Proceeding shall have been brought or is pending, shall determine that such
indemnification may be made.
(c) Indemnification for Expenses of a Party Who is Wholly or
Partly Successful. Notwithstanding any other provision of this Agreement, to the
extent that Indemnitee is, by reason of his Corporate Status, a party to and
is successful, on the merits or otherwise, in any Proceeding, he shall be
indemnified to the maximum extent permitted by law against all Expenses actually
and reasonably incurred by him or on his behalf in connection therewith. If
Indemnitee is not wholly successful in such Proceeding but is successful, on the
merits or otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, the Company shall indemnify Indemnitee against all
Expenses actually and reasonably incurred by him or on his behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
Section and without limitation, the termination of any claim, issue or matter in
such a Proceeding by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such claim, issue or matter.
2. ADDITIONAL INDEMNITY.
(a) Subject only to the exclusions set forth in Section 2(b)
hereof, the Company hereby further agrees to hold harmless and indemnify
Indemnitee against any and all Expenses, judgments, fines and amounts paid in
settlement actually and reasonably incurred by
2.
<PAGE> 3
Indemnitee in connection with any Proceeding (including an action by or on
behalf of the Company) to which Indemnitee is, was or at any time becomes a
party, or is threatened to be made a party, by reason of his Corporate Status;
provided, however, that with respect to actions by or on behalf of the Company,
indemnification of Indemnitee against any judgments shall be made by the Company
only as authorized in the specific case upon a determination that Indemnitee
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company; and
(b) No indemnity pursuant to this Section 2 shall be paid by the
Company:
(i) In respect to remuneration paid to Indemnitee if it
shall be determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(ii) On account of any suit in which judgment is rendered
against Indemnitee for an accounting of profits made from the purchase or sale
by Indemnitee of securities of the Company pursuant to the provisions of Section
16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal, state or local statutory law;
(iii) On account of Indemnitee's conduct which is finally
adjudged to have been knowingly fraudulent or deliberately dishonest, or to
constitute willful misconduct; or
(iv) If a final decision by a court having jurisdiction in
the matter shall determine that such indemnification is not lawful.
3. CONTRIBUTION. If the indemnification provided in Sections 1 and 2
is unavailable and may not be paid to Indemnitee for any reason other than those
set forth in paragraphs (i), (ii) and (iii) of Section 2(b), then in respect to
any Proceeding in which the Company is jointly liable with Indemnitee (or would
be if joined in such Proceeding), the Company shall contribute to the amount of
Expenses, judgments, fines and amounts paid in settlement actually and
reasonably incurred and paid or payable by Indemnitee in such proportion as is
appropriate to reflect (i) the relative benefits received by the Company on the
one hand and by the Indemnitee on the other hand from the transaction from which
such Proceeding arose, and (ii) the relative fault of the Company on the one
hand and of the Indemnitee on the other hand in connection with the events which
resulted in such Expenses, judgments, fines or settlement amounts, as well as
any other relevant equitable considerations. The relative fault of the Company
on the one hand and of the Indemnitee on the other hand shall be determined by
reference to, among other things, the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent the circumstances
resulting in such Expenses, judgments, fines or settlement amounts. The Company
agrees that it would not be just and equitable if
3.
<PAGE> 4
contribution pursuant to this Section 3 were determined by pro rata allocation
or any other method of allocation which does not take account of the foregoing
equitable considerations.
4. INDEMNIFICATION FOR EXPENSES of a Witness. Notwithstanding any
other provision of this Agreement, to the extent that Indemnitee is, by reason
of his Corporate Status, a witness in any Proceeding to which Indemnitee is not
a party, he shall be indemnified against all Expenses actually and reasonably
incurred by him or on his behalf in connection therewith.
5. ADVANCEMENT OF EXPENSES. Notwithstanding any other provision of
this Agreement, the Company shall advance all reasonable Expenses incurred by or
on behalf of Indemnitee in connection with any Proceeding by reason of
Indemnitee's Corporate Status within ten days after the receipt by the Company
of a statement or statements from Indemnitee requesting such advance or advances
from time to time, whether prior to or after final disposition of such
Proceeding. Such statement or statements shall reasonably evidence the Expenses
incurred by Indemnitee and shall include or be preceded or accompanied by an
undertaking by or on behalf of Indemnitee to repay any Expenses advanced if it
shall ultimately be determined that Indemnitee is not entitled to be indemnified
against such Expenses. Any advances and undertakings to repay pursuant to this
Section 5 shall be unsecured and interest free. Notwithstanding the foregoing,
the obligation of the Company to advance Expenses pursuant to this Section 5
shall be subject to the condition that, if, when and to the extent that the
Company determines that Indemnitee would not be permitted to be indemnified
under applicable law, the Company shall be entitled to be reimbursed, within
thirty (30) days of such determination, by Indemnitee (who hereby agrees to
reimburse the Company) for all such amounts theretofore paid; provided, however,
that if Indemnitee has commenced or thereafter commences legal proceedings in a
court of competent jurisdiction to secure a determination that Indemnitee should
be indemnified under applicable law, any determination made by the Company that
Indemnitee would not be permitted to be indemnified under applicable law shall
not be binding and Indemnitee shall not be required to reimburse the Company for
any advance of Expenses until a final judicial determination is made with
respect thereto (as to which all rights of appeal therefrom have been exhausted
or lapsed).
6. PROCEDURE FOR DETERMINATION OF ENTITLEMENT TO INDEMNIFICATION.
(a) To obtain indemnification (including, but not limited to, the
advancement of Expenses and contribution by the Company) under this Agreement,
Indemnitee shall submit to the Company a written request, including therein or
therewith such documentation and information as is reasonably available to
Indemnitee and is reasonably necessary to determine whether and to what extent
Indemnitee is entitled to indemnification. The Secretary of the Company shall,
promptly upon receipt of such a request for indemnification, advise the Board of
Directors in writing that Indemnitee has requested indemnification.
(b) Upon written request by Indemnitee for indemnification
pursuant to the first sentence of Section 6(a) hereof, a determination, if
required by applicable law, with
4.
<PAGE> 5
respect to Indemnitee's entitlement thereto shall be made in the specific case:
(i) if a Change in Control (as hereinafter defined) shall have occurred, by
Independent Counsel (as hereinafter defined) in a written opinion to the Board
of Directors, a copy of which shall be delivered to Indemnitee (unless
Indemnitee shall request that such determination be made by the Board of
Directors or the stockholders, in which case the determination shall be made in
the manner provided in Clause (ii) below), or (ii) if a Change in Control shall
not have occurred, (A) by the Board of Directors by a majority vote of a quorum
consisting of Disinterested Directors (as hereinafter defined), or (B) if a
quorum of the Board of Directors consisting of Disinterested Directors is not
obtainable or, even if obtainable, said Disinterested Directors so direct, by
Independent Counsel in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee, or (C) if so directed by said
Disinterested Directors, by the stockholders of the Company; and, if it is
determined that Indemnitee is entitled to indemnification, payment to Indemnitee
shall be made within ten (10) days after such determination. Indemnitee shall
cooperate with the person, persons or entity making such determination with
respect to Indemnitee's entitlement to indemnification, including providing to
such person, persons or entity upon reasonable advance request any documentation
or information which is not privileged or otherwise protected from disclosure
and which is reasonably available to Indemnitee and reasonably necessary to such
determination. Any Independent Counsel, member of the Board of Directors, or
stockholder of the Company shall act reasonably and in good faith in making a
determination under the Agreement of the Indemnitee's entitlement to
indemnification. Any costs or expenses (including attorneys' fees and
disbursements) incurred by Indemnitee in so cooperating with the person, persons
or entity making such determination shall be borne by the Company (irrespective
of the determination as to Indemnitee's entitlement to indemnification) and the
Company hereby indemnifies and agrees to hold Indemnitee harmless therefrom.
(c) If the determination of entitlement to indemnification is to
be made by Independent Counsel pursuant to Section 6(b) hereof, the Independent
Counsel shall be selected as provided in this Section 6(c). If a Change in
Control shall not have occurred, the Independent Counsel shall be selected by
the Board of Directors, and the Company shall give written notice to Indemnitee
advising him of the identity of the Independent Counsel so selected. If a Change
in Control shall have occurred, the Independent Counsel shall be selected by
Indemnitee (unless Indemnitee shall request that such selection be made by the
Board of Directors, in which event the preceding sentence shall apply), and
Indemnitee shall give written notice to the Company advising it of the identity
of the Independent Counsel so selected. In either event, Indemnitee or the
Company, as the case may be, may, within 10 days after such written notice of
selection shall have been given, deliver to the Company or to Indemnitee, as the
case may be, a written objection to such selection; provided, however, that such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" as defined in
Section 14 of this Agreement, and the objection shall set forth with
particularity the factual basis of such assertion. Absent a proper and timely
objection, the person so selected shall act as Independent Counsel. If a written
objection is made and substantiated, the Independent Counsel selected may not
serve as Independent Counsel unless and until such objection is
5.
<PAGE> 6
withdrawn or a court has determined that such objection is without merit. If,
within 20 days after submission by Indemnitee of a written request for
indemnification pursuant to Section 6(a) hereof, no Independent Counsel shall
have been selected and not objected to, either the Company or Indemnitee may
petition the Court of Chancery of the State of Delaware or other court of
competent jurisdiction for resolution of any objection which shall have been
made by the Company or Indemnitee to the other's selection of Independent
Counsel and/or for the appointment as Independent Counsel of a person selected
by the court or by such other person as the court shall designate, and the
person with respect to whom all objections are so resolved or the person so
appointed shall act as Independent Counsel under Section 6(b) hereof. The
Company shall pay any and all reasonable fees and expenses of Independent
Counsel incurred by such Independent Counsel in connection with acting pursuant
to Section 6(b) hereof, and the Company shall pay all reasonable fees and
expenses incident to the procedures of this Section 6(c), regardless of the
manner in which such Independent Counsel was selected or appointed. Upon the due
commencement of any judicial proceeding or arbitration pursuant to Section
8(a)(iii) of this Agreement, Independent Counsel shall be discharged and
relieved of any further responsibility in such capacity (subject to the
applicable standards of professional conduct then prevailing).
(d) The Company shall not be required to obtain the consent of
the Indemnitee to the settlement of any Proceeding which the Company has
undertaken to defend if the Company assumes full and sole responsibility for
such settlement and the settlement grants the Indemnitee a complete and
unqualified release in respect of the potential liability.
7. PRESUMPTIONS AND EFFECT OF CERTAIN PROCEEDINGS.
(a) In making a determination with respect to entitlement to
indemnification hereunder, the person or persons or entity making such
determination shall presume that Indemnitee is entitled to indemnification under
this Agreement if Indemnitee has submitted a request for indemnification in
accordance with Section 6(a) of this Agreement, and the Company shall have the
burden of proof to overcome that presumption in connection with the making by
any person, persons or entity of any determination contrary to that presumption.
(b) If the person, persons or entity empowered or selected under
Section 6 of this Agreement to determine whether Indemnitee is entitled to
indemnification shall not have made a determination within thirty (30) days
after receipt by the Company of the request therefor, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be entitled to such indemnification, absent (i) a
misstatement by Indemnitee of a material fact, or an omission of a material fact
necessary to make Indemnitee's statement not materially misleading, in
connection with the request for indemnification, or (ii) a prohibition of such
indemnification under applicable law; provided, however, that such 30-day period
may be extended for a reasonable time, not to exceed an additional fifteen (15)
days, if the person, persons or entity making the determination with respect to
entitlement to indemnification in good faith requires such additional time for
the obtaining or evaluating documentation and/or
6.
<PAGE> 7
information relating thereto; and provided, further, that the foregoing
provisions of this Section 7(b) shall not apply (i) if the determination of
entitlement to indemnification is to be made by the stockholders pursuant to
Section 6(b) of this Agreement and if (A) within fifteen (15) days after receipt
by the Company of the request for such determination the Board of Directors or
the Disinterested Directors, if appropriate, resolve to submit such
determination to the stockholders for their consideration at an annual meeting
thereof to be held within seventy five (75) days after such receipt and such
determination is made thereat, or (B) a special meeting of stockholders is
called within fifteen (15) days after such receipt for the purpose of making
such determination, such meeting is held for such purpose within sixty (60) days
after having been so called and such determination is made thereat, or (ii) if
the determination of entitlement to indemnification is to be made by Independent
Counsel pursuant to Section 6(b) of this Agreement.
(c) The termination of any Proceeding or of any claim, issue or
matter therein, by judgment, order, settlement (with or without court approval),
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of Indemnitee to indemnification or create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal Proceeding, that Indemnitee had reasonable cause to
believe that his conduct was unlawful.
(d) For purposes of any determination of good faith, Indemnitee
shall be deemed to have acted in good faith if Indemnitee's action is based on
the records or books of account of the Enterprise (as hereinafter defined),
including financial statements, or on information supplied to Indemnitee by the
officers and directors of the Enterprise in the course of their duties, or on
the advice of legal counsel for the Enterprise or on information or records
given or reports made to the Enterprise by an independent certified public
accountant or by an appraiser or other expert selected with reasonable care by
the Enterprise. In addition, the knowledge and/or actions, or failure to act, of
any director, officer, agent or employee of the Enterprise shall not be imputed
to Indemnitee for purposes of determining the right to indemnification under
this Agreement. The provisions of this Section 7(d) shall not be deemed to be
exclusive or to limit in any way the other circumstances in which the Indemnitee
may be deemed to have met the applicable standard of conduct set forth in this
Agreement.
8. REMEDIES OF INDEMNITEE.
(a) In the event that (i) a determination is made pursuant to
Section 6 of this Agreement that Indemnitee is not entitled to indemnification
under this Agreement, (ii) advancement of Expenses is not timely made pursuant
to Section 5 of this Agreement, (iii) no determination of entitlement to
indemnification shall have been made pursuant to Section 6(b) of this Agreement
within 90 days after receipt by the Company of the request for indemnification,
(iv) payment of indemnification is not made pursuant to Section 3 or 4 of this
Agreement within
7.
<PAGE> 8
ten (10) days after receipt by the Company of a written request therefor, or (v)
payment of indemnification is not made within ten (10) days after a
determination has been made that Indemnitee is entitled to indemnification or
such determination is deemed to have been made pursuant to Section 6 or 7 of
this Agreement, Indemnitee shall be entitled to an adjudication in an
appropriate court of the State of Delaware, or in any other court of competent
jurisdiction, of his entitlement to such indemnification. Alternatively,
Indemnitee, at his option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the Commercial Arbitration Rules of the American
Arbitration Association. Indemnitee shall commence such proceeding seeking an
adjudication or an award in arbitration within 180 days following the date on
which Indemnitee first has the right to commence such proceeding pursuant to
this Section 8(a). The Company shall not oppose Indemnitee's right to seek any
such adjudication or award in arbitration.
(b) In the event that a determination shall have been made
pursuant to Section 6(b) of this Agreement that Indemnitee is not entitled to
indemnification, any judicial proceeding or arbitration commenced pursuant to
this Section 8 shall be conducted in all respects as a de novo trial, or
arbitration, on the merits and Indemnitee shall not be prejudiced by reason of
that adverse determination.
(c) If a determination shall have been made pursuant to Section
6(b) of this Agreement that Indemnitee is entitled to indemnification, the
Company shall be bound by such determination in any judicial proceeding or
arbitration commenced pursuant to this Section 8, absent (i) a misstatement by
Indemnitee of a material fact, or an omission of a material fact necessary to
make Indemnitee's statement not materially misleading, in connection with the
request for indemnification, or (ii) a prohibition of such indemnification under
applicable law.
(d) In the event that Indemnitee, pursuant to this Section 8,
seeks a judicial adjudication of or an award in arbitration to enforce his
rights under, or to recover damages for breach of, this Agreement, Indemnitee
shall be entitled to recover from the Company, and shall be indemnified by the
Company against, any and all expenses (of the types described in the definition
of Expenses in Section 14 of this Agreement) actually and reasonably incurred by
him in such judicial adjudication or arbitration, but only if he prevails
therein. If it shall be determined in said judicial adjudication or arbitration
that Indemnitee is entitled to receive part but not all of the indemnification
sought, the expenses incurred by Indemnitee in connection with such judicial
adjudication or arbitration shall be appropriately prorated. The Company shall
indemnify Indemnitee against any and all expenses and, if requested by
Indemnitee, shall (within ten (10) days after receipt by the Company of a
written request therefor) advance such expenses to Indemnitee, which are
incurred by Indemnitee in connection with any action brought by Indemnitee to
recover under any directors' and officers' liability insurance policies
maintained by the Company, regardless of whether Indemnitee ultimately is
determined to be entitled to such indemnification, advancement of expenses or
insurance recovery, as the case may be.
8.
<PAGE> 9
(e) The Company shall be precluded from asserting in any judicial
pro- ceeding or arbitration commenced pursuant to this Section 8 that the
procedures and presumptions of this Agreement are not valid, binding and
enforceable and shall stipulate in any such court or before any such arbitrator
that the Company is bound by all the provisions of this Agreement.
9. NONEXCLUSIVITY; SURVIVAL OF RIGHTS; INSURANCE; SUBROGATION.
(a) The rights of indemnification as provided by this Agreement
shall not be deemed exclusive of any other rights to which Indemnitee may at any
time be entitled under applicable law, the Certificate, any agreement, a vote of
stockholders or a resolution of directors, or otherwise. No amendment,
alteration or repeal of this Agreement or of any provision hereof shall limit or
restrict any right of Indemnitee under this Agreement in respect of any action
taken or omitted by such Indemnitee in his Corporate Status prior to such
amendment, alteration or repeal. To the extent that a change in the Law, whether
by statute or judicial decision, permits greater indemnification than would be
afforded currently under the Certificate and this Agreement, it is the intent of
the parties hereto that Indemnitee shall enjoy by this Agreement the greater
benefits so afforded by such change. No right or remedy herein conferred is
intended to be exclusive of any other right or remedy, and every other right and
remedy shall be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other right or remedy.
(b) To the extent that the Company maintains an insurance policy
or policies providing liability insurance for directors, officers, employees, or
agents or fiduciaries of the Company or of any other corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise which such
person serves at the request of the Company, Indemnitee shall be covered by such
policy or policies in accordance with its or their terms to the maximum extent
of the coverage available for any such director, officer, employee or agent
under such policy or policies.
(c) In the event of any payment under this Agreement, the Company
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all papers required and take all
action necessary to secure such rights, including execution of such documents as
are necessary to enable the Company to bring suit to enforce such rights.
(d) The Company shall not be liable under this Agreement to make
any payment of amounts otherwise indemnifiable hereunder if and to the extent
that Indemnitee has otherwise actually received such payment under any insurance
policy, contract, agreement or otherwise.
9.
<PAGE> 10
10. EXCEPTION TO RIGHT OF INDEMNIFICATION. Notwithstanding any other
provision of this Agreement, Indemnitee shall not be entitled to indemnification
under this Agreement with respect to any Proceeding brought by Indemnitee, or
any claim therein, unless (a) the bringing of such Proceeding or making of such
claim shall have been approved by the Board of Directors or (b) such Proceeding
is being brought by the Indemnitee to assert his rights under this Agreement.
11. DURATION OF AGREEMENT. All agreements and obligations of the
Company contained herein shall continue during the period Indemnitee is an
officer and/or a director of the Company (or is or was serving at the request of
the Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Indemnitee shall be subject to any Proceeding (or any
proceeding commenced under Section 8 hereof) by reason of his Corporate Status,
whether or not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification can be provided under
this Agreement. This Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective successors
(including any direct or indirect successor by purchase, merger, consolidation
or otherwise to all or substantially all of the business or assets of the
Company), assigns, spouses, heirs, executors and personal and legal
representatives. This Agreement shall continue in effect regardless of whether
Indemnitee continues to serve as an officer and/or a director of the Company or
any other enterprise at the Company's request.
12. SECURITY. To the extent requested by the Indemnitee and approved
by the Board of Directors, the Company may at any time and from time to time
provide security to the Indemnitee for the Company's obligations hereunder
through an irrevocable bank line of credit, funded trust or other collateral.
Any such security, once provided to the Indemnitee, may not be revoked or
released without the prior written consent of the Indemnitee.
13. ENFORCEMENT.
(a) The Company expressly confirms and agrees that it has entered
into this Agreement and assumed the obligations imposed on it hereby in order to
induce Indemnitee to serve as an officer and/or a director of the Company, and
the Company acknowledges that Indemnitee is relying upon this Agreement in
serving as an officer and/or a director of the Company.
(b) This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof and supersedes all
prior agreements and understandings, oral, written and implied, between the
parties hereto with respect to the subject matter hereof.
14. DEFINITIONS. For purposes of this Agreement:
10.
<PAGE> 11
(a) "Change in Control" means a change in control of the Company
occurring after the date of this Agreement of a nature that would be required to
be reported in response to Item 6(e) of Schedule 14A of Regulation 14A (or in
response to any similar item on any similar schedule or form) promulgated under
the Securities Exchange Act of 1934, as amended (the "Act"), whether or not the
Company is then subject to such reporting requirement; provided, however, that,
without limitation, such a Change in Control shall be deemed to have occurred if
after the date of this Agreement (i) any "person" (as such term is used in
Sections 13(d) and 14(d) of the Act, as amended) other than a trustee or other
fiduciary holding securities under an employee benefit plan of the Company or a
corporation owned directly or indirectly by the stockholders of the Company in
substantially the same proportions as their ownership of stock of the Company,
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Act),
directly or indirectly, of securities of the Company representing 15% or more of
the combined voting power of the Company's then outstanding securities (other
than any such person or any affiliate thereof that is such a 15% beneficial
owner as of the date hereof) without the prior approval of at least two-thirds
of the members of the Board of Directors in office immediately prior to such
person attaining such percentage interest; (ii) there occurs a proxy contest, or
the Company is a party to a merger, consolidation, sale of assets, plan of
liquidation or other reorganization, as a consequence of which members of the
Board of Directors in office immediately prior to such transaction or event
constitute less than a majority of the Board of Directors thereafter; or (iii)
during any period of two consecutive years, other than as a result of an event
described in clause (a)(ii) of this Section 14, individuals who at the beginning
of such period constituted the Board of Directors (including for this purpose
any new director whose election or nomination for election by the Company's
stockholders was approved by a vote of at least two-thirds of the directors then
still in office who were directors at the beginning of such period) cease for
any reason to constitute at least a majority of the Board of Directors. A Change
in Control shall not be deemed to have occurred under item (i) above if the
"person" described under item (i) is entitled to report its ownership on
Schedule 13G promulgated under the Act and such person is able to represent that
it acquired such securities in the ordinary course of its business and not with
the purpose nor with the effect of changing or influencing the control of the
Company, nor in connection with or as a participant in any transaction having
such purpose or effect. If the "person" referred to in the previous sentence
would at any time not be entitled to continue to report such ownership on
Schedule 13G pursuant to Rule 13d- 1(b)(3)(i)(B) of the Act, then a Change in
Control shall be deemed to have occurred at such time.
(b) "Corporate Status" describes the status of a person who is or
was a director, officer, employee or agent or fiduciary of the Company or of any
other corporation, partnership, joint venture, trust, employee benefit plan or
other enterprise which such person is or was serving at the express written
request of the Company.
(c) "Disinterested Director" means a director of the Company who
is not and was not a party to the Proceeding in respect of which indemnification
is sought by Indemnitee.
11.
<PAGE> 12
(d) "Enterprise" shall mean the Company and any other
corporation, partnership, joint venture, trust, employee benefit plan or other
enterprise of which Indemnitee is or was serving at the express written request
of the Company as a director, officer, employee, agent or fiduciary.
(e) "Expenses" shall include all reasonable attorneys' fees,
retainers, court costs, transcript costs, fees of experts, witness fees, travel
expenses, duplicating costs, printing and binding costs, telephone charges,
postage, delivery service fees, and all other disbursements or expenses of the
types customarily incurred in connection with prosecuting, defending, preparing
to prosecute or defend, investigating, participating, or being or preparing to
be a witness in a Proceeding.
(f) "Independent Counsel" means a law firm, or a member of a law
firm, that is experienced in matters of corporation law and neither presently
is, nor in the past five years has been, retained to represent: (i) the Company
or Indemnitee in any matter material to either such party (other than with
respect to matters concerning the Indemnitee under this Agreement, or of other
indemnitees under similar indemnification agreements), or (ii) any other party
to the Proceeding giving rise to a claim for indemnification hereunder.
Notwithstanding the foregoing, the term "Independent Counsel" shall not include
any person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the Company
or Indemnitee in an action to determine Indemnitee's rights under this
Agreement. The Company agrees to pay the reasonable fees of the Independent
Counsel referred to above and to fully indemnify such counsel against any and
all Expenses, claims, liabilities and damages arising out of or relating to this
Agreement or its engagement pursuant hereto.
(g) "Proceeding" includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution mechanism,
investigation, inquiry, administrative hearing or any other actual, threatened
or completed proceeding, whether brought by or in the right of the Company or
otherwise and whether civil, criminal, administrative or investigative, in which
Indemnitee was, is or will be involved as a party or otherwise, by reason of the
fact that Indemnitee is or was an officer and/or a director of the Company, by
reason of any action taken by him or of any inaction on his part while acting as
an officer and/or a director of the Company, or by reason of the fact that he is
or was serving at the request of the Company as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise; in each case whether or not he is acting or serving in any such
capacity at the time any liability or expense is incurred for which
indemnification can be provided under this Agreement; including one pending on
or before the date of this Agreement; and excluding one initiated by an
Indemnitee pursuant to Section 8 of this Agreement to enforce his rights under
this Agreement.
15. SEVERABILITY. If any provision or provisions of this Agreement
shall be held by a court of competent jurisdiction to be invalid, void, illegal
or otherwise unenforceable for any reason whatsoever: (a) the validity, legality
and enforceability of the remaining provisions of this
12.
<PAGE> 13
Agreement (including without limitation, each portion of any section of this
Agreement containing any such provision held to be invalid, illegal or
unenforceable, that is not itself invalid, illegal or unenforceable) shall not
in any way be affected or impaired thereby and shall remain enforceable to the
fullest extent permitted by law; and (b) to the fullest extent possible, the
provisions of this Agreement (including, without limitation, each portion of any
section of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that is not itself invalid, illegal or unenforceable)
shall be construed so as to give effect to the intent manifested thereby.
16. MODIFICATION AND WAIVER. No supplement, modification, termination
or amendment of this Agreement shall be binding unless executed in writing by
both of the parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
17. NOTICE BY INDEMNITEE. Indemnitee agrees promptly to notify the
Company in writing upon being served with any summons, citation, subpoena,
complaint, indictment, information or other document relating to any Proceeding
or matter which may be subject to indemnification covered hereunder. The failure
to so notify the Company shall not relieve the Company of any obligation which
it may have to the Indemnitee under this Agreement or otherwise.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if (i)
delivered by hand and receipted for by the party to whom said notice or other
communication shall have been directed, or (ii) mailed by certified or
registered mail with postage prepaid, on the third business day after the date
on which it is so mailed:
(a) If to Indemnitee, to:
----------------------------------
----------------------------------
----------------------------------
(b) If to the Company, to:
Steri-Oss, Inc.
22895 Eastpark Drive
Yorba Linda, California 92887
Attention: President
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
13.
<PAGE> 14
19. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall for all purposes be deemed to be an
original but all of which together shall constitute one and the same Agreement.
Only one such counterpart signed by the party against whom enforceability is
sought needs to be produced to evidence the existence of this Agreement.
20. HEADINGS. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction thereof.
21. GOVERNING LAW. The parties agree that this Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of Delaware without application of the conflict of laws principles
thereof.
22. GENDER. Use of the masculine pronoun shall be deemed to include
usage of the feminine pronoun where appropriate.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement on and as of the day and year first above written.
STERI-OSS, INC.,
a Delaware corporation
By
------------------------------------------
Marty Dymek, President
------------------------------------------
, Indemnitee
---------------------
14.
<PAGE> 1
EXHIBIT 10.2
================================================================================
SECURITIES PURCHASE AGREEMENT
By and Between
S-O ACQUISITION CORP.,
and
THE 1818 FUND II, L.P.
------------------------------
Dated as of November 15, 1996
------------------------------
================================================================================
<PAGE> 2
Table of Contents
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ARTICLE 1 DEFINITIONS..........................................................1
1.1 Definitions........................................................1
1.2 Accounting Terms; Financial Covenants.............................11
ARTICLE 2 PURCHASE AND SALE...................................................11
2.1 Purchase and Sale of Preferred Stock and Class A Warrants.........11
2.2 Fees ...........................................................11
2.3 Closing...........................................................12
2.4 Additional Equity Sales...........................................12
ARTICLE 3 CONDITIONS TO THE OBLIGATION OF THE
PURCHASER TO CLOSE ..........................................16
3.1 Representations and Warranties True...............................16
3.2 Compliance with this Agreement....................................16
3.3 Officer's Certificate.............................................16
3.4 Secretary's Certificate...........................................16
3.5 Documents.........................................................17
3.6 Purchase Permitted by Applicable Laws; Legal Investment...........17
3.7 Filing of Amended and Restated Certificate........................17
3.8 Opinions of Counsel...............................................17
3.9 Approval of Counsel to the Purchaser..............................17
3.10 Consents and Approvals...........................................17
3.11 No Material Adverse Change.......................................18
3.12 Due Diligence....................................................18
3.13 Conduct of Business..............................................18
3.14 Registration Rights Agreement....................................18
3.15 Certificate of Incorporation and By-Laws of the Company..........18
3.16 Market Conditions................................................18
3.17 No Litigation....................................................18
3.18 No Default or Breach.............................................19
3.19 Asset Sale Agreement.............................................19
3.20 Senior Financing.................................................19
3.21 Subordinated Debt Financing......................................19
3.22 Junior Preferred.................................................19
3.23 Class B Preferred................................................19
3.24 Common Equity....................................................19
3.25 HSR ...........................................................19
3.26 Facilities Fee...................................................19
3.27 Stockholders Agreement...........................................20
3.28 Employment Agreements............................................20
3.29 Voting Agreement.................................................20
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ARTICLE 4 CONDITIONS TO THE OBLIGATION OF THE
COMPANY TO CLOSE ............................................20
4.1 Representations and Warranties True...............................20
4.2 Compliance with this Agreement....................................20
4.3 Fund's Certificate................................................20
4.4 Issuance Permitted by Applicable Laws.............................20
4.5 Approval of Counsel to the Company................................21
4.6 Consents and Approvals............................................21
4.7 Asset Sale Agreement..............................................21
4.8 Senior Financing..................................................21
4.9 Subordinated Debt Financing.......................................21
4.10 Class B Preferred................................................21
4.11 HSR ...........................................................21
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF
THE COMPANY..................................................22
5.1 Corporate Existence and Power.....................................22
5.2 Corporate Authorization; No Contravention.........................22
5.3 Governmental Authorization; Third Party Consents..................23
5.4 Binding Effect....................................................23
5.5 No Legal Bar......................................................23
5.6 Litigation........................................................24
5.7 No Default or Breach..............................................24
5.8 Title to Properties...............................................24
5.9 Financial Condition; No Undisclosed Liabilities...................25
5.10 No Material Adverse Change.......................................25
5.11 Investment Company...............................................25
5.12 Subsidiaries.....................................................26
5.13 Capitalization...................................................26
5.14 Solvency.........................................................26
5.15 Private Offering.................................................26
5.16 Broker's, Finder's or Similar Fees...............................27
5.17 Full Disclosure..................................................27
5.18 Anti-Dilution Protection.........................................27
5.19 Registration Rights Agreements...................................27
5.20 Asset Sale Agreement.............................................28
5.21 B&L Representations..............................................28
5.22 Financial Projections............................................28
ARTICLE 6 REPRESENTATIONS AND WARRANTIES OF
THE PURCHASER................................................28
6.1 Existence and Power...............................................29
6.2 Authorization; No Contravention...................................29
6.3 Binding Effect....................................................29
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6.4 No Legal Bar........................................................29
6.5 Purchase for Own Account............................................29
6.6 Investment Company..................................................30
6.7 Broker's, Finder's or Similar Fees..................................30
6.8 Nature of Purchaser.................................................31
ARTICLE 7 INDEMNIFICATION.......................................................31
7.1 Indemnification by the Company......................................31
7.2 Notification........................................................32
7.3 Registration Rights Agreement.......................................32
ARTICLE 8 AFFIRMATIVE COVENANTS.................................................33
8.1 Financial Statements................................................33
8.2 Certificates; Other Information.....................................34
8.3 Preservation of Corporate Existence and Legally Available Funds.....34
8.4 Compliance with Organizational Documents............................34
8.5 Compliance with Laws................................................35
8.6 Notices.............................................................35
8.7 Issue Taxes.........................................................35
8.8 Reservation of Shares...............................................35
8.9 Inspection..........................................................36
8.10 Board Representation; Management Rights............................37
8.11 Registration and Listing...........................................38
8.12 Change of Control Offer............................................39
8.13 Preemptive Right...................................................41
8.14 Use of Proceeds....................................................42
8.15 FIRPTA.............................................................42
8.16 Certificate of Incorporation.......................................42
ARTICLE 9 NEGATIVE COVENANTS....................................................42
9.1 Consolidations and Mergers..........................................42
9.2 Transactions with Affiliates........................................43
9.3 No Inconsistent Agreements..........................................43
9.4 No Amendments or Waivers to Asset Sale Agreement or
Registration Rights Agreements......................................44
9.5 Other Transaction Documents.........................................44
9.6 Issuances of Preferred Stock........................................44
ARTICLE 10 OTHER AGREEMENTS AND CERTAIN ACTIONS
REQUIRING SPECIAL CONSENT.....................................44
10.1 Limitations on Exercise of Class A Warrants........................44
10.2 Actions Requiring Special Consent of Directors.....................45
10.3 Amendment to Certificate...........................................46
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ARTICLE 11 MISCELLANEOUS...................................................46
11.1 Survival of Provisions........................................46
11.2 Notices.......................................................47
11.3 Successors and Assigns........................................48
11.4 Amendment and Waiver..........................................48
11.5 Counterparts..................................................49
11.6 Headings......................................................49
11.7 Determinations................................................49
11.8 Governing Law.................................................49
11.9 Jurisdiction and Waiver of Jury Trial.........................49
11.10 Severability.................................................50
11.11 Rules of Construction........................................50
11.12 Remedies.....................................................50
11.13 Entire Agreement.............................................50
11.14 Attorneys' Fees..............................................51
11.15 Publicity....................................................51
11.16 No Recourse to BBH&Co........................................51
11.17 Expenses.....................................................51
11.18 Legends......................................................51
</TABLE>
EXHIBITS
Exhibit A-1 Form of Amended and Restated Certificate of Incorporation
Exhibit A-2 Certificate of Designation
Exhibit A-3 Junior Preferred Certificate of Designation
Exhibit B Asset Sale Agreement
Exhibit C Form of Registration Rights Agreement
Exhibit D Form of Class A Warrant
Exhibit E Form of Junior Warrant
Exhibit F Form of Debt Warrant
Exhibit H Form of Stockholders Agreement
SCHEDULES
Schedule 2.4 Financial Projections
Schedule 3.7 Form of By-Laws
Schedule 3.13 Business of the Company
Schedule 5.3 Consents and Authorizations
Schedule 5.9 Undisclosed Liabilities
Schedule 5.12 Subsidiaries
Schedule 5.13 Capitalization Matters
Schedule 5.16 Larkspur Capital Fees
Schedule 5.18 Anti-Dilution Provisions
Schedule 5.19 Registration Rights
Schedule 5.20 Amendment to Asset Sale Agreement
Schedule 5.22 Financial Projections
Schedule 5.23 Intellectual Property
iv
<PAGE> 6
1
SECURITIES PURCHASE AGREEMENT, dated as of November 15, 1996 by and among
S-O ACQUISITION CORP., a corporation organized under the laws of Delaware (the
"Company") and THE 1818 FUND II, L.P., a Delaware limited partnership (the
"Purchaser").
The S-O Principals own all the issued and outstanding common stock of the
Company. In order to provide the equity financing for the proposed acquisition
by the Company of substantially all of the assets of Steri-Oss, Inc., the
Company desires that the Company issue to the Purchaser, and the Purchaser
purchase from the Company, 22,000 shares of the Company's Class A 8.8%
Cumulative Redeemable Preferred Stock, par value $.01 per share (the "Preferred
Stock"), and (ii) 58,000 detachable warrants exercisable immediately to purchase
initially 58,000 shares of the Company's common stock, par value $.01 per share
(the "Common Stock") at an exercise price of $.01 per share (the "Class A
Warrants"), upon the terms and subject to the conditions set forth in this
Agreement.
In consideration of the mutual covenants and agreements set forth herein
and for good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE 1
DEFINITIONS
-----------
1.1 Definitions. As used in this Agreement, and unless the context requires
a different meaning, the following terms have the meanings indicated:
"Acquisition" means the acquisition by the Company of substantially all of
the assets of S-O in accordance with the terms of the Asset Sale Agreement.
"Additional Investment Period" means the period commencing on the Closing
Date and terminating on either March 31, 1997 or, if the Purchaser, in its sole
discretion so elects, to a later date but in no event later than June 30, 1997.
"Additional Equity Sales" means the purchases of additional equity
securities of the Company pursuant to Sections 2.4(a) or 2.4(b).
"Adjusted Operating Profit" shall have the meaning set forth in the Senior
Credit Documents as in effect at the date hereof.
"Affiliate" shall have the meaning ascribed to such term in Rule 12b-2 of
the General Rules and Regulations under the Exchange Act.
<PAGE> 7
2
"Agreement" means this Agreement, as the same may be amended, supplemented
or modified in accordance with the terms hereof.
"Amended and Restated Certificate" means the Company's Amended and Restated
Certificate of Incorporation in the form attached hereto as Exhibit A-1.
"Asset Sale Agreement" means the Asset Sale Agreement dated as of July 22,
1996 by and among B&L, S-O and the Company in the form attached hereto as
Exhibit B.
"Audited Financials" has the meaning assigned to such term in Section 5.9.
"BBH&Co." means Brown Brothers Harriman & Co., a New York limited
partnership.
"B&L" means Bausch & Lomb Incorporated, a New York corporation.
"Business Day" means any day other than a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
or executive order to close.
"Capital Structure" has the meaning assigned to such term in Section
2.4(a)(i).
"Cash Flow Certificate" has the meaning assigned to such term in Section
2.4(b)(ii).
"Cash Flow Notice" has the meaning assigned to such term in Section
2.4(b)(i).
"Certificate of Designation" means the Certificate of Designation designing
the rights, privileges and preferences of the Preferred Stock, in the form
attached hereto as Exhibit A-2.
"Certificate of Incorporation" means the Company's Amended and Restated
Certificate, as amended by the Certificate of Designation, the Junior Preferred
Certificate of Designation and as further amended from time to time in
accordance with the terms thereof and the terms of this Agreement.
"Change of Control" has the meaning assigned to that term in Section
8.12(a).
"Change of Control Offer" has the meaning assigned to that term in Section
8.12(a).
<PAGE> 8
3
"Class A Warrants" means the warrants, substantially in the form of Exhibit
D hereto, to be acquired by the Purchaser hereunder entitling the holder thereof
to purchase initially up to 58,000 shares of Common Stock, as such number may be
adjusted from time to time in accordance with the terms thereof and including
any Class A Warrants acquired after the Closing pursuant to any Additional
Equity Sales.
"Class B Preferred" means the Class B 8.0% Cumulative Convertible Preferred
Stock, par value $.01 per share, of the Company.
"Class B Shares" means the shares of the Class B Preferred to be issued to
S-O in connection with the Acquisition.
"Closing" has the meaning assigned to that term in Section 2.3.
"Closing Date" means the date specified in Section 2.3.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Common Stock, par value $.01 per share, of the
Company.
"Company" means S-O Acquisition Corp., a Delaware corporation.
"Consolidated Net Income" means, as of the date of determination with
respect to any Person, consolidated net income of such Person and its
Subsidiaries, as determined in accordance with GAAP.
"Consolidated Net Worth" means, as of the date of determination with
respect to any Person, the consolidated stockholders' equity (which, in the case
of the Company, shall include the Preferred Stock and the Junior Preferred
Stock, but shall not include the Class B Shares) of such Person and its
Subsidiaries, determined in accordance with GAAP.
"Continuing Director" has the meaning assigned to that term in Section
8.12(a).
"Contractual Obligations" means as to any Person, any provision of any
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
<PAGE> 9
4
"Debt Default" means any default or event of default (or event which the
giving of notice or the passage of time or both, would become a default or event
of default) under any of the Debt Documents.
"Debt Documents" means the Senior Debt Documents, the Sub Debt Documents.
"Debt Warrants" means each of the warrants, substantially in the form of
Exhibit F hereto, to be acquired by each of the Senior Lender and the Sub Debt
Lender in connection with the transactions contemplated hereby, entitling the
holders thereof to purchase (in the aggregate) initially up to 8,560 shares of
Common Stock, as such number may be adjusted from time to time in accordance
with the terms thereof.
"Dental Implant Company" means a manufacturer of dental implant systems and
related products and components.
"DIC Acquisition" has the meaning assigned to such term in Section
2.4(a)(i).
"DIC Equity Amount" has the meaning assigned to such term in Section
2.4(a)(i).
"DIC Notice" has the meaning assigned to such term in Section 2.4(a)(i).
"Excepted Transaction" means (i) any issuance of New Securities (as defined
in Section 8.13) pursuant to any employee stock option plan adopted by the
Company in accordance with the Certificate of Incorporation and this Agreement
involving the issuance of shares of Common Stock not in excess of 3% of the
number of shares of Common Stock on a fully diluted basis immediately after the
Closing Date, (ii) any issuance of Common Stock issued upon the conversion of
the Class B Preferred or upon the exercise of the Class A Warrants or the Other
Warrants, (iii) any issuance of capital stock of the Company or securities
convertible, exchangeable or exercisable into capital stock of the Company to
any Person (either directly or pursuant to a merger) as consideration for assets
or securities acquired by the Company or any of its Subsidiaries from such
Person and provided such acquisition was approved by the Board of Directors of
the Company in accordance with the Certificate of Incorporation and this
Agreement, or (iv) the issuance of the Management Equity (and the exercise of
any warrants or options issued as Management Equity).
"Exchange Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the Commission thereunder.
<PAGE> 10
5
"Exeter" means collectively, Exeter Venture Lenders, L.P., and Exeter
Equity Partners, L.P.
"Financials" has the meaning assigned to that term in Section 5.9.
"Fund" means the Purchaser, but shall not mean any assignee of the rights
of the Purchaser under this Agreement or any transferee of any securities of the
Company purchased by the Purchaser hereunder.
"GAAP" means generally accepted accounting principles in the United States
in effect from time to time.
"Governmental Authority" means the government of any nation, state or other
political subdivision thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Holder" means the Purchaser and any subsequent direct or indirect
transferee of Preferred Shares, Class A Warrants or Common Stock issued upon the
exercise of the Class A Warrants other than a transferee (i) who has acquired
Preferred Shares, Class A Warrants or Common Stock issued upon the exercise of
the Class A Warrants that have been the subject of a distribution pursuant to a
public offering registered under the Securities Act, or (ii) in the case of
Common Stock issued upon the exercise of the Class A Warrants, who has acquired
such Common Stock after such stock has been the subject of a distribution to the
public pursuant to Rule 144 or otherwise distributed under circumstances not
requiring a legend as described in Section 11.18.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended, and the rules and regulations of the Federal Trade Commission
thereunder.
"Indebtedness" means as to any Person, (a) all obligations of such Person
for borrowed money (including, without limitation, reimbursement and all other
obligations with respect to surety bonds, letters of credit and bankers'
acceptances, whether or not matured), (b) all obligations evidenced by notes,
bonds, debentures or similar instruments, (c) all obligations to pay the
deferred purchase price of property or services, except trade accounts payable
and accrued liabilities arising in the ordinary course of business, (d) all
interest rate and currency swaps and similar agreements under which payments are
obligated to be made, whether periodically or upon the happening of a
contingency, (e) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or lender under such
agreement in the event of default are limited to repossession or
<PAGE> 11
6
sale of such property), (f) all obligations under leases which have been or
should be, in accordance with GAAP, recorded as capital leases, (g) all
indebtedness secured by any Lien granted by such Person on any property or asset
owned or held by that Person regardless of whether the indebtedness secured
thereby shall have been assumed by that Person or is non-recourse to the credit
of that Person, and (h) any direct or indirect liability of that Person with
respect to any of the forgoing of another Person.
"IPO" means the initial public offering of the Company's
Common Stock with gross proceeds of at least $50,000,000 or representing at
least 20% of the Company's Common Stock on a fully diluted basis and such Common
Stock is listed on the NYSE or quoted or listed on any other national securities
exchange or NASDAQ.
"Junior Preferred Certificate of Designation" means the
Certificate of Designation designating the rights, privileges and preferences of
the Junior Preferred Stock in the form attached hereto as Exhibit A-3.
"Junior Preferred Shares" means 3,185 shares of Junior
Preferred Stock being issued to the S-O LLC and Exeter in connection with the
Acquisition.
"Junior Preferred Stock" means the Class C 8.0% Cumulative
Redeemable Preferred Stock, par value $.01 per share of the Company.
"Junior Warrants" means the warrants, substantially in the
form of Exhibit E hereto, to be acquired by the S-O LLC, SOMC, Exeter and
Larkspur Capital Corporation in connection with the transactions contemplated
hereby, entitling the holders thereof to purchase initially up to an aggregate
28,440 shares of Common Stock, as such number may be adjusted from time to time
in accordance with the terms thereof.
"Key Managers" means Ken Darienzo, Ken Krueger and Martin J.
Dymek.
"Lien" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority or other security interest or preferential arrangement of any kind or
nature whatsoever (including, without limitation, those created by, arising
under or evidenced by any conditional sale or other title retention agreement,
the interest of a lessor under a capitalized lease obligation, or any financing
lease having substantially the same economic effect as any of the foregoing).
"Liquidation Preference" means the liquidation preference of
the Preferred Stock as defined in the Amended and Restated Certificate.
<PAGE> 12
7
"Majority Holders" means the Holder or Holders of at least (a)
a majority of the then outstanding shares of Preferred Stock and (b) a majority
of the then outstanding shares of Common Stock issued or issuable upon exercise
of the Class A Warrants (determined assuming that the Class A Warrants have been
exercised for Common Stock as of the date of determination).
"Management Equity" means the warrants, options or shares of
Common Stock to be issued to the Key Managers promptly after the Closing in
connection with the transactions contemplated hereby resulting in the Key
Managers holding 4% of the outstanding Common Stock on a fully diluted basis
(assuming full exercise thereof if warrants or options are issued to such Key
Managers).
"Material Covenant" means the agreements contained in Sections
8.3, 8.8, 8.10, 8.11, 8.12, 8.13, 10.2 and Article 9 hereof and Section 1.1 and
Article 2 of the Stockholders Agreement.
"NASDAQ" means the National Market System for the Nasdaq Stock
Market.
"Net Worth Event" If at any time after the Closing, the
Company's Consolidated Net Worth is less than an amount equal to $20,000,000.
"NYSE" means the New York Stock Exchange, Inc.
"Other Warrants" means, collectively the Junior Warrants and
the Debt Warrants.
"Payment Debt Default" means any payment default on principal
or interest under the Senior Debt Documents or the Sub Debt Documents or a
default (that has not been waived or cured) under Sections 11.11, 11.13 through
11.16 and 11.18 of the Senior Debt Documents.
"Percentage Common Interest" means, as of any time with
respect to any Person, the quotient (expressed as percentage) of (a) the
aggregate number of shares of the Company's Common Stock actually owned by such
Person at such time, divided by (b) the total number of shares of the Company's
Common Stock outstanding at such time.
"Percentage Equity Interest" means, as of any time with
respect to any Person, the quotient of (a) the aggregate number of shares of the
Company's Common Stock owned by such Person at such time on a fully diluted
basis (determined on a fully converted (with respect to convertible securities)
and fully exercised (with respect to warrants or any other options to purchase
the Company's Common Stock) basis), divided by (b) the total number of shares of
the Company's Common Stock on a fully diluted basis at such time.
<PAGE> 13
8
"Percentage Preferred Interest" means, as of any time with
respect to any Person, the quotient (expressed as a percentage) of (a) the
aggregate number of shares of the Company's Preferred Stock, owned by such
Person at such time, divided by (b) the total number of shares of the Company's
Preferred Stock outstanding at such time.
"Person" means any individual, firm, corporation, partnership,
trust, incorporated or unincorporated association, joint venture, joint stock
company, governmental authority (or an agency or political subdivision thereof)
or other entity of any kind, and shall include any successor (by merger or
otherwise) of such entity.
"PORTAL" means the PORTAL market.
"Preferred Shares" has the meaning assigned to that term in
Section 2.1.
"Preferred Stock" means the Class A 8.8% Cumulative Redeemable
Preferred Stock, par value $.01 per share, of the Company.
"Preferred Stock Documents" means collectively, this
Agreement, the Amended and Restated Certificate, the Certificate of Designation,
the Junior Preferred Certificate of Designation, the Registration Rights
Agreement, the Stockholders Agreement, and any subscription or purchase
agreement pursuant to which (i) the S-O Parties acquire the Junior Preferred
Shares, Common Stock or the Junior Warrants, or (ii) S-O acquires the Class B
Shares, and all agreements, documents or certificates related to any of the
foregoing.
"Proposed Amount" has the meaning assigned to such term in
Section 2.4(a)(iii).
"Proposed Cash Flow Amount" has the meaning assigned to such
term in the definition of "Cash Flow Notice."
"Purchase Price" has the meaning assigned to that term in
Section 2.1.
"Purchased Assets" has the meaning assigned to that term in
Section 1.1 of the Asset Sale Agreement.
"Purchaser" means The 1818 Fund II, L.P., a Delaware limited
partnership.
"Registration Rights Agreement" means the Registration Rights
Agreement in substantially the form attached hereto as Exhibit C.
<PAGE> 14
9
"Requested Amount" has the meaning assigned to such term in
Section 2.4(a)(i).
"Requirements of Law" means as to any Person, any law, treaty,
rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
"Rule 144A" means Rule 144A, as promulgated by the Commission
under the Securities Act, and any successor rule or regulation thereto.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the Commission thereunder.
"Senior Debt Documents" means the Senior Secured Credit
Agreement dated as of November 15, 1996 among S-O Operating and the Senior
Lenders and the notes and agreements entered into in connection therewith (each
as amended in accordance with its terms) pursuant to which S-O Operating will
incur $33,000,000 of senior debt.
"Senior Lender" means collectively, First Source Financial,
Union Bank of California, and all other financial institutions party to the
Senior Debt Documents, together with their respective successors and permitted
assigns.
"Stockholders Agreement" means the Stockholders Agreement to
be entered into by the Fund, the Company, SOMC, the S-O LLC, the S-O Principals,
the Senior Lender, and the Sub Debt Lender, in substantially the form attached
hereto as Exhibit H.
"S-O" means Steri-Oss, Inc., a California corporation.
"S-O LLC" means S-O Acquisition LLC, a New York limited
liability company managed by SOMC.
"Solvent" means, with respect to any Person, that the fair
saleable value of the assets and property of such Person is, on the date of
determination, greater than the total amount of liabilities (including
contingent and unliquidated liabilities) of such Person as of such date and
that, as of such date, such Person is able to pay all liabilities of such Person
as such liabilities mature. In computing the amount of contingent or liquidated
liabilities at any time, such liabilities will be computed as the amount which,
in light of all the facts and circumstances existing at such time, represents
the amount that is probable to become an absolute and matured liability.
<PAGE> 15
10
"SOMC" means the S-O Management LLC, a New York limited
liability company, whose sole managing members are the S-O Principals.
"S-O Parties" means collectively the S-O Principals, the S-O
LLC, and SOMC.
"S-O Principals" means Richard Gumer, Douglas Rogers, Henry
Wendt.
"S-O Operating" means S-O Operating Corp., a Delaware
corporation and a wholly-owned subsidiary of the Company.
"S-O Registration Rights Agreement" means that certain
Registration Rights Agreement to be entered into between the Company and S-O.
"Sub Debt Documents" means the several Note and the Warrant
Purchase Agreements each dated as of November 15, 1996 among S-O Operating, SO
Acquisition Corp. and each of the Sub Debt Lenders and the notes and agreements
entered into in connection therewith (each as amended in accordance with its
terms) pursuant to which S-O Operating will incur $12,500,000 of subordinated
debt.
"Sub Debt Lender" means collectively, The Equitable Life
Assurance Society of the United States, Exeter Equity Partners, L.P. and Exeter
Venture Lenders, L.P, and all other financial institutions party to the Sub Debt
Documents, together with their respective successors and permitted assigns.
"Subsidiary" means, with respect to any Person, a corporation
or other entity of which 50% or more of the voting power of the voting equity
securities or equity interest is owned, directly or indirectly, by such Person.
Unless otherwise qualified, all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or Subsidiaries of
the Company and, whether or not prior to or after the Acquisition, shall
include, without limitation, S-O Operating and 3304906 Canada Inc.
"Transaction Documents" has the meaning assigned to that term
in Section 5.17.
"transactions contemplated hereby" means collectively the
transactions contemplated by the Transaction Documents, including without
limitation the issuance and sale of the Preferred Stock and the Class A
Warrants.
"Uninvested Amount" has the meaning assigned to such term in
Section 2.4(a)(iii).
<PAGE> 16
11
1.2 Accounting Terms; Financial Covenants. All accounting
terms used herein not expressly defined in this Agreement shall have the
respective meanings given to them in accordance with sound accounting practice.
The term "sound accounting practice" shall mean such accounting practice as, in
the opinion of the independent accountants regularly retained by the Company,
conforms at the time to GAAP applied on a consistent basis except for changes
with which such accountants concur. If any changes in accounting principles are
hereafter occasioned by promulgation of rules, regulations, pronouncements or
opinions by or are otherwise required by the Financial Accounting Standards
Board or the American Institute of Certified Public Accountants (or successors
thereto or agencies with similar functions), and any of such changes results in
a change in the method of calculation of, or affects the results of such
calculation of, any of the financial cove nants, standards or terms found
herein, then the parties hereto agree to enter into and diligently pursue
negotiations in order to amend such financial covenants, standards or terms so
as to reflect fairly and equitably such changes, with the desired result that
the criteria for evaluating the Company's financial condition and results of
operations shall be the same after such changes as if such changes had not been
made.
ARTICLE 2
PURCHASE AND SALE
-----------------
2.1 Purchase and Sale of Preferred Stock and Class A Warrants.
Sub ject to the terms and conditions set forth herein, the Company agrees that
it will issue to the Purchaser, and the Purchaser agrees that it will acquire
from the Company, at the Closing, 22,000 shares of Preferred Stock (the
"Preferred Shares") and 58,000 Class A Warrants, for an aggregate purchase price
of $22,000,000 (the "Purchase Price"), in cash, by wire transfer of immediately
available funds to an account designated in a notice delivered to the Purchaser
not later than two Business Days prior to the Closing Date. The Preferred Shares
shall have the rights and preferences set forth in the Certificate of
Designation. The Class A Warrants shall be governed by the terms and conditions
set forth therein and the Common Stock issuable upon exercise of the Class A
Warrants shall have the rights and preferences set forth in the Certificate of
Incorporation.
2.2 Fees. The Company hereby agrees that it will pay to the
Purchaser, at the Closing, a facility fee of 4.0% of the Purchase Price, payable
in cash by wire transfer of immediately available funds to an account designated
in a notice delivered to the Company not later than two Business Days prior to
the Closing Date. If the Purchaser consummates any Additional Equity Sales, a
facility fee equal to 4.0% of the aggregate purchase price paid by the Purchaser
shall be paid to the Purchaser by the Company in cash by wire transfer of
immediately available funds on the date any such Additional Equity Sales are
consummated. At the Company's
<PAGE> 17
12
option by notice to the Purchaser at least two Business Days prior to the
Closing Date or the closing date of any Additional Equity Sales, any applicable
facility fee may be paid by the Purchaser deducting such amount from the
Purchase Price or purchase price of such Additional Equity Sales.
