<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-KSB/A1
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period from ______________ to ____________________
Commission file number: 0-24092
Positron Corporation
(Name of small business issuer in its charter)
Texas 76-0083622
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
16350 Park Ten Place, Houston, Texas 77084
(address of principal executive offices)
Issuer's telephone number: (281) 492-7100
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Redeemable Warrants
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No _______
-------
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]
Issuer's revenues for fiscal year ended December 31, 1996: $3,575,000
----------
As of March 11, 1997, there were 4,562,259 shares of the Registrant's
Common Stock, $.01 par value outstanding. The aggregate market value of Common
Stock held by non-affiliates of the Registrant, as of March 11, 1997 was
approximately $4,707,212.
Documents incorporated by reference: Definitive Proxy material for the 1997
Annual Meeting of Shareholders - Part III, Items 9, 10, 11 and 12.
<PAGE>
PART I
THIS ANNUAL REPORT ON FORM 10-KSB CONTAINS, IN ADDITION TO HISTORICAL
INFORMATION, FORWARD LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE
NOT LIMITED TO, THOSE DISCUSSED IN "ITEM 1. DESCRIPTION OF BUSINESS - RISK
ASSOCIATED WITH BUSINESS ACTIVITIES" AND "ITEM 6. MANAGEMENT'S DISCUSSION
AND ANALYSIS OR PLAN OF OPERATION - LIQUIDITY AND CAPITAL RESOURCES".
Item 1. DESCRIPTION OF BUSINESS
GENERAL
Positron Corporation (the "Company") was incorporated in the State of Texas
on December 20, 1983, and commenced commercial operations in 1986. The Company
designs, manufactures, markets and services, advanced medical imaging devices
utilizing positron emission tomography ("PET") technology under the tradename
POSICAM(TM) systems. Unlike other currently available imaging technologies, PET
technology permits the measurement of the biological processes of organs and
tissues as well as producing anatomical and structural images. POSICAM(TM)
systems, which incorporate patented and proprietary technology, enable
physicians to diagnose and treat patients in the areas of cardiology, neurology
and oncology. The United States Food and Drug Administration approved the
initial POSICAM(TM) system for marketing in 1985, and as of December 31, 1996,
the Company has sold twenty (20) POSICAM(TM) systems, of which fifteen (15) are
in leading medical facilities in the United States, two (2) are installed in
international medical institutions and three (3) are no longer operational. The
Company presently markets its POSICAM(TM) systems at list prices ranging from
approximately $1.0 million to $1.8 million depending upon the configuration and
equipment options of the particular system.
The following table provides summary information regarding the Company's
installed base of POSICAM(TM) systems, which were operational as of December 31,
1996:
<TABLE>
<CAPTION> Date of
Site Location Clinical Application Installation
- ------------------------------- -------------------- --------------------------- -------------
<S> <C> <C> <C>
Prototype
- -------------------------------
U.T. Health Science Center Houston, TX Neurology/Cardiology 1985
POSICAM(TM) Systems
- -------------------------------
Saint Joseph's Hospital Atlanta, GA Cardiology 1988
Cleveland Clinic Foundation Cleveland, OH Neurology/Cardiology 1988
Memorial Hospital Jacksonville, FL Oncology/Cardiology 1988
Kennestone Hospital Marietta, GA Cardiology 1989
Medical City Dallas Dallas, TX Cardiology 1990
Yale/Veterans Adm. New Haven, CT Neurology/Oncology/Cardiology 1991
Beth Israel New York, NY Cardiology 1991
Our Lady of the Lake Baton Rouge, LA Cardiology 1992
Crawford Long Hospital Atlanta, GA Cardiology 1992
Hermann Hospital Houston, TX Neurology/Oncology/Cardiology 1993
Hadassah Medical
Organization Jerusalem, Israel Neurology/Oncology/Cardiology 1995
Bio-Metabolic, Inc. Detroit, MI Cardiology/Oncology 1995
Bergan Mercy Hospital Omaha, NE Cardiology/Oncology 1995
Buffalo Cardiology &
Pulmonary Associates Buffalo, NY Cardiology 1995
University of Madrid Madrid, Spain Cardiology/Oncology/Neurology 1995
Baptist Hospital Nashville, TN Cardiology/Oncology 1996
</TABLE>
PET technology is an advanced imaging technique which permits the
measurement of the biological processes of organs and tissues as well as
producing anatomical and structural images. Other advanced imaging techniques,
such
2
<PAGE>
as magnetic resonance imaging ("MRI") and computerized axial tomography
("CAT") scans, produce anatomical and structural images, but do not image or
measure biological processes. The ability to measure biological abnormalities
in tissues and organs allows physicians to detect disease at an early stage and
provides physicians with information, which would otherwise be unavailable, to
diagnose and manage the treatment of disease. The Company believes that PET
technology can lower the total cost of managing certain diseases by providing a
means for early diagnosis and reduction of expensive invasive or unnecessary
procedures, such as angiograms or biopsies which in addition to being costly
and painful, may not be necessary or appropriate.
Commercial utilization of PET technology commenced in the mid-1980s and the
Company is one of three commercial manufacturers of PET imaging systems in the
United States. Although the other two major manufacturers are substantially
larger, the Company believes that its POSICAM(TM) systems have proprietary
operational and performance characteristics which give it certain performance
advantages over other commercially available PET systems. Such performance
advantages include the POSICAM(TM) systems' high count-rate sensitivity which
results in faster imaging, an enhanced ability to use certain types of
radiopharmaceuticals which minimize patient exposure to radiation and its
ability to minimize false positive and false negative diagnoses of disease. The
industry in which the Company is engaged is, however, subject to rapid and
significant technological change. There can be no assurance that the
POSICAM(TM) systems can be upgraded to meet future innovations in the PET
industry or that new technologies will not emerge, or existing technologies will
not be improved, which would render the Company's products obsolete or non-
competitive. See "Item 1. Description of Business--Risks Associated with
Business Activities--Substantial Comptetition and Effects of Technological
Change." Based on industry information, the Company estimates that 67 PET
systems are currently commercially installed in the United States. Of the PET
systems currently operational in the United States, 15 systems were sold by the
Company. The Company believes that the other two major manufacturers of
commercial PET systems have together 37 currently operational PET systems.
The Company's primary focus to date has been on the clinical cardiology
market, where its POSICAM(TM) systems have been used to assess diseases, such as
the effect of arterial blockages and heart damage due to heart attacks. In 1994
and 1995 the Company made technological advances which allowed it to market its
products to the neurological and oncological markets. Neurological applications
of POSICAM(TM) systems include diagnoses of certain brain disorders, such as
epileptic seizures, dementia, stroke, Alzheimer's disease, Pick's disease and
Parkinson's disease. In oncology, POSICAM(TM) systems are used in the diagnosis
and evaluation of tumors of the bone and various organs and tissues such as the
brain, liver, colon and breast.
The Company has expanded its marketing efforts to include Europe, as well
as certain Asian and Middle Eastern markets. The Company currently has a
distribution agreement with Elscint, Ltd. ("Elscint") for the distribution of
its products in Europe, Asia and the Middle East. Elscint is an Israel-based,
international medical diagnostic equipment manufacturer, and one of the leading
distributors of nuclear medicine products.
Additionally, in January 1997, the Company entered into a sales and
marketing agreement with Beijing Aerospace Chang Feng Medical ("Chang Feng") to
sell the Company's products in the Peoples Republic of China ("PRC"). The
initial term of the agreement is for twelve (12) months. Thereafter, the
agreement is renewable at the mutual agreement of the parties. Chang Feng is
Beijing, PRC based and is the largest supplier of CT and MRI imaging technology
in the PRC and is a joint venture partner with General Electric Company for the
manufacture and distribution of CT and MRI products.
MEDICAL IMAGING INDUSTRY OVERVIEW
Diagnostic imaging allows a physician to assess disease, trauma or
dysfunction without the necessity of surgery. The diagnostic imaging industry
includes ultrasound, X-ray, MRI, CAT scans, and nuclear medicine (which includes
PET technology and single-photon emission computed tomography ("SPECT")). MRI
technology uses powerful magnetic fields to provide anatomical and structural
images of the brain, the spine and other soft tissues, as well as determining
the location and size of tumors. CAT scans use X-ray beams to obtain anatomical
and structural images of bones and organs. Nuclear medicine focuses on
providing information about the function and biological processes of organs and
tissues through the use of radiopharmaceuticals.
3
<PAGE>
The first prototype PET scanner was developed in the mid 1970s and the
first commercial PET scanner was constructed in 1978. In addition to the
estimated 67 PET systems currently operational in the United States, an
additional 88 PET systems are in commercial use outside of the United States.
PET TECHNOLOGY
The PET imaging process begins with the injection of a radiopharmaceutical
(a drug containing a radioactive agent) by a trained medical person into a
patient's bloodstream. The injected radiopharmaceutical undergoes a process of
radioactive decay, whereby positrons (positively charged electrons) are
converted into light energy, or photons. These photons are detected by the
POSICAM(TM) systems. The source of the photons is determined and is
reconstructed into a color image of the scanned organ utilizing proprietary
computer software. Since the concentration of the radiopharmaceutical is
determined by certain functional processes in the organ, such as blood flow,
metabolism or other biochemical processes, the brightness or color at each point
in the PET image directly maps the vitality of the respective function at that
point within the organ.
The Company believes market timing for PET is substantially strengthened as
the nation's healthcare system evolves toward a concept of improved patient
outcome and appropriateness of treatment at reduced costs. Healthcare
consolidation is occurring at a rapid pace in anticipation of becoming more
competitive and able to attract payor contracts. Third party payors are
beginning to monitor provider outcomes. Those providers who do not perform
within norms will lose patients as third party payors shift to others who
conform with standardized treatments with expected results. The Company
believes the accuracy of PET will enable clinicians to achieve improved outcome.
See, however, "Item 1. Description of Business--Risks Associated with Business
Activities."
PET imaging is an accurate non-invasive method of diagnosing or assessing
the severity of coronary artery disease. Unlike other imaging technologies, PET
technology allows a physician to determine whether blood flow to the heart
muscle is normal, thereby identifying narrowed coronary arteries, and whether
damaged heart muscle is viable and may benefit from treatments such as bypass
surgery or angioplasty.
In neurology, PET imaging is now being used as a surgical planning tool to
locate the source of epileptic disturbances in patients with uncontrollable
seizures. A 1994 study has shown that a PET examination may offer an effective
alternative to the traditional method of diagnosis, which involves a surgical
procedure in which the surface of the brain is exposed and electrodes are
applied for a period of up to one week to map electrical activity. In other
neurological applications, PET is used in the diagnosis of dementia, Alzheimer's
disease, Pick's disease and Parkinson's disease and in the evaluation of stroke
severity.
In oncology, PET imaging is currently used to measure the metabolism of
tumor masses after surgery or chemotherapy. Clinical experience has shown that
PET is more accurate than CAT scans or MRI in determining the effectiveness of
chemotherapy and radiotherapy in the treatment of cancer. Scans used to assess
suspected breast cancer are still in the experimental stage. Whole body scans,
however, are now routinely performed with PET to survey the body for cancer.
The Company believes that PET imaging can lower the total cost of managing
certain diseases by providing a means for early diagnosis and reduction of
unnecessary follow-up invasive procedures which can be costly and painful. The
Company estimates that the cost to the patient for PET procedures ranges between
$1,500 and $2,200 for cardiac applications and between $1,800 and $3,000 for
neurology and oncology applications. In contrast, the traditional technique for
diagnosing coronary artery disease is an angiogram, an invasive procedure in
which a catheter is inserted into the vessels of a patient's heart to assess the
degree of coronary artery blockage, and generally costs between $5,000 and
$7,500. In cases where a PET scan indicates the need for surgery, it is
anticipated that a follow-up angiogram would be performed for cardiac surgical
planning. The traditional alternative to PET scans in neurology and oncology
applications is a biopsy or other invasive surgical procedure, which would
typically be more costly and painful than a PET scan.
The radiopharmaceuticals (together with the radioactive substances
contained therein) employed in PET scanning are used by the organ in its natural
processes (such as blood flow and metabolism) without affecting its normal
4
<PAGE>
function, and quickly dissipate from the body. Radiopharmaceuticals used in PET
procedures expose patients to a certain amount of radiation, which exposure is
measured in units of rads. Exposure to radiation can cause damage to living
tissue, and the greater the radiation exposure the greater the potential for
damage. Certain PET procedures expose a patient to less radiation than would be
associated with other imaging technologies. A PET cardiac scan, using the
radiopharmaceutical Rubidium-82 results in exposure of approximately 0.096 rad,
while a neurology PET scan results in exposure of approximately 0.39 rad. In
contrast, a typical chest X-ray results in exposure of approximately 0.15 rad
and a CAT scan results in exposure to between approximately 0.5 rad and 4.0 rad,
depending on the procedure.
Radiopharmaceuticals used in PET technology can be created from many
natural substances including carbon, oxygen, nitrogen and fluorine. The PET
procedure to be performed determines the type of radiopharmaceutical.
Radiopharmaceuticals are made ready for use at a clinic or hospital by either a
cyclotron or a generator. Cyclotrons require an initial capital investment of
approximately $2 million, additional capital investment for site preparation,
and significant annual operating expenses. A generator requires an initial
capital investment of approximately $50,000, no additional capital investment
for site preparation, and monthly operating expenses of approximately $25,000.
While POSICAM(TM) systems have been designed to be used with both cyclotron and
generator processed radiopharmaceuticals, they have proprietary design features
which enhance their ability to use generator processed radiopharmaceuticals,
thereby allowing a clinic or hospital which intends to focus on certain cardiac
PET applications to avoid the significant capital and operating expenses
associated with a cyclotron.
MARKETING STRATEGY
The Company initially targeted clinical cardiology as its marketing
strategy based on research conducted at the University of Texas Health Science
Center in Houston, Texas, which showed the commercial potential of clinical
cardiology applications of PET imaging.
The Company estimates that there are approximately 2,100 potential sites in
the United States for cardiac PET systems alone. This estimate is based on a
potential user base of approximately 900 hospitals with over 350 beds each,
approximately 50 cardiology groups with 15 or more doctors each, and 1,200 free-
standing diagnostic imaging centers and mobile facilities.
The Company believes that it has a competitive advantage in the cardiac PET
market. POSICAM(TM) systems have the ability to produce accurate images by
using generator produced radiopharmaceuticals which can be obtained without the
significant initial capital investment associated with cyclotron produced
radiopharmaceuticals. The Company also believes that the high count-rate
sensitivity of the POSICAM(TM) systems, which results in faster imaging, the
ability of the POSICAM(TM) systems to use generator produced
radiopharmaceuticals which minimize patient exposure to radiation and certain
proprietary design features of the POSICAM(TM) systems which minimize false
positive and false negative diagnoses of disease give the Company additional
competitive advantages. See "Item 1. Description of Business--Risks Associated
with Business Activities."
Historically, the PET neurology market has been primarily research-
oriented, but recent developments have expanded the use to clinical
applications, including the identification of the source of uncontrollable
epileptic seizures, the diagnosis of such neurological disorders as dementia,
Alzheimer's disease, and the determination of stroke severity. Six POSICAM(TM)
system sites that initially utilized PET in cardiology are now expanding their
use to neurological applications. In oncology, work is being conducted at major
cancer and other medical centers, utilizing POSICAM(TM) imaging to determine
tumor size, monitor tumor therapy, and evaluate the effectiveness of
radiotherapy and chemotherapy.
The Company utilizes a direct sales force of three account executives to
market its products in the United States, and has entered into third party
distribution arrangements in order to penetrate foreign markets. Additionally,
the Company has relied on referrals from users of the Company's existing base of
installed scanners, clinical presentations at professional conferences by
customers of the Company, and published articles in trade journals to market its
systems.
5
<PAGE>
In July 1993, the Company entered into an equipment distribution agreement
with Elscint in an effort to increase the market presence and sales of its
POSICAM(TM) systems in Europe, Asia and certain areas of the Middle East.
Elscint is an international medical diagnostic equipment manufacturer with
distribution subsidiaries located in the world's major markets. The equipment
distribution agreement was for an initial term of two years and continues
thereafter on a year-to-year basis. The Company may terminate the distribution
agreement at any time, since at the end of the initial two year term, Elscint
had not placed orders for at least three (3) POSICAM(TM) systems. The
distribution agreement contains no minimum purchase requirements by Elscint. To
date, one purchase order for a POSICAM(TM) HZL system has been received under
the Elscint agreement.
Additionally, in January 1997, the Company entered into a sales and
marketing agreement with Beijing Aerospace Chang Feng Medical ("Chang Feng") to
sell the Company's products in the Peoples Republic of China ("PRC"). The
initial term of the agreement is for twelve (12) months. Upon expiration of the
initial term, the agreement is renewable upon the mutual consent of the parties.
Pursuant to the agreement Chang Feng is required to use its "best commercial
efforts" to sell a minimum of two POSICAM(TM) systems during the initial term of
the agreement.
THE POSICAM(TM) SYSTEM
At the heart of the POSICAM(TM) system is its detector assembly which
detects positron emissions and electronic circuits which pinpoint the location
of those positron emissions. POSICAM(TM) systems are easy to use and are not
physically confining thereby not intimidating to patients. POSICAM(TM) scans
are commonly performed on an outpatient basis.
The Company's systems currently have the highest count rate sensitivity in
the PET industry. Count rate sensitivity of an imaging system is its ability to
detect, register and assimilate the greatest number of meaningful positron
emission events in the shortest period of time. The higher count rate
sensitivity of the POSICAM(TM) systems results in superior diagnostic accuracy
as measured by fewer false positives and false negatives. Further benefits of
high count rate sensitivity include faster imaging and the ability to use short
half-life radiopharmaceuticals, which reduces patient exposure to radiation and
may reduce the capital cost to some purchasers by eliminating the need for a
cyclotron for certain cardiac applications.
The detector assembly consists of crystals, which scintillate (give off
light) when exposed to positron emissions, and photomultiplier tubes which are
coupled to the crystals and convert the scintillations into electrical impulses.
The Company employs its own patented staggered crystal array design for the
POSICAM(TM) detectors which, unlike competing PET systems, permits the
configuration of the detector crystals into overlapping series to create a
higher quality image by eliminating image sampling gaps. This feature is
important since undersampling or gaps in sampling can contribute to an
inaccurate diagnosis. The crystal array design also reduces "dead time" (the
time interval following the detection and registering of a positron emission
during which a subsequent event cannot be detected).
The POSICAM(TM) system currently creates the most and, the most finely
spaced, image slices in the PET industry. An image slice is a cross-sectional
view that is taken at an arbitrary angle to the angle of the organ being scanned
and is not necessarily the angle which a physician wishes to view. The
POSICAM(TM) computer can then adjust the cross-sectional view to create an image
from any desired angle. The high number of finely spaced image slices created
by the POSICAM(TM) system enhances the accuracy of the created image.
An integral part of a POSICAM(TM) system is its proprietary data
acquisition micro-processor and its application system software. The Company's
software can reconstruct an image in five seconds or less. The Company has
expended substantial effort and resources to develop the computer software to
insure that it is user-friendly and clinically oriented. The only personnel
needed to perform clinical studies with the POSICAM(TM) systems are a trained
nurse, a trained technician and an overseeing physician for patient management
and safety.
POSICAM(TM) HZ AND HZL. In addition to the basic POSICAM(TM) system, the
Company offers two advanced versions of its basic system which are known as the
POSICAM(TM) HZ and the POSICAM(TM) HZL. Oncologists and
6
<PAGE>
neurologists require enhanced resolution and a large field of view to detect
small tumors and otherwise scan large organs, such as the liver. The
POSICAM(TM) HZ and HZL employ new detector concepts to satisfy these needs
while maintaining the high count rate sensitivity of the basic POSICAM.(TM)
In May 1991, the Company received approval from the FDA to market the
POSICAM(TM) HZ and in May 1993, the Company received a patent for the
innovative light guide and detector staggering concepts used in the POSICAM(TM)
HZ and HZL. In July 1993 the Company received FDA approval to market in the
United States the POSICAM(TM) HZL, which has an even larger field of view than
the POSICAM(TM) HZ facilitating whole body scanning and the scanning of large
organs. As the market for PET systems matures and price sensitivity among
purchasers increases, the Company believes that interest in the POSICAM(TM) HZ,
a low cost version of the POSICAM(TM) HZL, will increase(1). The Company
believes that the special features of the POSICAM(TM) HZL enhance its
usefulness in oncology and neurology applications(1).
CYCLOTRON DISTRIBUTION. Since certain cardiac and all neurological and
oncological applications require the use of cyclotron processed
radiopharmaceuticals, the Company entered into a distribution agreement with
Oxford Instruments Inc. ("Oxford") to be its exclusive North American cyclotron
distributor. Under the distribution agreement the Company is able to market,
install, service and maintain Oxford's cyclotrons. The distribution agreement
gives Oxford the right to terminate the agreement at any time after March 1,
1994, if at that time the Company had not placed orders for at least two
cyclotrons. As of that date, the Company had received only one order for a
cyclotron. As a result, Oxford currently has the right to terminate the
distribution agreement upon written notice to the Company. As of March 15, 1997,
the Company has not received notice from Oxford indicating a desire to terminate
the distribution agreement. The Company believes that if Oxford were to
terminate the distribution agreement, it could enter into comparable
distribution arrangements with other cyclotron manufacturers.(1)
CUSTOMER SERVICE AND WARRANTY
The Company has eight (8) field service engineers located throughout the
United States, who have primary responsibility for supporting and maintaining
the Company's installed equipment base. In addition, the field engineers are
involved in site planning, customer training, sales of hardware upgrades, sales
and administration of service contracts, telephone technical support and
customer service.
The Company typically provides a one-year warranty to purchasers of a
POSICAM(TM) system. However, in the past, the Company offered multi-year
warranties to facilitate sales of its systems. Following the warranty period,
the Company offers purchasers a comprehensive service contract under which the
Company provides all parts and labor, system software upgrades and unlimited
service calls. The service revenues to the Company under its standard service
contract range from approximately $120,000 to $200,000 per year. The Company
currently provides service to all of its POSICAM(TM) systems, ten (10) of
which are under formal service contracts. One (1) of the service contracts is
automatically renewed on a month-to-month basis and one (1) automatically renews
on a year-to-year basis. Of the remaining eight (8) service contracts, three
(3) expire during 1997, four (4) expire in 1998, and one (1) expires in 1999.
The Company is currently negotiating to extend all of the service contracts
which expire in 1997; however, there are no assurances that such extension will
be obtained.
The Company's service goal is to maintain maximum system up-time. The
Company's service organization seeks to resolve problems within 24 hours of
receipt of a service call. Success of a clinical site is largely dependent on
patient volume during normal working hours and therefore equipment uptime and
reliability are key factors in this success. The average uptime for all
installed POSICAM(TM) systems during each of 1995 and 1996, was approximately
98%.
The Company has established a program to train doctors, nurses and
technicians, many of whom are unfamiliar with PET imaging, in the operation of
the Company's system and in the interpretation of PET images. In addition, the
Company has arrangements with physicians and nurses knowledgeable of the
Company's systems to provide training to physicians and nurses who will be
involved with newly installed systems.
7
<PAGE>
COMPETITION
The Company believes that PET technology is a cost-effective diagnostic
tool as compared to other imaging techniques. The Company faces competition
from two (2) other commercial manufacturers of PET systems as well as from other
imaging technologies, primarily SPECT and MRI. The Company does not believe
that MRI and CAT scan imaging represent significant competing technologies. The
Company views MRI and CAT scan imaging to be complementary technologies to PET,
in that PET and MRI and CAT scans each provide information not available from
the other.
The Company's primary competition comes from two major commercial
manufacturers of PET systems, General Electric Company ("GE") and Siemens
Medical Systems Inc. ("Siemens") (in a joint venture with CTI, Inc. of
Knoxville, Tennessee). GE and Siemens have substantially greater financial,
technological and personnel resources than the Company. See "Item 1.
Description of Business--Risk Associated with Business Activities--Substantial
Competition and Effects of Technological Change and General Electric
Transaction". In addition, two Japanese manufacturers, Hitachi and Shimadzu,
have manufactured and sold PET scanners in Japan but not in the United States.
In general, the Company believes that the Japanese PET systems are not currently
competitive with the products of the Company and its two major United States
competitors.
The Company believes that it is currently competitive in each of the
primary competitive factors in the PET cardiology market, which are scanner
performance (in terms of count rate sensitivity and "dead time"), the ability to
scan short half-life radiopharmaceuticals (in particular, those which are
generator produced and do not require the purchase of a cyclotron), user-
friendly, clinically-oriented computer software, equipment up-time and customer
service.
Competition in the market for diagnostic imaging systems in general is
intense and is expected to increase. The market is characterized by rapid
technological innovation in terms of enhancements in the PET industry as well as
improvements in competing technologies and the emergence of new technologies.
See "Item 1. Description of Business--Risk Associated with Business Activities--
Substantial Competition and Effects of Technological Change."
The primary competing technology in the nuclear medicine industry is SPECT.
The Company believes that the primary reason that SPECT competes with PET is the
lower cost of the SPECT systems. A SPECT system can cost between $175,000 and
$750,000 as compared with $1.0 million to $1.8 million (depending on
configuration and equipment options) for a POSICAM(TM) system. However, the
Company believes its POSICAM(TM) systems are a better diagnostic tool in that
the Company's systems are able to create more accurate images than SPECT
imaging. Unlike SPECT, the radioactive substances used by the Company's systems
are based on naturally occurring substances within the body and allow the
POSICAM(TM) systems to directly measure the metabolic processes and changes
occurring within the scanned organ, thus providing a more accurate image. In
addition, unlike SPECT, POSICAM(TM) systems are able to correct for image
deficiencies created by absorption of photons by the body. Additionally,
POSICAM(TM) systems have higher and more uniform resolution than SPECT imagers
allowing POSICAM(TM) systems to image smaller objects without blurring.
POSICAM(TM) systems, in addition to being more accurate, can complete a scan in
as little as 45 minutes, while SPECT may require as many as three separate scans
spaced over 24 hours.
High field MRI technology, an advanced version of MRI, is in the
development stage, but is a potential competitor to PET in certain neurology and
oncology applications. Presently, high field MRI may be useful in performing
certain research (non-clinical) applications such as blood flow studies to
perform "brain mapping" to localize the portions of the brain associated with
individual functions (such as motor activities and vision). However, high field
MRI does not have the capability to assess metabolism. The Company cannot
presently predict the future competitiveness of high field MRI.
Several manufacturers of SPECT systems are now offering multi-head systems
which have been modified to operate in a coincidence mode, similar to a PET
scanner. These systems achieve spatial resolutions similar to that of PET
scanners, but their sensitivity and count rate are only a small fraction of that
achieved by true PET scanners, making the images "noisy" and more difficult to
interpret. The Company believes these systems are useful for only a very
limited class of clinical PET studies using only the FDG radio tracer(1). In
addition, SPECT coincidence systems offer limited, if any, corrections for
patient attenuation and scatter, which affects the accuracy of diagnosis. As a
result, the Company believes that there will be a very limited research market
for this type of coincidence imaging system(1).
8
<PAGE>
THIRD-PARTY REIMBURSEMENT
POSICAM(TM) systems are purchased or leased primarily by medical
institutions which provide health care services to their patients. Such
institutions or patients typically bill or seek reimbursement from various
third-party payors such as Medicare, Medicaid, other governmental programs and
private insurance carriers for the charges associated with the provided
healthcare services. The Company believes that the market success of PET
imaging depends largely upon obtaining favorable coverage and reimbursement
policies from such programs and carriers.
MEDICARE/MEDICAID REIMBURSEMENT. Prior to March 1995, Medicare and
Medicaid did not provide reimbursement for certain PET imaging. Decisions as to
such policies for major new medical procedures are typically made by the U.S.
Health Care Financing Administration ("HCFA"), based in part on recommendations
made to it by the Office of Health Technology Assessment ("OHTA").
Historically, OHTA has not completed an evaluation of a procedure unless all of
the devices and/or drugs used in the procedure have received approval or
clearance for marketing by the FDA. Decisions as to the extent of Medicaid
coverage for particular technologies are made separately by the various state
Medicaid programs, but such programs tend to follow Medicare national coverage
policies.
In November 1989, OHTA commenced a review of PET imaging for cardiac scans
using the generator produced radiopharmaceutical, Rubidium-82. This was
preceded in 1988 by the FDA's approval of Rubidium-82 for patient imaging. In
1994 HCFA received OTHA's findings, and began evaluating the final issues
relative to coverage of PET imaging utilizing Rubidium-82 for Medicare and
Medicaid reimbursement. On March 23, 1995, the Company was informed that HCFA
advised the drug manufacturer, Bracco Diagnostics, Inc., of the decision to
reimburse Rubidium-82 for use as a PET myocardial perfusion imaging agent.
Additional isotopes for PET imaging such as Fluro-Deoxy-Glucose ("FDG") are
waiting FDA approval. FDG has been under review since 1991. FDG is currently
prepared and administered under state regulations governing the practices of
pharmacy and medicine. Since the individual states regulate the production of
FDG under their own laws, the drug cannot be transported across state lines
without FDA approval.
In February 1995, the FDA announced that cyclotron based PET
radiopharmaceuticals such as FDG would be regulated under the provisions of the
Federal Food, Drug and Cosmetic act, which stipulates that new drugs must be the
subject of approved new drug applications ("NDA's") or abbreviated new drug
applications. This regulation requires that a cyclotron facility must have FDA
approval before selling clinical radiopharmaceuticals for usage by PET
facilities. The Company believes that most of the cardiac applications of its
POSICAM(TM) systems involve the use of Rubidium-82 which is produced by a
generator rather than manufactured by a cyclotron. Therefore, the Company
believes that the announced regulations concerning cyclotron manufactured
radiopharmaceuticals will not have a significant impact upon cardiac
applications of its POSICAM(TM) systems. However, as of March 15, 1997, the
Company is unable to predict the overall impact of the new regulations on other
applications of its POSICAM(TM) system which involve the use of cyclotron
manufactured radiopharmaceuticals.
PRIVATE INSURER REIMBURSEMENT. The Company estimates that there are 1,500
private third-party insurance carriers in the United States. Most of these
carriers currently consider PET imaging to be an investigational procedure and
do not reimburse for procedures involving PET imaging. In 1992, however, the
National Blue Cross and Blue Shield Association recommended that PET imaging be
covered for evaluation of radiotherapy and chemotherapy, and for selection of
patients for surgical excision of the source of uncontrollable epileptic
seizures. State Blue Cross and Blue Shield plans in Nebraska, Iowa, California
and Florida have recently adopted official payment policies concerning PET
cardiology application. Aetna and Foundation Health Plan of Sacramento now
cover oncologic, cardiac and neurologic PET imaging applications, and Lincoln
National Life Insurance Company has developed a national policy for coverage of
neurological PET imaging applications. In addition, the Company believes that
approximately 650 private insurance carriers, while they do not have broad PET
reimbursement policies, reimburse for PET scans on a case-by-case basis.
If third-party coverage for PET procedures using the POSICAM(TM) system
remains unavailable, it will likely have a material adverse effect on the
Company's business, financial condition and results of operations(1).
Certain federal health care reforms are currently being considered by Congress,
one of which would make cost effectiveness
9
<PAGE>
a criteria for Medicare and other third-party payor reimbursement. At this
time, the Company is unable to predict what additional legislation or
regulation, if any, relating to the health care industry or third-party
coverage and reimbursement may be enacted in the future or what effect such
legislation or regulation would have on the Company(1).
MANUFACTURING
The Company assembles its POSICAM(TM) scanners in a 7,000 square foot area
of its 30,000 square foot corporate facility located in Houston, Texas.
Scanners are generally produced by assembling parts furnished to the Company by
outside suppliers. A typical POSICAM(TM) system can generally be assembled in
two months and requires one month of testing before delivery.
An essential component of the Company's POSICAM(TM) systems is bismuth
germinate oxide ("BGO") crystals which detect the positron emissions forming the
basis for a PET image, and photomultiplier tubes, which convert the light energy
emitted by such crystals into electrical impulses for use in the image
reconstruction process. BGO crystals are specially manufactured and are
available from a supplier located in the United States, that is a subsidiary of
a Japanese company and another supplier located in France. While the Company
primarily relies on a single source for its BGO crystals, it has in the past
purchased crystals from the second manufacturer and believes that it could
resume such purchases at acceptable prices and without significant delays. The
Company purchases photomultiplier tubes primarily from a French supplier. In
the event that the supply of French photomultiplier tubes were to be
interrupted, the Company believes it has the ability to source similar product
from an alternate manufacturer in France(1). The Company believes that
multiple vendor sources exist in the United States for all other parts, for
which no individual vendor is critical to production(1).
The Company maintains an active quality-assurance program, which includes
manufacturing product in small lots, tracking all defects and failures,
conducting area meetings, and maintaining thorough documentation and a well-kept
facility. Each assembler of a part is responsible for maintaining his or her
area of assembly and assuring that parts have been properly inspected and
tested. The Company believes that it is in compliance with all government
regulations regarding the manufacturing of it POSICAM(TM) systems.
The Company has not historically experienced a material production and
delivery backlog. The Company currently has in place a production and delivery
system capable of producing and delivering up to three POSICAM(TM) systems per
month. If the Company experienced a significant increase in the sales volume of
its POSICAM(TM) systems, the Company would be required to implement certain
modifications to its existing production and delivery systems.
RESEARCH AND DEVELOPMENT
The Company's POSICAM(TM) systems are based upon proprietary technology
initially developed at the University of Texas Health Science Center ("UTHSC")
in Houston, Texas under a $24 million research program begun in 1979 and funded
by UTHSC and The Clayton Foundation for Research (the "Clayton Foundation"), a
Houston-based, non-profit organization. Further product development and
commercialization of the system has been funded by the Company.
The Company's research and development expenses for the years ended
December 31, 1995 and 1996 were $2,481,000 and $2,227,000, respectively. In
addition to the Company's sponsored and funded research and development
programs, the Company in the past has supplemented its research and development
with a technology transfer agreement with UTHSC and currently is participating
in collaborative research efforts with selected clinical and research customers,
and research grants funded through the federal government's Small Business
Innovative Research ("SBIR") program.
The Company intends to continue its research into new scintillator material
and detectors which is expected to focus on improving "dead-time" and
sensitivity.(1) The Company also intends to investigate new electronics
configurations in order to improve the systems' performance and reduce the size
and cost of the scanners(1).
10
<PAGE>
Additionally, the Company intends to explore new computer architecture to
reduce the systems' cost and reduce the scanning time per patient.(1)
The Company has developed a neurology software analysis package with the
Yale/Veterans Administration PET Center to provide imaging tools for the
neurologist. The Company intends to continue its cooperative development
efforts with leading research institutions to improve neurology and oncology
imaging(1). The Company offers a clinical cardiology software package which
displays images and facilitates the diagnosis of coronary artery disease and
tissue viability.
The Company has a continuing program of enhancing and improving its
software which is aided by its collaboration with practicing physicians and
researchers who provide technical and practical advice to the Company based upon
their clinical experiences with the POSICAM(TM) systems and efforts to improve
clinical procedures. The Company has received input from clinical users and
research collaborators, and the Company is conducting research and development
on new software products. The Company expects that this research and
development will result in new neurology and oncology analysis packages and
clinical computer protocols and improvements in data acquisition and image
reconstruction software(1).
PATENT AND ROYALTY ARRANGEMENTS
The Company acquired the know-how and patent rights to positron imaging
(the "Licensed Technology") from the Clayton Foundation, K. Lance Gould (a
director of the Company) and Nizar A. Mullani (formerly a director of the
Company). The Company is currently obligated to pay royalties of 3% of the
gross revenues from sales, uses, leases, licensing or rentals of the Licensed
Technologies, 1% to each of the Clayton Foundation, K. Lance Gould and Nizar A.
Mullani.
Two of the Company's patents, issued in January 1986 and February 1987 and
expiring in January 2003 and February 2004, respectively, relate to the
staggered crystal array design of its POSICAM(TM) systems. One additional
patent, issued in June 1987 and expiring June 2004, relates to technology which
the Company, by obtaining the patent, has reserved the right to use. The
Company maintains certain of its patents in Germany and has applied for certain
patents in Japan. In May 1993, the Company received an additional patent, that
expires in May 2010, relating to the innovative light guide and detector
staggering concepts used in its POSICAM(TM) HZ system.
The Company seeks to protect its trade secrets and proprietary know how
through confidentiality agreements with its employees and consultants. The
Company requires each employee and consultant to enter into a confidentiality
agreement containing provisions prohibiting the disclosure of confidential
information to anyone outside the Company, and requiring disclosure to the
Company of any ideas, developments, discoveries or investigations conceived
during employment or service as a consultant and the assignment to the Company
of patents and proprietary rights to such matters related to the business and
technology of the Company.
GOVERNMENT REGULATION
The Company's POSICAM(TM) systems and the radiopharmaceuticals used in
connection with them are subject to regulation by the FDA. The FDA regulates
and approves the clinical testing, manufacture, labeling, distribution and
promotion of medical devices in the United States prior to their
commercialization. In addition, various foreign countries in which the
Company's products are or may be marketed, impose certain regulatory
requirements.
The Company's POSICAM(TM) systems are regulated as medical devices by the
FDA and require premarket clearance by the FDA. Pursuant to the Medical Device
Amendments of May 1976, the FDA classifies medical devices in commercial
distribution as a class I, class II, or class III device. This classification
scheme is based on the controls necessary to reasonably ensure the safety and
effectiveness of the medical devices. Class I devices are those devices whose
safety and effectiveness can reasonably be ensured through general controls,
such as adequate labeling, premarket notification and adherence to the Good
Manufacturing Practice ("GMP") regulations. Class II devices are those devices
whose safety and effectiveness can reasonably be assured through the use of
special controls, such as
11
<PAGE>
performance standards, post market surveillance, patient registries and FDA
guidelines. Class III devices require premarket approval from the FDA and are
generally devices which support or sustain human life or present a potential
risk of illness or injury. The POSICAM(TM) systems are considered to be class
II devices. However, as of March 15, 1997, the FDA has not promulgated a
performance standard for PET systems. Therefore, the POSICAM(TM) systems are
not currently subject to such controls, nor are they subject to post market
surveillance, patient registries and FDA guidelines.
Before it can be commercially marketed L/C class II device must be approved
by the FDA. If a medical device is "substantially equivalent" to a legally
marketed class II device, the manufacturer or distributor may seek FDA clearance
by filing what is known as a 510(k) premarket notification which must be
supported by data and test results. If the FDA determines that the device is
substantially equivalent, then it may be marketed in the United States. The FDA
may, however, require additional data or additional test results, or may
determine that a device is "not substantially equivalent." Request for
additional data or test results or a "not substantially equivalent"
determination could delay the Company's market introduction of new products and
could have a material adverse effect on the Company's financial results and
operations(1). The FDA is not required to respond to 510(k) premarket
notifications within a specific time period. The FDA has recently began
requiring a more rigorous demonstration of substantial equivalence and in many
cases the time periods required for product approvals have increased. If the
FDA determines that a new product is "not substantially equivalent," then the
manufacturer must undergo a lengthy Pre-Marketing Approval process which
generally involves clinical trials and submission of data to prove safety and
effectiveness before approval is granted.