2.3 Closing. The purchase and issuance of the Preferred Shares
and the Class A Warrants shall take place at the closing (the "Closing") to be
held at the offices of Howard, Darby & Levin, 1330 Avenue of the Americas, New
York, New York 10019 on November 15, 1996 (the "Closing Date"), at 10:00 a.m.,
New York City time, or on such other date and at such other time as the
Purchaser and the Company may mutually agree. At the Closing, subject to the
terms and conditions set forth herein, the Company shall sell the Preferred
Shares and the Class A Warrants to the Purchaser by delivering to the Purchaser
duly executed certificates representing the Preferred Shares and the Class A
Warrants registered in the name of the Purchaser, with appropriate issue stamps,
if any, affixed at the expense of the Company, free and clear of any Lien, and
the Purchaser shall purchase the Preferred Shares and the Class A Warrants for
the Purchase Price.
2.4 Additional Equity Sales.
(a) (i) If at any time during the Additional
Investment Period, the Company intends to acquire a Dental Implant Company (a
"DIC Acquisition"), it shall provide written notice to the Fund and the S-O
Parties of such intent at least 45 days prior to the closing of the proposed DIC
Acquisition, which notice shall include the following with respect to such DIC
Acquisition; (w) the proposed closing date thereof (to the extent known), (x)
the total purchase price, (y) the proposed capital structure (the "Capital
Structure"), including without limitation, the amount thereof which will be
financed by the issuance of additional equity (the "DIC Equity Amount") or the
incurrence of additional Indebtedness by the Company, the identity of the
proposed purchasers of such securities or providers of such Indebtedness (to the
extent known) and what amount will be contributed by each party (including the
amount that the Company would like the Purchaser to contribute, the "Requested
Amount"), and (z) copies of any documents or agreements related to the proposed
DIC Acquisition and any due diligence materials obtained by the Company in
connection therewith (the "DIC Notice"). Upon receipt of the DIC Notice, the
Fund shall have 45 days to notify the Company whether it approves the DIC
Acquisition and the Capital Structure. During the Additional Investment Period,
the Company shall not consummate any DIC Acquisition if such acquisitions and
Capital Structure have not been approved by the Fund. Any approval granted with
respect to a DIC Acquisition pursuant to this Section 2.4(a)(i) may be revoked
by the Fund at any time prior to the consummation of such DIC Acquisition, if
the Fund exercises its Cash Flow Option, as provided for in Section 2.4(b),
after such approval was granted and prior to such consummation.
<PAGE> 18
13
(ii) If the Fund approves a DIC Acquisition
and the Capital Structure thereof and, in the DIC Notice related thereto, the
Company has specified a Requested Amount, so long as the closing of the DIC
Acquisition occurs during the Additional Investment Period, then the Fund shall,
on the terms and subject to the conditions set forth in this Section 2.4,
purchase up to (but not in excess of) a number of shares of Preferred Stock
having an aggregate Liquidation Preference equal to the Requested Amount;
provided, that the Fund shall not be obligated to purchase Preferred Shares
under this Section 2.4(a)(ii) to the extent that the purchase price for such
shares, together with the aggregate purchase price of shares theretofore paid by
the Fund under this Section 2.4(a)(ii) and Section 2.4(a)(iii), exceeds $10
million. Each share of Preferred Stock shall be sold to the Purchaser together
with a Class A Warrant initially exercisable into 2.63636 shares of Common Stock
(assuming that such Class A Warrants had been initially sold at the Closing Date
and subject to antidilution adjustments that would have been made since the
Closing Date had such Class A Warrants been sold on the Closing Date). The
purchase price for each share of Preferred Stock, together with a Class A
Warrant, shall be the Liquidation Preference with respect to the Preferred
Stock.
(iii) If the Fund approves the DIC
Acquisition and the Capital Structure, and the closing of such DIC Acquisition
will occur during the Additional Investment Period, and if, (x) the aggregate
purchase price of all securities previously purchased by the Fund pursuant to
Section 2.4(a)(ii) and Section 2.4(a)(iii) at such time, plus (y) the Requested
Amount, if any, with respect to such DIC Acquisition is less than $10 million
(the excess of $10 million over the aggregate amount referred to in (x) and (y)
of this sentence being the "Uninvested Amount"), then the Fund may, at its
option and upon written notice (the "Proposed Amount Notice") to the Company and
the S-O Parties sent within 15 days of the Fund's receipt of the DIC Notice,
purchase a number of shares of Preferred Stock having an aggregate Liquidation
Preference of up to (but not in excess of) the lesser of (A) the Uninvested
Amount and (B) the excess of the DIC Equity Amount over the Requested Amount.
The aggregate purchase price of the shares of Preferred Stock that the Fund
wishes to purchase and is entitled to purchase pursuant to the immediately
preceding sentence is referred to as the "Proposed Amount." Notwithstanding the
foregoing, if any of the S-O Parties provide written notice to the Company and
the Fund within 10 days of the Company's receipt of the Proposed Amount Notice
that such S-O Party elects to invest in shares of Preferred Stock to the extent
provided in this Section in connection with any such DIC Acquisition, then the
Fund agrees that the aggregate amount the Fund will invest with respect to such
DIC Acquisition pursuant to Section 2.4(a)(ii) and 2.4(a)(iii) shall be reduced
to the extent required so that such SO Parties may purchase equity securities to
finance the DIC Acquisition, but in no event shall such aggregate amount be
reduced by more than an amount equal to the product of (A) the sum of the
Proposed Amount and Requested Amount with respect to such DIC Acquisition and
(B) the S-O Parties' aggregate Percentage Equity Interest. If the S-O Parties
participate in the equity financing of any DIC Acquisition as provided for in
the immediately preceding sentence, they shall participate by
<PAGE> 19
14
purchasing Preferred Stock. Each share of Preferred Stock purchased by the Fund
or any of the S-O Parties, if applicable, under this Section 2.4(a)(iii) shall
be sold to the Fund and each such S-O Party, if applicable, together with
2.63636 Class A Warrants each initially exercisable into one share of Common
Stock (assuming that such Class A Warrants had been initially sold at the
Closing Date and subject to antidilution adjustments that would have been made
since the Closing Date had such Class A Warrants been sold on the Closing Date).
The purchase price for each share of Preferred Stock, together with the Class A
Warrants, shall be the Liquidation Preference with respect to the Preferred
Stock.
(b) (i) If (x) a Payment Debt Default has occurred
and is continuing, (y) S-O Operating is unable to borrow under the Senior Debt
Documents because it has failed to satisfy the conditions contained in Section
12.3 of the Senior Debt Documents or if at the end of any four month period
ending on the last day of any month during the period beginning with the month
ended December 31, 1996 and ending with the month ended December 31, 1997, the
Company's Adjusted Operating Profit (but in the case of the months ending on
December 31, January 31 and February 28, for the period from the Closing Date to
the last day of such month treated as a single accounting period) is less than
the amount set forth on Schedule 2.4 hereto opposite such period, then if the
Fund, in its sole discretion so elects, it shall have the option to purchase
(the "Cash Flow Option") additional shares of Preferred Stock pursuant to this
Section 2.4(b)(i); provided, that the aggregate purchase price for all shares
purchased by the Fund under this Section 2.4(b)(i) shall not exceed $20 million.
The Fund shall exercise the Cash Flow Option by sending a written notice (the
"Cash Flow Notice") to the Company and SOMC within 30 days of receipt of the
Cash Flow Certificate stating the Fund's intention to exercise the Cash Flow
Option, and setting forth the aggregate amount (the "Proposed Cash Flow Amount")
which the Fund desires to invest (such amount to be determined in the Fund's
sole discretion, subject to the terms of this Section 2.4(b)) pursuant to the
Cash Flow Option and the date on which the proposed purchase and sale shall
occur. Notwithstanding the foregoing, the amount the Fund may invest with
respect to any four month period hereunder shall be reduced to the extent set
forth in the next sentence if the Fund receives written notice from any of the
S-O Parties within 10 days after receipt of the Cash Flow Notice, that any of
the S-O Parties elects to invest in shares of Preferred Stock to the extent
provided in this Section and such notice shall include the aggregate amount they
would like to invest. If the aggregate Proposed Cash Flow Amount to be invested
by the Fund shall be reduced in accordance with the immediately preceding
sentence, it shall be reduced by the lesser of (i) the aggregate amount the S-O
Parties specified in the aforesaid notice as the amount they wish to invest and
(ii) the product of (1) the Proposed Cash Flow Amount and (2) the S-O Parties'
aggregate Percentage Equity Interest. If any of the S-O Parties elect to
exercise the purchase option provided in the foregoing two sentences in a timely
manner, the S-O Parties collectively may purchase Preferred Stock having an
aggregate purchase price of the lesser of the amount described in clauses (i)
and (ii) of the immediately preceding sentence within 30 days after
<PAGE> 20
15
notifying the Fund of their election to purchase; provided that any such shares
not purchased by the S-O Parties within such 30-day period may be purchased by
the Fund within 20 days after the end of such period. Each share of Preferred
Stock shall be sold together with 2.63636 Class A Warrants each initially
exercisable into one share of Common Stock (assuming that such Class A Warrants
had been initially sold at the Closing Date and subject to antidilution
adjustments that would have been made since the Closing Date had such Class A
Warrants been sold on the Closing Date). The purchase price for each share of
Preferred Stock, together with the Class A Warrants, shall be 50% of the
Liquidation Preference with respect to the Preferred Stock.
(ii) For purposes of Section 2.4(b)(i)
above, the Company shall within 5 Business Days of the end of each month (during
the period beginning with the month ended December 31, 1996 and ending with the
month ended December 31, 1997), deliver to the Fund a certificate setting forth
the Company's Adjusted Operating Profit (including the transaction costs and
write-downs described above) for the four month period ended at such month and a
certification by the Company's chief financial officer stating that such
information is true and correct (the "Cash Flow Certificate").
(c) Conditions to Closing of Additional Equity Sales.
If the Fund is requested to purchase additional securities pursuant to Section
2.4(a)(i), then the Fund's obligation to participate in such Additional Equity
Sale shall be subject to the satisfaction of the following conditions: (i) the
representations and warranties contained in Article 5 shall be true and correct
in all material respects as of the date of the closing of such Additional Equity
Sale as if made on such date, (ii) the proceeds of such Additional Equity Sale
shall be used to finance a DIC Acquisition, (iii) the conditions in Sections 3.1
through 3.4 (provided resolutions need only refer to Additional Equity Sale),
3.6, 3.8 through 3.11, 3.15, 3.17, 3.18 and 3.26 shall have been satisfied or
waived at such closing, (iv) no breach of any Material Covenant shall have
occurred and be continuing, (v) a Debt Default shall not have occurred and be
continuing and (vi) other conditions reasonably requested by the Fund.
(d) Closing of Additional Equity Sales. The closing
of any Additional Equity Sale under this Section 2.4 shall be held at the
offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the
Americas, New York, New York 10019-6064 on the 30th day after the date on which
any notice is given hereunder or at such other time and place as the parties to
the transaction may agree upon. At the closing of any Additional Equity Sale,
subject to the terms and conditions set forth herein, the Company shall sell the
shares of Preferred Stock and the Class A Warrants to the Fund and the S-O
Parties, if applicable, by delivering to the Fund and the S-O Parties, if
applicable, duly executed certificates representing the shares of Preferred
Stock and the Class A Warrants registered in the name of the Fund and the S-O
Parties, if applicable, with appropriate issue stamps, if any, affixed
<PAGE> 21
16
at the expense of the Company, free and clear of any Lien, and the Fund and the
S-O Parties, if applicable, shall purchase the Preferred Shares and the Class A
Warrants for the purchase price payable with respect to such Additional Equity
Sale.
(e) For purposes of this Section 2.4, the term S-O
Parties shall include Exeter in its capacity as a holder of Junior Preferred,
Junior Warrants or Common Stock issued upon exercise thereof.
ARTICLE 3
CONDITIONS TO THE OBLIGATION
OF THE PURCHASER TO CLOSE
----------------------------
The obligation of the Purchaser to purchase the Preferred
Shares and the Class A Warrants, to pay the Purchase Price at the Closing, and
to perform any of its obligations hereunder shall be subject to the satisfaction
or waiver of the following conditions on or before the Closing Date:
3.1 Representations and Warranties True. The representations
and warranties of the Company contained in Article 5 hereof shall be true and
correct in all material respects (a) at and as of the Closing Date and (b) after
giving effect to the transactions contemplated hereby, as if made at and as of
such date.
3.2 Compliance with this Agreement. The Company shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Company on or before the Closing Date.
3.3 Officer's Certificate. The Purchaser shall have received a
certificate, dated the Closing Date and signed by the President or a
Vice-President of the Company, certifying that the conditions set forth in
Sections 3.1 and 3.2 hereof have been satisfied on and as of such date.
3.4 Secretary's Certificate. The Purchaser shall have received
a certificate, dated the Closing Date and signed by the Secretary or an
Assistant Secretary of the Company, attaching a good standing certificate from
the Delaware Secretary of State with respect to the Company and certifying the
truth and correctness of attached copies of the Certificate of Incorporation and
By-laws of the Company and resolutions of the Board of Directors of the Company
approving this Agreement, the Debt Documents, the Preferred Stock Documents and
the Asset Sale Agreement and the transactions contemplated hereby.
3.5 Documents. The Purchaser shall have received copies of
such documents as it reasonably may request in connection with the sale of the
Preferred
<PAGE> 22
17
Shares and the Class A Warrants and the transactions contemplated hereby, all in
form and substance reasonably satisfactory to the Purchaser.
3.6 Purchase Permitted by Applicable Laws; Legal Investment.
The acquisition of and payment for the Preferred Shares and Class A Warrants and
the consummation of the transactions contemplated hereby (a) shall not be
prohibited by any applicable law or governmental regulation, (b) shall not
subject the Purchaser to any penalty or, in its reasonable judgment, other
onerous condition under or pursuant to any applicable law or governmental
regulation and (c) shall be permitted by the laws and regulations of the
jurisdictions to which it is subject.
3.7 Filing of Amended and Restated Certificate and
Certificates of Designation; By-Laws. The Amended and Restated Certificate, the
Certificate of Designation and the Junior Preferred Certificate of Designation
in the forms attached hereto shall have been duly filed by the Company with the
Secretary of State of the State of Delaware and the Company's By-laws shall be
in the form attached as Schedule 3.7. The Certificate of Incorporation and
By-laws of each of the Company's Subsidiaries shall be in the form attached as
Schedule 3.7.
3.8 Opinions of Counsel. The Purchaser shall have received (a)
the opinion of Howard, Darby & Levin, counsel to the Company, dated the Closing
Date, in a form reasonably acceptable to the Purchaser with respect to the
equity portion of the transactions contemplated hereby and (b) the opinions of
Howard, Darby & Levin addressed to the Purchaser that are being delivered at the
Closing to the Senior Lender and the Sub Debt Lender in connection with the Debt
Documents.
3.9 Approval of Counsel to the Purchaser. All actions and
proceedings hereunder and all documents required to be delivered by the Company
hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Paul, Weiss, Rifkind, Wharton & Garrison, counsel to the
Purchaser, as to their form and substance.
3.10 Consents and Approvals. All consents, waivers,
exemptions, authorizations, or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Company or enforcement
against the Company of this Agreement, the Preferred Shares, the Class A
Warrants, the Registration Rights Agreement, or any other Transaction Document
shall have been obtained and be in full force and effect, and the Purchaser
shall have been furnished with appropriate evidence thereof.
3.11 No Material Adverse Change. Since August 24, 1996, there
shall have been no material adverse change, nor shall any such change be
threatened,
<PAGE> 23
18
in the assets, business, properties, operations or financial or other condition
of the business being acquired by the Company pursuant to the Asset Sale
Agreement.
3.12 Due Diligence. The Purchaser shall have completed its due
diligence review of the assets, business, properties, operations and financial
and other condition of the Company and its Subsidiaries and S-O, and shall be
reasonably satisfied with the results of such review.
3.13 Conduct of Business. Except as set forth in Schedule
3.13, the Company shall not have conducted any business except the negotiation
and execution and delivery of the Transaction Documents and the consummation of
the transactions contemplated hereby.
3.14 Registration Rights Agreement. The Company shall have
duly executed and delivered to the Purchaser the Registration Rights Agreement.
3.15 Certificate of Incorporation and By-Laws of the Company.
Except for the Amended and Restated Certificate, the Certificate of Designation
and the Junior Preferred Certificate of Designation, no amendments to the
Certificate of Incorporation or By-Laws of the Company as in effect on the date
hereof shall have been effected.
3.16 Market Conditions. At any time after the date hereof and
prior to the Closing Date, (a) trading in securities generally on the NYSE shall
not have been suspended or limited or minimum or maximum prices shall not have
been generally established on such exchange, or additional material governmental
restrictions, not in force on the date of this Agreement, shall not have been
imposed upon trading in securities generally by such exchange or by order of the
Commission or any court or other Governmental Authority, (b) a general banking
moratorium shall not have been declared by either federal or New York State
authorities and (c) any material adverse change in the financial or securities
markets in the United States or in political, financial or economic conditions
in the United States or any outbreak or material escalation of hostilities or
declaration by the United States of a national emergency or war or other
calamity or crisis shall not have occurred.
3.17 No Litigation. No action, suit, proceeding, claim or
dispute shall have been brought or otherwise arisen at law, in equity, in
arbitration or before any Governmental Authority against the Company or S-O
which would, if adversely determined, in the reasonable judgment of the
management of the Company, (a) after giving effect to the transactions
contemplated hereby, have a material adverse effect on the assets, business,
properties or financial or other condition of the Company or (b) have a material
adverse effect on the ability of (i) the Company to perform its obligations
under this Agreement, the Preferred Shares, the Class A Warrants, the
Registration Rights Agreement, the Stockholders Agreement or any other
Transaction Document.
<PAGE> 24
19
3.18 No Default or Breach. The Company shall not have been in
default under or with respect to any of the Transaction Documents and, after
giving effect to the transactions contemplated hereby, the Company will not be
in default under any of the Transaction Documents.
3.19 Asset Sale Agreement. The closing of the transactions
contemplated by the Asset Sale Agreement shall simultaneously occur with the
Closing hereof and all of the conditions set forth in Article 5 thereof shall
have been satisfied or waived; provided, that any such waiver shall have been
given only with the prior written consent of the Purchaser.
3.20 Senior Financing. The Company shall have obtained senior
financing in an amount of at least $33,000,000 in connection with the
Acquisition on terms reasonably satisfactory to the Purchaser and such amount
shall be funded simultaneously with the Closing.
3.21 Subordinated Debt Financing. The Company shall have
obtained subordinated financing in an amount of at least $12,500,000 in
connection with the Acquisition on terms reasonably satisfactory to the
Purchaser and such amount shall be funded simultaneously with the Closing.
3.22 Junior Preferred. S-O LLC and Exeter shall have
purchased, or simultaneously with the Closing will purchase, the Junior
Preferred Shares and the Junior Warrants and paid $3,185,000 million therefor.
3.23 Class B Preferred. The Company shall have issued to S-O,
or simultaneously with the Closing the Company will issue to S-O, the Class B
Shares, as partial consideration for the Purchased Assets.
3.24 Common Equity. SOMC shall have acquired, or
simultaneously with the Closing will acquire, 1,000 shares of Common Stock and
14,908 Junior Warrants as a capital contribution from its members.
3.25 HSR. Any applicable waiting periods under the HSR Act in
connection with purchase of the Preferred Shares and Class A Warrants, the
Acquisition or any other transaction contemplated hereby shall have expired or
been terminated.
3.26 Facilities Fee. The Company shall have paid to the
Purchaser the fees provided for in Section 2.2 hereof or given notice under such
Section that such amount should be subtracted from the Purchase price to be paid
on the Closing Date.
3.27 Stockholders Agreement. The parties to the Stockholders
Agreement (other than the Fund) shall have entered into, or simultaneously with
the Closing shall enter into, the Stockholders Agreement and the Stockholders
Agreement
<PAGE> 25
20
shall be in full force and effect (except to the extent caused by the Fund's
failure to enter into such Stockholders Agreement).
3.28 Employment Agreements. Each of the Key Managers shall
have entered into an Employment Agreement with the Company in form and substance
reasonably satisfactory to each of the Company and the Fund.
3.29 Voting Agreement. The proxies referred to in Section 1.2
of the Stockholders Agreement shall have been entered into and shall be in full
force and effect.
ARTICLE 4
CONDITIONS TO THE OBLIGATION
OF THE COMPANY TO CLOSE
----------------------------
The obligations of the Company to issue and sell the Preferred
Shares and Class A Warrants and to perform any of its other obligations
hereunder, shall be subject to the satisfaction or waiver of the following
conditions on or before the Closing Date:
4.1 Representations and Warranties True. The representations
and warranties of the Purchaser contained in Article 6 hereof shall be true and
correct in all material respects at and as of the Closing Date as if made at and
as of such date.
4.2 Compliance with this Agreement. The Purchaser shall have
performed and complied with all of its agreements and conditions set forth or
contemplated herein that are required to be performed or complied with by the
Purchaser on or before the Closing Date.
4.3 Fund's Certificate. The Company shall have received a
certificate, dated the Closing Date and signed by the Fund, certifying that the
conditions set forth in Sections 4.1 and 4.2 hereof have been satisfied on and
as of such date and attaching a good standing certificate from the Delaware
Secretary of State with respect to the Fund.
4.4 Issuance Permitted by Applicable Laws. The issuance of the
Preferred Shares and Class A Warrants to the Purchaser hereunder (a) shall not
be prohibited by any applicable law or governmental regulation, (b) shall not
subject the Company to any penalty or, in its reasonable judgment, other onerous
condition under or pursuant to any applicable law or governmental regulation and
(c) shall be permitted by the laws and regulations of the jurisdictions in which
it is subject.
<PAGE> 26
21
4.5 Approval of Counsel to the Company. All actions and
proceedings hereunder and all documents required to be delivered by the
Purchaser hereunder or in connection with the consummation of the transactions
contemplated hereby, and all other related matters, shall have been reasonably
acceptable to Howard, Darby & Levin, counsel to the Company, as to their form
and substance.
4.6 Consents and Approvals. All consents, exemptions,
authorizations, waivers or other actions by, or notices to, or filings with,
Governmental Authorities and other Persons necessary or required in connection
with the execution, delivery or performance by the Purchaser or enforcement
against the Purchaser of this Agreement shall have been obtained and be in full
force and effect, and the Company shall have been furnished with appropriate
evidence thereof.
4.7 Asset Sale Agreement. The closing of the transactions
contemplated by the Asset Sale Agreement shall simultaneously occur with the
Closing hereof.
4.8 Senior Financing. The Company shall have obtained senior
financing in an amount of at least $33,000,000 in connection with the
Acquisition and such amount shall be funded simultaneously with the Closing.
4.9 Subordinated Debt Financing. The Company shall have
obtained subordinated financing in an amount of at least $12,500,000 in
connection with the Acquisition and such amount shall be funded simultaneously
with the Closing.
4.10 Class B Preferred. The Company shall have issued to S-O,
or simultaneously with the Closing will issue, the Class B Shares to S-O, as
partial consideration for the Purchased Assets.
4.11 HSR. Any applicable waiting periods under the HSR Act in
connection with the purchase of the Preferred Shares and the Class A Warrants,
the Acquisition or any other transaction contemplated hereby shall have expired
or been terminated.
<PAGE> 27
22
ARTICLE 5
REPRESENTATIONS AND
WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser as
follows:
5.1 Corporate Existence and Power.
The Company and each of its Subsidiaries:
(a) is a recently organized corporation and, except
as set forth in Schedule 3.13, has not engaged in any business other than the
negotiation, execution and delivery of the Asset Sale Agreement, this Agreement,
the Debt Documents and the Preferred Stock Documents;
(b) is, and after giving effect to the transactions
contemplated hereby, will be duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization;
(c) has, and after giving effect to the transactions
contemplated hereby, will have (i) full corporate power and authority and (ii)
all governmental licenses, authorizations, consents and approvals to own and
operate its property, to lease the property it operates as lessee and to conduct
the business in which it is currently, or is currently proposed to be, engaged;
(d) is, and after giving effect to the transactions
contemplated hereby, will be duly qualified as a foreign corporation, licensed
and in good standing under the laws of each jurisdiction where its ownership,
lease or operation of property or the conduct of its business requires such
qualification; and
(e) is, and after giving effect to the transactions
contemplated hereby, will be in compliance with (i) its Certificate of
Incorporation and By-Laws or other organizational or governing documents and
(ii) all Requirements of Law;
<PAGE> 28
23
except, in the case of (c)(ii), (d) or (e)(ii) of this Section 5.1, to the
extent that the failure to do so would not have a material adverse effect on the
assets, business, operations, properties or financial or other condition of the
Company.
5.2 Corporate Authorization; No Contravention. The execution,
delivery and performance by the Company of this Agreement, the Registration
Rights Agreement, the Stockholders Agreement, any other Transaction Document and
the transactions contemplated hereby and thereby, including without limitation,
the issuance of the Preferred Shares and the Class A Warrants:
(a) is within the Company's or its Subsidiary's, as
the case may be, corporate power and authority and has been duly authorized by
all necessary corporate action; and
(b) does not, and will not after giving effect to the
transactions contemplated hereby, contravene the terms of the Certificate of
Incorporation or ByLaws or other organizational or governing documents of the
Company or any of its Subsidiaries or any amendment thereof; and
(c) does not, and will not after giving effect to the
transactions contemplated hereby, violate, conflict with or result in any breach
of, contravention of or the creation of any Lien under, any Contractual
Obligation of the Company or any order or decree directly relating to the
Company or any of its Subsidiaries.
5.3 Governmental Authorization; Third Party Consents. Except
as otherwise provided in Schedule 5.3, no approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person, is necessary or required in
connection with the execution, delivery or performance by the Company or any of
its Subsidiaries or enforcement against the Company of this Agreement, the
Preferred Shares, the Class A Warrants, the Registration Rights Agreement, the
Stockholders Agreement, any other Transaction Document or the transactions
contemplated hereby or thereby, other than those that have been obtained or made
on or prior to the Closing.
5.4 Binding Effect. This Agreement has been duly executed and
delivered by the Company, and at the Closing the Registration Rights Agreement,
certificates evidencing the Preferred Shares, the Stockholders Agreement, the
Class A Warrants and each other Transaction Document will be duly executed and
delivered by the Company or its Subsidiary, as the case may be, and this
Agreement constitutes the legal, valid and binding obligations of the Company
enforceable against the Company in accordance with its terms, and at the Closing
the Registration Rights Agreement, the Stockholders Agreement, the Preferred
Shares and the Class A Warrants will constitute the legal, valid and binding
obligations of the Company or its Subsidiary which is a party thereto, as the
case may be, enforceable against the Company in accordance with their respective
terms except as enforceability may be limited by applicable bankruptcy,
insolvency, or similar laws affecting the enforcement of creditors' rights
generally or by equitable principles relating to enforceability.
5.5 No Legal Bar. Neither the execution, delivery and
performance of this Agreement, the Registration Rights Agreement, the
Stockholders Agreement, or any other Transaction Document nor the issuance of or
performance of the terms of the Preferred Shares or the Class A Warrants will
violate any Requirement of Law or any Contractual Obligation of the Company or
any of its Subsidiaries.
5.6 Litigation. There are no, and after giving effect to the
transactions contemplated hereby there will not be, any actions, suits,
proceedings, claims or disputes pending, or to the best knowledge of the
Company, threatened, at law, in equity, in arbitration or before any
Governmental Authority against the Company or any of its Subsidiaries:
<PAGE> 29
24
(a) with respect to this Agreement, the Preferred
Shares, the Class A Warrants, the Registration Rights Agreement, the
Stockholders Agreement, any other Transaction Document or any of the
transactions contemplated hereby or thereby; or
(b) which would, after giving effect to the
transactions contemplated hereby, if adversely determined, (i) have a material
adverse effect on the assets, business, properties, operations or financial or
other condition of the Company (after giving effect to the transactions
contemplated hereby) and its Subsidiaries, taken as a whole, or (ii) have a
material adverse effect on the ability of the Company or any Subsidiaries to
perform its obligations under this Agreement, the Preferred Shares, the Class A
Warrants, the Registration Rights Agreement, the Stockholders Agreement, or any
other Transaction Document. No injunction, writ, temporary restraining order,
decree or any order of any nature has been issued by any court or other
Governmental Authority purporting to enjoin or restrain the execution, delivery
and performance of this Agreement, the Preferred Shares, the Class A Warrants,
the Registration Rights Agreement, the Stockholders Agreement, or any other
Transaction Document.
5.7 No Default or Breach. No event has occurred and is
continuing or would result from the incurring of obligations by the Company or
any of its Subsidiaries under this Agreement, the Stockholders Agreement, the
Registration Rights Agreement or any other Transaction Document which
constitutes a default under or breach of any of the provisions of Article 8 or 9
hereof and no such event will occur or will be continuing after giving effect to
the transactions contemplated hereby. Neither the Company nor any of its
Subsidiaries is and after giving effect to the transactions contemplated hereby
will be, in default under or with respect to any (a) Contractual Obligation in
any material respect or (b) Transaction Document in any respect.
5.8 Title to Properties. Each of the Company and each of its
Subsidiaries has, or after giving effect to the transactions contemplated hereby
will have, good record and marketable title to, or hold leases in full force and
effect in, all its real property, except for such defects in title as could not,
individually or in the aggregate, have a materially adverse effect on the
assets, business, properties, operations or financial or other conditions of the
Company and its Subsidiaries, taken as a whole, or the ability of the Company to
perform its obligations under this Agreement, the Preferred Shares, the Class A
Warrants or the Registration Rights Agreement or any other Transaction Document.
5.9 Financial Condition; No Undisclosed Liabilities. (a) The
Company heretofore has delivered to the Purchaser true and correct copies of
audited (i) consolidated financial statements of S-O for the fiscal year ended
December 31, 1995, (ii) consolidated financial statements of S-O for the
eight-month period ended August 24, 1996 ((i) and (ii) are collectively, the
"Audited Financials") and
<PAGE> 30
25
(iii) monthly unaudited financial statements of S-O for each of the periods
ended September 27, 1996 and October 25, 1996 (the Audited Financials, together
with (iii) are collectively, the "Financials").
(b) Except as otherwise stated in the accompanying report to
the Audited Financials, the Audited Financials have been prepared in accordance
with GAAP applied consistently throughout the periods covered thereby, and
present fairly the consolidated financial condition of S-O as of the dates
thereof, and the consolidated results of operations of S-O for the period, or
portion thereof, then ended and the monthly financial statements described in
clause (iii) above have been prepared in accordance with S-O's usual historical
practice for the preparation of monthly financials. Except as set forth on
Schedule 5.9, the Company, after giving effect to the transactions contemplated
hereby, will not have any material direct or indirect indebtedness, liability or
obligation, whether known or unknown, fixed or unfixed, contingent or otherwise,
and whether or not of a kind required by GAAP to be set forth on a financial
statement (collectively "Liabilities"), other than (i) Liabilities fully and
adequately reflected on the Financials or as a result of the transactions
contemplated hereby and (ii) those incurred since the date of the Audited
Financials in the ordinary course of business. Schedule 2.5 to the Asset Sale
Agreement is true and correct and accurately and completely presents the
information purported to be contained therein. To the knowledge of the Key
Managers, the representations and warranties contained in this Section 5.9(b)
are true and correct.
5.10 No Material Adverse Change. Since August 24, 1996, there
has not been any material adverse change, nor to the knowledge of the Company or
any Key Manager is any such change threatened, in the assets, business,
properties, operations or financial or other condition of the business being
acquired under the Asset Sale Agreement.
5.11 Investment Company. Neither the Company nor any Person
controlling the Company is, and no such Person after giving effect to the
transactions contemplated hereby will be, an "investment company" within the
meaning of the Investment Company Act of 1940, as amended.
5.12 Subsidiaries. Schedule 5.12 sets forth a complete and
accurate list of all of the Subsidiaries of the Company, together with their
respective jurisdictions of incorporation or organization. Each such Subsidiary
is, and after giving effect to the transactions contemplated hereby will be,
directly or indirectly wholly owned by the Company.
5.13 Capitalization. As of the Closing Date, after giving
effect to the transactions contemplated hereby (assuming for purposes of this
Section 5.13 that the Management Equity was issued on the Closing Date), the
authorized capital stock of the Company will consist of 500,000 shares of Common
Stock, 100,000 shares of Preferred Stock, 10,000 shares of Class B Preferred,
and 3,200 shares of Junior
<PAGE> 31
26
Preferred Stock and as of the Closing Date, such securities will be issued and
outstanding except for 499,000 shares of Common Stock, 78,000 shares of
Preferred Stock and 15 shares of Junior Preferred authorized but not issued. All
such shares of capital stock of the Company have been duly authorized and as of
the Closing Date upon payment of the purchase price therefor as contemplated by
the Transaction Documents, all such shares shall be fully paid and
non-assessable. Assuming for purposes of the foregoing that the Management
Equity was issued on the Closing Date; (a) the Class A Warrants to be issued at
the Closing are exercisable into 58% of the Common Stock on a fully diluted
basis as of the Closing Date; (b) the Junior Warrants to be issued at the
Closing are exercisable into 28.44% of the Common Stock on a fully diluted basis
as of the Closing Date; (c) the Debt Warrants to be issued at the Closing are
exercisable into 8.56% of the Common Stock on a fully diluted basis and; the
Management Equity to be issued shortly after the Closing represents 4.0% of the
Common Stock on a fully diluted basis. Except as set forth in Schedule 5.13,
there are no shares of capital stock of the Company reserved for issuance. The
Management Equity when issued, the shares of Common Stock when issued upon
exercise of the Class A Warrants, the Other Warrants, and the Class A Warrants
and the Preferred Shares when issued upon payment of the Purchase Price, are
duly authorized, and, when so issued, will be fully paid and non-assessable.
Except for the Management Equity, the Class A Warrants, the Other Warrants and
as set forth in Schedule 5.13, there are no options, warrants or other rights to
purchase shares of capital stock or other securities of the Company or any of
its Subsidiaries, nor is the Company or any Subsidiary obligated in any manner
to issue shares of its capital stock or other securities. Except as contemplated
hereby and for relevant state and federal securities laws, there are no
restrictions on the Company's ability to transfer shares of capital stock of the
Company other than certain provisions of the agreements set forth in Schedule
5.13.
5.14 Solvency. On and as of the Closing Date, after giving
effect to the transactions contemplated hereby, the Company will be Solvent.
5.15 Private Offering. No form of general solicitation or
general advertising was used by the Company or, to its knowledge, its
representatives in connection with the offer or sale of the Preferred Shares,
the Management Equity, the Class A Warrants, the Other Warrants, the Common
Stock, the Class B Preferred or the Junior Preferred Shares. No registration of
the Preferred Shares, the Management Equity, the Class A Warrants, the Other
Warrants, the Common Stock, the Class B Preferred or the Junior Preferred Shares
pursuant to the provisions of the Securities Act or any state securities or
"blue sky" laws will be required by the offer, sale or issuance of any such
securities pursuant to the Transaction Documents (except as expressly provided
in the Registration Rights Agreement (or other registration rights agreement
applicable to such securities)). The Company agrees that neither it, nor anyone
acting on its behalf, will offer or sell the Preferred Shares, the Management
Equity, the Class A Warrants, the Other Warrants, the Common Stock, the Class B
Preferred, the Junior Preferred or any other security so as to require the
registration
<PAGE> 32
27
of any such securities pursuant to the provisions of the Securities Act or any
state securities or "blue sky" laws, unless such securities are so registered.
5.16 Broker's, Finder's or Similar Fees. Except for (i) the
fees payable to Larkspur Capital Corporation in an amount previously disclosed
to the Purchaser and (ii) the fees described in Section 2.2 or Section 9.2,
there are no brokerage commissions, finder's fees or similar fees or commissions
payable in connection with the offer or sale of the Preferred Shares or Class A
Warrants contemplated hereby based on any agreement, arrangement or
understanding with the Company or any of its Subsidiaries, or any action taken
by any such entity.
5.17 Full Disclosure. No statement by the Company or any
Subsidiary contained in any of this Agreement, the Preferred Shares, the Class A
Warrants, any other Preferred Stock Document, the Registration Rights Agreement,
the Debt Documents or the Asset Sale Agreement or any other document,
certificate, notice or consent related to any of the foregoing (collectively,
"Transaction Documents") delivered to the Purchaser by the Company in connection
with the purchase and sale of the Preferred Shares and the Class A Warrants at
or prior to the Closing contains (or will contain) an untrue statement of a
material fact or omits (or will omit) to state a material fact necessary to make
the statements made, in light of the circumstances in which made, not materially
false or misleading.
5.18 Anti-Dilution Protection. Other than pursuant to the
Other Warrants or the Class A Warrants or the agreements listed on Schedule
5.18, no holder of shares of Common Stock (or securities convertible into or
exchangeable or exercisable for any of the foregoing) has any rights to purchase
or receive additional or other securities upon the occurrence of an event that
might dilute such holder's percentage interest in the Company.
5.19 Registration Rights Agreements. As of the Closing Date,
the Company will not be a party to any agreement granting any registration
rights to any Person except as set forth on Schedule 5.19. The registration
rights set forth on Schedule 5.19 are not inconsistent with the rights granted
to the Purchaser in the Registration Rights Agreement.
5.20 Asset Sale Agreement. The Asset Sale Agreement in the
form attached hereto as Exhibit A (a) is a true and correct copy thereof, (b)
except as set forth on Schedule 5.20, has not been amended or modified since it
was executed and delivered and (c) is in full force and effect and will be in
full force and effect as of the Closing Date.
5.21 B&L Representations. The representations and warranties
contained in Article 2 of the Asset Sale Agreement are true and correct in all
material respects. To the knowledge of the Key Managers, the representation and
warranty contained in the preceding sentence is true and correct.
<PAGE> 33
28
5.22 Financial Projections. The financial projections relating
to the operations of the Company and its Subsidiaries attached hereto as
Schedule 5.22 have been prepared by the Company in good faith on a reasonable
basis. The assumptions on which the projections are based are stated in Schedule
5.22 and are consistent with the past practices (including, without limitation,
accounting practices) of S-O and with historical conditions applicable to the
business of S-O. To the knowledge of the Key Managers, the representations and
warranties contained in the preceding two sentences are true and correct.
Nothing has come to the attention of the Company or any Subsidiary or any Key
Manager to indicate that the projections or the assumptions on which they are
based are not reasonable.
5.23 Intellectual Property. (a) Except as set forth in
Schedule 5.23, each of the items of Intellectual Property (as defined in Section
2.8 of the Asset Sale Agreement) and after giving effect to the transactions
contemplated hereby, (i) is and will be owned by the Company or one of its
Subsidiaries, free and clear of any material liens, liabilities or other
encumbrances (ii) does not and will not conflict with or violate the
intellectual property rights of others, (iii) is transferable to the Company or
one of its Subsidiaries under the Asset Sale Agreement without the approval or
consent of any person and (iv) is and will continue to be valid and in full
force and effect in all material respects after giving effect to the
transactions contemplated hereby; and (b) Schedules 2.8(a), 2.8(b) and 2.8(c) to
the Asset Sale Agreement are true and correct and accurately and completely
present the information purported to be contained therein. To the knowledge of
the Key Managers, the representations and warranties contained in clauses (a)
and (b) above are true and correct.
ARTICLE 6
REPRESENTATIONS AND
WARRANTIES OF THE PURCHASER
---------------------------
The Purchaser represents and warrants to, and covenants and
agrees with, the Company as follows:
6.1 Existence and Power. The Purchaser:
(a) is duly organized and validly existing under the
laws of the jurisdiction of its organization; and
(b) has the power and authority to own and operate
its property, to lease the property it operates as lessee and to conduct the
business in which it is currently, or is currently proposed to be, engaged.
<PAGE> 34
29
6.2 Authorization; No Contravention. The execution, delivery
and performance by the Purchaser of this Agreement and the Registration Rights
Agreement:
(a) is within the Purchaser's power and authority and
has been duly authorized by all necessary action;
(b) does not contravene the terms of the Purchaser's
Amended and Restated Agreement of Limited Partnership, or any amendment thereof;
(c) will not violate, conflict with or result in any
breach or contravention of or the creation of any Lien under, any Contractual
Obligation of the Purchaser, or any order or decree directly relating to the
Purchaser; and
(d) does not require approval, consent, exemption,
authorization or other action by, or notice to, or filing with, any Governmental
Authority or any other Person, other than those that have been obtained or made
on or prior to the Closing.
6.3 Binding Effect. Each of this Agreement and the
Registration Rights Agreement has been duly executed and delivered by the
Purchaser, and constitutes the legal, valid and binding obligation of the
Purchaser enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.4 No Legal Bar. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement will not violate any
Requirement of Law.
6.5 Purchase for Own Account. The Preferred Shares and the
Class A Warrants (including, for purposes of this Section 6.5, the Common Stock
issuable upon exercise of the Class A Warrants) to be acquired by the Purchaser
pursuant to this Agreement are being acquired for its own account and with no
intention of distributing or reselling such securities or any part thereof in
any transaction that would be in violation of the securities laws of the United
States of America, or any state, without prejudice, however, to the rights of
such Purchaser at all times to sell or otherwise dispose of all or any part of
the Preferred Shares and the Class A Warrants under an effective registration
statement under the Securities Act, or under an exemption from such registration
available under the Securities Act, and subject, nevertheless, to the
disposition of the Purchaser's property being at all times within its control.
If the Purchaser should in the future decide to dispose of any of the Preferred
Shares or the Class A Warrants, the Purchaser understands and agrees that it may
do so only in compliance with the Securities Act and applicable state securities
laws, as then in effect, and that stop-transfer instructions to that effect,
where
<PAGE> 35
30
applicable, will be in effect with respect to such securities. If the Purchaser
should decide to dispose of such securities (other than pursuant to its
registration rights under the Registration Rights Agreement), the Purchaser, if
requested by the Company, will have the obligation in connection with such
disposition, at the Purchaser's expense, of delivering an opinion of counsel of
recognized standing in securities law, in connection with such disposition to
the effect that the proposed disposition of such securities would not be in
violation of the Securities Act or any applicable state securities laws and,
assuming such opinion is required and is otherwise appropriate in form and
substance under the circumstances, the Company will accept, and will recommend
to any applicable transfer agent or trustee for such securities that it accept,
such opinion. The Purchaser agrees to the imprinting, so long as required by
law, of a legend on certificates representing all of the Preferred Shares and
the Class A Warrants to the following effect: "THE SECURITIES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED, QUALIFIED, APPROVED OR DISAPPROVED
UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT
BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR
STATE REGULATORY AUTHORITY HAS PASSED ON OR ENDORSED THE MERITS OF THESE
SECURITIES."
6.6 Investment Company. Neither the Purchaser nor any Person
controlling the Purchaser is an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
6.7 Broker's, Finder's or Similar Fees. Except as otherwise
set forth in this Agreement, there are no brokerage commissions, finder's fees
or similar fees or commissions payable in connection with the offer or sale of
the Preferred Shares and the Class A Warrants contemplated hereby based on any
agreement, arrangement or understanding with the Purchaser or any action taken
by the Purchaser.
6.8 Nature of Purchaser. The Purchaser is an "accredited
investor" within the meaning of Rule 501 of Regulation D promulgated under the
Securities Act.
<PAGE> 36
31
ARTICLE 7
INDEMNIFICATION
---------------
7.1 Indemnification by the Company. In addition to all other
sums due hereunder or provided for in this Agreement, the Company agrees to
indemnify and hold harmless the Purchaser and its Affiliates (including, without
limitation, Brown Brothers Harriman & Co.) and their respective officers,
directors, agents, employees and partners (each, an "indemnified party") to the
fullest extent permitted by law from and against any and all losses, claims,
damages, expenses (including reasonable fees, disbursements and other charges of
counsel), damages or other liabilities ("Liabilities") resulting from any breach
of any representation or warranty of the Company in this Agreement or any legal,
administrative or other actions (including actions brought by any equity holders
of the Company or derivative actions brought by any Person claiming through the
Company or in the Company's name), proceedings or investigations (whether formal
or informal), or written threats thereof, based upon, relating to or arising out
of this Agreement, the Preferred Shares, the Class A Warrants, the Stockholders
Agreement, the Registration Rights Agreement, any other Transaction Document,
the transactions contemplated hereby, or any indemnified person's role therein
or in the transactions contemplated hereby; provided, however, that the Company
shall not be liable under this Section 7.1: (a) for any amount paid in
settlement of claims without the Company's consent (which consent shall not be
unreasonably withheld), (b) with respect to Liabilities arising solely out of
actions brought by the partners of the Fund against an indemnified party or by
one indemnified party against another, (c) to the extent that it is finally
judicially determined that such Liabilities resulted primarily from (i) the
willful misconduct, bad faith or gross negligence of such indemnified party or
(ii) a breach of the Purchaser's representations in Article 6 or in breach of
the Purchaser's obligations under this Agreement, the Preferred Shares, the
Class A Warrants, the Stockholders Agreement or the Registration Rights
Agreement, or (d) for any Liabilities arising solely from the transfer of the
Preferred Stock, the Class A Warrants or the Common Stock issued upon exercise
of the Class A Warrants by the Purchaser to any Person who is not an S-O Party;
provided, further, that if and to the extent that such indemnification is
unenforceable for any reason, the Company shall make the maximum contribution to
the payment and satisfaction of such indemnified liability which shall be
permissible under applicable laws. In connection with the obligation of the
Company to indemnify for expenses as set forth above, the Company further agrees
to reimburse each indemnified party for all such expenses (including reason able
fees, disbursements and other charges of counsel) as they are incurred by such
indemnified party; provided, however, that if an indemnified party is reimbursed
hereunder for any expenses, such reimbursement of expenses shall be refunded to
the extent it is finally judicially determined that the Liabilities in question
resulted primarily from the willful misconduct, bad faith or gross negligence of
such indemnified party.
<PAGE> 37
32
7.2 Notification. Each indemnified party under this Article 7
will, promptly after the receipt of notice of the commencement of any action or
other proceeding against such indemnified party in respect of which indemnity
may be sought from the Company under this Article 7, notify the Company in
writing of the commencement thereof. The omission of any indemnified party so to
notify the Company of any such action shall not relieve the Company from any
liability which it may have to such indemnified party other than pursuant to
this Article 7 or, unless, and only to the extent that, such omission results in
the Company's forfeiture of substantive rights or defenses. In case any such
action or other proceeding shall be brought against any indemnified party and it
shall notify the Company of the commencement thereof, the Company shall be
entitled to participate therein and, to the extent that it may wish, to assume
the defense thereof, with counsel reasonably satisfactory to such indemnified
party; provided, however, that any indemnified party may, at its own expense,
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, in any action or proceeding in which both the Company and an
indemnified party is, or is reasonably likely to become, a party, such
indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, (a) there
are or may be legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those available to
the Company or (b) any conflict or potential conflict exists between the Company
and such indemnified party that would make such separate representation
advisable; provided, however, that in no event shall the Company be required to
pay fees and expenses under this Section 7 for more than one firm of attorneys
in any jurisdiction in any one legal action or group of related legal actions.
The Company shall not, without the consent of the indemnified party (which
consent shall not be unreasonably withheld), consent to the entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such indemnified party
of a release from all liability in respect to such claim or litigation or which
requires action other than the payment of money by the Company. The rights
accorded to indemnified parties hereunder shall be in addition to any rights
that any indemnified party may have at common law, by separate agreement or
otherwise.
7.3 Registration Rights Agreement. Notwithstanding anything to
the contrary in this Article 7, the indemnification and contribution provisions
of the Registration Rights Agreement shall govern any claim made with respect to
registration statements filed pursuant thereto or sales made thereunder.
<PAGE> 38
33
ARTICLE 8
AFFIRMATIVE COVENANTS
---------------------
The Company hereby covenants and agrees (a) with the Fund,
with respect to all of Article 8, and (b) with any other Holder, with respect to
all of this Article 8 except Sections 8.1(c), 8.1(e), 8.3(b), 8.5, 8.6(a) (to
the extent it relates to a covenant that is not made for the benefit of such
Holder) 8.9(a), 8.10, 8.12, 8.13 and 8.15, that, unless the Majority Holders
waive compliance in writing:
8.1 Financial Statements. The Company shall deliver to the
Purchaser and any other Holder, in form and substance satisfactory to the
Majority Holders:
(a) as soon as available, but not later than one
hundred (100) days after the end of each fiscal year of the Company, a copy of
the audited consolidated balance sheet of the Company and its Subsidiaries as of
the end of such year and the related consolidated statements of income and cash
flows for such fiscal year, setting forth in each case in comparative form the
figures for the previous year, all in reasonable detail and accompanied by a
management summary and analysis of the operations of the Company and its
Subsidiaries for such fiscal year and by the opinion of Price Waterhouse (or any
successor thereto) or another nationally recognized independent public
accounting firm which report shall state that such consolidated financial
statements present fairly the financial position for the periods indicated in
conformity with GAAP applied on a basis consistent, except as otherwise stated
therein, with prior years; provided, however, that the delivery of a copy of the
Company's Annual Report on Form 10-K filed pursuant to the Exchange Act shall
satisfy the requirements of this Section 8.1(a);
(b) as soon as available and, in any event, within 45
days of each of the first three fiscal quarters of each year commencing with the
fiscal quarter ended March 31, 1997, the unaudited consolidated balance sheet of
the Company and its Subsidiaries, and the related consolidated statements of
income and cash flow for such quarter and for the period commencing on the first
day of the fiscal year and ending on the last day of such quarter, all certified
by an appropriate officer of the Company; provided, however, that the delivery
of a copy of the Company's Quarterly Report on Form 10-Q filed pursuant to the
Exchange Act shall satisfy the requirements of this Section 8.1(b);
(c) budgets, documentation of material financial
transactions, projections, operating reports, acquisition analyses,
presentations to banks, financial institutions or potential investors,
consultants' reports and such other financial and operating data of the Company
and its Subsidiaries as the Fund reasonably may request (any such information to
be subject to the provisions of Section 8.9(b));
<PAGE> 39
34
(d) at any time when it is not subject to Section 13
or 15(d) of the Exchange Act, upon request, to the Purchaser and prospective
purchaser of Preferred Shares, Common Stock or Class A Warrants, information of
the type that would satisfy the requirement of subsection (d)(4)(i) of Rule 144A
(or any similar successor provision) under the Securities Act; and
(e) except as otherwise provided in Section 8.1(a)
and (b), if and when the Company becomes subject to the Securities Act or the
Exchange Act, promptly after the same are filed, copies of all reports,
statements and other documents filed with the Commission.
8.2 Certificates; Other Information. The Company shall furnish
to the Purchaser and to any other Holder:
(a) concurrently with the delivery of the financial
statements referred to in Section 8.1(a) above, a certificate of the Company's
Chief Financial Officer stating that, to the best of such officer's knowledge,
there exists no default under or breach of Articles 8 and 9, except as specified
in such certificates; and
(b) concurrently with the delivery of the financial
statements referred to in Sections 8.1(a) and (b) above, a certificate of an
officer of the Company including calculations set forth in reasonable detail
showing whether a Net Worth Event has occurred.
8.3 Preservation of Corporate Existence and Legally Available
Funds. The Company shall, and shall cause each of its Subsidiaries to:
(a) preserve and maintain in full force and effect
its corporate existence and good standing under the laws of its jurisdiction of
incorporation or organization except as permitted by Section 9.1;
(b) preserve and maintain in full force and effect
all material rights, privileges, qualifications, licenses and franchises
necessary in the normal conduct of its business; and
(c) if and whenever an event requiring the Company to
redeem any shares of the Preferred Stock has occurred (in accordance with the
terms of the Certificate of Designation including, without limitation, pursuant
to Section 8.12 hereof), the Company shall take all steps reasonably necessary
to make sufficient funds legally available for such redemption, including
without limitation, revaluing the Company's assets.
8.4 Compliance with Organizational Documents. The Company
shall comply, and shall cause each Subsidiary to comply, in all material
respects with its
<PAGE> 40
35
certificate of incorporation and by-laws or other organizational or governing
documents.
8.5 Compliance with Laws. The Company shall comply, and shall
cause each Subsidiary to comply, in all material respects with all Requirements
of Law and with the directions of any Governmental Authority having jurisdiction
over it or its business, except if such failure to comply would not have a
material adverse effect on the assets, business, operations, properties or
financial or other condition of the Company or its Subsidiaries.
8.6 Notices. Upon knowledge of the chief executive officer,
the president or the chief financial officer of the Company of the events
described below, the Company shall give written notice within 10 days to the
Purchaser:
(a) of the occurrence of any default under, or breach
of, any of the provisions of Articles 8 or 9 or if a Net Worth Event has
occurred, accompanied by a certificate specifying the nature of such default,
breach or financial condition, the period of existence thereof and the action
that the Company has taken or proposes to take with respect thereto; and
(b) of any (i) material default or event of default
under any material Contractual Obligation of the Company or any of its
Subsidiaries, or (ii) material dispute, litigation, investigation, proceeding or
suspension which may exist at any time between the Company or any of its
Subsidiaries and any Governmental Authority.
(c) Each notice pursuant to this Section 8.6 shall be
accompanied by a statement by the Chief Executive Officer, President or Chief
Financial Officer of the Company setting forth details of the occurrence
referred to therein and stating what action the Company proposes to take with
respect thereto.
8.7 Issue Taxes. The Company shall pay, or cause to be paid,
all documentary and similar taxes levied under the laws of any applicable
jurisdiction in connection with the issuance of the Preferred Shares and the
Class A Warrants, the Common Stock to be issued upon exercise of the Class A
Warrants and the execution and delivery of the other agreements and documents
contemplated hereby and any modification of the Preferred Shares and the Class A
Warrants or such other agreements and documents and will hold the Purchaser
harmless, without limitation as to time, against any and all liabilities with
respect to all such taxes.
8.8 Reservation of Shares. The Company shall at all times
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issue or delivery upon exercise of all outstanding Class A Warrants
as provided therein, such number of shares of Common Stock as shall then be
issuable or deliv erable upon the exercise of all outstanding Class A Warrants.
Such shares of
<PAGE> 41
36
Common Stock shall, when issued or delivered in accordance with the terms of the
Class A Warrants, be duly and validly issued and fully paid and non-assessable.
The Company shall issue the Common Stock into which the Class A Warrants are
convertible upon the proper surrender of the Class A Warrants in accordance with
the provisions therein and shall otherwise comply with the terms thereof.
8.9 Inspection.
(a) The Company will permit, and will cause each of
its Subsidiaries to permit, representatives of the Fund to visit and inspect any
of its properties, to examine its corporate, financial and operating records and
make copies thereof or abstracts therefrom, and to discuss its affairs, finances
and accounts with their respective directors, officers and independent public
accountants, all at such reasonable times during normal business hours and as
often as may be reasonably requested, upon reasonable advance notice to the
Company.
(b) Without limiting any obligations provided under
any Requirement of Law, the Purchaser will utilize reasonable good faith efforts
to maintain as confidential any information obtained from the Company (to the
extent Purchaser is advised by the Company that such information is
confidential) pursuant to Section 8.9(a) or 8.1(c) (other than information which
(i) at the time of disclosure or thereafter is generally available to and known
by the public (other than as a result of a disclosure directly or indirectly by
the Purchaser or any of its representatives), (ii) is available to the Purchaser
on a non-confidential basis from a source other than the Company or its
Subsidiaries, provided that such source was not known by the Purchaser to be
bound by a confidentiality agreement with the Company or any of its
Subsidiaries, or (iii) has been independently developed by the Purchaser, and
shall not disclose any information obtained from the Company pursuant to Section
8.9(a) or 8.1(c) and required to be maintained as confidential pursuant hereto,
except (A) to BBH&Co and its advisors, representatives, agents, partners and
employees, (B) to its advisors, representatives, agents, partners (and their
representatives and advisors) and employees, (C) to any prospective transferee
of the Preferred Shares, Class A Warrants or shares of Common Stock issued upon
the exercise of the Class A Warrants or of an interest in the Purchaser or in a
successor fund sponsored by BBH & Co.; provided that no information may be
disclosed to any such prospective transferee unless (1) such prospective
transferee enters into a confidentiality agreement (agreeing to substantially
the same terms as the Purchaser has agreed to hereunder) with respect to any
confidential information and (2) such prospective transferee is an institutional
investor and is not a Dental Implant Company or an Affiliate of a Dental Implant
Company, (D) as may be required by law (including a court order, subpoena or
other administrative order or process) or applicable regulations to which the
Purchaser is or becomes subject, (E) in connection with any litigation arising
out of or related to this Agreement, (F) to the executive officers of the
Company or any of its Subsidiaries, or (G) with the consent of the Company.
<PAGE> 42
37
8.10 Board Representation; Management Rights.
(a) The Company shall at or prior to the Closing Date
cause three vacancies to be created on its Board of Directors (by increasing the
number of members of the Board of Directors or otherwise) and at the Closing
Date shall cause the Board of Directors to consist of a total of seven members
and the Fund shall be entitled to designate three persons to be elected to the
Company's Board of Directors. Such designees shall serve until the annual
meeting of stockholders of the Company immediately following the election of
such person to the Board of Directors. At the time of each meeting of
Shareholders at which the Preferred Stock, voting separately as a single class,
has the right to elect directors pursuant to the terms of the Certificate of
Designation, the Company shall cause there to be sufficient vacancies on the
Board of Directors for the members so elected by the Preferred Stock.
(b) Commencing with the annual meeting of
stockholders of the Company immediately following any date on which Section 3(b)
of the Certificate of Designation (or any successor section) ceases to be in
effect pursuant to Section 8.16 or the Preferred Stock ceases to be outstanding,
and at each annual meeting of stockholders of the Company thereafter, the Fund
shall be entitled to designate, from time to time, three nominees to the
Company's Board of Directors; provided, that if the Fund at any time holds less
than (i) 50% of the total number of shares of Preferred Stock purchased
hereunder on the Closing Date and (ii) 50% of the Common Stock into which the
Class A Warrants purchased hereunder on the Closing Date are exercisable
(assuming exercise of such Class A Warrants), the Fund shall be entitled to
nominate such number of directors (to the nearest whole number but in no event
sufficient to constitute a majority) equal to the product of (i) the total
number of directors on the Board of Directors, multiplied by (ii) the quotient
of (x) the number of shares of Common Stock held by the Purchaser (assuming
exercise of the Class A Warrants), divided by (y) the total number of shares of
Common Stock of the Company on a fully-diluted basis. The Company shall use its
best reasonable efforts to cause such nominee or nominees (unless, after
customary investigation of such person's qualifications, the Board of Directors
reasonably determines in good faith that such person is not qualified or
acceptable under standards applied fairly and equally to all nominees) of the
Fund to be included in the slate of nominees recommended by the Board to the
Company's stockholders for election as directors, and the Company shall use its
best reasonable efforts to cause the election of such nominee or nominees,
including voting all shares for which the Company holds proxies (unless
otherwise directed by the stockholder submitting such proxy) or is otherwise
entitled to vote, in favor of the election of such person.
(c) In the event any such nominee of the Fund shall
cease to serve as a director for any reason, other than by reason of the Fund
not being entitled to nominate a nominee as provided in Section 8.10(a) or
8.10(b), the Company shall use its best efforts to cause the vacancy resulting
thereby to be filled by a nominee of
<PAGE> 43
38
the Fund reasonably acceptable to a majority of the Board of Directors of the
Company (excluding any members nominated by the Fund).
(d) In the event that the Board of Directors of the
Company establishes committees from time to time, at least one of the nominees
of the Fund shall have the right, upon the Fund's request, to serve on such
committee. If the Company has any Subsidiary, each Subsidiary's Board of
Directors shall consist of the same members as the Company's Board of Directors
and upon the Fund's request, at least one of the members who is a nominee of the
Fund shall have the right to serve on any committee of the Board of Directors of
such Subsidiary; provided, that the Board of Directors of 3304906 Canada Inc.
shall not be required to have the same members on its Board of Directors to the
extent it would be a violation of Canadian law; provided, further that the
Company shall cause 3304906 Canada Inc. to obtain the same approvals by the
Company's Board of Directors (including the vote of a majority of the directors
of the Board of Directors designated by the Fund) for actions which would
require approval pursuant to Section 10.2 hereof if the Company were to take
such action.
8.11 Registration and Listing. If the Preferred Shares, or any
shares of Common Stock required to be reserved for purposes of exercise of the
Class A Warrants as provided in the Class A Warrants, require registration with
or approval of any Governmental Authority under any federal or state or other
applicable law before such Preferred Shares or Common Stock may be issued or
delivered upon exercise of the Class A Warrants, the Company will in good faith
and as expeditiously as possible endeavor to cause such Preferred Shares or
Common Stock to be duly registered or approved, as the case may be, unless such
registration or approval is required solely because of a breach of the
Purchaser's representation contained in Sections 6.5 or 6.8. In the event that,
and so long as, the Common Stock is listed on the NYSE or quoted or listed on
any other national securities exchange or NASDAQ, the Company will, if permitted
by the rules of such system or exchange, quote or list and keep quoted or listed
on such exchange or NASDAQ, upon official notice of issuance, all Common Stock
issuable or deliverable upon exercise of the Class A Warrants. In addition, the
Company will in good faith and as expeditiously as possible endeavor (i) to
obtain private placement numbers for the Class A Warrants, the Common Stock
issued pursuant to the exercise thereof and the Preferred Shares, assigned by
the CUSIP Service Bureau of Standard & Poor's Corporation and (ii) at the
request of the Purchaser, to cause the Class A Warrants, the Common Stock issued
pursuant to the exercise thereof and Preferred Shares to be eligible for the
PORTAL trading system (it being understood that the Company shall not be
required to amend this Agreement in any material way so as to cause the Common
Shares or the Preferred Shares to be eligible to trade on the PORTAL system) and
for clearance and settlement through Depository Trust Company.
<PAGE> 44
39
8.12 Change of Control Offer.
(a) If at any time prior to an IPO, a Change of
Control occurs (as defined below), the Company shall, within 5 Business Days
thereafter, offer to purchase from the Fund (a "Change of Control Offer"), and,
if the Change of Control Offer is accepted and there are funds legally available
(and the Company has taken all reasonable steps to make such funds legally
available, including without limitation, revaluing the Company's assets),
thereafter shall purchase, all (but not less than all) outstanding Preferred
Shares then held by the Fund for an aggregate purchase price equal to 100% of
the Liquidation Preference of the Preferred Shares, plus accrued and unpaid
dividends to the purchase date, whether or not declared or currently payable, on
a date to be specified in a "Notice of Offer" (as hereinafter provided) not
sooner than 20 days and not later than 40 days after the date of such notice
(subject to compliance with applicable securities laws). Notwithstanding the
foregoing, in the event of a Change of Control of the types set forth in clauses
(ii) and (iii) below, the Company shall make the Change of Control Offer not
later than ten Business Days prior to the consummation of the transaction
contemplated by clause (ii) or (iii) below, as the case may be, and the Company
shall not be required to purchase Preferred Shares unless such transaction shall
be consummated, in which case the Company shall be required to purchase such
Preferred Shares immediately prior to the consummation of such transaction.
A "Change of Control" of the Company shall be deemed to have
occurred:
(i) At such time as any Person or "group" (within the meaning
of Section 13(d)(3) of the Exchange Act), (other than the Purchaser or
the S-O Parties), is or becomes (without the prior written consent of
the Fund) the beneficial owner, directly or indirectly, of outstanding
shares of stock of the Company entitling such Person or Persons to
exercise 50% or more of the total votes entitled to be cast at a
regular or special meeting, or by action by written consent, of the
stockholders of the Company in the election of directors (the term
"beneficial owner" shall be determined in accordance with Rule 13d-3 of
the Exchange Act); provided, that a Change of Control shall be deemed
not to have occurred if any such Person acquires 50% or more of the
voting power referred to above pursuant to a transfer of Preferred
Shares or Class A Warrants or Common Stock issued upon the exercise of
the Class A Warrants by the Fund;
(ii) At such time as the stockholders of the Company shall
have approved a reorganization, merger or consolidation or similar
transaction, in each case, with respect to which all or substantially
all the Persons who were the beneficial owners of the outstanding
shares of capital stock (assuming for purposes of this clause that all
the Class A Warrants, Other Warrants and any warrants issued as
Management Equity outstanding immediately prior to such
<PAGE> 45
40
event have been exercised) of the Company immediately prior to such
reorganization, merger or consolidation, beneficially own, directly or
indirectly, less than 50% of the combined voting power of the then
outstanding shares of capital stock (assuming for purposes of this
clause that all Class A Warrants and Other Warrants and any warrants
issued as Management Equity outstanding immediately prior to such event
are exercised immediately prior to such event and are outstanding
immediately after such event) of the Company resulting from such
reorganization, merger or consolidation;
(iii) At such time as the stockholders of the Company shall
have approved the sale or other disposition of all or substantially all
the assets of the Company (other than to a wholly owned Subsidiary of
the Company) in one transaction or in a series of related transactions;
(iv) If a majority of the Board of Directors of the Company
shall consist of Persons other than Continuing Directors. The term
"Continuing Director" shall mean any member of the Board of Directors
on the Closing Date, any director elected pursuant to Section 8.10, and
any other member of the Board of Directors who shall be recommended or
elected to succeed a Continuing Director by a majority of Continuing
Directors who are the members of the Board of Directors;
(v) If immediately after any merger, consolidation,
combination, reclassification or recapitalization or similar
transaction, the S-O Parties (A) shall have increased the aggregate
percentage of the outstanding shares of capital stock of the Company
represented by the shares they collectively beneficially own by 10% of
such outstanding shares or more and (B) shall be the beneficial owner
(as such term is defined in clause (i) above), directly or indirectly,
of outstanding shares of stock of the Company (or any Person surviving
such transaction) entitling the S-O Parties to collectively exercise
50% or more of the total voting power of all classes of stock of the
Company (or the surviving Person in such transaction) entitled to vote
in the election of the directors and, in anticipation of, in connection
with or as a result of, such transaction, the Company (or such
surviving Person) shall have incurred or issued additional Indebtedness
such that the total Indebtedness so incurred or issued equals at least
50% of the consideration payable in such transaction; provided,
however, that any such transaction shall not be considered a Change of
Control if the Fund shall have participated therein on no less than a
pari passu basis (assuming exercise of all of the Fund's Class A
Warrants into shares of Common Stock) with the S-O Parties; and
(vi) An event described in Section 13.1.13 of the Senior Debt
Documents or in Section 8.1(j) of the Subordinated Debt Documents
occurs.
<PAGE> 46
41
(b) The Change of Control Offer shall remain open
from the time of mailing until the purchase date set forth in the Notice of
Offer. The Notice of Offer shall be accompanied by a copy of the information
most recently required to be supplied under Section 8.1(a) and Section 8.1(b).
The Notice of Offer shall contain all instruments and materials necessary to
enable the Fund to tender Preferred Shares pursuant to the Change of Control
Offer. The Notice of Offer, which shall govern the terms of the Change of
Control Offer, shall state:
(i) that the Change of Control Offer is being made pursuant to
this Section 8.12 and that tendered Preferred Shares will be purchased;
(ii) the purchase price and the date designated for purchase;
(iii) that the Change of Control Offer is being made for all (but
not less than all) Preferred Shares held by the Fund;
(iv) that the Preferred Shares, purchased pursuant to the Change
of Control Offer shall cease to accrue dividends or interest after the
date designated for purchase;
(v) such other information respecting the procedures for
accepting the Change of Control Offer as the Company shall include and
such other information as may be required by law; and
(vi) that (unless otherwise required by law) the Fund will be
entitled to withdraw its election if the Company receives, not later
than the close of business on the third Business Day next preceding the
date scheduled for to purchase, facsimile transmission or letter
setting forth the Fund, the number of Preferred Shares owned by the
Fund (all of which shall have been delivered for purchase) and a
statement that the Fund is withdrawing its election to have such
Preferred Shares purchased.
8.13 Preemptive Right. In the event that, at any time or from
time to time prior to the IPO, the Company proposes to issue or sell (except in
the case of an Excepted Transaction), newly issued shares of Common Stock (which
term shall include, for purposes of this Section 8.13, shares of any class or
series of common stock of the Company, or securities convertible, exchangeable
or exercisable into Common Stock or any class or series of Common Stock, or any
options, warrants or other rights to acquire shares of Common Stock or any class
or series of Common Stock ("New Securities")), in a transaction exempt from
registration under the Securities Act, the Fund will have the right to purchase
from the Company at a price per share that is no less favorable to the Fund than
the price to be paid to the Company by any other potential purchaser an amount
of New Securities equal to the product of the total amount of such New
Securities being issued or sold and the Fund's Percentage Equity Interest;
provided, that this Section 8.13 shall not be
<PAGE> 47
42
applicable to any securities issued to the S-O Parties in a transaction referred
to in Section 2.4(a) or 2.4(b) solely to the extent that such securities reduced
the Fund's ability to invest pursuant to any such Section.
8.14 Use of Proceeds. The proceeds of the Preferred Shares and
the Class A Warrants shall be used by the Company to fund the Acquisition in
accordance with the terms and conditions of the Asset Sale Agreement.
8.15 FIRPTA. At the Purchasers' request at any time after the
Closing Date, the Company shall provide a certificate to the effect that the
Company is not, and has not been at any time during the five-year period ending
on the date of such certificate, a "United States real property holding
corporation," as defined in Section 897(c)(2) of the Code.
8.16 Certificate of Incorporation. If the Fund so requests, at
any time, the Company shall use its best reasonable efforts to amend the
Certificate of Incorporation so that the provisions of Section 3(b) or 3(d) of
the Certificate of Designation (or any successor section) shall be eliminated
and in such event, the Fund hereby covenants and agrees to use its best
reasonable efforts to cause the Company to so amend its Certificate of
Incorporation.
ARTICLE 9
NEGATIVE COVENANTS
------------------
The Company hereby covenants and agrees that, unless the
Majority Holders waive compliance in writing, and, other than with respect to
Section 9.3, until such time as none of the Preferred Stock is outstanding:
9.1 Consolidations and Mergers. The Company shall not merge,
consolidate with or into, or convey, transfer, lease or otherwise dispose of
(whether in one transaction or in a series of transactions) all or substantially
all of its assets (whenever acquired), and the Company shall not allow any of
its Subsidiaries to merge or consolidate with or into any other Person except
another Subsidiary of the Company, except the Company may consolidate or merge
with or into, or sell all or substantially all of its assets to, any Person if:
(a) The corporation or partnership formed by such
consolidation or surviving such merger or the Person which acquires all or
substantially all of the assets of the Corporation shall be (after giving effect
to such transaction) a Solvent corporation or partnership organized or formed,
as the case may be, and existing under, the laws of the United States, any state
thereof, or the District of Columbia and shall expressly assume in writing all
of the obligations of the
<PAGE> 48
43
Company under this Agreement, the Preferred Shares, the Common Shares and the
Registration Rights Agreement;
(b) immediately after giving effect to such
transaction, no default under, or breach of, any of the provisions of Articles 8
and 9 exists;
(c) the corporation or partnership formed by or
surviving any such transaction or the Person that acquires all or substantially
all of the assets of the Company shall have a Consolidated Net Worth at least
equal to the Consolidated Net Worth of the Company immediately prior to such
transaction; and
(d) the Company shall have furnished to the Holders
(i) an opinion of counsel satisfactory to the Majority Holders, addressing the
matters (other than solvency) set forth in clause (a) above and (ii) the
certificate of the Chief Financial Officer of the Company to the effect that
such transaction has been consummated in compliance with the foregoing
requirements; provided that nothing in this Section 9.1 shall affect the rights
of any Holder under this Agreement, the Preferred Shares, the Shareholder's
Agreement, the Common Shares or the Registration Rights Agreement.
9.2 Transactions with Affiliates. Except with respect to the
transaction fee in an amount equal to $670,000 payable to SOMC in connection
with the transactions contemplated hereby, the Company shall not, and shall not
permit any of its Subsidiaries to, enter into any transaction with any Affiliate
of the Company or of any such Subsidiary, except in the ordinary course of
business and pursuant to the reasonable requirements of the business of the
Company or such Subsidiary and on terms no less favorable to the Company or such
Subsidiary than those the Company or such Subsidiary would obtain in a
comparable arm's-length transaction with a Person not an Affiliate of the
Company or such Subsidiary; provided, that if the Company gets a written opinion
from a nationally recognized investment bank to the effect that the transaction
in question is fair to the Company from a financial point of view, then such
transaction shall be deemed to comply with this Section 9.2 and; provided,
further, that prior to an IPO, an annual management fee of $250,000 (subject to
reasonable adjustment in accordance with Section 10.2) shall be payable to SOMC
or any transferee or assignee of its right to receive the same and shall be
deemed not to violate the covenant contained in this Section 9.2.
9.3 No Inconsistent Agreements. Neither the Company nor any of
its Subsidiaries shall (a) enter into any loan or other agreement after the date
hereof or (b) amend or modify any currently existing loan or other agreement,
which by its terms restricts or prohibits the ability of the Company to pay
dividends on the Preferred Stock, to redeem the Preferred Stock or to issue
Common Stock upon exercise of the Class A Warrants, in each case in accordance
with the Amended and Restated Certificate, this Agreement and the Class A
Warrants; provided, however, that the foregoing shall not prevent the Company or
any Subsidiary thereof from
<PAGE> 49
44
entering into any loan agreement (the terms of which are substantially similar
to those contained in the Debt Documents as in effect on the Closing Date) or
other agreement after the date hereof which contains, restrictions or
prohibitions on the ability of the Company to pay dividends on the Preferred
Stock or to redeem or repurchase the Preferred Stock during the existence of a
default or event of default under any such agreement.
9.4 No Amendments or Waivers to Asset Sale Agreement or
Registration Rights Agreements. For so long as the Fund holds at least 10% of
the Preferred Shares and Class A Warrants (or shares of Common Stock issued upon
exercise thereof) purchased hereunder at the Closing Date, the Company shall not
amend, modify, alter or waive the Asset Sale Agreement or any registration
rights agreements with respect to the Company in effect as of the Closing Date
without the prior written consent of the Fund and the Company shall not waive
any condition set forth in Article 5 of the Asset Sale Agreement without the
prior written approval of the Purchaser.
9.5 Other Transaction Documents. The Company agrees that from
and including the date hereof until the Closing Date, it shall keep the
Purchaser informed of the material terms of (a) the Debt Documents, (b) any
document related to the issuance and sale of the Junior Preferred Shares and (c)
any other Transaction Document to which the Purchaser is not a party and which
is related to the transactions contemplated hereby, and at the Purchaser's
request, the Company shall deliver to Purchaser drafts of any such documents.
9.6 Issuances of Preferred Stock. The Company agrees that it
will not issue any shares of Preferred Stock except to (a) the Fund or (b)
solely to the extent provided in Section 2.4, any of the S-O Parties.
ARTICLE 10
OTHER AGREEMENTS AND CERTAIN
ACTIONS REQUIRING SPECIAL CONSENT
---------------------------------
10.1 Limitations on Exercise of Class A Warrants. The Fund
agrees that it will not exercise the Class A Warrants until the earliest to
occur of any of the following: (a) one year from the Closing Date, (b)
immediately prior to the consummation of an IPO, (c) a breach of a Material
Covenant, (d) a Debt Default has occurred, (e) the Fund exercises its Cash Flow
Option, (f) a Net Worth Event has occurred and is continuing, (g) the Company
fails to pay any dividend on the Preferred Stock, when such becomes due and
payable, (h) the Company fails to redeem the Preferred Stock in accordance with
the terms of the Certificate of Designation, (i) the Fund ceases to own any
shares of Preferred Stock, (j) a Change
<PAGE> 50
45
of Control occurs, or (k) Henry Wendt ceases to be Chairman of the Company's
Board of Directors; provided, that notwithstanding the foregoing, the Fund shall
be entitled to exercise such number of Warrants that would result in the sum of
(i) the Fund's Percentage Preferred Interest multiplied by 43%, plus (ii) the
Fund's Percentage Common Interest multiplied by 57%, being equal to or less than
50%.
10.2 Actions Requiring Special Consent of Directors. At any
time prior to an IPO and for so long as the Fund holds at least (i) 50% of the
Preferred Shares purchased on the Closing Date, or (ii) 50% of the Class A
Warrants (or Common Stock issued upon the exercise thereof) purchased on the
Closing Date, the Company shall not, and shall cause each of its Subsidiaries
not to, without the affirmative vote of a majority of the directors of the Board
of Directors designated by the Fund (whether voting on such matter or not):
(a) sell or otherwise dispose of, or purchase or
otherwise acquire, any assets or businesses other than assets acquired or
disposed or in the ordinary course of business;
(b) sell or issue any securities of the Company or
any of its Subsidiaries other than (w) the Management Equity, (x) pursuant to
any employee stock option plan approved by the Board of Directors, (y) upon
conversion or exercise of securities theretofore approved by the holders of 66
2/3% of the Preferred Stock in accordance with Section 3(a) of the Certificate
of Designation, or (z) upon conversion of the Class B Preferred or exercise of
the Class A Warrants, the Other Warrants or the Management Equity, or in respect
of any anti-dilution or similar adjustment pursuant to the terms of the Class B
Preferred, the Preferred Stock, the Class A Warrants, the Other Warrants, the
Management Equity or any securities theretofore approved by the holders of 66
2/3% of the Preferred Stock in accordance with Section 3(a) of the Certificate
of Designation;
(c) form any corporation or other entity all of the
shares or equity interests of which are not owned by the Company, directly or
indirectly;
(d) determine to register or register any of its
securities under the Securities Act or the Exchange Act, except pursuant to any
registration rights contained in any registration rights agreements in effect at
the Closing Date;
(e) elect to make any dividend payment on the Class B
Preferred or the Junior Preferred Stock in cash;
(f) declare or pay any dividend or any distribution
on the Common Stock;
<PAGE> 51
46
(g) effect a voluntary redemption of any Class B
Preferred or Junior Preferred Stock other than a redemption required by the
terms of any such securities;
(h) amend, modify or alter its Certificate of
Incorporation or its By-Laws or the certificate of incorporation or by-laws of
any Subsidiary (including, without limitation, a change in the number of
directors which constitutes the Company's board of directors, except increases
to any Subsidiary's Board of Directors as a result of such increase in the
Company's Board of Directors and increases pursuant to the terms of the
Preferred Stock, the Junior Preferred or the Class B Preferred);
(i) incur, assume or refinance any indebtedness for
borrowed money of the Company or any of its Subsidiaries in a principal amount
in excess of $50,000;
(j) adopt any employee stock option or similar plan
or enter into of any material employment or consulting agreements;
(k) take any other action which is other than in the
ordinary course of its business;
(l) amend, modify or alter, in any material manner,
any of the Debt Documents or the Preferred Stock Documents;
(m) amend, modify or alter the terms of the
management fee provided for in Section 9.2 or enter into any transaction with an
Affiliate which would be prohibited by Section 9.2; or
(n) agree to take any of the foregoing actions.
10.3 Amendment to Certificate. At the earlier to occur of the
consummation of an IPO or any time when the Fund shall (a) no longer hold or (b)
transfer any of its Preferred Shares, Class A Warrants or Common Stock issued
upon exercise thereof so that it would no longer hold, at least (i) 50% of the
Preferred Shares purchased on the Closing Date or (ii) 50% of the Class A
Warrants (or Common Stock issued upon exercise thereof) purchased on the Closing
Date, then the Fund hereby covenants and agrees to use its best reasonable
efforts to cause the Company to amend its Certificate of Incorporation so that
the provisions of Sections 3(b) and 3(d) of the Certificate of Designation (or
any successor section) shall be eliminated (which amendment, in the case of the
events described in clause (b) of this Section 10.3, would be effective upon
consummation of such transfer).
<PAGE> 52
47
ARTICLE 11
MISCELLANEOUS
-------------
11.1 Survival of Provisions. All of the representations,
warranties and covenants made herein and each of the provisions of this
Agreement shall survive the execution and delivery of this Agreement, any
investigation by or on behalf of the Purchaser or any Affiliate, acceptance of
the Preferred Shares, Class A Warrants and shares of Common Stock issued
pursuant to the exercise of the Class A Warrants and payment therefor, payment
of the Preferred Shares upon redemption or otherwise, exercise of the Class A
Warrants or termination of this Agreement; provided that the representation and
warranty contained in Section 5.21 shall expire as to all unasserted claims
related thereto on the date on which the representations in the Asset Purchase
Agreement underlying any such claim expires in accordance with Section 8.1 of
the Asset Purchase Agreement.
11.2 Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopier,
courier services or personal delivery to the following addresses, or to such
other addresses as shall be designated from time to time by a party in
accordance with this Section 11.2:
(a) if to the Purchaser:
The 1818 Fund II, L.P.
c/o Brown Brothers Harriman & Co.
59 Wall Street
New York, New York 10005
Attention: T. Michael Long
Telecopier No.: (212) 493-8429
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: Marilyn Sobel, Esq.
Telecopier No.: (212) 757-3990
<PAGE> 53
48
(b) if to the Company:
S-O Acquisition Corp.
4900 West Dry Creek Road
Healdburg, CA 95448
Telecopier No.: (707) 433-4349
Attention: Henry Wendt
(c) if to any of the S-O Parties:
4900 West Dry Creek Road
Healdburg, CA 95448
Telecopier No.: (707) 433-4349
Attention: Henry Wendt
and, in the case of (b) and (c), with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York 10019
Attention: Lawrence A. Darby, III, Esq.
Telecopier No.: (212) 841-1010
All such notices and communications shall be deemed to have
been duly given: when delivered by hand, if personally delivered; one Business
Day after delivery to a courier, if delivered by commercial overnight courier
service; five Business Days after being deposited in the mail, postage prepaid,
if mailed; and when receipt is acknowledged, if telecopied.
11.3 Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. The Purchaser may assign any of its rights under this Agreement,
the Preferred Shares, the Class A Warrants or the Registration Rights Agreement
to any of its Affiliates and any such assignee shall be deemed to be a
"Purchaser" for purposes of this Agreement. Subject to the restrictions of this
Agreement, the Purchaser may assign any of its rights under this Agreement, the
Preferred Shares, the Class A Warrants or a portion thereof to any Person;
provided that the Purchaser's rights under Section 8.1(c), 8.1(e), 8.3(b), 8.5,
8.6(a), 8.9(a), 8.10, 8.12, 8.13, 10.1 and 10.2 may not be assigned without the
consent of the Company. The Company may not assign any of its rights hereunder
without the consent of the Majority Holders. Except as provided in Article 7, no
Person other than the parties hereto and their permitted assignees is intended
to be a beneficiary of this Agreement or the Registration Rights Agreement.
<PAGE> 54
49
11.4 Amendment and Waiver. No failure or delay on the part of
the Company or any Holder in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Purchaser at law, in equity or otherwise. No
waiver of or consent to any departure by the Company or any Holder from any
provision of this Agreement shall be effective unless signed in writing by the
party entitled to the benefit thereof; provided that notice of any such waiver
shall be given to each party hereto as set forth below. Except as otherwise
provided herein, no amendment, modification or termination of any provision of
this Agreement shall be effective unless signed in writing by or on behalf of
the Company and the Majority Holders.
Any amendment, supplement or modification of or to any
provision of this Agreement, any waiver of any provision of this Agreement, and
any consent to any departure by the Company or any Holder from the terms of any
provision of this Agreement, shall be effective only in the specific instance
and for the specific purpose for which made or given. Except where notice is
specifically required by this Agreement, no notice to or demand on the Company
or any Holder in any case shall entitle the Company or any Holder to any other
or further notice or demand in similar or other circumstances.
11.5 Counterparts. This Agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
11.6 Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
11.7 Determinations. All determinations to be made by the
Company, the Purchaser or any Holder hereunder in its opinion or judgment or
with its approval or otherwise shall be made by it in its sole discretion.
11.8 Governing Law. This Agreement has been negotiated,
executed and delivered in the State of New York and shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to principles of conflicts of law.
11.9 Jurisdiction and Waiver of Jury Trial. EACH PARTY TO THIS
AGREEMENT HEREBY IRREVOCABLY AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THIS AGREEMENT OR ANY AGREEMENTS OR TRANSACTIONS
CONTEMPLATED HEREBY MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR OF
<PAGE> 55
50
THE UNITED STATES OF AMERICA FOR THE SOUTHERN DISTRICT OF NEW YORK, IN EACH CASE
LOCATED IN THE COUNTY OF NEW YORK, AND HEREBY EXPRESSLY SUBMITS TO THE PERSONAL
JURISDICTION AND VENUE OF SUCH COURTS FOR THE PURPOSES THEREOF AND EXPRESSLY
WAIVES, TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY CLAIM OF IMPROPER VENUE AND
ANY CLAIM THAT SUCH COURTS ARE AN INCONVENIENT FORUM. EACH PARTY HEREBY
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OF ANY OF THE AFOREMENTIONED
COURTS PURSUANT TO A CONTRACTUAL PROVISION IN ANY SUCH SUIT, ACTION OR
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL,
POSTAGE PREPAID, TO THE ADDRESS SET FORTH IN SECTION 11.2, SUCH SERVICE TO
BECOME EFFECTIVE 10 DAYS AFTER SUCH MAILING. TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES, AND COVENANTS
THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR OTHERWISE), ANY
RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE, CLAIM, DEMAND,
ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS AGREEMENT OR THE
SUBJECT MATTER HEREOF OR ANY FUNDAMENTAL DOCUMENT, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE.
11.10 Severability. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way impaired,
unless the provisions held invalid, illegal or unenforceable shall substantially
impair the benefits of the remaining provisions hereof.
11.11 Rules of Construction. Unless the context otherwise
requires, "or" is not exclusive, and references to sections or subsections refer
to sections or subsections of this Agreement.
11.12 Remedies. If a breach of this Agreement, the Preferred
Shares or the Class A Warrants by the Company occurs and is continuing, the
Purchaser or any Holder of Preferred Shares or Class A Warrants may pursue any
available remedy by proceeding at law or in equity to enforce the performance
(including, without limitation, the specific performance) of any provision of
the Preferred Shares, the Class A Warrants or this Agreement. The Purchaser or
any Holder may maintain a proceeding even if it does not possess any of the
Class A Warrants or Preferred Shares or does not produce any of them in the
proceeding. Except as otherwise provided by law, a delay or omission by the
Purchaser or any Holder in exercising any right or remedy accruing upon any such
breach shall not impair the right or
<PAGE> 56
51
remedy or constitute a waiver of or acquiescence in any such breach. No remedy
is exclusive of any other remedy. All available remedies are cumulative. Notwith
standing the foregoing, the Company's sole remedy for breach of Section 10.1
shall be specific performance and the Company shall not be entitled to any
damages in the event of a breach of such Section.
11.13 Entire Agreement. This Agreement, together with the
exhibits and schedules hereto, the Preferred Shares, the Class A Warrants and
the Registration Rights Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein. There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein. This Agreement, together with the exhibits and schedules
hereto, the Preferred Shares, the Class A Warrants and the Registration Rights
Agreement supersede all prior agreements and understandings among the parties
with respect to such subject matter.
11.14 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement, the Preferred Shares, the Class A
Warrants and the Registration Rights Agreement or any other document or
instrument contemplated hereby or thereby, or where any provision hereof or
thereof is validly asserted as a defense, the successful party shall be entitled
to recover reasonable attorneys' fees, charges and disbursements in addition to
any other available remedy.
11.15 Publicity. Except as may be required by applicable law,
no party hereto shall issue a publicity release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto. If any
announcement is required by law to be made by a party hereto, prior to making
such announcement such party will deliver a draft of such announcement to the
other parties and shall give the other parties an opportunity to comment
thereon.
11.16 No Recourse to BBH&Co.. The obligations contained in
this Agreement, the Preferred Shares, the Class A Warrants and the Registration
Rights Agreement shall be obligations solely of the Purchaser and not the
general partner thereof and notwithstanding anything to the contrary contained
herein or therein, BBH&Co. shall have no obligations with respect to any
obligation or agreement of the Purchaser contained herein or therein.
11.17 Expenses. The Company acknowledges and agrees that
whether or not the transactions contemplated hereby are consummated, the Company
shall reimburse the Purchaser for and shall be liable for (a) all out-of-pocket
expenses of the Purchaser in connection with any preparation and filing of any
notification and report forms filed in compliance with the HSR Act in connection
with the transactions contemplated hereby and (b) all out-of-pocket expenses,
all legal fees and expenses of
<PAGE> 57
52
the Purchaser incurred in connection with the preparation, negotiation and
delivery of the Securities Purchase Agreement on behalf of the Purchaser
exclusively in an amount not to exceed $100,000; provided that in addition to
the foregoing, the Company shall reimburse the Purchaser for all out-of-pocket
expenses and all legal fees and expenses of the Purchaser incurred in connection
with the review, negotiation, execution and delivery of all of the other
Transaction Documents.
11.18 Legends. The Purchaser agrees to the imprinting, so long
as required by the terms of this Agreement, of a legend on certificates
representing all of the Preferred Shares, Class A Warrants, and shares of Common
Stock, as applicable, owned by it to the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO THE TERMS OF A SECURITIES PURCHASE
AGREEMENT ON FILE AT THE OFFICE OF THE COMPANY."
<PAGE> 58
53
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective officers hereunto
duly authorized as of the date first above written.
S-O ACQUISITION CORP.
By:
-------------------------------------
Name:
Title:
THE 1818 FUND II, L.P.
By: Brown Brothers Harriman &
Co., General Partner
By:
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.4
================================================================================
REGISTRATION RIGHTS AGREEMENT
by and among
S-O ACQUISITION CORP.,
THE 1818 FUND II, L.P.,
S-O ACQUISITION LLC,
S-O MANAGEMENT LLC,
LARKSPUR CAPITAL CORPORATION,
FIRST SOURCE FINANCIAL LLP,
UNION BANK OF CALIFORNIA, N.A.,
THE EQUITABLE LIFE ASSURANCE SOCIETY OF
THE UNITED STATES,
EXETER VENTURE LENDERS, L.P.
and
EXETER EQUITY PARTNERS, L.P.
-----------------------------------------------------
Dated as of November 15, 1996
-----------------------------------------------------
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
1. Registration Under Securities Act, etc..........................................................2
1.1 Registration on Request................................................................2
1.2 Shelf Registration.....................................................................5
1.3 Incidental Registration................................................................6
1.4 Registration Procedures................................................................8
1.5 Underwritten Offerings................................................................11
1.6 Preparation; Reasonable Investigation.................................................12
1.7 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants................................................................13
1.8 Indemnification.......................................................................13
2. Definitions....................................................................................16
3. Rule 144 and Rule 144A.........................................................................21
4. Amendments and Waivers.........................................................................21
5. Nominees for Beneficial Owners.................................................................22
6. Notices........................................................................................22
7. Assignment.....................................................................................23
8. Calculation of Percentage Interests in Registrable Securities..................................23
9. No Inconsistent Agreements.....................................................................23
10. Remedies.......................................................................................23
11. Certain Distributions..........................................................................23
12. Severability...................................................................................23
13. Entire Agreement...............................................................................24
14. Headings.......................................................................................24
15. GOVERNING LAW..................................................................................24
16. Counterparts...................................................................................24
</TABLE>
<PAGE> 3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of November 15, 1996, between
S-O ACQUISITION CORP., a Delaware corporation (the "Company"), THE 1818 FUND II,
L.P., a Delaware limited partnership (the "Class A Purchaser"), S-O ACQUISITION
LLC, a New York limited liability company ("S-O LLC"), S-O MANAGEMENT LLC, a New
York limited liability company ("SOMC"), LARKSPUR CAPITAL CORPORATION, a
Delaware corporation, FIRST SOURCE FINANCIAL LLP, an Illinois registered limited
liability partnership ("FSFP"), UNION BANK OF CALIFORNIA, N.A., a national
banking association ("Union Bank"), THE EQUITABLE LIFE ASSURANCE SOCIETY OF THE
UNITED STATES, a New York insurance company ("Equitable") and EXETER EQUITY
PARTNERS, L.P. and EXETER VENTURE LENDERS, L.P. (collectively, "Exeter").
WHEREAS, pursuant to a Securities Purchase Agreement, dated as of
November 15, 1996, between the Company and the Class A Purchaser (the "Purchase
Agreement"), the Class A Purchaser has agreed to purchase from the Company, and
the Company has agreed to issue to the Class A Purchaser, 22,000 shares of the
Company's Class A 8.8% Cumulative Redeemable Preferred Stock, par value $.01 per
share, together with 58,000 Warrants. Capitalized terms used herein but not
otherwise defined shall have the meanings given them in the Purchase Agreement
or in Section 2;
WHEREAS, concurrently with the execution and delivery of this Agreement
and pursuant to, or in connection with, (i) that certain Subscription Agreement
(the "S-O Parties Agreement") dated as of November 15, 1996 between SO LLC, SOMC
and the Company, S-O LLC is purchasing from the Company 1,685 shares of the
Company's Class C 8.0% Junior Cumulative Redeemable Preferred Stock, par value
$0.01 per share (the "Junior Preferred"), together with 5,055 Junior Warrants
for an aggregate purchase price of $1,685,000 and SOMC is acquiring from the
Company 1,000 shares of Common Stock and 14,908 Junior Warrants for an aggregate
purchase price of $1,000 and (ii) that certain Subscription Agreement (the
"Exeter Agreement") dated as of November 15, 1996 between Exeter and the
Company, Exeter is purchasing from the Company 1,500 shares of the Junior
Preferred, together with 4,500 Junior Warrants for an aggregate purchase price
of $1,500,000;
WHEREAS, concurrently with the execution and delivery of this Agreement
and pursuant to, or in connection with, that certain Secured Credit Agreement,
dated as of November 15, 1996, among the financial institutions named therein,
FSFP, as Collateral Agent, Union Bank, as Administrative Agent and S-O Operating
Corp., as Borrower, FSFP and Union Bank are collectively in the aggregate
purchasing 2,000 Debt Warrants; and
<PAGE> 4
WHEREAS, concurrently with the execution and delivery of this Agreement
and pursuant to, or in connection with those certain Note and Warrant Purchase
Agreements, dated as of November 15, 1996 executed by the Company, S-O Operating
Corp. and the purchasers named therein, Equitable and Exeter are collectively
purchasing in the aggregate 6,560 Debt Warrants;
WHEREAS concurrently with the execution and delivery of this Agreement
and pursuant to, or in connection with an agreement (the "Larkspur Agreement")
dated as of November 15, 1996 between the Company and Larkspur, Larkspur is
acquiring 3,977 Junior Warrants.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, the parties hereto agree as follows:
1. Registration Under Securities Act, etc.
1.1 Registration on Request.
(a) Class A Initiating Holders Request. At any time, or from
time to time, upon the earlier of (i) the date after the consummation of an
Initial Public Offering or (ii) five years from the Closing Date, one or more
Class A Initiating Holders may, upon written request, require the Company to
effect the registration under the Securities Act of all or any part of the Class
A Registrable Securities held by such Class A Initiating Holders. The Company
promptly will give written notice of such requested registration to all other
holders of Registrable Securities who may join in such registration, and
thereupon the Company will use its best reasonable efforts to effect, at the
earliest possible date, the registration under the Securities Act, including by
means of a shelf registration pursuant to Rule 415 under the Securities Act if
so requested in such request (but, in the case of a shelf registration, only if
the Company is then eligible to use such a shelf registration and if Form S-2 or
Form S-3 (or any successor forms) is then available to the Company), of;
(i) the Class A Registrable Securities that the Company has
been so requested to register by such Class A Initiating Holders, and
(ii) all other Registrable Securities that the Company has
been requested to register by the holders thereof (such holders together with
the Class A Initiating Holders hereinafter are referred to as the "Section
1.1(a) Selling Holders") by written request given to the Company within 30 days
after the giving of such written notice by the Company.
(b) Subordinated Debt Initiating Holders Request If the Company
has not effected an Initial Public Offering on or before May 15, 2003,
2
<PAGE> 5
then at any time during the period commencing on May 16, 2003 and ending on May
16, 2004, one or more Subordinated Debt Initiating Holders may, upon written
request, require the Company to effect the registration under the Securities Act
of all or any part of the Subordinated Debt Registrable Securities held by such
Subordinated Debt Initiating Holders. The Company promptly will give written
notice of such requested registration to all other holders of Registrable
Securities who may join in such registration, and thereupon the Company will use
its best reasonable efforts to effect, at the earliest possible date, the
registration under the Securities Act, of;
(i) the Subordinated Debt Registrable Securities that the
Company has been so requested to register by such Subordinated Debt Initiating
Holders, and
(ii) all other Registrable Securities that the Company has
been requested to register by the holders thereof (such holders together with
the Subordinated Debt Initiating Holders hereinafter are referred to as the
"Section 1.1(b) Selling Holders") by written request given to the Company within
30 days after the giving of such written notice by the Company.
(c) Registration of Other Securities.
Whenever the Company shall effect a registration pursuant to
this Section 1.1, no securities other than (x) Class A Registrable Securities in
the case of Section 1.1(a) or (y) Subordinated Debt Registrable Securities in
the case of 1.1(b), shall be included among the securities covered by such
registration unless the managing underwriter of such offering shall have advised
each Selling Holder of Registrable Securities to be covered by such registration
in writing that the inclusion of such other securities would not adversely
affect the pricing, timing or other terms of such offering; provided that
notwithstanding the foregoing if (x) in the case of Section 1.1(a), the Debt
Holders are Section 1.1(a) Selling Holders or S-O is a Section 1.1(a) Selling
Holder and the Company is required under the S-O Registration Agreement to
include in the registration shares held by S-O, then subject to Section 1.1(g),
the Debt Registrable Securities that are requested to be included and the shares
of Common Stock held by S-O that are required to be included shall be included
among the securities covered by the registration statement and (y) in the case
of Section 1.1(b), the Class A Holders, the Senior Debt Holders or S-O are
Section 1.1(b) Selling Holders and the Company is required under the S-O
Registration Rights Agreement to include in the registration shares held by S-O,
then subject to Section 1.1(g), the Class A Registrable Securities that are
requested to be included and the shares of Common Stock held by S-O that are
required to be included shall be included among the securities covered by the
registration statement.
3
<PAGE> 6
(d) Registration Statement Form. Registrations under this
Section 1.1 shall be on such appropriate registration form of the Commission as
shall be reasonably selected by the Company.
(e) Effective Registration Statement. A registration requested
pursuant to this Section 1.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective and
remained effective in compliance with the provisions of the Securities Act with
respect to the disposition of all Registrable Securities covered by such
registration statement until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition by
the seller or sellers thereof set forth in such registration statement;
provided, that except with respect to any registration statement filed pursuant
to Rule 415 under the Securities Act, such period need not exceed 180 days, (ii)
if after it has become effective, such registration is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason not attributable to the Selling
Holders and has not thereafter become effective, or (iii) if the conditions to
closing specified in the underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived, other than by
reason of a failure on the part of the Selling Holders whose securities were to
be included in the registration.
(f) Selection of Underwriters. The underwriter or underwriters
of each underwritten offering of (i) the Class A Registrable Securities to be
registered in accordance with Section 1.1(a) of this Agreement shall be selected
by the Section 1.1(a) Selling Holders which hold more than 50% of the Class A
Registrable Securities to be included in such registration and shall be
reasonably acceptable to the Company and (ii) the Subordinated Debt Registrable
Securities to be registered in accordance with Section 1.1(b) shall be selected
by the Section 1.1(b) Selling Holders which hold more than 50% of the
Subordinated Debt Registrable Securities to be included in such registration and
shall be reasonably acceptable to the Company.
(g) Priority in Requested Registration. If the managing
underwriter of any underwritten offering shall advise the Company in writing
(and the Company shall so advise each Section 1.1(a) Selling Holder or Section
1.1(b) Selling Holder, as the case may be, of Registrable Securities requesting
registration of such advice) that, in its opinion, the number of securities
requested to be included in such registration exceeds the number that can be
sold in such offering within a price range acceptable to 66-2/3% (i) of the
Class A Registrable Securities requested to be included in such registration
with respect to Section 1.1(a) requested registrations and (ii) Subordinated
Debt Registrable Securities with respect to Section 1.1(b) requested
registrations, the Company, subject to the limitations set forth in the
following sentence, will include in such registration, to the extent of the
number that the Company is so advised can be sold in such offering: first, all
securities proposed to be
4
<PAGE> 7
sold by the Class A Holders and the Debt Holders and proposed to be sold by S-O
(with respect to S-O to the extent that the Company is required to include such
securities in such registration), pro rata among such Persons on the basis of
the number of shares held by each such Person at the time the registration
becomes effective and second, subject to 1.1(c), Registrable Securities
requested to be included in the registration pro rata among the other Section
1.1(a) Selling Holders or Section 1.1(b) Selling Holders, as the case may be, on
the basis of the number of shares held by each such Selling Holder at the time
the registration becomes effective. If the total number of Registrable
Securities requested to be included in such registration cannot be included as
provided in the preceding sentence, holders of Registrable Securities requesting
registration thereof pursuant to Section 1.1(a) or (b), representing not less
than 10% of (i) the Class A Registrable Securities in the case of Section 1.1(a)
and (ii) Subordinated Debt Registrable Securities in the case of Section 1.1(b),
with respect to which registration has been requested and constituting not less
than 50% of the Class A Initiating Holders or Subordinated Debt Initiating
Holders, as the case may be, shall have the right to withdraw the request for
registration by giving written notice to the Company within 20 days after
receipt of such notice by the Company and, in the event of such with drawal,
such request shall not be counted for purposes of the requests for registration
to which holders of Registrable Securities are entitled pursuant to Section 1.1
hereof.
(h) Limitations on Registration on Request. Notwith standing
anything in this Section 1.1 to the contrary, in no event will the Company be
required to (i) effect, in the aggregate, more than four registrations pursuant
to Section 1.1(a) and one registration pursuant to Section 1.1(b) or (ii) effect
more than one registration pursuant to this Section 1.1 within the twelve-month
period occurring immediately subsequent to the effectiveness (within the meaning
of Section 1.1(e)) of a registration statement filed pursuant to this Section
1.1.
(i) Listing. The Company shall list the Registrable Securities
subject to Section 1.1(a) or 1.1(b) on the New York Stock Exchange or the NASDAQ
or another national securities exchange or automated quotation system and shall
provide for redesignation of the securities to be offered into denominations
suitable for public trading upon request of any underwriter or underwriters of
any underwritten offering of Registrable Securities.
(j) Expenses. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 1.1 except
if a registration statement does not become effective in accordance with Section
1.1(e) as a result of the gross negligence or willful misconduct of the Person
requesting such registration in which case the Company shall not be responsible
for such Person's expenses.
5
<PAGE> 8
1.2 Shelf Registration.
(a) Filing and Effectiveness of Shelf Registration. Within
twenty-four months of the consummation of an Initial Public Offering, the
Company shall file an "evergreen" shelf registration statement solely with
respect to the Class A Registrable Securities and pursuant to Rule 415 under the
Securities Act (the "Shelf Registration"). The Shelf Registration shall be on
Form S-3 (or any successor form) if the Company is then eligible to use Form S-3
(or such successor form). The Company shall use its best reasonable efforts to
have the Shelf Registration declared effective as soon as reasonably practicable
after such filing, and shall use its best efforts to keep the Shelf Registration
effective and updated, from the date such Shelf Registration is declared
effective until such time as all of the Class A Registrable Securities shall
cease to be Class A Registrable Securities. Notwithstanding the foregoing, the
Company may, if it makes a good faith determination that a filing of the Shelf
Registration would interfere with any material financing or material investment
transaction, business combination or material acquisition then under
consideration, the Company may postpone the filing of the Shelf Registration for
a period not to exceed 90 days.
(b) Supplements and Amendments; Expenses. The Company shall
supplement or amend, if necessary, the Shelf Registration, as required by the
instructions applicable to such registration form or by the Securities Act or as
reasonably required by the holders of (or any underwriter for) more than 50% of
the Class A Registrable Securities and the Company shall furnish to the holders
of the Class A Registrable Securities to which the Shelf Registration relates
copies of any such supplement or amendment prior to its being used and/or filed
with the Commission. The Company shall pay all Registration Expenses in
connection with the Shelf Registration, whether or not it becomes effective, and
whether all, none or some of the Class A Registrable Securities are sold
pursuant to the Shelf Registration. In no event shall the Shelf Registration
include securities other than Class A Registrable Securities, unless the holders
of more than 50% of the Class A Registrable Securities consent to such
inclusion.
(c) Underwriting Procedures. If the holders of more than 50% of
the Class A Registrable Securities so elect, the offering of all or a portion of
such Registrable Securities pursuant to the Shelf Registration shall be in the
form of an underwritten offering and the managing underwriter or underwriters
selected for such offering shall be selected by the original Class A Purchaser
or such holders, as the case may be, and reasonably acceptable to the Company.
1.3 Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at
any time proposes to register any shares of Common Stock or any
6
<PAGE> 9
securities convertible into Common Stock under the Securities Act by
registration on any form other than Forms S-4 or S-8 and other than pursuant to
Section 1.2, whether or not for sale for its own account, it will each such time
give prompt written notice to all registered holders of Registrable Securities
of its intention to do so and of such holders' rights under this Section 1.3.
Upon the written request of any such holder (a "Piggy-Back Requesting Holder")
(which request shall specify the Registrable Securities intended to be disposed
of by such Piggy-Back Requesting Holder) made as promptly as practicable and in
any event within 30 days after the receipt of any such notice (10 days if the
Company states in such written notice or gives telephonic or telecopied notice
to all registered holders of Registrable Securities, with written confirmation
to follow promptly thereafter, stating that (i) such registration will be on
Form S-3 and (ii) such shorter period of time is required because of a planned
filing date), the Company will use its best reasonable efforts to effect the
registration under the Securities Act of all Registrable Securities that the
Company has been so requested to register by the Piggy-Back Requesting Holders
thereof; provided, however, that prior to the effective date of the registration
statement filed in connection with such registration, immediately upon
notification to the Company from the managing underwriter of the price at which
such securities are to be sold, if such price is below the price that any
Piggy-Back Requesting Holder shall have indicated to be acceptable to such
Requesting Holder, the Company shall so advise such PiggyBack Requesting Holder
of such price, and such Piggy-Back Requesting Holder shall then have the right
to withdraw its request to have its Registrable Securities included in such
registration statement; provided, further, that if, at any time after giving
written notice of its intention to register any securities and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register or to
delay registration of such securities, the Company may, at its election, give
written notice of such determination to each Piggy-Back Requesting Holder of
Registrable Securities and (i) in the case of a determination not to register,
shall be relieved of its obligation to register any Registrable Securities in
connection with such registration (but not from any obligation of the Company to
pay the Registration Expenses in connection therewith), without prejudice,
however, to the rights of any holder or holders of Registrable Securities
entitled to do so to cause such registration to be effected as a registration
under Section 1.1, and (ii) in the case of a determination to delay registering,
shall be permitted to delay registering any Registrable Securities, for the same
period as the delay in registering such other securities. Notwithstanding
anything contained in this Section 1.3(a), the Company shall not, if any
Piggy-Back Requesting Holder shall have requested the registration of shares of
Common Stock issuable upon exercise of any warrant in the registration,
consummate the sale of the securities included in the registration until the
earlier of (x) such time as any applicable waiting period under the HSR Act
shall have expired or early termination thereunder shall have been granted if
such Piggy-Back Requesting Holder notifies the Company that it is required to
make a filing under the HSR Act before it may exercise its warrant or (y) if S-O
is selling shares in the registration, the date the sale is required to be
consummated pursuant to the S-O Registration Rights Agreement.
7
<PAGE> 10
No registration effected under this Section 1.3 shall relieve the Company of its
obligation to effect any registration under Section 1.2 or upon request under
Section 1.1.
(b) Priority in Incidental Registrations. If the managing
underwriter of any underwritten offering shall inform the Company by letter of
its opinion that the number of securities requested to be included in such
registration would materially adversely affect such offering, and the Company
has so advised the Piggy-Back Requesting Holders in writing, then the Company
will include in such registration, to the extent of the number and type that the
Company is so advised can be sold in (or during the time of) such offering,
first, all securities proposed by the Company to be sold for its own account,
second, any securities initially proposed to be registered by the Company for
the accounts of other Persons pursuant to the exercise of demand registration
rights if such securities must be included to prevent a breach of this Agreement
or any applicable registration rights agreement between the Company and such
other Person, but only to the extent required by this Agreement or such
agreement, third, Registrable Securities requested to be included in such
registration pursuant to this Agreement and securities registrable under the S-O
Registration Rights Agreement pro rata among such PiggyBack Requesting Holders
and S-O on the basis of the number of shares held by each Piggy-Back Requesting
Holder and S-O at the time the registration becomes effective provided, that as
to Registrable Securities and other Securities described in clause, third, if
securities are being offered for the account of other persons or entities in
addition to the Company, such reduction shall not represent a greater proportion
of the number of securities intended to be offered by holders of Registrable
Securities than the proportion of similar reductions imposed on such other
persons or entities of the amount of securities they intend to offer.
(c) Expenses. The Company will pay all Registration Expenses in
connection with any registration effected pursuant to this Section 1.3.
1.4 Registration Procedures. If and whenever the Company is required
to effect the registration of any Registrable Securities under the Securities
Act as provided in Sections 1.1, 1.2 and 1.3, the Company will, as expeditiously
as reasonably possible:
(i) prepare and (within 90 days after the end of the period
within which requests for registration may be given to the Company or
in any event as soon thereafter as practicable) file with the
Commission the requisite registration statement to effect such
registration and thereafter use its best reasonable efforts to cause
such registration statement to become effective; provided, however,
that the Company may discontinue any registration of its securities
that are not Registrable Securities (and, under the circumstances
specified in Section 1.3(a), its securities that are Registrable
Securities) at any time prior to the effective date of the registration
statement relating thereto;
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(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities
Act with respect to the disposition of all Registrable Securities
covered by such registration statement until such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set
forth in such registration statement; provided, however, that except
with respect to any such registration statement filed pursuant to Rule
415 under the Securities Act, such period need not exceed 180 days;
(iii) furnish to each seller of Registrable Securities covered
by such registration statement, such number of conformed copies of such
registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of
the prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus and any supplement or
amendment thereto) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably
request;
(iv) use its best reasonable efforts (x) to register or qualify
all Registrable Securities and other securities covered by such
registration statement under such other securities or blue sky laws of
such States of the United States of America where an exemption is not
available and as the sellers of Registrable Securities covered by such
registration statement shall reasonably request, (y) to keep such
registration or qualification in effect for so long as such
registration statement remains in effect and (z) to take any other
action that may be reasonably necessary or advisable to enable such
sellers to consummate the disposition in such jurisdictions of the
securities to be sold by such sellers, except that the Company shall
not for any such purpose be required to qualify generally to do
business as a foreign corporation in any jurisdiction wherein it would
not but for the requirements of this subdivision (iv) be obligated to
be so qualified or to consent to general service of process in any such
jurisdiction;
(v) use its best reasonable efforts to cause all Registrable
Securities covered by such registration statement to be registered with
or approved by such other federal or state governmental agencies or
authorities as may be necessary in the opinion of counsel to the
Company and counsel to the seller or sellers of Registrable Securities
to enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities;
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(vi) furnish at the effective date of such registration
statement and, if applicable, the date of the closing under the
underwriting agreement, to each seller of Registrable Securities, and
each such seller's underwriters, if any, a signed counterpart of:
(x) an opinion of counsel for the Company, dated the date
of the closing under the underwriting agreement, and
(y) a "comfort" letter signed by the independent public
accountants who have certified the Company's financial statements
included or incorporated by reference in such registration
statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' comfort letter, with respect to events
subsequent to the date of such financial statements, as are customarily
covered in opinions of issuer's counsel and in accountants' comfort
letters delivered to the underwriters in underwritten public offerings
of securities and, in the case of the accountants' comfort letter, such
other financial matters, and, in the case of the legal opinion, such
other legal matters, as the underwriters may reasonably request;
(vii) cause representatives of the Company to participate in any
"road show" or "road shows" reasonably requested by any underwriter of
an underwritten offering of any Registrable Securities;
(viii) notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon 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 any material fact required to be stated therein or necessary to
make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of any
such seller promptly prepare and furnish to it a reasonable number of
copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to such sellers of such
securities, such prospectus shall not include an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
the light of the circumstances under which they were made;
(ix) otherwise use its best reasonable efforts to comply with
all applicable rules and regulations of the Commission, and, if
required, make available to its security holders, as soon as reasonably
practicable, an
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earnings statement covering the period of at least twelve months, but
not more than eighteen months, beginning with the first full calendar
month after the effective date of such registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 promulgated thereunder, and promptly
furnish to each such seller of Registrable Securities a copy of any
amendment or supplement to such registration statement or prospectus;
(x) provide and cause to be maintained a transfer agent and
registrar (which, in each case, may be the Company) for all Registrable
Securities covered by such registration statement from and after a date
not later than the effective date of such registration; and
(xi) use its best reasonable efforts to list all Registrable
Securities covered by such registration statement on the NYSE or the
NASDAQ or any national securities exchange on which Registrable
Securities of the same class covered by such registration statement are
then listed and, if no such Registrable Securities are so listed, on
the NASDAQ or any national securities exchange on which the Common
Stock is then listed.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish the Company in a reasonably prompt
manner such information regarding such seller and the distribution of such
securities as the Company may from time to time reasonably request in writing.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
happening of any event of the kind described in subdivision (viii) of this
Section 1.4, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 1.4 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such holder's possession of the prospectus relating to such Registrable
Securities at the time of receipt of such notice.