The Company's original POSICAM(TM) system received 510(k) clearance in
September 1985. In November 1989, the Company was granted 510(k) clearance for
a modified POSICAM(TM) system, and also received approval for a mobile van
configuration. In 1991, the Company applied for and received 510(k) clearance
of its POSICAM(TM) HZ system, and in July 1993 the Company received 510(k)
approval for the POSICAM(TM) HZL.
The Company is also required to register as a medical device manufacturer
with the FDA. As such, the Company may be inspected from time to time by the
FDA for compliance with the FDA's GMP regulations. These regulations require
that the Company manufacture its products and maintain its documents in a
prescribed manner with respect to manufacturing, testing and control activities.
Further, the Company is required to comply with various FDA labeling
requirements. The Medical Device Reporting regulation requires that the Company
provide information to the FDA on deaths or serious injuries alleged to have
been associated with the use of its devices, as well as product malfunctions
that would likely cause or contribute to death or serious injury if the
malfunction were to recur. To date, no such deaths, injuries or product
malfunctions have occurred. In addition, the FDA prohibits an approved device
from being marketed for unapproved applications. To date the Company has not
received any notices of noncompliance from the FDA concerning GMP regulations.
At the end of February 1995, the FDA conducted a GMP compliance inspection
at the Company's manufacturing facility. As a result of that inspection in
April 1995, the Company received the first FDA warning letter in its operating
history. Several issues were noted for corrective action in that letter. The
Company has expeditiously taken action to address the FDA's concerns. In
February 1996, the FDA began a follow-up inspection of the Company's corrective
actions. As of March 15, 1997, the Company has not been informed of the result
of that inspection. If the FDA finds that the Company has not corrected the
deficiencies noted in the warning letter it could, among other things, issue
another warning letter, prohibit new product introductions, institute a product
recall or prohibit the Company from shipping products until all deficiencies are
corrected to the FDA's satisfaction. The Company is cooperating fully and
intends to continue to work with the FDA in all compliance matters. In February
1997, the FDA began another routine inspection of the company's operating
facility. As of March 15, 1997, the Company has not been informed of the
results of that inspection.
The Company believes that it currently complies with all applicable
regulations regarding the manufacture and sale of medical devices, although such
regulations are subject to change and depend heavily on administrative
interpretations. The Company also is subject to numerous federal, state and
local laws relating to such matters as safe working conditions, manufacturing
practices, fire hazard control, and disposal of hazardous or potentially
hazardous substances.
12
<PAGE>
The Company is required under Texas law to register with the Texas
Department of Health with respect to the Company's maintaining
radiopharmaceuticals on premises for testing and for research and development
purposes. The Texas Department of Health has the authority to inspect the
Company's records and facilities to ensure compliance with these regulations.
The Company has in the past received notice of minor violations which have been
satisfactorily resolved with no punitive action. The Company believes that
adequate measures have been taken to prevent their recurrence.
Sales of medical devices outside of the United States may be subject to
foreign regulatory requirements that vary widely from country to country. The
time required to obtain approval by a foreign country may be longer than that
required for FDA approval, and the requirements may differ.
PET imaging centers must comply with regulations promulgated, in most
states, by an agency of the state government, under authority delegated by the
Nuclear Regulatory Commission governing the possession and use of
radiopharmaceuticals for medical diagnostic procedures. In order to secure
approval, a PET imaging center must submit an acceptable site plan for its
scanner, employ adequate radiation safety and quality procedures, and provide a
nuclear physician who meets certain training and experience standards.
Cyclotrons are considered industrial devices and are therefore not covered by
any FDA regulations. Currently, there are no state or federal regulations
concerning the sale, marketing, or ownership of cyclotrons. However,
operational licenses are required by state radiation regulatory divisions. The
licensing and/or registration of cyclotrons by a state is typically handled by
the state's Department of Health, Bureau of Radiation Control.
Many states have "certificate of need" regulations that require a purchaser
or user of expensive diagnostic equipment such as PET systems to obtain
regulatory approval before it may purchase and install such equipment. A
primary purpose of these regulations is to contain health costs by restricting
the number of similar units in a particular locality. The Company has yet to
experience a situation where a customer was unable to obtain such approval.
However, restrictions of this nature may increase in the future through the
passage of legislation and the adoption of regulatory changes as a part of
overall health care reform.
BACKLOG
The Company's backlog at December 31, 1996, consisted of purchase orders
for two POSICAM(TM) systems totaling approximately $2.1 million. Additionally,
in January and February 1997, the Company received orders for four (4) systems.
The Company expects to deliver these systems during 1997.
PRODUCT LIABILITY AND INSURANCE
Medical device companies are subject to a risk of product liability and
other liability claims in the event that the use of their products results in
personal injury claims. The Company has not experienced any product liability
claims to date. The Company maintains liability insurance with coverage of $2
million per occurrence and an annual aggregate maximum of $3 million.
EMPLOYEES
As of March 15, 1997, the Company employed thirty-six (36) full-time
persons, twelve (12) are employed in the Company's engineering department,
eleven (11) in sales, marketing and field service, seven (7) in manufacturing
and six (6) in the executive and administration department. The Company
believes that its relationship with its employees is satisfactory.
On January 1, 1996, the Company entered into an employment agreement with
Werner J. Haas, Ph.D. pursuant to which Dr. Haas agreed to serve as President
and Chief Executive Officer of the Company for a term of two years. The
employment agreement provided for the payment of an annual base salary of
$200,000, bonuses in an amount to be determined at the discretion of the Board
of Directors of the Company, and participation in any employee benefit plan
adopted by the Company for its employees.
13
<PAGE>
On February 18, 1997, Dr. Haas informed the Board of Directors of the
Company that he considered his contract to have been terminated by the Company
without cause as a result of the Company's failure to pay the February 15, 1997
payroll to any of its management level employees and specifically to him. Dr.
Haas has demanded that the Company pay to him all past due salary as well as the
nine months severance pay specified in his employment agreement if his contract
is determined to have been terminated without cause. Additionally, Dr. Haas
resigned his position as a member of the Company's Board of Directors. The
Company has indicated to Dr. Haas that it believes no amounts are due him under
his employment agreement. As of March 15, 1997, the Company is unable to
predict the outcome of the disagreement between Dr. Haas and the Company.
Gary B. Wood, Ph.D., currently Chairman of the Company's Board of
Directors, has assumed the duties of President and Chief Executive Officer until
selection of a replacement for Dr. Haas.
FORWARD LOOKING STATEMENTS.
The Company's statements in the foregoing discussion not relating solely to
historical matters are forward looking statements and are based upon numerous
assumptions that could prove not to be accurate. Accordingly, actual events and
results may materially differ from anticipated results .
14
<PAGE>
RISKS ASSOCIATED WITH BUSINESS ACTIVITIES
HISTORY OF LOSSES. To date the Company has been unable to sell POSICAM(TM)
systems at quantities sufficient to be profitable. Consequently, the Company
has sustained substantial losses. Net losses for the years ended December 31,
1995 and 1996 were $5,028,000 and $6,375,000, respectively. At December 31,
1996, the Company had an accumulated deficit of approximately $44,505,000.
There can be no assurance that the Company will ever achieve the level of
revenues needed to be profitable in the future or, if profitability is achieved,
that it will be sustained. Due to the sizable sales price of each POSICAM(TM)
system and the limited number of systems that are sold or placed in service in
each fiscal period, the Company's revenues have fluctuated, and may likely
continue to fluctuate, significantly from quarter to quarter and from year to
year.
WORKING CAPITAL DEFICIENCY. At December 31, 1996, the Company had cash and
cash equivalents in the amount of $382,000 compared to $102,000 at December 31,
1995. During certain times in 1996 and the first quarter of 1997, the Company
has been unable to meet certain of its obligations as they came due. As a
result of the Company's liquidity problem certain management level employees
have deferred payment of salaries through March 15, 1997 totaling $135,000.
Additionally, the Company is in arrears to many of its vendors and suppliers.
As of March 31, 1997, such amount owed to vendors and suppliers totaled
approximately $1,100,000.
As a result of the Company's liquidity problems, its auditors, Coopers &
Lybrand, L.L.P., have added an emphasis paragraph to their opinion on the
Company's financial statements indicating that substantial doubt exists about
the Company's ability to continue as a going concern. In conjunction with the
financing of the proposed acquisition of GE's PET assets and technology, the
Company anticipates that it will secure working capital financing totaling
approximately $7 million to fund its ongoing operations until such time as the
sales of its and GE's PET systems generate sufficient cash flow to fund
operations, however, no assurances can be given that the Company will
successfully complete such financing (See "Item 1. Risk Associated with
Business Activities - General Electric Transaction"). It is the Company's
intention to utilize a portion of such working capital funds to significantly
reduce the level of its past due obligations to its employees, vendors and
suppliers.(1) Additionally, the Company believes that it will reach cash flow
break-even at the point at which it is selling approximately fifteen (15)
systems per year, however no assurance can be given that the Company will ever
reach such break-even level of sales (1). (See Item 6. "Management's
Discussion and Analysis or Plan of Operation--Liquidity and Capital Resources".)
In the event that the Company is unable to complete its acquisition of GE's
PET assets and technology, it will be necessary for it to enhance its financial
position by means of raising capital by the sale of additional equity
securities, the placement of additional debt or increased sales of its
POSICAM(TM) systems. Although the Company has been actively pursuing the above
financing alternatives in connection with its proposed acquisition of GE's PET
assets, no assurances can be given that the Company will be able to successfully
alleviate its current financial difficulties or that it will be able to continue
as a going concern in the absence of obtaining such financing.(1)
The Company currently has no shares of Common Stock available for issuance
and all authorized shares have either been issued or reserved for issuance in
respect of outstanding options and warrants or convertible securities. The lack
of such available shares significantly restricts the Company's ability to raise
additional capital through the sale of equity securities. The Company believes
that its shareholders will approve an increase in the number of authorized
common shares at its Annual Meeting; however, no assurance can be given that
such additional shares will be authorized in adequate time to allow the Company
to issue such equity securities.
GENERAL ELECTRIC TRANSACTION. In July 1996, the Company and General
Electric Company ("GE") entered into an Acquisition Agreement (the "Agreement"),
which initially expired on January 4, 1997, pursuant to which the Company agreed
to purchase a portion of GE's product line relating to the design, engineering
and manufacture of certain PET equipment and related cyclotron systems (the
"Business"). Under the terms of the Agreement, the Company agreed to (i)
purchase from GE all of the capital stock of its wholly-owned Swedish
subsidiary, and (ii) purchase or license from GE substantially all of its assets
which are used principally in the conduct of Business. Additionally, the
Company and GE entered into a Sales and Marketing Agreement (the "Marketing
Agreement") pursuant to which, subject to the conditions and limitations set
forth therein, GE agreed to purchase on an exclusive basis, and the Company
agreed to supply to GE,
15
<PAGE>
certain PET equipment and related cyclotron systems (collectively the "PET
Products"). The initial term of the Marketing Agreement was for five (5) years.
Subject to the conditions set forth therein, GE agreed that, during the initial
term of the Marketing Agreement, GE would not, directly or indirectly engage in
the design, engineering of manufacture of PET Products.
In exchange for the sale by GE of the assets described above and the
capital stock of its Swedish subsidiary, as well as the performance by GE of its
obligations under the Marketing Agreement, the Company agreed to pay to GE cash
of $25 million, subject to certain specified adjustments. Additionally, the
Company agreed to issue to GE a number of shares of its Common Stock (the
"Acquisition Stock") which, would equal 10% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and related common stock purchase warrants
and the issuance and exercise of the GE Option (described below). The Company
also agreed to issue to GE an option (the "GE Option") to purchase a number of
shares of Common Stock which, upon exercise and conversion into shares of the
Company's Common Stock, would equal 15% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and the issuance, exercise and conversion
of the GE Option. The GE Option was initially exercisable for three (3) years
at an exercise price of $4.25. On January 4, 1997, GE and the Company agreed to
extend the expiration date of the Agreement until March 31, 1997.
The acquisition is subject to the satisfaction or waiver of certain
conditions precedent, including the Company's procurement of financing upon
terms and conditions acceptable to the Company and the approval by the Company's
shareholders of certain terms of the acquisition, including the issuance of the
Acquisition Stock and GE Option. Under certain circumstances, if the Agreement
is terminated and the termination is not due to a breach by GE of its
representations, warranties or covenants set forth in the Agreement the Company
is required to pay to GE a termination fee of $1.5 million if the Company enters
into certain specified transactions within two (2) years of the date of
termination of the Agreement.
As of March 31, 1997, the Company has not obtained commitments for the
financing required to complete the acquisition, nor has it obtained shareholder
approval of the issuance of the Acquisition Stock, the GE Option or the
Agreement. There is no assurance that the Company will be able to procure the
required financing or that it will be successful in obtaining shareholder
approval of the transaction. Failure of the Company to close the acquisition of
the Business is likely to have a material adverse effect on the Company's
ability to continue as a going concern. See "Item 1. Description of Business -
Risk Associated with Business Activities" and "Item 6. Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital Resources".
Closing of the GE Acquisition did not occur on March 31, 1997, nor has GE
agreed to extend the Agreement beyond March 31, 1997. On April 10, 1997, GE
informed the Company that it was exercising its right to terminate the Agreement
and that it will pursue other options for its PET business. GE remains open to
discussing a transaction on revised terms, if and only if, (i) a prompt closing
and payment of the full purchase price are assured, (ii) the transaction
continues to make business sense for both parties, and (iii) all necessary
details can be agreed upon by the parties. The Company and GE have no binding
agreement to proceed with these discussions, nor can any assurances be given
that if they do proceed, any workable agreement will be reached by the parties.
NASDAQ SMALLCAP MARKET ELIGIBILITY AND MAINTENANCE REQUIREMENTS: POSSIBLE
DELISTING OF SECURITIES FROM THE NASDAQ SYSTEM. The Company's Common Stock is
currently listed on the Nasdaq SmallCap Market. The Board of Governors of the
National Association of Securities Dealers, Inc. (the "NASD") has established
certain standards for the continued listing of a security on the Nasdaq SmallCap
Market. The standards required for the Company to maintain such listing
include, among other things, that the Company have total capital and surplus of
at least $1,000,000. As of December 31, 1996, the Company had a total capital
and surplus deficit of $658,000. The Company does not currently meet the
minimum requirements necessary to maintain its NASDAQ stock market listing and
will not meet those requirements until such time as it is able to raise capital
by the sale of additional equity securities or increased sales of its
POSICAM(TM) systems. There can be no assurances that the Company will ever meet
the capital and surplus requirements needed to maintain its Nasdaq SmallCap
Market System listing.
16
<PAGE>
In the event that the Company is unable to satisfy Nasdaq's maintenance
requirements, trading would be conducted in the "pink sheets" or the NASD's
Electronic Bulletin Board. In the absence of the Common Stock being quoted on
the Nasdaq SmallCap Market, as the Company does not have $2,000,000 in net
tangible assets, trading in the Common Stock would be covered by rules
promulgated under the Exchange Act for non-Nasdaq and non-exchange listed
securities. Under such rules, broker/dealers who recommend such securities to
persons other than established customers and accredited investors must make a
special written suitability determination for the purchaser and receive the
purchaser's written agreement to a transaction prior to sale. Securities are
exempt from these rules if the market price is at least $5.00 per share. As of
March 14, 1997, the closing price of the Company's Common Stock was $2.093.
The SEC has adopted regulations that generally define a penny stock to be
any equity security that has a market price of less than $5.00 per share,
subject to certain exceptions. Such exceptions include, in general, an equity
security listed on the Nasdaq Market and an equity security issued by an issuer
that has (i) net tangible assets of at least $2,000,000, if such issuer has been
in continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average revenue of at least $6,000,000 for the preceding three
years. Unless an exception is available, the regulations require the delivery,
prior to any transaction involving a penny stock, of a disclosure schedule
explaining the penny stock market and the risks associated therewith.
If the Company's Common Stock was subject to the regulations on penny
stock, the market liquidity for the Common Stock would be severely affected by
limiting the ability of broker/dealers to sell the Common Stock in the public
market. There is no assurance that trading in the Company's securities will not
be subject to these or other regulations that would adversely affect the market
for such securities.
NASDAQ SHAREHOLDER APPROVAL REQUIREMENT. In general, the rules governing
the listing of the Company's Common Stock on the Nasdaq SmallCap Market require
approval by the Company's Common Stockholders of any transaction, other than a
public offering, involving the sale or issuance by the Company of its Common
Stock, or securities convertible into or exercisable for Common Stock, at a
price less than the greater of book or market value, which equals more than 20%
of the issued and outstanding Common Stock. Under ordinary circumstances, the
Company would have been required to obtain such shareholder approval before
proceeding with the Company's private placement of Series A Preferred Stock.
However, on February 9, 1996, the NASD granted the Company an exception to the
shareholder requirement. In order to be entitled to receive the exception, the
Company's Board of Directors, and the members thereof comprising the Company's
Audit Committee, determined that the delay in proceeding with the Company's
March, 1996 private placement of Series A Preferred Stock that would be
necessary in order to obtain the required shareholder approval would seriously
jeopardize the financial viability of the Company. The exception granted by the
NASD required the Company to mail to all of its shareholders a letter alerting
the shareholders to the Company's omission in seeking the required shareholder
approval and that its Audit Committee has expressly approved the Company's
reliance on such exception. The Company's reliance on such exception may have
an adverse affect on the public trading price of its Common Stock.
DILUTION. In connection with the issuance of the Series A and Series B
Preferred Stock, the Company issued 1,266,690 warrants which are convertible
into its Common Stock and warrants to purchase its Common Stock. The exercise
of these warrants would be materially dilutive to the current issued and
outstanding shares of Common Stock. As of March 15, 1997, a total of 4,168 of
these warrants have been exercised and converted into Common Stock of the
Company.
SUBSTANTIAL COMPETITION AND EFFECTS OF TECHNOLOGICAL CHANGE. The industry
in which the Company is engaged is subject to rapid and significant
technological change. There can be no assurance that POSICAM(TM) systems can be
upgraded to meet future innovations in the PET industry or that new technologies
will not emerge, or existing technologies will not be improved, which would
render the Company's products obsolete or non-competitive. The Company faces
competition in the United States PET market primarily from General Electric
Company and Siemens Medical Systems, Inc., two major commercial manufacturers,
each of which has significantly greater financial and technical resources and
production and marketing capabilities than the Company. In addition, there can
be no assurance that other established medical concerns, any of which would
likely have greater resources than the Company, will not enter the market. The
Company also faces competition from other imaging technologies which are more
firmly established and have a greater
17
<PAGE>
market acceptance, including single-photon emission computed tomography
("SPECT"). There can be no assurance that the Company will be able to compete
successfully against any of its competitors.
NO ASSURANCE OF MARKET ACCEPTANCE. The POSICAM(TM) systems involve new
technology that competes with more established diagnostic techniques. The
purchase and installation of a PET system involves a significant capital
expenditure on the part of the purchaser. A potential purchaser of a PET system
must have an available patient base that is large enough to provide the
utilization rate needed to justify such capital expenditure. There can be no
assurance that PET technology or the Company's POSICAM(TM) systems will be
accepted by the target markets or that the Company's sales of POSICAM(TM)
systems will increase or that the Company will ever be profitable.
PATENTS AND PROPRIETARY TECHNOLOGY. The Company holds certain patent and
trade secret rights relating to various aspects of its PET technology, which are
of material importance to the Company and its future prospects. There can be no
assurance, however, that the Company's patents will provide meaningful
protection from competitors. Even if a competitor's products were to infringe
on patents held by the Company, it would be costly for the Company to enforce
its rights and the enforcement of its rights would divert funds and resources
from the Company's operations. Furthermore, there can be no assurance that the
Company's products will not infringe any patents of others.
The Company requires each employee and/or consultant to enter into a
confidentiality agreement, but there can be no assurance that these agreements
will provide meaningful protection or adequate remedies for the Company's trade
secrets or proprietary know-how in the event of unauthorized use or disclosure
of such information or that others will not independently develop substantially
equivalent proprietary information and techniques or otherwise gain access to
the Company's trade secrets and proprietary know-how.
GOVERNMENT REGULATION. The Company's POSICAM(TM) systems and the
radiopharmaceuticals used in connection with them are subject to regulation by
the FDA. The FDA regulates and must approve the clinical testing, manufacturing,
labeling, distribution and promotion of medical devices in the United States.
There can be no assurance that any additional product or enhancement that the
Company may develop will be approved by the FDA. Delays in receiving regulatory
approval could have a material adverse effect on the Company's business. In
addition, various foreign countries in which the Company's products are or may
be marketed impose additional regulatory requirements. Further, the Company's
operations and the operations of users of PET systems are subject to regulation
under federal and state health and safety laws, and purchasers and users of PET
systems are subject to federal and state laws and regulations regarding the
purchase of medical equipment such as PET systems. All laws and regulations,
including those specifically applicable to the Company, are subject to change.
The Company cannot predict what effect changes in laws and regulations might
have on its business. Failure to comply with applicable laws and regulatory
requirements could have a material adverse effect on the Company's business,
financial condition, results of operations and cash flows.
CERTAIN FINANCING ARRANGEMENTS. In order to sell its POSICAM(TM) systems,
the Company has from time to time found it necessary to participate in ventures
with certain customers or otherwise assist customers in their financing
arrangements. The venture arrangements have involved lower cash prices for the
Company's systems in exchange for interests in the ventures, thus exposing the
Company to the attendant business risks of the ventures. The Company has, in
certain instances, sold its systems to financial intermediaries which have, in
turn, leased the systems to users. Such transactions may not give rise to the
same economic benefit to the Company as would have occurred had the Company made
a direct cash sale at its normal market prices on normal sales terms. There can
be no assurance that the Company will not find it necessary to enter into
similar transactions to effect future sales. The nature and extent of the
Company's interest in such ventures or the existence of remarketing or similar
obligations could require the Company to account for such transactions as
financing arrangements rather than "sales" for financial reporting purposes.
Such treatment could have the effect of delaying the recognition of revenue on
such transactions and may increase the volatility of the Company's financial
results.
PRODUCT LIABILITY AND INSURANCE. The use of the Company's products entails
risks of product liability. There can be no assurance that product liability
claims will not be successfully asserted against the Company. The Company
maintains liability insurance coverage in the amount of $2 million per
occurrence and an annual aggregate maximum of $3 million. However there can be
no assurance that the Company will be able to maintain such insurance in the
future or, if maintained,
18
<PAGE>
that such insurance will be sufficient in amount to cover any successful
product liability claims. Any uninsured liability could have a material
adverse effect on the Company.
NO DIVIDENDS. The Company has never paid cash dividends on its Common
Stock and does not intend to pay cash dividends on its Common Stock in the
foreseeable future. The Series A Preferred Stock and Series B Preferred Stock
Statements of Designation prohibit the payment of Common Stock dividends until
all required dividends have been paid on each series of preferred stock. As of
December 31, 1996, approximately $185,000 of preferred stock dividends are
undeclared and unpaid by the Company.
_____________
(1) This statement is a forward looking statement that involves risks and
uncertainties. Accordingly, no assurances can be given that the actual
events and results will not be materially different from the anticipated
events and results described in the forward looking statement. See "Item
1. Description of Business -- Risks Associated with Business Activities"
for a description of various factors that could materially affect the
ability of the Company to achieve the anticipated results described in the
forward looking statement.
Item 2. DESCRIPTION OF PROPERTY
The Company occupies a 30,000 square foot facility in Houston, Texas. That
facility includes area for system assembly and testing, a computer room for
hardware and software product design, and office space. The facility is leased
through June 2000. The current lease rate is approximately $25,000 per month
and increases to approximately $35,000 per month beginning in July 1998. The
Company estimates the space to be sufficient for the foreseeable future.
Item 3. LEGAL PROCEEDINGS
No legal proceedings are currently pending against the Company.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the Company's fiscal year.
19
<PAGE>
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
In December 1993, the Company completed an initial public offering of
1,750,000 shares of Common Stock and 1,946,775 redeemable warrants (the
"Redeemable Warrants") to purchase Common Stock (the "Initial Public Offering").
Prior to the Initial Public Offering there was no public market for the
Company's Common Stock. The Company's Common Stock and Redeemable Warrants are
currently traded on the Nasdaq SmallCap Market under the symbols POSI and POSIW,
respectively. See "Item 1. Description of Business -- Risks Associated with
Business Activities."
The following sets forth the range of the high and low reported closing
sales prices for the Company's Common Stock for the four quarters of 1996 and
1995, all as reported on the NASDAQ SmallCap Market.
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C> <C> <C>
High Low High Low
------ ------ ------ ------
First Quarter $3.438 $1.375 $5.250 $1.875
Second Quarter 4.188 3.250 4.750 3.625
Third Quarter 5.500 2.000 5.000 2.875
Fourth Quarter 3.250 1.500 5.125 1.000
</TABLE>
There were approximately 250 holders of record of shares of Common Stock as
of March 15, 1997. The Company estimates that there were also approximately 800
beneficial holders of Common Stock as of March 15, 1997.
The Company has never paid cash dividends on its Common Stock. The Company
does not intend to pay cash dividends on its Common Stock in the foreseeable
future. The Series A Preferred Stock and Series B Preferred Stock Statements of
Designation prohibit the payment of Common Stock dividends until all required
dividends have been paid on each series of preferred stock. As of December 31,
1996, approximately $185,000 of preferred stock dividends are undeclared and
unpaid by the Company.
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
GENERAL
The Company was incorporated in December 1983 and commenced commercial
operations in 1986. Since that time, the Company has generated revenues
primarily from the sale and service of the Company's POSICAM(TM) systems.
To date, the Company has sold 20 POSICAM(TM) systems; 15 of which are currently
in operation in leading medical facilities in the United States. In addition
the Company has sold and installed two (2) POSICAM(TM) system internationally.
Three (3) systems are no longer operational. Of the 15 POSICAM(TM) systems
currently operating in the United States, nine (9) are in use at sites which are
primarily dedicated to clinical cardiology, one (1) is primarily dedicated to
oncology and five (5) are in use at multi-disciplinary research/clinical sites.
GENERAL ELECTRIC TRANSACTION. In July 1996, the Company and General
Electric Company ("GE") entered into an Acquisition Agreement (the "Agreement"),
which initially expired on January 4, 1997, pursuant to which the Company agreed
to purchase a portion of GE's product line relating to the design, engineering
and manufacture of certain PET equipment and related cyclotron systems (the
"Business"). Under the terms of the Agreement, the Company agreed to (i)
purchase from GE all of the capital stock of its wholly-owned Swedish
subsidiary, and (ii) purchase or license from GE substantially all of its assets
which are used principally in the conduct of Business. Additionally, the
Company and GE entered into a Sales and Marketing Agreement (the "Marketing
Agreement") pursuant to which, subject to the conditions and limitations set
forth therein, GE agreed to purchase on an exclusive basis, and the Company
agreed to supply to GE, certain PET equipment and related cyclotron systems
(collectively the "PET Products"). The initial term of the Marketing
20
<PAGE>
Agreement was for five (5) years. Subject to the conditions set forth therein,
GE agreed that, during the initial term of the Marketing Agreement, GE would
not, directly or indirectly engage in the design, engineering of manufacture of
PET Products.
In exchange for the sale by GE of the assets described above and the
capital stock of its Swedish subsidiary, as well as the performance by GE of its
obligations under the Marketing Agreement, the Company agreed to pay to GE cash
of $25 million, subject to certain specified adjustments. Additionally, the
Company agreed to issue to GE a number of shares of its Common Stock (the
"Acquisition Stock") which, would equal 10% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and related common stock purchase warrants
and the issuance and exercise of the GE Option (described below). The Company
also agreed to issue to GE an option (the "GE Option") to purchase a number of
shares of Common Stock which, upon exercise and conversion into shares of the
Company's Common Stock, would equal 15% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and the issuance, exercise and conversion
of the GE Option. The GE Option was initially exercisable for three (3) years
at an exercise price of $4.25. On January 4, 1997, GE and the Company agreed
to extend the expiration date of the Agreement until March 31, 1997.
The acquisition is subject to the satisfaction or waiver of certain
conditions precedent, including the Company's procurement of financing upon
terms and conditions acceptable to the Company and the approval by the Company's
shareholders of certain terms of the acquisition, including the issuance of the
Acquisition Stock and GE Option. Under certain circumstances, if the Agreement
is terminated and the termination is not due to a breach by GE of its
representations, warranties or covenants set forth in the Agreement the Company
is required to pay to GE a termination fee of $1.5 million if the Company enters
into certain specified transactions within two (2) years of the date of
termination of the Agreement.
As of March 31, 1997, the Company had not obtained commitments for the
financing required to complete the acquisition, nor has it obtained shareholder
approval of the issuance of the Acquisition Stock, the GE Option or the
Agreement. There is no assurance that the Company will be able to procure the
required financing or that it will be successful in obtaining shareholder
approval of the transaction. Failure of the Company to close the acquisition of
the Business is likely to have a material adverse effect on the Company's
ability to continue as a going concern. See "Item 1. Description of Business -
Risk Associated with Business Activities" and "Item 6. Management's Discussion
and Analysis or Plan of Operation - Liquidity and Capital Resources".
On April 10, 1997, GE informed the Company that it was exercising its right
to terminate the Agreement and that it will pursue other options for its PET
business. GE remains open to discussing a transaction on revised terms, if and
only if, (i) a prompt closing and payment of the full purchase price are
assured, (ii) the transaction continues to make business sense for both parties,
and (iii) all necessary details can be agreed upon by the parties. The Company
and GE have no binding agreement to proceed with these discussions, nor can any
assurances be given that if they do proceed, any workable agreement will be
reached by the parties.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995.
Total revenue decreased $1,752,000 or 32.9% from $5,327,000 for the year ended
December 31, 1995 to $3,575,000 for the year ended December 31, 1996.
Revenue from system sales decreased from $3,310,000 for 1995, to $650,000
for the same period in 1996, a decrease of $2,660,000 or 80.4%. Included in
1996 results is a sale of a refurbished system at $650,000 compared to 1995
which included three sales of the HZ series systems.
In the third quarter of 1995, the Company shipped its first system under a
fee-per-scan contract. This system was installed and operable in the fourth
quarter of 1995. Under the terms of the contract, the Company retains
21
<PAGE>
ownership to the POSICAM(TM) system and recognizes revenue based on the number
of patients scanned on a daily basis. Fee-per-scan revenue for 1996 was
$415,000 compared to $68,000 in 1995.
Service revenue increased $561,000 or 28.8% from $1,949,000 for the year
ended December 31, 1995, to $2,510,000 for the 1996 period. The increase was
attributable to the booking of a system upgrade of $750,000 in 1996, offset by
two service contracts which were not renewed in 1996 as well as reductions in
the price of certain other service contracts.
Gross profit in 1996 was $1,477,000 compared to $1,859,000 for 1995, a
decrease of $382,000 or 20.5%. The decrease in gross profit resulted from a
$1,000,000 non-recurring warranty reserve booked in the first quarter of 1996 in
anticipation of possible losses to be incurred on the exchange of a scanner,
explained below, and a reduction in gross profit due to three HZ sales in the
1995 period versus the sale of a refurbished system in 1996. These decreases
were offset by an increase of $750,000 for the system upgrade mentioned above,
the cost of which was booked in the fourth quarter of 1995, and an increase in
gross profit of $201,000 for the fee-per-scan system in 1996 as compared to
1995.
The Company was notified by the customer who purchased the initial
production model HZL series scanner that the scanner was not performing to
certain of the contracted for specifications. These specifications are higher
than those customarily provided to purchasers of the HZL scanner. Additionally,
the scanner has experienced certain reliability problems related to detector
module failures which are currently being corrected by the Company. The Company
has agreed with the customer to replace the scanner with a new scanner if it is
unable to bring the existing scanner up to the contracted specification. If
necessary, the Company anticipates that the defective scanner will be replaced
in mid-1997. If the replacement scanner does not meet the contracted
specifications, the customer could, among other things, return the system and
demand a full refund of the approximate net purchase price of $1,500,000; or,
request a discount (partial refund) from the contracted purchase price. In
anticipation of the potential losses to be realized in correcting these problems
the Company increased its reserve for replacement of the scanner by $1 million
in the first quarter of 1996.
Total operating expense increased $659,000 or 9.6% from $6,831,000 for the
year ended December 31, 1995, to $7,490,00 for the same period in 1996.
Research and development expense decreased $254,000 or 10.2% from
$2,481,000 in 1995 to $2,227 in 1996, principally due to reduced personnel and
program material costs.
Selling and marketing expense decreased $453,000 or 29.8% from $1,518,000
for the year ended December 31, 1995, to $1,065,000 for the same period in 1996.
The decrease is due principally to lower sales commissions in 1996 versus 1995
combined with a reduction in the number of sales and marketing personnel.
General and administrative expense increased $1,366,000 or 48.2% from
$2,832,000 in 1995 to $4,198,000 for the same 1996 period. The increase is
attributable to an increase in the reserve for doubtful accounts of
approximately $760,000, as well as increased professional fees, property taxes
and public relations costs. The Company's sales contract with the University of
Madrid requires payment to the Company based upon the number of clinical scans
performed at the PET center. To date, the Company has received payment of
approximately $188,000 upon shipment of the scanner and has not received any
additional payments on the University's account. In anticipation of the
possibility that the $813,000 balance owed by the University of Madrid would not
be paid, the Company increased its allowance for doubtful accounts for the
Madrid system to approximately $813,000 in the fourth quarter of 1996.
Other income and (expense) increased $306,000, or 546.4% from ($56,000) in
1995 to $362,000 in 1996. The increase resulted principally from interest
expense exceeding interest income as a result of the Company's short-term
borrowing to finance its operations as well as significantly lower invested
excess cash.
As a result of the above reasons, the Company's loss increased 26.8% or
$1,347,000 from $5,028,000 in 1995 to $6,375,000 in 1996.
22
<PAGE>
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994.
Total revenue for the year ended December 31, 1995 was $5,327,000 a decrease of
$754,000 or 12.4% from $6,081,000 for the year ended December 31, 1994.
Revenue from system sales decreased $690,000 or 17.3% from $4,000,000 in
1994 compared to $3,310,000 in 1995. Revenue for 1994 included approximately
$2,000,000 related to the sale of a cyclotron and $1,900,000 related to the sale
of one POSICAM(TM) system. Revenue for 1995 included three POSICAM(TM) system
sales with an average selling price of approximately $1,100,000 each.
In the second quarter of 1995, the Company shipped its first POSICAM(TM)
system under a fee per scan contract. Under the terms of the contract, the
Company retains ownership to the POSICAM(TM) system and recognizes revenue and
cost based upon the number of patients scanned on a monthly basis. Fee per
scan revenue was $68,000 in 1995 compared to $0 in 1994. (See "Item 1.
Description of Business--Risk Associated with Business Activities--Certain
Financing Arrangements.")
Service revenue in 1995 was $1,949,000, a decrease of $132,000 or 6.3% from
the 1994 total of $2,081,000. The decrease was principally due to the non-
renewal of two service contracts included in 1994 being offset by one new
contract for which the service revenue period began in January, 1995.
Gross profit decreased from $2,664,000 in 1994 to $1,859,000 in 1995, a
decrease of 30.2% or $805,000. The decrease is principally attributable to the
lower average system selling prices.
Operating expense increased $108,000 or 1.6% from $6,723,000 in 1994 to
$6,831,000 in 1995. The increase was principally attributable to increased
emphasis placed on various marketing programs in 1995 and increased selling
costs in 1995 offset by lower research and development costs.
Research and development expenditures decreased $196,000 or 7.3% from
$2,677,000 in 1994 to $2,481,000 in 1995. The decrease was due to a special one-
time compensation payment made in 1994 as well as two research grants awarded in
1994 which were not present in 1995 being offset by increased labor costs in
1995 related to research and development of the Company's HZ series POSICAM(TM)
system.
Selling and marketing expense increased by 19.5% or $248,000 to $1,518,000
in 1995, from $1,270,000 in 1994. The increase was principally due to stronger
emphasis placed on various marketing programs, including market analysis of
changes in the managed care portion of the health care industry. Additionally,
sales commissions and travel related to additional system sales increased in
1995 over 1994.
General and administrative expense increased 2.0% or $56,000, from
$2,776,000 in 1994 to $2,832,000 in 1995. The increase was principally due to
higher general and administrative salaries in 1995 as well as increased
manufacturing administrative costs, offset by a decrease in the 1995
compensation accrual.
Other income and (expense) increased $354,000 from income of $298,000 in
1994 to an expense of $56,000 in 1995. The increase resulted principally from
interest expense exceeding interest income as a result of the Company's need to
borrow short-term funds to finance its operations as well as significantly lower
invested excess cash.
As a result of the above reasons, the Company's loss increased 33.7% or
$1,267,000 from $3,761,000 in 1994 to $5,028,000 in 1995.
NET OPERATING LOSS CARRYFORWARDS
The Company has accumulated a significant net operating loss carryforward
which may be used to reduce taxable income and related income taxes in future
years. Since the closing of the Company's 1993 initial public offering and the
sale in February, March and May of 1996 of 3,075,318 Shares of Series A
Convertible Preferred Stock, each resulted in more than a 50% change in the
ownership percentages of shareholders, the provisions of Section 382 of the
Internal Revenue Code severely limit the annual utilization of the net operating
loss carryforwards. In
23
<PAGE>
addition, the utilization of the losses to reduce future income taxes is
dependent upon the generation of sufficient taxable income prior to the
expiration of the net operating loss carryforwards. The carryforwards will
begin to expire in the year 1999.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception the Company has been unable to sell its POSICAM(TM)
systems in sufficient quantities to be profitable. Consequently, the Company
has sustained substantial losses. Net losses for the years ended December 31,
1996 and 1995 were $6,375,000 and $5,028,000, respectively. The Company had an
accumulated deficit of $44,505,000 at December 31, 1996. Due to the sizeable
selling prices of the Company's systems and the limited number of systems sold
or placed in service each year, the Company's revenues have fluctuated
significantly year to year.
At December 31, 1996, the Company had cash and cash equivalents in the
amount of $382,000 compared to $102,000 at December 31, 1995. During certain
times in 1996 and the first quarter of 1997, the Company has been unable to meet
certain of its obligations as they came due. As a result of the Company's
liquidity problem certain management level employees have deferred payment of
salaries through March 15, 1997 totaling $135,000. Additionally, the Company is
in arrears to many of its vendors and suppliers. As of March 31, 1997, such
amount owed to vendors and suppliers totaled approximately $1,100,000. This
amount excludes the nine months severance demand made by Dr. Haas. See comments
under Employees above.