1.5 Underwritten Offerings.
(a) Requested Underwritten Offerings. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 1.1 or pursuant to the Shelf
Registration Statement, the Company will use its best reasonable efforts to
enter into an underwriting agreement with such underwriters for such offering,
such agreement to be reasonably satisfactory in substance and form to the
holders of a majority of the
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securities to be registered and the underwriters and to contain such
representations and warranties by the Company and such other terms as are
generally prevailing in agreements of that type, including, without limitation,
indemnities to the effect and to the extent provided in Section 1.8. The holders
of the Registrable Securities proposed to be sold by such underwriters will
reasonably cooperate with the Company in the negotiation of the underwriting
agreement. Such holders of Registrable Securities to be sold by such
underwriters shall be parties to such underwriting agreement and may, at their
option, require that any or all of the representations and warranties by, and
the other agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such holders of
Registrable Securities and that any or all of the conditions precedent to the
obligations of such underwriters under such underwriting agreement be conditions
precedent to the obligations of such holders of Registrable Securities. No
holder of Registrable Securities shall be required to make any representations
or warranties to, or agreements with, the Company other than representations,
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution or any other
information or representations required by applicable law.
(b) Incidental Underwritten Offerings. If the Company proposes to
register any of its securities under the Securities Act as contemplated by
Section 1.3 and such securities are to be distributed by or through one or more
underwriters, the Company will, if requested by any Piggy-Back Requesting Holder
of Registrable Securities, use its best reasonable efforts to arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such Piggy-Back Requesting Holder among the securities of the Company to be
distributed by such underwriters, subject to the provisions of Section 1.3(b).
The holders of Registrable Securities to be distributed by such underwriters
shall be parties to the underwriting agreement between the Company and such
underwriters and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities (except as such representations, warranties or
conditions apply to such holders). Any such PiggyBack Requesting Holder of
Registrable Securities shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such Piggy-Back Requesting
Holder, such Piggy-Back Requesting Holder's Registrable Securities and such
Piggy-Back Requesting Holder's intended method of distribution or any other
representations required by applicable law.
1.6 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
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<PAGE> 15
Securities registered under such registration statement, their underwriters, if
any, and their respective counsel reasonable opportunity to participate in the
preparation of such registration statement, each prospectus included therein or
filed with the Commission, and each amendment thereof or supplement thereto, and
will give each of them such reasonable access to its books and records and such
opportunities to discuss the business of the Company with its officers and the
independent public accountants who have certified its financial statements as
shall be necessary, in the opinion of such holders' and such underwriters'
respective counsel, to conduct a reasonable investigation within the meaning of
the Securities Act.
1.7 Limitations, Conditions and Qualifications to Obligations under
Registration Covenants. The Company shall be entitled to postpone for a
reasonable period of time (but not exceeding 90 days) the filing of any
registration statement otherwise required to be prepared and filed by it
pursuant to Section 1.1 if the Company determines, in its good faith judgment,
that such registration and offering would interfere with any material financing
or material investment transaction, business combination or material acquisition
involving the Company or any of its affiliates and promptly gives the holders of
Registrable Securities requesting registration thereof pursuant to Section 1.1
written notice of such determination, containing a general statement of the
reasons for such postponement and an approximation of the anticipated delay. If
the Company shall so postpone the filing of a registration statement, holders of
Registrable Securities requesting registration thereof pursuant to Section 1.1,
representing not less than 10% of the (a) Class A Registrable Securities in the
case of Section 1.1(a) or (b) Subordinated Debt Registrable Securities in the
case of Section 1.1(b), with respect to which registration has been requested
and constituting not less than 50% of the Class A Initiating Holders or the
Subordinated Debt Initiating Holders, as the case may be, shall have the right
to withdraw the request for registration by giving written notice to the Company
within 30 days after receipt of the notice of postponement and, in the event
of such withdrawal, such request shall not be counted for purposes of the
requests for registration to which holders of Registrable Securities are
entitled pursuant to Section 1.1 hereof.
1.8 Indemnification.
(a) Indemnification by the Company. The Company will, and hereby
does, indemnify and hold harmless, in the case of any registration statement
filed pursuant to Section 1.1, 1.2 or 1.3, each seller of any Registrable
Securities covered by such registration statement and each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person, if any, who controls such seller or any such underwriter
within the meaning of the Securities Act, and their respective directors,
officers, partners, members and agents, against any losses, claims, damages or
liabilities, joint or several, to which such seller or underwriter or any such
director, officer, partner, member, agent or controlling person may become
subject under the Securities Act or otherwise,
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including, without limitation, the fees and expenses of legal counsel (including
those incurred in connection with any claim for indemnity hereunder), insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus, final prospectus or summary
prospectus contained therein, or any amend ment or supplement thereto, or any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of any
prospectus, in light of the circumstances in which they were made) not
misleading, and the Company will reimburse such seller or underwriter and each
such director, officer, partner, member and controlling Person for any legal or
any other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, liability, action or proceeding; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by or on behalf of such seller
or underwriter, as the case may be, specifically stating that it is for use in
the preparation thereof; and provided further, that the Company shall not be
liable to any Person who participates as an underwriter in the offering or sale
of Registrable Securities or any other Person, if any, who controls such under
writer within the meaning of the Securities Act, in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of such Person's failure to send or give a copy
of the final prospectus, as the same may be then supplemented or amended, to the
Person asserting an untrue statement or alleged untrue statement or omission or
alleged omission at or prior to the written confirmation of the sale of
Registrable Securities to such Person if such statement or omission was
corrected in such final prospectus. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of such seller
or any such director, officer, partner, member, agent or controlling person and
shall survive the transfer of such securities by such seller.
(b) Indemnification by the Sellers. If any Registrable Securities
are included in any registration statement, the prospective seller of such
Registrable Securities, severally and not jointly, shall indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
1.8(a)) the Company, and each director of the Company, each officer of the
Company and each other Person, if any, who participates as an underwriter in the
offering or sale of such securities and each other Person who controls the
Company or any such underwriter within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary
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<PAGE> 17
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of such seller
specifically stating that it is for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement; provided, however, that the liability of such
indemnifying party under this Section 1.8(b) shall be limited to the amount of
the net proceeds received by such indemnifying party in the offering giving rise
to such liability.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in Section 1.8(a) or (b), such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party, give
written notice to the latter of the commencement of such action; provided,
however, that the failure of any indemnified party to give notice as provided
herein shall not relieve the indemnifying party of its obligations under the
preceding subdivisions of this Section 1.8, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such action shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it may
wish, to assume the defense thereof, with counsel reasonably satis factory to
such indemnified party; provided, however, that any indemnified party may, at
its own expense, retain separate counsel to participate in such defense.
Notwithstanding the foregoing, in any action or proceeding in which both the
Company and an indemnified party is, or is reasonably likely to become, a party,
such indemnified party shall have the right to employ separate counsel at the
Company's expense and to control its own defense of such action or proceeding
if, in the reasonable opinion of counsel to such indemnified party, (a) there
are or may be legal defenses available to such indemnified party or to other
indemnified parties that are different from or additional to those available to
the Company or (b) any conflict or potential conflict exists between the Company
and such indemnified party that would make such separate representation
advisable; provided, however, that in no event shall the Company be required to
pay fees and expenses under this Section 1.8 for more than one firm of attorneys
in any jurisdiction in any one legal action or group of related legal actions.
No indemnifying party shall be liable for any settle ment of any action or
proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No indemnifying party shall, without the consent of the
indemnified party, which consent shall not be unreasonably withheld, consent to
entry of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation or which requires action other than the payment of money by the
indemnifying party.
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(d) Contribution. If the indemnification provided for in this
Section 1.8 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 1.8(a) or (b) hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Section 1.8(a) or (b), the indemnified party
and the indemnifying party under Section 1.8(a) or (b) shall contribute to the
aggregate losses, claims, damages and liabilities (including legal or other
expenses reasonably incurred in connection with investigating the same,
including those incurred in connection with any claim for indemnity hereunder),
(i) in such proportion as is appropriate to reflect the relative fault of the
Company and the prospective sellers of Registrable Securities covered by the
registration statement which resulted in such loss, claim, damage or liability,
or action or proceeding in respect thereof, with respect to the statements or
omissions which resulted in such loss, claim, damage or liability, or action or
proceeding in respect thereof, as well as any other relevant equitable
considerations or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as shall be appropriate to
reflect the relative benefits received by the Company and such prospective
sellers from the offering of the securities covered by such registration
statement; provided, however, that for purposes of this clause (ii), the
relative benefits received by the prospective sellers shall be deemed not to
exceed the amount of proceeds received by such prospective sellers. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation. Such prospective sellers'
obligations to contribute as provided in this Section 1.8(d) are several in
proportion to the relative value of their respective Registrable Securities
covered by such registration statement and not joint. In addition, no Person
shall be obligated to contribute hereunder any amounts in payment for any
settlement of any action or claim effected without such Person's consent, which
consent shall not be unreasonably withheld.
(e) Other Indemnification. Indemnification and contribution similar
to that specified in the preceding subdivisions of this Section 1.8 (with
appropriate modifications) shall be given by the Company and each seller of
Registrable Securities with respect to any required registration or other
qualification of securities under any federal or state law or regulation of any
governmental authority other than the Securities Act.
(f) Indemnification Payments. The indemnification and contribution
required by this Section 1.8 shall be made by periodic payments of the amount
thereof during the course of the investigation or defense, as and when bills are
received or expense, loss, damage or liability is incurred.
2. Definitions. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
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"Affiliate" means any Person controlling, controlled by or under common
control with the Person in question. As used herein, "control" shall mean the
beneficial ownership of at least a majority of the equity interests of a Person
entitling the owner of such interests to direct the policies and operations of
such Person.
"Class A Holders" means the holders of Class A Registrable Securities.
"Class A Initiating Holder" means as of any date of determination, any
holder or holders of Class A Registrable Securities holding individually or in
the aggregate at least 20% of the shares of the Class A Registrable Securities
then outstanding, and initiating a request pursuant to Section 1.1(a) for the
registration of all or part of such holder's or holders' Class A Registrable
Securities.
"Class A Registrable Securities" means any shares of Common Stock
issued by the Company to the Class A Purchaser prior to the consummation of the
IPO, or issued by the Company upon exercise of any warrants of the Company
issued to the Class A Purchaser prior to the consummation of the IPO, and any
Related Registrable Securities. As to any particular Registrable Securities,
once issued, such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been sold as permitted by Rule 144 (or any successor provision) under the
Securities Act and the purchaser thereof does not receive "restricted
securities" as defined in Rule 144, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company to the transferee and
subsequent public distribution of them shall not, in the opinion of counsel for
the holders, require registration of them by the transferee under the Securities
Act or (d) they shall have ceased to be outstanding. All references to
percentages of Registrable Securities shall be calculated pursuant to Section 8.
"Commission" means the Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
"Common Stock" means and include the Common Stock, par value $.01 per
share, of the Company and each other class of capital stock of the Company that
does not have a preference over any other class of capital stock of the Company
as to dividends or upon liquidation, dissolution or winding up of the Company
and, in each case, shall include any other class of capital stock of the Company
into which such stock is reclassified or reconstituted.
"Debt Documents" shall mean, collectively the Senior Secured Credit
Agreement dated as of November 15, 1996 among S-O Operating, FSFP and Union Bank
and the other parties named therein and the notes and agreements entered into
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<PAGE> 20
in connection therewith (each as amended in accordance with its terms) pursuant
to which S-O Operating will incur $33,000,000 of senior debt and the several
Note and Warrant Purchase Agreements, each dated as of November 15, 1996 among
S-O Operating, the Company, and each of Equitable and Exeter and the notes and
agreements entered into in connection therewith (each as amended in accordance
with its terms) pursuant to which S-O Operating will incur $12,500,000 of
subordinated debt.
"Debt Holders" means the Senior Debt Holders and the Subordinated Debt
Holders.
"Debt Registrable Securities" means collectively, (i) any shares of
Common Stock issued by the Company to FSFP or Union Bank prior to the
consummation of the IPO, or issued upon exercise of warrants of the Company
issued to FSFP or Union Bank prior to the consummation of the IPO, and any
Related Registrable Securities and (ii) the Subordinated Debt Registrable
Securities. As to any particular Debt Registrable Securities, once issued, such
securities shall cease to be Debt Registrable Securities when (a) a registration
statement with respect to the sale of such securities shall have become
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) they shall have been sold
as permitted by Rule 144 (or any successor provision) under the Securities Act
and the purchaser thereof does not receive "restricted securities" as defined in
Rule 144, (c) they shall have been otherwise transferred, new certificates for
them not bearing a legend restricting further transfer shall have been delivered
by the Company to the transferee and subsequent public distribution of them
shall not, in the opinion of counsel for the holders, require registration of
them by the transferee under the Securities Act or (d) they shall have ceased to
be outstanding.
"Debt Warrants" means the warrants substantially in the form of Exhibit
F to the Securities Purchase Agreement, issued by the Company to Exeter,
Equitable, Union Bank and FSFP at any time prior to an IPO.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. Reference to a
particular section of the Securities Exchange Act of 1934, as amended, shall
include a reference to the comparable section, if any, of any such similar
Federal statute.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated by the Federal Trade
Commission thereunder.
"Initial Public Offering" means the initial public offering of the
Company's Common Stock with gross proceeds of at least $50,000,000 or
representing at least 20% of the Company's Common Stock on a fully diluted basis
and such
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common stock is listed on the NYSE or quoted or listed on any national
securities exchange or NASDAQ.
"Junior Registrable Securities" means any shares of Common Stock issued
by the Company to any of Larkspur, Exeter (but only with respect to shares of
Common Stock that are issued pursuant to the exercise of or anti-dilution
protections with respect to the Junior Warrants), or any S-O Party prior to the
consummation of the IPO, or issued by the Company upon exercise of any Junior
Warrants issued to any of Larkspur, Exeter and any S-O Party prior to the
consummation of the IPO and any Related Registrable Securities. As to any
particular Junior Registrable Securities, once issued, such securities shall
cease to be Junior Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been sold as permitted by
Rule 144 (or any successor provision) under the Securities Act and the purchaser
thereof does not receive "restricted securities" as defined in Rule 144, (c)
they shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by the
Company to the transferee and subsequent public distribution of them shall not,
in the opinion of counsel for the holders, require registration of them by the
transferee under the Securities Act or (d) they shall have ceased to be
outstanding.
"Junior Warrants" means the Warrants, substantially in the form of
Exhibit E to the Securities Purchase Agreement, issued by the Company to each of
the S-O LLC, SOMC, Exeter and Larkspur.
"NASDAQ" means the National Market System of Nasdaq Stock Market.
"NYSE" means the New York Stock Exchange, Inc..
"Person" means any individual, firm, corporation, partnership, limited
liability company, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Piggy-Back Requesting Holder" shall have the meaning assigned to such
term in Section 1.3(a).
"Registrable Securities" means collectively, the Class A Registrable
Securities, the Debt Registrable Securities and the Junior Registrable
Securities.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 1, including, without limitation, all
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registration and filing fees, all fees of any national securities exchanges or
the NASDAQ, all fees and expenses of complying with securities or blue sky laws,
all word processing, duplicating and printing expenses, messenger and delivery
expenses, the fees and disbursements of counsel for the Company and of its
independent public accountants, including the expenses of "cold comfort" letters
required by or incident to such performance and compliance, any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities (excluding any underwriting discounts or commissions with respect to
the Registrable Securities and excluding any stock transfer taxes) and the
reasonable fees and expenses of one counsel to the selling holders (selected by
selling holders representing at least 50% of the Registrable Securities covered
by such registration). Notwithstanding the foregoing, in the event the Company
shall determine, in accordance with Section 1.3(a) or Section 1.7, not to
register any securities with respect to which it had given written notice of its
intention to so register to holders of Registrable Securities, all of the costs
of the type (and subject to any limitation to the extent) set forth in this
definition and incurred by Piggy-Back Requesting Holders in connection with such
registration on or prior to the date the Company notifies the holders of such
determination shall be deemed Registration Expenses.
"Related Registrable Securities" means with respect to the Common
Stock, any securities of the Company issued or issuable with respect to any
Common Stock by way of a dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Section 1.1(a) Selling Holders" has the meaning assigned to such term
in Section 1.1(a).
"Section 1.1(b) Selling Holders" has the meaning assigned to such term
in Section 1.1(b).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time. References to a
particular section of the Securities Act of 1933, as amended, shall include a
reference to the comparable section, if any, of any such similar Federal
statute.
"Selling Holders" means collectively, the Section 1.1(a) Selling
Holders and the Section 1.1(b) Selling Holders.
"Senior Debt Holders" means the holders of the Debt Registrable
Securities (other than the Subordinated Debt Holders).
20
<PAGE> 23
"Shareholders Agreement" means the Shareholders Agreement dated as of
the date hereof by and among the Company, S-O LLC, SOMC, the Class A Purchaser,
FSFP, Union Bank, Equitable, Exeter and the S-O Principals.
"Shelf Registration" has the meaning ascribed to such term in Section
1.2.
"S-O" means Steri-Oss, Inc., a California corporation.
"S-O Principals" means Douglas Rogers, Richard Gumer and Henry Wendt.
"S-O Registration Rights Agreement" means that certain Registration
Rights Agreement dated as of the date hereof between the Company and S-O.
"Subordinated Debt Holders" means the holders of Subordinated Debt
Registrable Securities.
"Subscription Agreements" means collectively, the S-O Parties
Agreement, the Exeter Agreement and the Larkspur Agreement.
"Subordinated Debt Initiating Holder" means as of any date of
determination, any holder or holders of Subordinated Debt Registrable Securities
holding individually or in the aggregate at least 50% of the shares of the
Subordinated Debt Registrable Securities then outstanding (assuming exercise of
all Subordinated Debt Warrants), and initiating a request pursuant to Section
1.1(b) for the registration of all or part of such holder's or holders'
Subordinated Debt Registrable Securities.
"Subordinated Debt Registrable Securities" means any shares of Common
Stock issued by the Company to any of Equitable or Exeter (but only in the case
of Exeter with respect to shares of Common Stock that are issued pursuant to the
exercise or anti-dilution protections with respect to the Subordinated Debt
Warrants), prior to the consummation of an IPO or issued by the Company upon
exercise of any Subordinated Debt Warrants issued to any of Equitable or Exeter
prior to the consummation of the IPO and any Related Registrable Securities. As
to any particular Subordinated Debt Registrable Securities, once issued, such
securities shall cease to be Subordinated Debt Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been sold as permitted by Rule 144 (or any successor provision) under the
Securities Act and the purchaser thereof does not receive "restricted
securities" as defined in Rule 144, (c) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company to the transferee and
subsequent public
21
<PAGE> 24
distribution of them shall not, in the opinion of counsel for the holders,
require registration of them by the transferee under the Securities Act or (d)
they shall have ceased to be outstanding.
"Warrants" means warrants of the Company entitling the holders to
purchase the number of shares of Common Stock as specified therein.
3. Rule 144 and Rule 144A. The Company shall take all actions
reasonably necessary to enable holders of Registrable Securities to sell such
securities without registration under the Securities Act within the limitation
of the provisions of (a) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, (b) Rule 144A under the Securities Act, as such Rule
may be amended from time to time, or (c) any similar rules or regulations
hereafter adopted by the Commission. Upon the request of any holder of
Registrable Securities, the Company will deliver to such holder a written
statement as to whether it has complied with such requirements.
4. Amendments and Waivers. This Agreement may be amended with the
consent of the Company and the Company may take any action herein prohibited, or
omit to perform any act herein required to be performed by it, only if the
Company shall have obtained the written consent to such amendment, action or
omission to act, of the holder or holders of at least 50% of the Registrable
Securities affected by such amendment, action or omission to act. Each holder of
any Registrable Securities at the time or thereafter outstanding shall be bound
by any consent authorized by this Section 4, whether or not such Registrable
Securities shall have been marked to indicate such consent; provided that any
such amendment may not materially adversely affect any party without such
party's consent.
5. Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
6. Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
22
<PAGE> 25
(a) if to the Class A Purchaser, addressed to it in the manner set
forth in the Purchase Agreement, or at such other address as it shall have
furnished to the Company in writing in the manner set forth herein;
(b) if to any of the S-O Parties, Larkspur, Exeter, Equitable, FSFP
or Union Bank, addressed to it in the manner set forth in the Shareholders
Agreement or at such other address as it shall have furnished to the Company in
writing in the manner set forth herein;
(c) if to any other holder of Registrable Securities, at the address
that such holder shall have furnished to the Company in writing in the manner
set forth herein, or, until any such other holder so furnishes to the Company an
address, then to and at the address of the last holder of such Registrable
Securities who has furnished an address to the Company; or
(d) if to the Company, addressed to it in the manner set forth in
the Purchase Agreement, or at such other address as the Company shall have
furnished to each holder of Registrable Securities at the time outstanding in
the manner set forth herein.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered to a
courier, if delivered by overnight courier service; two business days after
being deposited in the mail, postage prepaid, if mailed; and when receipt is
acknowledged, if telecopied.
7. Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and, with respect to the
Company, its respective successors and permitted assigns and, with respect to
any other party, any holder of any Registrable Securities, subject to the
provisions respecting the minimum numbers of percentages of shares of
Registrable Securities required in order to be entitled to certain rights, or
take certain actions, contained herein. Except by operation of law, this
Agreement may not be assigned by the Company without the prior written consent
of the holders of a majority in interest of the Registrable Securities
outstanding at the time such consent is requested.
8. Calculation of Percentage Interests in Registrable Securities. For
purposes of this Agreement, all references to a percentage of the Registrable
Securities shall be calculated based upon the number of shares of Registrable
Securities outstanding at the time such calculation is made, assuming the
exercise of all warrants or options for shares of Common Stock.
9. No Inconsistent Agreements. The Company will not hereafter enter
into any agreement with respect to its securities that is inconsistent with the
rights granted to the holders of Registrable Securities in this Agreement.
Without limiting the
23
<PAGE> 26
generality of the foregoing, the Company will not hereafter enter into any
agreement with respect to its securities that grants, or modify any existing
agreement with respect to its securities to grant, to the holder of its
securities in connection with an incidental registration of such securities
higher priority to the rights granted to the holders of Registrable Securities
hereunder.
10. Remedies. Each holder of Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, will be entitled to specific performance of its rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
11. Certain Distributions. The Company shall not at any time make a
distribution on or with respect to the Common Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the resulting or surviving corporation and such Registrable
Securities are not changed or exchanged) of securities of another issuer if
holders of Registrable Securities are entitled to receive such securities in
such distribution as holders of Registrable Securities and any of the securities
so distributed are registered under the Securities Act, unless the securities to
be distributed to the holders of Registrable Securities are also registered
under the Securities Act.
12. Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions contained herein shall not be in any way impaired
thereby, it being intended that all of the rights and privileges of the holders
of Registrable Securities hereunder shall be enforceable to the fullest extent
permitted by law.
13. Entire Agreement. This Agreement, together with the Purchase
Agreement (including the exhibits and schedules thereto), the Shareholders
Agreement, the Debt Documents, the Subscription Agreements, and the Warrants, is
intended by the parties as a final expression of their agreement and intended to
be a complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein and therein. This Agreement, the Purchase
Agreement (including the exhibits and schedules thereto) and the Warrants
supersede all prior agreements and understandings between the parties with
respect to such subject matter.
24
<PAGE> 27
14. Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
15. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE.
16. Counterparts. This Agreement may be executed in multiple
counterparts, each of which when so executed shall be deemed an original and all
of which taken together shall constitute one and the same instrument.
25
<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective representatives hereunto duly
authorized as of the date first above written.
S-O ACQUISITION CORP.
By:
----------------------------------
Name:
Title:
THE 1818 FUND II, L.P.
By: Brown Brothers Harriman & Co.,
General Partner
By:
------------------------------
Name:
Title: General Partner
S-O ACQUISITION LLC
By:
----------------------------------
Name:
Title:
S-O MANAGEMENT LLC
By:
----------------------------------
Name:
Title:
[Registration Rights Agreement]
26
<PAGE> 29
LARKSPUR CAPITAL CORPORATION
By:
-----------------------------------
Name:
Title:
FIRST SOURCE FINANCIAL LLP
By: First Source Financial, Inc.,
its Agent/Manager
By:
------------------------------
Name:
Title:
UNION BANK OF CALIFORNIA, N.A.
By:
------------------------------
Name:
Title:
THE EQUITABLE LIFE ASSURANCE
SOCIETY OF THE UNITED STATES
By:
------------------------------
Name:
Title:
EXETER VENTURE LENDERS, L.P.
By:
------------------------------
Name:
Title:
[Registration Rights Agreement]
27
<PAGE> 1
EXHIBIT 10.5
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED,
QUALIFIED, APPROVED OR DISAPPROVED UNDER THE SECURITIES ACT OF 1933 OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE
STATE SECURITIES LAWS OR AN APPLICABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF SUCH ACT OR SUCH LAWS AND NEITHER THE UNITED STATES SECURITIES
AND EXCHANGE COMMISSION NOR ANY OTHER FEDERAL OR STATE REGULATORY AUTHORITY HAS
PASSED ON OR ENDORSED THE MERITS OF THESE SECURITIES.
WARRANT NO. __
FORM OF WARRANT
TO PURCHASE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE,
OF
S-O ACQUISITION CORP.
THIS IS TO CERTIFY THAT ______________________ or its registered
assigns (the "Purchaser"), is the owner of ______ Warrants (as defined below),
each of which entitles the registered holder thereof to purchase from S-O
ACQUISITION CORP., a Delaware corporation (the "Company"), one fully paid, duly
authorized and nonassessable share of Common Stock, par value $.01 per share, of
the Company (the "Common Stock"), at any time or from time to time on or before
5:00 p.m., New York City time, on November 15, 2003, at an exercise price of
$.01 per share (the "Exercise Price"), all on the terms and subject to the
conditions hereinafter set forth.
The number of shares of Common Stock issuable upon exercise of each
such Warrant (the "Number Issuable"), which is initially one (1) share, is
subject to adjustment from time to time pursuant to the provisions of Section 2
of this Warrant Certificate. The Warrants evidenced by this certificate are part
of a series of Warrants being issued by the Company on the Issue Date (the
"Warrants").
<PAGE> 2
2
Capitalized terms used herein but not otherwise defined shall have the
meanings given them in Section 12 hereof.
Section 1. Exercise of Warrant. Subject to the last paragraph of this
Section 1, the Warrants evidenced hereby may be exercised, in whole or in part,
by the registered holder hereof at any time or from time to time on or before
5:00 p.m., New York City time, on November 15, 2003, upon delivery to the
Company at the principal executive office of the Company in the United States of
America, of (a) this Warrant Certificate, (b) a written notice stating that such
holder elects to exercise the Warrants evidenced hereby in accordance with the
provisions of this Section 1 and specifying the name or names in which such
holder wishes the certificate or certificates for shares of Common Stock to be
issued and (c) payment of the Exercise Price for the shares of Common Stock
issuable upon exercise of such Warrants, which shall be payable (i) in cash,
(ii) by a certified or official bank check payable to the order of the Company,
(iii) by surrender of shares of the Company's Preferred Stock having an
aggregate liquidation value (including accrued and unpaid dividends) at least
equal to the Exercise Price or (iv) by surrender of the Notes in a principal
amount at least equal to the Exercise Price (collectively, the "Warrant Exercise
Documentation"). The Company shall promptly deliver any Notes so received to S-O
Operating for cancellation in accordance with the provisions of the Debt
Documents relating thereto.
As promptly as practicable, and in any event within five Business Days
after receipt of the Warrant Exercise Documentation, the Company shall deliver
or cause to be delivered (a) certificates representing the number of validly
issued, fully paid and nonassessable shares of Common Stock specified in the
Warrant Exercise Documentation, (b) if applicable, cash in lieu of any fraction
of a share, as hereinafter provided, and (c) if less than the full number of
Warrants evidenced hereby are being exercised, a new Warrant Certificate or
Certificates, of like tenor, for the number of Warrants evidenced by this
Warrant Certificate, less the number of Warrants then being exercised. Such
exercise shall be deemed to have been made at the close of business on the date
of delivery of the Warrant Exercise Documentation so that the Person entitled to
receive shares of Common Stock upon such exercise shall be treated for all
purposes as having become the record holder of such shares of Common Stock at
such time. No such surrender shall be effective to constitute the person
entitled to receive such shares as the record holder thereof while the transfer
books of the Company for the Common Stock are closed for any purpose (but not
for any period in excess of five days); but any such surrender of this Warrant
Certificate for exercise during any period while such books are so closed shall
become effective for exercise immediately upon the reopening of such books, as
if the exercise had been made on the date this Warrant Certificate was
surrendered and for the Number Issuable of Common Stock specified in the Warrant
Exercise Documentation and at the Exercise Price.
<PAGE> 3
3
The Company shall pay all expenses in connection with, and all taxes
and other governmental charges (other than income taxes of the holder) that may
be imposed in respect of, the issue or delivery of any shares of Common Stock
issuable upon the exercise of the Warrants evidenced hereby. The Company shall
not be required, however, to pay any tax or other charge imposed in connection
with any transfer involved in the issue of any certificate for shares of Common
Stock in any name other than that of the registered holder of the Warrants
evidenced hereby.
In case of the redemption of any Warrants pursuant to Section 3, the
right of exercise shall cease and terminate, as to the Warrants to be redeemed,
at the close of business on the date fixed for redemption, unless the Company
shall default in the payment of the applicable redemption price for the Warrants
to be redeemed.
In connection with the exercise of any Warrants evidenced hereby, no
fractions of shares of Common Stock shall be issued, but in lieu thereof the
Company shall pay a cash adjustment in respect of such fractional interest in an
amount equal to such fractional interest multiplied by the Current Market Price
per share of Common Stock on the Business Day which next precedes the day of
exercise. If more than one such Warrant shall be exercised by the holder thereof
at the same time, the number of full shares of Common Stock issuable on such
exercise shall be computed on the basis of the total number of Warrants so
exercised.
Section 2. Adjustments.
(a) Adjustment of Number Issuable. The Number Issuable shall
be subject to adjustment from time to time as follows:
(i) In case the Company shall at any time or from time to time
after the Issue Date:
(A) pay a dividend or make a distribution on the
outstanding shares of Common Stock in capital stock of the Company;
(B) subdivide the outstanding shares of Common Stock
into a larger number of shares;
(C) combine the outstanding shares of Common Stock
into a smaller number of shares; or
(D) issue any shares of its capital stock in a
reclassification of the Common Stock;
<PAGE> 4
4
then, and in each such case, the Number Issuable in effect immediately
prior to such event shall be adjusted (and any other appropriate
actions shall be taken by the Company) so that the holder of any
Warrant evidenced hereby thereafter exercised shall be entitled to
receive the number of shares of Common Stock or other securities of the
Company which such holder would have owned or had been entitled to
receive upon or by reason of any of the events described above, had
such Warrant been exercised immediately prior to the happening of such
event. An adjustment made pursuant to this clause (i) shall become
effective retroactively (x) in the case of any such dividend or
distribution, to a date immediately following the close of business on
the record date for the determination of holders of shares of Common
Stock entitled to receive such dividend or distribution, or (y) in the
case of any such subdivision, combination or reclassification, to the
close of business on the date upon which such corporate action becomes
effective.
(ii) If after the Issue Date and prior to an IPO, the Company
shall at any time or from time to time issue or sell (x) shares of
Common Stock or (y) securities convertible into or exchangeable for
shares of Common Stock, or any options, warrants or other rights to
acquire shares of Common Stock (other than (A) shares of Common Stock
issued upon conversion of the Class B Preferred outstanding on the
Issue Date, (B) shares of Common Stock issued upon exercise of the
Warrants or the Other Warrants outstanding on the Issue Date, (C)
securities issued in connection with an Additional Equity Sale, (D)
shares of Common Stock issued pursuant to an employee stock option
plan, stock bonus plan, or other incentive compensation plan or award,
each as approved by the Company's Board of Directors, (E) the
Management Equity (or exercise of any warrants or options issued as
Management Equity), and (F) shares issued as a result of adjustments
made under agreements related to shares described in clauses (A)
through (E)) at a price per share that is less than the Current Market
Price per share of Common Stock then in effect as of the record date or
issue date, as the case may be, referred to in the following sentence
(the "Relevant Date") (treating the price per share of Common Stock, in
the case of the issuance of any security convertible or exchangeable or
exercisable into Common Stock as equal to (x) the sum of the price for
such security convertible, exchangeable or exercisable into Common
Stock plus any additional consideration payable (without regard to any
anti-dilution adjustments) upon the conversion, exchange or exercise of
such security into Common Stock divided by (y) the number of shares of
Common Stock initially underlying such convertible, exchangeable or
exercisable security), in each case, other than issuances or sales for
which an adjustment is made pursuant to another paragraph of this
Section 2, then, and in each such case, the Number Issuable then in
effect shall be adjusted by multiplying the Number Issuable in effect
on the day immediately prior to the Relevant Date by a fraction, (1)
the
<PAGE> 5
5
numerator of which shall be the sum of the number of shares of Common
Stock, on a fully diluted basis, outstanding on the Relevant Date, plus
the number of additional shares of Common Stock issued or to be issued
(or the maximum number into which such convertible or exchangeable
securities initially may convert or exchange or for which such options,
warrants or other rights initially may be exercised), and (2) the
denominator of which shall be the sum of the number of shares of Common
Stock, on a fully diluted basis, outstanding on the Relevant Date, plus
the number of shares of Common Stock which the aggregate consideration
for the total number of such additional shares of Common Stock so
issued (or into which such convertible or exchangeable securities may
convert or exchange or for which such options, warrants or other rights
may be exercised plus the aggregate amount of any additional
consideration initially payable upon conversion, exchange or exercise
of such security) would purchase at the Current Market Price per share
of Common Stock on the Relevant Date. Such adjustment shall be made
whenever such shares, securities, options, warrants or other rights are
issued, and shall become effective retroactively to a date immediately
following the close of business (x) in the case of an issuance to the
stockholders of the Company, as such, on the record date for the
determination of stockholders entitled to receive such shares,
securities, options, warrants or other rights and (y) in all other
cases, on the date (the "issue date") of such issuance; provided, that
if any convertible or exchangeable securities, options, warrants, or
other rights (or any portions thereof) which shall have given rise to
an adjustment pursuant to this Section 2(a)(ii) shall have expired or
terminated without the exercise thereof and/or if by reason of the
terms of such convertible or exchangeable securities, options, warrants
or other rights there shall have been an increase or increases, with
the passage of time or otherwise, in the Number Issuable, then the
Number Issuable hereunder shall be readjusted (but to no greater extent
than originally adjusted) on the basis of (A) eliminating from the
computation any additional shares of Common Stock corresponding to such
convertible or exchangeable securities, options, warrants or other
rights as shall have expired or terminated, (B) treating the additional
shares of Common Stock, if any, actually issued or issuable pursuant to
the previous exercise of such convertible and exchangeable securities,
options, warrants, or other rights as having been issued for the
consideration actually received and receivable therefor and (C)
treating any of such convertible or exchangeable securities, options,
warrants or other rights which remain outstanding as being subject to
exercise or conversion. Solely for purposes of this clause (ii), (I)
Common Stock shall include the Common Stock, par value $.01 per share,
of the Company and each other class of capital stock of the Company
that does not have a preference over any other class of capital stock
of the Company as to dividends or upon liquidation, dissolution or
winding up of the Company and, in each case, shall include any other
class of capital stock of the Company into which such stock is
reclassified or
<PAGE> 6
6
reconstituted and (II) if the provisions of any securities convertible
into or exchangeable for shares of Common Stock or options, warrants or
other rights to acquire shares of Common Stock are amended after the
date of issuance so as to reduce the applicable conversion price,
exchange price or exercise price such amendment shall be deemed to be a
new issuance of such securities.
(iii) In case the Company shall at any time or from time to
time after the Issue Date distribute to any holder of shares of its
Common Stock (including any such distribution made in connection with a
consolidation or merger in which the Company is the resulting or
surviving corporation and the Common Stock is not changed or exchanged)
cash, evidences of indebtedness of the Company or another issuer,
securities of the Company or another issuer or other assets (excluding
dividends or other distributions of shares of Common Stock or other
capital stock for which adjustment is made under Section 2(a)(i) or
dividends or other distributions received by or set aside for the
benefit of the holders of Common Stock pursuant to Section 2(c) below)
or rights or warrants to subscribe for or purchase securities of the
Company (excluding those in respect of which adjustments in the Number
Issuable is made pursuant to Section 2(a)(i) or Section 2(a)(ii)),
then, and in each such case, the Number Issuable then in effect shall
be adjusted by multiplying the Number Issuable in effect immediately
prior to the date of such distribution by a fraction (x) the numerator
of which shall be the Current Market Price per share of Common Stock on
the record date referred to below and (y) the denominator of which
shall be such Current Market Price per share of Common Stock less the
then Fair Market Value (as determined in good faith by the Board of
Directors of the Company, a certified resolution with respect to which
shall be mailed to the holder of the Warrants evidenced hereby) of the
portion of the cash, evidences of indebtedness, securities or other
assets so distributed or of such subscription rights or warrants
applicable to one share of Common Stock (but such denominator shall in
no event be zero). Such adjustment shall be made whenever any such
distribution is made and shall become effective retroactively to a date
immediately following the close of business on the record date for the
determination of stockholders entitled to receive such distribution.
(iv) In case the Company at any time or from time to time
shall take any action which could have a dilutive effect on the number
of shares of Common Stock that may be issued upon exercise of the
Warrants, other than an action described in any of Section 2(a)(i)
through 2(a)(iii), inclusive, or Section 2(b), then, the Number
Issuable shall be adjusted in such manner and at such time as the Board
of Directors of the Company reasonably determines to be equitable under
the circumstances (such determination to be evidenced in a resolution,
a certified copy of which shall be mailed to the holder of the Warrants
evidenced hereby).
<PAGE> 7
7
(v) Notwithstanding anything herein to the contrary, no
adjustment under this Section 2(a) need be made to the Number Issuable
unless such adjustment would require an increase or decrease of at
least 1% of the Number Issuable then in effect. Any lesser adjustment
shall be carried forward and shall be made at the time of and together
with the next subsequent adjustment, which, together with any
adjustment or adjustments so carried forward, shall amount to an
increase or decrease of at least 1% of such Number Issuable. Any
adjustment to the Number Issuable carried forward and not theretofore
made shall be made immediately prior to the exercise of any Warrants
pursuant hereto.
(vi) The Company promptly shall deliver to each registered
holder of Warrants at least five Business Days prior to effecting any
transaction which would result in an increase or decrease in the Number
Issuable pursuant to this Section 2 a notice thereof, together with a
certificate, signed by the Chief Executive Officer or a Vice-President
and by the Treasurer or an Assistant Treasurer or the Secretary or an
Assistant Secretary of the Company, setting forth in reasonable detail
the event requiring the adjustment and the method by which such
adjustment was calculated and specifying the increased or decreased
Number Issuable then in effect following such adjustment.
(vii) Notwithstanding anything contrary contained in this
Section 2(a), the Company shall be entitled to make such upward
adjustments in the Number Issuable, in addition to those otherwise
required by this Section 2(a), as the Board of Directors of the Company
in their discretion shall determine to be advisable in order that any
stock dividend, subdivision or combination of shares, distribution of
rights or warrants to purchase stock or securities, or distribution of
securities convertible into or exchangeable for Common Stock, hereafter
made by the Company to its shareholders shall not be taxable; provided,
however, that any such adjustment shall be made, as nearly as
practicable, in a manner which treats all holders of Warrants with
similar protections on an equal basis.
(b) Reorganization, Reclassification, Consolidation, Merger or
Sale of Assets. In case of any capital reorganization or reclassification or
other change of outstanding shares of Common Stock (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), or in case of any consolidation or
merger of the Company with or into another Person (other than a consolidation or
merger in which the Company is the resulting or surviving person and which does
not result in any reclassification or change of outstanding Common Stock), or in
case of any sale or other disposition to another Person of all or substantially
all of the assets of the Company (any of the foregoing, a "Transaction"), the
Company, or such successor or
<PAGE> 8
8
purchasing Person, as the case may be, shall execute and deliver to each holder
of the Warrants evidenced hereby, at least five Business Days prior to effecting
any of the foregoing Transactions, a certificate that the holder of each such
Warrant then outstanding shall have the right thereafter to exercise such
Warrant into the kind and amount of shares of stock or other securities (of the
Company or another issuer) or property or cash receivable upon such Transaction
by a holder of the number of shares of Common Stock into which such Warrant
could have been exercised immediately prior to such Transaction. Such
certificate shall provide for adjustments which shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Section 2 and shall
contain other terms identical to the terms hereof. If, in the case of any such
Transaction, the stock, other securities, cash or property receivable thereupon
by a holder of Common Stock includes shares of stock or other securities of a
Person other than the successor or purchasing Persons and other than the
Company, which controls or is controlled by the successor or purchasing Person
or which, in connection with such Transaction, issues stock, securities, other
property or cash to holders of Common Stock, then such certificate also shall be
executed by such Person, and such Person shall, in such certificate,
specifically assume the obligations of such successor or purchasing Person and
acknowledge its obligations to issue such stock, securities, other property or
cash to holders of the Warrants upon exercise thereof as provided above. The
provisions of this Section 2(b) similarly shall apply to successive
Transactions.
(c) Special Distributions. If the holder so elects by sending
a Special Notice to the Company, in the event that the Company shall declare a
dividend or make any other distribution (including, without limitation, in cash,
in capital stock (which shall include, without limitation, any options, warrants
or other rights to acquire capital stock) of the Company, whether or not
pursuant to a shareholder rights plan, "poison pill" or similar arrangement) in
other property or assets, to holders of Common Stock (a "Special Distribution"),
then the Board of Directors shall set aside the amount of such dividend or
distribution that any holder of Warrants would have been entitled to receive had
it exercised such Warrants prior to the record date for such dividend or
distribution. Upon the exercise of a Warrant evidenced hereby, the holder shall
be entitled to receive, such dividend or distribution that such holder would
have received had such Warrant been exercised immediately prior to the record
date for such dividend or distribution. Prior to any Special Distribution
described in this section 2(c), the Company shall as provided in Section 4
hereof notify each holder (not less than ten Business Days prior to the
occurrence of each Special Distribution) of its intent to make such Special
Distribution and the holder, if it elects to have such distribution set aside
the amount thereof rather than have an adjustment to the Number Issuable as
provided in Section 2(a)(iii), shall notify the Company by sending a Special
Notice prior to the date of any such Special Distribution.
<PAGE> 9
9
Section 3. Redemption. The Company shall not have any right to redeem
any of the Warrants evidenced hereby.
Section 4. Notice of Certain Events. In case at any time or from time
to time the Company shall declare any dividend or any other distribution to the
holders of its Common Stock, or shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any
additional shares of stock of any class or any other right, or shall authorize
the issuance or sale of any other shares or rights which would result in an
adjustment to the Number Issuable pursuant to Section 2(a)(ii) or would result
in a Special Distribution pursuant to Section 2(c) hereof, or there shall be any
capital reorganization or reclassification of the Common Stock of the Company or
consolidation or merger of the Company with or into another Person, or any sale
or other disposition of all or substantially all the assets of the Company, or
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of the Company, then, in any one or more of such cases the Company shall mail to
each holder of the Warrants evidenced hereby at such holder's address as it
appears on the transfer books of the Company, as promptly as practicable but in
any event at least 30 days prior to the applicable date hereinafter specified, a
notice stating (a) the date on which a record is to be taken for the purpose of
such dividend, distribution, rights or warrants or, if a record is not to be
taken, the date as of which the holders of Common Stock of record to be entitled
to such dividend, distribution, rights or warrants are to be determined, (b) the
issue date (as defined in Section 2(a)(ii) hereof) or (c) the date on which such
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up is expected to become effective; provided that in the
case of any event to which Section 2(b) applies, the Company shall give at least
ten Business Days' prior written notice as aforesaid. Such notice also shall
specify the date as of which it is expected that the holders of Common Stock of
record shall be entitled to exchange their Common Stock for shares of stock or
other securities or property or cash deliverable upon such reorganization,
reclassification, consolidation, merger, sale, conveyance, dissolution,
liquidation or winding up.
Section 5. Certain Covenants. The Company covenants and agrees that all
shares of capital stock of the Company which may be issued upon the exercise of
the Warrants evidenced hereby will be duly authorized, validly issued and fully
paid and nonassessable. The Company shall at all times reserve and keep
available for issuance upon the exercise of the Warrants, such number of its
authorized but unissued shares of Common Stock as will from time to time be
sufficient to permit the exercise of all outstanding Warrants, and shall take
all action required to increase the authorized number of shares of Common Stock
if at any time there shall be insufficient authorized but unissued shares of
Common stock to permit such reservation or to permit the exercise of all
outstanding Warrants. The Company shall prepare and file, and cooperate with the
holder of this Warrant so that it may prepare and file, in each case within five
Business Days of a request by such holder, notification and report forms in
<PAGE> 10
10
compliance with the HSR Act, and shall otherwise fully comply with the
requirements of the HSR Act, to the extent required in connection with the
exercise of the Warrant. The Company shall bear all of its own expenses and all
of its own out-of-pocket expenses (including reasonable attorneys' fees, charges
and expenses) and filing fees of such holder in connection with any such
preparation and filing.
Section 6. Registered Holder. The person in whose name this Warrant
Certificate is registered shall be deemed the owner hereof and of the Warrants
evidenced hereby for all purposes. The registered holder of this Warrant
Certificate, in its capacity as such, shall not be entitled to any rights
whatsoever as a stockholder of the Company, except as herein provided.
Section 7. Transfer of Warrants. Any transfer of the rights represented
by this Warrant Certificate shall be effected by the surrender of this Warrant
Certificate, along with the form of assignment attached hereto, properly
completed and executed by the registered holder hereof, at the principal
executive office of the Company in the United States of America, together with
an appropriate investment letter, if deemed reasonably necessary by counsel to
the Company to assure compliance with applicable securities laws. Thereupon, the
Company shall issue in the name or names specified by the registered holder
hereof and, in the event of a partial transfer, in the name of the registered
holder hereof, a new Warrant Certificate or Certificates evidencing the right to
purchase such number of shares of Common Stock as shall be equal to the number
of shares of Common Stock then purchasable hereunder.
Section 8. Denominations. The Company covenants that it will, at its
expense, promptly upon surrender of this Warrant Certificate at the principal
executive office of the Company in the United States of America, execute and
deliver to the registered holder hereof a new Warrant Certificate or
Certificates in denominations specified by such holder for an aggregate number
of Warrants equal to the number of Warrants evidenced by this Warrant
Certificate.
Section 9. Replacement of Warrants. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant Certificate and, in the case of loss, theft or destruction, upon
delivery of an indemnity reasonably satisfactory to the Company (in the case of
an insurance company or other institutional investor, its own unsecured
indemnity agreement shall be deemed to be reasonably satisfactory), or, in the
case of mutilation, upon surrender and cancellation thereof, the Company will
issue a new Warrant Certificate of like tenor for a number of Warrants equal to
the number of Warrants evidenced by this Warrant Certificate.
Section 10. Governing Law. THIS WARRANT CERTIFICATE SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED
BY, THE LAWS OF
<PAGE> 11
11
THE STATE OF NEW YORK APPLICABLE TO AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY
WITHIN SUCH STATE.
Section 11. Rights Inure to Registered Holder. The Warrants evidenced
by this Warrant Certificate will inure to the benefit of and be binding upon the
registered holder thereof and the Company and their respective successors and
permitted assigns. Nothing in this Warrant Certificate shall be construed to
give to any Person other than the Company and the registered holder thereof any
legal or equitable right, remedy or claim under this Warrant Certificate, and
this Warrant Certificate shall be for the sole and exclusive benefit of the
Company and such registered holder. Nothing in this Warrant Certificate shall be
construed to give the registered holder hereof any rights as a holder of shares
of Common Stock until such time, if any, as the Warrants evidenced by this
Warrant Certificate are exercised in accordance with the provisions hereof.
Section 12. Definitions. For the purposes of this Warrant Certificate,
the following terms shall have the meanings indicated below:
"Additional Equity Sale" shall have the meaning assigned to such term
in Section 2.4 of the Securities Purchase Agreement.
"Amended and Restated Certificate" shall mean the Company's Amended and
Restated Certificate of Incorporation in the form attached to the Securities
Purchase Agreement as Exhibit A-1.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in the City of New York or in Memphis,
Tennessee are authorized or required by law or executive order to close.
"Certificate of Designation" shall mean the Certificate of Designation
designating the rights, privileges and preferences of the Class A Preferred
Stock, in the form attached to the Securities Purchase Agreement as Exhibit A-2.
"Certificate of Incorporation" shall mean the Company's Amended and
Restated Certificate, as amended by the Certificate of Designation and as
further amended from time to time in accordance with the terms thereof and the
terms of the Securities Purchase Agreement.
"Class A Preferred Stock" shall mean the Class A 8.8% cumulative
Preferred Stock, par value $.01 per share, of the Company.
"Class B Preferred Stock" shall mean the Class B 8.0% Cumulative
Convertible Preferred Stock, par valued $.01 per share, of the Company.
<PAGE> 12
12
"Current Market Price" per share shall mean, on any date specified
herein for the determination thereof, (a) the average daily Market Price of the
Common Stock for those days during the period of 15 days, ending on such date,
on which the national securities exchanges were open for trading, and (b) if the
Common Stock is not then listed or quoted in the over-counter market, the Market
Price on such date.
"Debt Documents" shall mean, collectively the Senior Secured Credit
Agreement dated as of November 15, 1996 among S-O Operating, First Source
Financial LLP, and Union Bank of California, N.A. and the other parties named
therein and the notes and agreements entered into in connection therewith (each
as amended in accordance with its terms) pursuant to which S-O Operating will
incur $33,000,000 of senior debt and the several Note and the Warrant Purchase
Agreements each dated as of November 15, 1996 among S-O Operating, S-O
Acquisition Corp., and each of The Equitable Life Assurance Society of the
United States, Exeter Venture Lenders, L.P. and Exeter Equity Partners, L.P. and
the notes and agreements entered into in connection therewith (each as amended
in accordance with its terms) pursuant to which S-O Operating will incur
$12,500,000 of subordinated debt.
"Exercise Price" shall have the meaning given it in the first paragraph
hereof.
"Fair Market Value" shall mean the amount which a willing buyer, under
no compulsion to buy, would pay a willing seller, under no compulsion to sell,
in an arm's-length transaction.
"Fund" shall mean The 1818 Fund II, L.P., a Delaware limited
partnership.
"HSR Act" shall mean the Hart-Scott-Rodino Anti-Trust Improvements Act
of 1976, as amended and the rules and regulations of the Federal Trade
Commission promulgated thereunder.
"Issue Date" shall mean November 15, 1996.
"IPO" shall mean the date when the initial public offering of the
Company's Common Stock with gross proceeds of at least $50,000,000 or
representing at least 20% of the Common Stock on a fully diluted basis and such
Common Stock is listed on the NYSE or quoted or listed on any other national
securities exchange or the NASDAQ.
"Key Managers" means Ken Darienzo, Ken Krueger and Martin J. Dymek.
<PAGE> 13
13
"Management Equity" means the warrants, options or shares of Common
Stock to be issued to the Key Managers promptly after the Issue Date in
connection with the transactions contemplated by the Securities Purchase
Agreement.
"Market Price" shall mean, per share of Common Stock, on any date
specified herein: (a) if the Common Stock is not then listed or admitted to
trading on any national securities exchange but is designated as a national
market system security, the last trading price of the Common Stock on such date;
or (b) if there shall have been no trading on such date or if the Common Stock
is not so designated, the average of the reported closing bid and asked price of
the Common Stock, on such date as shown by NASDAQ and reported by any member
firm of the New York Stock Exchange, Inc. selected by the Company; or (c) if
none of (a) or (b) is applicable, the Fair Market Value per share determined in
good faith by the Board of Directors of the Company which shall be deemed to be
Fair Market Value unless holders of at least 15% of Common Stock issued or
issuable upon exercise of the Warrants request that the Company obtain an
opinion of a nationally recognized investment banking firm chosen by the Company
(who shall bear the expense) and reasonably acceptable to such requesting
holders of the Warrants, in which event the Fair Market Value shall be as
determined by such investment banking firm.
"NASDAQ" shall mean the National Market System of the Nasdaq Stock
Market.
"Notes" shall mean the Notes issued by S-O Operating pursuant to the
Debt Documents.
"Number Issuable" shall have the meaning given it in the second
paragraph hereof.
"NYSE" shall mean the New York Stock Exchange, Inc.
"Person" shall mean any individual, corporation, limited liability
company, partnership, trust, incorporated or unincorporated association, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Preferred Stock" shall mean the Company's outstanding shares of Class
A Preferred Stock, Class B Preferred Stock or Junior Preferred Stock.
"Securities Purchase Agreement" shall mean that certain Securities
Purchase Agreement between the Company and the Fund dated as of November 15,
1996.
<PAGE> 14
14
"S-O LLC" shall mean S-O Acquisition LLC, a New York limited liability
company managed by SOMC.
"SOMC" shall mean the S-O Management LLC, a New York limited liability
company, whose sole managing members are the S-O Principals.
"S-O Operating" shall mean S-O Operating Corp., a Delaware corporation
and a wholly-owned subsidiary of the Company.
"S-O Parties" shall mean collectively the S-O Principals, the S-O LLC,
and SOMC.
"S-O Principals" shall mean Richard Gumer, Douglas Rogers, Henry Wendt.
"Special Notice" shall mean the notice sent by a holder to the Company
indicating its preference to have any special distribution set aside for its
benefit upon exercise of the Warrant.
"Warrant Exercise Documentation" shall have the meaning given it in
Section 1 hereof.
Section 13. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, or personal
delivery, (a) if to the holder of a Warrant, at such holder's last known address
appearing on the books of the Company; and (b) if to the Company, at its
principal executive office in the United States located at the address
designated for notices in the Securities Purchase Agreement, or such other
address as shall have been furnished to the party given or making such notice,
demand or other communication. All such notices and
<PAGE> 15
15
communications shall be deemed to have been duly given: when delivered, if
delivered by hand or by overnight courier service; and three Business Days after
being deposited in the mail, postage prepaid, if mailed.
Section 14. Stockholders Agreement. This Warrant, and the shares of
Common Stock issuable hereunder, are subject to the provisions of, and entitled
to the benefits of, that certain Stockholders Agreement, dated as of November
15, 1996, by and among the Company, First Source Financial LLP, Union Bank of
California, N.A., The Equitable Life Assurance Society of the United States,
Exeter Venture Lenders, L.P., Exeter Equity Partners, L.P., the S-O Parties and
the Fund (the "Stockholders Agreement").
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed as of the Issue Date.