As a result of the Company's liquidity problems, its auditors, Coopers &
Lybrand, L.L.P., have added an explanatory paragraph to their opinion on the
Company's financial statements indicating that substantial doubt exists about
the Company's ability to continue as a going concern. In conjunction with the
financing of the proposed acquisition of GE's PET assets and technology, the
Company anticipates that it will secure working capital financing totaling
approximately $7 million to fund its ongoing operations until such time as the
sales of its and GE's PET systems generate sufficient cashflow to fund
operations, however, no assurances can be given that the Company will
successfully complete such financing (See "Item 1. Risk Associated with
Business Activities - General Electric Transaction"). It is the Company's
intention to utilize a portion of such working capital funds to significantly
reduce the level of its past due obligations to its employees, vendors and
suppliers.(1) Additionally, the Company believes that it will reach cashflow
break-even at the point at which it is selling approximately fifteen (15)
systems per year, however no assurance can be given that the Company will ever
reach such break-even level of sales(1).
Due to its current liquidity problems, the Company currently is unable to
fulfill its commitment to manufacture the systems in its order backlog. As
mentioned above, the Company believes that it will be successful in securing the
working capital necessary to fund the manufacture of these orders.
In the event that the Company is unable to complete its acquisition of GE's
PET assets and technology, it will be necessary for it to enhance its financial
position by means of raising capital by the sale of additional equity
securities, the placement of additional debt or increased sales of its
POSICAM(TM) systems. Although the Company has been actively pursuing the above
financing alternatives in connection with its proposed acquisition of GE's PET
assets, no assurances can be given that the Company will be able to successfully
alleviate its current financial difficulties or that it will be able to continue
as a going concern in the absence of obtaining such financing.(1)
The Company currently has no shares of Common Stock available for issuance
and all authorized shares have either been issued or reserved for issuance in
respect of outstanding options and warrants or convertible securities. The lack
of such available shares significantly restricts the Company's ability to raise
additional capital through the sale of equity securities. The Company believes
that its shareholders will approve an increase in the number of authorized
common shares at its Annual Meeting; however, no assurance can be given that
such additional shares will be authorized in adequate time to allow the Company
to issue such equity securities.
24
<PAGE>
Prior to the issuance of Series A Preferred Stock in February and March
1996, discussed below, the Company also experienced significant liquidity
problems and was unable to pay certain of its obligations within their standard
terms. As such the Company borrowed a total of $1,313,000 during the last
fiscal quarter of 1995 and first quarter of 1996 from Uro-Tech, Ltd., ("Uro-
Tech") an affiliate of the Company, discussed below.
URO-TECH LOAN. During the last quarter of 1995 and the first quarter of
1996, in order to fund its activities, the Company borrowed a total of
$1,313,000 from Uro-Tech, Ltd., (the "Uro-Tech Loan"). The Uro-Tech Loan, as
amended, bears interest at 13.8% per annum and matures on March 31, 1997. On
March 31, 1997, Uro-Tech agreed to an extension of the loan agreement until
April 30, 1997; all other terms and conditions of the agreement remain
unchanged. The Uro-Tech Loan is collateralized by liens and security interests
encumbering most of the Company's assets including the Company's know-how,
patents and proprietary rights pertaining to its PET technology. In connection
with the loan from Uro-Tech, the Company granted Uro-Tech warrants to purchase
67,500 shares of Common Stock, at an exercise price of $2.00 per share
exercisable through February 7, 2001. The Company anticipates that the Uro-Tech
Loan will be repaid with a portion of the proceeds of the funding of the
acquisition of the PET assets and tecnology of GE.(1)
BF&E LOAN. On February 7, 1996, the Company entered into a lending
facility with Boston Financial & Equity Corporation pursuant to which the
Company may borrow up to 80% of its outstanding qualified accounts receivable
(the "BF&E Loan"). The maximum amount available under the BF&E Loan is
$1,000,000 and the BF&E Loan is collateralized by liens and security interests
encumbering most of the Company's assets including the Company's know-how,
patents and proprietary rights pertaining to its PET technology. As of March
14, 1997 the available borrowing capacity under the BF&E Loan was approximately
$213,000 and $213,000 was outstanding under the BF&E Loan. The BF&E Loan, as
amended, bears interest at 13.8% per year and matures on March 31, 1997. On
March 31, 1997, BF&E agreed to an extension of the loan agreement until April
30, 1997, all other terms and conditions of the agreement remain unchanged. In
connection with the BF&E Loan, the Company granted warrants to BF&E to purchase
45,000 shares of Common Stock, at an exercise price of $2.00 per share
exercisable through February 7, 2001. The warrants contain standard anti-
dilution provisions and registration rights with respect to the shares of Common
Stock issuable upon the exercise thereof. The Company anticipates that he BF&E
Loan will be repaid with a portion of the proceeds of the funding of the
acquisition of the PET assets and technology of GE.(1)
PRIVATE PLACEMENT OF SERIES A PREFERRED STOCK. In February, March and May
of 1996, the Company issued 3,075,318 shares of Series A 8% Cumulative
Convertible Redeemable Preferred Stock $1.00 par value ("Series A Preferred
Stock") and Redeemable Common Stock Purchase Warrants to purchase 1,537,696
shares of the Company's Common Stock. The net proceeds of the private placement
were approximately $2,972,000. Each share of the Series A Preferred Stock is
immediately convertible into one share of Common Stock. Each Redeemable Common
Stock Purchase Warrant is exercisable at a price of $2.00 per share of Common
Stock. As a result of the private placement of Series A Preferred Stock, the
Company currently does not have any available authorized shares of Common Stock
available for issuance.
In conjunction with the issuance of the aforementioned Series A Preferred
Stock, Uro-Tech, converted $650,000 of the amount payable to it into 433,329
shares of Series A Preferred Stock and 216,671 Redeemable Stock Purchase
Warrants.
PRIVATE PLACEMENT OF SERIES B PREFERRED STOCK. In July 1996, the Company
issued 25,000 shares of Series B 8% Cumulative Convertible Redeemable Preferred
Stock $1.00 par value ("Series B Preferred Stock") and Common Stock Purchase
Warrants to purchase up to 100,000 shares of its Common Stock, par value $.01
per share. The Series B Preferred Stock plus Common Stock Purchase Warrants
sold for approximately $50.00 per share of series B Preferred Stock. Subject to
adjustment for certain antidilution events, each share of Series B Preferred
Stock is initially convertible into 25 shares of Common Stock and each Common
Stock Purchase Warrant is exercisable for one share of Common Stock at an
exercise price of $2.00 per share. Each share of the Series B Preferred Stock
has a liquidation preference of $50.00 and is junior to the outstanding Series A
Preferred Stock. The Series B Preferred Stock and the Common Stock Purchase
Warrants are not convertible or exercisable until such time as the Company's
shareholders approve an amendment to its Articles of Incorporation increasing
the amount of the authorized Common Stock by at lease 2,500,000 shares.
25
<PAGE>
Both of the Series A and Series B Preferred Stocks contain restrictions on
the payment of dividends on the Company's Common Stock.
PROFUTURES LOAN. On November 14, 1996, in order to fund its activities,
the Company obtained a loan facility of $1,400,000 from ProFutures Bridge
Capital, L.P. (The "ProFutures Loan"). The ProFutures Loan bears interest at a
rate of 12% until April 1, 1997, at which time the rate increases to 15%. If
any debt remains outstanding after November 30, 1997, the interest rate will
increase to 18% per annum. The ProFutures Loan is secured by liens and security
interest encumbering all of the assets of the Company, including know-how,
patents and proprietary rights pertaining to its PET technology. In addition,
the Company granted ProFutures Bridge Capital, L.P. a ten year warrant to
purchase 250,000 shares of its common stock at an exercise price of $2.40 per
share. Since the ProFutures Loan was not repaid on or before April 1, 1997,
the Company was required to grant to ProFutures additional warrants for the
purchase of an additional 100,000 shares of its common stock. The exercise
price of such additional warrants was determined based upon the average closing
trading price for the Company's common stock for the ten (10) trading days prior
to April 1, 1997, which was $1.91. The Company anticipates that the ProFutures
Loan will be repaid with a portion of the proceeds of the funding of the
acquisition of the PET assets and technology of GE.(1)
HEALTH CARE REFORMS
The Company believes that expansion of the use of PET will ultimately
depend upon favorable coverage and reimbursement policies by Medicare, Medicaid
and third party medical insurance companies. The Company believes that these
reimbursement policies will likely be influenced by the current movement towards
health care reform.(1)
FUTURE TRENDS
The Company believes that as the market for PET systems matures,
competition among the manufacturers of PET systems will force the price of PET
systems down.(1) The Company intends to continue its program of value
engineering, which is designed to reduce the Company's cost of manufacturing a
PET system.(1) The Company believes that the average cost of producing a PET
system will decrease as volume increases.(1) The Company also believes that
through a value engineering program and other cost reductions, it will be able
to maintain its current gross margins on sales of its systems.(1) However,
there can be no assurance that the Company can maintain its gross margin in the
face of increasing price pressures.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, Earnings Per Share, which establishes specific computation,
- --------------------------------
presentation and disclosure requirements for earnings per share of entities with
publicly held common stock or potential common stock in order to simplify the
computation of earnings per share and make it compatible with the standards of
other countries and with that of the International Standards committee. SFAS
128 is effective for financial statements of both interim and annual periods
ending after December 15, 1997.
In March 1996, the FASB issued SFAS No. 129, Disclosure of Information
---------------------------------------
about Capital Structure, which applies to all entities and is effective for
- -----------------------
financial statements for periods ending after December 15, 1997.
The Company is currently evaluating its alternatives under SFAS No. 128 and
SFAS No. 129; however, their impact on operating results when initially adopted
is expected to be immaterial.
___________________
(1) This statement is a forward looking statement that involves risks and
uncertainties. Accordingly, no assurance can be given that the actual
events and results will not be materially different from the anticipated
events and results described in the forward looking statement. See "Item.
1 Description of Business -- Risks Associated with Business Activities" and
"-- Third-Party Reimbursement" for a description of various factors that
could materially affect the ability of the Company to achieve the
anticipated results described in the forward looking statement.
26
<PAGE>
Item 7. FINANCIAL STATEMENTS
The required Financial Statements and the notes thereto are contained in a
separate section of this report beginning with the page following the signature
page.
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
No disagreements exist between the Company and Coopers & Lybrand L.L.P. on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Incorporated herein by reference to the Company's definitive proxy
statement for the Company's Annual Meeting of Shareholders. It is expected such
proxy statement will be filed with the Securities and Exchange Commission no
later than 120 days subsequent to December 31, 1996.
Item 10. EXECUTIVE COMPENSATION
Incorporated herein by reference to the Company's definitive proxy
statement for the Company's Annual Meeting of Shareholders. It is expected such
proxy statement will be filed with the Securities and Exchange Commission no
later than 120 days subsequent to December 31, 1996.
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference to the Company's definitive proxy
statement for the Company's Annual Meeting of Shareholders. It is expected such
proxy statement will be filed with the Securities and Exchange Commission no
later than 120 days subsequent to December 31, 1996.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference to the Company's definitive proxy
statement for the Company's Annual Meeting of Shareholders. It is expected such
proxy statement will be filed with the Securities and Exchange Commission no
later than 120 days subsequent to December 31, 1996.
Item 13. EXHIBITS, LISTS AND REPORTS ON FORM 8-K
(a) Exhibits:
3.1 Articles of Incorporation of the Registrant (incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
3.2 By-laws of the Registrant, as amended (incorporated herein by
reference to Exhibit 3.2 of the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
4.1 Specimen Stock Certificate (incorporated herein by reference to
Exhibit 4.1 of the Company's Annual Report on Form 10-KSB for the
year ended December 31, 1994).
4.2 Form of Redeemable Warrant (included as a part of Exhibit 10.71).
27
<PAGE>
4.3 Statement of Designation Establishing Series A 8% Cumulative
Convertible Redeemable Preferred Stock of Positron Corporation, dated
February 28, 1996 (incorporated herein by reference to Exhibit 4.3
of the Company's Annual Report on Form 10-KSB for the year ended
December 1995).
4.4 Warrant Agreement dated as of February 29, 1996, between Positron
Corporation and Continental Stock Transfer & Trust Company
(incorporated herein by reference to Exhibit 4.4 of the Company's
Annual Report on Form 10-KSB for the year ended December 1995).
4.5 Specimen Redeemable Warrant Certificate to Purchase Shares of Common
Stock (incorporated herein by reference to Exhibit 4.5 of the
Company's Annual Report on Form 10-KSB for the year ended December
1995).
4.6 Stock Purchase Warrant dated as of February 7, 1996, issued by
Positron Corporation to Boston Financial & Equity Corporation
(incorporated herein by reference to Exhibit 4.6 of the Company's
Annual Report on Form 10-KSB for the year ended December 1995).
4.7* Statement of Designation Establishing Series B 8% Cumulative
Convertible Redeemable Preferred Stock of Positron Corporation,
dated July 9, 1996.
4.8* Form of Warrant Agreement dated as of July 10, 1996, between Positron
Corporation and Brooks Industries Profit Sharing Plan.
10.1 Lease Agreement dated as of July 1, 1991, by and between Lincoln
National Pension Insurance Company and Positron Corporation
(incorporated herein by reference to Exhibit 10.1 of the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.2 Agreement dated as of March 1, 1993, by and between Positron
Corporation and Oxford Instruments (UK) Limited (incorporated herein
by reference to Exhibit 10.2 of the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.3 International Distribution Agreement dated as of November 1, 1992, by
and between Positron Corporation and Batec International, Inc
(incorporated herein by reference to Exhibit 10.3 of the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.4+ 1994 Incentive and Nonstatutory Option Plan.
10.5+ Amended and Restated 1987 Stock Option Plan (incorporated herein by
reference to Exhibit 10.5 of the Company's Registration Statement on
Form SB-2 (File No. 33-68722)).
10.6+ 401(k) Retirement Plan and Trust (incorporated herein by reference to
Exhibit 10.6 of the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.7 Amended and Restated License Agreement dated as of June 30, 1987, by
and among The Clayton Foundation for Research, Positron Corporation,
K. Lance Gould, M.D., and Nizar A. Mullani (incorporated herein by
reference to Exhibit 10.7 of the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.8 Clarification Agreement to Exhibit 10.7 (incorporated herein by
reference to Exhibit 10.8 of the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.9 Royalty Assignment dated as of December 22, 1988, by and between K.
Lance Gould and Positron Corporation (incorporated herein by
reference to Exhibit 10.10 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.10 Royalty Assignment dated as of December 22, 1988, by and between
Nizar A. Mullani and Positron Corporation (incorporated herein by
reference to Exhibit 10.11 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.11 Royalty Assignment dated as of December 22, 1988, by and between The
Clayton Foundation and Positron Corporation (incorporated herein by
reference to Exhibit 10.12 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.12+ Stock Purchase Warrant dated October 31, 1993, issued to Gary B.
Wood (incorporated herein by reference to Exhibit 10.15 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.13 Amendment No. 1 to Exhibit 10.22 (incorporated herein by reference to
Exhibit 10.23 to the Company's Registration Statement on Form SB-2
(File No. 33-68722)).
10.14+ Consulting Agreement dated as of January 15, 1993, by and between
Positron Corporation and K. Lance Gould, M.D. (incorporated herein
by reference to Exhibit 10.24 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
28
<PAGE>
10.15 Stock Purchase Warrant dated February 25, 1993, issued to K. Lance
Gould (incorporated herein by reference to Exhibit 10.26 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.16+ Consulting Agreement dated February 23, 1995, effective December
15, 1994, by and between Positron Corporation and F. David Rollo,
M.D., Ph.D., FACNP.
10.17+ Consulting Agreement dated as of January 15, 1993, by and between
Positron Corporation and Nizar A. Mullani (incorporated herein by
reference to Exhibit 10.31 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.18+ Consulting Agreement dated as of November 12, 1993, by and between
Positron Corporation and OmniMed Corporation (incorporated herein
by reference to Exhibit 10.35 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.19 Contract No. 1318 dated as of December 30, 1991, by and between
Positron Corporation and The University of Texas Health Science
Center at Houston (incorporated herein by reference to Exhibit 10.39
to the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
10.20+ Letter Agreement dated July 30, 1993 between Positron Corporation
and Howard Baker (incorporated herein by reference to Exhibit 10.52
to the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
10.21 Technology Transfer Agreement dated as of September 17, 1990, by and
between Positron Corporation and Clayton Foundation for Research
(incorporated herein by reference to Exhibit 10.54 to the Company's
Registration Statement on Form SB-2 (File No. 33-68722)).
10.22 Stock Purchase Warrant dated as of October 31, 1993 issued to Gerald
Hillman (incorporated herein by reference to Exhibit 10.56 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.23 Stock Purchase Warrant dated as of October 31, 1993 issued to The
Dover Group (incorporated herein by reference to Exhibit 10.57 to
the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
10.24 Stock Purchase Warrant dated as of October 31, 1993, issued to John
Wilson (incorporated herein by reference to Exhibit 10.63 to the
Company's Registration Statement on Form SB-2 (File No. 33-68722)).
10.25+ Stock Purchase Warrant dated as of October 31, 1993, issued to
Robert Guezuraga (incorporated herein by reference to Exhibit 10.64
to the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
10.26 Stock Purchase Warrant dated as of October 31, 1993, issued to
Richard Ronchetti (incorporated herein by reference to Exhibit 10.65
to the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
10.27 Form of Amended and Restated Registration Rights Agreement dated as
of November 3, 1993, by and among Positron and the other signatories
thereto (1993 Private Placement) (incorporated herein by reference
to Exhibit 10.73 to the Company's Registration Statement on Form
SB-2 (File No. 33-68722)).
10.28 Registration Rights Agreement dated as of July 31, 1993, by and among
Positron and the other signatories thereto (other than the 1993
Private Placement) (incorporated herein by reference to Exhibit 10.74
to the Company's Registration Statement on Form SB-2 (File No.
33-68722)).
10.29 Software License dated as of March 1, 1993, by and between Positron
Corporation and Oxford Instruments (UK) Limited (incorporated herein
by reference to Exhibit 10.81 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.30 Distribution Agreement dated as of June 1, 1993, by and between
Positron Corporation and Elscint, Ltd. (incorporated herein by
reference to Exhibit 10.82 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.31+ Employment Agreement dated as of August 19, 1993, by and between
Positron Corporation and Richard E. Hitchens (incorporated herein by
reference to Exhibit 10.83 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
10.32+ Employment Agreement dated as of August 19, 1993, by and between
Positron Corporation and Howard R. Baker (incorporated herein by
reference to Exhibit 10.84 to the Company's Registration Statement
on Form SB-2 (File No. 33-68722)).
29
<PAGE>
10.33 Amended and Restated Warrant Agreement dated as of April 14, 1994, by
and between Positron Corporation and Continental Stock Transfer and
Trust Company (including form of Warrant Certificate).
10.34 First Amendment to Amended and Restated Registration Rights
Agreement, dated as of November 19, 1993, by and among Positron
Corporation and the other signatories thereto (incorporated herein
by reference to Exhibit 10.91 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.35 Agreement made and entered into as of October 31, 1993, by and
between Positron Corporation and Nizar A. Mullani (incorporated
herein by reference to Exhibit 10.97 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.36 Agreement made and entered into as of October 31, 1993, by and
between Positron Corporation and K. Lance Gould (incorporated herein
by reference to Exhibit 10.98 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.37 Agreement made and entered into as of November 15, 1993, by and
between Positron Corporation and Nizar A. Mullani (incorporated
herein by reference to Exhibit 10.100 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.38 Agreement made and entered into as of November 15, 1993, by and
between Positron Corporation and K. Lance Gould, M.D. (incorporated
herein by reference to Exhibit 10.101 to the Company's Registration
Statement on Form SB-2 (File No. 33-68722)).
10.39 First Amendment made and entered as of January 25, 1994, by and
between Emory University d/b/a Crawford Long Hospital and Positron
Corporation (incorporated herein by reference to Exhibit 10.102 to
the Company's Form 10-KSB for fiscal year ended December 31, 1993).
10.40+ Employment Agreement dated January 1, 1996 by and between Werner J.
Haas, Ph.D. and Positron Corporation (incorporated herein by
reference to Exhibit 10.40 of the Company's Annual Report on Form
10-KSB for the year ended December 1995).
10.41 Loan and Security Agreement made as of November 14, 1995, between
Positron Corporation and Uro-Tech, Ltd (incorporated herein by
reference to Exhibit 10.41 of the Company's Annual Report on Form
10-KSB for the year ended December 1995).
10.42 First Modification and Extension Agreement made as of January 3,
1996, by Positron Corporation and Uro-Tech, Ltd (incorporated herein
by reference to Exhibit 10.42 of the Company's Annual Report on Form
10-KSB for the year ended December 1995).
10.43 Second Modification and Extension Agreement made as of February 26,
1996, by Positron Corporation and Uro-Tech, Ltd (incorporated herein
by reference to Exhibit 10.43 of the Company's Annual Report on Form
10-KSB for the year ended December 1995).
10.44 Uro-Tech Loan Conversion Agreement dated as of November 14, 1995,
between Positron Corporation and Uro-Tech, Ltd (incorporated herein
by reference to Exhibit 10.44 of the Company's Annual Report on Form
10-KSB for the year ended December 1995).
10.45 Promissory Note dated September 14, 1995, in the principal amount of
$1,500,000 payable to Uro-Tech, Ltd (incorporated herein by
reference to Exhibit 10.45 of the Company's Annual Report on Form
10-KSB for the year ended December 1995).
10.46 Promissory Note dated September 14, 1995, in the principal amount of
$1,000,000 payable to Uro-Tech, Ltd (incorporated herein by
reference to Exhibit 10.46 of the Company's Annual Report on Form
10-KSB for the year ended December 1995).
10.47 Revolving Finance agreement with Boston Financial & Equity
Corporation (incorporated herein by reference to Exhibit 10.47 of
the Company's Annual Report on Form 10-KSB for the year ended
December 1995).
10.48 Security Agreement with Boston Financial & Equity Corporation
(incorporated herein by reference to Exhibit 10.48 of the Company's
Annual Report on Form 10-KSB for the year ended December 1995).
10.49 Supplement to Security Agreement Security Interest in Inventory
(incorporated herein by reference to Exhibit 10.49 of the Company's
Annual Report on Form 10-KSB for the year ended December 1995).
10.50 Inter-Creditor Agreement (incorporated herein by reference to Exhibit
10.50 of the Company's Annual Report on Form 10-KSB for the year
ended December 1995).
30
<PAGE>
10.51* Loan Agreement between Positron Corporation and Profutures Bridge
Capital Fund, L.P. dated November 1, 1996.
10.52* Promissory Note dated November 14, 1996, in the principal amount of
$1,400,000 payable to ProFutures Bridge Capital Fund, L.P.
10.53* InterCreditor Agreement dated November 14, 1996 among Uro-Tech,
Ltd., Boston Financial and Equity Corporation and ProFutures Bridge
Capital Fund, L.P.
10.54* Amendment to BF & E loan
10.55* Amendment to Uro-Tech loan
10.56* Acquisition Agreement between General Electric Company and Positron
Corporation dated July 15, 1996.
10.57* Purchase and Distribution Agreement between General Electric
Company and Positron Corporation.
11.1* Statement Regarding Computation of Per Share Loss.
23.0* Consent of Coopers & Lybrand, L.L.P.
_____________________
* Filed herewith
+ Management contract or compensatory plan or arrangement identified pursuant
to Item 13(a).
(b) Form 8-K Reports:
No current report on Form 8-K was filed by the Company during the fourth
quarter of 1996.
31
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
POSITRON CORPORATION
Date: April 8, 1997 By: /S/ GARY G. WOOD, PH.D.
-------------------------
Gary B. Wood, Ph.D.
Chairman of the Board
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities and on
the dates indicated.
/S/ GARY B. WOOD, PH.D. April 8, 1997
- --------------------------------------------
Gary B. Wood, Ph.D.
Chairman of the Board, President and Chief
Executive Officer; Director
(Principal Executive Officer)
/S/ DAVID O. RODRIGUE April 8, 1997
- --------------------------------------------
David O. Rodrigue
Chief Financial Officer and
Secretary (Principal Financial
and Accounting Officer)
/S/ K. LANCE GOULD, M.D. April 8, 1997
- --------------------------------------------
K. Lance Gould, M.D.
Director
/S/ F. DAVID ROLLO, M.D., PH.D. April 8, 1997
- --------------------------------------------
F. David Rollo, M.D., Ph.D.
Director
/S/ JOHN H. LARAGH, M.D. April 8, 1997
- --------------------------------------------
John H. Laragh, M.D.
Director
/S/ RONALD B. SCHILLING, PH.D. April 8, 1997
- --------------------------------------------
Ronald B. Schilling, Ph.D.
Director
/S/ WILLIAM S. KISER, M.D. April 8, 1997
- --------------------------------------------
William S. Kiser, M.D.
Director
32
<PAGE>
POSITRON CORPORATION
INDEX TO FINANCIAL STATEMENTS
Report of Independent Public Accountants F-2
Balance Sheets as of December 31, 1995 and 1996 F-3
Statements of Operations for the years ended
December 31, 1995 and 1996 F-4
Statements of Shareholders' Deficit for the years
ended December 31, 1995 and 1996 F-5
Statements of Cash Flows for the years ended
December 31, 1995 and 1996 F-6
Notes to Financial Statements F-7 to F-19
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
Board of Directors and Stockholders
Positron Corporation:
We have audited the accompanying balance sheets of Positron Corporation as of
December 31, 1995 and 1996 and the related statements of operations,
shareholders' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Positron Corporation as of
December 31, 1995 and 1996 and the results of its operations and its cash flows
for the years then ended, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 1. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 9, 1997
F-2
<PAGE>
POSITRON CORPORATION
BALANCE SHEETS
DECEMBER 31,
(in thousands, except share data)
ASSETS 1995 1996
-------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 102 $ 382
Accounts receivable, net of
allowance for doubtful accounts
of $53 and $813 as of
December 31, 1995 and 1996, respectively 1,417 520
Notes receivable - 324
Inventories 2,666 2,633
Prepaid expenses 172 159
Other current assets 58 426
-------- ---------
Total current assets 4,415 4,444
PLANT AND EQUIPMENT, net 1,028 967
NOTES RECEIVABLE 324 -
INTANGIBLE ASSETS, net 131 106
-------- ---------
Total assets $ 5,898 $ 5,517
======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable, trade $ 1,755 $ 1,113
Accrued liabilities 1,319 2,654
Revolving line of credit 0 75
Note payable to affiliate 1,073 663
Notes payable, other - 1,335
Unearned revenue 457 267
-------- ---------
Total current liabilities 4,604 6,107
-------- ---------
Other liabilities 79 68
-------- ---------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Series A Preferred Stock, 8% Cumulative,
Convertible Redeemable, $1.00 par, 0
and 5,450,000 shares authorized at
December 31, 1995 and 1996, respectively
and 0 and 2,404,624 shares issued and
outstanding at December 31, 1995 and 1996,
respectively. - 2,405
Series B Preferred Stock, 8% Cumulative
Convertible, Redeemable, $1.00 par, 0 and
25,000 shares authorized, issued, and
outstanding at December 31, 1995 and 1996,
respectively - 25
Common stock, $0.01 par, 15,000,000 shares
authorized, 3,637,320 and 4,312,182
shares issued and outstanding at
December 31, 1995 and 1996, respectively 36 43
Additional paid-in capital 39,309 41,374
Accumulated deficit (38,130) ( 44,505)
-------- ---------
Total shareholders' equity (deficit) 1,215 (658)
-------- ---------
Total liabilities and shareholders'
equity (deficit) $ 5,898 $ 5,517
======== =========
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
POSITRON CORPORATION
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands, except share data)
1995 1996
----------- -----------
REVENUES:
System sales $ 3,310 $ 650
Fee per scan 68 415
Service and component 1,949 2,510
---------- ----------
Total revenues 5,327 3,575
---------- ----------
COST OF SALES AND SERVICE:
System sales 2,549 316
Fee per scan 26 172
Service, warranty and component 893 610
Provision for loss on system exchange - 1,000
---------- ----------
Total cost of sales and service 3,468 2,098
---------- ----------
GROSS PROFIT 1,859 1,477
---------- ----------
OPERATING EXPENSES
Research and development 2,481 2,227
Selling and marketing 1,518 1,065
General and administrative 2,832 4,198
---------- ----------
Total operating expenses 6,831 7,490
---------- ----------
LOSS FROM OPERATIONS (4,972) (6,013)
---------- ----------
OTHER INCOME (EXPENSES):
Interest income (expense) 77 (197)
Other income (expense) (133) (164)
---------- ----------
Total other income (expenses) (56) (362)
---------- ----------
NET LOSS $ (5,028) $ (6,375)
========== ==========
NET LOSS PER COMMON SHARE $(1.38) $(1.67)
========== ==========
WEIGHTED AVERAGE COMMON SHARES USED IN
COMPUTING NET LOSS PER SHARE 3,637,320 3,811,026
========== ==========
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
POSITRON CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1996
(in thousands, except share data)
<TABLE>
<CAPTION>
Series A Preferred Stock Series B Preferred Stock Common Stock Additional
------------------------ ------------------------ --------------- Paid-In Accumulated
Shares Amount Shares Amount Shares Amount Capital Deficit
------------------------ ------------------------ --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, January 1, 1995 3,637,320 $ 36 $ 39,309 $ (33,102)
Net loss (5,028)
--------- ----- ---------- -----------
BALANCE, December 31, 1995 3,637,320 36 39,309 (38,130)
Net loss (6,375)
Issuance of Series A
Preferred Stock 2,641,989 $ 2,642 52
Issuance of Series B
Preferred Stock 25,000 $ 25 1,125
Conversion of Series A
Preferred (670,694) (670) 670,694 7 663
Stock to Common Stock
Conversion of Warrants to
Common Stock 4,168 8
Conversion of note payable
to affiliate to Series A
Preferred Stock 433,329 433 217
--------- --------- -------- --------- --------- ------ --------- -----------
BALANCE, December 31, 1996 2,404,624 $ 2,405 25,000 $ 25 4,312,182 $ 43 $ 41,374 $ (44,505)
========= ========= ======== ========= ========= ====== ========= ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
POSITRON CORPORATION
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
(in thousands)
1995 1996
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (5,028) $ (6,375)
Adjustments to reconcile net loss to net
cash used by operating activities-
Depreciation 198 112
Provision for doubtful accounts (41) 760
Amortization of intangible assets 25 25
Provision for loss on exchange of system - 1,000
Change in assets and liabilities, net of
non-cash transactions
Decrease in accounts receivable 249 137
(Increase) decrease in inventories (110) 33
(Increase) decrease in prepaid expenses (14) 13
(Increase) in other current assets (58) (368)
Decrease in other assets 1 -
Increase (decrease) in accounts
payable, trade 1,404 (642)
Increase (decrease) in accrued liabilities (334) 335
Increase in revolving line of credit 0 75
Increase (decrease) in unearned revenue 170 (190)
(Decrease) in other liabilities (11) (11)
Net cash used by operating activities (3,549) (5,096)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (972) (51)
-------- --------
Net cash used by investing activities (972) (51)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable to affiliate 1,073 240
Proceeds from notes payable, other - 1,400
Repayment of notes payable, other - (65)
Proceeds from issuance of Series A Preferred Stock - 3,375
Series A Preferred Stock issuance costs (681)
Proceeds from issuance of Series B Preferred Stock - 1,250
Series B Preferred Stock issuance costs - (100)
Proceeds from conversion of warrants to common stock - 8
-------- --------
Net cash provided by financing
activities 1,073 5,427
-------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (3,448) 280
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 3,550 102
-------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 102 $ 382
======== ========
NON-CASH FINANCING ACTIVITY:
Conversion of note payable to affiliate
into Series A Preferred Stock $ - $ 650
======== ========
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
POSITRON CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS:
Positron Corporation (the "Company") was incorporated on December 20, 1983, in
the State of Texas and commenced commercial operations during 1986. The Company
designs, manufactures, markets and services its POSICAM(TM) systems, advanced
medical imaging devices, utilizing positron emission tomography ("PET")
technology. These systems utilize the Company's patented and proprietary
technology, an imaging technique which assesses the biochemistry, cellular
metabolism and physiology of organs and tissues, as well as producing anatomical
and structural images. Targeted markets include medical facilities and
diagnostic centers located throughout the world. POSICAM(TM) systems are used by
physicians as diagnostic and treatment evaluation tools in the areas of
cardiology, neurology and oncology. The Company faces competition principally
from two other companies which specialize in advanced medical imaging equipment.
Since its inception the Company has been unable to sell its POSICAM(TM) systems
in sufficient quantities to be profitable. Consequently, the Company has
sustained substantial losses. Net losses for the years ended December 31, 1996
and 1995 were $6,375,000 and $5,028,000, respectively. The Company had an
accumulated deficit of $44,505,000 at December 31, 1996. Due to the sizeable
selling prices of the Company's systems and the limited number of systems sold
or placed in service each year, the Company's revenues have fluctuated
significantly year to year.
At December 31, 1996, the Company had cash and cash equivalents in the amount of
$382,000 compared to $102,000 at December 31, 1995. During certain times in 1996
and the first quarter of 1997, the Company has been unable to meet certain of
its obligations as they came due. As a result of the Company's liquidity
problem, certain management level employees have deferred payment of first
quarter 1997 salaries through March 15, 1997 totaling approximately $135,000.
Additionally, the Company is in arrears to many of its vendors and suppliers. As
of March 15, 1997, such amount owed totaled approximately $1,100,000. In
conjunction with the financing of the proposed acquisition of General Electric
Company's ("GE") PET assets and technology (see Note 12), the Company
anticipates that it will obtain working capital financing sufficient for it to
fund its ongoing operations until such time as the sales of its and GE's PET
systems generate sufficient cashflow to fund operations. It is the Company's
intention to utilize a portion of such working capital funds to significantly
reduce the level of its past due obligations to its employees, vendors and
suppliers.
In the event that the Company is unable to complete its acquisition of GE's PET
assets and technology, it will be necessary for it to enhance its financial
position by means of raising capital by the sale of additional equity
securities, the placement of additional debt or increased sales of its
POSICAM(TM) systems. Although the Company has been actively pursuing the above
financing alternatives in connection with its proposed acquisition of GE's PET
assets, no assurances can be given that the Company will be able to successfully
alleviate its current financial difficulties. Failure of the Company to close
the aforementioned acquisition or obtain an alternate source of capital is
likely to have a material adverse effect on the Company's ability to continue as
a going concern.
Additionally, the Company currently has no shares of its Common Stock available
for issuance and all authorized shares have either been issued or reserved for
issuance in respect of outstanding options and warrants or convertible
securities. The lack of such available shares significantly restricts the
Company's ability to raise capital through the issuance of additional equity
securities. While the Company believes that its shareholders will approve an
increase in the number of authorized shares of Common Stock at its Annual
Meeting of Shareholders, no assurance can be given that such increase in
authorized shares will be approved by the Company's shareholders.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
F-7
<PAGE>
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with an original maturity of three months or less. The Company
invests in a fund with a high-credit quality financial institution. The
institution invests the funds in governmental securities, repurchase agreements
and money market funds. Such securities are carried at the lower of aggregate
cost or quoted market value.
Inventory
Inventories are stated at the lower of cost or market and include material,
labor and overhead. Cost is determined using the first-in, first-out (FIFO)
method of inventory valuation.
Plant and Equipment
Plant and equipment are recorded at cost and depreciated for financial statement
purposes using the straight-line method over estimated useful lives of five to
seven years. Gains or losses on dispositions are included in the statement of
operations in the period incurred. Maintenance and repair cost are charged to
expense as incurred.
Intangible Assets
Intangible assets, consisting principally of patent costs, are amortized using
the straight-line method over an estimated useful life of 10 years. Accumulated
amortization of intangible assets amounted to $119,000 and $144,000 at December
31, 1995 and 1996, respectively.
Impairment
Periodically, the Company evaluates the carrying value of its property, plant
and equipment, and long-lived assets by comparing the anticipated undiscounted
future net cash flows associated with those assets to the related net book
value. As of December 31, 1996, no impairment was indicated.
Revenue Recognition
Revenues from POSICAM(TM) system contracts are recognized when all significant
costs have been incurred and the system has been shipped to the customer.
Billings on incomplete contracts are classified as unearned revenue on the
balance sheet.
Revenues from fee per scan contracts are recognized upon performance of patient
scans.
Revenues from maintenance contracts are recognized over the term of the
contract. Service revenues are recognized upon performance of the services.
Research and Development Expense
All costs related to research and development are charged to expense as
incurred.
Warranty Costs
The Company accrues for the costs of product warranty on POSICAM(TM) systems at
the time of shipment. Warranty periods generally range up to a maximum of one
year. Actual results could differ from the amounts estimated.
F-8
<PAGE>
Net Loss Per Common Share
Net loss per common share for the years ended December 31, 1995 and 1996 have
been computed by dividing net loss by the weighted average number of shares of
Common Stock outstanding during these periods. All common stock equivalents
were antidilutive.
Supplemental Cash Flow Data
1995 1996
------------- -------------
(in thousands) (in thousands)
Cash paid for interest and income taxes-
Interest $ 39 $ 139
Income taxes - -
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Fair Value of Financial Instruments
The Company includes fair value information in the notes to the financial
statements when the fair value of its financial instruments is different from
the book value. The book value of those financial instruments that are
classified as current assets or liabilities approximates fair value because of
the short maturity of these instruments.
Reclassifications
Certain amounts have been have been reclassified in order to conform to current-
year presentations.
3. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS:
Inventories
Inventories at December 31, 1995 and 1996, consisted of the following (in
thousands):
1995 1996
------- -------
Raw materials $2,400 $1,955
Work in process 191 68
Finished goods 75 610
------ ------
Inventories 2,666 2,633
====== ======
F-9
<PAGE>
Plant and Equipment, net:
Plant and equipment, net at December 31, 1995 and 1996, consisted of the
following (in thousands):
1995 1996
--------- ---------
Furniture and fixtures $ 326 $ 327
Computers and peripherals 722 772
Leasehold improvements 17 17
Leased assets 782 782
Machinery and equipment 518 518
------- -------
Total plant and equipment 2,365 2,416
Less - accumulated depreciation (1,337) (1,449)
------- -------
Net plant and equipment $ 1,028 $ 967
======= =======
Accrued Liabilities:
Accrued liabilities at December 31, 1995 and 1996 consisted of the following (in
thousands):
1995 1996
------- -------
Royalties $ 192 $ 234
Research grants 85 58
Warranty 217 1,343
Compensation 227 130
Other 598 889
------- -------
$ 1,319 $ 2,654
======= =======
4. REVOLVING LINE OF CREDIT
On February 7, 1996, the Company entered into a lending facility with Boston
Financial & Equity Corporation pursuant to which the Company may borrow up to
80% of its outstanding qualified accounts receivable (the "BF&E Loan"). The
maximum amount available under the BF&E Loan is $1,000,000 and the BF&E Loan is
collateralized by liens and security interests encumbering most of the Company's
assets including the Company's know-how, patents and proprietary rights
pertaining to its PET technology. As of December 31, 1996, the available
borrowing capacity under the BF&E Loan was approximately $100,000 and
approximately $75,000 was outstanding under the BF&E Loan. The fair value of the
line of credit approximates carrying value at December 31, 1996. The BF&E Loan,
as amended, bears interest at 13.8% per year and matured on March 31, 1997. On
March 31, 1997, BF&E agreed to an extension of the loan agreement until April
30, 1997. Other terms and conditions remain unchanged. In connection with the
BF&E Loan, the Company granted warrants to BF&E to purchase 45,000 shares of
Common Stock, at an exercise price of $2.00 per share (fair market value)
exercisable through February 7, 2001. The warrants contain standard anti-
dilution provisions and registration rights with respect to the shares of Common
Stock issuable upon the exercise thereof.
F-10
<PAGE>
5. NOTES PAYABLE
Notes Payable, Affiliate
During the last quarter of 1995 and the first quarter of 1996, in order to fund
its activities, the Company borrowed a total of $1,313,000 from Uro-Tech, Ltd.,
(the "Uro-Tech Loan"), an affiliate of the Company. The Uro-Tech Loan, as
amended, bears interest at 13.8% per annum, matures on March 31, 1997. On March
31, 1997, Uro-Tech agreed to an extension of the loan agreement until April 30,
1997. Other terms and conditions of the agreement remain unchanged. The Uro-Tech
Loan is collateralized by liens and security interests encumbering most of the
Company's assets including the Company's know-how, patents and proprietary
rights pertaining to its PET technology. The fair value of the line of credit
approximates carrying value at December 31, 1996. As part of the private
placement of Series A Preferred Stock, $650,000 of the outstanding principal
balance of the Uro-Tech Loan was converted into Series A Preferred Stock. As of
December 31, 1996, approximately $663,000 was payable to Uro-Tech, Ltd. In
connection with the loan from Uro-Tech, the Company granted Uro-Tech warrants to
purchase 67,500 shares of Common Stock, at an exercise price of $2.00 per share
exercisable through February 7, 2001.
Notes Payable, Other
On November 14, 1996, in order to fund its activities, the Company obtained a
loan facility of $1,400,000 from ProFutures Bridge Capital, L.P. (the
"ProFutures Loan"). The ProFutures Loan bears interest at a rate of 12% until
April 1, 1997, at which time, the rate increases to 15%. The loan matures June
30, 1997. For the debt outstanding after November 30, 1997, the interest rate
will increase to 18% per annum. The fair value of the line of credit
approximates carrying value at December 31, 1996. As of December 31, 1996,
approximately $1,335,000 was outstanding under the ProFutures Loan. The
ProFutures Loan is collateralized by liens and security interest encumbering all
of the assets of the Company, including know-how, patents and proprietary rights
pertaining to its PET technology. In addition, the Company granted ProFutures
Bridge Capital, L.P. a ten year warrant to purchase 250,000 shares of its common
stock at an exercise price of $2.40 per share. If the ProFutures Loan is not
repaid on or before April 1, 1997, the Company is required to grant to
ProFutures additional warrants for the purchase of an additional 100,000 shares
of its common stock. The exercise price of such additional warrants will be
determined based upon the average closing trading price for the Company's common
stock for the ten (10) trading days prior to April 1, 1997, but not less than
fair market value.
6. COMMON STOCK -- OPTIONS AND WARRANTS:
Options
In 1987, the Company established a common stock option plan (the "1987 Plan")
covering directors, officers and other key employees. In November 1993, the
Company canceled all options outstanding under the 1987 Plan. In connection with
such cancellation, the board of directors authorized the reissuance of 38,522
options to purchase shares of common stock at 75 percent of the IPO price
following the closing of an initial public offering. Such options vested and
became exercisable on January 3, 1995. In addition in February 1994, the board
of directors authorized the issuance of an additional 150,000 options at the
same exercise price. Options granted under the 1987 Plan expire on the earlier
of three months after termination of employment or ten years from the grant
date.
Effective June 3, 1994, the shareholders of the Company approved the 1994
Incentive and Nonstatutory Option Plan" (the "1994 Plan"). The 1994 Plan as
amended in 1995 provides for the issuance of an aggregate of 601,833 Common
Stock options to key employees, directors, and certain consultants and advisors
of the Company. The 1994 Plan provides that the exercise price of Incentive
Options shall not be less than the fair market value of the shares on the date
of the grant. The exercise price per share of Nonstatutory options shall not be
less than the par value of the Common Stock or 50% of the fair market value of
the common stock on the date of grant. The 1994 Plan is administered by the
Compensation Committee of the Board of Directors. The committee has the
authority to determine the individuals to whom awards will be made, the
F-11
<PAGE>
amount of the awards, and all other terms and conditions of the awards. As of
December 31, 1996, options to purchase an aggregate of 144,389 shares of common
stock at a range of $2.626 - $4.125 per share, had been granted to certain key
employees.
The 1994 Plan also provides that each non-employee director automatically
receives options to purchase 10,500 shares of common stock as of the date such
individual becomes a non-employee director and each non-employee director who is
a director on the first business day following each Annual Shareholder Meeting
also receives an option to purchase a number of shares of common stock having a
value of $15,000 as determined by the fair market value of the common stock on
the date of grant. As of December 31, 1996, options to purchase an aggregate of
163,724 shares of common stock at a range of $2.625-$4.125 per share had been
granted to non-employee directors. All 1994 options expire within ten years of
the date of the grant.
A summary of stock option activity is as follows:
Shares Issuable Under Weighted Average
Outstanding Options Exercise Price
-------------------- ----------------
Balance at January 1, 1995 297,572 $7.46
New grants 316,723 $2.95
Repriced grants 267,481 $2.63
--------
Total granted 584,204 $2.80
Exercised -
Forfeited -
Canceled (297,572) $7.46
--------
Balance at December 31, 1995 584,204 $2.80
Granted -
Exercised -
Forfeited (11,526) $2.77
--------
Balance at December 31, 1996 572,678 $2.80
========
The Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards No. 123, Accounting for Stock-Based Compensation ("SFAS
123") in 1995 which, if fully adopted by the Company would change the methods
the Company applies in recognizing the cost of the Plan. Adoption of the cost
recognition provisions of SFAS 123 is optional and the Company has decided not
to elect those provisions. As a result, the Company continues to apply
Accounting Principles Board Opinion No. 25 ("APB 25") and related the
Interpretations of APB 25 in accounting for the measurement and recognition of
the Plan's cost.
F-12
<PAGE>
The shares exercisable for vested options and the corresponding weighted average
exercise price was 435,436 shares and $2.80 and 243,464 shares and $12.07 at
December 31, 1996 and 1995, respectively
The following table summarizes the information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------------ -------------------------
Range of Weighted Average Weighted Weighted
Exercise Price Shares Remaining Term Average Exercise Shares Average Exercise
(in years) Price Price
- --------------- ------------------------------------------------ -------------------------
<S> <C> <C> <C> <C> <C>
$2.625 to $3,375 492,980 8.20 $2.63 376,194 $2.63
$3.376 to $4.125 79,698 8.66 $3.91 59,242 $3.92
------- -------
$2.625 to $4.125 572,678 8.27 $2.80 435,436 $2.80
======= =======
</TABLE>
The weighted average fair value of options granted was $0 and $2.08 during the
years ended December 31, 1996 and 1995, respectively. The weighted average fair
value charge for options repriced was $0 and $0.54 during the years ended
December 31, 1996 and 1995, respectively.
Under SFAS 123, compensation cost is measured at the grant date based on the
fair value of the awards and is recognized over the service period, which is
usually the vesting period. The fair value of options granted during 1996 and
1995 is estimated on the date of grant using the Black Scholes option-pricing
model with the following assumptions used to calculate fair values of options
awarded in both 1996 and 1995: (i) average dividend yield of 0.00%, (ii)
expected volatility of 83.36%, (iii) expected life of five (5) years, and (iv)
an estimated risk-free interest rate, which is different for grants awarded on
different grant dates, ranging from 5.66% to 7.15%.
The pro forma disclosures as if the Company adopted the cost recognition
requirements of SFAS 123 are as follows (in thousands):
1996 1995
------------------------- ------------------------
As Reported Pro Forma As Reported Pro Forma
------------------------- ------------------------
Net Income $(6,375) $(6,476) $(5,028) $(5,504)
Earnings per
common share $ (1.67) $ (1.70) $ (1.38) $ (1.44)
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future results. SFAS 123 does not apply to awards prior to 1995. Additional
awards in future years are anticipated by the Company.
Warrants
Prior to the Company's initial public offering, the Company issued warrants to
the purchasers of the then outstanding Series E Preferred Stock (the "1993
Warrants"). Subject to adjustment for certain transactions, the 1993 Warrants as
originally issued, were exercisable for an aggregate of 353,531 shares of Common
Stock at an exercise price of $9.90. Because of certain specified anti-dilution
provisions, the 1993 Warrants were exercisable for an aggregate of 519,394
shares of Common Stock at a purchase price of $5.60 per share as of December 31,
1996. The 1993 Warrants are exercisable at any time until November 30, 1998 and
are entitled to the benefit of adjustments in the exercise price and in the
number of shares
F-13
<PAGE>
of Common Stock or other securities deliverable upon the exercise thereof in the
event of a stock dividend, stock split, reclassification, reorganization,
consolidation, merger, sale of all or substantially all of the property of the
Company, or other dilutive transactions.
The 1993 Warrants are redeemable at the option of the Company at a price equal
to $.10 per share of the Common Stock covered by the 1993 Warrant, on 30 days
written notice, provided that the market price of the Common Stock equals or
exceeds $12.544 for the 20 consecutive trading days ending within 10 days prior
to the notice of redemption. The Company also granted the holders of the 1993
Warrants certain registration rights with respect to the 1993 Warrants and the
Common Stock for which the 1993 Warrants are exercisable.
In connection with its initial public offering, the Company issued 3,893,550
Redeemable Warrants (the "Redeemable Warrants"). The Redeemable Warrants as
originally issued were exercisable for an aggregate of 3,893,550 shares of
Common Stock at an exercise price of $8.25 per share. Because of their anti-
dilution provisions the Redeemable Warrants were exercisable for an aggregate of
5,646,798 shares of Common Stock at a purchase price of $5.60 per share as of
December 31, 1996. The Redeemable Warrants are entitled to the benefit of
adjustments in the exercise price and in the number of shares of Common Stock or
other securities deliverable upon the exercise thereof in the event of a stock
dividend, stock split, reclassification, reorganization, consolidation, merger,
sale of all or substantially all of the property of the Company, or other
dilutive transactions. The Company has the right to reduce the exercise price or
increase the number of shares of Common Stock issuable upon the exercise of the
Redeemable Warrants.
Each Redeemable Warrant expires on December 3, 1998 (the "Expiration Date"),
subject to extension. The Company may at any time extend the Expiration Date of
all outstanding Redeemable Warrants for such increased period of time as it may
determine.
The Company has the right at any time after March 3, 1995, to redeem the
Redeemable Warrants in whole or in part for cancellation at a price of $1.25
each, by written notice to each Redeemable Warrant holder. Such notice may only
be given within 10 days following any period of 20 consecutive trading days
during which the average closing bid for the Common Stock (if then trading on
the over-the-counter market) or the average closing price of the Common Stock
(if then listed on the Nasdaq Market) equals or exceed $12.544 per share,
subject to adjustment for stock dividends, splits and similar events. If the
Redeemable Warrants are called for cancellation, they must be exercised prior to
the close of business on the date of any such redemption and cancellation or the
right to purchase the applicable shares of Common Stock is forfeited. The
Company granted the holders of the Redeemable Warrants certain registration
rights with respect to the Common Stock for which the Redeemable Warrants are
exercisable.
F-14
<PAGE>
A summary of warrant activity is as follows:
Number of
Shares Exercise Price
--------- -----------------
Balance at January 1, 1995 4,829,713 $8.25 - $3,572.27
1993 warrants anti-dilution provisions 8,974 $8.04
Redeemable warrants anti-dilution provisions 112,161 $8.04
---------
Balance at December 31, 1995 4,950,848 $8.04 - $3,572.27
Warrants issued in connection with the
Series B Preferred Stock 100,000 $2.00
Warrants issued in connection with the
Series A Preferred Stock 1,537,696 $2.00
1993 warrants anti-dilution provisions 1,112,973 $5.60
Redeemable warrant anti-dilution provisions 102,371 $5.60
Warrants converted to Common Stock -4,168
---------
Balance at December 31, 1996 7,799,720 $2.00 - $3,572.27
=========
No compensation expense was recognized by the Company in the accompanying
statement of operations under the provision of APB 25 during the years ending
December 31, 1996 and 1995, respectively.
The Company has reserved 10,687,000 shares of common stock for issuance upon the
exercise of all employee and non- employee director common stock options and
outstanding warrants.
7. PREFERRED STOCK:
The Company's Articles of Incorporation authorize the board of directors to
issue 10,000,000 shares of preferred stock from time to time in one or more
series. The board of directors is authorized to determine, prior to issuing any
such series of preferred stock and without any vote or action by the
shareholders, the rights, preferences, privileges and restrictions of the shares
of such series, including dividend rights, voting rights, terms of redemption,
the provisions of any purchase, retirement or sinking fund to be provided for
the shares of any series, conversion and exchange rights, the preferences upon
any distribution of the assets of the Company, including in the event of
voluntary or involuntary liquidation, dissolution or winding up of the Company,
and the preferences and relative rights among each series of preferred stock.
Series A Preferred Stock
In February, March and May of 1996, the Company issued 3,075,318 shares of
Series A 8% Cumulative Convertible Redeemable Preferred Stock $1.00 par value
("Series A Preferred Stock") and Redeemable Common Stock Purchase Warrants to
purchase 1,537,696 shares of the Company's Common Stock. The net proceeds of the
private placement were approximately $2,972,000. Each share of the Series A
Preferred Stock is immediately convertible into one share of Common Stock. Each
Redeemable Common Stock Purchase Warrant is exercisable at a price of $2.00 per
share of Common Stock. Eight percent (8%) dividends on the Series A Preferred
Stock may be paid in cash or the Series A Preferred Stock at the discretion of
the Company The Series A Preferred Stock is senior to the Company's Series B
Preferred Stock and Common Stock in liquidation. Holders of the Series A
Preferred Stock may vote on an as if converted basis on any matter requiring
shareholder vote. While the Series A Preferred Stock is outstanding or any
dividends thereon remain
F-15
<PAGE>
unpaid, no Common Stock dividends may be paid or declared by the Company.
In conjunction with the issuance of the aforementioned Series A Preferred Stock,
Uro-Tech, converted $650,000 of the amount payable to it into 433,329 shares of
Series A Preferred Stock and 216,671 Redeemable Stock Purchase Warrants.
Series B Preferred Stock
In July 1996, the Company issued 25,000 shares of Series B 8% Cumulative
Convertible Redeemable Preferred Stock $1.00 par value ("Series B Preferred
Stock") and Common Stock Purchase Warrants to purchase up to 100,000 shares of
its Common Stock, par value $.01 per share. The Series B Preferred Stock plus
Common Stock Purchase Warrants sold for approximately $50.00 per share of Series
B Preferred Stock. Subject to adjustment for certain antidilution events, each
share of Series B Preferred Stock is initially convertible into 25 shares of
Common Stock and each Common Stock Purchase Warrant is exercisable for one share
of Common Stock at an exercise price of $2.00 per share. Eight percent (8%)
dividends on the Company's Series B preferred Stock may be paid in cash or the
Series B Preferred Stock. The Series B Preferred Stock is junior to the Series A
Preferred Stock, but senior to the Company's Common Stock in liquidation. The
Series B Preferred Stock has no voting rights other than those afforded by law
as a class, however, the holder's of the Series B Preferred Stock may vote on
matters directly affecting the Series B Preferred Stock or mergers and/or
consolidations of the Company with another company. Dividends may not be paid or
declared on the Company's Common Stock while any unpaid dividends are
outstanding on the Series B Preferred Stock. The Series B Preferred Stock and
the Common Stock Purchase Warrants are not convertible or exercisable until such
time as the Company's shareholders approve an amendment to its Articles of
Incorporation increasing the number of the authorized shares of Common Stock by
at least 2,500,000 shares.
As of December 31, 1996, stated dividends of $184,078 and $948 are undeclared
and unpaid on the Series A and Series B Preferred Stocks, respectively. The
Company anticipates that such dividends, when declared, will be paid in the
shares of Series A and Series B Preferred Stock.
8. INCOME TAXES:
The Company has incurred losses since its inception and, therefore, has not been
subject to federal income taxes. As of December 31, 1996, the Company had net
operating loss ("NOL") carry forwards for income tax purposes of approximately
$38,300,000 which expire in 1999 through 2011. Since the closing of the
Company's IPO resulted in more than a 50 percent change in shareholder ownership
percentages, the provisions of Section 382 of the Internal Revenue Code limit
the Company's ability to utilize these NOL carry forwards to reduce future
taxable income and tax liabilities. Additionally, because United States tax laws
limit the time during which NOL carry forwards may be applied against future
taxable income, the Company will not be able to take full advantage of its NOL
for federal income tax purposes should the Company generate taxable income.
Deferred tax assets of $13,200,000 and $14,900,000, resulting from loss carry
forwards as of December 31, 1995 and 1996, respectively, have been fully
reserved. The change in the valuation allowance for the year ended December 31,
1996 was a net increase of $1,700,000 resulting primarily from operating losses
incurred in 1996.
The Company has significant NOL carry forwards for which realization of tax
benefits is uncertain and has no deferred income taxes as of December 31, 1995
and 1996.
F-16
<PAGE>
9. 401(k) PLAN:
The Positron Corporation 401(k) Plan and Trust (the "Plan"), covers all of the
Company's employees who are United States citizens, at least 21 years of age and
have completed at least one quarter of service with the Company. Pursuant to the
Plan, employees may elect to reduce their current compensation by up to the
statutorily prescribed annual limit and have the amount of such reduction
contributed to the Plan. The Plan provides for the Company to make contributions
in an amount equal to 25 percent of the participant's deferral contributions, up
to 6 percent of the employee's compensation, as defined in the Plan agreement.
The Company's contribution expense was approximately $35,000 and $38,000 in 1995
and 1996, respectively. Additionally, the board of directors of the Company may
authorize additional contributions. No Company contributions have been made as
of December 31, 1996.
10. RELATED-PARTY TRANSACTIONS:
The Company has an incentive compensation plan for certain key employees and its
Chairman. The incentive compensation plan provides for annual bonus payments
based upon achievement of certain corporate objectives as determined by the
Company's compensation committee, subject to the approval of the board of
directors. To date, the Company has not paid any bonuses pursuant to the
incentive compensation plan.
Pursuant to agreements entered into in November 1993, the Company extended loans
to a current board member and a former board member in order to provide each of
them with funds to satisfy their respective personal income tax liability
arising out of the conversion of certain Positron Corporation Promissory Notes
into Common Stock. Such agreements were entered into by the Company in
connection with the IPO and in consideration of certain concessions made by the
board member and former board member concerning the conversion terms under their
respective Notes. Pursuant to the agreements, each of the loans were made on
substantially the following terms: (i) limited to a principal amount not to
exceed $175,000, (ii) interest payable at a rate of six percent per year, (iii)
an initial term of three years with the principal balance being due and payable
upon the expiration of the term, (iv) limited recourse against the borrower, and
(v) collateralized by Positron Corporation Common Stock owned by the borrower.
In accordance with such agreements, on April 15, 1994, the Company extended a
$165,817 loan to the current board member and a $158,552 loan to the former
board member.
The Company has certain consulting agreements with its Chairman and a member of
its board. The agreements provide for monthly consulting payments of $6,667 to
each of them. The agreement with its Chairman expires in December 1998 and the
agreement with the member of its board expires in 1998.
11. COMMITMENTS AND CONTINGENCIES:
On January 1, 1996, the Company entered into an employment agreement with Werner
J. Haas, Ph.D. pursuant to which Dr. Haas agreed to serve as President and Chief
Executive Officer of the Company for a term of two years. The employment
agreement provided for the payment of an annual base salary of $200,000, bonuses
in an amount to be determined at the discretion of the Board of Directors of the
Company, and participation in any employee benefit plan adopted by the Company
for its employees.
On February 18, 1997, Dr. Haas informed the Board of Directors of the Company
that he considered his contract to have been terminated by the Company without
cause as a result of the Company's failure to pay the February 15, 1997 payroll
to any of its management level employees and specifically to him. Additionally,
Dr. Haas resigned as a member of the Company's Board of Directors. Dr. Haas has
demanded that the Company pay to him all past due salary as well as the nine
months severance pay specified in his employment agreement if his contract is
determined to have been terminated without cause. The Company has indicated to
Dr. Haas that it believes no amounts are due him under his employment agreement.
As of March 15, 1997, the Company is unable to predict the outcome of the
disagreement between Dr. Haas and the Company.
Gary B. Wood, Ph.D., currently the Company's Chairman, has assumed the
additional duties of president and Chief
F-17
<PAGE>
Executive Officer until the selection of Dr. Haas' replacement.
The Company is obligated to pay royalties of 3% of the gross revenue from sales,
uses, leases, licensing or rentals of POSICAM(TM) systems, 1% each to a director
of the Company and two other unrelated entities.
The Company leases its office and manufacturing facility and certain office
equipment under noncancelable operating leases with unexpired terms ranging from
two to five years. Rental expense for operating leases Future minimum lease
rental payments amounted to approximately $256,000 per year for the years ended
December 31, 1995 and 1996, respectively. required under noncancelable operating
leases that expire subsequent to December 31, 1996, are as follows (in
thousands):
1997 $ 301
1998 361
1999 421
2000 210
------
Total minimum lease payments $1,293
======
12. GENERAL ELECTRIC TRANSACTION
In July 1996, the Company and GE entered into an Acquisition Agreement (the
"Agreement"), which initially expired on January 4, 1997, pursuant to which the
Company agreed to purchase a portion of GE's product line relating to the
design, engineering and manufacture of certain PET equipment and related
cyclotron systems (the "Business"). Under the terms of the Agreement, the
Company agreed to (i) purchase from GE all of the capital stock of its wholly-
owned Swedish subsidiary, and (ii) purchase or license from GE substantially all
of its assets which are used principally in the conduct of the Business.
Additionally ,the Company and GE entered into a Sales and Marketing Agreement
(the "Marketing Agreement") pursuant to which, subject to the conditions and
limitations set forth therein, GE agreed to purchase on an exclusive basis, and
the Company agreed to supply to GE, certain PET equipment and related cyclotron
systems (collectively the "PET Products"). The initial term of the Marketing
Agreement was for five (5) years. Subject to the conditions set forth therein,
GE agreed that, during the initial term of the Marketing Agreement, GE would
not, directly or indirectly engage in the design, engineering of manufacture of
PET Products.
In exchange for the sale by GE of the assets described above and the capital
stock of its Swedish subsidiary, as well as the performance by GE of its
obligations under the Marketing Agreement, the Company agreed to pay to GE cash
of $25 million, subject to certain specified adjustments. Additionally, the
Company agreed to issue to GE a number of shares of its Common Stock (the
"Acquisition Stock") which, would equal 10% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and related common stock purchase warrants
and the issuance and exercise of the GE Option (described below). The Company
also agreed to issue to GE an option (the "GE Option") to purchase a number of
shares of Common Stock which, upon exercise and conversion into shares of the
Company's Common Stock, would equal 15% of the Common Stock outstanding
immediately after consummation of the acquisition and the issuance of the
Acquisition Stock, assuming conversion of all outstanding shares of the
Company's convertible preferred stock and the issuance, exercise and conversion
of the GE Option. The GE Option was initially exercisable for three (3) years at
an exercise price of $4.25 per share. On January 4, 1997, GE and the Company
agreed to extend the expiration date of the Agreement until March 31, 1997.
The acquisition is subject to the satisfaction or waiver of certain conditions
precedent, including the Company's procurement of financing upon terms and
conditions acceptable to the Company and the approval by the Company's
shareholders of certain terms of the acquisition, including the issuance of the
Acquisition Stock and GE Option. Under certain circumstances, if the Agreement
is terminated and the termination is not due to a breach by GE of its
representations, warranties or covenants set forth in the Agreement the Company
is required to pay to GE a termination fee of $1.5 million if the Company enters
into certain specified transactions within two (2) years of the date of
termination of the Agreement.
F-18
<PAGE>
As of March 31, 1997, the Company has not obtained commitments for the financing
required to complete the acquisition, nor has it obtained shareholder approval
of the issuance of the Acquisition Stock, the GE Option or the Agreement. There
is no assurance that the Company will be able to procure the required financing
or that it will be successful in obtaining shareholder approval of the
transaction. Failure of the Company to close the acquisition of the Business or
obtain an alternate source of capital is likely to have a material and adverse
effect on the Company's ability to continue as a going concern.
Closing of the GE Acquisition did not occur on March 31, 1997, nor has GE agreed
to extend the Agreement beyond March 31, 1997. On April 10, 1997, GE informed
the Company that it was exercising its right to terminate the Agreement and that
it will pursue other options for its PET business. GE remains open to discussing
a transaction on revised terms, if and only if, (i) a prompt closing and payment
of the full purchase price are assured, (ii) the transaction continues to make
business sense for both parties, and (iii) all necessary details can be agreed
upon by the parties. The Company and GE have no binding agreement to proceed
with these discussions, nor can any assurances be given that if they do proceed,
any workable agreement will be reached by the parties.
13. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In March 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, Earnings Per Share, which establishes specific computation, presentation
and disclosure requirements for earnings per share for entities with publicly
held common stock or potential common stock in order to simplify the computation
of earnings per share and make it compatible with the standards of other
countries and with that of the International Standards committee. SFAS 128 is
effective for financial statements of both interim and annual periods ending
after December 15, 1997.
In March 1996, the FASB issued SFAS No. 129, Disclosure of Information About
Capital Structure, which applies to all entities and is effective for financial
statements of periods ending after December 15, 1997.
The Company is currently evaluating its alternatives under both SFAS No. 128 and
No. 129; however, their impact on operating results when initially adopted is
expected to be immaterial.
F-19
<PAGE>
EXHIBIT 4.7
-----------
ANNEX G
FORM OF STATEMENT OF DESIGNATION ESTABLISHING
SERIES B 8% CUMULATIVE CONVERTIBLE REDEEMABLE
PREFERRED STOCK OF POSITRON CORPORATION
<PAGE>
STATEMENT OF DESIGNATION ESTABLISHING
SERIES B 8% CUMULATIVE CONVERTIBLE REDEEMABLE PREFERRED STOCK
OF POSITRON CORPORATION
To the Secretary of State of the State of Texas:
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act, the undersigned corporation submits the following statement for
the purpose of establishing and designating a series of shares and determining
and fixing the relative rights and preferences thereof:
A. The name of the corporation is Positron Corporation (the
"Company").
B. The following resolution, establishing and designating a series of
shares and determining and fixing the relative rights and preferences thereof,
was duly adopted by the Board of Directors of the Company on July 9, 1996:
RESOLVED, that, pursuant to the authority vested in the Board of
Directors of the Company by its Articles of Incorporation, as amended, there
hereby is created, out of the 10,000,000 shares of preferred stock authorized in
Article Four of its Articles of Incorporation, as amended, a series of 35,000
shares of Preferred Stock, par value $1.00 per share (the "Series B Preferred
Stock"), of the Company, and the designation, amount and stated value of such
series of Preferred Stock and the voting powers, preferences, and relative,
participating, optional and other special rights of the shares of such series,
and the qualifications, limitations or restrictions thereon, are set forth as
follows:
1. Designation and Number of Shares. The designation of said series of
---------------------------------
preferred stock authorized by this resolution shall be "Series B 8% Cumulative
Convertible Redeemable Preferred Stock" (the "Series B Preferred Stock") which
shall consist of a maximum of 35,000 shares of such Series B Preferred Stock,
$1.00 par value per share, which shall have the preferences, rights,
qualifications, limitations, and restrictions set forth below.
2. Rank. All shares of the Series B Preferred Stock shall rank, both
----
as to payment of dividends and as to distributions of assets upon liquidation or
winding up of the Company, whether voluntary or involuntary, (x) junior to the
shares of Series A 8% Cumulative Convertible Redeemable Preferred Stock of the
Company that may from time to time be outstanding (the "Series A Preferred
Stock") and (y) prior to (i) all of the Company's now or hereafter issued
common stock, par value $.01 per share (the "Common Stock"), and (ii) all of the
Company's hereafter issued capital stock ranking junior to the Series B
Preferred Stock both as to payment of dividends and as to distribution of assets
upon liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary, when and if issued (the Common Stock and any other capital stock
being herein referred to as "Junior Stock").
<PAGE>
3. Dividends.
---------
(a) The holders of shares of Series B Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors of the Company,
cumulative dividends out of funds legally available therefor, at the annual rate
of $4.00 per share (the "Annual Dividend Rate") unless otherwise adjusted
pursuant to paragraph (b) of this Section 3. Such dividends shall cumulate from
the date issued and be paid when, as and if declared, quarterly on January 1,
April 1, July 1, and October 1 each year commencing on October 1, 1996 (each of
such dates being a "Series B Dividend Payment Date" and each period between such
dates or the date of issue, if earlier, being a "Series B Dividend Period") to
the shareholders of record of Series B Preferred Stock on the respective date,
not exceeding 15 days preceding such Series B Dividend Payment Date, as shall be
fixed for this purpose by the Board of Directors of the Company in advance of
payment of each particular dividend. Dividend payments made with respect to
shares of Series B Preferred Stock may be made, in the sole discretion of the
Board of Directors of the Company, in cash or in additional fully paid and
nonassessable shares of Series B Preferred Stock at a rate of one share of
Series B Preferred Stock for each $50.00 of such dividend not paid in cash and
the issuance of such additional shares (notwithstanding the amount of net
proceeds received with respect to Fractional Series B Preferred Shares (as
defined in subparagraph (b) described below) shall constitute full payment of
such dividend. The amount of dividends payable on shares of Series B Preferred
Stock for each Series B Dividend Period shall be computed by dividing by four
the annual rate per share set forth in this subparagraph (a). The amount of
dividends payable for the initial dividend period and any period shorter than a
90-day Series B Dividend Payment Period shall be computed on the basis of a
360-day year of twelve 30-day months.
(b) All dividends paid in additional shares of Series B Preferred Stock
pursuant to subparagraph (a) shall be paid pro rata to the holders entitled
thereto. The Company may, in its sole discretion, elect to issue certificates
representing fractions of a share of Series B Preferred Stock (the "Fractional
Series B Preferred Shares") on payment of any dividend for any Series B Dividend
Period in additional shares of Series B Preferred Stock. Any such Fractional
Series B Preferred Shares shall be rounded to the nearest 1/100th of a percent.
The Company may, in its sole discretion, elect to pay cash in lieu of paying a
Fractional Series B Preferred Share, such cash payment made in lieu of such
Shares to be rounded to the nearest cent. All shares of Series B Preferred Stock
which may be issued as a dividend with respect to the Series B Preferred Stock
will thereupon be duly authorized, validly issued, fully paid and nonassessable.
Each Fractional Series B Preferred Share outstanding shall be entitled to a
ratably proportionate amount of all dividends accruing with respect to each
outstanding share of Series B Preferred Stock pursuant to this Section 3.
(c) Dividends on any share of Series B Preferred Stock issued as
dividends on any share of Series B Preferred Stock shall be fully cumulative and
shall accrue (whether or not declared) from the date of their original
issuance. Accumulated unpaid dividends for any past Series B Preferred Dividend
Periods may be declared by the Board of Directors of the Company and paid on any
date fixed by the Board of Directors of the Company, whether or not a regular
Series B Preferred Dividend Payment Date, to holders of record on the books of
the Company on such record date as may be fixed by the
-2-
<PAGE>
Board of Directors of the Company. Holders of Series B Preferred Stock will not
be entitled to any dividends, whether payable in cash, property or stock, in
excess of the full cumulative dividends. No interest or sum of money in lieu of
interest shall be payable in respect of any accumulated unpaid dividends.
(b) No dividends or other distributions shall be declared, paid or set
apart for payment on shares of Junior Stock or any other capital stock of the
Company ranking junior as to dividends to the Series B Preferred Stock (the
Junior Stock and any such other class or series of the Company's capital stock
being herein referred to as "Junior Dividend Stock"), unless full cumulative
dividends have been, or contemporaneously are, paid or declared and set apart
for such payment on the Series B Preferred Stock for all dividend payment
periods ending on or before the payment date of such dividends on Junior
Dividend Stock.
(e) No payment on account of the purchase, redemption, retirement or
other acquisition of shares of Junior Dividend Stock or any other class or
series of the Company's capital stock ranking junior to the Series B Preferred
Stock as to distributions of assets upon liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary (the Junior Stock and any other
class or series of the Company's capital stock ranking junior to the Series B
Preferred Stock as to such distributions being herein referred to as "Junior
Liquidation Stock") shall be made for any period unless and until all accrued
and unpaid dividends on the Series B Preferred Stock for all dividend payment
periods ending on or before such payment for such Junior Dividend Stock or
Junior Liquidation Stock (as hereinafter defined) shall have been paid or
declared and set apart for payment.
(f) No dividends or other distributions shall be declared, paid or set
apart for payment on shares of any class or series of the Company's capital
stock hereafter issued ranking, as to dividends, on a parity with the Series B
Preferred Stock (any such class or series of the Company's capital stock being
herein referred to as "Parity Dividend Stock") for any period unless full
cumulative dividends have been, or contemporaneously are, paid or declared and
set apart for such payment on the Series B Preferred Stock for all dividend
payment periods ending on or before the payment date of such dividends on Parity
Dividend Stock. No dividends may be paid on Parity Dividend Stock except on
dates on which dividends are paid on the Series B Preferred Stock. All dividends
paid or declared and set apart for payment on the Series B Preferred Stock and
the Parity Dividend Stock shall be paid or declared and set apart for payment
pro rata so that the amount of dividends paid or declared and set apart for
payment per share on the Series B Preferred Stock and the Parity Dividend Stock
on any date shall in all cases bear to each other the same ratio that accrued
and unpaid dividends to the date of payment of the Series B Preferred Stock and
the Parity Dividend Stock bear to each other.
(g) No payment on account of the purchase, redemption, retirement or
other acquisition of shares of Parity Dividend Stock or any class or series of
the Company's capital stock ranking on a parity with the Series B Preferred
Stock as to distributions of assets upon liquidation, dissolution or winding up
of the Company, whether voluntary or involuntary (any such class or series of
the Company's capital stock being herein referred to as "Parity Liquidation
Stock") shall be made, and, other than dividends
-3-
<PAGE>
to the extent permitted by the preceding paragraph, no distributions shall be
declared, paid or set apart for payment on shares of Parity Dividend Stock or
Parity Liquidation Stock, unless and until all accrued and unpaid dividends on
the Series B Preferred Stock for all dividend payment periods ending on or
before such payment for, or the payment date of such distributions on, such
Parity Dividend Stock or Parity Liquidation Stock shall have been paid or
declared and set apart for payment; provided, however, that the restrictions set
forth in this sentence shall not apply to the purchase or other acquisition of
Parity Dividend Stock or Parity Liquidation Stock either (A) pursuant to any
employee or director incentive or benefit plan or arrangement (including any
employment, severance or consulting agreement) of the Company or any subsidiary
of the Company hereafter adopted or (B) in exchange solely for Junior Stock.
(h) Any reference to "distribution" contained in this Section 3 shall
not be deemed to include any distribution made in connection with any
liquidation, dissolution or winding up of the Company, whether voluntary or
involuntary.
4. Liquidation Preference.
----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, before any payment or distribution of
the assets of the Company shall be made to or set apart for the holders of
Junior Stock, the holders of the Series B Preferred Stock shall be entitled to
receive in immediately available funds $50.00 per share of Series B Preferred
Stock, plus an amount equal to all dividends (whether or not authorized)
accumulated and unpaid without interest thereon to the date of final
distribution to such holders (the "Liquidation Preference"); but such holders
shall not be entitled to any further payment. If, upon any liquidation,
dissolution or winding up of the Company, the assets of the Company, or proceeds
thereof, distributable among the holders of the Series B Preferred Stock shall
be insufficient to pay in full the Liquidation Preference and liquidating
payments on any other shares of any class or series of Parity Liquidation Stock,
then such assets, or the proceeds thereof, shall be distributed among the
holders of Series B Preferred Stock and any such other Parity Liquidation Stock
ratably in accordance with the respective amounts that would be payable on such
shares of Series B Preferred Stock and any such other shares of Parity
Liquidation Stock if all amounts payable thereon were paid in full.
(b) Subject to the rights of the holders of shares of Parity
Liquidation Stock, after payment shall have been made in full to the holders of
the Series B Preferred Stock, as provided in this Section 4, any other series or
class or classes of Junior Stock shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
remaining to be paid or distributed, and the holders of the Series B Preferred
Stock shall not be entitled to share therein.
(c) For purposes of this Section 4, neither the voluntary sale, lease,
conveyance, exchange, or transfer (for cash, shares of stock, securities, or
other consideration) of all or substantially all of the property or assets of
the Company, nor the consolidation or merger of the Company with or into one or
more other corporations, shall be deemed to be a liquidation, dissolution, or
winding up of the affairs
-4-
<PAGE>
of the Company, unless such voluntary sale, lease, conveyance, exchange, or
transfer shall be in connection with a plan of liquidation, dissolution, or
winding up of the affairs of the Company.
5. Conversion.
----------
(a) Right of Conversion. After the initial issuance of the Series B
-------------------
Preferred Stock, each share of Series B Preferred Stock shall be convertible at
the option of the holder thereof, at any time prior to the close of business on
the fifth business day prior to the date fixed for redemption of such shares as
herein provided, into fully paid and nonassessable shares of Common Stock, at
the rate of that number of shares of Common Stock for each full share of Series
B Preferred Stock that is equal to $50.00 divided by the conversion price
applicable per share of Common Stock, or into such additional or other
securities, cash or property and at such other rates as required in accordance
with the provisions of this Section 5. For purposes of this resolution, the
"conversion price" applicable per share of Common Stock shall initially be equal
to $2.00 and shall be adjusted from time to time in accordance with the
provisions of this Section 5. Notwithstanding any provision contained herein to
the contrary, in no event shall any Series B Preferred Stock be convertible
prior to the date (the "Conversion Date") that the shareholders of the Company
have approved an amendment to the Company's Articles of Incorporation which
increases the amount of authorized shares of Common Stock by at least 2,500,000
shares.
(b) Conversion Procedures. Any holder of shares of Series B Preferred
---------------------
Stock desiring to convert such shares into Common Stock shall surrender the
certificate or certificates evidencing such shares of Series B preferred Stock
at the office of the transfer agent for the Series B Preferred Stock, which
certificate or certificates, if the Company shall so require, shall be duly
endorsed to the Company or in blank, or accompanied by proper instruments of
transfer to the Company or in blank, accompanied by irrevocable written notice
to the Company that the holder elects so to convert such shares of Series B
Preferred Stock and specifying the name or names (with address or addresses) in
which a certificate or certificates evidencing shares of Common Stock are to be
issued.