S-O ACQUISITION CORP.
By:
----------------------------------
Name:
Title:
<PAGE> 16
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[Form of Assignment Form]
[To be executed upon assignment of Warrants]
The undersigned hereby assigns and transfers this Warrant Certificate
to _________________________ whose Social Security Number or Tax ID Number is
_____________________ and whose record address is _______________________
_____________________, and irrevocably appoints _________________________ as
agent to transfer this security on the books of the Company. Such agent may
substitute another to act for such agent.
Signature:
--------------------------------
Signature Guarantee:
---------------------------------
Date:
---------------------------
<PAGE> 1
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of the 15th day
of November, 1996 by and between S-O Operating Corp., a Delaware corporation
(the "Company") and Kenneth A. Darienzo (the "Executive").
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company desires to provide for the employment of
Executive as its President and Chief Executive Officer; and
WHEREAS, the Executive desires to be employed by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
warranties contained herein, the parties agree as follows:
A. Term. The term of this Agreement shall commence on the date
hereof and shall continue through December 31, 1999 (the "Term").
B. Employment. During the Term, the Company hereby employs
Executive as its President and Chief Executive Officer, and Executive hereby
accepts such employment.
C. Duties and Responsibilities. Executive shall serve as
President and Chief Executive Officer of the Company, subject to the supervision
of the Board of Directors of the Company (the "Board"). In such position,
Executive shall have such duties and authority as are customarily exercised by a
President and Chief Executive Officer of a business corporation of similar size
and public stature and as shall be determined from time to time by the Board or
its designee reasonably related to the business of the Company and such that
will not limit or otherwise hamper Executive's ability to perform his duties.
Executive shall devote his full time and energies to the business of the
Company, it being understood and agreed that Executive shall not engage in
outside business interests or activities if such activities directly or
indirectly interfere with the performance of his duties. The Company shall use
its best efforts to cause Executive to be elected to the Board and to continue
as a director of the Company throughout the Term. In addition, if requested by
the Board, Executive shall agree to serve on other committees of the Company
without additional compensation.
<PAGE> 2
2
D. Compensation.
1. Base Compensation. During the Term, the Company
shall pay Executive, as compensation for services rendered under this Agreement,
base compensation ("Base Compensation") at the rate of Three Hundred Thousand
Dollars ($300,000) per year, payable in accordance with the usual and customary
payroll practices of the Company.
2. Incentive Compensation. In addition to the
foregoing Base Compensation, the Company shall pay to Executive, as additional
incentive compensation ("Incentive Compensation"), an amount equal to 40% of the
Annual Bonus Pool (as defined below) of the Company, computed on an annual basis
(commencing with the 1997 calendar year) and payable within 90 days after the
end of each calendar year; provided, however, that in no event shall the
Incentive Compensation exceed 100% of Base Compensation. The Annual Bonus Pool
for each calendar year shall be equal to the product of (i) 20% multiplied by
(ii) the difference between the Company's EBITDA (as defined below) for such
year and the corresponding amount in the Company's operating plan for such year,
as approved by the Board. As used in this Agreement, the term EBITDA means the
Company's net earnings, as reflected on the Company's audited financial
statements for such year, plus depreciation and amortization, but without
deduction for interest expense or state, local, federal or foreign taxes.
3. Annual Review. The Board shall review Executive's
performance on an annual basis and make upwards adjustments in Executive's Base
Compensation and/or Incentive Compensation as appropriate.
4. Stock Purchase Agreement. The Company and
Executive shall enter into a Stock Purchase Agreement pursuant to which
Executive will purchase shares of Common Stock of the Company equal to 2% of the
fully diluted common equity of the Company at a purchase price per share to be
determined.
5. Stock Option Agreement. The Company and Executive
shall enter into a Stock Option Agreement pursuant to which Executive will be
granted a non-qualified option to purchase shares of Common Stock of the Company
equal to 2.5% of the fully diluted common equity of the Company at an exercise
price per share to be determined.
6. Other Equity Arrangements. Executive shall be
entitled to participate in any stock option plan, stock bonus plan or other
equity-based incentive program instituted by the Company for its senior
executives, at such levels and on such terms as may be determined by the Board.
<PAGE> 3
3
E. Expenses and Executive Benefits.
1. Expenses. The Company shall reimburse Executive
for his reasonable out-of-pocket expenses incurred in connection with the
business of the Company, subject to such reasonable policies as the Board may
establish from time to time.
2. Other Benefits. Executive shall be entitled to
receive such other benefits as the Company generally makes available to its
senior executives. To the extent permitted by law, for purposes of all other
benefits, Executive shall be treated as having been continuously employed by the
Company since July 31, 1989.
3. Automobile Expenses. The Company shall provide
Executive with full-time use of an automobile (Jaguar or equivalent) at its
expense during the term of this Agreement, and shall reimburse Executive for all
reasonable expenses incurred in connection with the use or operation of the
automobile, including maintenance, repair, gasoline, registration fees and
insurance.
4. Vacation. The Company shall provide Executive with
four weeks of paid vacation per year, with any unused vacation accruing to the
benefit of Executive.
F. Termination.
1. Termination By The Company For Cause or By
Executive For Any Reason.
(a) If the Company terminates Executive's
employment and this Agreement for Cause (as defined below) or if
Executive terminates employment and this Agreement for any reason,
Executive shall be entitled to receive his Base Compensation through
the date of termination and Executive shall be entitled to no other
payments of Base Compensation or Incentive Compensation under this
Agreement. All other benefits, if any, due Executive following
Executive's termination of employment due to the reasons set forth in
this Section 6.1 shall be determined in accordance with the plans,
policies and practices of the Company.
(b) For purposes of this Agreement Cause
shall mean:
(i) Executive's death, adjudication as
mentally incompetent, or mental or physical disability preventing
Executive from performing his duties under this Employment Agreement
for a period of 90 consecutive days. Any question as to the existence
of the disability of Executive as to which Executive and the Company
cannot agree shall be
<PAGE> 4
4
determined in writing by a qualified independent physician mutually
acceptable to Executive and the Company. If Executive and the Company
cannot agree as to a qualified independent physician, each shall
appoint such a physician and those two physicians shall select a third
who shall make such determination in writing. The determination of
disability made in writing to the Company and Executive shall be final
and conclusive for all purposes of the Agreement;
(ii) Executive's breach of any
material term of this Agreement, including, but not limited to, the
covenants set forth in Section 7 or 8 hereof, which are not cured by
Executive within 10 days following written notice from the Company of
such breach;
(iii) Executive's willful failure or
refusal to perform his duties hereunder or to perform specific
directives of the Board;
(iv) Dishonesty of Executive
affecting the Company;
(v) Drunkenness or use of drugs
which interferes with the performance of Executive's duties and
responsibilities under this Agreement;
(vi) Executive's conviction of a
felony or of any crime involving moral turpitude, fraud or
misrepresentation; or
(vii) Any gross or willful conduct
of Executive resulting in substantial loss to the Company, substantial
damage to the Company's reputation or theft or defalcation from the
Company.
2. Termination By The Company Without Cause. If the
Company terminates this Agreement without Cause, Executive shall be entitled to
(i) payment of severance pay equal to the Base Compensation due for the
remaining term of this Agreement (but in no event an amount less than 18 months'
Base Compensation), and (ii) continuation of any health or insurance plans or
benefit programs for the remaining term of the Agreement. In addition, Executive
shall be entitled to receive any Incentive Compensation due for the year of
termination under Section 4.2, at such time as is specified in Section 4.2, as
if Executive had been employed for the full calendar year. All other benefits,
if any, due Executive following Executive's termination of employment by the
Company without Cause shall be determined in accordance with the plans, policies
and practices of the Company.
3. Expiration of Employment Term. Unless otherwise
agreed in writing between the Company and Executive, Executive's employment
<PAGE> 5
5
hereunder shall terminate upon the expiration of the Term. Following the
expiration of the Term, the Company shall have no further obligations to
Executive hereunder, other than with respect to compensation which shall have
accrued to Executive during the Term but which shall then remain unpaid, and
Executive's continuation of employment with the Company beyond the expiration of
the Term shall be deemed an employment at will which may be terminated by the
Company or Executive at any time and shall not extend any of the provisions of
this Agreement.
4. Notice of Termination. Any purported termination
of employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 14
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
G. Non-Competition. Executive acknowledges and recognizes the
highly competitive nature of the businesses of the Company and its affiliates
and accordingly agrees as follows:
1. During the term of Executive's employment
hereunder and for a period of one year following the termination of Executive's
employment with the Company, Executive will not enter into competitive endeavors
and will not undertake any commercial activity which is contrary to the best
interests of the Company or its affiliates, including becoming an employee,
owner (except for passive investments of not more than one percent of the
outstanding shares of, or any other equity interest in, any company or entity
listed or traded on a national securities exchange or in an over-the-counter
securities market), officer, agent or director of any entity in any geographic
area which either directly competes with a line or lines of business of the
Company.
2. Executive will not directly or indirectly induce
any employee of the Company or any of its affiliates to engage in any activity
in which Executive is prohibited from engaging by Section 7.1 above or to
terminate his employment with the Company or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who was employed
by the Company or any of its affiliates unless such person shall have ceased to
be employed by the Company or any of its affiliates for a period of at least 12
months.
3. It is expressly understood and agreed that
although Executive and the Company consider the restrictions contained in this
Section 7 to be reasonable, if a final judicial determination is made by a court
of competent jurisdiction that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction against Executive,
the provisions of this Agreement shall not be rendered void but shall be deemed
amended to apply as to
<PAGE> 6
6
such maximum time and territory and to such maximum extent as such court may
judicially determine or indicate to be enforceable. Alternatively, if any court
of competent jurisdiction finds that any restriction contained in this Agreement
is unenforceable, and such restriction cannot be amended so as to make it
enforceable, such finding shall not affect the enforceability of any of the
other restrictions contained herein.
H. Confidentiality. Executive agrees that he will not at any
time, whether during or subsequent to the term of Executive's employment by the
Company, unless specifically consented to in writing by the Company, either
directly or indirectly use or divulge, disclose or communicate to any person,
firm, or corporation, any proprietary information of any kind, nature, or
description concerning any matters affecting or relating to the business of the
Company, including, without limiting the generality of the foregoing, technical
specifications of its products, its manufacturing processes, the names of any of
its clients or customers, its marketing methods, its costs of materials, the
prices it obtains or has obtained or at which it sells or has sold its products,
or any other information of, about, or concerning the business of the Company,
its manner of operation, or other confidential data of any kind, nature, or
description (the "Confidential Information"). The Company and Executive hereby
agree that as between them, all of the Confidential Information constitutes
important and material, trade secrets of the Company and affect the successful
conduct of the Company's business, and its goodwill, and that any breach of any
term of this section is a material breach of this Agreement. All equipment,
documents, memoranda, reports, files, samples, books, correspondence, lists,
other written and graphic records, and the like, affecting or relating to the
business of the Company, which Executive shall prepare, use, construct, observe,
possess, or control in connection with his employment shall be and remain the
Company's sole property.
I. Representations of the Executive. The Executive hereby
represents and warrants, to the best of his knowledge, that:
1. The representations and warranties contained in
Article 2 of the Asset Sale Agreement dated as of July 22, 1996 by and among
Bausch & Lomb, Incorporated, Steri-Oss, Inc. ("S-O") and S-O Acquisition Corp.
("Acquisition") (the "Asset Sale Agreement") are true and correct in all
material respects;
2. The financial projections relating to the
operations of Acquisition and its subsidiaries attached as Schedule 5.22 to the
Securities Purchase Agreement by and between Acquisition and The 1818 Fund II,
L.P. (the "Securities Purchase Agreement") have been prepared by Acquisition in
good faith on a reasonable basis. The assumptions on which the projections are
based are stated in Schedule 5.22 and are consistent with the past practices
(including, without limitation, accounting practices) of S-O and with historical
conditions applicable to the business
<PAGE> 7
7
of S-O. Nothing has come to the attention of Executive to indicate that the
projections or the assumptions on which they are based are not reasonable.
3. Except as set forth in Schedule 5.23 to the
Securities Purchase Agreement, each of the items of Intellectual Property (as
defined in Section 2.8 of the Asset Sale Agreement) and after giving effect to
the transactions contemplated hereby, (i) is and will be owned by Acquisition or
one of its subsidiaries, free and clear of any material liens, liabilities or
other encumbrances, (ii) does not and will not conflict with or violate the
intellectual property rights of others, (iii) is transferable to Acquisition or
one of its subsidiaries under the Asset Sale Agreement without the approval or
consent of any person, and (iv) is and will continue to be valid and in full
force and effect in all material respects after giving effect to the
transactions contemplated under the Securities Purchase Agreement; and (b)
Schedules 2.8(a), 2.8(b) and 2.8(c) to the Asset Sale Agreement are true and
correct and accurately and completely present the information purported to be
contained therein;
4. Except as otherwise stated in the accompanying
report to the Audited Financials (as defined in the Securities Purchase
Agreement), the Audited Financials have been prepared in accordance with GAAP
applied consistently throughout the periods covered thereby, and present fairly
the consolidated financial condition of S-O as of the dates thereof, and the
consolidated results of operations of S-O for the period, or portion thereof,
then ended and the monthly financial statements have been prepared in accordance
with S-O's usual historical practice for the preparation of monthly financials.
Except as set forth on Schedule 5.9 of the Securities Purchase Agreement,
Acquisition, after giving effect to the transactions contemplated in the
Securities Purchase Agreement, will not have any material direct or indirect
indebtedness, liability or obligation, whether known or unknown, fixed or
unfixed, contingent or otherwise, and whether or not of a kind required by GAAP
to be set forth on a financial statement (collectively "Liabilities"), other
than (i) Liabilities fully and adequately reflected on the Financials or as a
result of the transactions contemplated under the Securities Purchase Agreement
and (ii) those incurred since the date of the Audited Financials in the ordinary
course of business. Schedule 2.5 to the Asset Sale Agreement is true and correct
and accurately and completely presents the information purported to be contained
therein.
J. Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company during the Term and thereafter (including following
Executive's termination of employment for any reason) by making himself
reasonably available to testify on behalf of the Company or its affiliates, in
any action, suit or proceeding, whether civil, criminal, administrative, or
investigative and to assist the Company or any of its affiliates in any such
action, suit, or proceeding by providing information and meeting and consulting
with the Board or its representatives or counsel or representatives or counsel
to the Company or its affiliates, as reasonably requested by the Board or such
representatives or counsel. Executive shall be
<PAGE> 8
8
reimbursed by the Company for any expenses (including, but not limited to, legal
fees) reasonably incurred by Executive in connection with his compliance with
the foregoing covenant.
K. Notification Requirement. During the term of Executive's
employment hereunder and for the one year period following Executive's
termination of employment with the Company for any reason, the Executive shall
give notice to the Company of any change in the Executive's address and of each
new employment that the Executive plans to undertake, at least seven (7) days
prior to beginning any such new employment. Such notice shall state the nature
of the new employment, the name and address of the person for whom such new
employment is undertaken and the Executive shall provide the Company with such
other pertinent information concerning such new employment as the Company may
reasonably request in order to determine the Executive's continued compliance
with the Executive's obligations under Sections 7 and 8.
L. Executive's Duties on Termination. Upon termination of his
employment with the Company for any reason, Executive agrees to deliver promptly
to the Company all equipment, notebooks, documents, memoranda, reports, files,
samples, books, correspondence, lists, computer disks, or other written or
graphic records, and the like, relating to the Company's business, which are or
have been in his possession or under his control.
M. Attorney's Fees. If any legal action arises under this
Agreement or by reason of any asserted breach of it, the prevailing party shall
be entitled to recover all costs and expenses, including reasonable attorney's
fees, incurred in enforcing or attempting to enforce any of the terms,
covenants, or conditions, including costs incurred prior to commencement of
legal action, and all costs and expenses, including reasonable attorney's fees,
incurred in any appeal from an action brought to enforce any of the terms,
covenants, or conditions.
N. Notices. Any notice to be given to the Company under the
terms of this Agreement shall be addressed to the Company at the address of its
principal place of business, and any notice to be given to Executive shall be
addressed to him at his home address last shown on the records of the Company,
or at such other address as either party may hereafter designate in writing to
the other. Any such notice shall be deemed to have been duly given when
personally delivered or enclosed in a properly sealed and addressed envelope,
registered or certified, and deposited (postage and registry or certification
fee prepaid) in the U.S. mail.
O. Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
<PAGE> 9
9
P. Assignment. This Agreement shall not be assignable by
Executive and shall be assignable by the Company only with the consent of
Executive; provided, however, that the Company may assign its rights and
obligations under this Agreement without consent of the Executive in the event
that the Company shall effect a reorganization, consolidate with, or merge into
any other entity or transfer all of substantially all of its properties or
assets to any other entity; provided, further, that any assignee of the Company
expressly assumes the obligations, rights and privileges of this Agreement and
Executive shall not be required to perform services at a principal place of
business that is more than 30 miles from the Company's then current principal
place of business.
Q. Successors; Binding Agreement. This Agreement shall inure
to the benefit of and be binding upon the Company, its successors and permitted
assigns. This Agreement shall also inure to the benefit of and be binding upon
the Executive, his executors, administrators and heirs.
R. Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
S. Survival. Provisions of this Agreement shall survive any
termination to the extent necessary or desirable to fully accomplish the
purposes of such provision; provided, however, that the provisions of Sections
7, 8, 9, 10, 11, 12 and 21 shall in all events survive any termination of
Executive's employment and the expiration of the Term.
T. Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
U. Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, or prevent that party thereafter from
enforcing each and every other provision of this Agreement.
V. Enforcement. The Company and Executive recognize and
acknowledge that Executive is hereunder employed in a position in which
Executive will be rendering personal services of a special, unique, unusual, and
extraordinary character requiring extraordinary ingenuity and effort by
Executive. Executive agrees that the breach by him of this Agreement, including
each of its covenants, could not reasonably or adequately be compensated in
damages in an action at law and that the Company shall be entitled to injunctive
relief, which may include, without limitation, restraining Executive from
rendering any service or undertaking any activity that would breach this
Agreement. However, no remedy conferred by any of the specific provisions of
this Agreement is intended to be exclusive of any other remedy, and
<PAGE> 10
10
each and every remedy shall be cumulative and shall be in addition to every
other remedy. The election of any one or more remedies by the Company shall not
constitute a waiver of the right to pursue other available remedies.
W. Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
X. Entire Agreement. This Agreement represents the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements, representations and understandings.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
S-O OPERATING CORP.
By:
------------------------------
---------------------------------
Kenneth A. Darienzo
<PAGE> 1
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is entered into as of the 15th day
of November, 1996 by and between S-O Operating Corp., a Delaware corporation
(the "Company") and Martin J. Dymek (the "Executive").
R E C I T A L S:
- - - - - - - -
WHEREAS, the Company desires to provide for the employment of
Executive as its Senior Vice President Global Sales and Marketing; and
WHEREAS, the Executive desires to be employed by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
warranties contained herein, the parties agree as follows:
A. Term. The term of this Agreement shall commence on the date
hereof and shall continue through December 31, 1999 (the "Term").
B. Employment. During the Term, the Company hereby employs
Executive as its Senior Vice President Global Sales and Marketing, and Executive
hereby accepts such employment.
C. Duties and Responsibilities. Executive shall serve as its
Senior Vice President Global Sales and Marketing of the Company, subject to the
supervision of the Board of Directors of the Company (the "Board"). In such
position, Executive shall have such duties and authority as are customarily
exercised by a Senior Vice President Global Sales and Marketing of a business
corporation of similar size and public stature and as shall be determined from
time to time by the Board or its designee reasonably related to the business of
the Company and such that will not limit or otherwise hamper Executive's ability
to perform his duties. Executive shall devote his full time and energies to the
business of the Company, it being understood and agreed that Executive shall not
engage in outside business interests or activities if such activities directly
or indirectly interfere with the performance of his duties. In addition, if
requested by the Board, Executive shall agree to serve on committees of the
Company without additional compensation.
D. Compensation.
1. Base Compensation. During the Term, the Company
shall pay Executive, as compensation for services rendered under this Agreement,
base compensation ("Base Compensation") at the same rate he received from
Steri-Oss
<PAGE> 2
2
Inc. immediately prior to the effective date hereof, payable in accordance with
the usual and customary payroll practices of the Company. The President and
Chief Executive Officer of the Company shall review the Executive's Base
Compensation as of January 1, 1997 and may adjust such Base Compensation in
their discretion.
2. Incentive Compensation. In addition to the
foregoing Base Compensation, the Company shall pay to Executive, as additional
incentive compensation ("Incentive Compensation"), an amount equal to 30% of the
Annual Bonus Pool (as defined below) of the Company, computed on an annual basis
(commencing with the 1997 calendar year) and payable within 90 days after the
end of each calendar year; provided, however, that in no event shall the
Incentive Compensation exceed 100% of Base Compensation. The Annual Bonus Pool
for each calendar year shall be equal to the product of (i) 20% multiplied by
(ii) the difference between the Company's EBITDA (as defined below) for such
year and the corresponding amount in the Company's operating plan for such year,
as approved by the Board. As used in this Agreement, the term EBITDA means the
Company's net earnings, as reflected on the Company's audited financial
statements for such year, plus depreciation and amortization, but without
deduction for interest expense or state, local, federal or foreign taxes.
3. Annual Review. The Board shall review Executive's
performance on an annual basis and make upwards adjustments in Executive's Base
Compensation and/or Incentive Compensation as appropriate.
4. Stock Purchase Agreement. The Company and
Executive shall enter into a Stock Purchase Agreement pursuant to which
Executive will purchase shares of Common Stock of the Company equal to 1% of the
fully diluted common equity of the Company at a purchase price to be determined.
5. Stock Option Agreement. The Company and Executive
shall enter into a Stock Option Agreement pursuant to which Executive will be
granted a non-qualified option to purchase shares of Common Stock of the Company
equal to 1% of the fully diluted common equity of the Company at an exercise
price per share to be determined.
6. Other Equity Arrangements. Executive shall be
entitled to participate in any stock option plan, stock bonus plan or other
equity-based incentive program instituted by the Company for its senior
executives, at such levels and on such terms as may be determined by the Board.
E. Expenses and Executive Benefits.
1. Expenses. The Company shall reimburse Executive
for his reasonable out-of-pocket expenses incurred in connection with the
business of the Company, subject to such reasonable policies as the Board may
establish from time to time.
<PAGE> 3
3
2. Other Benefits. Executive shall be entitled to
receive such other benefits as the Company generally makes available to its
management personnel.
F. Termination.
1. Termination By The Company For Cause or By
Executive For Any Reason.
(a) If the Company terminates Executive's
employment and this Agreement for Cause (as defined below) or if
Executive terminates employment and this Agreement for any reason,
Executive shall be entitled to receive his Base Compensation through
the date of termination and Executive shall be entitled to no other
payments of Base Compensation or Incentive Compensation under this
Agreement. All other benefits, if any, due Executive following
Executive's termination of employment due to the reasons set forth in
this Section 6.1 shall be determined in accordance with the plans,
policies and practices of the Company.
(b) For purposes of this Agreement Cause
shall mean:
(i) Executive's death, adjudication
as mentally incompetent, or mental or physical disability preventing
Executive from performing his duties under this Employment Agreement
for a period of 90 consecutive days. Any question as to the existence
of the disability of Executive as to which Executive and the Company
cannot agree shall be determined in writing by a qualified independent
physician mutually acceptable to Executive and the Company. If
Executive and the Company cannot agree as to a qualified independent
physician, each shall appoint such a physician and those two physicians
shall select a third who shall make such determination in writing. The
determination of disability made in writing to the Company and
Executive shall be final and conclusive for all purposes of the
Agreement;
(ii) Executive's breach of any
material term of this Agreement, including, but not limited to, the
covenants set forth in Section 7 or 8 hereof, which are not cured by
Executive within 10 days following written notice from the Company of
such breach;
(iii) Executive's willful failure or
refusal to perform his duties hereunder or to perform specific
directives of the Board;
<PAGE> 4
4
(iv) Dishonesty of Executive
affecting the Company;
(v) Drunkenness or use of drugs
which interferes with the performance of Executive's duties and
responsibilities under this Agreement;
(vi) Executive's conviction of a
felony or of any crime involving moral turpitude, fraud or
misrepresentation; or
(vii) Any gross or willful conduct
of Executive resulting in substantial loss to the Company, substantial
damage to the Company's reputation or theft or defalcation from the
Company.
2. Termination By The Company Without Cause. If the
Company terminates this Agreement without Cause, Executive shall be entitled to
(i) payment of severance pay equal to the Base Compensation due for the
remaining term of this Agreement (but in no event an amount less than 18 months'
Base Compensation), and (ii) continuation of any health or insurance plans or
benefit programs for the remaining term of the Agreement. In addition, Executive
shall be entitled to receive any Incentive Compensation due for the year of
termination under Section 4.2, at such time as is specified in Section 4.2, as
if Executive had been employed for the full calendar year. All other benefits,
if any, due Executive following Executive's termination of employment by the
Company without Cause shall be determined in accordance with the plans, policies
and practices of the Company.
3. Expiration of Employment Term. Unless otherwise
agreed in writing between the Company and Executive, Executive's employment
hereunder shall terminate upon the expiration of the Term. Following the
expiration of the Term, the Company shall have no further obligations to
Executive hereunder, other than with respect to compensation which shall have
accrued to Executive during the Term but which shall then remain unpaid, and
Executive's continuation of employment with the Company beyond the expiration of
the Term shall be deemed an employment at will which may be terminated by the
Company or Executive at any time and shall not extend any of the provisions of
this Agreement.
4. Notice of Termination. Any purported termination
of employment by the Company or by Executive shall be communicated by written
Notice of Termination to the other party hereto in accordance with Section 14
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
<PAGE> 5
5
G. Non-Competition. Executive acknowledges and recognizes the
highly competitive nature of the businesses of the Company and its affiliates
and accordingly agrees as follows:
1. During the term of Executive's employment
hereunder and for a period of one year following the termination of Executive's
employment with the Company, Executive will not enter into competitive endeavors
and will not undertake any commercial activity which is contrary to the best
interests of the Company or its affiliates, including becoming an employee,
owner (except for passive investments of not more than one percent of the
outstanding shares of, or any other equity interest in, any company or entity
listed or traded on a national securities exchange or in an over-the-counter
securities market), officer, agent or director of any entity in any geographic
area which either directly competes with a line or lines of business of the
Company.
2. Executive will not directly or indirectly induce
any employee of the Company or any of its affiliates to engage in any activity
in which Executive is prohibited from engaging by Section 7.1 above or to
terminate his employment with the Company or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who was employed
by the Company or any of its affiliates unless such person shall have ceased to
be employed by the Company or any of its affiliates for a period of at least 12
months.
3. It is expressly understood and agreed that
although Executive and the Company consider the restrictions contained in this
Section 7 to be reasonable, if a final judicial determination is made by a court
of competent jurisdiction that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction against Executive,
the provisions of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds that any restriction
contained in this Agreement is unenforceable, and such restriction cannot be
amended so as to make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained herein.
H. Confidentiality. Executive agrees that he will not at any
time, whether during or subsequent to the term of Executive's employment by the
Company, unless specifically consented to in writing by the Company, either
directly or indirectly use or divulge, disclose or communicate to any person,
firm, or corporation, any proprietary information of any kind, nature, or
description concerning any matters affecting or relating to the business of the
Company, including, without limiting the generality of the foregoing, technical
specifications of its products, its manufacturing processes, the names of any of
its clients or customers, its marketing methods, its costs of materials, the
prices it obtains or has obtained or
<PAGE> 6
6
at which it sells or has sold its products, or any other information of, about,
or concerning the business of the Company, its manner of operation, or other
confidential data of any kind, nature, or description (the "Confidential
Information"). The Company and Executive hereby agree that as between them, all
of the Confidential Information constitutes important and material, trade
secrets of the Company and affect the successful conduct of the Company's
business, and its goodwill, and that any breach of any term of this section is a
material breach of this Agreement. All equipment, documents, memoranda, reports,
files, samples, books, correspondence, lists, other written and graphic records,
and the like, affecting or relating to the business of the Company, which
Executive shall prepare, use, construct, observe, possess, or control in
connection with his employment shall be and remain the Company's sole property.
I. Representations of the Executive. The Executive hereby
represents and warrants, to the best of his knowledge, that:
1. The representations and warranties contained in
Article 2 of the Asset Sale Agreement dated as of July 22, 1996 by and among
Bausch & Lomb, Incorporated, Steri-Oss, Inc. ("S-O") and S-O Acquisition Corp.
("Acquisition") (the "Asset Sale Agreement") are true and correct in all
material respects;
2. The financial projections relating to the
operations of Acquisition and its subsidiaries attached as Schedule 5.22 to the
Securities Purchase Agreement by and between Acquisition and The 1818 Fund II,
L.P. (the "Securities Purchase Agreement") have been prepared by Acquisition in
good faith on a reasonable basis. The assumptions on which the projections are
based are stated in Schedule 5.22 and are consistent with the past practices
(including, without limitation, accounting practices) of S-O and with historical
conditions applicable to the business of S-O. Nothing has come to the attention
of Executive to indicate that the projections or the assumptions on which they
are based are not reasonable;
3. Except as set forth in Schedule 5.23 to the
Securities Purchase Agreement, each of the items of Intellectual Property (as
defined in Section 2.8 of the Asset Sale Agreement) and after giving effect to
the transactions contemplated hereby, (i) is and will be owned by Acquisition or
one of its subsidiaries, free and clear of any material liens, liabilities or
other encumbrances, (ii) does not and will not conflict with or violate the
intellectual property rights of others, (iii) is transferable to Acquisition or
one of its subsidiaries under the Asset Sale Agreement without the approval or
consent of any person, and (iv) is and will continue to be valid and in full
force and effect in all material respects after giving effect to the
transactions contemplated under the Securities Purchase Agreement; and (b)
Schedules 2.8(a), 2.8(b) and 2.8(c) to the Asset Sale Agreement are true and
correct and accurately and completely present the information purported to be
contained therein;
<PAGE> 7
7
4. Except as otherwise stated in the accompanying
report to the Audited Financials (as defined in the Securities Purchase
Agreement), the Audited Financials have been prepared in accordance with GAAP
applied consistently throughout the periods covered thereby, and present fairly
the consolidated financial condition of S-O as of the dates thereof, and the
consolidated results of operations of S-O for the period, or portion thereof,
then ended and the monthly financial statements have been prepared in accordance
with S-O's usual historical practice for the preparation of monthly financials.
Except as set forth on Schedule 5.9 of the Securities Purchase Agreement,
Acquisition, after giving effect to the transactions contemplated in the
Securities Purchase Agreement, will not have any material direct or indirect
indebtedness, liability or obligation, whether known or unknown, fixed or
unfixed, contingent or otherwise, and whether or not of a kind required by GAAP
to be set forth on a financial statement (collectively "Liabilities"), other
than (i) Liabilities fully and adequately reflected on the Financials or as a
result of the transactions contemplated under the Securities Purchase Agreement
and (ii) those incurred since the date of the Audited Financials in the ordinary
course of business. Schedule 2.5 to the Asset Sale Agreement is true and correct
and accurately and completely presents the information purported to be contained
therein.
J. Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company during the Term and thereafter (including following
Executive's termination of employment for any reason) by making himself
reasonably available to testify on behalf of the Company or its affiliates, in
any action, suit or proceeding, whether civil, criminal, administrative, or
investigative and to assist the Company or any of its affiliates in any such
action, suit, or proceeding by providing information and meeting and consulting
with the Board or its representatives or counsel or representatives or counsel
to the Company or its affiliates, as reasonably requested by the Board or such
representatives or counsel. Executive shall be reimbursed by the Company for any
expenses (including, but not limited to, legal fees) reasonably incurred by
Executive in connection with his compliance with the foregoing covenant.
K. Notification Requirement. During the term of Executive's
employment hereunder and for the one year period following Executive's
termination of employment with the Company for any reason, the Executive shall
give notice to the Company of any change in the Executive's address and of each
new employment that the Executive plans to undertake, at least seven (7) days
prior to beginning any such new employment. Such notice shall state the nature
of the new employment, the name and address of the person for whom such new
employment is undertaken and the Executive shall provide the Company with such
other pertinent information concerning such new employment as the Company may
reasonably request in order to determine the Executive's continued compliance
with the Executive's obligations under Sections 7 and 8.
<PAGE> 8
8
L. Executive's Duties on Termination. Upon termination of his
employment with the Company for any reason, Executive agrees to deliver promptly
to the Company all equipment, notebooks, documents, memoranda, reports, files,
samples, books, correspondence, lists, computer disks, or other written or
graphic records, and the like, relating to the Company's business, which are or
have been in his possession or under his control.
M. Attorney's Fees. If any legal action arises under this
Agreement or by reason of any asserted breach of it, the prevailing party shall
be entitled to recover all costs and expenses, including reasonable attorney's
fees, incurred in enforcing or attempting to enforce any of the terms,
covenants, or conditions, including costs incurred prior to commencement of
legal action, and all costs and expenses, including reasonable attorney's fees,
incurred in any appeal from an action brought to enforce any of the terms,
covenants, or conditions.
N. Notices. Any notice to be given to the Company under the
terms of this Agreement shall be addressed to the Company at the address of its
principal place of business, and any notice to be given to Executive shall be
addressed to him at his home address last shown on the records of the Company,
or at such other address as either party may hereafter designate in writing to
the other. Any such notice shall be deemed to have been duly given when
personally delivered or enclosed in a properly sealed and addressed envelope,
registered or certified, and deposited (postage and registry or certification
fee prepaid) in the U.S. mail.
O. Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
P. Assignment. This Agreement shall not be assignable by
Executive and shall be assignable by the Company only with the consent of
Executive; provided, however, that the Company may assign its rights and
obligations under this Agreement without consent of the Executive in the event
that the Company shall effect a reorganization, consolidate with, or merge into
any other entity or transfer all of substantially all of its properties or
assets to any other entity; provided, further, that any assignee of the Company
expressly assumes the obligations, rights and privileges of this Agreement and
Executive shall not be required to perform services at a principal place of
business that is more than 30 miles from the Company's then current principal
place of business.
Q. Successors; Binding Agreement. This Agreement shall inure
to the benefit of and be binding upon the Company, its successors and permitted
assigns. This Agreement shall also inure to the benefit of and be binding upon
the Executive, his executors, administrators and heirs.
<PAGE> 9
9
R. Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
S. Survival. Provisions of this Agreement shall survive any
termination to the extent necessary or desirable to fully accomplish the
purposes of such provision; provided, however, that the provisions of Sections
7, 8, 9, 10, 11, 12 and 21 shall in all events survive any termination of
Executive's employment and the expiration of the Term.
T. Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
U. Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, or prevent that party thereafter from
enforcing each and every other provision of this Agreement.
V. Enforcement. The Company and Executive recognize and
acknowledge that Executive is hereunder employed in a position in which
Executive will be rendering personal services of a special, unique, unusual, and
extraordinary character requiring extraordinary ingenuity and effort by
Executive. Executive agrees that the breach by him of this Agreement, including
each of its covenants, could not reasonably or adequately be compensated in
damages in an action at law and that the Company shall be entitled to injunctive
relief, which may include, without limitation, restraining Executive from
rendering any service or undertaking any activity that would breach this
Agreement. However, no remedy conferred by any of the specific provisions of
this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy.
The election of any one or more remedies by the Company shall not constitute a
waiver of the right to pursue other available remedies.
W. Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
<PAGE> 10
10
X. Entire Agreement. This Agreement represents the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements, representations and understandings.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
S-O OPERATING CORP.
By:
---------------------------------
------------------------------------
Martin J. Dymek
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into as of the 15th day
of November, 1996 by and between S-O Operating Corp., a Delaware corporation
(the "Company") and Kenneth Krueger (the "Executive").
R E C I T A L S:
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WHEREAS, the Company desires to provide for the employment of
Executive as its Executive Vice President of Operations; and
WHEREAS, the Executive desires to be employed by the Company;
NOW, THEREFORE, in consideration of the mutual covenants and
warranties contained herein, the parties agree as follows:
A. Term. The term of this Agreement shall commence on the date
hereof and shall continue through December 31, 1999 (the "Term").
B. Employment. During the Term, the Company hereby employs
Executive as its Executive Vice President of Operations, and Executive hereby
accepts such employment.
C. Duties and Responsibilities. Executive shall serve as its
Executive Vice President of Operations of the Company, subject to the
supervision of the Board of Directors of the Company (the "Board"). In such
position, Executive shall have such duties and authority as are customarily
exercised by an Executive Vice President of Operations of a business corporation
of similar size and public stature and as shall be determined from time to time
by the Board or its designee reasonably related to the business of the Company
and such that will not limit or otherwise hamper Executive's ability to perform
his duties. Executive shall devote his full time and energies to the business of
the Company, it being understood and agreed that Executive shall not engage in
outside business interests or activities if such activities directly or
indirectly interfere with the performance of his duties. In addition, if
requested by the Board, Executive shall agree to serve on committees of the
Company without additional compensation.
D. Compensation.
1. Base Compensation. During the Term, the Company shall
pay Executive, as compensation for services rendered under this Agreement,
base compensation ("Base Compensation") at the same rate he received from
Steri-Oss
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2
Inc. immediately prior to the effective date hereof, payable in accordance with
the usual and customary payroll practices of the Company. The President and
Chief Executive Officer of the Company shall review the Executive's Base
Compensation as of January 1, 1997 and may adjust such Base Compensation in
their discretion.
2. Incentive Compensation. In addition to the
foregoing Base Compensation, the Company shall pay to Executive, as additional
incentive compensation ("Incentive Compensation"), an amount equal to 30% of the
Annual Bonus Pool (as defined below) of the Company, computed on an annual basis
(commencing with the 1997 calendar year) and payable within 90 days after the
end of each calendar year; provided, however, that in no event shall the
Incentive Compensation exceed 100% of Base Compensation. The Annual Bonus Pool
for each calendar year shall be equal to the product of (i) 20% multiplied by
(ii) the difference between the Company's EBITDA (as defined below) for such
year and the corresponding amount in the Company's operating plan for such year,
as approved by the Board. As used in this Agreement, the term EBITDA means the
Company's net earnings, as reflected on the Company's audited financial
statements for such year, plus depreciation and amortization, but without
deduction for interest expense or state, local, federal or foreign taxes.
3. Annual Review. The Board shall review Executive's
performance on an annual basis and make upwards adjustments in Executive's Base
Compensation and/or Incentive Compensation as appropriate.
4. Stock Purchase Agreement. The Company and
Executive shall enter into a Stock Purchase Agreement pursuant to which
Executive will purchase shares of Common Stock of the Company equal to 1% of the
fully diluted common equity of the Company at a purchase price per share to be
determined.
5. Stock Option Agreement. The Company and Executive
shall enter into a Stock Option Agreement pursuant to which Executive will be
granted a non-qualified option to purchase shares of Common Stock of the Company
equal to 1% of the fully diluted common equity of the Company at an exercise
price per share to be determined.
6. Other Equity Arrangements. Executive shall be
entitled to participate in any stock option plan, stock bonus plan or other
equity-based incentive program instituted by the Company for its senior
executives, at such levels and on such terms as may be determined by the Board.
<PAGE> 3
3
E. Expenses and Executive Benefits.
1. Expenses. The Company shall reimburse Executive
for his reasonable out-of-pocket expenses incurred in connection with the
business of the Company, subject to such reasonable policies as the Board may
establish from time to time.
2. Other Benefits. Executive shall be entitled to
receive such other benefits as the Company generally makes available to its
management personnel.
F. Termination.
1. Termination By The Company For Cause or By
Executive For Any Reason.
(a) If the Company terminates Executive's
employment and this Agreement for Cause (as defined below) or if
Executive terminates employment and this Agreement for any reason,
Executive shall be entitled to receive his Base Compensation through
the date of termination and Executive shall be entitled to no other
payments of Base Compensation or Incentive Compensation under this
Agreement. All other benefits, if any, due Executive following
Executive's termination of employment due to the reasons set forth in
this Section 6.1 shall be determined in accordance with the plans,
policies and practices of the Company.
(b) For purposes of this Agreement Cause
shall mean:
(i) Executive's death, adjudication
as mentally incompetent, or mental or physical disability preventing
Executive from performing his duties under this Employment Agreement
for a period of 90 consecutive days. Any question as to the existence
of the disability of Executive as to which Executive and the Company
cannot agree shall be determined in writing by a qualified independent
physician mutually acceptable to Executive and the Company. If
Executive and the Company cannot agree as to a qualified independent
physician, each shall appoint such a physician and those two physicians
shall select a third who shall make such determination in writing. The
determination of disability made in writing to the Company and
Executive shall be final and conclusive for all purposes of the
Agreement;
(ii) Executive's breach of any
material term of this Agreement, including, but not limited to, the
covenants set forth in
<PAGE> 4
4
Section 7 or 8 hereof, which are not cured by Executive within 10 days
following written notice from the Company of such breach;
(iii) Executive's willful failure or
refusal to perform his duties hereunder or to perform specific
directives of the Board;
(iv) Dishonesty of Executive
affecting the Company;
(v) Drunkenness or use of drugs
which interferes with the performance of Executive's duties and
responsibilities under this Agreement;
(vi) Executive's conviction of a
felony or of any crime involving moral turpitude, fraud or
misrepresentation; or
(vii) Any gross or willful conduct
of Executive resulting in substantial loss to the Company, substantial
damage to the Company's reputation or theft or defalcation from the
Company.
2. Termination By The Company Without Cause. If the
Company terminates this Agreement without Cause, Executive shall be entitled to
(i) payment of severance pay equal to the Base Compensation due for the
remaining term of this Agreement (but in no event an amount less than 18 months'
Base Compensation), and (ii) continuation of any health or insurance plans or
benefit programs for the remaining term of the Agreement. In addition, Executive
shall be entitled to receive any Incentive Compensation due for the year of
termination under Section 4.2, at such time as is specified in Section 4.2, as
if Executive had been employed for the full calendar year. All other benefits,
if any, due Executive following Executive's termination of employment by the
Company without Cause shall be determined in accordance with the plans, policies
and practices of the Company.
3. Expiration of Employment Term. Unless otherwise
agreed in writing between the Company and Executive, Executive's employment
hereunder shall terminate upon the expiration of the Term. Following the
expiration of the Term, the Company shall have no further obligations to
Executive hereunder, other than with respect to compensation which shall have
accrued to Executive during the Term but which shall then remain unpaid, and
Executive's continuation of employment with the Company beyond the expiration of
the Term shall be deemed an employment at will which may be terminated by the
Company or Executive at any time and shall not extend any of the provisions of
this Agreement.
4. Notice of Termination. Any purported termination
of employment by the Company or by Executive shall be communicated by written
<PAGE> 5
5
Notice of Termination to the other party hereto in accordance with Section 14
hereof. For purposes of this Agreement, a "Notice of Termination" shall mean a
notice which shall indicate the specific termination provision in this Agreement
relied upon and shall set forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of employment under the provision so
indicated.
G. Non-Competition. Executive acknowledges and recognizes the
highly competitive nature of the businesses of the Company and its affiliates
and accordingly agrees as follows:
1. During the term of Executive's employment
hereunder and for a period of one year following the termination of Executive's
employment with the Company, Executive will not enter into competitive endeavors
and will not undertake any commercial activity which is contrary to the best
interests of the Company or its affiliates, including becoming an employee,
owner (except for passive investments of not more than one percent of the
outstanding shares of, or any other equity interest in, any company or entity
listed or traded on a national securities exchange or in an over-the-counter
securities market), officer, agent or director of any entity in any geographic
area which either directly competes with a line or lines of business of the
Company.
2. Executive will not directly or indirectly induce
any employee of the Company or any of its affiliates to engage in any activity
in which Executive is prohibited from engaging by Section 7.1 above or to
terminate his employment with the Company or any of its affiliates, and will not
directly or indirectly employ or offer employment to any person who was employed
by the Company or any of its affiliates unless such person shall have ceased to
be employed by the Company or any of its affiliates for a period of at least 12
months.
3. It is expressly understood and agreed that
although Executive and the Company consider the restrictions contained in this
Section 7 to be reasonable, if a final judicial determination is made by a court
of competent jurisdiction that the time or territory or any other restriction
contained in this Agreement is an unenforceable restriction against Executive,
the provisions of this Agreement shall not be rendered void but shall be deemed
amended to apply as to such maximum time and territory and to such maximum
extent as such court may judicially determine or indicate to be enforceable.
Alternatively, if any court of competent jurisdiction finds that any restriction
contained in this Agreement is unenforceable, and such restriction cannot be
amended so as to make it enforceable, such finding shall not affect the
enforceability of any of the other restrictions contained herein.
H. Confidentiality. Executive agrees that he will not at any
time, whether during or subsequent to the term of Executive's employment by the
Company, unless specifically consented to in writing by the Company, either
directly
<PAGE> 6
6
or indirectly use or divulge, disclose or communicate to any person, firm, or
corporation, any proprietary information of any kind, nature, or description
concerning any matters affecting or relating to the business of the Company,
including, without limiting the generality of the foregoing, technical
specifications of its products, its manufacturing processes, the names of any of
its clients or customers, its marketing methods, its costs of materials, the
prices it obtains or has obtained or at which it sells or has sold its products,
or any other information of, about, or concerning the business of the Company,
its manner of operation, or other confidential data of any kind, nature, or
description (the "Confidential Information"). The Company and Executive hereby
agree that as between them, all of the Confidential Information constitutes
important and material, trade secrets of the Company and affect the successful
conduct of the Company's business, and its goodwill, and that any breach of any
term of this section is a material breach of this Agreement. All equipment,
documents, memoranda, reports, files, samples, books, correspondence, lists,
other written and graphic records, and the like, affecting or relating to the
business of the Company, which Executive shall prepare, use, construct, observe,
possess, or control in connection with his employment shall be and remain the
Company's sole property.
I. Representations of the Executive. The Executive hereby
represents and warrants, to the best of his knowledge, that:
1. The representations and warranties contained in
Article 2 of the Asset Sale Agreement dated as of July 22, 1996 by and among
Bausch & Lomb, Incorporated, Steri-Oss, Inc. ("S-O") and S-O Acquisition Corp.
("Acquisition") (the "Asset Sale Agreement") are true and correct in all
material respects;
2. The financial projections relating to the
operations of Acquisition and its subsidiaries attached as Schedule 5.22 to the
Securities Purchase Agreement by and between Acquisition and The 1818 Fund II,
L.P. (the "Securities Purchase Agreement") have been prepared by Acquisition in
good faith on a reasonable basis. The assumptions on which the projections are
based are stated in Schedule 5.22 and are consistent with the past practices
(including, without limitation, accounting practices) of S-O and with historical
conditions applicable to the business of S-O. Nothing has come to the attention
of Executive to indicate that the projections or the assumptions on which they
are based are not reasonable;
3. Except as set forth in Schedule 5.23 to the
Securities Purchase Agreement, each of the items of Intellectual Property (as
defined in Section 2.8 of the Asset Sale Agreement) and after giving effect to
the transactions contemplated hereby, (i) is and will be owned by Acquisition or
one of its subsidiaries, free and clear of any material liens, liabilities or
other encumbrances, (ii) does not and will not conflict with or violate the
intellectual property rights of others, (iii) is transferable to Acquisition or
one of its subsidiaries under the Asset
<PAGE> 7
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Sale Agreement without the approval or consent of any person, and (iv) is and
will continue to be valid and in full force and effect in all material respects
after giving effect to the transactions contemplated under the Securities
Purchase Agreement; and (b) Schedules 2.8(a), 2.8(b) and 2.8(c) to the Asset
Sale Agreement are true and correct and accurately and completely present the
information purported to be contained therein;
4. Except as otherwise stated in the accompanying
report to the Audited Financials (as defined in the Securities Purchase
Agreement), the Audited Financials have been prepared in accordance with GAAP
applied consistently throughout the periods covered thereby, and present fairly
the consolidated financial condition of S-O as of the dates thereof, and the
consolidated results of operations of S-O for the period, or portion thereof,
then ended and the monthly financial statements have been prepared in accordance
with S-O's usual historical practice for the preparation of monthly financials.
Except as set forth on Schedule 5.9 of the Securities Purchase Agreement,
Acquisition, after giving effect to the transactions contemplated in the
Securities Purchase Agreement, will not have any material direct or indirect
indebtedness, liability or obligation, whether known or unknown, fixed or
unfixed, contingent or otherwise, and whether or not of a kind required by GAAP
to be set forth on a financial statement (collectively "Liabilities"), other
than (i) Liabilities fully and adequately reflected on the Financials or as a
result of the transactions contemplated under the Securities Purchase Agreement
and (ii) those incurred since the date of the Audited Financials in the ordinary
course of business. Schedule 2.5 to the Asset Sale Agreement is true and correct
and accurately and completely presents the information purported to be contained
therein.
J. Cooperation With Regard to Litigation. Executive agrees to
cooperate with the Company during the Term and thereafter (including following
Executive's termination of employment for any reason) by making himself
reasonably available to testify on behalf of the Company or its affiliates, in
any action, suit or proceeding, whether civil, criminal, administrative, or
investigative and to assist the Company or any of its affiliates in any such
action, suit, or proceeding by providing information and meeting and consulting
with the Board or its representatives or counsel or representatives or counsel
to the Company or its affiliates, as reasonably requested by the Board or such
representatives or counsel. Executive shall be reimbursed by the Company for any
expenses (including, but not limited to, legal fees) reasonably incurred by
Executive in connection with his compliance with the foregoing covenant.
K. Notification Requirement. During the term of Executive's
employment hereunder and for the one year period following Executive's
termination of employment with the Company for any reason, the Executive shall
give notice to the Company of any change in the Executive's address and of each
new employment that the Executive plans to undertake, at least seven (7) days
prior to beginning any such new employment. Such notice shall state the nature
of the new employment, the
<PAGE> 8
8
name and address of the person for whom such new employment is undertaken and
the Executive shall provide the Company with such other pertinent information
concerning such new employment as the Company may reasonably request in order to
determine the Executive's continued compliance with the Executive's obligations
under Sections 7 and 8.
L. Executive's Duties on Termination. Upon termination of his
employment with the Company for any reason, Executive agrees to deliver promptly
to the Company all equipment, notebooks, documents, memoranda, reports, files,
samples, books, correspondence, lists, computer disks, or other written or
graphic records, and the like, relating to the Company's business, which are or
have been in his possession or under his control.
M. Attorney's Fees. If any legal action arises under this
Agreement or by reason of any asserted breach of it, the prevailing party shall
be entitled to recover all costs and expenses, including reasonable attorney's
fees, incurred in enforcing or attempting to enforce any of the terms,
covenants, or conditions, including costs incurred prior to commencement of
legal action, and all costs and expenses, including reasonable attorney's fees,
incurred in any appeal from an action brought to enforce any of the terms,
covenants, or conditions.
N. Notices. Any notice to be given to the Company under the
terms of this Agreement shall be addressed to the Company at the address of its
principal place of business, and any notice to be given to Executive shall be
addressed to him at his home address last shown on the records of the Company,
or at such other address as either party may hereafter designate in writing to
the other. Any such notice shall be deemed to have been duly given when
personally delivered or enclosed in a properly sealed and addressed envelope,
registered or certified, and deposited (postage and registry or certification
fee prepaid) in the U.S. mail.
O. Severability. In the event that any one or more of the
provisions of this Agreement shall be or become invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions of this Agreement shall not be affected thereby.
P. Assignment. This Agreement shall not be assignable by
Executive and shall be assignable by the Company only with the consent of
Executive; provided, however, that the Company may assign its rights and
obligations under this Agreement without consent of the Executive in the event
that the Company shall effect a reorganization, consolidate with, or merge into
any other entity or transfer all of substantially all of its properties or
assets to any other entity; provided, further, that any assignee of the Company
expressly assumes the obligations, rights and privileges of this Agreement and
Executive shall not be required to perform services at a principal place of
business that is more than 30 miles from the Company's then current principal
place of business.
<PAGE> 9
9
Q. Successors; Binding Agreement. This Agreement shall inure
to the benefit of and be binding upon the Company, its successors and permitted
assigns. This Agreement shall also inure to the benefit of and be binding upon
the Executive, his executors, administrators and heirs.
R. Withholding Taxes. The Company may withhold from any
amounts payable under this Agreement such Federal, state and local taxes as may
be required to be withheld pursuant to any applicable law or regulation.
S. Survival. Provisions of this Agreement shall survive any
termination to the extent necessary or desirable to fully accomplish the
purposes of such provision; provided, however, that the provisions of Sections
7, 8, 9, 10, 11 and 18 shall in all events survive any termination of
Executive's employment and the expiration of the Term.
T. Counterparts. This Agreement may be signed in counterparts,
each of which shall be an original, with the same effect as if the signatures
thereto and hereto were upon the same instrument.
U. Waiver. Either party's failure to enforce any provision or
provisions of this Agreement shall not in any way be construed as a waiver of
any such provision or provisions, or prevent that party thereafter from
enforcing each and every other provision of this Agreement.
V. Enforcement. The Company and Executive recognize and
acknowledge that Executive is hereunder employed in a position in which
Executive will be rendering personal services of a special, unique, unusual, and
extraordinary character requiring extraordinary ingenuity and effort by
Executive. Executive agrees that the breach by him of this Agreement, including
each of its covenants, could not reasonably or adequately be compensated in
damages in an action at law and that the Company shall be entitled to injunctive
relief, which may include, without limitation, restraining Executive from
rendering any service or undertaking any activity that would breach this
Agreement. However, no remedy conferred by any of the specific provisions of
this Agreement is intended to be exclusive of any other remedy, and each and
every remedy shall be cumulative and shall be in addition to every other remedy.
The election of any one or more remedies by the Company shall not constitute a
waiver of the right to pursue other available remedies.
W. Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
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X. Entire Agreement. This Agreement represents the entire
agreement between the parties hereto with respect to the subject matter hereof,
and supersedes all prior agreements, representations and understandings.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
S-O OPERATING CORP.
By:
----------------------------------
--------------------------------------
Kenneth Krueger
<PAGE> 1
EXHIBIT 10.13
ASSET SALE AGREEMENT
THIS ASSET SALE AGREEMENT, dated as of ________________, by and among
Bausch & Lomb Incorporated, a New York corporation (referred to herein as
"B&L"), Steri-Oss Inc., a California corporation (referred to herein as
"Seller"), and S-O Acquisition Corp., a Delaware corporation (referred to
herein as "Buyer").
WITNESSETH:
WHEREAS, Seller is engaged in the design, manufacture, marketing and
distribution of dental implants and related products and services for use by
dental professionals worldwide (the "Business"); and
WHEREAS, Buyer desires to buy substantially all of the assets, obtain
certain rights and assume certain specified liabilities of Seller related to
the Business, and Seller desires to sell and provide such assets and rights to
Buyer upon such assumption, all on the terms and conditions set forth herein.