Subject to Section 5(c) hereof, no payments or adjustments in respect
of accumulated and unpaid dividends on shares of Series B Preferred Stock
surrendered for conversion or on account of any dividend on the Common Stock
issued upon conversion shall be made upon the conversion of any shares of Series
B Preferred Stock; provided, however, that to the extent the Board of Directors
of the Company have declared prior to the date of conversion payment of any
accumulated and unpaid dividends on shares of Series B Preferred Stock a holder
of Series B Preferred Stock shall retain the right to receive such declared
dividends notwithstanding the conversion of any shares of Series B Preferred
Stock.
The Company shall, as soon as practicable after such deposit of
certificates evidencing shares of Series B Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Series B Preferred Stock were so surrendered, or to the nominee
or nominees of such
-5-
<PAGE>
person, certificates evidencing the number of full shares of Common Stock to
which such person shall be entitled as aforesaid, together with a cash
adjustment in respect of any fraction of a share of Common Stock as provided in
Section 5(d). Such conversion shall be deemed to have been made as of the date
of such notice, compliance and surrender of the shares of Series B Preferred
Stock to be converted, and the person or persons entitled to receive the Common
Stock deliverable upon conversion of such Series B Preferred Stock shall be
treated for all purposes as the record holder or holders of such Common Stock
on such date.
(c) Adjustment of Conversion Price. The conversion price at which a share
------------------------------
of Series B Preferred Stock is convertible into Common Stock shall be subject to
adjustment from time to time as follows:
(i) If the Company shall (A) pay a dividend or make a
distribution on its stock in Common Stock or any security convertible into or
exchangeable for Common Stock, (B) subdivide its outstanding Common Stock into
a greater number of shares, (C) combine its outstanding Common Stock into a
smaller number of shares or (D) issue any shares of capital stock by
reclassification of its Common Stock, then the conversion price in effect at the
opening of business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or distribution or at the
opening of business on the business day next following the day on which such
subdivision, combination or reclassification becomes effective, as the case may
be, shall be adjusted so that the holder of any Series B Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number of
such securities that such holder would have owned or have been entitled to
receive after the happening of any of the events described above as if such
Series B Preferred Stock had been converted immediately prior to the record date
in the case of a dividend or distribution or the effective date in the case of a
subdivision, combination or reclassification. An adjustment made pursuant to
this subparagraph (i) shall become effective immediately after the opening of
business on the business date next following the record date in the case of a
dividend or distribution and shall become effective immediately after the
opening of business on the business date next following the effective date in
the case of a subdivision, combination or reclassification. The provision of
this subparagraph (i) shall not be applicable to any transaction for which an
adjustment is otherwise provided under this Section 5(c).
(ii) In case the Company shall pay or make a dividend or other
distribution on its Common Stock consisting exclusively of, or shall otherwise
issue to all holders of its Common Stock, rights or warrants entitling the
holders thereof to subscribe for or purchase shares of Common Stock at a price
per share less than the current market price per share (determined as provided
in subparagraph (vii) of this Section 5(c)) of the Common Stock on the date
fixed for the determination of stockholders entitled to receive such rights or
warrants, the conversion price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by multiplying
such conversion price by a fraction of which the numerator shall be the number
of shares of Common Stock outstanding at the close of business on the date fixed
for such determination plus the number of shares of Common Stock which the
aggregate of the offering price of the total number of shares of Common Stock so
offered for subscription or purchase would purchase at such current market price
and the denominator
-6-
<PAGE>
shall be the number of shares of Common Stock outstanding at the close of
business on the date fixed for such determination plus the number of shares of
Common Stock so offered for subscription or purchase, such reduction to become
effective immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this subparagraph (ii),
the number of shares of Common Stock at any time outstanding shall not include
shares held in the treasury of the Company. The Company shall not issue any
rights or warrants in respect of shares of Common Stock held in the treasury of
the Company. In case any rights or warrants referred to in this subparagraph
(ii) in respect of which an adjustment shall have been made shall expire
unexercised within 45 days after the same shall have been distributed or issued
by the Company, the conversion price shall be readjusted at time of such
expiration to the conversion price that would have been in effect if no
adjustment had been made on account of the distribution or issuance of such
expired rights or warrants.
(iii) If the Company shall, at any time or from time to time after
the date hereof, issue, or be deemed to have issued pursuant to the provisions
of this subparagraph (iii), any additional shares of Common Stock at a price per
share, before deduction of any discounts, commissions, fees and other expenses
of issuance and marketing, which is less than the current market price per share
(determined as provided in subparagraph (vii) of this Section 5(c)) immediately
prior to such issue, then the conversion price shall immediately be reduced in
accordance with the following formula:
P
-
C/1/ = C x (O + M)
-----
( A )
where:
C/1/ = the adjusted conversion price.
C = the current conversion price.
O = the number of shares of Common Stock outstanding immediately
prior to the issuance of such additional shares.
P = the aggregate consideration received for the issuance of
such additional shares.
M = the current market price per share of Common Stock on the
date of issuance of such additional shares.
A = the number of shares of Common Stock outstanding immediately
after the issuance of such additional shares.
For purposes of this subparagraph (iii), the issuance by the Company of
warrants, options, or other rights to acquire Common Stock or any securities or
instruments convertible directly into or exchangeable or exercisable for Common
Stock (collectively, "Equity Securities"), other than Exempted Securities (as
herein defined), shall be deemed to involve the immediate issuance by the
Company of the maximum number of shares of Common Stock issuable upon full
exercise or conversion of such Equity Securities for a consideration equal to
the minimum aggregate consideration receivable by the Company upon issuance of
such Equity Securities and full conversion or exercise
-7-
<PAGE>
thereof, and the shares of Common Stock deemed to be so issued shall thereafter
be deemed to be outstanding as long as the Equity Securities which provide the
right to acquire such shares remains outstanding. Any direct or indirect
reduction in the exercise or conversion price of outstanding Equity Securities
shall be deemed a new issuance of such Equity Securities to the extent of such
reduction. However, in the event that any Equity Securities have been issued by
the Company which have resulted in an adjustment in the conversion price
pursuant to this subparagraph (iii), and such Equity Securities have not been
exercised prior to the expiration of such Equity Securities, then the conversion
price shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would have
been (but reflecting any other adjustments in the conversion price made pursuant
to the provisions of this subparagraph (iii) after the issuance of such Equity
Securities) had the adjustment of the conversion price made upon the issuance of
such Equity Securities been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such Equity Securities actually exercised. For
purposes of this subparagraph (iii), if shares are issued for consideration all
or part of which is other than cash, the amount of such non-cash consideration
shall be deemed to be the value thereof (as determined in good faith by the
Board of Directors, whose determination shall be conclusive and described in a
resolution of the Board of Directors). The provisions of this subparagraph (iii)
shall not be applicable to any issuance for which an adjustment is otherwise
provided under Section 5(c) or to any issuance of Common Stock upon actual
exercise or actual conversion of any Equity Securities if the conversion price
was fully and properly adjusted at the time such Equity Securities were issued
(or, if no such adjustment was required hereunder). The term "Exempted
Securities" means (A) the Common Stock issuable upon the conversion of the
Series A Preferred Stock that from time to time may be outstanding, including
any Series A Preferred Stock that may be issued after July 8, 1996, (B) the
Common Stock issuable upon the exercise of the Redeemable Common Stock Purchase
Warrants (the "Warrants") offered by the Company in connection with the Series A
Preferred Stock, (C) the Common Stock issuable upon the exercise of the Warrants
issued to Josephthal Lyon & Ross Incorporated pursuant to that certain letter
dated February 23, 1996, (D) the Common Stock issuable upon the exercise of the
warrants issued to Spencer Trask Securities Incorporated pursuant to that
certain Placement Agency Agreement dated February 13, 1996, (E) Series A
Preferred Stock that from time to time may be outstanding, including any Series
A Preferred Stock that may be issued after July 8, 1996, (F) the Common Stock
issuable pursuant to the conversion or exercise of all Equity Securities
outstanding prior to July 8, 1996, (G) the Common stock issuable upon the
exercise of that certain warrant to purchase 67,500 shares of Common Stock to be
issued to Uro-Tech, Ltd. in connection with the modification of the terms and
provisions of its outstanding loan to the Company, (H) the issuance of sale of
Common Stock upon the exercise of options granted pursuant to any of the
Company's stock option plans in effect as of July 8, 1996, whether of not such
options are outstanding as of such date, (I) the Common Stock issuable upon the
conversion of the Series B Preferred Stock that from time to time may be
outstanding, (J) the Series B Preferred Stock issued by the Company pursuant to
Section 3, and (K) the Common Stock Warrant being offered by the Company in
connection with the Series B Preferred Stock and the Common Stock issuable upon
the exercise thereof.
-8-
<PAGE>
(iv) Subject to the last sentence of this subparagraph (iv), in
case the Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock evidences of its indebtedness, shares of any class or series of
capital stock, cash or assets (including securities, but excluding any rights or
warrants referred to in subparagraph (ii) of this Section 5(c), any dividend or
distribution paid exclusively in cash and any dividend or distribution referred
to in subparagraph (i) of this Section 5(c)), the conversion price shall be
reduced so that the same shall equal the price determined by multiplying the
conversion price in effect immediately prior to the effectiveness of the
conversion price reduction contemplated by this subparagraph (iv) by a fraction
of which the numerator shall be the current market price per share (determined
as provided in subparagraph (vii) for this Section 5(c)) of the Common Stock on
the date fixed for the payment of such distribution (the "Reference Date") less
the fair market value (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution of the
Board of Directors), on the Reference Date, of the portion of the evidences of
indebtedness, shares of capital stock, cash and assets so distributed applicable
to one share of Common Stock and the denominator shall be such current market
price per share of the Common Stock, such reduction to become effective
immediately prior to the opening of business on the day following the Reference
Date. If the Board of Directors determines the fair market value of any
distribution for purposes of this subparagraph (iv) by reference to the actual
or when issued trading market for any securities comprising such distribution,
it must in doing so consider the prices in such market over the same period used
in computing the current market price per share of Common Stock pursuant to
subparagraph (vii) of this Section 5(c). For purposes of this subparagraph (iv),
any dividend or distribution that includes shares of Common Stock or rights or
warrants to subscribe for or purchase shares of Common Stock shall be deemed
instead to be (1) a dividend or distribution of the evidences of indebtedness,
cash, assets or shares of capital stock other than such shares of Common Stock
or such rights or warrants (making any conversion price reduction required by
this subparagraph (iv)) immediately followed by (2) a dividend or distribution
of such shares of Common Stock or such rights or warrants (making any further
conversion price reduction required by subparagraph (i) or (ii) of this Section
5(c), except (A) the Reference Date of such dividend or distribution as defined
in this subparagraph (iv) shall be substituted as "the date fixed for the
determination of stockholders entitled to receive such dividend or other
distributing or to exchange such Rights," the date fixed for the determination
of stockholders entitled to receive such rights or warrants" and "the date fixed
for such determination" within the meaning of subparagraphs (i) and (ii) of this
Section 5(c) and (B) any shares of Common Stock included in such dividend or
distribution shall not be deemed "outstanding at the close of business on the
date fixed for such determination" within the meaning of subparagraph (i) of
this section 5(c)).
(v) In case the Company shall pay or make a dividend or other
distribution on its Common Stock exclusively in cash (excluding any such cash
dividend if the amount thereof per share of Common Stock multiplied by four does
not exceed 15% of the current market price per share (determined as provided in
subparagraph (vii) of this Section (5(c)) of the Common Stock on the Trading Day
(as defined in Section 5(h)) next preceding the date of declaration of such
dividend), the conversion price shall be reduced so that the same shall equal
the price determined by multiplying the conversion price in effect immediately
prior to the effectiveness of the conversion price reduction contemplated
-9-
<PAGE>
by this subparagraph (v) by a fraction of which the numerator shall be the
current market price per share (determined as provided in subparagraph (vii) of
this Section 5(c)) of the Common Stock on the date fixed for the payment of such
distribution less the amount of cash so distributed and not excluded as provided
above applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the day following the
date fixed for the payment of such distribution.
(vi) In case a tender or exchange offer made by the Company or any
subsidiary of the Company for all or any portion of the Company's Common Stock
shall expire and such tender or exchange offer shall involve the payment by the
Company or such subsidiary of consideration per share of Common Stock having a
fair market value (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors) at the last time (the "Expiration Time") tenders or exchanges may be
made pursuant to such tender or exchange offer (as it shall have been amended)
that exceeds the current market price per share (determined as provided in
subparagraph (vii) of this Section 5(c)) of the Common Stock on the Trading Day
(as defined in Section 5(h)) next succeeding the Expiration Time, the conversion
price shall be reduced so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the
effectiveness of the conversion price reduction contemplated by this
subparagraph (vi) by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged shares)
at the Expiration Time multiplied by the current market price per share
(determined as provided in subparagraph (vii) of this Section 5(c)) of the
Common Stock on the Trading Day next succeeding the Expiration Time and the
denominator shall be the sum of (x) the fair market value (determined as
aforesaid) of the aggregate consideration payable to stockholders based on the
accceptance (up to any maximum specified in the terms of the tender or exchange
offer) of all shares validly tendered or exchanged and not withdrawn as of the
Expiration Time (the shares deemed so accepted, up to any such maximum, being
referred to as the "Purchased Shares") and (y) the product of the number of
shares of Common Stock outstanding (less any Purchased Shares) at the Expiration
Time and the current market price per share (determined as provided in
subparagraph (vii) of this Section 5(c)) of the Common Stock on the Trading Day
next succeeding the Expiration Time, such reduction to become effective
immediately prior to the opening of business on the day following the Expiration
Time.
(vii) For the purpose of any computation under subparagraph (ii),
(iii), (iv) and (v) of this Section 5(c), the current market price per share of
Common Stock on any date in question shall be deemed to be the average of the
daily Closing Prices (as defined in Section 5(h)) for the five consecutive
Trading Days prior to and including the date in question; provided, however,
-------- -------
that (1) if the "ex" date (as hereinafter defined) for any event (other than the
issuance or distribution requiring such computation) that requires an adjustment
to the conversion price pursuant to subparagraph (i), (ii), (iii), (iv), (v) or
(vi) above ("Other Event") occurs after the third Trading Day prior to the day
in question and prior to the "ex" date for the issuance or distribution
requiring such computation (the "Current Event"), the Closing Price for each
Trading Day prior to the "ex" date for such Other Event shall be adjusted by
multiplying such Closing Price by the same fraction by which the conversion
price is so
-10-
<PAGE>
required to be adjusted as a result of such Other Event, (2) if the "ex" date
for any Other Event occurs after the "ex" date for the Current Event and on or
prior to the date in question, the Closing Price for each Trading Day on and
after the "ex" date for such Other Event shall be adjusted by multiplying such
Closing Price by the reciprocal of the fraction by which the conversion price is
so required to be adjusted as a result of such Other Event, (3) if the "ex" date
of any Other Event occurs on the "ex" date for the Current Event, one of those
events shall be deemed for purposes of clauses (1) and (2) of this proviso to
have an "ex" date occurring prior to the "ex" date for the other event, and (4)
if the "ex" date for the Current Event is on or prior to the date in question,
after taking into account any adjustment required pursuant to clause (2) of this
proviso, the Closing Price for each Trading Day on or after such "ex" date shall
be adjusted by adding thereto the amount of any cash and the fair market value
on the date in question (as determined in good faith by the Board of Directors
in a manner consistent with any determination of such value for purposes of
paragraph (iv) or (v) of this Section 5(c), whose determination shall be
conclusive and described in a resolution of the Board of Directors) of the
portion of the rights, warrants, evidences of indebtedness, shares of capital
stock or assets being distributed applicable to one share of Common Stock. For
the purpose of any computation under subparagraph (vi) of this Section 5(c), the
current market price per share of Common Stock on any date in question shall be
deemed to be the average of the daily Closing Prices for such date in question
and the next two succeeding Trading Days; provided, however, that if the "ex"
-------- -------
date for any event (other than the tender or exchange offer requiring such
computation) that requires an adjustment to the conversion price pursuant to
subparagraph (i), (ii), (iii), (iv), (v) or (vi) above occurs after the
Expiration Time for the tender or exchange offer requiring such computation and
or prior to the second Trading Day following the date in question, the Closing
Price for each Trading Day on and after the "ex" date for such other event shall
be adjusted by multiplying such Closing Price by the reciprocal of the fraction
by which the conversion price is so required to be adjusted as a result of such
other event. For purposes of this paragraph, the term "ex" date, (1) when used
with respect to any issuance or distribution, means the first date on which the
Common Stock trades regular way on the relevant exchange or in the relevant
market from which the Closing Price was obtained without the right to receive
such issuance or distribution, (2) when used with respect to any subdivision or
combination of shares of Common Stock, means the first date on which the
Common Stock trades regular way on such exchange or in such market after the
time at which such subdivision or combination becomes effective, and (3) when
used with respect to any tender or exchange offer means the first date on which
the Common Stock trades regular way on such exchange or in such market after the
Expiration Time of such offer.
(viii) The Company may make such reductions in the conversion price,
in addition to those required by subparagraphs (i), (ii), (iii), (iv), (v) and
(vi) of this Section 5(c), as it considers to be advisable to avoid or diminish
an income tax to holders of Common Stock or rights to purchase Common Stock
resulting from any dividend or distribution of stock (or rights to acquire
stock) or from any event treated as such for income tax purposes. The Company
from time to time may reduce the conversion price by any amount for any period
of time if the period is at least twenty days, the reduction is irrevocable
during the period, and the Board of Directors of the Company shall have made a
determination that such reduction would be in the best interest of the Company,
which determination shall be conclusive. Whenever the conversion price is
reduced pursuant to the preceding sentence, the
-11-
<PAGE>
Company shall mail to holders of record of the Series B Preferred Stock a notice
of the reduction at least fifteen days prior to the date the reduced conversion
price takes effect, and such notice shall state the reduced conversion price and
the period it will be in effect.
(ix) No adjustment in the conversion price shall be required unless
such adjustment would require an increase or decrease of at least 1% in the
conversion price; provided, however, that any adjustments which by reason of
-------- -------
this subparagraph (ix) are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
(x) Whenever the conversion price is adjusted as herein provided:
(1) the Company shall compute the adjusted conversion price
and shall prepare a certificate signed by the Company's independent auditors
setting forth the adjusted conversion price and showing in reasonable detail the
facts upon which such adjustment is based, and such certificate shall forthwith
be filed with the transfer agent for the Series B Preferred Stock; and
(2) a notice stating the conversion price has been adjusted
and setting forth the adjusted conversion price shall forthwith be required, and
as soon as practicable after it is required such notice shall be mailed by the
Company to all record holders of shares of Series B Preferred Stock at their
last addresses as they shall appear upon the stock transfer books of the
Company.
(d) No Fractional Shares. No fractional shares of Common Stock shall be
--------------------
issued upon conversion of Series B Preferred Stock. If more than one certificate
evidencing shares of Series B Preferred Stock shall be surrendered for
conversion at one time by the same holder, the number of full shares issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Series B Preferred Stock so surrendered. Instead of any fractional
share of Common Stock that would otherwise be issuable to a holder upon
conversion of any shares of Series B Preferred Stock, the Company shall pay a
cash adjustment in respect of such fractional share in an amount equal to the
same fraction of the market price per share of Common Stock (as determined by
the Board of Directors or in any manner prescribed by the Board of Directors,
which, so long as the Common Stock is quoted on the Nasdaq National Market
System, shall be the reported last sale price regular way on the Nasdaq National
Market System, or so long as the Common Stock is traded on the over-the-counter
market, shall be the closing bid regular way, at the close of business on the
day of conversion).
(e) Reclassification, Consolidation, Merger or Sale of Assets. In the
---------------------------------------------------------
event that the Company shall be a party to any transaction (including without
limitation any recapitalization or reclassification of the 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 of the Common
Stock), any consolidation of the Company with, or merger of the Company into,
any other person, any merger of another person into the Company (other than a
merger which does not result in a reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company), any sale or
transfer of all of substantially all of the assets of the Company or any
compulsory share
-12-
<PAGE>
exchange) pursuant to which the Common Stock is converted into the right to
receive other securities, cash or other property, then lawful provisions shall
be made as part of the terms of such transaction whereby the holder of each
share of Series B Preferred Stock then outstanding shall have the right
thereafter to convert such share only into the kind and amount of securities,
cash and other property receivable upon such transaction by a holder of the
number of shares of Common Stock of the Company into which such share of Series
B Preferred Stock could have been converted immediately prior to such
transaction. The Company or the person formed by such consolidation or resulting
from such merger or which acquires such assets or which acquires the Company's
shares, as the case may be, shall make provisions in its certificate or
articles of incorporation or other constituent document to establish such right.
Such certificate or articles of incorporation or other constituent document
shall provide for adjustments which, for events subsequent to the effective date
of such certificate or articles of incorporation or other constituent document,
shall be as nearly equivalent as may be practicable to the adjustments provided
for in this Section 5. The above provisions shall similarly apply to successive
transactions of the foregoing type.
(f) Reservation of Shares: Etc. From and after the Conversion Date, the
--------------------------
Company shall at all times reserve and keep available, free from preemptive
rights out of its authorized and unissued stock, solely for the purpose of
effecting the conversion of the Series B Preferred Stock, such number of shares
of its Common Stock as shall from time to time be sufficient to effect the
conversion of all shares of Series B Preferred Stock from time to time
outstanding. From and after the Conversion Date, the Company shall from time to
time, in accordance with the laws of the State of Texas, increase the authorized
number of shares of Common Stock if at any time the number of shares of
authorized and unissued Common Stock shall not be sufficient to permit the
conversion of all the then-outstanding shares of Series B Preferred Stock.
(g) Prior Notice of Certain Events. In case:
------------------------------
(i) the Company shall (1) declare any divided (or any other
distribution) on its Common Stock, other than (A) a dividend payable in shares
of Common Stock or (B) a dividend payable in cash out of its retained earnings
other than any special or nonrecurring or other extraordinary dividend or (2)
declare or authorize a redemption or repurchase of the then-outstanding shares
of Common Stock; or
(ii) the Company shall authorize the granting to all holders of
Common Stock of rights or warrants to subscribe for or purchase any shares of
stock of any class or series or of any other rights or warrants; or
(iii) of any reclassification of Common Stock (other than a
subdivision or combination of the outstanding Common Stock, or a change in par
value, or from par value to no par value, or from no par value to par value), or
of any consolidation or merger to which the Company is a party and for which
approval of any stockholders of the Company shall be required, or of the sale or
-13-
<PAGE>
transfer of all or substantially all of the assets of the Company or of any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company;
then the Company shall cause to be mailed to the holders of record of the Series
B Preferred Stock, at their last addresses as they shall appear upon the stock
transfer books of the Company, at least fifteen days prior to the later of the
applicable record or effective date hereinafter specified, a notice stating (x)
the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution, redemption, repurchase, 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, redemption, rights or
warrants are to be determined or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up (but no failure to mail such
notice or any defect therein or in the mailing thereof shall affect the validity
of the corporate action required to be specified in such notice).
(h) Definitions. The following definitions shall apply to terms used in
-----------
this Section 5:
(l) "Closing Price" of any common stock on any day shall mean the
last reported sale price regular way on such day or, in case no such sale takes
place on such day, the average of the reported closing bid and asked prices
regular way of the common stock in each case on the Nasdaq National Market
System, or, if the common stock is not quoted or admitted to trading on such
quotation system, on the principal national securities exchange or quotation
system on which the common stock is listed or admitted to trading or quoted, or,
if not listed or admitted to trading or quoted on any national securities
exchange or quotation system, the average of the closing bid and asked prices of
the common stock in the over-the-counter market on the day in question as
reported by the National Quotation Bureau Incorporated, or a similarly generally
accepted reporting services, or, if not so available in such manner, as
furnished by any New York Stock Exchange member firm selected from time to time
by the Board of Directors of the Company for that purpose or, if not so
available in such manner, as otherwise determined in good faith by the Board of
Directors.
(2) "Trading Day" shall mean a day on which securities traded on the
national securities exchange or quotation system or in the over-the-counter
market used to determined the Closing Price.
(i) Dividend or Interest Reinvestment Plans. Notwithstanding the foregoing
---------------------------------------
provisions, the issuance of any shares of Common Stock pursuant to any plan
providing for the reinvestment of dividends or interest payable on securities of
the Company and the investment of additional optional
-14-
<PAGE>
amounts in shares of Common Stock under any such plan, and the issuance of any
shares of Common Stock or options or rights to purchase such shares pursuant to
any employee benefit plan or program of the Company or pursuant to any option,
warrant, right or exercisable, exchangeable or convertible security outstanding
as of the date the Series B Preferred Stock was first designated, shall not be
deemed to constitute an issuance of Common Stock or exercisable, exchangeable or
convertible securities by the Company to which any of the adjustment provisions
described above applies. There shall also be no adjustment of the conversion
price in case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of the Company except as specifically described in this
Section 5. If any action would require adjustment of the conversion price
pursuant to more than one of the provisions described above, only one adjustment
shall be made and such adjustment shall be the amount of adjustment which has
the highest absolute value to holders of Series B Preferred Stock.
(j) Certain Additional Rights. In case the Company shall, by dividend or
-------------------------
otherwise, declare or make a distribution on its Common Stock referred to in
Section 5(c)(iv) or 5(c)(v) (including, without limitation, dividends or
distributions referred to in the last sentence of Section 5(c)(iv)), the holder
of each share of Series B Preferred Stock, upon the conversion thereof
subsequent to the close of business on the date fixed for the determination of
stockholders entitled to receive such distribution and prior to the
effectiveness of the conversion price adjustment in respect of such
distribution, shall also be entitled to receive for each share of Common Stock
into which such share of Series B Preferred Stock is converted, the portion of
the shares of Common Stock, rights, warrants, evidences of indebtedness, shares
of capital stock, cash and assets so distributed applicable to one share of
Common Stock; provided, however, that, at the election of the Company (whose
-------- -------
election shall be evidenced by a resolution of the Board of Directors) with
respect to all holders so converting, the Company may, in lieu of distributing
to such holder any portion of such distribution not consisting of cash or
securities of the Company, pay such holder an amount in cash equal to the fair
market value thereof (as determined in good faith by the Board of Directors,
whose determination shall be conclusive and described in a resolution of the
Board of Directors). If any conversion of a share of Series B Preferred Stock
described in the immediately preceding sentence occurs prior to the payment date
for a distribution to holders of Common Stock which the holder of the share of
Series B Preferred Stock so converted is entitled to receive in accordance with
the immediately preceding sentence, the Company may elect (such election to be
evidenced by a resolution of the Board of Directors) to distribute to such
holder a due bill for the shares of Common Stock, rights, warrants, evidences of
indebtedness, shares of capital stock, cash or assets to which such holder is so
entitled, provided that such due bill (i) meets any applicable requirements of
the principal national securities exchange or other market on which the Common
Stock is then traded and (ii) requires payment or delivery of such shares of
Common Stock, rights, warrants, evidences of indebtedness, shares of capital
stock, cash or assets no later than the date of payment or delivery thereof to
holders of shares of Common Stock receiving such distribution.
-15-
<PAGE>
6. Redemption.
----------
(a) Optional Redemption. The shares of Series B Preferred Stock may be
-------------------
redeemed at the option of the Company, to the extent it has funds legally
available for such redemption, at any time, in whole or in part, subsequent to
the second anniversary of the Final Closing Date, at a redemption price per
share, payable in cash, equal to $50.00 plus an amount equal to all accumulated
and unpaid cash dividends thereon to the date of such redemption (the
"Redemption Price"), whether or not declared. The Company shall, by written
notice mailed at least 30 calendar days after the Final Closing Date, give
notice to each holder of Series B Preferred Stock of the Final Closing Date.
In the case of redemption of less than all of the then outstanding shares
of Series B Preferred Stock, the Company shall effect such redemption pro rata.
Notwithstanding the foregoing, the Company shall not redeem less than all of the
shares of the Series B Preferred Stock at any time outstanding until all
dividends accumulated and in arrears upon all shares of Series B Preferred Stock
then outstanding for all dividend periods ending prior to the date of redemption
been paid.
(b) Redemption Procedure. With respect to any redemption of shares of
--------------------
Series B Preferred Stock provided for in this Section 6, a notice of redemption
of shares of Series B Preferred Stock (the "Redemption Notice") shall be given
by first-class mail, postage prepaid, mailed at least 30 calendar days prior to
the specified redemption date to each holder of the shares of Series B Preferred
Stock to be redeemed, at such holder's address as the same appears on the
register of the Company for the Series B Preferred Stock, provided, however,
-------- -------
that such Redemption Notice may only be given if, for the 20 consecutive trading
days preceding the notice, the closing price for the Company's Common Stock (if
then listed on the Nasdaq National Market) or the closing bid for the Common
Stock (if then trading on the over-the-counter market) is in excess of $2.00 per
share, such $2.00 closing price or closing bid price to be proportionately
adjusted if the Conversion Price is adjusted pursuant to Section 5 herein. Each
Redemption Notice shall state and include (i) the Redemption Date, (ii) a
statement either (A) that all of the holder's shares of Series B Preferred Stock
are being redeemed or (B) the number of such shares to be redeemed from the
holder (which number will be calculated based on the holder's pro rata ownership
percentage of then outstanding shares of Series B Preferred Stock), (iii) the
redemption price per share, and (iv) the place or places where certificates for
such shares are to be surrendered for payment of the redemption price.
(c) Any Redemption Notice that is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not the holder of the
shares of Series B Preferred Stock receives such notice; and failure to give
such notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Series B Preferred Stock.
(d) On or after the Redemption Date as stated in the Redemption
Notice, the holders of shares of Series B Preferred Stock which have been called
for redemption shall surrender certificates representing such shares to the
Company at its principal place of business or as otherwise stated in the
-16-
<PAGE>
Redemption Notice, and thereupon the redemption price of such shares shall be
paid by the Company in the manner specified in the Redemption Notice to the
person whose name appears on such certificate or certificates as the owner
thereof. If less than all the shares represented by any such surrendered
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares. The Company may elect not to issue fractional shares or scrip
representing fractions of shares of Series B Preferred Stock upon redemption of
less than all shares of Series B Preferred Stock. Instead of any fractional
interest in a share of Series B Preferred Stock that would otherwise be
deliverable upon the redemption of less than all shares of Series B Preferred
Stock, the Company may elect to pay to the holder of such share an amount in
cash based upon $50.00 plus accumulated dividends.
(e) Notice having been given as aforesaid, if, on the date fixed for
redemption, funds necessary for the redemption shall be available therefor and
shall have been deposited with a bank or trust company with irrevocable
instructions and authority to pay the Redemption Price to the holders of the
Series B Preferred Stock, then, notwithstanding that the certificates
representing any shares so called for redemption shall not have been
surrendered, dividends with respect to the shares so called shall cease to
accumulate after the date fixed for redemption, such shares shall no longer be
deemed outstanding, the holders thereof shall cease to be stockholders of the
Company, and all rights whatsoever with respect to the shares so called for
redemption (except the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor) shall terminate.
If funds legally available for such purpose are not sufficient for redemption of
the Series B Preferred Stock which were to be redeemed, then Section 7 shall
apply and the certificates representing shares not redeemed pursuant to Section
7 shall be deemed not to be surrendered, such shares shall remain outstanding,
the right of the holder to receive payment of the Redemption Price for such
shares shall terminate, and the right of holders of Series B Preferred Stock
thereafter shall continue to be only those of a holder of shares of the Series B
Preferred Stock.
7. Partial Payments. Upon an optional redemption by the Company, if at
----------------
any time the Company does not pay amounts sufficient to redeem all shares of
Series B Preferred Stock, then such funds which are paid shall be applied to
redeem such shares of Series B Preferred Stock pro rata.
8. Shares to Be Retired. All shares of Series B Preferred Stock which
--------------------
shall have been issued and reacquired in any manner by the Company shall be
restored to the status of authorized but unissued shares of preferred stock of
the Company, without designation as to class or series.
9. Voting Rights.
-------------
(a) So long as any shares of Series B Preferred Stock are outstanding, in
addition to any other vote or consent of shareholders required by law or by the
articles of incorporation of the Company, the affirmative vote of at least a
majority of the votes entitled to be cast by the holders of the Series B
Preferred Stock (each such share being entitled to one vote), at the time
outstanding, given in person or by proxy, either in writing without a meeting or
by vote at any meeting called for the purpose shall be necessary for effecting
or validating:
-17-
<PAGE>
(i) Any amendment, alteration or repeal of any of the provisions
of the articles of incorporation or bylaws of the Company or this Statement of
Designation that adversely affects the voting powers, rights or preferences of
the holders of the Series B Preferred Stock; provided, however, that the
-------- -------
amendment of the provisions of the articles of incorporation of the Company so
as to authorize or create or to increase the authorized amount of any Parity
Stock or any Junior Stock, (a) shall not be deemed to adversely affect the
voting powers, rights or preferences of the holders of Series B Preferred Stock
and (b) shall not in any case require a separate vote of the holders of Series B
Preferred Stock; or
(ii) A share exchange that affects the Series B Preferred Stock,
a consolidation with or merger of the Corporation into another entity, or a
consolidation with or merger of another entity into the Corporation, or the
voluntary sale, lease, conveyance, exchange, or transfer (for cash, shares of
stock, securities, or other consideration) of all or substantially all of the
property or assets of the Company; or
(iii) Except for the Series A Preferred Stock, the authorization
or creation of any shares of any class of any security convertible into shares
of any class ranking prior to or on parity with the Series B Preferred Stock in
the distribution of assets on any liquidation, dissolution or winding up of the
Company or in the payment of dividends;
provided, however, that no such vote of the holders of Series B Preferred Stock
- -------- -------
shall be required if, at or prior to the time when such amendment, alteration or
repeal is to take effect, or when the issuance of any such shares or convertible
security is to be made, as the case may be, provision in made for the redemption
of all shares of Series B Preferred Stock at the time outstanding in accordance
with the terms hereof.
-18-
<PAGE>
FURTHER RESOLVED, that the form, terms and provisions of the Statement of
Designation Establishing the Series B 8% Cumulative Convertible Redeemable
Preferred Stock of Positron Corporation, in the form reviewed by the directors
together with such changes therein as may be approved by the Chairman,
President, or any Vice President executing and filing with the Secretary of
State of the State of Texas such Designation, such approval to be conclusively
evidenced by the execution thereof by such officer, be and the same hereby is in
all respects approved and adopted, and the Chairman, President or any Vice
President of this Company be, and each of them acting individually, is hereby
authorized to execute and file with the Secretary of State of the State of
Texas, in the name and on behalf of this Company, such Statement of Designation;
POSITRON CORPORATION
Dated: July 10, 1996 By:_____________________________________
Name:___________________________________
Title:__________________________________
-19-
<PAGE>
EXHIBIT 4.8
-----------
ANNEX H
FORM OF WARRANT AGREEMENT
<PAGE>
________________________________________________________________________________
WARRANT AGREEMENT
OF
POSITRON CORPORATION
DATED JULY 10, 1996
________________________________________________________________________________
<PAGE>
AGREEMENT, dated this 10th day of July, 1996, between POSITRON CORPORATION,
a Texas corporation (the "Company"), and BROOKS INDUSTRIES PROFIT SHARING PLAN,
as the initial Registered Holder.
W I T N E S S E T H:
WHEREAS, this Agreement is being entered into in connection with (i) the
private offering of 25,000 shares of the Company's Series B 8% Cumulative
Convertible Redeemable Preferred Stock, $1.00 par value per share (the
"Preferred Stock"), and 100,000 redeemable warrants (the "Warrants") to purchase
shares of the Common Stock.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and for the purpose of defining the terms and provisions
of the Warrants and the respective rights and obligations thereunder of the
Company, and the Warrant Holder, the parties hereto agree as follows:
SECTION 1. Definitions. As used herein, the following terms shall have
-----------
the following meanings, unless the context shall otherwise require:
(a) "Accredited Investor Certificate" shall mean the accredited
investor certificate substantially in the form attached hereto as Exhibit A.
(b) "Common Stock" shall mean stock of the Company of any class,
whether now or hereafter authorized, which has the right to participate in the
voting and in the distribution of earnings and assets of the Company without
limit as to amount or percentage.
(c) "Conversion Date" shall mean the date the shareholders of
the Company have approved an amendment to the Company's Articles of
Incorporation which increases the amount of authorized shares of Common Stock by
at least 2,500,000 shares.
(d) "Corporate Office" shall mean the office of the Company at
which at any particular time its principal business shall be administered, which
office is located on the date hereof at 16350 Park Ten Place, Houston, Texas
77084.
(e) "Exercise Date" shall mean, as to any Warrant, the date on
which the Company shall have received (i) the Warrant Certificate representing
such Warrant, with the exercise from thereon duly executed by the Registered
Holder thereof or his attorney duly authorized in writing, (ii) a completed and
executed Accredited Investor Certificate, and (iii) payment in cash or by check
made payable to the Company, of the amount in lawful money of the United States
of America equal to the applicable Purchase Price in good funds.
(f) "Initial Warrant Exercise Date" shall mean the Conversion
Date.
(g) "Purchase Price" shall mean, subject to modification and
adjustment as provided in Section 8, $2.00 and further subject to the Company's
right, in its sole discretion, to decrease the Purchase Price for a period of
not less than 30 days on not less than 30 days' prior written notice to the
Registered Holders.
<PAGE>
(h) "Registered Holder" shall mean the person in whose name any
certificate representing the Warrants shall be registered on the books
maintained by the Company pursuant to Section 6. The initial Registered Holder
of the Warrants is DHB Capital Group.
(i) "Subsidiary" or "Subsidiaries" shall mean any corporation or
corporations, as the case may be, of which stock having ordinary power to elect
a majority of the Board of Directors of such corporation (regardless of whether
or not at the time stock of any other class or classes of such corporation shall
have or may have voting power by reason of the happening of any contingency) is
at the time directly or indirectly owned by the Company or by one or more
Subsidiaries, or by the Company and one or more Subsidiaries.
(j) "Warrant Certificate" shall mean a certificate representing
each of the Warrants substantially in the form annexed hereto as Exhibit B.
(k) "Warrant Expiration Date" shall mean 5:00 p.m. (Houston time),
on the third anniversary of the Conversion Date, or, if such date shall, in the
State of Texas, be a holiday or a day on which banks are authorized to close,
then 5:00 p.m. (Houston time) on the next following day which in the State of
Texas is not a holiday or a day on which banks are authorized to close, subject
to the Company's right, prior to the Warrant Expiration Date, in its sole
discretion, to extend such Warrant Expiration Date on five business days prior
written notice to the Registered Holders.
SECTION 2. Warrants and Issuance of Warrant Certificates.