NOW, THEREFORE, the parties agree as follows:
ARTICLE 1
PURCHASE AND SALE OF ASSETS
1.1 Transfer of Purchased Assets. Upon the terms and subject to
the conditions of this Agreement, and except as provided in Section 1.2 hereof,
on the Closing Date (defined in Section 1.7), in consideration of (i) payment
of the Consideration (defined in Section 1.5), (ii) assumption of the Assumed
Liabilities (defined in Section 1.3), Seller shall sell, assign, convey and
transfer to Buyer, and Buyer shall acquire from Seller, all of Seller's right,
title and interest in, to and under all properties, assets and rights of every
kind, type and description, tangible and intangible, real, personal and mixed,
as in existence on the Closing Date, in each case that are used in or are
related to the Business (collectively, the "Purchased Assets"), but excluding
the Excluded Assets as defined in Section 1.2. The Purchased Assets shall
include without limitation the following:
(a) Equipment, Supplies and Fixed Assets. All equipment,
machinery, furniture, fixtures, tools, dies, molds, supplies, parts, vehicles
and other fixed assets and tangible personal property owned by Seller on the
Closing Date and used in or related to the Business including, without
limitation, the property identified on Schedule 1.1(a) hereto (collectively,
the "Equipment, Supplies and Fixed Assets");
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(b) Inventory. All inventory including, without
limitation, raw materials, work in process, finished goods, spare parts and
replacement and component parts owned by Seller on the Closing Date and used in
or related to the Business (collectively, the "Inventory");
(c) Prepaid Expenses, etc. All credits, prepaid
expenses, advance payments, deposits, deferred charges, and other current and
non-current assets owned by Seller on the Closing Date and used in or related
to the Business ("Other Current Assets");
(d) Accounts Receivable, etc. All accounts, notes and
other receivables, and rights to receive payments from any Person, owned by
Seller on the Closing Date that relate to, or arise out of, the Business
("Accounts Receivable");
(e) Intangible Property. All of the intellectual
property owned by or licensed to Seller on the Closing Date and used in or
related to the Business including, without limitation, (i) the patent and
trademark rights described on Schedule 1.1(e) hereto, together with all of
Seller's right, title and interest in and to the name "Steri-Oss", and any and
all derivations thereof; (ii) all trade names, trade name licenses and
applications, copyrights, copyright licenses and applications, service marks,
service names, in each case whether registered or unregistered, and know-how,
trade secrets, formulae, reports, utility models, computer programs, computer
software (including documentation and object and source code listings, but
excluding any software or programs owned or used primarily by B&L), flow
charts, proprietary data, research and development data, processes, technology,
innovations, inventions, manufacturing drawings, engineering drawings, product
designs, product patterns and all other similar types of proprietary
intellectual property (including any registrations or applications for
registration of any of the foregoing and whether or not capable of protection
by patent or by registration) used to carry on the Business; (iii) all
licenses, permits and other governmental authorizations necessary to carry on
the Business (to the extent such licenses, permits and authorizations are
assignable); and (iv) other intangible property rights owned by Seller on the
Closing Date, used in or related to the Business (collectively, the "Intangible
Property");
(f) Contracts. All of Seller's right, title and interest
on the Closing Date in and to all contracts, arrangements and agreements,
including license agreements and personal property leases, and all commitments
and orders for the purchase and sale of goods and services (including
advertising, maintenance and incidental services) (collectively, the "General
Contracts");
(g) Real Property Leases. All of Seller's right, title
and interest on the Closing Date in the real property leases identified on
Schedule 1.1(g) hereto, including without limitation any prepaid rents,
security deposits and options to renew
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or purchase under such leases (the "Leases" and, collectively with the General
Contracts the "Assigned Contracts");
(h) Customer Lists, Books and Records, etc. Subject to
Section 4.17 regarding limited use of B&L trademarks, all accounting, financial
reporting, business, files, marketing, documents, instruments, papers, books
and records of the Seller, including without limitation financial statements,
budgets, projections, ledgers, journals, deeds, titles, policies, manuals,
books, contracts, permits, agency lists, reports, computer files, retrieval
programs, operating data or plans, environmental studies or plans and tax
records relating solely to Seller's business or sales, but excluding tax
records relating to the consolidated tax returns or tax information of B&L or
any of its affiliates (excluding Seller), product catalogs, product literature,
manuals, advertising materials, promotional materials, customer lists, supplier
lists, personnel records as to those employees of Seller who are employed after
the Closing Date by Buyer, sales records and other books and records (except
Seller's corporate records) owned by Seller on the Closing Date and used in or
related to the Business, except to the extent Seller or B&L are, in their
discretion, required by law to retain the same (collectively, the "Books and
Records"); and
(i) Goodwill. All of the goodwill and going concern
value owned by Seller on the Closing Date which is exclusively related to the
Business, except to the extent goodwill and going concern value arises out of
Excluded Assets (defined in Section 1.2). For purposes of this paragraph,
"goodwill" does not include goodwill on Seller's or B&L's balance sheets for
accounting purposes.
1.2 Excluded Assets. The Purchased Assets transferred pursuant to
this Agreement shall not include the following (collectively, the "Excluded
Assets"):
(a) Cash and Marketable Securities. Any cash, cash
equivalents and marketable securities owned by Seller on the Closing Date;
(b) Intercompany Receivables. Any amounts owed to Seller
by B&L or any direct or indirect subsidiary of B&L on the Closing Date;
(c) Pension Plans and Benefit Plans. All Pension Plans
and Employee Benefit Plans (each as defined in Section 2.10) and related trusts
in which the employees of Seller participate and any assets thereof and any
insurance or other contracts related to such plans;
(d) Excluded Contract Rights. The rights of Seller under
any of the contracts, agreements or understandings described on Schedule 1.2(d)
hereto (collectively, the "Excluded Contract Rights"); and
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(e) Other Excluded Assets. The rights of Seller with
respect to all assets other than those identified in Section 1.1 of this
Agreement, including assets owned by or shared with B&L or any of its
affiliates excluding Seller. If Buyer requests, any assets owned by B&L or
shared with B&L or any of its affiliates so excluded shall be made available to
Buyer for use in its operation of the Business for six months after Closing to
provide a transition.
1.3 Assumption of Liabilities. Upon the terms and subject to the
conditions of this Agreement and in further consideration of the purchase and
sale described in Section 1.1, on the Closing Date, Buyer shall assume and
agree to pay and perform the following obligations and liabilities of Seller
existing as of the Closing Date that primarily relate to or arise out of the
Business, of whatever nature, primary or secondary, direct or indirect,
absolute or contingent, known or unknown, but excluding the Retained
Liabilities, and only to the extent specifically set forth below (collectively,
the "Assumed Liabilities"):
(a) the Accounts Payable (defined in Article 9);
(b) the Accrued Liabilities (defined in Article 9);
(c) all liabilities incident to the performance after the
Closing Date of all Assigned Contracts; and
(d) any liability, commitment or obligation of Seller in
respect of (i) products sold, manufactured or designed after the Closing Date,
(ii) warranties for repair, replacement or credit related to products
manufactured, sold and shipped by Seller prior to the Closing Date, and (iii)
customer rights of return of products created in the ordinary course of
business consistent with past practice.
The parties agree that Buyer shall not be the successor to Seller and that
Buyer does not hereby agree to assume or become liable to pay, perform, satisfy
or discharge any of the Retained Liabilities or any other obligation or
liability of Seller whatsoever except the Assumed Liabilities.
1.4 Retained Liabilities. Except to the extent otherwise provided
specifically herein, Buyer shall not be responsible for, nor is it assuming,
and Seller shall retain, pay, perform, and discharge, any and all liabilities
and obligations (i) relating to or arising from the Excluded Assets (including
Pension Plans and Employee Benefit Plans), (ii) relating to or arising from the
employment or termination of employment of any person by Seller before, on or
after the Closing Date, (iii) relating to or arising from the operation of
Seller and the Business on or prior to the Closing Date, (iv) representing
intercompany payables with respect to B&L or its subsidiaries, (v) for Taxes
(defined in Article 9) relating to or arising from conduct of the Business or
the ownership or use of the Purchased Assets on or prior to the Closing Date,
and (vi) any
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other obligation or liability of Seller whatsoever except the Assumed
Liabilities (collectively, the "Retained Liabilities").
1.5 Consideration. In consideration of the performance of B&L and
Seller under this Agreement and the transfer and delivery of the Purchased
Assets to Buyer, at Closing Buyer shall (a) pay to Seller FIFTY-SEVEN MILLION
DOLLARS (U.S. $57,000,000.00), subject to adjustments as may be made pursuant
to Section 1.8 hereof (the "Cash Amount"), (b) deliver to Seller the Preferred
Stock of Buyer with a stated value of $10 million (the "Preferred Stock"),
based upon terms consistent with the restated certificate of incorporation
attached as Exhibit 1.5A hereto (the Cash Amount and Preferred Stock, together
being called the "Consideration"), and (c) deliver to Seller an Instrument of
Assumption in the form of Exhibit 1.5B pursuant to which Buyer assumes the
Assumed Liabilities (the "Instrument of Assumption").
To facilitate Buyer's acquisition of the Purchased Assets, B&L agrees to fully
and unconditionally guarantee Buyer's payment obligations under a credit
facility obtained by Buyer, at or within six months after the Closing, with a
commercial bank reasonably acceptable to B&L, in the principal amount of
$3,000,000. Such credit facility will be used to fund Buyer's capital
expenditures. B&L's obligation shall be pursuant to a guaranty agreement (the
"Guaranty") with a duration of three years from the date of Closing or, if
earlier, until the date of the first occurrence of an event that results in a
mandatory redemption of the Preferred Stock pursuant to Section 4(g)(1) of the
Restated Certificate of Incorporation of the Buyer (in the form attached hereto
as Exhibit 1.5A). The terms of the credit facility shall be such commercially
reasonable terms as Buyer and the bank may negotiate. Amortization shall begin
immediately after maturity of Buyer's senior secured bank debt unless the
providers thereof otherwise agree. The Guaranty shall be in such form as the
financing bank shall reasonably request, it being understood that B&L shall not
be obliged to provide security or give any covenants or agree to other terms
that it would not ordinarily accept if it were itself obtaining unsecured
credit. Buyer shall grant B&L a security interest in the capital equipment and
other capital assets obtained through the credit facility to secure Buyer's
reimbursement.
1.6 Allocation of Consideration. The Consideration shall be
allocated among the Purchased Assets as set forth on Schedule 1.6 hereto. Such
allocation shall be in accordance with Section 1060 of the Code and the
regulations issued thereunder. The parties agree to reflect this allocation on
their forms filed under Section 1060 of the Code and shall file all tax returns
and reports in a manner consistent with such allocation (except to the extent
that the allocation is the subject of a final settlement with the Internal
Revenue Service ("IRS") or a final court decision). Neither Buyer nor Seller
nor any of their respective affiliates shall take any positions for purposes of
Federal, state or local income tax respecting the allocation of the
Consideration which is inconsistent with the allocation so agreed by the
parties (except to the extent that the allocation is the subject of a final
settlement with the IRS or a final court decision).
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1.7 The Closing. (a) The closing of the transactions provided for
in this Agreement (the "Closing") shall take place at B&L's offices at One
Bausch & Lomb Place in Rochester, New York at 10:00 a.m., local time, on or
before October 15, 1996 or at such other time and place and on such other date
as Buyer and Seller may mutually agree. The date on which the Closing actually
occurs is herein referred to as the "Closing Date".
(b) At the Closing, Buyer shall deliver to Seller (i) the
Estimated Cash Amount (defined in Article 9 and adjusted in accordance with
Section 1.8) by wire transfer in immediately available funds to the bank
account of Seller described in Schedule 1.7(b)(i), (ii) the Preferred Stock,
(iii) the Instrument of Assumption duly executed by Buyer, and (iv) such other
instruments as shall be reasonably required of Buyer pursuant to this
Agreement.
(c) At the Closing, Seller shall deliver to Buyer (i) a
Bill of Sale and Assignment in the form of Exhibit 1.7C duly executed by Seller
(the "Bill of Sale"), (ii) such other appropriate instruments of transfer and
assignment as Buyer shall reasonably request prior to the Closing Date, in
order to vest in Buyer, as of the Closing Date, all Seller's right, title and
interest in, to and under the Purchased Assets free and clear of any Liens
(defined in Article 9), except Permitted Liens (defined in Section 2.7(a)), and
(iii) the Guaranty, if the credit facility referred to in Section 1.5 has been
obtained.
1.8 Adjustments to Cash Amount. (a) The Cash Amount shall be
adjusted as follows:
(i) The Cash Amount shall be adjusted upward, on
a dollar-for-dollar basis, to the extent that (A) the amount of Net Operating
Assets (defined in Article 9) reflected on the Closing Date Balance Sheet (the
"Closing Date Net Operating Assets") is more than (B) Eight Million Two Hundred
Fifty-Four Thousand DOLLARS ($8,254,000.00) (being the amount of Net Operating
Assets reflected on the Balance Sheet and herein called the "Balance Sheet Date
Net Operating Assets"). Notwithstanding the foregoing, if Net Operating Assets
on the Estimated Closing Date Balance Sheet exceed one hundred five percent
(105%) of the projected Net Operating Assets ("Projected NOA") for the
month-end prior to the month in which the Closing occurs, as set forth in
Schedule 1.7 hereto, Buyer shall have the option to terminate this Agreement
upon written notice to Seller and B&L delivered within five (5) days after
Buyer is notified of the Estimated Cash Amount; provided, however, such
termination notice shall be ineffective, and this Agreement shall not
terminate, if after the receipt of such notice B&L elects to accept an
Estimated Cash Amount and Cash Amount with an upward adjustment based upon Net
Operating Assets on the Estimated Closing Date and Closing Date Balance Sheets
(in accordance with the Agreed Procedure) equal to but not greater than 105% of
Projected NOA for the month-end prior to the month in
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which Closing occurs ("Maximum Cash Amount"). If Seller so notifies Buyer, the
Estimated Cash Amount shall be the Maximum Cash Amount and the Cash Amount
shall be the lesser of (x) the Maximum Cash Amount and (y) the Cash Amount
computed pursuant to this Section 1.8(a) but for the provisions of the
preceding two sentences. If the Estimated Closing Date Balance Sheet is not
yet available on the Closing Date, Buyer, Seller and B&L agree to delay the
Closing for a reasonable time until the Estimated Closing Date Balance Sheet is
available and any agreed delay shall delay Buyer's obligations pursuant to
Section 4.16(b) by an equal number of days.
(ii) The Cash Amount shall be adjusted downward,
on a dollar-for-dollar basis, to the extent that the Closing Date Net Operating
Assets are less than the Balance Sheet Net Operating Assets.
(b) (i) Seller shall, at its own cost and expense,
prepare and deliver to Buyer within 60 days after the Closing Date, a balance
sheet for Seller as of the Closing Date (the "Closing Date Balance Sheet")
which shall include, in addition to the other information set forth therein,
the Closing Date Net Operating Assets. The Closing Date Balance Sheet, and the
assets and liabilities reflected thereon, shall be prepared and determined in
accordance and consistently with the Agreed Procedure (defined in Article 9),
and shall be accompanied by an audit opinion thereon of Price Waterhouse, LLP
("PW") to the effect that the Closing Date Balance Sheet, and the assets and
liabilities reflected thereon, were prepared and determined in accordance with
the Agreed Procedure. The Closing Date Balance Sheet shall be accompanied by a
supplementary schedule setting forth the calculation of the adjustment to the
Cash Amount contemplated by Section 1.8(a). Seller and PW shall make available
to Buyer all work papers, books and records used in the preparation and audit
of the Closing Date Balance Sheet, and shall provide copies of the same at
Buyer's cost and expense. Buyer and such accountants or inventory
professionals of its choice shall be entitled to jointly conduct with Seller
and PW, or otherwise participate in or monitor, a physical count of the
Inventories as of the Closing Date (or such other date as Buyer and Seller
shall mutually agree).
(ii) Buyer shall have twenty (20) business days
after its receipt of the Closing Date Balance Sheet and related supplementary
schedules to review them (the "Review Period"). On or prior to the expiration
of the Review Period, Buyer shall notify Seller in writing if it does not agree
with Seller's calculation of any adjustment to the Cash Amount (the
"Disagreement Notice"), which notice shall include a brief description of the
basis of its disagreement, including its calculation of any adjustment to the
Cash Amount. If Seller does not receive the Disagreement Notice on or prior to
the expiration of the Review Period, Buyer shall be deemed to have approved the
Closing Date Balance Sheet and Seller's calculation of any adjustment to the
Cash Amount applicable thereto.
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(iii) If Seller receives the Disagreement Notice,
Seller and Buyer shall, in good faith, attempt to resolve the disagreement
within twenty (20) business days after Buyer's receipt of the Disagreement
Notice. If they cannot resolve the disagreement within such time period, then
(I) Buyer shall promptly pay any net amount owed to Seller that is not in
disagreement (i.e., net of any offsetting liability), and (II) the parties
promptly shall refer such disagreement for resolution to Arthur Andersen &
Company ("AA"), or if AA is unable to serve or declines to act, or if at the
time of such referral AA is not independent of each of Buyer and Seller, such
other firm of independent accountants of recognized national standing as
mutually selected by Buyer and Seller (AA or such other firm being referred to
herein as the "Deciding Accountant"). The determination of the Deciding
Accountant as to the calculation and amount of any adjustment to the Cash
Amount shall be rendered within thirty (30) calendar days after such
disagreement is referred to the Deciding Accountant, and shall be binding upon
the parties hereto.
(iv) Each of Buyer and the Seller shall furnish to
the Deciding Accountant, at its own cost and expense, such documents and
information as the Deciding Accountant may request, and each party may also
furnish to the Deciding Accountant such other information and documents as it
deems relevant, in all cases with copies (where it would not be unreasonably
costly or burdensome to provide copies) or notification (with reasonable rights
of access) being given to the other party. The fees and expenses payable to
the Deciding Accountant shall be borne one-half by Seller and one-half by
Buyer.
(v) The Closing Date Balance Sheet as agreed to
by the parties or as determined by the Deciding Accountant, and the Closing
Date Net Operating Assets reflected thereon, shall thereafter be the "Closing
Date Balance Sheet" and the "Closing Date Net Operating Assets", respectively,
for all purposes of this Agreement. The later of the date on which the parties
agree upon the Closing Date Balance Sheet and the calculation of any adjustment
to the Cash Amount or the date on which the Deciding Accountant renders its
decision with respect thereto shall be called the "Final Settlement Date".
(vi) Within five (5) business days after the Final
Settlement Date, (A) if the Cash Amount exceeds the Estimated Cash Amount paid
at Closing, Buyer shall pay to Seller the amount of such excess via wire
transfer to an account of Seller identified in writing by Seller, and (B) if
the Estimated Cash Amount exceeds the Cash Amount paid at Closing, Seller shall
pay to Buyer the amount of such excess via wire transfer to an account of Buyer
identified in writing by Buyer. Amounts paid by either party shall bear
interest at the Interest Rate from the Closing Date until the date of payment.
(vii) Any adjustments to the Cash Amount required
by application of this Section 1.8 shall be allocated among the Net Operating
Assets in the
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same manner as the allocation of Consideration required by Section 1.6 hereto,
unless agreed to otherwise in writing by the parties.
1.9 B&L Guarantee of Obligations of Seller. B&L hereby
unconditionally guarantees the due and punctual performance of any and all
obligations or liabilities of Seller to Buyer in connection with, relating to
or arising under this Agreement or any transaction contemplated in or by this
Agreement. Upon the failure by Seller to duly and punctually perform any such
obligations or liabilities, B&L shall immediately, upon demand, perform or
cause to be performed such obligations and liabilities in accordance with the
terms of this Agreement. B&L understands, agrees and confirms that Buyer may
enforce the obligations of B&L under this Section 1.9 without proceeding
against Seller or any other obligor.
The obligations of B&L under this Section 1.9 shall be unconditional and
absolute and, without limiting the generality of the foregoing, shall not be
released, discharged or otherwise affected by (a) any extension, renewal,
settlement, compromise, waiver or release in respect of any obligation of
Seller by operation of law or otherwise, (b) any modification or amendment of
or supplement to this Agreement or any document in respect thereof, (c) any
invalidity or unenforceability relating to or against Seller for any reason of
any obligation under this Agreement or any document in respect thereof, or any
provision of applicable law or regulation purporting to prohibit the payment by
Seller of any obligation under this Agreement, (d) bankruptcy or insolvency of
Seller, or (e) any other act or omission to act or delay of any kind by Seller,
Buyer or any Person or any other circumstance whatsoever which might, but for
the provisions of this Section 1.9, constitute a legal or equitable discharge
of obligations of B&L hereunder.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Buyer as follows:
2.1 Organization; Qualification. Seller is a corporation duly
organized, validly existing and in good standing under the laws of California,
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. Seller is
duly qualified or licensed to do business as a foreign corporation and in good
standing in each jurisdiction in which the property owned, leased or operated
by it makes such qualification or license necessary, except in each case in
those jurisdictions where the failure to be so duly qualified or licensed and
in good standing would not have a material adverse effect on the Business.
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2.2 Authority Relative to this Agreement. Seller has full power
and authority to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. All actions necessary to be taken by or
on the part of Seller to execute, deliver and perform this Agreement and
consummate the transactions contemplated hereby have been duly and validly
taken. This Agreement has been duly and validly executed and delivered by
Seller and, assuming due execution and delivery by Buyer, constitutes a valid
and binding agreement of Seller enforceable against Seller in accordance with
its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights generally as at the time in
effect and by general principles of equity, regardless of whether such
enforceability is considered in a proceeding in equity or at law.
2.3 Consents and Approvals; No Violation. Neither the execution,
delivery and performance of this Agreement by Seller nor the consummation of
the transactions contemplated hereby (i) conflict with or will result in any
breach of any provision of the respective Certificate of Incorporation or
By-laws of Seller; (ii) except as set forth on Schedule 2.3(a) and except for
filings and approvals required under the HSR Act (defined in Section 4.5),
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except where the
failure to obtain such consent, approval, authorization or permit, or to make
such filing or notification would not have a material adverse effect on the
Purchased Assets, condition (financial or otherwise), results of operations or
prospects of the Business, and except for any requirements which become
applicable to the Business as a result of the specific regulatory status of
Buyer; (iii) except as set forth on Schedule 2.3(b), constitute a breach or
will result in a default under any of the terms, conditions or provisions of
any note, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation of any kind to which Seller or B&L is a party or by
which either of them may be bound, including, without limitation, the Assigned
Contracts, except for any such breach or default as to which requisite waivers
or consents have been obtained, or which will not result in the termination of,
or cause the acceleration of the maturity of any debt or obligation pursuant
to, any Lease, License Agreement or Material Contract, or result in the
creation or imposition of any Lien upon any of the Purchased Assets, and which
would not otherwise have a material adverse effect on the Purchased Assets,
condition (financial or otherwise), results of operations or prospects of the
Business; or (iv) violate any order, writ, injunction, judgment, decree, law,
statute, rule, regulation or governmental permit or license applicable to
Seller, B&L or the Business, which violation would have or is likely to have a
material adverse effect on the Business, the Purchased Assets, condition
(financial or otherwise), results of operation or prospects of the Business.
2.4 Financial Statements. The unaudited balance sheets of Seller
for the years ended December 1993 (11 fiscal months), 1994 and 1995, and the
related unaudited statements of income for each of the years then ended, the
unaudited balance
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sheet of Seller as of December 30, 1995 ("Balance Sheet") and the related
unaudited statement of income for the twelve (12) month period then ended
(collectively, the "Financial Statements"), copies of which have been furnished
to Buyer, fairly present the financial position of Seller as of the dates
thereof and the results of operations for the periods covered thereby in
accordance with GAAP, except as set forth on Schedule 2.4. The date December
30, 1995 is herein referred to as the "Balance Sheet Date". The unaudited
balance sheets of Seller as of June 30, 1995 and 1996, and the related
unaudited income statements for the respective six month periods then ended,
copies of which have been delivered to Buyer, fairly present, in conformity
with GAAP applied on a basis consistent with the Financial Statements (except
as otherwise expressly stated therein), the financial position of Seller as of
such dates and the results of operations for each such period (subject to
normal year-end adjustments).
2.5 Undisclosed Liabilities. Except as set forth on Schedule 2.5
or reflected on the Balance Sheet, as of the Balance Sheet Date, Seller had no
indebtedness or liability, fixed or unfixed, liquidated or unliquidated,
secured or unsecured, accrued, absolute, contingent or otherwise, other than
liabilities arising in the ordinary course of business which are not material
and are not of a kind required by GAAP to be set forth on or disclosed in a
financial statement of Seller. Since the Balance Sheet Date, Seller has
incurred no such indebtedness or liability, except in the ordinary course of
business and consistent with past practices.
2.6 Absence of Certain Changes or Events. Except as set forth on
Schedule 2.6 or as otherwise provided in this Agreement, since the Balance
Sheet Date, the Business has been operated only in the ordinary course and,
(a) there has not been, occurred or arisen any change,
event (including, without limitation, any damage, destruction or loss, whether
or not covered by insurance), condition or state of facts of any character that
individually or in the aggregate has or is likely to have a material adverse
effect on the Business, the Purchased Assets, the condition (financial and
otherwise), results of operations or prospects of the Business; and
(b) there has not been any transaction or event of the
type which would have been restricted or prohibited by Section 4.1 hereof, had
such transaction or event occurred subsequent to the date hereof.
2.7 Title, etc. (a) Except as to intellectual property, which
subject is covered in Section 2.8, Seller has good and valid title to all of
the Purchased Assets owned or purported to be owned by it, and holds all real
property leased or purported to be leased by it and all intellectual property
licensed or purported to be licensed by it under valid and subsisting leases or
licenses, as the case may be, with such exceptions as are not material and do
not, in the case of intellectual property, involve any of the patent or
trademark rights described or referred to on Schedule 1.1(e), except for
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(i) any Liens reflected on the Balance Sheet; (ii) any Liens incurred or
created since the Balance Sheet Date in the ordinary and usual course of
business and which do not constitute a default under any agreement to which
Seller is a party or by which it is bound, or which result from a violation of
law, or the creation or incurrence of which would not have been restricted or
prohibited by Section 4.1 hereof had such Lien been created or incurred
subsequent to the date hereof; (iii) any Liens for current taxes and
assessments not yet past due; (iv) any inchoate mechanic's and materialmen's
liens and encumbrances for construction in process; (v) any workmen's,
repairmen's, warehousemen's and carriers' liens and similar encumbrances
arising in the ordinary course of business; and (vi) any Liens which are
matters of record, arising in the ordinary course and which do not secure
indebtedness for borrowed money, unsatisfied judgments or other payment
obligations, including but not limited to, easements, quasi-easements, rights
of way, restrictive covenants, land use ordinances and zoning plans
(collectively, "Permitted Liens").
(b) Except as set forth on Schedule 2.7(b), (i) the
Leases, License Agreements and Material Contracts are, in all material
respects, valid, binding and enforceable in accordance with their terms; (ii)
Seller has not received notice of any default thereunder; and (iii) there are
no existing uncured or unwaived defaults by Seller thereunder which are likely
to have a material adverse effect on the Business or which would cause or
permit, or is reasonably likely to result in, any of the Leases, License
Agreements or Material Contracts being terminated or rendered unenforceable or
result in any Lien upon any of the Purchased Assets.
(c) With the exception of cash resources and software not
included in the Purchased Assets, the Purchased Assets (i) comprise all of the
assets required or necessary to the conduct of the Business as currently
conducted in the ordinary course consistent with past practices, and (ii) are
in sufficient operating condition and repair for the conduct of the Business in
the ordinary course and consistent with past practices (except for ordinary
wear and tear, which may include temporary malfunction or disrepair).
2.8 Patents, Trademarks, etc. (a) Except for B&L trademarks
referenced in Section 4.17, Schedule 1.1(e) is a complete and accurate listing
of (i) all patents, all registered and unregistered trademarks and all
registered copyrights, and (ii) to the knowledge of Seller, all service marks,
logos and trade names, together in each case with all applications, reissues,
renewals, continuations and extensions pertaining to any of the foregoing
(collectively, the "intellectual property") that are owned by or licensed to
Seller and which are used in the business of Seller. Except as set forth on
Schedule 2.8(a), during the past two years no notice has been given by Seller
to any Person that such person has violated or infringed any of such
intellectual property. Except as set forth on Schedule 2.8(a), no written
claims or notices have been received by Seller during the past two years
challenging the use by Seller of any of such intellectual property, or
challenging or questioning the validity, enforceability or
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effectiveness of or the title to any of such intellectual property or of any
license or agreement relating thereto and, to Seller's knowledge, Seller is not
in violation of, or in default under, any material term or provision of any
license or agreement relating thereto. To Seller's knowledge, the use by
Seller of such intellectual property in the conduct of the Business as
currently conducted does not infringe the intellectual property of any third
person, and, to Seller's knowledge, such use will not infringe the intellectual
property of any third person when used by Buyer in the conduct of the Business
after the Closing; provided such use is consistent with the current use of such
intellectual property by Seller. Except as set forth in this Section 2.8,
Seller makes no representation as to the validity or enforceability of any
unregistered trademark. Subject to the foregoing, Seller owns or holds
adequate licenses or other rights to use the intellectual property necessary to
conduct the Business.
(b) Schedule 2.8(b) sets forth a complete list of all
license agreements which grant Seller the right to use intellectual property of
third parties in the Business.
(c) Schedule 2.8(c) identifies all licenses by Seller to
third parties of intellectual property identified on Schedule 1.1(e) (the
license agreements and licenses identified on Schedules 2.8(b) and 2.8(c) are
herein called the "License Agreements"). To Seller's knowledge, no third party
is in material violation of, or in material default under, any term or
provision of any license by Seller to any third party or any agreement relating
thereto.
2.9 Insurance. All material property, workers' compensation and
casualty insurance policies which currently insure Seller with respect to the
Purchased Assets or the Business are identified on Schedule 2.9. Buyer
acknowledges that, with the exception of workers' compensation, the policies
and insurance coverage described in this paragraph are part of the corporate
insurance program obtained by B&L, and such coverage will not be available or
transferable to Buyer.
2.10 Employee Benefit Plans: Labor Matters.
(a) Except as set forth on Schedule 2.10(a) ("Pension
Plans"), there are no pension plans (as defined in Section 3(2) of ERISA) which
Seller, or any organization of employees of Seller, maintains or to which
Seller is, directly or indirectly, required to contribute.
(b) Except as set forth on Schedule 2.10(b) ("Employee
Benefit Plans") and except for the Pension Plans, there are no oral or written
employee insurance, health, welfare, bonus, incentive compensation, severance,
change of control, stay agreements, leave of absence, disability, vacation,
service award, employee discount or other employee benefit plans of Seller in
which employees of Seller participate.
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(c) Except as set forth on Schedule 2.10(c) ("Employee
Agreements"), Seller is not obligated by or subject to any collective
bargaining agreement, no employees of Seller are represented by a labor
organization or covered by a collective bargaining agreement, nor, to Seller's
knowledge, have any Seller employees made a pending demand for recognition or
filed a petition seeking a representation proceeding presently pending with the
National Labor Relations Board. To Seller's knowledge, no such petitions have
been so pending at any time within the past three years and there has not been
any general solicitation of representation cards or other organizing activity
by any union seeking to represent Seller employees as their exclusive
bargaining agent at any time within the past three years. To Seller's
knowledge, all employees of Seller are citizens of, or authorized to be
employed in, the United States.
(d) Except as set forth on Schedule 2.10(d), there are no
pending, or, to Seller's knowledge, threatened strikes, slowdowns or other
stoppages with respect to Seller's employees and there are no pending or, to
Seller's knowledge, threatened employment- related claims, complaints or
charges with any federal, state, local or foreign governmental agency or court
with respect to any Seller's employees.
(e) Since December 31, 1995, Seller has not involuntarily
terminated any employee of the Business other than those set forth on Schedule
2.10(e). Schedule 2.10(e) also sets forth the name of each employee of the
Business who was not actively employed on the date hereof, together with the
reasons for their absence.
2.11 Legal Proceedings, Etc. Except as set forth on Schedule 2.11
and Schedule 2.10(d), there is no claim, action, proceeding or investigation
pending or, to the knowledge of Seller, threatened against, affecting or
relating to Seller before any court, arbitrator or governmental body, agency,
official or authority or which is likely to result in an adverse decision which
could have a material adverse effect on the Business, the Purchased Assets, the
condition (financial and otherwise), results of operations or prospects of the
Business or against or involving Seller which questions or challenges the
validity of this Agreement or any action taken or to be taken by Seller
pursuant to this Agreement or in connection with the transactions contemplated
hereby. Except for laws of general application and as set forth on Schedule
2.11, Seller is not subject to any outstanding order, writ, judgment,
injunction or decree of any court or governmental or regulatory authority or
body or subject to any compliance agreement, conciliatory or settlement
agreement relating to the Business or the Purchased Assets or limiting, in any
material respect, its ability to conduct the Business as presently conducted.
2.12 Material Agreements. (a) Except as set forth on Schedule 2.12
and except for (i) agreements made in connection with this Agreement and the
transactions contemplated hereby, (ii) the Leases, and (iii) the License
Agreements, Seller is not as
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of the date hereof a party to, or bound by, any Material Contract (defined
below) of any kind.
For purposes hereof, the term "Material Contract" shall mean any
contract or arrangement that is (i) an employment, severance or golden
parachute agreement or arrangement; (ii) any agreement or arrangement which
has, as a principal purpose, the provision of indemnification to any Person;
(iii) any agreement or arrangement involving the commitment to pay, or to
acquire or to provide goods or services with a fair market value, in excess of
$25,000, other than agreements for the purchase and sale of Inventory,
packaging, and advertising and promotional materials, in each case in the
ordinary course of the Business consistent with past practice; (iv) any
partnership or joint venture agreement or arrangement; (v) any agreement or
arrangement for the acquisition, sale or lease of any assets outside the
ordinary course of business; (vi) any mortgage, pledge, conditional sales
contract, security agreement, factoring agreement or other similar agreement or
arrangement with respect to tangible or intangible personal property (except
for sales of Inventory); (vii) any loan agreement, credit agreement, promissory
note, guarantee, subordination agreement, letter of credit or any other similar
type of agreement or arrangement, whether as borrower or lender; (viii) any
exclusive retainer agreement or arrangement with attorneys, accountants,
actuaries, appraisers, investment bankers or other professional advisers; (ix)
any agreement or arrangement that limits the freedom of Seller to compete in
any line of business or with any Person or in any area or which would so limit
the freedom of Seller or any of their Affiliates; or (x) otherwise material to
the Business.
(b) Except as disclosed on Schedule 2.12, there exists no
default under any Lease, License Agreement or Material Contract either by the
Seller, or to Seller's knowledge, by any other party thereto, and no event has
occurred which with notice or the passage of time would constitute such a
default or which would have a material adverse effect on the Business, whether
as a result of the consummation of the transactions contemplated hereby or
otherwise or under any obligation to be performed by any party to any such
Lease, License Agreement or Material Contract.
2.13 Environmental Matters. Except as set forth on Schedule 2.13,
(a) The Business is in substantial compliance with all
applicable Federal, state, regional, foreign and local laws, statutes,
ordinances, judgments, rulings and regulations relating to any matters of
pollution or of environmental regulation or control or protection of the
environment.
(b) To the knowledge of Seller and B&L, the Leased
Property and all improvements, structures, equipment, fixtures or activities
thereon are in compliance with all applicable Environmental Laws.
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(c) The Business and, to the knowledge of Seller and B&L,
the Leased Property, have obtained all Permits necessary for their operations
as currently conducted and comply with the terms and conditions thereof and all
such Permits are in good standing.
(d) There is no pending or, to the knowledge of Seller
and B&L, threatened civil or criminal litigation, written notice of violation
or formal administrative proceeding relating to the Environmental Laws
involving the Business.
(e) Seller has not (i) placed, held, located, released,
transported or disposed of any Hazardous Wastes (defined in Section 9) on or
under any property on which Seller has conducted the Business, other than in
compliance with Environmental Laws, or (ii) received any written notice (A) of
any violation of any Environmental Law or any other law, statute, rule or
regulation regarding Hazardous Wastes on or under any of such properties, (B)
of the institution or pendency of any suit, action, claim, proceeding or
investigation by any governmental entity of any such violation or (C) requiring
the removal of Hazardous Waste from any of such properties.
2.14 Compliance with Law. Except as set forth on Schedule 2.14,
the Business is not being conducted in violation of any law, ordinance, order
or regulation of any governmental entity or court, and the products of Seller
are manufactured, sold and marketed in compliance with all applicable Federal
and state laws, orders, ordinances or regulations, except for possible
violations which either individually or in the aggregate do not and are not
likely to have a material adverse effect on the Business or the Purchased
Assets, the condition, results of operation or prospects of the Business and
Seller has not received any notice of such violation or alleged violation. All
governmental approvals, permits and licenses required for Seller to conduct the
Business as presently conducted ("Authorizations") have been obtained and are
in full force and effect and are being complied with in all material respects,
except for Authorizations as to which the failure to so obtain, the lapse of
such effectiveness or the failure to so comply, either individually or in the
aggregate, will not have a material adverse effect on the Business the
Purchased Assets, the condition, results of operation or prospects of the
Business.
2.15 Inventory; Accounts Receivable; Accounts Payable. (a) Except
as set forth on Schedule 2.15(a), other than inventory that has been fully
reserved against, all items of inventory reflected on the Balance Sheet are
usable and salable in the ordinary course of business and the Balance Sheet
does not include, as inventory, products not currently being produced, sold or
marketed. The values at which net inventories are carried on the Balance Sheet
reflect the historical inventory valuation policy of Seller stating such
inventories at the lower of cost or market value. Except as set forth on
Schedule 2.15(a), Seller is not under any obligation or liability with respect
to accepting returns of items of merchandise in the possession of their
customers other than in the ordinary course of business.
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(b) Except as set forth on Schedule 2.15(b), since the
Balance Sheet Date, no Accounts Receivable have been sold, transferred or
otherwise disposed of by Seller, except in the ordinary course of business.
All of the Accounts Receivable included in the Purchased Assets have arisen in
connection with bona fide sales and deliveries of goods, performance of
services, licensing of intellectual property or other bona fide business
transactions in the ordinary course of business, consistent with past
practices. All reserves reflected in the Financial Statements against doubtful
accounts of, valid counterclaims or setoffs by, rebates, discounts and
allowances to, and returns from, customers were established in a manner
consistent with the collection experience of the Business in prior years. To
the knowledge of Seller, each of such Accounts Receivable constitutes a legal,
valid and binding account or other receivable, and none of such Accounts
Receivable is subject to any known defenses, assignments, restrictions,
counterclaims or setoffs by, any rebates, discounts or allowances to, or any
returns from, or any warranty claims of any customer. All of the Accounts
Receivable included in the Purchased Assets, net of reserves, are collectible
and will be collected in the ordinary course of the Business, consistent with
past practices, without recourse to legal proceedings before the one-year
anniversary date after the Closing Date. Since the Balance Sheet Date, Seller
has not provided any products or services at discounted rates or free of charge
to any customer as a rebate, discount or advance to any customer to collect or
to accelerate the collection of any such Accounts Receivable. Except as set
forth in Schedule 2.15(b), there are no account debtors owing on any of the
Accounts Receivable that are included in the Purchased Assets that are (i)
delinquent in payment by more than 30 days or (ii) who have refused or, to the
best knowledge of Seller, threatened to refuse to pay any such Accounts
Receivable.
(c) The Accounts Payable included in the Assumed
Liabilities arose from bona fide transactions in the ordinary course of
business, and all such Accounts Payable have either been paid, are not yet due
and payable under procedures for payment of accounts payable by Seller, or are
being contested by Seller in good faith, in each case with such exceptions as
do not have a material adverse effect on the Business or the Purchased Assets.
2.16 Brokers. There is no broker or finder or other person who
would have any valid claim against Buyer for a fee, commission or brokerage in
connection with this Agreement or the transactions contemplated hereby as a
result of any agreement, understanding or action by Seller. Seller shall be
solely responsible for all fees and expenses of any broker, finder or other
person engaged by or on behalf of it or otherwise claiming through it in
connection with the transactions contemplated by this Agreement.
2.17 Ownership of Seller. Seller is a directly wholly-owned
corporate subsidiary of B&L.
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2.18 Books and Records. Seller maintains the Books and Records
with respect to the Business which, in reasonable detail, accurately and fairly
reflect its transactions and acquisition and dispositions of its assets in
accordance with GAAP, to the extent applicable. Seller has not used any
improper practices for the purpose of deceptively reflecting or not reflecting
any of the properties, assets, liabilities, revenues or expenses in any of its
Books and Records.
2.19 Distributors. Since the Balance Sheet Date, there has been no
material termination, cancellation or change in the business relationship of
Seller with any of its distributors (and Seller has not received notice that it
has lost or will lose, and no such distributor has notified Seller that the
Business would lose in the event of the consummation of the transactions
contemplated hereby, any such distributor). Seller is not engaged in any
material disputes with any of its distributors or, to the best knowledge of
Seller, are there any circumstances which may result in any such material
dispute or in any distributor ceasing to utilize or substantially reduce the
use of any product or service provided by Seller in connection with the
Business. For purposes of this paragraph, "distributor" refers to those third
parties which purchase from Seller pursuant to an Exclusive Distributor
Agreement, as reflected on Schedule 2.12.
2.20 Software. On the Closing Date, Buyer shall acquire from
Seller all Seller's right, title and interest in and to all items of Software
(as defined below), which are used or held for use by Seller in connection with
the Business, except for any license to non-owned Software which, by its terms,
may not be assigned or otherwise transferred by Seller to Buyer and which is
specified in Schedule 2.20 or which is not material to the functioning of
Seller's accounting or information systems or production. The term "Software"
means the expression of an organized set of instructions in a natural or coded
language which is contained on a physical media of any nature and which may be
used with a computer to make such computer operate in a particular manner and
for a certain purpose, including, without limitation, all computer programs or
applications together with all user documentation relating to such computer
programs or applications.
2.21 No Interest in Properties. No director, officer or employee
of Seller directly or indirectly owns any interest in any of the Purchased
Assets and no director, officer or employee of Seller (or member of such
Person's immediate family) owns any interest in, controls or is an employee,
officer, director or agent of, or consultant to, any other entity which is a
competitor, supplier, customer, lessor or lessee of Seller.
2.22 No Other Representations or Warranties. Except for the
representations and warranties contained in this Article 2, neither Seller nor
B&L, nor their shareholders or affiliates, nor any other person makes any
representation or warranty to Buyer, express or implied, and Seller and B&L
hereby disclaim any such representation or warranty, whether by Seller or any
of its agents or representatives or any other person, notwithstanding the
delivery or disclosure to Buyer or any of its officers,
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directors, employees, agents or representatives or any other person of any
document or other information or any of their agents or representatives or any
other person. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, SELLER AND B&L MAKE NO
REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, WITH RESPECT TO THE
PURCHASED ASSETS, INCLUDING, WITHOUT LIMITATION, THEIR DESIGN, CAPACITY,
CONDITION, MERCHANTABILITY OR THEIR FITNESS FOR USE OR FOR ANY PARTICULAR
PURPOSE, AND SELLER AND B&L HEREBY DISCLAIM ALL SUCH REPRESENTATIONS AND
WARRANTIES. EXCEPT AS SPECIFICALLY PROVIDED HEREIN, THE SALE OF THE PURCHASED
ASSETS IS MADE ON AN "AS IS" BASIS AND "WITH ALL FAULTS".
2.23 Purchase for Investment. Seller acknowledges that the
Preferred Stock will not be registered under the Securities Act of 1933, as
amended (the "1933 Act") or any State Blue Sky or securities laws. Seller is
acquiring the Preferred Stock for its own account for investment and not with a
view to any distribution thereof and will not sell or otherwise transfer the
Preferred Stock unless, if Buyer so requests, it delivers to Buyer an opinion
of counsel, in form and substance satisfactory to Buyer, to the effect that
such transfer is exempt from the registration requirements of the 1933 Act and
applicable State Blue Sky or securities laws. Seller acknowledges that a
legend to such effect may be placed on the Preferred Stock.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to Seller and B&L as follows:
3.1 Organization. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now being conducted.
3.2 Authority Relative to this Agreement. Buyer has full
corporate power and authority to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby. All actions necessary
to be taken by or on the part of Buyer to execute, deliver and perform this
Agreement and consummate the transactions contemplated hereby have be duly and
validly taken. This Agreement has been duly and validly executed and delivered
by Buyer and, assuming due execution and delivery by Seller, constitutes a
valid and binding agreement of Buyer enforceable against them in accordance
with its terms, except to the extent that enforceability may be limited by
applicable bankruptcy, reorganization, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights generally as at the time in
effect and
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by general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
3.3 Consents and Approvals: No Violation. Neither the execution,
delivery and performance of this Agreement by Buyer nor the consummation of the
transactions contemplated hereby (i) conflict with or will result in any breach
of any provision of its Certificates of Incorporation or By-Laws of Buyer (or
other similar governing documents), (ii) except for filings and approvals
required under the HSR Act, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, (iii) constitute a breach or will result in a default under any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
agreement, lease or other instrument or obligation to which Buyer is a party or
by which Buyer may be bound, or (iv) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to Buyer.
3.4 Brokers. There is no broker or finder or other person who
would have any valid claim against Seller for a fee, commission or brokerage in
connection with this Agreement or the transactions contemplated hereby as a
result of any agreement, understanding or action by Buyer. Buyer shall be
solely responsible for all fees and expenses of any broker, finder or other
person engaged by or on behalf of it or otherwise claiming through it in
connection with the transactions contemplated by this Agreement.
ARTICLE 4
COVENANTS OF THE PARTIES
4.1 Conduct of Business of Seller. Except as contemplated by this
Agreement or as described on Schedule 4.1, during the period from the date of
this Agreement to the Closing Date, Seller will conduct the Business and its
operations according to its ordinary and usual course of business consistent
with past practice. Without limiting the generality of the foregoing, and,
except as contemplated in this Agreement or as described on Schedule 4.1,
Seller will not, with respect to the Business or Purchased Assets, prior to the
Closing date without the consent of Buyer:
(a) Sell or otherwise dispose of or abandon any assets,
including without limitation the Purchased Assets, except for collection of
Accounts Receivable and sales of Inventory in the ordinary course of business
and consistent with past practice and except for sales or dispositions of
Equipment, Supplies and Fixed Assets having a fair market value not in excess
of $25,000 individually or $100,000 in the aggregate.
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(b) (i) Amend or terminate any lease, License Agreement
or Material Contract, or (ii) breach in any material respect any Lease, License
Agreement or Material Contract, or (iii) breach any material provision of any
Lease, License Agreement or Material Contract such as would permit the
termination thereof or the loss of benefits to the Business thereunder.
(c) Amend or terminate any Assigned Contract (excluding
those referred to in Section 4.1(b) above), except in the ordinary course of
business and consistent with past practice.
(d) (i) Increase the rate or terms of compensation
payable or to become payable by Seller to any of its employees (including
officers), agents or consultants, except increases occurring in the ordinary
course of business in accordance with it customary practices (which shall
include normal periodic performance reviews and related compensation and
benefit increases); or (ii) increase the rate or term of any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for or
with any employees (including officers); provided that, no increase referred to
in this Section 4.1(d) shall be made with respect to any of the persons named
in Section 10.11 of this Agreement without the prior consent of Buyer; and
provided further that any increase referred to in clause (ii) of this Section
4.1(d) shall be made with respect to all eligible employees (including
officers) of Seller generally.
(e) Enter into any agreement, commitment or transaction
that would, had such agreement, commitment or transaction been in effect on the
date hereof, be a Lease, License Agreement or Material Contract; make or commit
to make any capital expenditure in excess of $25,000 individually or $100,000
in the aggregate; or enter into any other agreement, commitment or transaction
material to the business, operations or financial condition of Seller except
agreements, commitments or transactions in the ordinary course of business
consistent with past practices.
(f) Mortgage, pledge or grant any security interest on
any of the Purchased Assets in connection with the borrowing of money or for
the deferred purchase of any property; or otherwise permit the imposition of
any Lien on any of the Purchased Assets other than Permitted Liens.
(g) Lend any money or make any commitment to lend any
money except trade credit in the ordinary course of business consistent with
past practice.
(h) Make any written change to the terms upon which the
Business extends credit to customers, discounts prices or offers other terms or
sales incentives other than changes occurring in the ordinary course of the
Business consistent with past practice.
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(i) Agree, whether in writing or otherwise, to do any of
the foregoing.
(j) Cancel or compromise of any material claim under,
waive or release any rights of material value arising out of, or modify or
change in any material respect or terminate, any Purchased Assets or the
Business.
(k) Take any action that would cause any representation
or warranty to be untrue or incorrect or that would result in any of the
conditions to closing not being satisfied.
Without limiting the generality of the foregoing, Seller hereby covenants and
agrees that, from the date hereof until the Closing Date, Seller shall use
Commercial Efforts to: (a) maintain the present relationships and good will
with its suppliers, distributors, customers, lessors, licensors and licensees;
(b) maintain the Purchased Assets in good operating condition and repair; and
(c) maintain all Permits and Intangible Property.
4.2 Access to Information.
(a) Between the date of this Agreement and the Closing
Date, Seller will, during ordinary business hours and upon reasonable advance
notice, give Buyer and its authorized representatives reasonable access to the
books, records, plants, offices and other facilities and properties of Seller
in order that Buyer may have full opportunity to make such reasonable
investigations, as it shall reasonably need to make concerning the affairs of
the Business and Seller will use Commercial Efforts to cause its officers and
accountants to furnish such additional financial and operating data and other
information, in each case relating to the Business and the Purchased Assets, as
Buyer shall from time to time reasonably request; provided, however, that (A)
any such investigation shall be conducted in such a manner as not to interfere
unreasonably with the operation of the business of Seller; (B) Seller shall not
be required to take any action which would constitute a waiver of the
attorney-client privilege, and (C) Seller need not supply Buyer with any
information which Seller is under a legal obligation not to supply. In case
Seller determines not to provide Buyer with information on the basis of clause
(B) or (C) above, Seller shall advise Buyer of the basis for such exclusion.
In the case of information excluded under clause (C), Seller shall use
Commercial Efforts to obtain any required waiver if Buyer so requests.
(b) Any information provided pursuant to this Agreement
shall be held by Buyer until the Closing, in accordance with and shall be
subject to the terms of the Confidentiality Agreement, dated February 8, 1996
between The Finisterre Fund and B&L (the "Confidentiality Agreement"), the
terms of which are incorporated herein by reference; provided, however, that
Buyer shall be entitled to make the disclosures contemplated by the draft
Offering Memorandum in respect of Buyer's securities
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prepared by Larkspur Capital Corporation (draft of July 1996), or otherwise
required by providers of Financing.
4.3 Expenses. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby will be paid by the
party incurring such costs and expenses, whether or not the transactions
contemplated hereby are consummated, except as otherwise expressly provided
herein.
4.4 Further Assurances. Subject to the terms and conditions of
this Agreement, each of the parties hereto will use its Commercial Efforts to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary under applicable laws and regulations to consummate the
transactions contemplated by this Agreement. On and from time to time after
the Closing Date, without further consideration, Seller will, at its own
expense, execute and deliver such documents to Buyer as Buyer may reasonably
request in order to consummate the transactions contemplated by the Agreement.
On and from time to time after the Closing Date, without further consideration,
Buyer will, at its own expense, execute and deliver such documents to Seller as
Seller may reasonably request in order to consummate the transactions
contemplated by this Agreement.
4.5 Filing. (a) Buyer and Seller will file, or cause to be filed,
as promptly as possible, and in no event later than five (5) days after the
date hereof, with the United States Federal Trade Commission ("FTC") and the
Antitrust Division of the United States Department of Justice ("DOJ") pursuant
to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the notification required by the HSR Act. Each party shall keep
the other apprised of the status of any inquiries or requests for additional
information made by any governmental authority (including FTC or DOJ) in
connection with such filing. Buyer shall pay the filing fee under the HSR Act.
(b) Buyer promptly will make, or cause to be made, all
such other filings and submissions under laws and regulations applicable to
Buyer, if any, as may be required of Buyer for the consummation of the
transactions contemplated hereby. Seller promptly will make or cause to be
made all such other filings and submissions under laws and regulations
applicable to Seller, as may be required of Seller, for consummation of the
transactions contemplated hereby. The parties hereto will coordinate and
cooperate with one another in exchanging such information and reasonable
assistance as may be requested in connection with all of the foregoing.
(c) To the extent that the approval, consent or
permission of any Governmental Entity or other Person is necessary or desirable
for Buyer to obtain in connection with the conduct of the Business after the
Closing, including the issuance of such new permits as may be required for
Buyer to conduct the Business, Seller shall, at
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Buyer's request and expense, reasonably cooperate with Buyer in obtaining all
such approvals, consents or permissions.
4.6 Transfer Taxes. Seller, on the one hand, and Buyer, on the
other hand, shall each be responsible for one-half of the aggregate of all
transfer, excise, stamp, sales, use, recording or similar taxes or fees,
arising out of the sale, transfer, conveyance or assignment of any of the
Purchased Assets by Seller and the transactions contemplated hereby. Buyer
shall be responsible for obtaining re-sale tax exemption certificates in
respect of inventory; and if Buyer shall fail to obtain such exemption
certificates Buyer shall be responsible for all such taxes resulting therefrom.
The party responsible for making any required filing under applicable law shall
make such filing and Seller or Buyer, as the case may be, shall cooperate with
the other in providing any documents or affidavits necessary for any filings.
4.7 Public Announcements. Neither Seller nor Buyer shall issue
any press release or make any other public disclosure or announcement
concerning the transactions contemplated by this Agreement, without the prior
consent of the other parties hereto as to both the timing and content of such
press release or public disclosure, which consent shall not be unreasonably
withheld.
4.8 Employees and Employee Benefit Plans.
(a) On the Closing Date, Buyer shall (i) offer employment
on an "at will" basis, at the same hourly rates, to all of the hourly employees
of Seller actively employed as of the Closing Date; and (ii) offer employment
on an "at will" basis, at the same salary to all of the salaried employees of
Seller actively employed as of the Closing Date. Buyer shall also offer
employment under the terms of Buyer's employment policies to each of Seller's
employees who is temporarily absent on the Closing Date from active employment
and who has rights of re-employment upon termination of such temporary absence
in accordance with existing policies. An employee on temporary absence from
active employment shall be deemed to be a "Transferred Employee" from and after
such employee's commencement of employment with Buyer immediately following the
termination of such absence. All employees who become employees of Buyer
pursuant to such offers of employment shall be sometimes referred to as
"Transferred Employees" as of the date of such employment. Schedule 4.8 is a
list of all Seller's employees as of June 26, 1996, including date of hire and
position. Through the first anniversary of the Closing Date, Buyer shall, with
respect to all Transferred Employees from time to time employed, provide
employee benefit plans, programs and arrangements having benefits to such
Transferred Employees that in the reasonable judgment of Buyer are, in the
aggregate, commercially reasonable alternative benefits to those Employee
Benefit Plans referred to in Schedule 4.8 covering such Transferred Employees
as in effect immediately prior to the Closing Date provided that (i) Buyer's
obligation to provide commercially reasonable alternative benefits in the
aggregate shall be deemed satisfied if Buyer's actual annual cost of
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providing all benefits to Transferred Employees through such first anniversary
date, pro rated for periods less than a full year (including, without
limitation, administrative charges paid to third Persons but excluding any
allocation of overhead or other internal costs of Buyer) shall be at least
equal to Seller's costs of providing such benefits, projected for the year
1996, to an equal number of employees which costs are set forth in Schedule 4.8
("1996 Benefit Costs"), and (ii) nothing in this Agreement shall require Buyer
to provide or maintain any specific Benefit Plan or type of plan or program,
including, without limitation, any defined benefit plan or retiree medical
plan. In the case of any new plan, program or arrangement, Buyer shall provide
that periods of service with Seller and each Affiliate or predecessor of Seller
prior to the Closing Date shall be credited for eligibility, vesting and
benefits purposes (if applicable and without duplication). To the extent set
forth on the Closing Date Balance Sheet, Buyer shall assume the amount of
accrued and unpaid vacation pay, employee service days, sick days, bonuses,
salaries and commissions, and the foregoing shall not be Retained Liabilities
to the extent of such accruals. Seller has delivered to Buyer a complete and
correct copy of each Employee Benefit Plan referred to on Schedule 4.8 and of
Seller's vacation pay, employee service days, sick days, bonus or other
incentive compensation plan or policy, together with the most recent summary
plan description, if any. Seller shall deliver to Buyer a list of the name of
each employee who was not actively employed on the Closing Date, together with
the reasons for the absence.
(b) Effective as of the Closing Date, Seller shall
provide that all benefit accrual of vested participants in the Pension Plans
shall cease on the Closing Date. Buyer shall include the Transferred Employees
and their beneficiaries in Buyer's medical, dental or health plans upon their
commencement of employment with Buyer, and Buyer shall use Commercial efforts
to establish plans that waive any preexisting condition limitations for such
conditions covered under Seller's medical, dental or health plans and shall
credit any deductible and out-of-pocket expenses incurred by such Transferred
Employees and their beneficiaries under Seller's medical, dental or health
plans during the portion of the calendar year preceding their commencement of
employment with Buyer.
(c) After the Closing, Buyer shall be required to give
any notice to employees of Seller which it employs which is required under the
Worker Adjustment and Restraining Notification ("WARN") Act.