---------------------------------------------
(a) Subject to modification and adjustment as provided in Section
8, one Warrant shall initially entitle the Registered Holder of the Warrant
Certificate representing such Warrant, upon exercise thereof, to purchase one
share of Common Stock at a per share price equal to the Purchase Price from the
Initial Warrant Exercise Date until the Warrant Expiration Date. Each Warrant
shall be exercisable in whole but not in part.
(b) Upon execution of this Agreement, Warrant Certificates
representing 100,000 Warrants to purchase up to an aggregate of 100,000 shares
of Common Stock (subject to modification and adjustment as provided in Section
8) shall be executed by the Company and delivered to the initial Registered
Holder.
(c) From time to time, up to the Warrant Expiration Date, as the
case may be, the Company shall countersign and deliver Warrant Certificates in
required denominations of one or whole number multiples thereof to the person
entitled thereto in connection with any transfer or exchange permitted under
this Agreement. Except as provided in Section 7 hereof, no Warrant Certificates
shall be issued except (i) Warrant Certificates issued upon any transfer or
exchange of Warrants, (ii) Warrant Certificates issued in replacement of lost,
stolen, destroyed or mutilated Warrant Certificates pursuant to Section 7, and
(iii) at the option of the Company, Warrant Certificates in such form as may be
approved by its Board of Directors, to reflect any adjustment or change in the
Purchase Price, the number of shares of Common Stock purchasable upon exercise
of the Warrants or the Redemption Price therefor made pursuant to Section 8
hereof.
-2-
<PAGE>
SECTION 3. Form and Execution of Warrant Certificates.
------------------------------------------
(a) The Warrant Certificates shall be substantially in the form
annexed hereto as Exhibit B (the provisions of which are hereby incorporated
herein) and may have such letters, numbers or other marks of identification or
designation and such legends, summaries or endorsements printed, lithographed or
engraved thereon as the Company may deem appropriate and as are not inconsistent
with the provisions of this Agreement, or as may be required to comply with any
law or with any rule or regulation made pursuant thereto or with any rule or
regulation of any stock exchange on which the Warrants may be listed, or to
conform to usage, including without limitation legends to evidence that the
Warrants have not registered under federal and state securities laws and may not
be transferred unless registered or exempt from registration thereunder. The
Warrant Certificates shall be dated the date of issuance thereof (whether upon
initial issuance, transfer, exchange or in lieu of mutilated, lost, stolen or
destroyed Warrant Certificates).
(b) Warrant Certificates shall be executed on behalf of the Company
by its Chairman of the Board, President or any Vice President and by its
Treasurer or any Assistant Treasurer or its Secretary or an Assistant Secretary,
by manual signatures or by facsimile signatures printed thereon, and shall have
imprinted thereon a facsimile of the Company's seal.
SECTION 4. Exercise.
--------
(a) Warrants in denominations of one or whole number multiples
thereof may be exercised commencing at any time on or after the Initial Warrant
Exercise Date, but not after the Warrant Expiration Date, upon the terms and
subject to the conditions set forth herein and in the applicable Warrant
Certificate. A Warrant shall be deemed to have been exercised immediately prior
to the close of business on the Exercise Date, provided that the Warrant
Certificate representing such Warrant, with the exercise form thereon duly
executed by the Registered Holder thereof or his attorney duly authorized in
writing, together with (i) payment in cash or by check made payable to the
Company, of an amount in lawful money of the United States of America equal to
the applicable Purchase Price has been received in good funds by the Company,
and (ii) a completed and executed Accredited Investor Certificate. The person
entitled to receive the securities deliverable upon such exercise shall be
treated for all purposes as the holder of such securities as of the close of
business on the Exercise Date. As soon a practicable on or after the Exercise
Date and in any event within five business days after such date, if one or more
Warrants have been exercised, the Company shall cause to be issued to the person
or persons entitled to receive the same a Common Stock certificate or
certificates for the shares of Common Stock deliverable upon such exercise. Each
certificate for shares of Common Stock shall bear legends to evidence that such
shares have not been registered under federal or state securities laws and may
not be transferred unless registered or exempt from registration thereunder.
(b) The Company shall not be obligated to issue any fractional
share interests or fractional warrant interests upon the exercise of any Warrant
or Warrants, nor shall it be obligated to issue scrip or pay cash in lieu of
fractional interests. Any fraction equal to or greater than one-half shall be
rounded upon to the next full share or Warrant, as the case may be, any fraction
less than one-half shall be eliminated.
SECTION 5. Reservation of Shares; Payment of Taxes, etc.
--------------------------------------------
(a) From and after the Conversion Date, the Company covenants that
it will at all times reserve and keep available out of its authorized Common
Stock, solely for the purpose of issue upon exercise of Warrants, such number of
shares of Common Stock as shall then be issuable upon the exercise of all
-3-
<PAGE>
outstanding Warrants. The Company covenants that all shares of Common Stock
which shall be issuable upon exercise of the Warrants shall, at the time of
delivery thereof, be duly and validly issued, fully paid and nonassessable and
free from all preemptive or similar rights, taxes, liens and charges with
respect to the issue thereof.
(b) The Company shall pay all documentary, stamp or similar
taxes and other governmental charges that may be imposed with respect to the
issuance of Warrants, or the issuance or delivery of any shares of Common Stock
upon exercise of the Warrants; provided, however, that if shares of Common Stock
are to be delivered in a name other than the name of the Registered Holder of
the Warrant Certificate representing any Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Company the amount of transfer taxes or charges incident thereto, if any.
SECTION 6. Exchange and Registration of Transfer.
-------------------------------------
(a) Warrant Certificates may be exchanged for other Warrant
Certificates representing an equal aggregate number of Warrants or may be
transferred in whole or in part, subject to compliance with applicable
securities laws. Warrant Certificates to be so exchanged shall be surrendered to
the Company at its Corporate Office, and the Company shall execute and deliver
in exchange therefor the Warrant Certificate or Certificates which the
Registered Holder making the exchange shall be entitled to receive.
(b) The Company shall keep, at such office, books in which, subject
to such reasonable regulations as it may prescribe, it shall register Warrant
Certificates and the transfer thereof. Upon due presentment for registration of
transfer of any Warrant Certificate at such office, subject to compliance with
applicable securities laws, the Company shall execute and deliver to the
transferee or transferees a new Warrant Certificate or Certificates representing
an equal aggregate number of Warrants.
(c) With respect to any Warrant Certificates presented for
registration of transfer, or for exchange or exercise, the subscription or
exercise form, as the case may be, on the reverse thereof shall be duly endorsed
or be accompanied by a written instrument or instruments of transfer and
subscription, in form satisfactory to the Company, duly executed by the
Registered Holder thereof or his attorney duly authorized in writing.
(d) No service charge shall be made for any exchange or
registration of transfer of Warrant Certificates. However, the Company may
require payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in connection therewith.
(e) All Warrant Certificates surrendered for exercise or for
exchange shall be promptly canceled by the Company.
(f) Prior to due presentment for registration or transfer thereof,
the Company may deem and treat the Registered Holder of any Warrant Certificate
as the absolute owner thereof of each Warrant represented thereby
(notwithstanding any notations of ownership or writing thereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary.
SECTION 7. Loss or Mutilation. Upon receipt by the Company of evidence
------------------
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of, any Warrant Certificate and (in the case of loss, theft or
destruction) of indemnity satisfactory to it, and (in case of mutilation) upon
surrender and cancellation thereof, the Company shall execute and deliver in
lieu thereof a new Warrant Certificate representing an equal aggregate number of
Warrants. Applicants for a substitute Warrant Certificate shall
-4-
<PAGE>
also comply with such other reasonable regulations and pay such other reasonable
charges as the Company may prescribe.
SECTION 8. Adjustment of Purchase Price and Number of Shares of Common
-----------------------------------------------------------
Stock Deliverable.
- -----------------
(a) (i) Except as hereinafter provided, in the event the
Company shall, at any time or from time to time after the date hereof, issue any
shares of Common Stock for a consideration per share less than the Purchase
Price or issue any shares of Common Stock as a stock dividend to the holders of
Common Stock, or subdivide or combine the outstanding shares of Common Stock
into a greater or lesser number of shares (any such issuance, subdivision or
combination being herein called a "Change of Shares"), then, and thereafter upon
each further Change of Shares, the Purchase Price for the Warrants (whether or
not the same shall be issued and outstanding) in effect immediately prior to
such Change of Shares shall be changed to a price (including any applicable
fraction of a cent to the nearest cent) determined by dividing (i) the sum of
(a) the total number of shares of Common Stock outstanding immediately prior to
such Change of Shares, multiplied by the Purchase Price in effect immediately
prior to such Change of Shares and (b) the consideration, if any, received by
the Company upon such sale, issuance, subdivision or combination, by (ii) the
total number of shares of Common Stock outstanding immediately after such Change
of Shares; provided, however, that in no event shall the Purchase Price be
-------- -------
adjusted pursuant to this computation to an amount in excess of the Purchase
Price in effect immediately prior to such computation, except in the case
of a combination of outstanding shares of Common Stock.
For the purposes of any adjustment to be made in accordance with this
Section 8(a), the following provisions shall be applicable:
(A) In case of the issuance or sale of shares of Common
Stock (or of other securities deemed hereunder to involve the issuance or sale
of shares of Common Stock) for a consideration part or all of which shall be
cash, the amount of the cash portion of the consideration therefor deemed to
have been received by the Company shall be (i) the subscription price, if shares
of Common Stock are offered by the Company for subscription, or (ii) the public
offering price (before deducting therefrom any compensation paid or discount
allowed in the sale, underwriting or purchase thereof by underwriters or dealers
or others performing similar services, or any expenses incurred in connection
therewith), if such securities are sold to underwriters or dealers for public
offering without a subscription offering, or (iii) the gross amount of cash
actually received by the Company for such securities, in any other case.
(B) In case of the issuance or sale (otherwise than as a
dividend or other distribution on any stock of the Company, and otherwise than
on the exercise of options, rights or warrants or the conversion or exchange of
convertible or exchangeable securities) of shares of Common Stock (or of other
securities deemed hereunder to involve the issuance or sale of shares of Common
Stock) for a consideration part or all of which shall be other than cash, the
amount of the consideration therefor other than cash deemed to have been
received by the Company shall be the value of such consideration as determined
in good faith by the Board of Directors of the Company on the basis of a record
of values of similar property or services.
(C) Shares of Common Stock issuable by way of dividend or
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of shareholders entitled to receive such dividend or
distribution and shall be deemed to have been issued without consideration.
-5-
<PAGE>
(D) The reclassification of securities of the Company other
than shares of Common Stock into securities, including shares of Common Stock,
shall be deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately prior to the close of business on the
date fixed for the determination of security holders entitled to receive such
shares, and the value of the consideration allocable to such shares of Common
Stock shall be determined as provided in subsection (B) of this Section 8(a).
(E) The number of shares of Common Stock at any one time
outstanding shall be deemed to include the aggregate maximum number of shares
issuable (subject to readjustment upon the actual issuance thereof) upon the
exercise of options, rights or warrants and upon the conversion or exchange of
convertible or exchangeable securities.
(ii) Upon each adjustment of the Purchase Price pursuant to this
Section 8, the number of shares of Common Stock purchasable upon the exercise of
each Warrant shall be the number derived by multiplying the number of shares of
Common Stock purchasable upon the exercise of each Warrant immediately prior to
such adjustment by the Purchase Price in effect prior to such adjustment and
dividing the product so obtained by the applicable adjusted Purchase Price.
(b) In case the Company shall at any time after the date hereof
issue options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, for a consideration per share (determined as provided in Section 8(a) and
as provided below) less than the Purchase Price in effect immediately prior to
the issuance of such options, rights or warrants, or such convertible or
exchangeable securities, or without consideration (including the issuance of any
such securities by way of dividend or other distribution), the Purchase Price
for the Warrants (whether or not the same shall be issued and outstanding) in
effect immediately prior to the issuance of such options, rights or warrants, or
such convertible or exchangeable securities, as the case may be, shall be
reduced to a price determined by making the computation in accordance with the
provisions of Section 8(a) hereof, provided that:
(A) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable or that may become issuable under such options,
rights or warrants (assuming exercise in full event if not then currently
exercisable or currently exercisable in full) shall be deemed to be issued and
outstanding at the time such options, rights or warrants were issued, for a
consideration equal to the minimum purchase price per share provided for in
such options, rights or warrants at the time of issuance, plus the
consideration, if any, received by the Company for such options, rights or
warrants; provided, however, that upon the expiration or other termination of
-------- -------
such options, rights or warrants, if any thereof shall not have been exercised,
the number of shares of Common Stock deemed to be issued and outstanding
pursuant to this subsection (A) (and for the purposes of subsection (E) of
Section 8(a) hereof) shall be reduced by the number of shares as to which
options, warrants and/or rights shall have expired, and such number of shares
shall no longer be deemed to be issued and outstanding, and the Purchase Price
then in effect shall forthwith be readjusted and thereafter be the price that it
would have been had adjustment been made on the basis of the issuance only of
the shares actually issued plus the shares remaining issuable upon the exercise
of those options, rights, or warrants as to which the exercise rights shall not
have expired or terminated unexercised.
(B) The aggregate maximum number of shares of Common Stock
issuable or that may become issuable upon conversion or exchange of any
convertible or exchangeable securities (assuming conversion or exchange in full
even if not then currently convertible or exchangeable in full) shall be deemed
to be issued and outstanding at the time of issuance of such securities, for a
consideration equal
-6-
<PAGE>
to the consideration received by the Company for such securities, plus the
minimum consideration, if any, receivable by the Company upon the conversion or
exchange thereof; provided, however, that upon the termination of the right to
-------- ---------
convert or exchange such convertible or exchangeable securities (whether by
reason of redemption or otherwise), the number of shares of Common Stock deemed
to be issued and outstanding pursuant to this subsection (B) (and for the
purposes of subsection (E) of Section 8 (a) hereof) shall be reduced by the
number of shares as to which the conversion or exchange rights shall have
expired or terminated unexercised, and such number of shares shall no longer be
deemed to be issued and outstanding, and the Purchase Price then in effect shall
forthwith be readjusted and thereafter be the price that it would have been had
adjustment been made on the basis of the issuance only of the shares actually
issued plus the shares remaining issuable upon conversion or exchange of those
convertible or exchangeable securities as to which the conversion or exchange
rights shall not have expired or terminated unexercised.
(C) If any change shall occur in the price per share provided
for in any of the options, rights or warrants referred to in subsection (A) of
this Section 8 (b), or in the price per share or ratio at which the securities
referred to in subsection (E) of this Section 8(b) are convertible or
exchangeable, such options, rights or warrants or conversion or exchange rights,
as the case may be, to the extent not theretofore exercised, shall be deemed to
have expired or terminated on the date when such price change became effective
in respect of shares not theretofore issued pursuant to the exercise or
conversion or exchange thereof, and the Company shall be deemed to have issued
upon such date new options, rights or warrants or convertible or exchangeable
securities.
(c) In case of any reclassification or change of outstanding shares
of Common Stock issuable upon exercise of the Warrants (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 corporation (other than a merger
with a Subsidiary in which merger the Company is the continuing corporation and
which does not result in any reclassification or change of the then outstanding
shares of Common Stock or other capital stock issuable upon exercise of the
Warrants (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 subdivision or combination)
or in case of any sale or conveyance to another corporation of the property of
the Company as an entirety or substantially as an entirety, then, as a condition
of such reclassification, change, consolidation, merger, sale or conveyance, the
Company, or such successor or purchasing corporation, as the case may be, shall
make lawful and adequate provision whereby the Registered Holder of each Warrant
then outstanding shall have the right thereafter to receive on exercise of such
Warrant the kind and amount of securities and property receivable upon such
reclassification, change, consolidation, merger, sale or conveyance by a holder
of the number of securities issuable upon exercise of such Warrant immediately
prior to such reclassification, change, consolidation, merger, sale or
conveyance. Such provisions shall include provision for adjustments which shall
be as nearly equivalent as may be practicable to the adjustments provided for in
Section 8(a) and (b). The above provisions of this Section 8(c) shall similarly
apply to successive reclassification is and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances.
(d) Irrespective of any adjustments or changes in the Purchase Price
or the number of shares of Common Stock purchasable upon exercise of the
Warrants, the Warrant Certificates theretofore and thereafter issued shall,
unless the Company shall exercise its option to issue new Warrant Certificates
pursuant to Section 2 (e) hereof, continue to express the Purchase Price per
share and the number of shares purchasable thereunder as the Purchase Price per
share and the number of shares purchasable thereunder were expressed in the
Warrant Certificates when the same were originally issued.
-7-
<PAGE>
(e) After each adjustment of the Purchase Price pursuant to this
Section 8, the Company will promptly prepare a certificate signed by the
Chairman or President, and by the Treasurer or an Assistant Treasurer or the
Secretary or an Assistant Secretary, of the Company setting forth: (i) the
Purchase Price as so adjusted (ii) the number of shares of Common Stock
purchasable upon exercise of each Warrant, after such adjustment, and (iii) a
brief statement of the facts accounting for such adjustment. The Company will
promptly cause such certificates to be sent by ordinary first class mail to each
Registered Holder at his last address as it shall appear on the registry books
of the Company. No failure to mail such notice nor any defect therein or in the
mailing thereof shall affect the validity thereof except as to the holder to
whom the Company failed to mail such notice, or except as to the holder whose
notice was defective. The affidavit of an officer of the Company that such
notice has been made shall, in the absence of fraud, be prima facie evidence of
the facts stated therein.
(f) No adjustment of the Purchase Price shall be made as a result of
or in connection with (A) the issuance or sale of shares of Common Stock
pursuant to options, warrants, stock purchase agreements and convertible or
exchangeable securities outstanding or in effect on the date hereof, or Series A
8% Cumulative Convertible Redeemable Preferred Stock that may be issued after
the date hereof, (B) the Common Stock issuable upon conversion of the Preferred
Stock, (C) the Common Stock issuable upon exercise of the Warrants, (D) the
shares of Common Stock issuable upon the exercise of that Certain Warrant to
purchase 67,500 shares of Common Stock to be issued to Uro-Tech, Ltd. in
connection with the modification of the terms and conditions of its outstanding
loan to the Company, (E) the issuance or sale of Common Stock upon the exercise
of options granted pursuant to any of the Company's stock option plans in effect
as of July 8, 1996, whether or not such options are outstanding as of such date
or (F) the issuance or sale of shares of Common Stock if the amount of said
adjustment shall be less than $0.10; provided, however, that in such case, any
adjustment that would otherwise be required then to be made shall be carried
forward and shall be made at the time of and together with the next subsequent
adjustment that shall amount, together with any adjustment so carried forward,
to at least $.10. In addition, Registered Holders shall not be entitled to cash
dividends paid by the Company prior to the exercise of any Warrant or Warrants
held by them.
SECTION 9. Modification of Agreement.
-------------------------
The Company may by supplemental agreement make any changes or corrections
in this Agreement that it shall deem (i) appropriate to cure any ambiguity or to
correct any defective or inconsistent provision or manifest mistake or error
herein contained; or (ii) necessary or desirable and which shall not adversely
affect the interests of the holders of Warrant Certificates; provided, however,
-------- -------
that this Agreement shall not otherwise be modified, supplemented or altered in
any respect except with the consent in writing of the Registered Holders
representing not less than 66-2/3% of the Warrants then outstanding.
SECTION 10. Notices.
-------
All notices, requests, consents and other communications hereunder shall be
in writing and shall be deemed to have been made when delivered or mailed
first-class postage prepaid, or delivered to a telegraph office for transmission
if to the Registered Holder of a Warrant Certificate, at the address of such
holder as shown on the registry books maintained by the Company; if to the
Company at 16350 Park Ten Place, Houston, Texas 77084, Attention: David O.
Rodrigue, Chief Financial Officer, or at such other address as may have been
furnished to the Registered Holders in writing by the Company.
-8-
<PAGE>
SECTION 11. Governing Law.
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Texas without giving effect to principles of conflicts of
laws.
SECTION 12. Binding Effect.
--------------
This Agreement Shall be binding upon and inure to the benefit of the
Company and its respective successors and assigns and the holders from time to
time of Warrant Certificates or any of them. Except as hereinafter stated,
nothing in this Agreement is intended or shall be construed to confer upon any
other person any right, remedy or claim or to impose upon any other person any
duty, liability or obligation.
SECTION 13. Counterparts.
------------
This Agreement may be executed in several counterparts, which taken
together shall constitute a single document.
(Signature page follows]
-9-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the first date first above written.
POSITRON CORPORATION BROOKS INDUSTRIES PROFIT SHARING PLAN
By:___________________________ By:__________________________________
Name: Name:
Title: Title:
-10-
<PAGE>
EXHIBIT A
Accredited Investor Certificate
-------------------------------
The undersigned, intending to exercise the Warrants to which this
certificate is annexed, hereby certifies to Positron Corporation as indicated
below by the undersigned's initials:
1. ACCREDITED INVESTOR STATUS
(a) Individual investors: (Initial one or more of the following three
--------------------
statements)
1. _____ I certify that I am an accredited investor because I have had
individual income (exclusive of any income earned by my spouse) of more than
$200,000 in each of the most recent two years and I reasonably expect to have an
individual income in excess of $200,000 for the current year.
2. _____ I certify that I am an accredited investor because I have had
joint income with my spouse in excess of $300,000 in each of the two most recent
years and I reasonably expect to have joint income with my spouse in excess of
$300,000 for the current year.
3. _____ I certify that I am an accredited investor because I have an
individual net worth, or my spouse and I have a joint net worth, in excess of
$1,000,000.
(b) Partnerships, corporations, trusts or other entities: (Initial one of
----------------------------------------------------
the following statements)
1. The undersigned hereby certifies that it is an accredited investor
because it is:
_____ a. an employee benefit plan whose total assets exceed $5,000,000;
_____ b. an employee benefit plan whose investment decisions are made by a
plan fiduciary which is either a bank, savings and loan association or an
insurance company (as defined in Section 3(a) of the Securities Act of 1933) or
an investment adviser registered as such under the Investment Advisers Acts of
1940;
_____ c. a self-directed employee benefit plan, including an Individual
Retirement Account, with investment decisions made solely by persons that are
accredited investors;
_____ d. an organization described in Section 501 (c)(3) of the Internal
Revenue Code of 1986, as amended (the "IRC"), not formed for the specific
purpose of acquiring the Units with total assets in excess of $5,000,000;
_____ e. any corporation, partnership or Massachusetts or similar business
trust, not formed for the specific purpose of acquiring the Units, with total
assets in excess of $5,000,000; or
_____ f. a trust with total assets in excess of $5,000,000, not formed for
the specific purpose of acquiring the Units, whose purchase is directed by a
person who has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of an investment in the
Units.
A-1
<PAGE>
______ 2. The undersigned hereby certifies that it is an accredited investor
because it is an entity in which each of the equity owners qualifies as an
accredited investor under items A (1), (2) or (3) or item B (1) above.
______________________________
Investor Name
______________________________
Address
A-2
<PAGE>
EXHIBIT B
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
--------------
ACT") OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES LAWS, BUT HAVE
BEEN ACQUIRED BY THE HOLDER FOR PURPOSES OF INVESTMENT IN RELIANCE UPON
EXEMPTIONS FROM REGISTRATION UNDER SUCH ACTS AND MAY NOT BE TRANSFERRED, SOLD OR
OTHERWISE DISPOSED OF UNLESS REGISTERED PURSUANT TO THE PROVISIONS OF THE
SECURITIES ACT OR AN OPINION OF COUNSEL IS OBTAINED STATING THAT SUCH
DISPOSITION IS IN COMPLIANCE WITH AN AVAILABLE EXEMPTION FROM SUCH REGISTRATION.
_______________ WARRANTS
WARRANT CERTIFICATE TO
PURCHASE SHARES OF COMMON STOCK
POSITRON CORPORATION
THIS CERTIFIES THAT, FOR VALUE RECEIVED
__________________________
or registered assigns (the "Registered Holder") is the owner of the number of
Warrants (the "Warrants") specified above. Each Warrant initially entitles the
Registered Holder to purchase, subject to the terms and conditions set forth in
this Certificate and the Warrant Agreement (as hereinafter defined), one fully
paid and nonassessable share of Common Stock $.01 par value (the "Common
Stock"), of Positron Corporation, a Texas corporation (the "Company"), at any
time after the Initial Warrant Exercise Date, and the Expiration Date (as such
terms are hereinafter defined) upon the presentation and surrender of this
Warrant Certificate with the Subscription Form on the reverse hereof duly
executed, at the corporate office of the Company, accompanied by (i) payment of
$2.00 per share, subject to adjustment (the "Purchase Price"), in lawful money
of United States of America in cash or by check made payable to the Company and
(ii) a completed and executed Accredited Investor Certificate in the form
attached hereto as Annex A.
This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated July ____,
1996, by and between the Company and DHB Capital Group as the initial Registered
Holder.
In the event of certain contingencies provided for in the Warrant
Agreement, the Purchase Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.
Each Warrant represented hereby is exercisable (a) at the option of the
Registered Holder, (b) in whole but not in part and no fractional interests will
be issued. In the case of the exercise of less than all the Warrants represented
hereby, the Company shall cancel its Certificate upon the surrender hereof and
shall execute and deliver a new Warrant Certificate of Warrant Certificate of
like tenor.
B-1
<PAGE>
This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Company, for a new Warrant
Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentation and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
of Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.
Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a shareholder of the Company,
including, without limitation, and shall not be entitled to receive any notice
of any proceedings of the Company, except as provided in the Warrant Agreement.
Prior to due presentment for registration of transfer here, the Company may
deem and treat the Registered Holder as the absolute owner hereof and of each
Warrant represented hereby (notwithstanding any notations of ownership or
writing hereon made by anyone other than a duly authorized officer of the
Company) for all purposes and shall not be affected by any notice to the
contrary, except as provided in the Warrant Agreement.
The terms Initial Warrant Exercise Date and Expiration Date shall have the
meaning set forth in the Warrant Agreement.
This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of Texas, without giving effect to principles of
conflicts of laws).
B-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or facsimile by a duly authorized officer thereof.
Date:
POSITRON CORPORATION
By:___________________________
Name:
Title:
B-3
<PAGE>
ANNEX
TO FORM OF
WARRANT CERTIFICATE
[FORM OF ELECTION TO PURCHASE]
[To be executed upon exercise of Warrant]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase shares (the "Shares") of
the Common Stock, par value $0.10 per share (the "Common Stock"), of Positron
Corporation ("Positron") and herewith tenders payment for such Shares to the
order of Positron in the amount of $_____________ in accordance with the terms
hereof. The undersigned requests that a certificate for such shares be
registered in the name of ______________ whose address is _______________ and
that such certificate be delivered to ________________ whose address is
_______________. If said number of Shares is less than all of the Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of the Warrant Shares be registered in the
name of __________________ whose address is _______________ and that such
Warrant Certificate be delivered to ______________.
Signature:_______________________________________
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant
Certificate.)
Date: ____________________________________________
Annex-I
<PAGE>
ASSIGNMENT
For Value Received, the undersigned registered owner hereby sells, assigns
and transfers unto ____________ the rights representing the foregoing Warrant of
Positron Corporation, and appoints ______________ attorney to transfer said
rights on the books of said corporation, with full power of substitution in the
premises.
Name of Registered Owner:
By: _______________________________________________________
Its: _______________________________________________________
Dated: ___________________
<PAGE>
ANNEX A
Accredited Investor Certificate
The undersigned, intending to exercise the Warrants to which this
certificate is annexed, hereby certifies to Positron Corporation as indicated
below by the undersigned's initials:
1. ACCREDITED INVESTOR STATUS
A. Individual investors (Initial one or more of the following three
statements):
1. I certify that I am an accredited investor because I have had
individual income (exclusive of any income earned by my spouse) of more than
$200,000 in each of the most recent two years and I reasonably expect to have an
individual income in excess of $200,000 for the current year.
2. I certify that I am an accredited investor because I have had
joint income with my spouse in excess of $300,000 in each of the two most recent
years and I reasonably expect to have joint income with my spouse in excess of
$300,000 for the current year.
3. I certify that I am an accredited investor because I have an
individual net worth, or my spouse and I have a joint net worth, in excess of
$1,000,000.
B. Partnerships, corporations, trust or other entities (Initial one of
the following statements):
1. The undersigned hereby certifies that it is an accredited
investor because it is:
a. an employee benefit plan whose total assets exceed $5,000,000;
b. an employee benefit plan whose investment decisions are made by a
plan fiduciary which is either a bank, savings and loan association or an
insurance company (as defined in Section 3(a) of the Securities Act of 1933) or
an investment adviser registered as such under the Investment Advisers Acts of
1940;
c. a self-directed employee benefit plan, including an Individual
Retirement Account, with investment decisions made solely by persons that are
accredited investors;
d. an organization described in Section 501(c)(3) of the Internal
Revenue Code of 1986, as amended (the "IRC"), not formed for the specific
purpose of acquiring the Units with total assets in excess of $5,000,000;
e. any corporation, partnership or Massachusetts or similar
business trust, not formed for the specific purpose of acquiring the Units,
with total assets in excess of $5,000,000; or
f. a trust with total assets in excess of $5,000,000 not formed for
the specific purpose of acquiring the Units, whose purchase is directed by a
person who has such knowledge and experience in financial and business matters
that he is capable of evaluating the merits and risks of an investment in the
Units.
Annex A-1
<PAGE>
2. The undersigned hereby certifies that it is an accredited
investor because it is an entity in which each of the equity owners qualifies as
an accredited investor under items A (1), (2) or (3) or item B (1) above.
______________________________
Investor Name
______________________________
Address
Annex A-2
<PAGE>
EXHIBIT 10.51
-------------
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement ("Agreement") is made as of November 14,
1996 between POSITRON CORPORATION, a Texas corporation ("Borrower") and
PROFUTURES BRIDGE CAPITAL FUND, L.P., a Delaware limited partnership ("Lender").
Section 1. Definitions. In addition to the terms defined elsewhere in
-----------
this Agreement, the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" - when used with reference to a specified person and except
---------
where this Agreement specifies a different definition, (a) any person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with the specified person, or (b) any
person that is an officer or director of, partner in, or trustee of, or serves
in a similar capacity with respect to, the specified person or of which the
specified person is an officer, director, partner, or trustee, or with respect
to which the specified person serves in a similar capacity.
"Applicable Law" - the law in effect from time to time and applicable to
--------------
the transactions between Borrower and Lender pursuant to this Agreement, the
Note and the other Loan Documents executed in connection herewith.
"Business Day" - any day other than Saturday, Sunday or other day on which
------------
commercial banks in Houston, Texas are authorized or required to close under the
laws of the State of Texas.
"Cardiology Machine" - the POSICAM(TM) HZL-R System medical imaging device,
------------------
Catalog No. 712-100030, Serial No. 21, described on Exhibit D, including all
cameras, reading stations and processing equipment attached thereto or
associated therewith, and all computer and other electronic data processing
hardware and software installed thereon or used in connection with any of the
foregoing.
"Cardiology Machine Contracts" - all leases, contracts and other
----------------------------
arrangements, now or hereafter existing, between Borrower and any other person
relating to the possession or use of the Cardiology Machine, including the
arrangement in effect as of the date hereof (the "BCPA Contract") between
Borrower and Buffalo Cardiology & Pulmonary Associates ("BCPA") relating to the
Cardiology Machine in effects as of the date hereof.
"Commitment" - the aggregate amount of $1,400,000.
----------
"Commitment Termination Date" - December 31, 1996, or if earlier, the date
---------------------------
that the Notes has been fully paid.
"Control" - the possession directly or indirectly, of the power to direct
-------
or cause the direction of the management and policies of a person, whether
through ownership of voting securities, by contract or otherwise.
-1-
<PAGE>
"Costs and Expenses" - as defined in Section 9 hereof.
------------------
"Credit Period" - the period commencing on the date of this Agreement and
-------------
ending on the Commitment Termination Date.
"Default" - an event which with the giving of notice or the passage of
-------
time or both would constitute an Event of Default.
"Environmental Matters" - a release of any toxic or hazardous waste or
---------------------
other chemical substance, pollutant or contaminant into the environment or the
generation, treatment, storage or disposal of any toxic or hazardous wastes or
other chemical substances.
"Environmental Laws and Regulations" - all environmental, health and safety
----------------------------------
laws, regulations, and ordinances applicable to Borrower, or any of their
respective assets or properties, including without limitation: (i) all
regulations, resolutions, ordinances, decrees, and other similar documents and
instruments and all decrees, and other similar documents and instruments of all
courts and governmental authorities, bureaus and agencies, domestic and foreign,
whether issued by environmental regulatory agencies or otherwise, and (ii) all
laws, regulations, resolutions, ordinances and decrees relating to Environmental
Matters.
"Events of Default" - shall have the meaning set forth therefor in Section
-----------------
11(a) hereof.
"GAAP" - whether used directly or indirectly through use of a
----
capitalized term, generally accepted accounting principles consistently applied
and in accordance with past practices, provided that wherever "GAAP" is referred
to in this Agreement, a certified public accountant would, insofar as the use of
such accounting principles is pertinent, be in a position to deliver an
unqualified opinion (other than a qualification regarding changes in generally
accepted accounting principles) as to financial statements in which such
principles have been properly applied.
"Intellectual Property" - collectively, the Computer Hardware and Software,
---------------------
Copyrights, Patents, Trademarks, Licenses and Trade Secrets, each as hereafter
defined.
"Liabilities" - as defined in Section 3(a) hereof.
-----------
"Lien" - any mortgage, deed of trust, pledge, security interest,
----
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof, and the filing of or agreement to give any
financing statement intended as security under the Uniform Commercial Code of
any jurisdiction); provided however, an escrow of a security deposit received by
Borrower from its customers relating to the sale of inventory shall not be
deemed to be a Lien for purposes of this definition.
"Loan" - as defined in Section 2(a).
----
"Loan Documents" - this Agreement, the Note, all filings to protect or
--------------
record the security interests granted herein, including filings under the
Uniform Commercial Code or other Applicable Law, the Note and all other
documents executed and delivered at any time in con-
-2-
<PAGE>
nection herewith or therewith, including all amendments, modifications and
supplements of or to all such documents.
"Maturity Date" - June 30, 1997.
-------------
"Maximum Rate" - shall mean the maximum lawful, non-usurious rate of
------------
interest which under Applicable Law Lender may charge Borrower on the Loans made
pursuant to this Agreement from time to time.
"Permitted Liens" - shall mean (i) Liens for taxes, assessments and other
---------------
governmental charges or levies or the claims or demands of landlords, carriers,
warehousemen, mechanics, laborers, materialmen and other like Persons arising by
operation of law in the ordinary course of business for sums which are not yet
due and payable, or such Liens the enforcement of which are, at all times,
effectively and fully stayed and are being contested in good faith by
appropriate proceedings diligently conducted, and for which reserves, if any,
required under GAAP shall have been established, (ii) Liens created by this
Agreement or the other Loan Documents, (iii) deposits or pledges to secure the
payment of workmen's compensation, unemployment insurance or other social
security benefits or obligations, public or statutory obligations, surety or
appeal bonds or other obligations of a like general nature incurred in the
ordinary course of business, (iv) zoning restrictions, easements, licenses,
restrictions of the use of real property or minor irregularities in title
thereto which do not materially impair the use of such property in the operation
of the business of Borrower the value of such property, (v) inchoate liens
arising under the Employee Retirement Income Security Act of 1974, as amended,
to secure benefit plans from time to time in effect, (vi) rights reserved to or
vested in any municipality or governmental, statutory or public authority to
control or regulate any property of Borrower or to use such property in a manner
which does not materially impair the use of such property for the purposes for
which it is held by Borrower, (vii) liens to secure the indebtedness of Borrower
to Uro-Tech, Ltd. ("Uro-Tech") evidenced by the promissory note dated November
1, 1995 executed by Borrower payable to the order of Uro-Tech (the "Uro-Tech
Indebtedness"); provided, however, that Borrower shall not permit the unpaid
principal amount of the Uro-Tech Indebtedness to exceed $663,000 at any time,
and (viii) liens to secure the indebtedness of Borrower to Boston Financial &
Equity Corporation ("BF&EC") arising under the Revolving Financing Agreement
dated February 9, 1996 between Borrower and BF&EC (the "BF&EC Indebtedness");
provided, however, that Borrower shall not permit the unpaid principal amount of
the BF&EC Indebtedness to exceed the principal amount of $1,000,000 at any time.
"Person" - an individual, a corporation, a partnership, a joint venture, a
------
trust or unincorporated organization, a joint stock company or other similar
organization, a government or any political subdivision thereof, a court, or any
other legal entity, whether acting in an individual, fiduciary or other
capacity.
"Premises" - the corporate headquarters of Borrower located at 16350 Park
--------
Ten Place, Houston, Texas 77084.
"Unused Commitment" - at any time, the amount of the Commitment less the
-----------------
then outstanding principal balance of both Loans.
Section 2. The Loans.
---------
-3-
<PAGE>
(a) Commitment. Lender hereby agrees, on the terms and subject to the
----------
conditions of this Agreement, to make two loans of $700,000.00 each
(individually, a "Loan" and, collectively the "Loans") to Borrower during the
Credit Period up to (but not including) the Commitment Termination Date. If all
conditions precedent to Lender's obligation to make the second Loan have been
fulfilled, Lender shall advance the funds under the second Loan within fifteen
days after Lender's receipt of Borrower's request therefor.
(b) Intentionally left blank.
------------------------
(c) Note. The Loans shall be evidenced by a single promissory note of
----
Borrower (together with any replacement or substitute therefor, the "Note") in
substantially the form of Exhibit A hereto, dated the date of the initial
borrowing of the Loans hereunder, payable to the order of Lender in the amount
of the Commitment. The Note shall be subject to pre-payment as provided in
Section 2(e) hereof.
(d) Maturity. The Loans shall mature and be payable, together with
--------
all accrued but unpaid interest thereon, on the Maturity Date.
(e) Interest. The Note shall bear interest and be payable as
--------
provided in the Note. The Note may be prepaid at any time without premium or
penalty.
(f) Intentionally left blank.
------------------------
(g) Intentionally left blank.
------------------------
Section 3. Collateral.
----------
(a) Grant of Security. To secure the prompt and complete payment,
-----------------
observance and performance of all of the obligations and liabilities of Borrower
under the Note and under this Agreement, including without limitation, all
interest thereon and all Costs and Expenses (collectively, the "Liabilities"),
Borrower hereby assigns and pledges to Lender, and hereby grants to Lender, a
lien and security interest in all of Borrower's right, title and interest in and
to all of Borrower property and assets, whether now owned or existing or
hereafter arising or acquired and wheresoever located, together with all
proceeds thereof (collectively, the "Collateral"), including the following:
The Cardiology Machine and the Cardiology Machine Contracts.
-----------------------------------------------------------
Accounts. All present and future accounts, accounts receivable and
--------
other rights of Borrower to payment for goods sold or leased or for services
rendered (except those evidenced by instruments or chattel paper), whether now
existing or hereafter arising and wherever arising, and whether or not they have
been earned by performance (collectively, the "Accounts");
Computer Hardware and Software. All of the following (collectively,
------------------------------
the "Computer Hardware and Software"):
-4-
<PAGE>
(a) All computer and other electronic data processing hardware,
integrated computer systems, central processing units, memory units, display
terminals, printers, features, computer elements, card readers, tape drives,
hard and soft drives, cables, electrical supply hardware, generators, power
equalizers, accessories and all peripheral devices and other related computer
hardware;
(b) All software programs (including both source code, object
code and all related applications and data files), whether now owned, licensed
or leased or hereafter acquired by Borrower, designed for use on the computers
and electronic data processing hardware described in clause (a) above;
(c) All firmware associated therewith;
(d) All documentation (including flow charts, logic diagrams,
manuals, guides and specifications) with respect to such hardware, software and
firmware described in the preceding clauses (a) through (c); and
(e) All rights with respect to all of the foregoing, including,
without limitation, any and all copyrights, licenses, options, warranties,
service contracts, program services, test rights, maintenance rights, support
rights, improvements rights, renewal rights and indemnifications and any
substitutions, replacements, additions or model conversions of any of the
foregoing;
Copyrights. All copyrights, registered or unregistered, now or
----------
hereafter in force throughout the world including, without limitation, all
copyrights registered in the United States Copyright Office or anywhere else in
the world, and all applications for registration thereof, whether pending or in
preparation, all copyright licenses, the right to sue for past, present and
future infringements of any thereof, all rights corresponding thereto
throughout the world, all extensions and renewals of any thereof and all
proceeds of the foregoing, including, without limitation, licenses, royalties,
income, payments, claims, damages and proceeds of suit (collectively, the
"Copyrights");
Equipment. All machinery, manufacturing, distribution, selling, data
---------
processing and office equipment, furniture, furnishings, appliances, fixtures
and trade fixtures, tools, tooling, molds, dies, vehicles and all other goods of
every type and description (other than Inventory), in each instance whether now
owned or hereafter acquired by Borrower and wherever located (collectively, the
"Equipment");
Inventory. All inventory and goods now owned or hereafter acquired by
---------
Borrower (wherever located, whether in the possession of Borrower or of a bailee
or other person for sale, storage, transit, processing, use or otherwise and
whether consisting of whole goods, spare parts, components, supplies, materials,
or consigned, returned or repossessed goods) which are held for sale or lease or
to be furnished (or have been furnished) under any contract of service or which
are raw materials, work in process or materials used or consumed in Borrower's
business (collectively, the "Inventory");
Licenses. All rights under or interest in any trademark license
--------
agreements or service mark license agreements with any other party, whether
Borrower is a licensee or licen-
-5-
<PAGE>
sor under any such license agreement, together with any goodwill connected with
and symbolized by any such trademark license agreements or service mark license
agreements, and the right to prepare for sale and sell any and all Inventory now
or hereafter owned by Borrower and now or hereafter covered by such licenses
(collectively, the "Licenses");
Patents. All the following (collectively, the "Patents"):
-------
(a) All letters patent and applications for letters patent
throughout the world, including all patent applications in preparation for
filing anywhere in the world and including each patent and patent application
referred to in Exhibit B attached hereto;
(b) All patent licenses; provided, however, that Borrower shall
not license any of Borrower's patents without Lender's prior consent.
(c) All reissues, divisions, continuations,
continuations-in-part, extensions, renewals and reexaminations of any of the
items described in clauses (a) and (b); and
(d) All proceeds of, and rights associated with, the foregoing
(including license royalties and proceeds of infringement suits), the right to
sue third parties for past, present or future infringements of any patent or
patent application, and including any patent or patent application referred to
in Exhibit B attached hereto, and for breach or enforcement of any patent
license, and all rights corresponding thereto throughout the world;
Trade Secrets. Common law and statutory trade secrets and all other
-------------
confidential or proprietary or useful information and all know-how obtained by
or used in or contemplated at any time for use in the business of Borrower (all
of the foregoing being collectively called a "Trade Secret"), whether or not
such Trade Secret has been reduced to a writing or other tangible form,
including all documents and things embodying, incorporating or referring in any
way to such Trade Secret, all Trade Secret licenses, including the right to sue
for and to enjoin and to collect damages for the actual or threatened
misappropriation of any Trade Secret and for the breach or enforcement of any
such Trade Secret license (collectively, the "Trade Secrets");
Trademarks. All now owned or existing and hereafter acquired or
----------
arising trademarks, registered trademarks, trademark applications, service
marks, registered service marks and service mark applications, including,
without limitation, the trademarks, registered trademarks, trademark
applications, service marks, registered service marks and service mark
applications listed on Exhibit C attached hereto and made a part hereof,
together with any goodwill connected with and symbolized by any such trademarks,
registered trademarks, trademark applications, service marks, registered service
marks, service mark applications, and (i) all renewals thereof, (ii) all income,
royalties, damages and payments now and hereafter due and/or payable under and
with respect thereto, including, without limitation, payments under all licenses
entered into in connection therewith and damages and payments for past or future
infringements or dilutions thereof, (iii) the right to sue for past, present and
future infringements and dilutions thereof, and (iv) all of Borrower's rights
corresponding thereto throughout the world (collectively, the "Trademarks");
6
<PAGE>
General Intangibles. All rights, interests, choses in action, causes
-------------------
of actions, claims and all other intangible property of Borrower of every kind
and nature (other than Accounts), in each instance whether now owned or
hereafter acquired by Borrower, and however and whenever arising, including,
without limitation, all corporate and other business records; all loans,
royalties, and other obligations receivable; all inventions, designs, goodwill,
registration, franchises, customer lists, credit files, correspondence, and
advertising materials; all customer and supplier contracts, firm sale orders,
rights under license and franchise agreements (other than Licenses), and rights
under provider contracts and all other contracts and contract rights; all
interests in partnerships and joint ventures; all right, title and interest
under leases, subleases, licenses and concessions and other agreements relating
to real or personal property; all payments due or made to Borrower in connection
with any requisition, confiscation, condemnation, seizure or forfeiture of any
property by any person or governmental authority; all deposit accounts (general
or special) with any bank or other financial institution, including, without
limitation, any deposits or other sums at any time credited by or due to
Borrower from any affiliate of Lender with the same rights therein as if the
deposits or other sums were credited by or due from Lender thereunder, all
credits with and other claims against carriers and shippers; all rights to
indemnification; all reversionary interests in pension and profit sharing plans
and reversionary, beneficial and residual interests in trusts; all proceeds of
insurance of which Borrower is beneficiary; and all letters of credit,
guaranties, liens, security interests and other security held by or granted to
Borrower; and all other intangible property, whether or not similar to the
foregoing;
Chattel Paper, Instruments and Documents. All chattel paper, leases,
----------------------------------------
all instruments, and all payments thereunder and instruments and other property
from time to time delivered in respect thereof or in exchange therefor, and all
bills of lading, warehouse receipts and other documents of title and documents,
in each instance whether now owned or hereafter acquired by Borrower; and
Other Property. All property or interests in property now owned or
--------------
hereafter acquired by Borrower which now may be owned or hereafter may come into
the possession, custody or control of Lender or any agent or affiliate of Lender
in any way or for any purpose (whether for safekeeping, deposit, custody,
pledge, transmission, collection or otherwise); and all rights and interests of
Borrower, now existing or hereafter arising and however and wherever arising, in
respect of any and all (i) notes, drafts, letters of credit, stocks, bonds, and
debt and equity securities, whether or not certificated, and warrants, options,
puts and calls and other rights to acquire or otherwise relating to the same;
(ii) money; (iii) proceeds of loans, including, without limitation, Loans made
under this Agreement; and (iv) insurance proceeds and books and records relating
to any of the Collateral covered by this Agreement; together, in each instance,
with all accessions and additions thereto, substitutions therefor, and
replacements, proceeds and products thereof.
(b) Borrower Remains Liable. Anything herein to the contrary
-----------------------
notwithstanding, (i) Borrower shall remain solely liable under the contracts and
agreements included in the Collateral to the extent set forth therein to perform
all of its duties and obligations thereunder to the same extent as if this
Agreement and any other security document executed in connection with this
Agreement (the "Security Documents") had not been executed, (ii) the exercise by
Lender of any of its rights hereunder or under any other Security Document shall
not release Borrower from any of its duties or obligations under the contracts
and agreements included in
-7-
<PAGE>
the Collateral, and (iii) Lender shall not have any responsibility, obligation
or liability under the contracts and agreements included in the Collateral by
reason of this Agreement or any other Security Document, nor shall Lender be
required or obligated, in any manner, to (1) perform or fulfill any of the
obligations or duties of Borrower thereunder, (2) make any payment, or make any
inquiry as to the nature or sufficiency of any payment received by Borrower or
the sufficiency of any performance by any party, under any such contract or
agreement, or (3) present or file any claim, or take any action to collect or
enforce any claim for payment assigned hereunder.
(c) Representations and Warranties Regarding Collateral. Borrower
---------------------------------------------------
represents and warrants as of the date of this Agreement and as of the date of
the making of each Loan hereunder (except for changes permitted or contemplated
by this Agreement) until termination of this Agreement:
(i) The correct name of Borrower is set forth in the first
paragraph of this Agreement. The chief place of business, chief executive office
of Borrower and all Inventory and Equipment of Borrower are located at the
Premises and Borrower has exclusive possession and control of the Equipment and
Inventory, except that the Cardiology Machine is leased to Buffalo Cardiology &
Pulmonary Associates ("BCPA"). All records concerning the Accounts, the
Intellectual Property, and all originals of all chattel paper which evidence any
Account are located at the chief executive offices of Borrower and none of the
Accounts is evidenced by a promissory note or other instrument.
(ii) Borrower is the legal and beneficial owner of the
Collateral free and clear of all Liens except for Liens of Lender hereunder and
except for Permitted Liens.
(iii) Borrower currently conducts business under the name
Positron Corporation and uses no other trade name.
(iv) This Agreement creates in favor of Lender a legal, valid
and enforceable security interest in the Collateral, except as limited by
bankruptcy, insolvency, moratorium, fraudulent transfer and other laws and
judicial decisions affecting the enforcement of creditor's rights generally.
When financing statements have been filed in the offices of the Secretary of
State of Texas and the U.S. Patent and Trademark Office, respectively, or
delivery of Collateral consisting of certificates, notes and other instruments
are made to Lender, Lender will have a fully perfected lien on, and security
interest in, the Collateral in which a lien and security interest may be
perfected by filing or delivery.
(v) No authorization by any other person or any approval or
other action by, and no notice to or filing with, any governmental authority
that has not already been taken or made and which is in full force and effect,
is required (1) for the grant by Borrower of the security interest in the
Collateral granted hereby; (2) for the execution, delivery or performance of
this Agreement by Borrower; or (3) for the exercise by Lender of any of its
other rights or remedies hereunder.
(d) Perfection and Maintenance of Security Interest and Lien.
--------------------------------------------------------
Lender's security interests in and liens on and against the Collateral, and all
proceeds and products thereof, shall continue in full force and effect until all
Liabilities have been fully satisfied. Bor-
8
<PAGE>
rower shall perform any and all steps reasonably requested by Lender to perfect,
maintain and protect Lender's security interests in and liens on and against the
Collateral granted or purported to be granted hereby and by the other Security
Documents or to enable Lender to exercise its rights and remedies hereunder and
under the other Security Documents with respect to any Collateral, including,
without limitation: (i) executing and filing financing or continuation
statements, or amendments thereof, in form and substance reasonably satisfactory
to Lender; (ii) executing and recording deeds of trust and other Security
Documents in form and substance reasonably satisfactory to Lender; (iii)
delivering to Lender all certificates, notes and other instruments (including,
without limitation, all letters of credit on which Borrower is named as a
beneficiary) representing or evidencing Collateral duly endorsed and accompanied
by duly executed instruments of transfer or assignment, all in form and
substance satisfactory to Lender; (iv) placing notations on Borrower's books of
account to disclose Lender's lien and security interest therein and marking
conspicuously each document, contract, chattel paper and all records pertaining
to the Collateral with a legend, in form and substance satisfactory to Lender,
indicating that such document, contract, chattel paper, or Collateral is subject
to the lien and security interest granted herein; and (v) executing and
delivering all further instruments and documents, and taking all further action,
as Lender may reasonable request.
(e) Financing Statements. To the extent permitted by Applicable Law,
--------------------
Borrower hereby authorizes Lender to file one or more financing or continuation
statements and amendments thereto, disclosing the lien and security interest
granted to Lender under this Agreement without Borrower's signature appearing
thereon, and Lender agrees to notify Borrower when such a filing has been made.
Borrower agrees that a carbon, photographic, photostatic, or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement.
(f) Filing Costs. Borrower shall pay the costs of, or incidental to,
------------
all Recordings or filings of all financing statements and other Security
Documents.
(g) Schedule of Collateral. Borrower shall furnish to Lender from
----------------------
time to time statements and schedules further identifying and describing the
Collateral and such other reports in connection with the Collateral as Lender
may reasonably request, all in reasonable detail.
(h) Equipment and Inventory. Borrower shall:
-----------------------
(i) Keep the Equipment and Inventory (other than Inventory sold
in the ordinary course of business) on the Premises, except that Borrower may
continue to lease the Cardiology Machine to BCPA.
(ii) Maintain or cause to be maintained in good repair, working
order and condition, excepting ordinary wear and tear and damage due to
casualty, all of the Equipment, and make or cause to be made all appropriate
repairs, renewals and replacements thereof, as quickly as practicable after the
occurrence of any loss or damage thereto which are necessary or desirable to
such end.
(i) Accounts.
--------
9
<PAGE>
(i) Borrower shall keep its chief place of business, chief
executive office and the office where it keeps its records concerning the
Accounts, and the offices where it keeps all originals of all chattel paper
which evidence Accounts, at the Premises. Borrower will hold and preserve such
records and chattel paper (in accordance with Lender's usual document retention
practices) and will permit representatives of Lender at any time during normal
business hours to inspect and make abstracts from such records and chattel
paper.
(ii) Except as otherwise provided in this subsection (ii) or
elsewhere in this Agreement, Borrower shall continue to collect, at its own
expense, all amounts due or to become due to Borrower under the Accounts. In
connection with such collections, Borrower may take (and, at Lender's direction,
shall take) such action as Borrower or Lender may deem necessary or advisable to
enforce collection of the Accounts provided however, that Lender shall have the
right at any time after the occurrence of an Event of Default hereunder and for
so long as such Event of Default shall occur and be continuing, to notify the
account debtors or obligors under any Account of the assignment of such Account
to Lender and to direct such account of the assignment of such Account to Lender
and to direct such account debtors or obligors to make payment of all amounts
due or to become due to Borrower thereunder directly to Lender, and after the
occurrence of an Event of Default hereunder and for so long as such Event of
Default shall occur and be continuing, at the expense of Borrower, to enforce
collection of any such Account, and to adjust, settle or compromise the amount
or payment thereof, in the same manner and to the same extent as Borrower might
have done. After the occurrence of an Event of Default hereunder and for so long
as such Event of Default shall occur and be continuing, (1) all amounts and
proceeds (including instruments) received by Borrower in respect of the Accounts
shall be received in trust for the benefit of Lender, shall be segregated from
other funds of Borrower and shall be forthwith paid over to Lender in the same
form as so received (with any necessary endorsement) to be held as cash
collateral and either (i) released to Borrower if the Event of Default is cured
or is otherwise not continuing or (ii) if any Event of Default shall have
occurred and be continuing, applied as provided herein, and (2) Borrower shall
not adjust, settle or compromise the amount or payment of any Account, or
release wholly or partly any account debtor or obligor thereof, or allow any
credit or discount thereon.
(iii) In any suit, proceeding or action brought by Lender
under any Account comprising part of the Collateral, Borrower will save,
indemnify and keep Lender, harmless from and against all expenses, loss or
damage suffered by reason of any defense, set-off counterclaim, recoupment or
reduction of liability at any time owing to or in favor of such obligor or its
successors from Borrower, and all such obligations of Borrower shall be and
shall remain enforceable against and only against Borrower and shall not be
enforceable against Lender.
(iv) At Lender's requested in the event that Borrower has
Accounts with respect to which the account debtor is the United States of
America or any department, agency or instrumentality thereof (all such Accounts
being hereinafter referred to as "Government Receivables"), then Borrower shall,
with respect to such Government Receivables, promptly comply with the Assignment
of Claims Act of 1940, as amended (31 U.S.C. 3727, et seq.) and any other
statute or regulation governing the collection of such Government Receivables,
and shall promptly deliver to Lender evidence of such compliance, which evidence
shall be in form and substance satisfactory to Lender in its sole discretion.
10
<PAGE>
(v) Borrower will keep and maintain at Borrower's own cost
and expense satisfactory and complete records of the Collateral in a manner
consistent with Borrower's current business practice, including, without
limitation, a record of all payments received and all credits granted with
respect to such Collateral. Subject to the terms of any prior Permitted Lien,
Borrower shall, for Lender's further security, deliver and turn over to Lender
or Lender's designated representatives at any time following the occurrence of
an Event of Default within five days' notice from Lender or Lender's designated
representative, any such books and records (including, without limitation, the
file cabinets in which paper copies of such records are stored and any and all
computer tapes, programs and source codes relating to such Collateral or any
part or parts thereof).
(vi) Except for Permitted Liens, Borrower will not create,
permit or suffer to exist, and will defend the Collateral against, and take such
other action as is necessary to remove, any Lien on such Collateral, and will
defend the right, title and interest of Lender in and to Borrower's rights to
such Collateral, including, without limitation, the proceeds and products
thereof, against the claims and demands of all Persons whatsoever.
(vii) Borrower will not, without Lender's prior written
consent, except in the ordinary course of business and for amounts which are not
material in the aggregate: (1) grant any extension of time of payment of any of
the Collateral or compromise, compound or settle any Account for less than the
full amount thereof; (2) release, wholly or partly, any person liable for the
payment thereof; or (3) allow any credit or discount whatsoever thereon other
than trade discounts granted in the ordinary course of business.
(viii) Borrower will advise Lender promptly, in reasonable
detail, of (1) any security interest, lien or claim made by or asserted against
any or all of the Collateral, except for Permitted Liens; and (2) the occurrence
of any other event which would have a material adverse effect on the aggregate
value of the Collateral or on the security interests and liens with respect to
such Collateral created hereunder or under any other Security Document.
(j) Lender May Perform. So long as any Event of Default shall have
------------------
occurred and be continuing, if Borrower fails to perform any agreement contained
herein or in any Loan Document, Lender may itself perform, or cause performance
of, such agreement, and the reasonable expenses of Lender incurred in connection
therewith shall be payable by Borrower on demand and shall become part of the
Liabilities secured hereunder. Borrower appoints Lender as Borrower's agent and
attorney-in-fact to do any and every act which Borrower is obligated by this
Agreement to do, exercise all rights of Borrower in the Collateral, to make
collections, to execute any and all papers in writings, to do all other things
necessary to preserve and protect the Collateral and to protect Lender's
security interest in the Collateral; and for the purpose of asserting,
protecting or enforcing any of Lender's rights therein, Lender may receive,
open, and dispose of mail addressed to Borrower and endorse notes, checks,
drafts, money orders, documents of title, or other evidences of payment,
shipment, or storage of any part of the Collateral on behalf of and in the name
of Borrower.
(k) Lender's Duties. The powers conferred on Lender hereunder are
---------------
solely to protect its interest in the Collateral and shall not impose any duty
upon Lender to exercise any such powers. Except for the safe custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, Lender shall have no duty as to any Collateral,
11
<PAGE>
except such duties as are established by Applicable Law with respect to secured
transactions. Lender shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which Lender accords its own
similar property, it being understood that Lender shall be under no obligation
to take any steps necessary to preserve rights against prior parties or any
other rights pertaining to any Collateral, but may do so at its option, and all
reasonable expenses incurred in connection therewith shall be for the sole
account of Borrower and shall be added to the Liabilities.
Section 4. Representations and Warranties. Borrower hereby represents
------------------------------
and warrants to Lender that:
(a) Organization.
------------
(i) Borrower is duly organized and validly existing
under the laws of the State of Texas and has the power to own its assets and to
transact the business in which it is presently engaged and in which it proposes
to be engaged. Borrower has no subsidiaries. All of Borrower's shares which are
issued and outstanding have been duly and validly issued and are fully paid and
non-assessable. There are no outstanding warrants, options, contracts or
commitments of any kind entitling any Person to purchase or otherwise acquire
any shares of capital stock of Borrower, nor are there any securities
outstanding which are convertible into or exchangeable for any share of capital
stock of Borrower, except as set forth on Schedule 4.
(ii) Borrower is in good standing in the State of Texas
and in each state in which it is qualified to do business, except for such
states in which failure to so qualify would not have a material adverse effect
on the Collateral or on the business, operations, financial condition or
properties of Borrower, taken as a whole. There are no jurisdictions in which
the character of the properties owned by Borrower or in which the transaction of
the business of Borrower as now conducted requires or will require Borrower to
qualify to do business, except jurisdictions in which the failure to so qualify
would not have a material adverse effect on the Collateral or on the business,
operations, financial condition, or properties of Borrower taken as a whole.
(b) Power, Authority, Consents.
--------------------------
(i) Borrower has the power to execute, deliver and
perform the Loan Documents to be executed by it.
(ii) Borrower has the power to borrower hereunder and
has taken all necessary corporate action to authorize the borrowing hereunder on
the terms and conditions of this Agreement.
(iii) Borrower has taken all necessary action, corporate
or otherwise, to authorize the execution, delivery and performance of the Loan
Documents.
(iv) No consent or approval of any Person (including
without limitation, any stockholder of Borrower), no consent or approval of any
landlord or mortgagee, no waiver of any Lien or right of distraint or other
similar right and no consent, license, approval,
-12-
<PAGE>
authorization or declaration of any governmental authority, bureau or agency, is
or will be required in connection with the execution, delivery or performance by
Borrower, or the validity, enforcement or priority, of the Loan Documents or any
Lien created and granted thereunder, each of which either has been duly and
validly obtained on or prior to the date hereof and is now in full force and
effect.
(c) No Violation of Law or Agreements. The execution and delivery by
---------------------------------
Borrower of each Loan Document and performance by it hereunder and thereunder,
does not and will not violate any provision of law and does not and will not
conflict with or result in a breach of any order, writ, injunction, ordinance,
resolution, decree, or other similar document or instrument of any court or
governmental authority, bureau or agency, domestic or foreign, or any
certificate of incorporation or by-laws of Borrower, or create (with or without
the giving of notice or lapse of time, or both) a default under or breach of any
agreement, instrument, document, bond, note or indenture to which Borrower is a
party, or by which it is bound or any of its properties or assets is affected,
or result in the imposition of any Lien of any nature whatsoever upon any of the
properties or assets owned by or used in connection with the business of
Borrower, except for the Liens created and granted hereunder.
(d) Due Execution, Validity, Enforceability. This Agreement and each
--------------------------------------
other Loan Document has been duly executed and delivered by Borrower and each
constitutes the valid and legally binding obligation of Borrower, enforceable in
accordance with its terms, except that the remedy of specific performance and
other equitable remedies are subject to judicial discretion and except as such
enforcement may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, or other similar laws, now or hereafter in effect, relating to or
affecting the enforcement of creditor's rights generally; but such laws shall
not materially interfere with the practical benefits of the security interest in
the Collateral or the Liens created hereby, except for (i) possible delay, (ii)
situations which may arise under Chapter 11 of the Bankruptcy Code and (iii)
equitable orders of the Bankruptcy Court.
(e) Properties, Priority of Liens. All of the properties and assets
-----------------------------
owned by Borrower are owned free and clear of any Lien of any nature whatsoever,
except for Permitted Liens and except as provided for in the Security Documents
to be executed and delivered pursuant hereto. The Liens which have,
simultaneously with the execution and delivery of this Agreement, been created
and granted by the Security Documents, and upon filing of appropriate financing
statements pursuant to Sections 10(a)(i)(3) and (4) or possession of certain
Collateral, as appropriate, constitute valid perfected Liens on the Collateral,
subject to no prior or equal Lien except the Permitted Liens.
(f) Judgments, Actions, Proceedings. There are no outstanding
-------------------------------
judgments, actions or proceedings pending before any court or government
authority, bureau or agency, with respect to or, to the best of Borrower's
knowledge, threatened against or affecting Borrower, involving, in the case of
any court proceeding, a claim in excess of $25,000, nor, to the best of
Borrower's knowledge, is there any reasonable basis for the institution of any
such action or proceeding which is probable of assertion, nor any such actions
or proceedings in which Borrower is a plaintiff or complainant.
(g) No Defaults, Compliance with Laws. Borrower is not in material
--------------------------------
default under any agreement, ordinance, resolution, decree, bond, note,
indenture, order or judgment
13
<PAGE>
to which it is a party or by which it is bound, or any other agreement or other
instrument by which any of the properties or assets owned by it or used in the
conduct of its business is affected, and except as set forth on Schedule 4(g),
Borrower has complied and is in compliance in all respects with all applicable
laws, ordinances and regulations the non-compliance with which would have a
material adverse effect on the business, operations, financial condition or
properties of Borrower or on the ability of Borrower to perform its obligations
under the Loan Documents.
(h) Burdensome Documents. Borrower is not a party to or bound by, nor
--------------------
are any of the properties or assets owned by Borrower used in the conduct of its
businesses (including the Collateral) affected by, any agreement, ordinance,
resolution, decree, bond, note, indenture, order or judgment which materially
and adversely affects its business, assets or condition, financial or
otherwise.
(i) Tax Returns. Borrower has filed all federal, state and local tax
-----------
returns required to be filed by it and has not failed to pay any taxes, or
interest and penalties relating thereto, on or before the due dates thereof.
There are no material federal, state or local tax liabilities of Borrower due or
to become due for any tax year prior to 1996, whether incurred in respect of or
measured by the income of Borrower and there are no material claims pending or,
to the knowledge of Borrower, proposed or threatened against Borrower for past
federal, state or local taxes.
(j) Intangible Assets. Borrower owns or has rights to use all
------------------
necessary patents, trademarks and service marks, trademark and service mark
rights, trade names, trade name rights and copyrights to conduct its business as
now conducted and as proposed to be conducted, without any conflict with the
patent, trademark and service marks, trademarks and service mark rights, trade
names, trade name rights or copyrights of any other Person. Borrower has not
licensed any Patents or Trademarks. Borrower has not used any trade names or
assumed names except in connection with advertising and in any event not in
connection with the incurrence of any obligations of liabilities of any kind.
(k) Name Changes. Borrower has not in the six-year period
------------
immediately preceding the date of this Agreement changed its name, been the
surviving entity of a merger or consolidation, or acquired all or substantially
all of the assets of any Person.
(l) Full Disclosure. None of the financial information, nor any
---------------
certificate, opinion or any other statement made or furnished in writing to
Lender by or on behalf of Borrower in connection with this Agreement or the
transactions contemplated herein, contains any untrue statement of a material
fact, or omits to state a material fact necessary in order to make the
statements contained therein or herein not misleading, as of the date such
statement was made. There is no fact known to Borrower which has, or would in
the now foreseeable future have, a material adverse effect on the business,
prospect or condition, financial or otherwise, of Borrower, which fact has not
been set forth herein, in any financial statements, or a certificate, opinion or
other written statement so made or furnished to Lender.
(m) Condition of Assets.
-------------------
14
<PAGE>
(i) All of the assets and properties of Borrower, which are
reasonable necessary for the operation of its business, are in good working
condition, ordinary wear and tear excepted, and are able to serve the function
for which they are currently being used.
(ii) Borrower has no current knowledge and no reason to believe
that any of the assets and properties of Borrower subject to a lease are not in
good working condition, ordinary wear and tear excepted, or are not able to
serve the function for which they are currently being used.
(n) Related Parties. Borrower has not paid or agreed to pay any
---------------
commission, fee or other compensation to any general partner of Lender, or any
employee or affiliate of such partner or Lender, in connection with the
transactions contemplated by the Loan Documents.
(o) Investment Company Act; Public Utility Holding Company Act.
----------------------------------------------------------
Borrower is not (i) an "investment company" or a company controlled by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended or (ii) a "public utility holding company" or a "holding company" or
a "subsidiary company" of a "holding company" or an "affilate" of a "holding
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
(p) Licenses and Approvals. Borrower has all necessary licenses,
----------------------
permits and governmental authorizations, including, without limitation,
licenses, permits and authorizations relating to Environmental Matters, to own
and operate its properties and to carry on its business as now conducted, except
for such licenses, permits and governmental authorizations the failure to obtain
any of which would not have a material adverse effect on the business, financial
condition or results of operations of Borrower, taken as a whole. The Cardiology
Machine and Borrower's Inventory complies in all material respects with the
requirements of the U.S. Food and Drug Administration.
(q) Obligations. After giving effect to the transactions
-----------
contemplated by the Loan Documents Borrower (1) will not be a party to or be
bound by any franchise, agreement, deed, lease or other instrument, or be
subject to any corporate restriction, which is so unusual or burdensome so as to
cause, in the foreseeable future, a material and adverse effect upon, or
materially impair the financial condition, operations, business, assets or
property of Borrower, or (2) does not intend to incur or does not believe that
it will incur debts beyond the ability of Borrower to pay such debts as they
become due.
(r) Intellectual Property. With respect to the Intellectual
---------------------
Property, (i) the Trademarks listed on Exhibit C include all of the trademarks,
registered trademarks, trademark applications, service marks, registered service
marks and service mark applications now owned by Borrower, (ii) the Patents
listed on Exhibit B include all the patents to which Borrower is the registered
owner, and (iii) no other Liens, claims or security interests have been granted
by Borrower to any other Person in the Intellectual Property.
All of Borrower's warranties and representations contained in this Agreement
shall survive the execution, delivery and acceptance of this Agreement by the
parties hereto.
-15-
<PAGE>
Section 5. Delivery of Financial Reports, Documents and Other
--------------------------------------------------
Information. Borrower shall deliver to Lender the following:
- -----------
(a) Annual Financial Information. Annually, as soon as
----------------------------
available, but in any event within 90 days after the last day of each of
Borrower's fiscal years, a consolidated and consolidating balance sheet of
Borrower as of the last day of Borrower's fiscal year, and consolidated and
consolidating statements of operations or income, cash flows, and stockholders
equity for such fiscal year, each prepared in accordance with GAAP and, as to
the consolidated statement, certified without qualification (except as to
Borrower's ability to continue business as a going concern) by Coopers &
Lybrand, LLP or such other firm of certified public accountants approved by
Lender as fairly presenting in all material respects the financial position and
the results of operation of Borrower as of and for the year ending on each of
its respective dates and as having been prepared in accordance with GAAP as to
such consolidating statements, to be certified in a certificate of the president
or chief financial officer of Borrower as fairly presenting in all material
respects the financial position and the results of operations of Borrower as of
and for the fiscal year then ended and as having been prepared in accordance
with GAAP.
(b) Accountants Reports. Not later than the 45th day of the
-------------------
following month, a balance sheet, income statement and cash flow statement
prepared by Borrower reflecting Borrower's operations during the preceding
month, and promptly upon receipt thereof, copies of all other reports submitted
to Borrower by its independent accountants in connection with any annual or
interim audit or review of the books or management, operations, controls or
procedures of Borrower made by such accountants.
(c) Other Information. A copy of all reports received or sent by
-----------------
Borrower relating to the Cardiology Machine not later than the next Business Day
such report or other information was received or sent. Promptly after a written
request therefor, such other financial data or information evidencing compliance
with the requirements of this Agreement, the Note and the other Loan Documents,
or otherwise relating to the business, affairs and conditions of Borrower as
Lender may reasonably request from time to time.
(d) Copies of Documents. Not later than the 45th day following
-------------------
the close of each fiscal quarter of Borrower, financial projections prepared by
Borrower and applicable to such period as Lender requests, and promptly upon
their becoming available, copies of any (i) financial statement, other
projections, non-routine reports, notices (other than routine correspondence),
request for waivers and proxy statements, in each case, delivered by Borrower to
any lending institution; (ii) correspondence or notices received by Borrower
from any federal, state or local governmental authority which regulates the
operations of Borrower, relating to an actual or threatened change or
development which would be materially adverse to Borrower; (iii) private
placement memoranda or registration statements and any amendments and
supplements thereto, and any regular and periodic reports, if any, filed by
Borrower with any securities exchange or with the Securities and Exchange
Commission or any governmental authority succeeding to any or all of the
functions of the said Commission; and (iv) any appraisals received by Borrower
with respect to the properties or assets of Borrower.
(c) Notices of Defaults. Promptly, notice of the occurrence of a
-------------------
Default or an Event of Default hereunder, or an event which would constitute or
cause a material adverse chance in the condition, financial or otherwise, or of
the operations of Borrower.
-16-
<PAGE>
(f) Insurance Coverage. All material changes in insurance
------------------
coverage for both property and casualty insurance from the coverage currently
maintained by Borrower, but in any event any change effecting a reduction in
coverage or in the amount of coverage.
(g) Intellectual Property. If, prior to the termination of this
---------------------
Agreement, Borrower shall (1) obtain rights to or become entitled to the
benefits of any new Intellectual Property, or (2) enter into any new trademark,
service mark, patent or copyright license agreement, the provisions of this
subsection shall automatically apply thereto. Borrower shall give to Lender
written notice of events described in the preceding sentence on a quarterly
basis. Borrower hereby authorizes Lender to modify this Agreement on a
quarterly basis by amending any Exhibits hereto to include any future
Intellectual Property.
Section 6. Affirmative Covenants. Borrower shall do or cause to be done
---------------------
each of the following:
(a) Books and Records. Keep proper books of record and account
-----------------
in a manner consistent with past practice and GAAP in which full, true and
correct entries shall be made of all dealings or transactions in relation to its
business and activities.
(b) Inspections and Audits. Permit Lender to make or cause to be
----------------------
made (at Borrower's expenses) inspections and audits of any books, records and
papers of Borrower, or to make inspections and examinations of any properties
and facilities of Borrower, on reasonable notice, at all such reasonable times
and as often as Lender may reasonably require in order to assure that Borrower
is and will be in compliance with its obligations under the Loan Documents or to
evaluate Lender's investment in the then outstanding portion of the Note.
(c) Maintenance and Repairs. Maintain or cause to be maintained
-----------------------
in good repair, working order and condition, subject to normal wear and tear,
all material properties and assets from time to time owned or leased by it and
used in or necessary for the operation of its business, and make all reasonable
repairs, replacements, additions and improvements thereto.
(d) Continuance of Business. Preserve and keep in full force and
------------------------
effect its corporate existence and all permits, rights and privileges necessary
for the proper conduct of its business, and continue to engage in the same line
of business, including, without limitation, the qualification of Borrower to do
business as a foreign corporation in each jurisdiction in which failure to so
qualify would have a material adverse effect on the business, operations,
financial condition or properties of Borrower taken as a whole.
(e) Copies of Corporate Documents. Promptly deliver to Lender
-----------------------------
copies of any amendments or modifications to its certificate of incorporation
and by-laws, certified with respect to the certificate of incorporation by the
Secretary of State of its state of incorporation and, with respect to the by-
laws, by the secretary or assistant secretary of the corporation.
(f) Perform Obligations. Pay and discharge all indebtedness
-------------------
secured by the Permitted Lien's and pay and discharge all of its other
obligations and liabilities, including, without limitation, all taxes,
assessments and governmental charges upon its income and prop-
17
<PAGE>
erties, when due, unless and to the extent only that such other obligations,
liabilities, taxes, assessments and governmental charges shall be contested in
good faith and by appropriate proceedings and that, to the extent required by
GAAP then in effect, proper and adequate book reserves relating thereto are
established by Borrower, and then only to the extent that a bond is filed in
case where the filing of a bond is necessary to avoid the creation of a Lien
against any of its properties.
(g) Notice of Litigation. Promptly notify Lender in writing of any
--------------------
litigation, legal proceeding or dispute involving amounts in excess of $25,000
affecting Borrower whether or not fully covered by insurance, and regardless of
the subject matter (excluding, however, any actions relating to worker's
compensation claims or negligence claims relating to use of motor vehicles, if
fully covered by insurance, subject to deductibles).
(h) Insurance. Maintain with or at responsible insurance companies
---------
such insurance on such of its properties in such amounts and against such risks
as is customarily maintained by similar businesses (it being acknowledged hereby
that the insurance maintained by Borrower as of the date hereof is deemed to be
of the type and amount customarily maintained by the businesses similar to that
of Borrower) each such policy with loss payable endorsements naming Lender as
loss payee, or in respect of liability insurance, additional named insured and
in each case, with such endorsements to be effective regardless of breach of
warranties, declaration or conditions in such policy and stating that the
insurer shall give Lender 30 days written notice of any nonpayment or
non-renewal thereof, all in form and substance satisfactory to Lender; file with
Lender upon its request a detailed list of the insurance then in effect, stating
the names of the insurance companies, the amounts and rates of the insurance,
dates of the expiration thereof and the properties and risks covered thereby;
and, within 30 days after notice in writing from Lender, obtain such additional
insurance as Lender may reasonably request.
(i) Environmental Compliance. Operate all property owned or leased by
------------------------
it such that no material obligations, including any remediation or clean-up
obligations, shall arise under any Environmental Law and Regulation, which
obligation would constitute a Lien or charge on any property of Borrower;
provided, however, that if any such claim is made or any such obligation arises,
Borrower shall, at its own cost and expense, immediately satisfy such claim or
obligation.
(j) Intellectual Property. To the extent desirable in the normal
---------------------
conduct of Borrower's business, to: (i) prosecute diligently any trademark
application, service mark application, patent application or copyright
application that is part of the Intellectual Property pending as of the date
hereof or thereafter until the termination of this Agreement, and (ii) make
application for any new trademarks, service marks, patents, or copyrights.
Borrower further agrees (1) not to abandon any Intellectual Property without the
prior written consent of Lender and (2) to use its best efforts to maintain in
full force and effect the Intellectual Property, that is or shall be necessary
or economically desirable in the operation of Borrower's business. Any expenses
incurred in connection with the foregoing shall be borne by Borrower.
(k) Brokers, Fees. Indemnify and hold Lender harmless from any claim,
-------------
liability, loss cost, or expense arising out of any claim for a commission, fee
or other compensa-
-18-
<PAGE>
tion from any investment banker, broker, finder, intermediary or similar Person
in connection with the transactions contemplated by the Loan Documents.
Section 7. Negative Covenants. Borrower shall not agree to do, or permit
------------------
to be done, any of the following:
(a) Indebtedness. Create, incur, permit to exist or have
------------
outstanding, any indebtedness for borrowed money, except indebtedness of
Borrower hereunder and under the Note and except for indebtedness secured by the
Permitted Liens.
(b) Liens. Create, or assume or permit to exist, any Lien or any
-----
of the properties or assets of Borrower, whether now owned or hereafter
acquired, except for Permitted Liens, those created and granted by the Security
Documents, and those Liens resulting from indebtedness permitted under Section
7(k).