4.9 Insurance. B&L and Seller shall, until the Closing Date,
maintain in effect the insurance on the Purchased Assets or the Business as set
forth in Schedule 2.9.
4.10 Severance Obligations. (a) Effective as of the Closing Date,
Seller shall terminate or cause to be terminated the employment of all persons
employed by Seller as of the Closing Date.
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(b) As to each employee terminated by Seller under this
Section effective at or after the Closing, Buyer shall offer employment as
contemplated by Section 4.8(a).
(c) With respect to each such employee who does not
accept Buyer's offer of employment described in clause (b) of this Section,
Seller shall be liable for and pay all valid claims of any such employee
relating to such termination of employment, including, without limitation, all
severance obligations of B&L arising by virtue of an employee's employment by
Seller and shall indemnify and hold harmless Buyer for any failure to pay such
severance obligations.
(d) With respect to each such employee who does accept
Buyer's offer of employment, Buyer shall indemnify and hold harmless Seller and
B&L against any and all valid claims against Seller or B&L by any employee
terminated by Buyer for any severance or other claims relating to such
employee's employment by Buyer, or termination thereof; provided, however, that
Buyer shall not indemnify Seller and B&L to the extent of any valid severance
obligations of Seller and B&L.
4.11 Covenants to Satisfy Conditions. Upon the terms and subject
to the conditions set forth herein, Seller shall use its Commercial Efforts to
ensure that the conditions set forth in Article 5 hereof are satisfied, insofar
as such matters are within the control of Seller, and Buyer shall use its
Commercial Efforts to ensure that the conditions set forth in Article 5 hereof
are satisfied, insofar as such matters are within the control of Buyer.
4.12 Books and Records. Buyer and Seller agree that Buyer shall
retain after the Closing Date, for a period of three (3) years, any and all
Books and Records (including hard copies, electronic or otherwise) in its
possession related to the Purchased Assets, the Assumed Liabilities, the
Retained Liabilities or the Business for all periods through the Closing Date
or related to the transactions contemplated hereby; provided, however, that
within three months prior to the expiration of such period, Buyer shall give
written notice to Seller and an opportunity to ship such books and records at
Seller's expense and risk to a location chosen by Seller. Buyer shall at all
times within business hours provide Seller access to such Books and Records
during such three year period.
4.13 Allocations. With respect to those charges (including,
without limitation, real estate taxes, water and sewer rents, if any, utility
charges and similar items) which are not included in the calculation of the
Closing Date Net Operating Assets and which relate to a period beginning prior
and ending subsequent to the Closing Date and which cannot be measured
otherwise, any invoices or statements received by either party which cover such
period shall be prorated between Buyer and Seller according to the number of
days in the period covered by such invoice or statement during which Buyer and
Seller, respectively, operated the Business, and each
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shall pay its allocable share thereof, either directly or by way of
reimbursement if the other party shall have paid the same, upon receipt of an
invoice therefor or evidence of such payments, as applicable.
4.14 Financing. Buyer shall use Commercial Efforts to obtain debt
financing consisting of approximately $20.0 million Senior Notes with an
average life of approximately six and a half years from closing and $12.0
million Senior Subordinated Notes with an approximate seven year maturity, as
well as $25.0 million of investor preferred equity and $4.0 million of common
equity, plus any additional amount necessary to make up an adjustment to the
Cash Amount pursuant to Section 1.8, or a commercially reasonable alternative
financing structure entirely satisfactory to Buyer in its reasonable and good
faith judgment (the "Financing").
4.15 Waiver of Compliance with Bulk Transfer Laws. Buyer hereby
waives compliance by Seller with the provisions of any bulk transfer laws
applicable to the transactions contemplated by this Agreement. Seller agrees
to promptly and diligently pay and discharge when due or to contest or litigate
any claims of creditors which are asserted against Buyer by reason of any
noncompliance with such laws, and to indemnify Buyer in accordance with Section
8.2 against any Claim or Loss arising from such noncompliance.
4.16 Deposit; Failure to Close on Certain Dates. (a)
Contemporaneously with execution hereof, Buyer will pay to B&L, on behalf of
Seller, a cash deposit in the amount of TWO HUNDRED FIFTY THOUSAND DOLLARS
($250,000.00) (the "Deposit"). If the Closing shall not have occurred on or
before 11:59 P.M. New York time on October 15, 1996 (such time and date being
herein called the "Desired Closing Date"), Seller shall be entitled to retain
the Deposit, which shall thereafter be non-refundable and become the property
of Seller to the extent provided in Section 4.16(c).
(b) If the Closing shall not have occurred on or before
the Desired Closing Date, Buyer may, at its option, extend the closing until
November 15, 1996 (the "Extended Closing Date") upon payment to Seller, in
cash, of an additional TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) (the
"Additional Deposit"). To effectively extend the Closing Date to the Extended
Closing Date, the Additional Deposit must be received by Seller on or before
the Desired Closing Date. Thereafter, if the Closing shall not have occurred
on or before the Extended Closing Date the Additional Deposit shall be
non-refundable and become the property of Seller to the extent provided in
Section 4.16(c).
(c) The Deposit and any Additional Deposit shall be
retained by Seller until the earlier of:
(i) the date upon which the Closing occurs
(provided such date is prior to the Extended Closing Date), at which time the
Deposit and any
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Additional Deposit shall be applied by Seller to the Estimated Cash Amount due
by Buyer at the Closing;
(ii) the date upon which this Agreement is
terminated pursuant to Section 7.1(a), or by Buyer or Seller pursuant to
Section 7.1(b) (unless Section 7.2(b) applies) or by Buyer pursuant to Section
7.1(c) hereof, at which time the Deposit shall be refunded by Seller to Buyer;
and
(iii) the date upon which this Agreement is
terminated by Buyer, Seller or B&L (on behalf of Seller) pursuant to Section
7.1(b) (if Section 7.2(b) applies), or by Seller pursuant to Section 7.1(d), at
which time the Deposit and Additional Deposit shall be retained by Seller and
applied against Seller's damages for Buyer's breach.
(d) If the Closing shall not have occurred on or before
the Extended Closing Date due to the failure to satisfy the condition set forth
in Section 5.3(e) but the Agreement is not terminated and Closing subsequently
occurs, the Deposit and Additional Deposit shall not be applied to the
Estimated Cash Amount due from Buyer at Closing.
4.17 Right to Name. Seller and B&L agree to cause Seller within
ten (10) days after the Closing, to change the name of Seller to a name which
does not include "Steri-Oss", a similar name or any other name reasonably
objected to by Buyer. Seller shall provide to Buyer copies of all documents
evidencing the change of name of Seller within two (2) business days after same
are effective. Buyer agrees that it shall obtain no rights in the name "Bausch
and Lomb" by virtue of this Agreement, except that, as a temporary
accommodation to Buyer, B&L agrees that Buyer may exhaust existing inventories
of sales and marketing literature reflecting the name "Bausch & Lomb" for a
period not to exceed one (1) year from Closing. Buyer shall destroy all
inventories of materials bearing the name "Bausch and Lomb" one year from the
date of Closing. Buyer shall use best efforts to discontinue use of the name
"Bausch and Lomb" on all signs, telephone recordings and other uses other than
products and sales literature within thirty (30) days after Closing, and in all
events such use shall be discontinued within sixty (60) days after Closing.
4.18 Non-Competition. The Seller and B&L hereby acknowledge and
recognize such parties' possession of confidential or proprietary information
and the highly competitive nature of the Business and accordingly agree that,
in consideration of the premises contained herein, each of such parties will
not, from and after the date of this Agreement for a period of three (3) years
after the date of this Agreement, for any reason whatsoever, (i) directly or
indirectly engage anywhere in the world in the production, manufacture, design,
marketing, sale, distribution
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or development of dental implants and related abutments and surgical tools,
(ii) assist others anywhere in the world in engaging in the production,
manufacture, design, marketing, sale, distribution or development of dental
implants and related abutments and surgical tools, (iii) solicit or attempt to
solicit any current or potential customers of the Business in connection with
the actions described in the foregoing clauses (i) and (ii), or (iv) induce
employees of the Business to terminate their employment with Buyer; provided,
however, that in the event that during the three (3) year period after the date
of this Agreement, Seller, B&L or any Affiliate effects an acquisition or
business combination and incidental hereto acquires any Person, or
substantially all of the assets of a Person, which directly or indirectly
engages anywhere in the world in the production, manufacture, design,
marketing, sale, distribution or development of dental implants and related
abutments and surgical tools, Seller, B&L or such Affiliate, as the case may
be, may continue to perform or otherwise conduct such acquired business
operations for a period of twelve (12) months after the date of such
acquisition or business combination without violating the provisions of this
Section after which time the provisions of this Section shall act to prohibit
any such activity by Seller, B&L or such Affiliate, as the case may be. If, at
any time after such acquisition or business combination, Seller, B&L or such
Affiliate propose to sell, assign, transfer or otherwise convey the portion of
the acquired business that would otherwise cause Seller or B&L to violate the
provisions of this Section prior to the consummation of any agreement of sale,
assignment, transfer or other conveyance, Seller, B&L or such Affiliate must
first offer the portion of such acquired business to Buyer on terms to be
negotiated by the parties.
4.19 No Shopping. From the date hereof until the earlier of (i)
the Closing Date and (ii) the date this Agreement is terminated in accordance
with Article 7, neither Seller nor any partner, director, officer or
shareholder of Seller will, directly or indirectly, solicit or initiate
discussions concerning, or exchange information (including by way of furnishing
information) concerning the Business or enter into any negotiations concerning,
or solicit, entertain or agree to any proposals for, the acquisition of all or
a substantial part of the assets of Seller (including the Purchased Assets), or
the transfer of all or a substantial part of the capital stock of Seller to any
person other than Buyer, or a merger involving the capital stock of Seller. In
addition, during such time period, Seller and B&L shall not authorize, direct
or knowingly permit any employee or agent to do any of the foregoing. At
Closing, B&L shall notify Buyer of the identity of any person who has expressed
an interest in acquiring the Business within the six-month period prior to
Closing.
4.20 Release of Liens. At or prior to Closing, Seller will deliver
to Buyer, and cause to be filed or recorded, such releases, termination
statements and other documents and instruments as are sufficient to eliminate
and extinguish all Liens on any of the Purchased Assets so that, at Closing,
Buyer will receive title to such Purchased Assets free and clear of any such
Liens, except the Permitted Liens. Notwithstanding anything in this Agreement
to the contrary, if, at the Closing, any of the Purchased Assets is not so
delivered free and clear of all Liens, Buyer shall have the option in its sole
discretion to pay an amount sufficient to extinguish any or all of such Liens
directly to the holder or holders of such Liens, and to consummate the
transaction
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contemplated hereby. The full amounts, including any accrued interest and
penalties on any indebtedness or obligations secured by such Liens, that are
paid by Buyer to the holder or holders of such Liens shall be deducted from the
Consideration.
4.21 Accounts Receivable. Seller hereby agrees that, following the
Closing Date and upon the request from time to time of Buyer, Seller will sign
a form of notification for delivery by Buyer to all obligors in respect of the
then-outstanding Accounts Receivable which are included in the Purchased Assets
notifying them of the assignment pursuant to this Agreement of such Accounts
Receivable and that payment in respect of such Accounts Receivable should be
made directly to Buyer. Seller and B&L shall pay to Buyer an amount equal to
all moneys received by Seller o B&L from and after the Closing Date that are
attributable to Accounts Receivable transferred pursuant to this Agreement or
that relate to the Purchased Assets.
4.22 Subleases. With respect to each Lease for which Seller has
not obtained (a) all consents from all Persons and tribunals necessary to
assign and transfer such Lease to Buyer at the Closing and to permit continued
possession of the premises subject to the Lease in substantially the same
manner as such possession was enjoyed as of the Closing Date, and (b) estoppel
letters in the form previously agreed to by the parties, then, if Buyer elects
to waive the condition specified in Section 5.3(g) applicable thereto, Seller
shall enter into a sublease, shared access or similar agreement providing for
the same lease payments and term as the Lease so listed and such other terms
and conditions as the parties shall mutually agree, all to the extent that
Buyer is provided quiet enjoyment of the premises subject to such Lease. With
respect to any such sublease, if all such consents and estoppel letters are
obtained within the six-month period following the Closing Date, then (i)
Seller shall assign the related Lease to Buyer, (ii) Buyer shall assume the
obligations to pay, perform, satisfy and discharge the executory obligations of
Seller under such Lease arising from and after the date of such assignment, and
(iii) such parties shall terminate the sublease.
4.23 Notification of Certain Matters. From the date hereof through
the Closing Date, Seller and Buyer each shall give prompt written notice to the
other after either of them has obtained knowledge of the occurrence, or failure
of occurrence, of any event, which occurrence or failure to occur would cause
or be reasonably likely to cause a breach of their respective representations,
warranties, covenants and agreements contained in this Agreement.
4.24 Negotiation of Employment Contracts. Buyer agrees that
promptly after the signing of this Agreement by both parties, Buyer will seek
to commence negotiations with Ken Darienzo regarding the terms of his proposed
employment contract with Buyer that is a condition to Closing pursuant to
Section 5.3(f). Buyer shall use Commercial Efforts to reach agreement on
reasonable and fundamental terms of such contract with such individual within
thirty (30) days after the execution of this Agreement, it being understood
that a final agreement on terms may be influenced by
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third parties proposing to provide financing for the acquisition of the
Purchased Assets and other factors.
4.25 Delivery of Audited Financial Statements. If Buyer requests
prior to September 1, 1996, Seller shall prepare and deliver to Buyer the
financial statements of the Business as of a fiscal month end between December
1995 and August 1996 and for the twelve-month fiscal period then ended prepared
in accordance with generally accepted accounting principles, together with the
opinion thereon of PW, on or before the Desired Closing Date, at Buyer's
Expense. Buyer hereby authorizes Seller to commence preliminary audit work at
Buyer's expense, not to exceed $5,000 until Buyer's authorization for
completion of the audit.
4.26 Canadian Business. Seller and B&L will cause the lease, dated
January 3, 1995, by and between the Dundas/Edward Centre Inc. and Bausch &
Lomb Canada Inc. ("B&L Canada") for a premises known as 123 Edward Street,
Toronto, Ontario to be assigned by B&L Canada to Buyer at the Closing. Each
party to this Agreement agrees that the employees of B&L Canada shall, for
purposes of this Agreement and the transactions contemplated herein, be treated
and receive similar treatment as employees of Seller. With the exception of
the assets listed on Schedule 4.26, all assets owned or leased by B&L Canada
but used primarily in the Business of Seller in Canada (and would otherwise be
included as Purchased Assets) shall be deemed assets of Seller and caused to be
transferred, assigned or otherwise conveyed to Buyer.
4.27 Core-Vent Covenant Not to Sue. Seller and B&L agree to (a)
enforce the terms of a certain Covenant Not to Sue, dated April 24, 1991, by
and between Core-Vent Corporation and Seller (the "Covenant Not to Sue") and
defend any claim, suit, action, charge or allegation made or asserted against
Buyer for infringement of United States Patent No. 4,960,381 (the "Core-Vent
Patent") by reason of the manufacture, sale or any other use of dental implant
devices substantially as depicted in Exhibit IV to the Covenant Not to Sue,
provided Buyer's use of such intellectual property is consistent with Seller's
use thereof prior to Closing, (b) indemnify and hold harmless Buyer from and
against any and all Claims and Losses suffered by reason of, arising out of or
resulting from any actual or alleged infringement of the Core-Vent Patent on
account thereof, provided Buyer's use of such intellectual property is
consistent with Seller's use thereof prior to Closing.
ARTICLE 5
CLOSING CONDITIONS
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5.1 Conditions to Each Party's Obligations. The respective
obligations of Seller and Buyer to consummate the transactions contemplated by
this Agreement shall be subject to each of the following conditions:
(a) Neither Seller nor Buyer shall be subject to any
order, judgment, decree or injunction of a court of competent jurisdiction or
governmental body, agency or official nor any applicable law or regulation or
executive order which prevents consummation of the transactions contemplated
hereby, and
(b) All filings required by the HSR Act shall have been
made and all waiting periods thereunder with respect to the transactions
contemplated by this Agreement shall have expired or been terminated.
5.2 Conditions to the Obligations of Seller. The obligation of
Seller to consummate the transaction contemplated hereby shall be further
subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) Buyer shall have performed and complied in all
material respects with the agreements contained in this Agreement required to
be performed and complied with by it at or prior to the Closing Date.
(b) The representations and warranties of Buyer set forth
in this Agreement shall be true and correct in all material respects as of the
date made and as of the Closing Date as though made at and as of the Closing
Date (except as otherwise contemplated by this Agreement).
(c) Seller shall have received a certificate, dated the
Closing Date, certifying to the fulfillment of the conditions set forth in
paragraphs (a) and (b) of this Section 5.2 and signed on behalf of Buyer by an
authorized officer of Buyer.
(d) Seller shall have been released from Leases, and
shall have received evidence of same which is reasonably acceptable to Seller
and its counsel, or Buyer shall have indemnified Seller with respect thereto,
in respect of matters arising after the Closing.
(e) Seller and B&L shall have received the opinion in
form of Exhibit 5.2E reasonably acceptable to Seller, dated the Closing Date,
of Howard, Darby & Levin, counsel to Buyer.
(f) The transactions contemplated hereby shall have
received approval from the B&L Board of Directors. The condition set forth in
this Section 5.2(f) shall expire at 5:00 p.m. E.S.T. seven (7) days after the
date of this Agreement. On or prior to the expiration date, B&L may elect to
terminate this Agreement in the event this condition is not satisfied. If B&L
does not terminate this
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Agreement pursuant to this Section 5.2(f) on or prior to the expiration date,
this condition shall be null and void.
(g) Seller shall have received complete and correct
copies of Buyer's Certificate of Incorporation and By-Laws, and all
restatements or amendments thereof.
5.3 Conditions to the Obligations of the Buyer. The obligation of
Buyer to consummate the transactions contemplated hereby shall be further
subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) Seller shall have performed and complied in all
material respects with the agreements contained in this Agreement required to
be performed and complied with by it at or prior to the Closing Date.
(b) The representations and warranties of Seller and B&L
set forth in this Agreement shall be true and correct in all material respects
as of the date made and as of the Closing Date as though made at and as of the
Closing Date.
(c) Buyer shall have received a certificate, dated the
Closing Date, signed by an authorized officer of Seller certifying to the
fulfillment of the conditions set forth in paragraphs (a) and (b) of this
Section 5.3.
(d) Buyer shall have received the opinion in form
reasonably acceptable to Buyer, dated the Closing Date, of B&L's General
Counsel in a form reasonably acceptable to Buyer consistent with Exhibit
5.3(d).
(e) Buyer shall have obtained the Financing on terms
entirely satisfactory to Buyer in its reasonable and good faith judgment.
Buyer acknowledges that such terms as are contained in the draft offering
circular prepared by Larkspur Capital Corporation (draft of July 1996) shall be
deemed satisfactory to Buyer, but it is understood that all other terms of such
financing, not specifically provided for in such offering circular, must be
satisfactory to Buyer in its reasonable and good faith judgment.
(f) Ken Darienzo shall have executed and delivered to
Buyer a valid and legally binding employment agreement in form and substance
reasonably satisfactory to Buyer providing for his employment, for a period of
three years, as President of Buyer or its operating entity, at a base salary
and cash bonus compensation reasonably comparable to his existing base salary
and cash bonus compensation arrangement with Seller and providing for an equity
compensation incentive arrangement of the kind typically provided in leveraged
buyout transactions where existing senior management continues its positions.
The condition set forth in this Section 5.3(f) shall expire at 5:00 p.m. E.S.T.
thirty (30) days after the date of this Agreement. On or prior to the
expiration date, Buyer may elect to terminate this
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Agreement in the event this condition is not satisfied. If Buyer does not
terminate this Agreement pursuant to this Section 5.3(e) on or prior to the
expiration date, the condition set forth herein shall be null and void.
(g) Seller shall have obtained the consent, in form and
substance satisfactory to Buyer in its good faith judgment, to the sale and
assignment to Buyer of (i) each of the leases referred to in Schedule 1.1(g),
and (ii) each of the licenses referred in Schedule 2.8(b) (except Core-Vent),
provided, however, if such consent has not been obtained, such other provision
has been made as will provide Buyer with the same financial benefits, and the
right to market, produce and manufacture, as if consent to the assignment of
each such license and contract had been obtained and be in form and substance
reasonably satisfactory to Buyer in its complete discretion.
ARTICLE 6
CERTAIN TAX MATTERS
6.1 Representations. Seller represents and warrants to Buyer
that, except as set forth in Schedule 6.1:
(a) Seller has timely filed, caused to be timely filed,
will timely file or will cause to be timely filed, on behalf of Seller and with
respect to the Business, all tax returns required to be filed with respect to
all periods through the Closing Date. Such tax returns were or will be
prepared, as the case may be, in the manner required by applicable law and all
Taxes shown thereon to be payable by Seller in respect of the Business have
been paid or will be paid when due and there are or will be no Liens for Taxes
upon any of the Purchased Assets (except for Liens for Taxes not yet due or
Taxes being contested in good faith through appropriate proceedings, from and
against which Seller will indemnify and hold Buyer harmless). Schedule 6.1(a)
lists all jurisdictions where returns are filed for any period in the period
from January 1, 1995 through the Closing Date and describes briefly the return
filed and its status. No claim has ever been made by a taxing authority that
Seller is or may be subject to taxation that Seller disputes and is unresolved.
(b) Seller has materially complied, as to the Business,
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has timely withheld from Seller employees wages and
paid over (and through the date of the Closing will timely withhold and pay
over) to the proper governmental entities all amounts required to be so
withheld and paid over for all periods under all applicable laws.
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(c) None of the Purchased Assets is property that Seller
or Buyer is or will be required to treat as being owned by another person
pursuant to the provisions of Section 168(f)(8) of the Code.
(d) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by Buyer by reason of
Section 280G of the Code.
(e) Seller is not a "foreign person" as defined in
Section 1445(f)(3) of the Code.
6.2 Tax Returns.
(a) Except as otherwise expressly set forth herein,
Seller shall be responsible for and shall pay all Taxes, including without
limitation, all sales and use taxes, relating to or arising from the conduct of
the Business and the ownership or use of the Purchased Assets prior to Closing
and shall be entitled to any refunds for all taxable periods (or portions
thereof) ending on or before the Closing Date and shall be responsible for
filing the necessary tax returns with respect to the Business and the Purchased
Assets for all such periods.
(b) Except as otherwise expressly set forth herein, Buyer
shall be responsible for, and shall pay, all Taxes relating to or arising from
the conduct of the Business by Buyer and the ownership or use of the Purchased
Assets by Buyer and shall be entitled to any refunds for all taxable periods
(or portions thereof) on or after the Closing Date and Buyer shall be
responsible for filing the necessary tax returns with respect to the Business
and the Purchased Assets for all such periods.
(c) If after the Closing Date Buyer pays any Taxes for
which Seller is liable under this Agreement, or Seller pays any Taxes for which
Buyer is liable under this Agreement, appropriate reimbursement shall be made
promptly upon demand therefor. The portion of any refund, rebate or
reimbursement received by any Person to which another Person is entitled shall
be paid over promptly to the Person which is entitled thereto.
(d) Each party hereto shall provide the other party,
without cost and expense, with such assistance as reasonably may be requested
by such party in connection with the preparation of any tax return, any audit
or other examination by any taxing authority, or any judicial or administrative
proceedings relating to liability for Taxes with respect to the Business and
the Purchased Assets, and each party shall retain, for a reasonable period of
time (but not less than the applicable statute of limitations in the
jurisdiction in which such Taxes are paid, including all extensions), and
provide the other party with, any records or information which may be relevant
to any such tax return, audit or examination, proceedings or determination.
Any records
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retained pursuant to this Section 6.2(d) shall be subject to the provisions of
Section 4.16 (other than with respect to the retention period stated therein).
(e) Seller agrees to indemnify, defend and hold Buyer
harmless from and against all Losses arising out of (1) unpaid Taxes for which
Seller is responsible under the terms of this Article 6, and (2) any breach of
the representations, warranties and covenants contained in Section 6.1 hereof.
Buyer agrees to indemnify, defend and hold Seller harmless from and against all
Losses arising out of unpaid Taxes for which Buyer is responsible under the
terms of this Article 6.
(f) Any payments made to Seller or Buyer pursuant to this
Section 6.2 shall constitute an adjustment of the Consideration for tax
purposes.
6.3 Contests. Any audits of tax returns with respect to the
Business or the Purchased Assets and related administrative and judicial
proceedings shall be controlled by the party responsible for filing such tax
returns pursuant to this Article 6 (the "Filing Party"). The Filing Party
shall promptly notify the other party (the "Non-filing Party") of any proposed
adjustment which would result in liability of the Non-filing Party under this
Agreement. If the Non-filing Party so requests within thirty days of receipt
of such notice, the Filing Party shall:
(i) in good faith contest such proposed
adjustment by appropriate administrative or judicial proceedings;
(ii) permit the Non-filing Party to participate at
its own expense in such proceedings; and
(iii) not enter into any compromise or settlement
with respect to such proposed adjustment without the consent of the Non-filing
Party, which shall not be unreasonably withheld; provided, however, that the
Filing Party shall not be required to contest any proposed adjustments with
respect to any tax return unless (x) the aggregate amount of the Non-filing
Party's reasonable potential liability is at least $50,000; (y) the Non-filing
Party agrees to pay (or, in the case of item (C) below, advance to) the Filing
Party all costs and expenses which the Filing Party may incur in connection
with such contest, including, without limitation, (A) all reasonable legal,
accounting, and investigatory fees and disbursements, (B) any interest,
penalties or additions to Tax which may be incurred as a result of such
contests, and (C) if such contest is conducted in a forum which requires the
payment of, and claiming of a refund for, the amount of the proposed
adjustment, sufficient funds to make such payment; and (z) if so requested by
the Filing party, the Non-filing Party provides a written opinion, reasonably
acceptable in form and substance to the Filing Party, of independent counsel
that there is a reasonable basis for contesting the proposed adjustment.
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ARTICLE 7
TERMINATION
7.1 Termination. This Agreement may be terminated at any time on
or prior to the Closing Date:
(a) By mutual written consent of Seller and Buyer.
(b) By written notice by either party (including notice
by B&L on behalf of Seller) to the other party if the Closing shall not have
occurred on or before the Desired Closing Date (or the Extended Closing Date,
if applicable under Section 4.16(b)), unless such failure to occur is due to
the failure of the party seeking to terminate this Agreement to perform in all
material respects any of its obligations under this Agreement required to be
performed by it at or before the Closing Date; provided that, if such failure
to Close is due to the failure to satisfy the condition set forth in Section
5.3(e) (but all other conditions to Buyer's obligations set forth in Section
5.3 are satisfied), the provisions of Section 7.2(b) shall apply.
(c) By Buyer if there has been a material violation or
breach by Seller of an agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of Buyer specified in Section 5.3 impossible and such violation or
breach has not been waived by Buyer or cured by Seller within 15 days after
written notice to Seller of such violation or breach.
(d) By Seller if there has been a material violation or
breach by Buyer of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of Seller specified in Section 5.2 impossible and such violation or
breach has not been waived by Seller or cured by Buyer within 15 days after
written notice to Buyer of such violation or breach.
7.2 Procedure and Effect of Termination. (a) In the event of
termination of this Agreement pursuant to Section 7.1 (other than when Section
7.2(b) applies), this Agreement shall terminate, and in each case the
transactions contemplated hereby shall be abandoned, without further action by
any of the parties hereto, and there shall be no liability on the part of
Seller or Buyer for further performance hereunder, except as set forth in this
Section 7.2(a) and in Sections 4.2(b) and 4.3, which Sections shall survive the
termination of this Agreement and except that the foregoing shall not relieve
any party from liability for damages actually incurred as a result of breach by
it of any of its obligations under this Agreement.
(b) In the event of termination of this Agreement by
Buyer, Seller or B&L (on behalf of Seller) pursuant to Section 7.1(b) by reason
of the failure to satisfy
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the condition set forth in Section 5.3(e) (but all other conditions to Buyer's
obligations set forth in Section 5.3 are satisfied), this Agreement shall
terminate, and the transactions contemplated hereby shall be abandoned, without
further action by any of the parties hereto, and there shall be no liability or
obligation on the part of Seller or Buyer, except as set forth in Sections
4.2(b) and 4.3, which Sections shall survive the termination of this Agreement
and except that Buyer shall pay to Seller, as liquidated damages, the sum of
(i) Two Hundred Fifty Thousand Dollars ($250,000.00) if termination occurs on
or prior to the Desired Closing Date, which shall be satisfied by Seller
retaining the Deposit, or (ii) Five Hundred Thousand Dollars ($500,000.00) if
termination occurs after the Desired Closing Date, which shall be satisfied by
Seller retaining the Deposit and the Additional Deposit, if previously paid, or
if not previously paid, by payment to Seller of an additional Two Hundred Fifty
Thousand Dollars ($250,000.00).
(c) If this Agreement is terminated as provided in this
Section 7.2, all filings, applications and other submissions made pursuant to
Section 4.5 shall, to the extent practicable, be withdrawn from the agency or
other person to which they were made.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
8.1 Survival. The representations, warranties, covenants and
agreements of the parties hereto shall survive the execution and delivery
hereof and the delivery of all of the documents executed in connection herewith
and shall continue in full force and effect after the date hereof and after the
Closing Date for a period of two (2) years after the Closing Date (the
"Expiration Date"); provided that, the representations, warranties, covenants
and agreements provided in Section 6.1 shall continue in full force and effect
for a period of three (3) years after Closing, those in Section 4.27 shall
survive for four (4) years after Closing and those in Sections 2.1, 2.2, 2.3,
3.1, 3.2 and 3.3 shall survive for six (6) years after Closing.
8.2 Indemnification of Buyer. Seller and B&L shall indemnify
Buyer and hold Buyer harmless from and against any and all Claims and Losses
suffered by reason of, arising out of or resulting from (i) any
misrepresentation or breach of warranty made in this Agreement by Seller, or
(ii) any failure by Seller to fulfill any covenant or agreement under this
Agreement (other than a covenant set forth in Article 6 as to which the
provisions of Article 6 shall apply), or (iii) any and all Retained
Liabilities, or (iv) the successful enforcement by Buyer of its rights under
this Section 8.2 to the extent the same is determined by a court of competent
jurisdiction, or (v) any defects or errors in the design, manufacture or
production of any product sold by Seller prior to the Closing Date (other than
the Assumed Liabilities), or (vi) any final judgment
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obtained by any person that Buyer is liable for (as successor in interest or
otherwise) any liabilities of Seller, whether known or unknown, absolute or
contingent, arising before, on or after the Closing Date, other than Assumed
Liabilities; provided, however, that Seller and B&L shall have no liability for
indemnity hereunder to Buyer with respect to any matter referred to in clause
(i) of this Section 8.2 until the aggregate amount of all Losses arising
therefrom exceeds FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000) (the
"Deductible"). In no event shall Seller or B&L be obligated to provide
indemnification for Claims or Losses (including without limitation the covenant
in Section 4.27) in excess of fifty percent (50%) of the Cash Amount portion of
the Consideration, except as to a breach of the representations, warranties and
agreements contained in Sections 2.1, 2.2 and 2.3, as to which such percentage
shall be one hundred percent (100%).
8.3 Indemnification of Seller. Buyer shall indemnify and hold
harmless Seller from and against any and all Claims and Losses suffered by
reason of, arising out of or resulting from (i) any misrepresentation or breach
of warranty made in or pursuant to this Agreement by Buyer, (ii) any failure by
Buyer to fulfill any covenant or agreement under this Agreement, (iii) any
claims of third parties arising out of any offering by Buyer, its agents,
consultants, bankers or Affiliates, including Larkspur Capital Corporation, of
securities representing, directly or indirectly, an interest in the Business,
or debt of Buyer, not based upon a misrepresentation or breach of warranty made
in this Agreement by Seller, (iv) the successful enforcement by Seller of its
rights under this Section 8.3 to the extent the same is determined by a court
of competent jurisdiction, or (v) any claim or loss resulting from operation of
the Business from and after the Closing Date.
8.4 Notice of Claim. If any party hereto has suffered or incurred
any Loss and Expense, or if a third party claim, whether pursuant to an
administrative proceeding, action at law, suit in equity, or otherwise ("Third
Party Claim") is instituted which, if decided adversely to a party, would
result in such party suffering or incurring any Loss and Expense, such party
shall give written notice within thirty (30) days of such Loss, Expense or
Third Party Claim to the party against which a claim for indemnification may be
made pursuant to this Agreement ("indemnifying party"), setting forth: (i) the
facts or events, in reasonable detail which indicate that such party has
suffered or incurred such Loss and Expense, (ii) the Section or Sections of
this Agreement (in addition to this Article 8) under which such party has
suffered or incurred such Loss and Expense, (iii) the amount of such Loss and
Expense (estimated, if necessary and reasonably practicable) or, in the case of
a Third Party Claim, such party's then good faith estimate (if reasonably
practicable) of the reasonably foreseeable estimated amount of its claim for
indemnification for such Loss and Expense, and (iv) the method of computation
of the amount of such Loss and Expense, any of which information shall be
promptly amended by such party when its knowledge of the facts or events and
any resulting liability so warrant in its good faith judgment. No party shall
be liable for indemnification pursuant to Sections 8.2 or 8.3 unless notice of
claim
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for such indemnification has been given in accordance with this Section 8.4 and
on or prior to the Expiration Date. Buyer shall deliver to Seller within
thirty (30) days after the end of any calendar month, a statement in reasonable
detail describing and showing the amount (to the extent the same can reasonably
be determined) of any Claim or Loss of which the senior executive officers of
Buyer (which shall include, without limitation, the current President and Vice
Presidents of Seller, and their successors) have actual knowledge and with
respect to which Buyer would be entitled to indemnification pursuant to clauses
(i) and (ii) of Section 8.2 hereof (and whether or not the Claim or Loss is
within the Deductible).
8.5 Defense of Third Party Claim. The indemnifying party shall
have the right to conduct and control, at its expense and through counsel of
its own choosing, the defense of any Third Party Claim, action or suit, but the
indemnified party may, at its election, participate in the defense of such
claim, action or suit at its sole cost and expense; provided that if (i) the
indemnifying party shall fail to defend any such claim, action or suit, (ii)
the indemnifying party and indemnified party mutually agree or (iii) the named
parties to such claim, action or suit (including any impeded parties) include
both the indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them, then the indemnified party may
defend, through counsel of its own choosing, such claim, action or suit and
settle such claim, action or suit, and recover from the indemnifying party the
amount of any settlement to which the indemnifying party consents or of any
resulting judgment and the costs and expenses of such defense, provided that
the indemnified party shall not compromise or settle any third party claim,
action or suit without the prior written consent of the indemnifying party,
which consent will not be unreasonably withheld, continued or delayed.
8.6 Special Procedure for Certain Indemnified Claims.
Notwithstanding the provisions of Sections 8.4 and 8.5, in case of any claim
against Buyer of the kind for which indemnification may be sought pursuant to
any of clauses (v) or (vi) of Section 8.2 (a "Special Procedure Claim"), upon
notification from Buyer that a claim for indemnification may be sought
hereunder, Seller shall have thirty (30) days to investigate whether it agrees
that the Special Procedure Claim is one indemnified against by Seller hereunder
and shall, prior to the end of such thirty (30) day period notify Buyer whether
it acknowledges that Buyer is entitled to be indemnified in respect of such
Special Procedure Claim hereunder. Buyer shall then have ten (10) Business
Days (the "determination period") to determine whether it will make a claim for
indemnification and shall then notify Seller of its determination. If Buyer
notifies B&L that it has elected not to make a claim for indemnification, or
provides no notification to B&L in response to Seller's first notification and
within ten (10) days after a second notification by Seller and expiration of
the determination period, then Seller and B&L shall be relieved of their
indemnification obligations under this Agreement in respect of such Special
Procedure Claim. If Buyer notifies B&L that it has elected to make a claim for
indemnification, then B&L shall have the right, but not the obligation, to
control and direct the defense of such claim and, in its discretion, to settle
such claim.
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ARTICLE 9
CERTAIN DEFINITIONS
9.1 Certain Definitions. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise
requires:
"Accounts Payable" shall mean (i) when used with reference to the
Balance Sheet, all accounts payable of Seller reflected as "Accounts Payable"
on the Balance Sheet, and (ii) when used with reference to the Closing Date
Balance Sheet, all accounts payable of Seller in existence as of the Closing
Date as reflected as "Accounts Payable" on the Closing Date Balance Sheet, in
each case which arise from the ordinary course of operation of the Business.
"Accounts Receivable - Net" shall mean (i) when used with reference to
the Balance Sheet, all accounts receivable of Seller reflected on the Balance
Sheet as "Accounts Receivable net" or "net Trade Receivables", and (ii) when
used with reference to the Closing Date Balance Sheet, all Accounts Receivable
of Seller in existence on the Closing Date, net of allowances for doubtful
accounts, credits for cooperative advertising and sales returns and other
allowances, as reflected on the Closing Date Balance Sheet.
"Accrued Liabilities" shall mean (i) when used with reference to the
Balance Sheet, all accrued liabilities of Seller reflected as "Accrued
Liabilities" and/or "Accrued Payroll and Related Expenses" on the Balance
Sheet, and (ii) when used with reference to the Closing Date Balance Sheet, all
liabilities of Seller in existence as of the Closing Date as reflected as
"Accrued Liabilities" (including customer advances) and/or "Accrued Payroll and
Related Expenses" on the Closing Date Balance Sheet and which arise from the
ordinary course of operation of the Business and including, without limitation,
liabilities of Seller with respect to warranties for repair and replacement
related to products of the Business manufactured, sold or shipped by Seller on
or prior to the Closing Date.
"Affiliate" shall have the meaning prescribed by Rule 12b-2 of the
regulations promulgated pursuant to the Securities Exchange Act of 1934, as
amended.
"Agreed Procedure" shall mean the procedure described in Schedule 9.1
hereto.
"Claim" shall mean any demand, claim, action or cause of action based
on any Loss.
"Code" shall mean the United States Internal Revenue Code of 1986, as
amended.
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"Commercial Efforts" shall mean such good faith efforts as shall not
require the performing party (i) to do any act that is unreasonable under the
circumstances, (ii) to make any capital contribution not expressly contemplated
hereunder, (iii) to amend or waive any rights under this Agreement, or (iv) to
incur or expend any funds other than reasonable out-of-pocket expenses incurred
in satisfying its obligation hereunder, including the fees, expenses and
disbursements of accountants, counsel and other professionals.
"Environmental Laws" shall mean (A) all laws governing, regulating or
pertaining to environmental matters as in effect on or prior to the Closing
Date, and the regulations promulgated thereunder, and any environmental
statutes or regulations of, and treaties or conventions entered into by,
non-Domestic jurisdictions that are applicable to the Business or any Prior
Property or Disposal Site, as these laws, regulations, statutes, treaties and
conventions have been amended or supplemented on or prior to the Closing Date;
(B) any permits, licenses, approvals, plans, rules, regulations or ordinances
adopted pursuant to the preceding laws, in each case to the extent applicable
to the Business and the Leased Property.
"Estimated Cash Amount" shall mean a dollar amount, for purposes of
Closing, determined in the same manner as the Cash Amount except that such
determination shall be made by Seller within five (5) business days prior to
Closing with reference to the Estimated Closing Date Balance Sheet rather than
with reference to the Closing Date Balance Sheet.
"Estimated Closing Date Balance Sheet" shall mean an unaudited balance
sheet of the Business prepared in accordance with the Agreed Procedure
described in Schedule 9.1 for the month end prior to the month in which Closing
occurs (unless Closing occurs in November 1996, in which event the unaudited
balance sheet for September 1996 shall be used), prepared by Seller, or such
other unaudited balance sheet of the Business as Buyer and Seller shall
mutually agree.
"GAAP" shall mean when used with reference to the Financial Statements
and the Estimated Closing Date Balance Sheet and the Closing Date Balance Sheet
(the "GAAP Financials"), the generally accepted accounting principles used in
the preparation of the GAAP Financials with respect to all periods presented
thereby, applied on a consistent basis for all such periods and in accordance
with past practice and using materiality standards that reflect all of B&L's
operations as a whole rather than the Business alone, except that the standard
of materiality applicable to the Closing Date Balance Sheet shall be that which
would be appropriate for Seller as an independent entity without regard to its
consolidation with B&L.
"Hazardous Wastes" shall mean any toxic or hazardous material or
substances, including asbestos, contaminants, chemicals, flammable explosives,
radioactive material and any substances defined as, or included in the
definition of, "hazardous
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substances", "hazardous wastes", "Hazardous Materials", "toxic substances" or
otherwise regulated under any Environmental Law.
"Interest Rate" shall mean a fluctuating rate per annum equal to two
percent (2%) above the prime rate of, or similar rate used by, Citibank, N.A.
New York, from time to time in effect.
"Inventories - Net" shall mean (i) when used with reference to the
Balance Sheet, inventories reflected as "Total Gross Inventories Minus
Inventory Reserves" on the Balance Sheet, and (ii) when used with reference to
the Closing Date Balance Sheet, Inventories owned by Seller on the Closing Date
net of reserves and valuation allowances recorded in a manner consistent with
past practices.
"Lien" shall mean any mortgage, pledge, security interest, lien,
charge, encumbrance, equity, claim, option, tenancy, right or restriction on
transfer of any nature whatsoever.
"Loss" shall mean any loss, damage, liability, cost, assessment and
expense including, without limitation, any interest, fine, court cost and
reasonable investigation cost, penalty and attorneys' and expert witnesses'
fees, disbursements and expenses, after taking into account (i) any insurance
proceeds actually received by or paid on behalf of any party incurring a Loss
which are not required to be remitted by such party to the other party pursuant
to the terms hereof and (ii) any reserves or accruals related to such Loss to
the extent reflected in the Closing Date Net Operating Assets.
"Net Operating Assets" shall mean, when used with reference to the
Balance Sheet and the Closing Date Balance Sheet (prepared in accordance with
the Agreed Procedure in the case of the Closing Date Balance Sheet), as the
case may be, the amount by which (A) exceeds (B), where (A) equals (1)
Accounts Receivable - Net (or Net Trade Receivables), plus (2) Inventories -
Net, plus (3) Other Current Assets, plus (4) Net Property, Plant and Equipment,
plus (5) Intangibles excluding good will and (6) Other Assets excluding
Capitalized Acquisition Costs, and (B) equals (1) Accounts Payable, plus (2)
Accrued Liabilities, in each case as reflected on the Balance sheet and the
Closing Date Balance Sheet, as applicable.
"Permit" shall mean any permit, approval, authorization, license,
variance or permission required by a governmental entity under any applicable
Environmental Law.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, a governmental entity or
any other entity.
"Taxes" shall mean all taxes, levies or other like assessments,
charges or fees, including, without limitation, income, gross receipts, excise,
value added, real or personal property, withholding, asset, sales, use,
license, payroll, transaction, capital,
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business, corporation, employment, net worth and franchise taxes, or other
governmental taxes imposed by or payable to the United States of America or any
State, local or foreign governmental entity, whether computed on a separate,
consolidated, unitary, combined or any other basis; and in each instance such
term shall include any interest, penalties or additions to tax attributable to
any such Tax.
9.2 Plurals; Etc. As used herein, the plural form of any noun
shall include the singular and the singular shall include the plural, unless
the context otherwise requires. Each of the masculine, neuter and feminine
forms of any pronoun shall include all such forms unless the context otherwise
requires.
ARTICLE 10
MISCELLANEOUS PROVISIONS
10.1 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by written agreement of B&L, Seller and Buyer.
10.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate ag a waiver
of, or estoppel with respect to, any subsequent or other failure.
10.3 Notices. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or by facsimile
or three days after mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice; provided,
however, that notices of a change of address shall be effective only upon
receipt thereof):
(a) if to B&L or Seller:
Bausch & Lomb Incorporated
One Bausch & Lomb Place
Rochester, New York 14604
Attention: Stephen C. McCluski, Senior Vice
President - Finance
with copies to:
Stephen A. Hellrung, Senior Vice President,
Secretary and General Counsel
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(b) if to Buyer:
S-O Acquisition Corp.
31 West 52nd Street, 25th Floor
New York, New York 10019
Attention: Douglas E. Rogers
with a copy to:
Howard, Darby & Levin
1330 Avenue of the Americas
New York, New York
Attention: Lawrence A. Darby, III
10.4 Assignment. At any time at or after the Closing, Buyer may
assign its rights hereunder (i) as collateral security its rights pursuant
hereto to any Persons providing financing for the consummation hereof or (ii)
to any subsidiary; provided, that, no such assignment by Buyer shall release it
from any of its obligations or liabilities hereunder; and provided further,
that, such assignee shall acquire no greater rights than those held by Buyer.
Except as expressly provided above, neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any party
hereto without the prior written consent of the other party. Any attempted
assignment in violation of the preceding sentence shall be void ab initio and
the assignee shall obtain no rights by reason thereof. This Agreement and all
of the provisions hereof shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Agreement does not and is not intended to confer upon any other Person except
the parties hereto and their respective successors and assigns any rights,
remedies, obligations or liabilities hereunder. Notwithstanding the foregoing
paragraph, In addition, at any time after the Closing, Seller may merge with or
into an Affiliate of Seller and the surviving or resulting entity shall succeed
to all of the rights and obligations of the Seller hereunder and under any
other agreement or instrument entered into in connection with the transactions
contemplated hereby.
10.5 Governing Law. This Agreement shall be governed by the laws
of the State of New York, without reference to principles of conflicts of law
which require that the substantive laws of another jurisdiction apply.
10.6 Actions and Proceedings. Buyer and Seller hereby irrevocably
consent to the nonexclusive jurisdiction and venue of the Courts of the State
of New York and the State or Federal Court located in Monroe County, New York
in connection with any action or proceeding arising out of or relating to this
Agreement or the transactions contemplated thereby.
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10.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
10.9 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall be construed in all respects as if
such invalid or unenforceable provision were omitted. All provisions of this
Agreement shall be enforced to the full extent permitted by law.
10.10 Knowledge of Seller. When it is provided herein that a matter
is "to the knowledge" of Seller such matter has been verified by making inquiry
of the following individuals: Ken Darienzo, Ken Krueger, Marty Dymek, Dennis
Locke and Pat Bolton.
10.11 No Third Party Beneficiaries. Nothing contained in this
Agreement, express or implied, is intended or shall be construed to confer upon
or give to any Person other than the parties hereto and their successors or
permitted assigns (but not collateral assignees referenced in Section 10.4(i),
any rights or remedies under or by reason of this Agreement.
10.12 Time; Deadlines. Without prejudice to whether any times or
dates in any other Section of this Agreement are of the essence, TIME IS OF THE
ESSENCE AS TO ALL DATES AND PERIODS SET FORTH IN SECTION 4.16 AND SECTION
7.1(b).
10.13 Entire Agreement. This Agreement, including the documents,
schedules, certificates and instruments referred to herein, is the entire
agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the transactions contemplated hereby.
THE NEXT PAGE IS PAGE 47.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
BAUSCH & LOMB INCORPORATED
By:_________________________________
Name: Stephen C. McCluski
Title: Senior Vice President - Finance
STERI-OSS INC.
By:_________________________________
Name:_______________________________
Title:______________________________
S-O ACQUISITION CORP.
By:_________________________________
Name:_______________________________
Title:______________________________
<PAGE> 1
EXHIBIT 10.14
DISTRIBUTION AGREEMENT
This Distribution Agreement ("Agreement") is entered into as
of April 18, 1997 (the "Effective Date") between Interpore Orthopaedics, Inc.,
a Delaware corporation with its principal place of business at 181 Technology
Drive, Irvine, California 92618 ("Manufacturer"), Steri-Oss Inc., a Delaware
corporation with its principal place of business at 22895 East Park Drive,
Yorba Linda, California 92887 ("Distributor").
RECITALS
A. Manufacturer has developed and manufactures a proprietary bone
void filler. Certain products utilizing such technology are labeled, marketed
and distributed by Manufacturer as Interpore 200(R) Porous Hydroxyapatite Bone
Void Filler (IP 200), to be used for certain oral/maxillofacial bone grafting
indications. Such products are specified on Schedule I attached hereto and
made a part hereof (referred to herein collectively, as the "Products");
B. Distributor is engaged, among other things, in the manufacture
and distribution of dental implant products throughout the world; and
C. Manufacturer desires to appoint Distributor as its
non-exclusive distributor of the Products, and Distributor desires to accept
such appointment, in each case, upon the terms and subject to the conditions of
this Agreement.
AGREEMENT
IN CONSIDERATION for the undertakings and covenants set forth
below, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Manufacturer and Distributor
agree as follows:
1. Appointment as Distributor. Manufacturer hereby grants to
Distributor, and Distributor hereby accepts such grant of, the right (the
"Distribution Rights") to warehouse, promote, market, distribute and sell the
Products, for certain oral/maxillofacial bone grafting applications under the
marks "Interpore 200(R) " or "IP 200" (the "Private Label"). The territory
("Territory") for Distributor's Distribution Rights is world-wide for
oral/maxillofacial bone grafting applications of the Products. Distributor's
Distribution Rights shall be on an exclusive basis beginning on that date which
is 180 days from the Effective Date and continuing for the term of this
Agreement. On and after that date which is 180 days from the Effective Date,
Manufacturer shall not, and shall not permit its Affiliates to, grant any
distribution or license rights in the Territory to any other person with
respect to the Products for oral/maxillofacial bone grafting applications, nor
shall it directly sell, distribute or otherwise deliver any Products to any
person, firm or entity for oral/maxillofacial bone grafting applications other
than Distributor during the term of this Agreement.
During the term of this Agreement Manufacturer agrees to
supply Distributor with Products as ordered on a continuous basis. Distributor
agrees to buy such Products from Manufacturer and use its best efforts to sell
Products in the Territory.
<PAGE> 2
Manufacturer makes no representation or warranty that
Distributor will achieve any particular level of sales of the Products within
the Territory.
The parties acknowledge that, notwithstanding any other
provision of this Section 1, Manufacturer has a relationship with Tokuyama Soda
Co., Ltd. ("Tokuyama Soda") which by its terms may entitle Tokuyama Soda to
negotiate for the consummation of an exclusive distribution agreement for
hydroxyapatite products for oral surgery/dental applications in the market
territories of Japan and Far East Asia (excluding Australia and New Zealand).
The parties acknowledge that the exclusivity of Distributor's rights pursuant
to this Section 1 are subject to and may be affected by the rights of Tokuyama
Soda only with respect to the Japanese market. Manufacturer and Distributor
agree that each of them will cooperate with the other and to act in good faith
in their dealings with Tokuyama Soda to resolve any conflicts relating to
Tokuyama Soda's rights to distribution of the Products.
2. Products and Conditions. Products shall mean the Products
listed in Schedule I. Manufacturer shall be entitled at any time to add,
replace or delete any item to the Products listed in Schedule I, provided that
any replacement of any Product shall be substantially equivalent in function to
the replaced Product and provided that it so advises Distributor in writing at
least 90 days in advance and specifies the effective date of the change made to
Schedule I, and provided further that the deletion of any product for other
than regulatory reasons shall be by the mutual agreement of the parties which
shall not be unreasonably withheld.
Any modifications, updates, developments, engineering changes
or supplements which collectively or individually affect the form, fit or
function of the Products (collectively, the "Product Changes") shall be
incorporated into the Products offered for sale by Manufacturer to Distributor
pursuant to the terms of this Agreement. Manufacturer shall be responsible for
obtaining all FDA approvals or clearances, if applicable. Manufacturer shall
disclose all proposed Product Changes to Distributor with at least 30 days
prior notice. Manufacturer also agrees to provide Distributor with price lists
and preproduction samples of the Products incorporating the Product Changes for
evaluation as reasonably may be requested by Distributor. Such Product Changes
shall be deemed to be Products hereunder and all terms and conditions contained
herein with respect to the Products (including Distributor's Distribution
Rights as set forth in Section 1) shall equally apply to such Product Changes.
Distributor shall be responsible for determination of foreign regulatory
requirements and notifications required to support distribution of Product
Changes within the Territory, if applicable.
It is understood and agreed that Manufacturer manufactures and
distributes other products containing the same or similar technology as
embodied in the Products, which other products are marketed and distributed
under names other than "Interpore 200" and "IP 200" and primarily for
applications other than oral/maxillofacial bone grafting applications.
Distributor shall have no right hereunder to distribute such other products and
this Agreement shall not affect Manufacturer's right to grant distribution
rights to others with respect to, or the rights of others to distribute, such
other products.
3. Status as Independent Contractor. Each party shall be an
independent contractor in relationship of the other party hereunder, and this
Agreement does not create in any manner or for
2
<PAGE> 3
any purpose whatsoever an employer-employee or a principal-agent relationship
between Manufacturer and Distributor. Neither party is authorized to enter into
agreements for or on behalf of the other party, create any obligation or
responsibility, express or implied, for or on behalf of the other party, accept
payment of any obligation due or owed to the other party, accept service of
process for the other party, or bind the other party in any manner or thing
whatsoever. Neither party shall list, print or display the other party's name
in such a manner as to indicate or imply that there is an employer-employee or
a principal-agent relationship between Manufacturer and Distributor.
Distributor, as an independent contractor, shall appoint and
supervise its own employees to carry out Distributor's obligations hereunder.
Distributor shall have sole responsibility for its employees, and all
associated risks and expense shall be borne by Distributor. Distributor shall
comply with all applicable local, state and federal laws governing the
operation of its business or the employment of its personnel, including without
limitation, federal and state tax laws, workers and unemployment compensation
laws and/or labor standards. Distributor shall ensure that its employees shall
not have any claim against Manufacturer for compensation, reimbursement or
right of contract and shall indemnify Manufacturer for all such claims and
related costs and expenses.
4. Terms of Sale.
a. The price for the Products shall be 50% of the
suggested list prices set forth on Schedule II attached hereto and made part
hereof; provided, however, on a quarterly basis, Distributor shall deliver a
report to Manufacturer setting forth the Products sold outside the United
States, accompanied by such documentation as Manufacturer may reasonably
request, and within 30 days of receipt of the report Manufacturer shall rebate
to Distributor an amount equal to 10% of the suggested list price of such
Products to reflect the price differential for products purchased for resale
outside the United States. The parties acknowledge that in certain
circumstances with respect to sales outside the United States, a larger
discount may be appropriate, and agree to negotiate in good faith toward such
larger discount where applicable. Distributor is free to determine the prices
at which it will resell the Products. Manufacturer may initiate a price change
annually for the Products payable by Distributor hereunder consistent with the
limitations set forth in this Section ("Price Changes"), which shall be set
forth in a revised price list delivered by Manufacturer to Distributor. Each
price change shall be limited to the percentage increase in the United States
Department of Labor, Bureau of Labor Statistics Consumer Price Index of Urban
Wage Earners and Clerical Workers (Revised Series), Subgroup "all items,"
entitled "Consumer Price Index of Urban Wage Earners and Clerical Workers
(Revised Series), Los Angles- Anaheim-Riverside Average (1982-1984 = 100)"
("CPI") between the Index in effect as of the date of the existing suggested
list price and the Index in effect on the date of the price change. If at any
price change date there shall not exist the Consumer Price Index of Urban Wage
Earners and Clerical Workers (Revised Series) in the same format as recited in
this Section 4a, Manufacturer shall substitute any official index published by
the Bureau of Labor Statistics, or successor or similar governmental agency, as
may then be in existence and shall be most nearly equivalent thereto. Price
Changes will be effective as of 45 days following Distributor's receipt of such
revised price list and Distributor will pay for the Products in accordance with
the Price Changes on all orders made on or after such 45 day period. Terms of
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<PAGE> 4
sale are F.O.B. Interpore Orthopaedics, Inc., Irvine, California. Transfer of
title and risk of loss shall pass to Distributor when the Products are
delivered to a common carrier or, if not so delivered, when the Products are
delivered to Distributor. No shipment shall be made under extended reservation
of proprietary rights unless Manufacturer has information indicating inability
on the part of Distributor to pay invoices to Manufacturer as they become due,
in which case Manufacturer shall be entitled to make shipment under extended
reservation of proprietary rights once notice has been provided to Distributor.
Manufacturer shall have the right to request and receive from Distributor any
and all supporting documentation relating to resales of the Products outside of
the United States. Manufacturer and Manufacturer's accountants shall have the
right to audit Distributor's books and records should a dispute arise. No
payments shall be required to be made pursuant to the proviso of this Section
4a, while a dispute or audit is pending or until all information requested by
Manufacturer is delivered by Buyer.
b. All packaging and labeling will include the
identities of both Manufacturer and Distributor in such size and at such
location as may be agreed upon by Manufacturer and Distributor. Distributor
shall be eligible to utilize the "Interpore 200" or "IP 200" tradenames or any
other tradename in the marketing and distribution of the Products, pursuant to
the terms of Section 12 hereof.
c. Distributor shall pay (or reimburse Manufacturer), as
a separate item, all taxes (exclusive of income taxes) however designated, or
amounts legally levied in lieu thereof based on or measured by the amount
charged for the Products delivered to Distributor under this Agreement or on
their use, now or hereafter imposed under the authority of any federal, state
or local taxing jurisdiction. If Distributor is purchasing the Product for
resale and claiming a tax exemption in connection herewith, Distributor must
furnish Manufacturer with an applicable resale certificate.
d. All payments by Distributor to Manufacturer shall be
made in U.S. Dollars, without set-off or counterclaim and free and clear of,
and without deduction for, any taxes, levies, import duties, charges, fees,
deductions, withholdings, restrictions or conditions of any nature now or
hereafter imposed or levied by any country or any political subdivision thereof
or taxing or other authority therein, unless Distributor is compelled by law to
make such deduction or withholding. If any such obligation to make such
deduction or withholding is imposed upon Distributor with respect to any amount
payable by it hereunder, Distributor will pay to Manufacturer, on the date on
which the said amount becomes due and payable, such additional amount as shall
be necessary to enable Manufacturer to receive the same net amount it would
have received on such due date had no such obligation been imposed upon
Distributor.
e. Invoices for the Products will be issued upon
shipment. Payment for these invoices shall be made in full thirty (30) days
from the date of invoice. In the event Distributor defaults in making payment
for the Product sold to it hereunder, and such default is not cured within 30
days after written notice, Manufacturer may, without limitation to
Manufacturer's other rights and remedies, suspend further shipments to
Distributor until Manufacturer receives adequate assurances of payment.
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<PAGE> 5
f. Manufacturer shall ship Products ordered hereunder
only to Distributor's primary facility. Manufacturer will use its best efforts
to meet each order for the Products placed by Distributor on or before the
requested shipment date, provided such date is at least thirty (30) days
following the date on which Manufacturer receives the order.
g. Manufacturer agrees to manufacture and sell to
Distributor the Products meeting the Specification attached hereto as Schedule
IV. Orders for Products shall be on written forms ("Purchase Orders") stating
therein the quantity and type of Products desired and the date and destination
of delivery.
h. Distributor's purchase of Products is expressly
limited to the terms and conditions set forth in this Agreement. If
Distributor's Purchase Order sets forth terms and conditions in addition to the
quantity and type of Product and the date and destination of delivery desired
or terms and conditions inconsistent herewith, such additional terms and
conditions contained therein shall be of no force or effect whatsoever between
the parties hereto.
i. Delivery of Products purchased by Distributor shall
be made to a common carrier on the date specified on Distributor's Purchase
Order, provided, however, that such date is at least 30 days from the date on
which Manufacturer receives the Purchase Order relating to that shipment.
j. Title of Products and the risk of loss thereof shall
pass to Distributor when the Products are delivered to a common carrier or, if
not so delivered, when the Products are delivered to Distributor.
k. Each shipment of Products shall be accompanied by a
Certificate, signed by a quality control representative of Manufacturer,
certifying that the Products conform to the Specification applicable to the
Products. Upon the arrival of Products at the destination designated by
Distributor in the Purchase Order, Distributor shall promptly inspect the
Products and shall give written notice to Manufacturer within 30 days after the
arrival of any claims if the Products do not conform with the Specification set
forth in this Agreement. If Distributor retains the Products in its possession
after arrival at the destination designated in its Purchase Order without
giving Manufacturer such notice within the 30-day period described above, such
failure to give timely notice shall constitute acceptance of the Products by
Distributor.
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<PAGE> 6
l. Any lot of Products delivered to Distributor by
Manufacturer which does not conform to the Specification and is rejected by
Distributor pursuant to this Section 4 will be promptly replaced by
Manufacturer. If replacement is not feasible, any sums actually paid therefor
will be promptly refunded by Manufacturer. The remedy of replacement or refund
is available only if such non-conformance was not caused by Distributor's
misuse, unauthorized modifications, neglect, improper testing or improper
storage, including without limitation storage at inappropriate temperatures,
transportation, use beyond any dating provided, accident, fire or other hazard.
In no event shall Manufacturer be responsible for any loss or damage after
delivery of Products in good order and condition to Distributor, unless such
loss or damage arises as a result of failure of such Products to conform to the
Specification. Distributor shall bear all expense and costs incurred in
connection with Products rejected or returned by customers of Distributor.
Manufacturer's liability to Distributor for Products returned pursuant to this
Section 4 shall be limited to replacement or refund as specified herein.
5. Duties and Covenants of Distributor.
a. Distributor shall use its best efforts to promote,
market and sell the Products in the Territory and to develop the sales
potential for the Products throughout the Territory. Distributor shall conduct
its business in an efficient, professional and responsible manner so as to
enhance and support the reputation and goodwill of the Products in the
Territory.
b. Distributor shall maintain a Product inventory, sales
force and warehouse facilities in the Territory reasonably sufficient to
perform all of its duties hereunder.
c. Distributor shall produce the sales, marketing,
promotional and other informational material regarding the Products for use in
the Territory in reasonable quantity at its own expense. All material and
literature regarding the Products shall be approved by Manufacturer prior to
its printing, which approval shall not be unreasonably withheld. Within thirty
(30) days after the Effective Date, Manufacturer shall deliver to Distributor
all existing sales, marketing and promotional material relating to the Products
in its possession.
d. Distributor shall maintain a competent and aggressive
force of trained professional sales persons. Distributor shall train its
contractors, affiliates and employees before allowing such personnel to engage
in actual sales activities. The parties also agree that Distributor's trained
personnel may conduct training of other Distributor personnel.
e. Distributor shall be responsible for the credit of
its own dealers, customers and agents.
f. Distributor shall not change any Product in any
manner, except with the prior written consent of Manufacturer. Upon the
termination or expiration of this Agreement, Distributor shall immediately
cease the use of any of Manufacturer's trademarks, tradenames, service marks,
or brand names incorporated into the Private Label, except as provided in
Section 9 hereof.
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<PAGE> 7
g. Distributor shall comply in all material respects
with all applicable laws, regulations or orders of any and all governmental
authorities within the Territory, including those applicable to any
export/import and sales activities with respect to the Product. Distributor
shall not promote Products for any uses which are not approved pursuant to the
regulatory approvals applicable to the country of sale. Distributor agrees
that it will not directly or indirectly do any act or thing which will
constitute a violation by Distributor or Manufacturer of any applicable laws or
regulations.
h. Distributor shall promptly advise Manufacturer of any
changes or amendments to any applicable governmental rules or regulations or
the issue of any new rules or regulations of any area within the Territory of
which Distributor becomes aware and which would cause the Products and/or their
manufacture, packaging or labeling not to meet applicable requirements or which
require adjustment to the Products and/or their manufacture, packaging or
labeling.
i. Distributor shall promptly investigate, respond to
and send copies of all correspondence involving any and all complaints
concerning the Products from dealers, agents, sales representatives, customers,
end-users, or patients within the Territory. Manufacturer shall provide such
assistance in the evaluation of complaints received by Distributor as may be
reasonably requested by Distributor. Distributor shall notify Manufacturer
within 25 calendar days of all complaints which are found by Distributor to be
MDR reportable, except in the case of events that require immediate remedial
action to prevent an unreasonably risk of substantial harm to the public health
or other types of events as may be designated by FDA, in which case Distributor
shall notify Manufacturer within 48 hours.
j. Distributor shall promptly respond to and follow up
on any and all inquiries and orders concerning the Products from customers or
potential customers within the Territory. In the event Distributor fails to
promptly or effectively respond to any such inquiries or orders, Manufacturer
shall have the right, to the extent Manufacturer deems advisable in order to
protect the goodwill and/or reputation of the Products or Manufacturer, to deal
directly with such customers or potential customers.
k. Distributor shall notify Manufacturer promptly after
Distributor becomes aware of any of the following: alleged infringement by
Manufacturer of the trademark, tradename, service mark, brand name, patent,
trade secrets or any other intellectual property rights of any third parties;
alleged infringement of Manufacturer's logo, trademark, tradename, service
mark, brand name, patent, trade secrets or any other intellectual property
rights of Manufacturer; any liability claims regarding the Products; any
customer complaints concerning, or adverse patient reactions to, any of the
Products; and any other matters that have had or may reasonably be expected to
have an adverse effect on the sale of the Products in the Territory.
Distributor shall forward to Manufacturer copies of all marketing information
acquired on any products in competition with any of the Products.
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<PAGE> 8
l. Distributor shall furnish all reasonable assistance
as may be required, at Manufacturer's request and expense, to enable
Manufacturer to defend against any claims of third parties that may be
threatened or filed against Manufacturer or its affiliates relating to the sale
or use of any of the Products in the Territory, or that Manufacturer or its
affiliates may assert against third parties relating to the sale or use of any
of the Products in the Territory.
m. Distributor shall maintain, for period of not less
than five (5) years after the date of sale, or for such longer period as
required by applicable law, such records as are necessary to permit each
Product sold by Distributor to be traced by lot number and customer account.
n. Distributor shall assist Manufacturer, at
Manufacturer's request, in recall of any of the Products sold pursuant to this
Agreement. Manufacturer shall bear all costs of shipping the recalled Products
and any replacement or repaired Products resulting from such recall.
o. Distributor shall be responsible for obtaining all
necessary regulatory approvals, clearances, permits, licenses or other
government authorizations in order to legally distribute Products in countries
outside of the United States. Manufacturer agrees to cooperate with
Distributor and to provide all necessary information (subject to
confidentiality restrictions contained herein) necessary to obtain such
regulatory approvals, clearances, permits, licenses or other government
authorizations. Manufacturer agrees to provide to Distributor information on
existing regulatory approvals, clearances, permits, licenses or other
government authorizations of the Products with respect to countries outside of
the United States.
6. Duties and Covenants of Manufacturer
a. Manufacturer shall ensure that all Products are
traceable by lot or batch and that the Products are manufactured, packaged,
labeled and sold to Distributor in accordance with all applicable laws, rules
and regulations, including without limitation all applicable laws, rules and
regulations (and instructions) of the FDA and all state equivalents thereof,
(and ISO and CE mark standards) as required.
b. Manufacturer shall comply in all material respects
with all laws, regulations or orders of any and all governmental authorities
within the United States and shall use best efforts to comply in all material
respects with all laws, regulations or orders of any governmental authorities
outside the United States as to which Distributor has provided notice.
Manufacturer agrees that it will not directly or indirectly do any act or thing
which will constitute a violation by Distributor or Manufacturer of any
applicable laws or regulations.
c. Manufacturer shall notify Distributor promptly after
Manufacturer becomes aware of any matters that have had or may reasonably be
expected to have an adverse effect on the sale of the Products in the
Territory.
d. Manufacturer shall hold Distributor harmless for any
violation of state or federal law in regard to maintaining Manufacturer's
operations in full compliance with state and federal regulations.
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<PAGE> 9
e. Manufacturer shall be responsible for obtaining all
FDA regulatory clearances and/or approvals for Products in the United States.
Manufacturer shall also use reasonable efforts to obtain and maintain ISO
certification and CE mark approval for sale of Products in certain European
countries.
f. Notwithstanding the representation set forth in
Section 8c hereof, it is acknowledged that Manufacturer has entered into
distribution agreements with distributors in the countries listed on Schedule
III, which agreements purport to grant the distributors in such countries the
exclusive rights to distribute, among other things, the Products for
oral/maxillofacial bone grafting applications. Manufacturer agrees to use
reasonable efforts as quickly as reasonably practicable to secure amendments to
such agreements which would delete the exclusivity of such distributors' rights
in such countries as soon as practicable following the date of this Agreement
(other than with respect to the rights of Tokuyama Soda in Japan). In
addition, consistent with the provisions of Section 1 hereof, Manufacturer
agrees to substitute under such agreements and to supply only materials other
than the Products to such distributors as quickly as practicable and in any
event within 180 days following the Effective Date. Manufacturer also agrees
to promptly notify each distributor who has rights in the countries listed on
Schedule III of the existence of this Agreement and notify such distributors
that their rights are not exclusive within the oral/maxillofacial market.
g. Manufacturer agrees that if it should develop a new
bone augmentation product with applications in the oral/maxillofacial bone
grafting market, it shall present such product on a confidential basis to
Distributor who shall have the right to enter into a Distribution or similar
agreement which will grant to Distributor the exclusive rights to distribute
such new product for oral/maxillofacial bone grafting applications on terms
mutually acceptable to the parties. If Distributor declines to enter into such
agreement, then for a period of six months following termination of discussions
regarding the terms of such agreement, Manufacturer shall be entitled to enter
into an agreement with a third party, granting the rights set forth in the
preceding sentence, on terms no more favorable than those rejected by
Distributor.
7. Product Warranty - Limitations of Liability. For the period
commencing with the date of shipment of the Product and continuing until the
earlier of (i) the expiration date of the Product, if any, as shown on the
Product package or (ii) 36 months following the date of shipment, Manufacturer
warrants that the Products shall be free from defects in material and
workmanship.
THE FOREGOING WARRANTY IS IN LIEU OF AND EXCLUDES ALL OTHER
WARRANTIES, WHETHER EXPRESSED OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY
WARRANTIES OF MERCHANTABILITY OR FITNESS-FOR-USE, AND OF ANY OTHER OBLIGATION
ON THE PART OF MANUFACTURER.
Manufacturer's sole obligation under this warranty shall be to
repair or replace any Product in breach of warranty and pay transportation
expenses for such replacement at no charge to Distributor. Distributor shall
bear all risk of loss or damage to returned goods while in transit. In the
event no breach of warranty is discovered by Manufacturer upon receipt of any
returned
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<PAGE> 10
Product, the Product will be returned to Distributor at Distributor's expense
and Distributor will reimburse Manufacturer for the transportation charges paid
by Manufacturer because of Distributor's initial return of the Product to
Manufacturer.
THE SOLE AND EXCLUSIVE REMEDIES AVAILABLE FROM MANUFACTURER
FOR BREACH OF ANY AND ALL WARRANTIES, IN CONTRACT, TORT OR OTHERWISE, WHETHER
TO DISTRIBUTOR OR THIRD-PARTIES SHALL BE LIMITED TO THE REMEDY PROVIDED ABOVE.
IN NO EVENT SHALL MANUFACTURER'S LIABILITY INCLUDE ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES, EVEN IF MANUFACTURER SHALL HAVE KNOWLEDGE OF THE
POSSIBILITY OF SUCH POTENTIAL LOSS OR DAMAGE.
8. Representations. Each party to this Agreement represents to
the other as follows:
a. It is a corporation in good standing under the laws
of its jurisdiction of incorporation, with all necessary corporate power and
authority to execute, deliver and perform this Agreement.
b. Execution, delivery and performance of this Agreement
have been approved by all necessary corporate action.
c. Except as disclosed in Section 6f as it relates to
Manufacturer, it is not a party to any written or oral agreement,
understanding, arrangement or contract that conflicts with its obligations
hereunder.
9. Term and Termination.
a. This Agreement shall commence on the Effective Date
and continue, unless earlier terminated pursuant to the terms hereof, for an
initial term of four (4) years. The term of this Agreement shall thereafter be
automatically renewed for a second term of two (2) years and thereafter for a
third and successive term of one (1) year each, provided that neither party
shall have given the other party at least 90 day prior written notice of its
election to not renew the term of this Agreement.
b. Either party may give the other party written notice
of termination of this Agreement if such other party is in material breach of
any of its obligations under this Agreement. The termination shall become
effective ninety (90) days from the date such notice is given unless, within
such 90-day-period, such breach and any intervening breaches have been cured to
the reasonable satisfaction of the non-breaching party.
c. Notwithstanding the foregoing, either party may
immediately cancel any order and may immediately terminate this Agreement, in
whole or in part, (i) upon the filing of any petition in bankruptcy against the
other party which is not cured or dismissed within sixty (60) days thereafter,
(ii) if the other party is ordered or adjudged bankrupt, becomes insolvent or
goes into liquidation, or generally fails to pay debts as they become due,
(iii) upon appointment of a
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<PAGE> 11
receiver or custodian of all or a part of the other party's assets by any
judicial or governmental procedure, (iv) upon admission of the other party to
the benefit of any procedure for the settlement of its debts, or (v) upon
seizure of all or a substantial part of the other party's assets by any
judicial or governmental procedure.
d. Upon any termination of this Agreement: (i)
Distributor shall forthwith discontinue selling the Product and making
representations regarding its status as a distributor for Manufacturer, and
from taking any other action or doing any other thing relating it to
Manufacturer or the Product, and shall return all information and materials in
its possession described in Section 5c hereof and (ii) all amounts owed from
Distributor to Manufacturer shall become immediately due and payable; provided,
however, that Distributor shall be entitled to continue to market and sell the
Products in Distributor's inventory until such time as it has sold all Products
which Distributor held in inventory prior to the termination hereof, provided
further that such marketing and sales shall be made pursuant to the terms
hereof.
e. Except as otherwise provided for herein, termination
of this Agreement shall not release either party hereto from any liability
which at the time of termination has already accrued to the other party hereto
or which after termination may accrue in respect of any act or omission prior
to termination of from any obligation which is expressly stated herein to
survive termination.
10. Indemnification.
a. Distributor (including any individual affiliates of
Distributor, jointly and separately) will indemnify, defend and hold harmless
Manufacturer, Manufacturer s officers, directors, employees and agents from
and against any and all losses, liabilities, damages and expenses, including,
but not limited to, court costs and actual attorneys fees (collectively,
"Losses") suffered or incurred by them as a result of (i) the breach of any of
Distributor s duties or covenants under this Agreement; (ii) any warranty made
or implied by Distributor, its employees or its agent to the extent that it
exceeds or differs from the provisions of this Agreement; and (iii) the breach
of any of the representations and warranties of Distributor set forth in this
Agreement. The foregoing indemnity shall not require payment as a condition
deprecedent to recovery and shall survive termination of this Agreement.
b. Manufacturer (including any individual affiliates of
Manufacturer, jointly and separately) will indemnify, defend and hold harmless
Distributor, Distributor s officers, directors, employees and agents from and
against any and all losses, liabilities, damages and expenses, including, but
not limited to, court costs and actual attorneys fees (collectively "Losses")
suffered or incurred by them as a result of (i) the breach of any of the
Manufacturer s duties or covenants under this Agreement, (ii) the breach of
any of the representations and warranties of Manufacturer set forth in this
Agreement, excluding that covered by the breach of Product Warranty set forth
in Section 7 hereof, (iii) any claims of (actual or alleged) infringement of
patent, trademark, trade secret or other intellectual property rights of any
third party in connection with the manufacture, sale, distribution or use of
the Products. The foregoing indemnity shall not require payment as a condition
precedent to recovery and shall survive
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<PAGE> 12
termination of this Agreement, and (iv) any claims brought by Tokuyama Soda or
any person claiming through Tokuyama Soda, with respect to distribution of
Products outside of Japan.
11. Insurance
a. Without in any way limiting Manufacturer's or
Distributor's respective liability pursuant to the indemnity requirements of
Section 9 of this Agreement, Manufacturer and Distributor shall each purchase
and maintain, during the term of this Agreement, Product Liability Insurance as
follows:
(i) Limits of liability of not less than
$1,000,000 per claim or occurrence, and $ 5,000,000 each annual aggregate.
(ii) Such insurance shall include the requirement
that the insurer provide the other party with 30 days written notice prior to
the effective date of any cancellation or material change in the insurance.
(iii) Such insurance shall name the other party and
its agents and employees as additional insureds and shall provide that said
insurance is primary coverage with respect to all insureds.
(iv) In the event such insurance is on a "Claims
Made" basis, Manufacturer and Distributor, as the case may be, shall purchase
and maintain an extension of coverage or "tail" for a period of 4 years
following the termination of this Agreement.
b. The parties shall notify each other of any claim that
is made which appears to be covered by such insurance as soon as practical, but
in no event later than 15 days after either party becomes aware of such claim.
12. Proprietary Rights, Confidentiality, License.
a. Distributor acknowledges that Manufacturer is the
owner of all patents, patent applications, trade secrets and intellectual
property rights relating to the Products and all the trademarks (except the
Private Label, excluding the incorporation of any of Manufacturer's trademarks
or trade names into the Private Label) used in the promotion and sale of the
Products, and that Distributor has no rights or interest in or to such patents,
patent applications, trade secrets, intellectual property rights, trademarks
and tradenames. Distributor shall never contest the exclusive right of
Manufacturer to such patents, patent applications, trade secrets, intellectual
property rights, trademarks and tradenames. Distributor shall have no further
rights or interest in such trademarks and tradenames. All Products sold to
Distributor under this Agreement shall be marketed or resold only in the
original packages and shall not be repackaged, relabeled or otherwise marked.
b. The parties acknowledge that any and all trade
secrets, ideas, information, research, methods, improvements, patents,
copyrighted material and all other confidential information, and the good will
associated with them, owned or developed by one party (the "disclosing party")
and directly or indirectly revealed to the other party (the "receiving party")
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<PAGE> 13
are, and shall remain, the sole and exclusive property of the disclosing party.
All such information and knowledge about the disclosing party, its products,
services, standards, specifications, procedures and techniques, which are not
in the public domain or generally known in the industry, and such information
and material as the disclosing party may designate in writing as confidential,
shall be deemed confidential for purposes of this Agreement. The receiving
party agrees to keep all such information confidential and to use it only for
the purpose and in the manner authorized by the disclosing party. Each party
agrees that during and after the termination of this Agreement, neither the
receiving party nor any of its agents or employees shall copy or disclose to
any other person or entity, or use for any purpose other than as contemplated
by this Agreement, any proprietary or confidential information in contravention
of this Section. At the disclosing party's request, the receiving party shall
enforce any such agreement on the disclosing party's behalf.
c. Subject to the terms and conditions of this
Agreement, Manufacturer hereby grants to Distributor an exclusive world- wide
royalty-free license to use the marks "Interpore 200" and "IP200" (the
"Licensed Marks") in the marketing and sales of the Products pursuant to this
Agreement. This license does not include the right to Sublicense and is not
assignable without he prior written consent of Manufacturer.
d. Distributor agrees to use the Licensed Marks in a
commercially acceptable and reasonable manner and style to protect and enhance
the image and reputation of the Licensed Marks and Manufacturer, and to ensure
that no such use shall reflect adversely upon the goodwill, prestige or
reputation of the Licensed Marks or Manufacturer.
(1) The cost of all advertising for products which
contain the Licensed Marks and are distributed by Distributor shall be
borne by Distributor.
(2) In the event that Manufacturer shall object to
any label, packaging or advertising as violating the provisions of
this Section 12, Manufacturer shall notify Distributor in writing of
any objection and afford Distributor sixty (60) days to introduce new
labels, packaging, marketing or advertising.
(3) Distributor shall use appropriate trademark
notices on al the labels and advertising and all other written
embodiments of the Licensed Marks, including the federal trademark
notice "(R)" in the United States.
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<PAGE> 14
e. The parties acknowledge and agree that great value is
placed on the Licensed Marks and the goodwill associated therewith, that the
consuming public and the industry now associate the Licensed Marks with
products and services of consistently high quality, and that the terms and
conditions of this Agreement are necessary and reasonable to assure the
consuming public and the industry that all goods and services provided
hereunder are of the same consistently high quality as the goods and services
currently offered by Manufacturer under the Licensed Marks. Distributor shall
use the Licensed Marks only in connection with the Products. Upon
Manufacturer's reasonable request, Distributor shall furnish to Manufacturer,
at no expense to Manufacturer, one (1) sample of all items used in connection
with the Licensed Marks, including, but not limited to, a sample of each
product sold under the Licensed Marks as well as packaging, labels, stickers,
advertising, displays and promotional or marketing literature and materials.
Following its review of such items, Manufacturer agrees to return the same to
Distributor. Distributor shall use the Licensed Marks on and in connection
with the Products and the packaging, advertising and promotion thereof, in a
manner consistent with proper trademark usage.
f. Distributor shall not, during the term of this
Agreement or thereafter, contest the validity of Manufacturer's rights to the
Licensed Marks nor willingly become an adverse party to litigation in which
such rights are contested. Manufacturer shall not, during the term of this
Agreement, say, write, or do anything which would diminish the goodwill of (i)
Distributor, its officers or employees or (ii) Distributor's affiliates or
their officers or employees or (iii) the Licensed Marks. Distributor shall
not, during the term of this Agreement, say, write, or do anything that would
diminish the goodwill of (i) Manufacturer, its officers or employees, (ii)
Manufacturer's affiliates or their officers or employees, or (iii) the Licensed
Marks. Distributor agrees to promptly inform Manufacturer by written notice of
any suits or claims for infringement or similar actions alleged to have
occurred by reason of Distributor's use of the Licensed Marks, pursuant to this
Agreement. Distributor agrees that it will not settle or compromise any such
action or claim relating to the Licensed Marks or related matters without the
written consent of Manufacturer. Distributor shall promptly notify
Manufacturer of any uses of the Licensed Marks or related marks which may
constitute infringement or imitation by others of which Distributor has actual
knowledge.
13. Assignment. This Agreement may not be assigned or otherwise
transferred by either party, in whole or in part, by operation of law or
otherwise, without the prior written consent of the other party, which consent
shall not be unreasonably withheld and any such assignment or transfer without
such prior written consent shall be null and void and of no force or effect
whatsoever, provided, however, that either party may assign this Agreement
without the other party's consent in connection with the sale of substantially
all of the assets associated with such party's business.
14. Entire Agreement. This Agreement constitutes the complete,
final and exclusive statement of the terms of the understanding between the
parties concerning the purchase, sale and distribution of the Products. This
Agreement supersedes all prior agreements and understandings concerning its
subject matter and may not be amended without further written agreement of both
parties. If any provision of this Agreement should be found to be invalid or
unenforceable, all of
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<PAGE> 15
the other provisions shall nonetheless remain in full force and effect to the
maximum extent permitted by law.
15. Applicable Law. This Agreement shall be construed in
accordance with, and all disputes hereunder shall be governed by, the internal
laws of the State of California.
16. Attorneys' Fees. In any action or proceeding arising
hereunder, the prevailing party shall be entitled to cover its costs and
reasonable attorneys' fees, as determined by the court.
17. Limitation on Liability. IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER PARTY FOR ANY SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES
HEREUNDER.
18. Arbitration. All disputes arising in connection with this
Agreement shall be finally settled by final binding arbitration. The
arbitration shall be held in Orange County California, U.S.A., and conducted in
accordance with the Commercial Rules of the American Arbitration Association.
Judgment upon the award rendered may be entered in any court having
jurisdiction or application may be made to such court for a judicial acceptance
of the award and an order of enforcement. Each party shall bear its own
expenses of the arbitration, but the arbitrator's fees and costs shall be borne
equally between the parties participating in the arbitration. The member or
members of the panel or arbitrators shall, to the extent possible, each be
familiar with the industry to which this Agreement relates.
19. Notices. Any notice required or permitted hereunder shall be
given in writing by hand delivery, by carrier guarantying overnight delivery,
by prepaid certified mail, return receipt requested, or by facsimile or similar
electronic means, addressed to the parties at their respective addresses above
(or such other addresses as they may from time to time designate) and directed
to the attention of the president of the recipient. Notice by hand delivery
shall be effective upon receipt. Notice by carrier guarantying overnight
delivery shall be effective upon the day following delivery of the notice to
such carrier. Notice by mail shall be deemed received five (5) days after
mailing. Electronic notice shall be effective upon receipt of confirmation of
transmission.
20. Controlling Forms. It is understood that Manufacturer and
Distributor may use their standard purchase order and sales agreement forms
during the performance of this Agreement and that the Products may be ordered
by such order forms or by telephone or fax. All telephone orders must be
confirmed in writing as soon after the order is placed as practicable and any
such confirming order must plainly be marked with the word, "CONFIRMATION", on
its face. Any purchase order, sales agreement or other form used by the parties
hereto shall be used for convenience only and any terms or provisions which may
be contained therein which are in addition to or inconsistent with those
contained herein shall have and be of no force and effect.
21. Waiver. Any party's failure to insist, in one or more
instances, upon the performance of any term or terms of this Agreement shall
not be construed as a waiver or relinquishment of right to such performance or
the future performance of such term of terms, and the other party's obligation
with respect thereto shall continue in full force and effect.
15
<PAGE> 16
22. Force Majeure. The obligations of either party to perform
under this Agreement shall be excused if such failure to perform or any delay
is caused by acts of God or the public enemy, strikes, civil commotion, riots,
war, revolution, fire, explosion, flood, compliance with or other action taken
to carry out the intent or purpose of any law or regulation, or any other cause
reasonably beyond the control of the party obligated to perform. Upon the
occurrence of such an event, the duties and obligations of the parties shall be
suspended for the duration of the event preventing proper performance under
this Agreement, provided, however, that if such suspension shall continue in
excess of sixty (60) days, the parties shall meet and attempt to arrive at a
mutually acceptable compromise within the spirit and intent of this Agreement.
23. Rights Cumulative. Each and all of the respective rights and
remedies of the parties hereunder shall be considered to be cumulative with and
in addition to any other rights or remedies which such parties may have at law
or in equity in the event of the breach of any of the terms of this Agreement.
24. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed an original and, when executed
separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties have executed one and the same
instrument.
25. Amendments. Except for changes, modifications or additions to
the Schedules hereto, no change in, modification of or addition to the terms
and conditions contained in this Agreement shall be valid unless set forth in a
written document signed by both parties, which specifically states that it
constitutes an amendment to this Agreement.
26. Publicity. Neither party will originate any publicity, new
release, or other public announcement, written or oral, whether to the public
press, to holders of publicly owned stock, or otherwise, relating to this
Agreement, to any amendment thereto or to performance hereunder or the
existence of an arrangement between the parties without the prior written
approval of the other party. Such approval will not be unreasonably withheld.
//
//
//
//
//
16
<PAGE> 17
IN WITNESS WHEREOF, this Agreement has been executed by the
undersigned authorized representatives of the parties as of the Effective Date
stated above.
INTERPORE ORTHOPAEDICS, INC.
a Delaware Corporation
__________________________________
David C. Mercer
President & Chief Executive Officer
STERI-OSS INC.,
a Delaware corporation
__________________________________
Kenneth A. Darienzo
President
17
<PAGE> 18
Index to Schedules
Schedule I - Product and Price List
Schedule II - Specification
Schedule III - Countries with Existing Exclusive Distribution
Agreements
18
<PAGE> 19
SCHEDULE I
PRODUCT AND PRICE LIST
19
<PAGE> 20
SCHEDULE II
SPECIFICATION
20
<PAGE> 21
SCHEDULE III
COUNTRIES WITH EXISTING EXCLUSIVE DISTRIBUTION AGREEMENTS
21
<PAGE> 1
EXHIBIT 10.15
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement") is entered into as of this
18th day of April, 1997, by and between Interpore International, a California
corporation ("Licensor"), and Steri-Oss Inc., a Delaware corporation
("Licensee").
RECITALS
WHEREAS, Licensor is the owner of trademarks and trade dress for the
mark, symbol, design and name "Interpore" (the "Name") and has received a
Trademark from the United States Patent & Trademark Office with respect to the
Name (the "Trademark");
WHEREAS, Licensee and Interpore Dental, Inc., a wholly-owned
subsidiary of Licensor, have entered into that certain Asset Purchase Agreement
dated April 18, 1997 (the "Asset Purchase Agreement") (and certain ancillary
agreements, including a Distribution Agreement, dated April 18, 1997 (the
"Distribution Agreement")), pursuant to which Licensee has purchased the
Purchased Assets and assumed the Assumed Liabilities (as such terms are defined
in the Asset Purchase Agreement) of Interpore Dental, Inc.;
WHEREAS, Licensee desires to acquire a limited interest in the Name
and marks utilizing the Name, and Licensor desires to license the use of the
Name and marks utilizing the Name to Licensee, all on the terms and subject to
the restrictions and conditions set forth below;
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties agree as follows:
1. Non-exclusive License Grant. Subject to the terms and
conditions of this Agreement, Licensor hereby grants to Licensee a non-
exclusive (except as provided in Section 2(b)), world-wide, royalty-free
license to use the name "Interpore", for the purpose and subject to the
restrictions and conditions set forth in this Agreement, during the period set
forth in Section 9 hereof.
2. License Scope. The license is limited to the use of the Name
in conjunction with the operation of the Business and activities under the
Distribution Agreement (as defined in the Asset Purchase Agreement). The
License is further limited to the use of the Name in conjunction with the
additional terms and as part of the phrases set forth on Exhibit A hereto.
<PAGE> 2
a. The Name, when used in accordance with and subject to
the restrictions set forth in this Agreement, shall constitute the
"Licensed Mark." The license granted hereby is limited to the
Licensed Mark.
b. Licensee's rights under this license are exclusive
even as against Licensor as they relate to the use of the License
Mark, but shall not in any way restrict Licensor or any other licensee
of Licensor from any other use of the Name; provided, however, that
Licensor shall have six months to use the Licensed Mark as part of the
Charter of its subsidiary, Interpore Dental, Inc., a California
corporation, after which time such Charter shall be amended to delete
the Licensed Mark.
3. Sublicenses and Assignments. The license granted by this
Agreement shall not include the right to grant sublicenses. The license shall
be assignable only to Affiliates of Licensee in accordance with the provisions
of Section 14(l), and there shall be no more than one user of the Trademark at
any time under this License. Any attempted assignment of this license to other
than Affiliates of the Licensee, Section 14(l) shall be void and convey no
rights to the purported assignee. The term "Affiliate" shall mean a person
that, directly or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with, the person specified. When
used in the forgoing sentence, the term "control" shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, by contract or otherwise.
4. Licensed Use.
a. Licensee agrees to use the Licensed Mark in a
commercially acceptable and reasonable manner and style to protect and
enhance the image and reputation of the Licensed Mark and Licensor,
and to ensure that no such use shall reflect adversely upon the
goodwill, prestige or reputation of the Licensed Mark or Licensor.
b. The cost of all advertising for products which contain
the Licensed Mark and are distributed by Licensee shall be borne by
Licensee.
c. In the event that Licensor shall object to any label,
packaging or advertising as violating the provisions of this Section
4, Licensor shall notify Licensee in writing of any objection and
afford Licensee sixty (60) days to introduce new labels, packaging,
marketing or advertising.
d. Licensee shall use appropriate copyright and trademark
notices, which identify Licensor as the owner of such copyrights and
trademarks, on all the labels and advertising and all other written
embodiments of the Licensed Mark, including the federal trademark
notice "(R)" in the United States.
2
<PAGE> 3
5. Quality Control Standards.
a. The parties acknowledge and agree that great value is
placed on the Licensed Mark and the goodwill associated therewith, that
the consuming public and the industry now associate the Licensed Mark
with products and services of consistently high quality, and that the
terms and conditions of this Agreement are necessary and reasonable to
assure the consuming public and the industry that all goods and
services provided hereunder are of the same consistently high quality
as the goods and services currently offered by Licensor under the
Licensed Mark.
b. Licensee shall use the Licensed Mark only in
connection with goods or services of at least equivalent quality to the
goods or services currently offered by Licensor.
c. Upon Licensor's reasonable request, Licensee shall
furnish to Licensor, at no expense to Licensor, one (1) sample of all
items used in connection with the Licensed Mark, including, but not
limited to, a sample of each product sold under the Licensed Mark, as
well as packaging, labels, stickers, advertising, displays and
promotional or marketing literature and materials. Following its review
of such items, Licensor agrees to return the same to Licensee.
d. Licensee shall not cause or permit the use of the
Licensed Mark on any products or in any manner that does not meet the
standard of quality of those samples of items furnished to and approved
by Licensor pursuant to Section 5(c) hereof.
e. Licensee shall use the Licensed Mark on and in
connection with the goods and services comprising the Business, and the
packaging, advertising and promotion thereof, in a manner consistent
with proper trademark usage.
6. Protection of Licensed Mark.
a. Apart from actions for fraud, misrepresentation or
the like, Licensee shall not, during the term of this Agreement or
thereafter, contest the validity of Licensor's rights to the Licensed
Mark, nor willingly become an adverse party to litigation in which such
rights are contested.
b. Licensor shall not, during the term of this
Agreement, say, write, or do anything which would diminish the goodwill
of (i) Licensee, its officers or employees or (ii) Licensee's
Affiliates (as defined in Section 3 hereof) or their officers or
employees or (iii) the Licensed Mark. Licensee shall not, during the
term of this Agreement, say, write, or do anything that would diminish
the goodwill of (i) Licensor, its officers or employees, (ii)
Licensor's Affiliates or their officers or employees, or (iii) the
Licensed Mark, Name or Trademark.
3
<PAGE> 4
c. Licensee shall promptly notify Licensor of any uses
of the Names or related marks which may constitute infringement or
imitation by others of which Licensee has actual knowledge, and
Licensee shall promptly notify Licensor by written notice of any claim,
demand, or suit related to the Licensed Mark. Licensor may take
whatever action, if any Licensor deems appropriate to protect
Licensor's rights, and Licensee shall fully cooperate with Licensor in
such action.
d. In the event that any person or entity infringes upon
any rights granted to Licensee by Licensor pursuant to this Agreement,
Licensor shall have the right, at its own expense, to undertake and
prosecute appropriate action necessary to protect the rights of the
parties to this Agreement and to protect Licensor's right to the
Licensed Mark.
e. Licensor, at its sole discretion, may prosecute any
such passing off, infringement, imitation, or similar action in its own
name, provided that, upon the request of Licensor and at Licensor's
expense, Licensee shall assist Licensor to the extent reasonably
necessary in the procurement of any protection, including but not
limited to being joined as a necessary or desirable party to such
action or proceedings, in which event the representation of Licensee by
counsel shall be the sole responsibility and at the expense of
Licensor.
f. Failure by Licensor to prosecute such infringement,
imitation or similar action shall not constitute a breach of this
Agreement. Should Licensor fail to do so, Licensor hereby grants the
power and right to Licensee to undertake such action or prosecute such
infringement, imitation, or similar action, subject to Licensor's
reasonable approval. Licensee shall not, however, initiate any such
action or prosecution without the prior written consent of Licensor.
g. Licensee shall have no claim against Licensor for
damages or otherwise, by reason of any determination by Licensor not to
take action or arising out of any settlement or resolution of such
action, nor shall any such action, settlement, or resolution affect the
validity or enforceability of this Agreement.
7. Ownership of Mark. Licensee agrees that ownership of the Name
and Trademark and the goodwill relating and appurtenant thereto, and the
trademark registrations in the United States and elsewhere therefor, shall
always remain vested in Licensor, both during the period of this Agreement and
thereafter. Licensee acknowledges and agrees that Licensor shall own all trade
names, trademarks, service marks or similar marks utilizing the Name that are
developed, created, invented or otherwise originated by Licensee during the
period in which Licensee conducts the Business. Licensee shall have the right
to apply for valid registrations in the name of Licensor of such developed
trade names, trademarks, service marks or similar marks. All use of the
Licensed Mark shall inure to the benefit of Licensor.
4
<PAGE> 5
8. Representations and Warranties.
a. Licensor warrants that Licensor is not aware of any
registrations or applications for registration for trademarks, trade
names, service marks, logos or designs related to or similar to the
Licensed Mark, other than applications or registrations initiated or
approved by Licensor.
b. Licensee warrants that heretofore Licensee has not
developed or attempted to develop rights in the Licensed Mark.
c. Licensee warrants and agrees that it will not
undertake or seek to obtain any registrations of trademark or other
intellectual property rights pertaining to the Names, the Trademarks,
or the Licensed Mark.
d. Licensor warrants that it is the sole owner of the
Licensed Mark.
e. Licensor warrants that it has the right, power and
authority to enter into this Agreement with Licensee.
f. Licensee warrants that it has the right, power and
authority to enter into this Agreement with Licensor.
9. Term. This Agreement shall continue in effect for 2 years
from the date first written above; provided, however, that Licensee shall
continue to have the right to use the Licensed Marks in connection with the
sales of products under the Distribution Agreement of even date herewith
between Licensee and Interpore Orthopaedics, Inc. for the term of such
Distribution Agreement and any extension thereof.
10. Termination. This Agreement may be terminated by Licensor for
cause immediately upon the occurrence of any of the following events:
a. If Licensee breaches any of its material obligations
under this Agreement, including a breach of the provisions of Sections
4 or 5 hereof, and fails to cure such breach within 60 days of receipt
of written notice describing the breach (or such other time period as
set forth in Sections 4 or 5 hereof);
b. If Licensee seeks protection under any bankruptcy,
receivership, trust deed, creditors arrangement or other comparable
proceeding, or if any such proceeding is instituted against the other
party (and not dismissed within 60 days).
c. If Licensee or any Affiliate of Licensee grants or
purports to grant any sublicense;
5
<PAGE> 6
d. If Licensee or any Affiliate of Licensee offers for
sale products containing the Licensed Mark which fail to meet the
standard of quality required by Licensor, except when such failure is
inadvertent and adequate steps are promptly taken to correct the
operations which led to such failure;
e. If, except as otherwise provided in this Agreement,
Licensee or any Affiliate of Licensee assigns or purports to assign
any of its rights of; or
f. If Licensee or any Affiliate of Licensee takes or
permits any action which has a material adverse effect on the
business, reputation or goodwill of Licensor.
11. Obligations of Licensee Upon Termination or Expiration.
Upon the expiration or earlier termination of this Agreement,
all rights of Licensee hereunder shall terminate, and Licensee agrees that:
a. Licensee shall amend its Certificate of Incorporation
or other charter document to change its name to a name which does not include
the Name or any word or words which may be confused with the Name, if prior to
the expiration of this Agreement any such charter documents were created or
amended to include the Name or any word or words which may be confused with the
Name;
b. Licensee shall thereafter cease and desist from
operating or otherwise representing itself, through marketing materials,
product labeling or otherwise, in any way including the Names or any word or
words which may be confused with the Names;
c. Licensee shall cease the manufacture of any products
containing the Licensed Mark;
d. Licensee shall delete any reference to the Licensed
Mark in any advertising or promotional material, including any reference to
having previously been a licensee of the Licensed Mark; and
e. Licensee shall deliver to Licensor all packaging and
other materials (other than actual product bearing the Licensed Mark) bearing
the Licensed Mark, for destruction or disposal as Licensor shall elect.
12. Purchase of Materials. Licensee may desire to
purchase, from time-to-time, materials and/or furnished products from Licensor
under a separate supply agreement for such materials and products. To the
extent that such purchases are made, Licensee's failure to make payments in
accordance with the terms of purchase set forth therein shall further entitle
Licensor to terminate this Agreement and the license hereunder. Such
termination shall take effect automatically upon sixty (60) days written notice
if Licensee does not correct such failure to make payments within said sixty
(60) day period.
6
<PAGE> 7
13. Products Liability.
a. Compliance with Laws. Licensee agrees that it will
comply with and abide by all applicable country, state and local laws,
ordinances, and regulations and all requirements of applicable
government agencies in conducting its business and in distributing and
selling the products bearing or marketed using the Licensed Mark.
b. Insurance. Licensee shall provide products liability
insurance insuring against claims for personal injury resulting from
products bearing or marketed using the Licensed Mark with a limit per
occurrence for personal injury and/or property damage of $1,000,000
and an aggregate limit of $3,000,000, with Licensor being shown as an
Additional Named Insured on said policy. Licensee shall provide
Licensor with a certificate evidencing such insurance.
c. Indemnity.
(i) Licensee. Licensee shall indemnify and hold
Licensor, its Affiliates, principals, officers, shareholders, trustees,
directors, employees and agents, harmless from any and all losses, liabilities,
expenses (including reasonable attorneys' fees), costs, penalties, obligations,
claims, damages or judgments arising out of, in any way connected with, or
resulting from the promotion, marketing, use, manufacture, design,
distribution, sale or provision of goods or services by or on behalf of
Licensee, or its Affiliates, employees, officers, shareholders or agents,
bearing the Licensed Mark. This indemnity shall apply similarly to claims made
by third-parties. Notwithstanding the foregoing, Licensee's indemnification of
Licensor shall not extend to claims arising exclusively from Licensee's use of
the Licensed Mark in a manner permitted by the provisions of this Agreement.
(ii) Licensor. Licensor shall indemnify and hold
Licensee, its Affiliates, principals, officers, shareholders, trustees,
directors, employees and agents, harmless from any and all losses, liabilities,
expenses (including reasonable attorneys' fees), costs, penalties, obligations,
claims, damages or judgments arising out of Licensee's use of the Licensed Mark
in a manner permitted by the provisions of this Agreement.
14. Miscellaneous.
a. Indemnification. In addition to the provisions set
forth in Section 13(c) hereof, each party agrees to indemnify, defend
and hold harmless the other party, its Affiliates, principals,
trustees, officers, shareholders, directors, employees and agents from
any and all losses, liabilities, expenses (including reasonable
attorneys' fees), costs, penalties, obligations, claims, damages or
judgments arising from the other party's failure to observe or perform
any of its obligations set forth herein or relating hereto, including
the acts and omissions of the
7
<PAGE> 8
other party's Affiliates, principals, officers, shareholders, trustees,
directors and employees.
b. Independence of Parties. The status of the parties
under this Agreement shall be that of independent contractors and
neither party shall be deemed or construed to be an employee, agent,
partner or legal representative of the other party for any purpose
whatsoever. Neither party shall have the right or authority to assume
or otherwise create any obligation or responsibility, express or
implied, on behalf of or in the name of the other party or to bind the
other party in any manner or thing whatsoever.
c. Further Assurances. Each party shall execute and
deliver such further certificates, agreements and other documents and
take such other actions as may be necessary or appropriate to
consummate or implement the transactions contemplated hereby or to
evidence such events or matters.
d. Notices. Any notice required by this Agreement shall
be in writing and sent via guaranteed overnight carrier, courier
delivery or certified mail, return receipt requested, and addressed as
shown below. Any such notice will be effective on the date delivered.
Licensor:
Interpore International
181 Technology Drive
Irvine, California 92618
Attention: President
Fax:(714) 453-1884
with copies to:
Latham & Watkins
650 Town Center Drive
Costa Mesa, CA 92626
Attn: Charles Ruck, Esq.
Fax:(714) 755-8290
Licensee:
Steri-Oss Inc.
22895 East Park Drive
Yorba Linda, CA 92887
Attn: President
Fax:(714) 282-4835
8
<PAGE> 9
with copies to:
Phillips & Haddan LLP
4695 MacArthur Court, Suite 840
Newport Beach, CA 92660
Attn: Robert J. Zepfel, Esq.
Fax:(714) 752-6161
e. Severability. Should any part or provision of this
Agreement be held unenforceable or in conflict with the law of any
jurisdiction, the validity of the remaining parts or provisions shall
not be affected by such holding, unless such unenforceability
substantially impairs the benefit of the remaining portion of this
Agreement. In addition, the parties agree to negotiate in good faith
substitute enforceable provisions which most clearly affect the
parties' intent in entering into this Agreement.
f. Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same instrument.
g. Governing Law. This Agreement shall be governed and
construed in accordance with the internal laws of the State of
California applicable to contracts made and performed in California
(without regard to its principles of conflicts of laws).
h. Integration. This Agreement (together with the
Distribution and License Agreement), embodies the entire understanding
of the parties as it relates to the subject matter contained herein
and as such, supersedes any prior agreement or understandings between
the parties relating thereto. No amendment or modification of this
Agreement shall be valid or binding upon the parties unless signed by
their respective, duly authorized officers.
i. Arbitration; Attorney's Fees. Any controversy or
claim arising out of this Agreement or a breach thereof shall be
settled by mandatory, final and binding arbitration in the County of
Orange, State of California, and in accordance with the rules of the
American Arbitration Association, and judgment rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The
prevailing party shall be entitled to receive from the other party, in
addition to any other relief that may be granted, reasonable
attorneys' fees, costs and expenses incurred in the arbitration or
action.
j. Remedies; Waiver. To the extent permitted by law,
all rights and remedies existing under this Agreement and any related
agreements or documents are cumulative to, and not exclusive of, any
rights or remedies otherwise available under applicable law. No
failure or delay on the part of either party in the exercise
9
<PAGE> 10
of any right or privilege hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such right or
privilege preclude other or further exercise thereof or of any other
right or privilege. No waiver shall be binding unless executed, in
writing, by the party making the waiver.
k. Headings. The headings used in this Agreement are
for convenience only and are not to be used in interpreting the
obligations of the parties under this Agreement.
l. Assignment. Except for assignment by Licensor to an
entity that acquires all or substantially all of the assets (including
the Trademark) or stock of Licensor, or by Licensee to an Affiliate
upon the prior written consent of Licensor which shall not be
unreasonably withheld, neither party may assign any interest or
obligation under this Agreement without the other party's prior
written consent. Subject to the foregoing, this Agreement shall be
binding on and shall inure to the benefit of the parties and their
respective successors and assigns.
m. Remedies. The parties hereto agree that monetary
damages would be an inadequate remedy for any breach or threatened
breach of any term or provision of this Agreement relating to the use
or mis-use of the Names or related marks. Accordingly, those terms or
provisions, whether or not this Agreement has expired or has been
previously terminated, may be enforced by the preliminary or
permanent, mandatory or prohibitory injunction or other order or
decree of a court of competent jurisdiction. This Section shall not
be construed to limit or derogate from any equitable or legal remedy
authorized by any applicable law.
IN WITNESS WHEREOF, the parties hereto attest that they have been duly
authorized to execute this Agreement and have so executed this Agreement made
effective as of the date first above written.
INTERPORE INTERNATIONAL, a California
corporation
By:____________________________________
David C. Mercer
President
STERI-OSS INC., a Delaware corporation
By:____________________________________
Kenneth A. Darienzo
President
10
<PAGE> 11
EXHIBIT A
Additional Terms Phrases
Dental Interpore Dental
Dental, Inc. Interpore Dental, Inc.
Hex Interpore Hex
Threaded Interpore Threaded
11
<PAGE> 1
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF
PRO FORMA NET LOSS PER SHARE
Weighted average common shares outstanding
<TABLE>
<S> <C> <C> <C>
Common shares issued................................ 50,000
Warrants issued within one year of filing(1)........ 4,750,000
Options issued within one year of filing............ [a] 733,350
Weighted average exercise price per share......... $ 0.58
--------
Proceeds.......................................... 425,343
Mid range of estimated Offering price per share... $ 15.00
--------
Common shares repurchased......................... [b] 28,356
--------
Common equivalent shares.......................... [a-b] 704,994 704,994
--------
Conversion of Class A and Class C Preferred Stock to
common shares(2).................................. 1,433,547
-----------
Total common and common equivalent shares........... 6,938,541
===========
</TABLE>
For the period November 16, 1996 through December 31, 1996 (in thousands,
except per share data)
<TABLE>
<S> <C>
Net loss as reported....................................................... $ (613)
Add - interest on converted preferred stock................................ 268
-------
Pro forma net loss......................................................... (345)
=======
Pro forma net loss per share............................................... $ (0.05)
=======
</TABLE>
For the six months ended June 30, 1997 (unaudited, in thousands, except per
share data)
<TABLE>
<S> <C>
Net loss as reported....................................................... $(2,442)
Add - interest on converted preferred stock................................ 1,067
-------
Pro forma net loss......................................................... (1,375)
=======
Pro forma net loss per share............................................... $ (0.20)
=======
</TABLE>
- ---------------
(1) Warrants were issued with exercise prices of $0.0002; all deemed outstanding
during periods presented.
(2) Assumed outstanding at the beginning of respective periods.
<PAGE> 1
EXHIBIT 11.2
STATEMENT REGARDING COMPUTATION OF
SUPPLEMENTAL NET INCOME PER SHARE
Weighted average common shares outstanding
<TABLE>
<S> <C> <C> <C>
Common shares issued............................... 50,000
Warrants issued within one year of filing(1)....... 4,750,000
Options issued within one year of filing........... [a] 733,350
Weighted average exercise price per share........ $ 0.58
--------
Proceeds......................................... 425,343
Mid range of estimated Offering price per
share......................................... $ 15.00
--------
Common shares repurchased........................ [b] 28,356
--------
Common equivalent shares......................... [a-b] 704,994 704,994
--------
Conversion of Class A and Class C Preferred Stock
to common shares(2).............................. 1,433,547
Shares issued in conjunction with Offering......... 4,700,000
----------
Total common and common equivalent shares.......... 11,638,541
----------
</TABLE>
For the period November 16 through December 31, 1996 (in thousands, except
per share data)
<TABLE>
<S> <C>
Net loss as reported....................................................... $ (613)
Add - interest on redeemed and converted preferred stock and long-term
debt..................................................................... 1,065
-------
452
Less - tax effect at 40%................................................... 181
-------
Supplemental net income.................................................... $ 271
=======
Supplemental net income per share.......................................... $ 0.02
=======
</TABLE>
For the six months ended June 30, 1997 (unaudited, in thousands, except per
share data)
<TABLE>
<S> <C>
Net loss as reported....................................................... $(2,442)
Interest on redeemed and converted preferred stock and long-term debt...... 4,332
-------
Less - tax effect at 40%................................................... 756
-------
Supplemental net income.................................................... $ 1,134
=======
Supplemental net income per share.......................................... $ 0.10
=======
</TABLE>
- ---------------
(1) Warrants were issued with exercise prices of $0.0002; all deemed outstanding
during periods presented.
(2) Assumed outstanding at the beginning of respective periods.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 31, 1997, except as
to Notes 1, 9 and 14 which are as of August 26, 1997, relating to the
consolidated financial statements of Steri-Oss, Inc., which appear in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the period from November 16, 1996 through December 31,
1996 listed under Item 16(b) of this Registration Statement when such schedules
are read in conjunction with the consolidated financial statements referred to
in our report. The audit referred to in such report also included this schedule.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
August 26, 1997
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated July 31, 1997, except as
to Notes 1, 9 and 14 which are as of August 26, 1997, relating to the financial
statements of Steri-Oss, Inc., which appear in such Prospectus. We also consent
to the application of such report to the Financial Statement Schedule for the
years ended December 31, 1994 and 1995, and for the period from January 1, 1996
through November 15, 1996 listed under Item 16(b) of this Registration Statement
when such schedules are read in conjunction with the financial statements
referred to in our report. The audits referred to in such report also included
this schedule. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Costa Mesa, California
August 26, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> JUN-30-1997 DEC-31-1996
<CASH> 61 220
<SECURITIES> 0 0
<RECEIVABLES> 7,083 5,114
<ALLOWANCES> 237 0
<INVENTORY> 6,062 4,426
<CURRENT-ASSETS> 13,511 10,074
<PP&E> 5,128 4,674
<DEPRECIATION> (712) (132)
<TOTAL-ASSETS> 83,406 79,627
<CURRENT-LIABILITIES> 8,962 7,717
<BONDS> 39,776 36,396
35,814 34,226
0 0
<COMMON> 1,909 1,901
<OTHER-SE> (3,055) (613)
<TOTAL-LIABILITY-AND-EQUITY> 83,406 79,627
<SALES> 19,334 0
<TOTAL-REVENUES> 19,334 32,197
<CGS> 5,148 8,786
<TOTAL-COSTS> 5,148 8,786
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 4,332 2,468
<INCOME-PRETAX> (2,442) 3,158
<INCOME-TAX> 0 1,852
<INCOME-CONTINUING> (2,442) 1,306
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,442) 1,306
<EPS-PRIMARY> (0.20) 0
<EPS-DILUTED> 0 0
</TABLE>