(c) Guaranties. Assume, endorse, be or become liable for, or
----------
guarantee, the obligations of any Person, except by endorsement of negotiable
instruments for deposit or collection in the ordinary course of business.
(d) Mergers, Acquisitions. Merge or consolidate with any Person
---------------------
(whether or not Borrower is the surviving entity) or become a general partner of
any partnership or acquire all or substantially all of the assets or any of the
capital stock of any Person; provided, however, revenue or profit sharing
arrangements among Borrower and its customers in connection with the sale of
inventory in the ordinary course of business shall not be deemed to be a
partnership for purposes of this subsection 7(d).
(e) Redemptions; Distributions.
--------------------------
(i) Purchase, redeem, retire or otherwise acquire, directly
or indirectly, or make any sinking fund payments with respect to, any
subordinated debt or any shares of any class of stock of Borrower.
(ii) Declare or pay any dividends or make any distribution
of any kind on Borrower's outstanding stock, or set aside any sum for any such
purpose, except Borrower may declare a dividend payable solely in the stock of
Borrower.
(f) Stock Issuance. Issue any additional shares or any right to
--------------
acquire any shares, or any security convertible into any shares, of the capital
stock of Borrower except as described on the attached Schedule 7.
-19-
<PAGE>
(g) Changes in Business. Make any material change in its
-------------------
business, or in the nature of its operation, or liquidate or dissolve itself (or
suffer any liquidation or dissolution); or convey, sell, lease, assign, transfer
or otherwise dispose of any of its property, assets or business except in the
ordinary course of business and for a fair consideration; or, except as provided
by the provisions of Section 7(f), dispose of any shares of its stock, whether
now owned or hereafter acquired.
(h) Fiscal Year. Change its fiscal year.
-----------
(i) Amendment of Documents. Modify, amend, supplement or
----------------------
terminate, or agree to modify, amend, supplement or terminate its certificate of
incorporation or by-laws or any documents relating to transactions with
affiliates.
(j) Capital Expenditures. Make or be or become obligated to make
--------------------
capital expenditures in the aggregate for Borrower in excess of $25,000.
(k) Rental Obligations. Enter into, or permit to remain in
------------------
effect, any lease as lessee if, after giving effect thereto, the aggregate
amount of all rental and other obligations, including, without limitation, all
percentage rents and additional rent, due from Borrower thereunder in any single
calendar year would exceed $400,000.
(l) Management Fees. Pay, or be or become obligated to pay, any
---------------
management fees to any Person, or any interest on any deferred obligation
therefor, including, without limitation, to any shareholder, director, officer
or employee of Borrower.
(m) Transactions with Affiliates. Except for transactions with
----------------------------
Advanced Nuclear Imaging, directly or indirectly: (i) make any investment in an
affiliate; (ii) sell, transfer, lease, assign or otherwise dispose of any assets
to an affiliate; or (iii) merge into or consolidate with or purchase or acquire
assets from an affiliate, or enter into any other transaction directly or
indirectly with or for the benefit of any affiliate; unless the terms of the
transaction with the affiliate are no less favorable to Borrower than would be
obtained from a non-affiliate.
(n) Restriction on Future Agreements. Enter into any agreement,
--------------------------------
including, without limitation, any license agreement, which is inconsistent with
this Agreement or the Loan Documents, and Borrower further agrees that it will
not take any action, and will use its best efforts not to permit any action to
be taken by others, including, without limitation, licensees, or fail to take
any action, which would in any respect affect the validity or enforcement of the
rights granted or transferred to Lender under this Agreement or the rights
associated with the Intellectual Property.
(o) Sale/Disposition. Sell or dispose of any of its assets except
----------------
for sales of inventory (excluding the Cardiology Machine) in the ordinary and
usual course of its business. Except for the Cardiology Machine, Borrower may
dispose of Equipment which is no longer required for the conduct on Borrower's
business so long as Borrower receives therefor a sum substantially equal to such
Equipment's fair value.
-20-
<PAGE>
Provided, however, that Lender consents to Borrower's execution of an
Acquisition Agreement dated July 15, 1996 with General Electric Company;
provided, further, that Borrower shall not close the transaction contemplated
thereby unless Borrower pays all Liabilities concurrently therewith.
Section 8. Term of Agreement. This Agreement shall remain in effect
-----------------
until such time as all of the Liabilities shall have been fully performed and
paid in full.
Section 9. Lender's Expenses. Borrower shall reimburse Lender for all
-----------------
reasonable fees, costs and expenses (including, but not limited to, attorney's
fees, costs and expenses) incurred by Lender in connection with this Agreement
including, but not limited to, Lender's overhead costs allocated by Lender to
this transaction and further including such reasonable fees, costs and expenses
incurred in connection with the investigation and evaluation of Borrower
negotiation, drafting, implementation, administration and enforcement of this
Agreement and the other agreements, documents and instruments referred to herein
or contemplated hereby and the auditing, appraising, evaluating or otherwise
monitoring the Collateral or other credit support for the Liabilities (all such
costs and expenses, "Costs and Expenses"); provided, however, that the Costs and
Expenses as of the date hereof shall not exceed $30,340 and provided, further,
that any Costs and Expenses after the date hereof shall be only third-party
costs and shall not include any of Lender's overhead costs.
Section 10. Conditions Precedent to the Loans.
---------------------------------
(a) Both Loans. The obligation of Lender to make each Loan
----------
hereunder shall be subject to the fulfillment (to the satisfaction of Lender) of
the following conditions precedent:
(i) Lender shall have received prior to or concurrently
with the execution and delivery hereof:
(1) Two copies of this Agreement executed by Borrower.
(2) The Note, duly executed by Borrower.
(3) Uniform Commercial Code Financing Statements
covering the Collateral against Borrower as debtor and in favor of Lender
as secured party in appropriate form or filing in the offices of the
Secretary of State of Texas, duly executed by Borrower.
(4) Any documents required by Lender for filing in the
United States Patent and Trademark Offices.
(5) A certificate of an officer of Borrower
certifying that attached thereto is (A) a true and correct copy of the
resolutions of the board of directors of each such entity authorizing the
transactions contemplated by this Agreement; (B) the certificate of
incorporation of Borrower as in effect on the date of such certificate, (C) a
true and correct copy of the by-laws of Borrower as in effect on the date of
such certificate, and (D) a list of officers authorized to execute the Loan
Documents together with the true and correct signatures of each such Person.
21
<PAGE>
(6) Copies of the certificates of existence,
certificates of good standing, and certificates of authority to do business
in any state other than the State of Texas for Borrower.
(7) A certificate of Borrower executed by Gary B.
Wood, Chairman of the Board of Directors and David O. Rodrigue, Vice
President, certifying that, as of the date of such certificate, (A)
Borrower shall have complied and shall then be in compliance with all of
the terms, covenants and conditions of this Agreement and the other Loan
Documents; (B) no Event of Default or Default exists; and (C) the
representations and warranties contained in Section 4 of this Agreement are
true and correct as of the date of such certificate.
(8) An agreement satisfactory in form and substance to
Lender whereby the holders of the Uro-Tech Lien and the BF&EC Lien agree to
subordinate such liens to the Patents and Trademarks and all general
intangibles arising from or related thereto, and the Cardiology Machine and
the Cardiology Machine Contracts, and all accounts, general intangibles,
chattel paper, instruments and documents arising from or related to any of
the foregoing.
(ii) Borrower shall have paid all accrued Costs and Expenses
to Lender.
(iii) No Default or Event of Default shall have occurred and
be continuing hereunder or under the Loan Documents.
(iv) All legal matters incident to the Loans shall be
reasonably satisfactory to Lender and counsel to Lender.
(v) Lender shall have received an opinion from Borrower's
counsel regarding such matters as Lender specifies.
(b) Second Loan. The obligation of Lender to make the second Loan
-----------
hereunder shall additionally be subject to Lender's receipt of a valuation
appraisal of the Patents and Trademarks conducted by Coopers & Lybrand, LLP or
other appraiser satisfactory to Lender. The appraisal must be addressed to
Lender and must state that the value of the Patents and Trademarks as of the
date of the appraisal is not less than $5,000,000. If Lender does not receive
such appraisal prior to the Commitment Termination Date, Lender shall have no
obligation to make the second Loan.
(c) No Waiver. Lender's funding of either Loan prior to the
---------
satisfaction of each condition precedent shall not waive Lender's right to
thereafter insist on the satisfaction of such condition, and Borrower shall
thereafter satisfy such condition upon Lender's demand.
Section 11. Default/Remedies.
----------------
(a) Events of Default. Any one of the following acts which shall
-----------------
occur and be continuing shall constitute an "Event of Default" under this
Agreement:
-22-
<PAGE>
(i) Failure by Borrower to pay any of the Liabilities
within five Business Days of the date when due.
(ii) Any representation or warranty now or hereafter made by
Borrower herein or by Borrower (or any of its officers or stockholders) in
connection with this Agreement shall prove to have been incorrect in any
material respect when made.
(iii) Failure by Borrower to perform or observe any covenant,
condition or agreement contained in this Agreement and such failure (except a
failure to pay any of the Liabilities) continues unremedied (if susceptible of
remedy) for a period of fifteen days.
(iv) An event of default or default shall occur and be
continuing under any other agreement providing for the borrowing of money or
granting of liens entered into by Borrower or Lender shall have received a
notice from the holder of any such other indebtedness that Borrower is in
default in the payment thereof (whether or not such notice is correct) and
Borrower has not obtained the retraction of such notice by the holder within
fifteen days after Lender's notice to Borrower.
(v) Borrower shall make an assignment for the benefit of
creditors, file a petition in bankruptcy, be adjudicated insolvent, petition or
apply to any tribunal for the appointment of a receiver, custodian, or any
trustee for its substantial part of its assets, or shall commence any court or
judicial proceeding under any bankruptcy, reorganization, arrangement,
readjustment of debt, dissolution or liquidation law or statute of any
jurisdiction, whether now or hereafter in effect, or Borrower shall take any
corporate action to authorize any of the foregoing actions; or there shall have
been filed any such petition against it, which remains undismissed for a period
of 30 days or more; or any order for relief shall be entered in any such
proceeding; or Borrower by any act or omission shall indicate its consent to,
approval or acquiescence in any such petition, application or proceeding or the
appointment of a custodian, receiver or any trustee for it or any substantial
part of its properties, or shall suffer any custodianship, receivership or
trusteeship to continue undischarged for a period of 30 days or more.
(vi) Borrower shall generally fail to pay its debts as such
debts become due.
(b) Remedies. If any Default or Event of Default occurs, in
--------
addition to all other remedies Lender may have at law or in equity, Lender may
(i) declare the principal amount of the Note, all interest thereon and all other
Liabilities to be immediately due and payable, whereupon the Loans, all such
interest and all such other Liabilities shall become and be immediately due and
payable, without presentment, demand, protest, notice of intent to accelerate,
notice of acceleration or further notice of any kind, all of which are hereby
expressly waived by Borrower, and (ii) exercise all or any of the rights of a
secured party under the Uniform Commercial Code in the state where the
Collateral is located or any other Applicable Law and any other rights and
remedies available to Lender, all of which rights and remedies shall be
cumulative, and none exclusive, to the extent permitted by law; provided,
however, that if an Event of Default involving the bankruptcy of Borrower shall
exist or occur, all of the Liabilities
-23-
<PAGE>
shall automatically, without notice of any kind, be immediately due and payable
and Lender shall be entitled to reclaim the Collateral.
(c) Entry Upon Premises. Upon the occurrence of an Event of
-------------------
Default, (i) Lender shall have the right to enter upon the Premises of Borrower
where the Collateral is located (or is believed to be located) without any
obligation to pay rent to Borrower, or any other place or places where the
Collateral is believed to be located and kept, and render the Collateral
unusable or remove the Collateral therefrom, in order effectively to collect or
liquidate the Collateral, or (ii) Lender may require Borrower to assemble the
Collateral and make it available to Lender at a place reasonably convenient to
Lender, or (iii) Lender may exercise some combination thereof.
(d) Sale or Other Disposition of Collateral by Lender. Any notice
-------------------------------------------------
required to be given by Lender of a sale, lease or other disposition or other
intended action by Lender with respect to any of the Collateral, at least ten
Business Days prior to such proposed action shall constitute fair and reasonable
notice to Borrower of any such action. If Lender chooses to dispose of the
Collateral, it shall dispose of the Collateral in a commercially reasonable
manner. Any sale of the Collateral conducted in conformity with the reasonable
commercial practices of banks, insurance companies, commercial finance companies
or other financial institutions disposing of property similar to the Collateral
shall be deemed to be commercially reasonable. The net proceeds realized by
Lender upon any such sale or other disposition, after deduction for the expense
of retaking, holding, preparing for sale, selling or the like and the reasonable
attorneys' fees and legal expenses incurred by Lender in connection therewith,
shall be applied toward satisfaction of the Liabilities. Lender shall account to
Borrower for any surplus realized upon such sale or other disposition, and
Borrower shall remain liable for any deficiency. The commencement of any action,
legal or equitable, or the rendering of any judgment or decree for any
deficiency shall not affect Lender's lien and security interest in the
Collateral until the Liabilities are fully paid. Borrower agrees that Lender has
no obligation to preserve rights to the Collateral against any other parties.
Concurrently herewith, Borrower has executed an Assignment of Patents and an
Assignment of Trademarks (the "Assignments"). The Assignments shall become
effective only upon the occurrence of an Event of Default and Lender initiating
enforcement of lender's security interest in the Collateral and Lender shall use
such documents only to effect the sale or other disposition of the Collateral
covered thereby in connection with the enforcement of Lender's security interest
in the Collateral after an Event of Default. The Assignments shall become null
and void upon repayment of the Liabilities hereunder and shall be promptly
returned to Borrower upon such repayment.
(e) Royalties. Lender shall not be liable to Borrower for
---------
royalties or other related charges arising from the use by Lender of the
Intellectual Property in connection with the exercise of Lender's remedies under
this Agreement.
(f) Lender's Right to Sue. From and after the occurrence of an
---------------------
Event of Default, Lender shall have the right, but shall in no way be obligated,
to bring suit in its own name to enforce any of the rights associated with or
related to the Collateral and, if Lender shall commence any such suit, Borrower
shall, at the request of Lender, do any and all lawful acts and execute any and
all proper documents required by Lender in aid of such enforcement. Borrower
shall, upon demand, promptly reimburse Lender for all reasonable out of pocket
costs
-24-
<PAGE>
and expenses incurred by Lender in the exercise of its rights under this
Section 11 (including, without limitation, reasonable fees and expenses of
attorneys and paralegals for Lender).
Section 12. Cardiology Machine. In addition to Borrower's other
------------------
obligations and Lender's other rights under this Agreement with respect to the
Cardiology Machine:
(a) Payments. Upon Lender's request Borrower shall cause all
--------
payments due Borrower with respect to the lease or use of the Cardiology Machine
to be paid directly to Lender. All amounts payable to Borrower arising out of
the sale of the Cardiology Machine shall be paid directly to Lender. Lender
agrees to credit all payments so received by Lender as a payment made by
Borrower under the Note.
(b) Sale/Disposition. Borrower shall not sell or otherwise
----------------
dispose of Borrower's interest in the Cardiology Machine Contract. Borrower
shall not sell or otherwise dispose of the Cardiology Machine except pursuant to
the exercise by BCPA of the purchase option granted under the BCPA Contract.
(c) Notices. Borrower shall provided Lender with a copy of all
-------
notices received or sent by Borrower from or to BCPA or to the U.S Food and Drug
Administration. Such notices shall be provided to Lender within five Business
Days after Borrower's receipt or sending of them.
(d) Acceleration. If BCPA exercises its option to purchase the
------------
Cardiology Machine, Lender at its option may at any time thereafter declare the
principal amount of the Note, all interest thereon and all other Liabilities to
be immediately due and payable, whereupon the Loans, all such interest and all
such other Liabilities shall become and be immediately due and payable, without
presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or further notice of any kind, all of which are hereby expressly
waived by Borrower.
Section 13. Amendments. No amendment or modification of any provision
----------
of this Agreement shall be effective without the written agreement of Lender and
Borrower, and no termination or waiver of any provision of this Agreement, or
consent to any departure by Borrower therefrom, shall in any event be effective
without the written concurrence of Lender. Any waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
it was given. No notice to or demand upon Borrower or any guarantors of the
obligations of Borrower in any case shall entitle such party to any other or
further notice or demand in similar or other circumstances.
Section 14. No Waiver. Lender's failure, at any time or times
---------
hereafter, to require strict performance by Borrower of any provision or term of
this Agreement shall not waive, affect or diminish any right of Lender
thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Lender of a Default or Event of Default shall not,
except as may be expressly set forth herein, suspend, waive or affect any other
Default or Event of Default, whether the same is prior or subsequent thereto
and whether of the same or a different kind or character. None of the
undertakings, agreements, warranties, covenants and representations of Borrower
contained in this Agreement and no Default or Event of Default shall be
-25-
<PAGE>
deemed to have been suspended or waived by Lender unless such suspension or
waiver is (a) in writing and signed by Lender, and (b) delivered to Borrower.
Section 15. Sole Benefit of Parties. This Agreement is solely for the
-----------------------
benefit of the parties hereto and their respective successors and assigns, and
no other person shall have any right, benefit or interest under or because of
the existence of this Agreement.
Section 16. Limitation on Relationship Between Parties. The relationship
------------------------------------------
of Lender on the one hand, and Borrower, on the other hand, has been and shall
continue to be, at all times, that of creditor and debtor. Nothing contained in
this Agreement, any instrument, document or agreement delivered in connection
therewith or any of the other Loan Documents shall be deemed or construed to
create a fiduciary relationship between the parties.
Section 17. No Assignment. This Agreement shall not be assignable by
-------------
Borrower without the written consent of Lender. Lender may assign to one or
more persons all or any part of, or any participation interest in, Lender's
rights and benefits hereunder.
Section 18. Section Titles. The section and subsection titles contained
--------------
in this Agreement are included for the sake of convenience only, shall be
without substantive meaning or content of any kind whatsoever, and are not a
part of the agreement between Borrower and Lender.
Section 19. GOVERNING LAW. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
-------------
LAW, THIS AGREEMENT, THE NOTE AND ALL OTHER LOAN DOCUMENTS SHALL BE CONSTRUED
AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF
COLORADO AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE EXTENT
THAT THE LAW OF THE STATE IN WHICH A PORTION OF THE COLLATERAL IS LOCATED (OR
WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE COLLATERAL) NECESSARILY OR,
IN THE SOLE DISCRETION OF LENDER, APPROPRIATELY GOVERNS WITH RESPECT TO
PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF
LENDER GRANTED HEREIN, THE LAWS OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF
THE COLLATERAL LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.
Section 20. WAIVER OF JURY TRIAL. TO THE EXTENT PERMITTED BY APPLICABLE
--------------------
LAW, EACH OF BORROWER AND LENDER WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, BETWEEN
BORROWER AND LENDER OR ANY OF THEIR RESPECTIVE AFFILIATES ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN
THEM IN CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTES RESOLVED IN COURT
WILL BE RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 21. Notices. Except as otherwise expressly provided herein, any
-------
notice required or desired to be served, given or delivered hereunder shall be
in writing, and shall be deemed to have been validly served, given or delivered
(a) three Business Days after deposit in
26
<PAGE>
the United States mails, with proper postage prepaid, (b) when sent after
receipt of confirmation if sent by telecopy or other similar facsimile
transmission, (c) one business day after deposited with a reputable overnight
courier with all charges prepaid or (d) when delivered, if hand-delivered by
messenger, all of which shall be properly addressed to the party to be notified
and sent, to the address or number indicated below their respective signature
lines in this Agreement.
Section 22. Counterparts. This Agreement may be executed in any number
------------
of counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
Section 23. Usury Laws. The parties hereto intend to conform strictly
----------
to the applicable usury laws. All agreements between Borrower (and any other
party liable for any part of the Liabilities) and Lender whether now existing or
hereafter arising and whether written or oral, are expressly limited so that in
no event whatsoever, whether by reason of acceleration of the maturity of the
Liabilities or otherwise, shall the interest contracted for, charged or received
by Lender or otherwise exceed the maximum amount permissible under Applicable
Law. If from any circumstances whatsoever interest would otherwise be payable to
Lender in excess of the maximum lawful amount, the interest payable to Lender
shall be reduced automatically to the maximum amount permitted under Applicable
Law. If Lender shall ever receive anything of value deemed to be interest under
Applicable Law which would apart from this provision be in excess of the maximum
lawful amount, the amount which would have been excessive interest shall be
applied to the reduction of the principal amount owing on the Liabilities in
inverse order of maturity and not to the payment of interest, or if such amount
which would have been excessive interest exceeds the unpaid principal balance of
the Liabilities, such excess shall be refunded to Borrower, or to the maker of
other evidence of indebtedness if other than Borrower. All interest paid or
agreed to be paid to Lender shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated and spread throughout the full stated term,
including any renewal of extension, of such indebtedness so that the amount of
interest on account of such indebtedness does not exceed the maximum permitted
by applicable law. The terms and provisions of this Section shall control and
supersede every other provision of all existing and future agreements between
Borrower and Lender.
Section 24. NO ORAL AGREEMENTS. THE LOAN DOCUMENTS EMBODY THE ENTIRE
------------------
AGREEMENT AND UNDERSTANDING BETWEEN THE PARTIES AND SUPERSEDE ALL OTHER
AGREEMENTS AND UNDERSTANDINGS BETWEEN SUCH PARTIES RELATING TO THE SUBJECT
MATTER HEREOF AND THEREOF. THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL, AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 25. Inter-Creditor Agreement. Lender agrees to promptly provide
------------------------
Borrower with a copy of any amendments to the Inter-Creditor Agreement among
Lender, BF&EC and Uro-Tech executed by them in connection with Lender's
execution of this Agreement.
IN WITNESS WHEREOF, this Agreement has been duly executed by duly
authorized officers of the Parties to be effective as of the date set forth
above.
27
<PAGE>
BORROWER:
POSITRON CORPORATION
/s/ D O. Rodrigue
By:-----------------------------------------
David O. Rodrigue, Vice President
Notice Address:
16350 Park Ten Place
Houston, Texas 77084
Telecopy: 713-492-2961
Confirmation: 713-492-7100
LENDER:
PROFUTURES BRIDGE CAPITAL FUND, L.P.
By: Bridge Capital Partners, Inc.,
General Partner
/s/ J H. Perry
By: -------------------------------
James H. Perry, President
Notice Address:
1720 South Bellaire Street
Suite 500
Denver, Colorado 80222
Telecopy: (303) 759-2728
Confirmation: (303) 758-8140
28
<PAGE>
PROMISSORY NOTE
$1,400,000.00
November ____, 1996
1. FOR VALUE RECEIVED, on or before June 30, 1997 (the "Maturity Date"),
POSITRON CORPORATION, a Texas corporation ("Maker"), promises to pay to the
order of PROFUTURES BRIDGE CAPITAL FUND, L.P., a Delaware limited partnership
("Payee"), at its offices at 1720 South Bellaire Street, Suite 500, Denver,
Colorado 80222, the principal amount of $1,400,000.00 (the "Total Principal
Amount"), or such amount less than the Total Principal Amount which has been
advanced to Maker pursuant to the terms of the Loan and Security Agreement dated
this date between Maker and Payee (the "Loan Agreement") if the total amount
advanced under this Promissory Note (this "Note") is less than the Total
Principal Amount, together with interest on such portion of the Total Principal
Amount which has been advanced to Maker from the date advanced until paid.
Capitalized terms used herein, but not defined, shall have the same meanings
assigned to them in the Loan Agreement.
2. (a) Prior to the Maturity Date, interest shall accrue on the
outstanding principal balance at the following rates of interest:
(i) From the date of this Note to April 1, 1997: 12% per annum
(ii) From April 1, 1997 to June 30, 1997: 15% per annum
(b) From and after the Maturity Date, interest shall accrue on
matured unpaid amounts at the following rates of interest:
(i) From the Maturity Date to December 1, 1997: 15% per annum
(ii) After November 30, 1997: 18% per annum
3. Maker shall have the right to prepay this Note in whole or in part at
any time without penalty or premium.
4. Principal and interest are payable in monthly installments until the
Maturity Date; at that time the entire amount of principal and interest
remaining unpaid will be payable. The monthly installment due is the greater of:
(a) $50,000.00, or (b) the aggregate amount received by Payee from BCPA under
the BCPA Contract during the calendar month in which the monthly installment is
due. Maker shall pay to Payee an amount equal to the payment received by Maker
from BCPA under the BCPA Contract each month prior to the Maturity Date; such
payment by Maker shall be due not later than one day after Maker receives the
BCPA payment. If the amount paid by Maker to Payee pursuant to the immediately
preceding sentence prior to the 25th day of each month is less than $50,000.00,
Maker shall pay not later than the 25th day of the month the difference between
$50,000.00 and the amount previously paid by Maker during such month. All
amounts due hereunder shall be paid to Payee at its address in the State of
Colorado specified in Section 1.
-1-
<PAGE>
5. All amounts paid hereunder shall be applied first to all interest
then accrued and unpaid hereunder, and the balance, if any, to principal. All
sums called for, payable or to be paid hereunder shall be paid in lawful money
of the United States of America which at the time of payment is legal tender for
the payment of public and private debts therein. All amounts paid hereunder will
be credited to the payment due effective as of the date Payee actually receives
such payment at its address specified herein.
6. If default is made in the payment of this Note at maturity (regardless
of how its maturity may be brought about) or the same is placed in the hands of
an attorney for collection, or if suit is filed hereon, or proceedings are had
in bankruptcy, probate, receivership, reorganization, or other judicial
proceedings for the establishment or collection of any amount called for
hereunder, or any amount payable or to be payable hereunder is collected through
any such proceedings, Maker agrees to pay the holder of this Note a reasonable
amount as attorney's or collection fees.
7. Maker hereby waives presentment and demand for payment, notice of
intent to accelerate maturity, notice of acceleration of maturity, protest or
notice of protest and nonpayment, bringing of suit and diligence in taking any
action to collect any sums owing hereunder and in proceeding against any of the
rights and properties securing payment hereof, and agrees that its liability
on this Note shall not be affected by any release of or change in any security
for the payment of this Note.
8. This Note evidences obligations and indebtedness from time to time
owing by Maker to Payee pursuant to and secured by, among other things, the Loan
Agreement. The holder of this Note is entitled to the benefits and security
provided in the Loan Documents. Under the Loan Agreement, Borrower may request
two advances of $700,000.00 each. The unpaid balance of this Note shall increase
with each such advance and shall decrease with each payment made hereunder;
provided, however, that this Note is not a revolving line of credit note and
principal amounts repaid amounts repaid hereunder may not be reborrowed.
9. Maker agrees that upon the occurrence of an Event of Default, the
holder of this Note may, at its option, without further notice or demand, (a)
declare the outstanding principal balance of and accrued but unpaid interest on
this Note at once due and payable, (b) refuse to advance any additional amounts
under this Note, (c) foreclose all liens securing payment hereof, (d) pursue any
and all other rights, remedies and recourses available to the holder hereof,
including but not limited to any such rights, remedies or recourses under the
Loan Documents, at law or in equity, or (e) pursue any combination of the
foregoing.
10. The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy or recourse available to the holder hereof upon
the occurrence of an Event of Default hereunder shall not constitute a waiver of
the right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourses of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof.
The acceptance by the holder
-2-
<PAGE>
hereof of any payment under this Note which is less than the payment in full of
all amounts due and payable at the time of such payment shall not (a) constitute
a waiver of or impair, reduce, release or extinguish any right, remedy or
recourse of the holder hereof, or nullify any prior exercise of any such right,
remedy or recourse, or (b) impair, reduce, release or extinguish the obligations
of any party liable under any of the Loan Documents as originally provided
herein or therein.
11. All notices permitted hereunder shall be given to the addressee at the
following address: if to Payee, at the address specified in Section 1, or at
such other address as Payee may provide by notice to Maker; if to Maker, 16350
Park Ten Place, Houston, Texas 77084, Attention: CFO. All notices given
hereunder shall be in writing and shall be considered properly given if mailed
by first-class United States mail, postage prepaid, registered or certified with
return receipt requested, or by delivering same in person to the addressee, or
by prepaid telegram. Any notice given in accordance herewith shall be effective
as provided in the Loan Agreement.
12. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, THIS NOTE SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF COLORADO AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE
EXTENT THAT THE LAW OF THE STATE IN WHICH A PORTION OF THE COLLATERAL IS LOCATED
(OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE COLLATERAL) NECESSARILY
OR, IN THE SOLE DISCRETION OF PAYEE, APPROPRIATELY GOVERNS WITH RESPECT TO
PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF
PAYEE GRANTED HEREIN, THE LAWS OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF
THE COLLATERAL LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.
13. Maker and Payee intend to conform strictly to applicable usury laws.
All agreements between Maker and Payee whether now existing or hereafter arising
and whether written or oral, are expressly limited so that in no event
whatsoever, whether by reason of acceleration of the maturity of the
indebtedness evidenced hereby or otherwise, shall the interest contracted for,
charged or received by Payee or otherwise exceed the maximum amount permissible
under Applicable Law. If from any circumstances whatsoever interest would
otherwise be payable to Payee in excess of the maximum lawful amount, the
interest payable to Payee shall be reduced automatically to the maximum amount
permitted under Applicable Law. If Payee shall ever receive anything of value
deemed to be interest under Applicable Law which would apart from this provision
be in excess of the maximum lawful amount, the amount which would have been
excessive interest shall be applied to the reduction of the principal amount
owing on the principal amount owed hereunder in inverse order of maturity and
not to the payment of interest, or if such amount which would have been
excessive interest exceeds the unpaid principal balance of this Note, such
excess shall be refunded Maker. All interest paid or agreed to be paid to Payee
shall, to the extent permitted by Applicable Law, be amortized, prorated,
allocated and spread throughout the full stated term, including any renewal of
extension, of such indebtedness so that the amount of interest on account of
such indebtedness does not exceed the maximum permitted by Applicable Law. The
terms and
-3-
<PAGE>
provisions of this Section shall control and supersede every other provision of
all existing and future agreements between Maker and Payee.
EXECUTED as of the date first written above.
POSITRON CORPORATION
By:______________________________________
David O. Rodrigue, Vice President
-4-
<PAGE>
EXHIBIT B TO LOAN AND SECURITY AGREEMENT
Patent No.(s)
4,563,582 issued 01/07/86
4,642,462 issued 02/10/87
4,677,779 issued 07/07/87
4,677,299 issued 06/30/87
4,733,083 issued 03/22/88
5,210,420 issued 05/11/93
<PAGE>
EXHIBIT C TO LOAN AND SECURITY AGREEMENT
Trademark Application Date Filed Name
No.(s)
74/495,437 2/28/94 "Positron Technologies"
74/495,450 2/28/94 "Positron Medical Systems"
74/499,181 3/11/94 "Positron Medical and Design"
Trademark Registration Date Filed Name
No.(s)
1,494,091 6/28/88 "Posicam"
<PAGE>
Page 1 of 3 pages
EXHIBIT D
================================================================================
DESCRIPTION OF EQUIPMENT
================================================================================
Customer: Buffalo Cardiology & Pulmonary Associates
5305 Main Street
Williamsville, NY 14221
Attn: Dr. Michael Merhige
- --------------------------------------------------------------------------------
CATALOG NO. DESCRIPTION
- --------------------------------------------------------------------------------
712-100030 POSICAM HZL-R SYSTEM
--------------------
POSICAM Low Profile Gantry and Patient Couch
--------------------------------------------
- 53.4 cm patient opening diameter
- 1.0 RPS wobble speed
- Laser positioning reference guides, top and both sides
- Digital display for patient axial position
- Computer controlled axial couch position
- Digital display for count rate
- Digital display for acquisition time
- Retractable septa
Detector Modules
----------------
- 32 ring staggered BGO crystals
- Crystal dimensions 8.5 x 9.8 x 30 mm
- 1024 PMTs with 4,096 crystals with a
4:1 ratio for optimum sensitivity
- 61 slice generation with 2.6 mm separation
- 16.6 cm axial field of view
- 260K counts/sec/microCi/cc sensitivity typical
- 1.3 m counts/sec/microCi/cc sensitivity with SEPTA retracted
- 5.8 mm cubic resolution
- 78 cm ring diameter
- overlapping (patented) design
- 5 msec temporal resolution
- 5 nsec FWHM coincidence resolving time with 12 ns window
POSICAM Data Acquisition System (PDAS)
- --------------------------------------
Hardware and Software
---------------------
- 68030 processor, 25 MHZ
- VME bus plus 2 dedicated VSB busses
- PDAS software
- Real time binning rate of 2 million events/sec
- 32 Mbyte memory (Optionally expandable)
- Static, real-time dynamic, real-time gated acquisition modes
<PAGE>
Page 2 of 3 pages
- --------------------------------------------------------------------------------
Operator Console/View Station
-----------------------------
- Sun SPARCstation
- 16" color monitor
- 32 MBytes memory
- 207 MByte hard disk
- Ethernet network interface
- Software applications package
POSICAM Image Workstation
-------------------------
- Viewing console table and chair
- 19" color monitor
- Sun SPARCstation
- 32 MByte memory
- 650 MByte hard disk storage minimum
- 4mm DAT Tape 2-8 GByte
- Keyboard with optical mouse and pad
- Ethernet network interface
- Dedicated applications accelerator for reconstruction
POSICAM ACS Software
--------------------
- Window Interface
- Automated protocols
- Acquisition
- Reconstruction
- Corrections
- Image processing and display
- Utilities
Rotating Fan Beam
-----------------
- Transmission scan with real-time randoms and scatter
rejection
- Reduced attenuation acquisition time
- Employs sealed /68/ Ge rod sources (customer supplied) from
recommended vendor
- Patient aperture cover
Communications Modem
--------------------
- 9600 baud V.32 bis, V.42 bis standards
System Documentation
--------------------
<PAGE>
Page 3 of 3 pages
- --------------------------------------------------------------------------------
OPTIONS
712-011003 Codonics High Resolution Color Printer
--------------------------------------
- 300 dots per inch resolution
- Over 16.7 million high quality colors
- 256 levels each of cyan, magenta and yellow
- 8.5" x 11" print size
- Paper or color transparencies
- Ethernet connection
712-013000 Cardiac Quantitative Software
-----------------------------
- RAU (Rubidium Absolute Uptake)
712-013020 Neuro Quantitative Software
---------------------------
- FDG Uptake
712-013030 Oncology Quantitative Software
------------------------------
- FDG Uptake
712-005150 Head Holder - Adjustable
------------------------
- Foam inserts and mounting hardware included
- Adjustable elevation and tilt
712-005011 Deluxe PET Phantom
------------------
- 20 cm cylinder phantom
- Inserts include six solid spheres, cold rod
insert, and hardware for mounting user-
supplied capillary line sources
712-020003 Remote Physician's View Station
- ---------- -------------------------------
- Sun SPARCstation
- 16" color monitor
- 32 MBytes memory
- 207 MByte hard disk
- Ethernet network interface
- Software applications package
<PAGE>
SCHEDULE 4
POSITRON CORPORATION
Outstanding Warrants and Options
as of November 13, 1996
<TABLE>
<CAPTION>
Number of
Description Warrants/Option Exercise Price
----------- --------------- --------------
<S> <C> <C>
1987 Employee Stock Option Plan 176,091 2.625
1994 Employee Stock Option Plan 459,205 2.625-4.125
1993 Warrants 514,580 5.650
Redeemable Warrants 5,594,468 5.650
Series A Preferred Stock Warrants 1,533,528 2.000
Series B Preferred Stock Warrants 100,000 2.000
UroTech, Ltd. Warrants 67,500 2.000
Boston Financial & Equity Warrants 45,000 2.000
K. Lance Gould 250,000 2.000
Gary B. Wood 100,000 2.000
</TABLE>
Shares of common stock issued in respect of (a) any options, warrants or other
securities outstanding as of the date hereof that are exercisable or
exchangeable for or convertible into shares of common stock, (b) options that
may hereafter be granted in accordance with any employee stock option plan in
effect as of the date hereof, (c) the issuance after the date hereof of any
additional shares of Series A 8% Cumulative Convertible Redeemable Preferred
Stock or Series B 8% Cumulative Convertible Redeemable Preferred Stock as a
dividend in respect of any such outstanding preferred stock or (d) the issuance
of any shares of common stock upon the exercise, conversion or exchange of any
of the securities described in any one or more of clauses (a), (b), or (c)
above. As of November 13, 1996 the number of shares of common stock issuable
under the securities described in clauses (a) and (b) above does not exceed
8,850,000 shares.
<PAGE>
SCHEDULE 4(g)
The Company has not paid the October 31, 1996 payroll and related payroll
taxes. Such payroll taxes are not due until such payroll is paid to its
employees.
<PAGE>
SCHEDULE 7
POSITION CORPORATION
Outstanding Warrants and Options
as of November 13, 1996
<TABLE>
<CAPTION>
Number of
Description Warrants/Options Exercise Price
----------- ---------------- --------------
<S> <C> <C>
1987 Employee Stock Option Plan 176,091 2.625
1994 Employee Stock Option Plan 459,205 2.625 - 4.125
1993 Warrants 514,580 5.650
Redeemable Warrants 5,594,468 5.650
Series A Preferred Stock Warrants 1,533,528 2.000
Series B Preferred Stock Warrants 100,000 2.000
UroTech, Ltd. Warrants 67,500 2.000
Boston Financial & Equity Warrants 45,000 2.000
K. Lance Gould 250,000 2.000
Gary B. Wood 100,000 2.000
</TABLE>
Shares of common stock issued in respect of (a) any options, warrants or other
securities outstanding as of the date hereof that are exercisable or
exchangeable for or convertible into shares of common stock, (b) options that
may hereafter be granted in accordance with any employee stock option plan in
effect as of the date hereof, (c) the issuance after the date hereof of any
additional shares of Series A 8% Cumulative Convertible Redeemable Preferred
Stock or Series B 8% Cumulative Convertible Redeemable Preferred Stock as a
dividend in respect of any such outstanding preferred stock or (d) the issuance
of any shares of common stock upon the exercise, conversion or exchange of any
of the securities described in any one or more of clauses (a), (b), or (c)
above. As of November 13, 1996 the number of shares of common stock issuable
under the securities described in clauses (a) and (b) above does not exceed
8,850,000 shares.
<PAGE>
EXHIBIT 10.52
-------------
PROMISSORY NOTE
$1,400,000.00 November 14, 1996
1. FOR VALUE RECEIVED, on or before June 30, 1997 (the "Maturity Date"),
POSITRON CORPORATION, a Texas corporation ("Maker"), promises to pay to the
order of PROFUTURES BRIDGE CAPITAL FUND, L.P., a Delaware limited partnership
("Payee"), at its offices at 1720 South Bellaire Street, Suite 500, Denver,
Colorado 80222, the principal amount of $1,400,000.00 (the "Total Principal
Amount"), or such amount less than the Total Principal Amount which has been
advanced to Maker pursuant to the terms of the Loan and Security Agreement
dated this date between Maker and Payee (the "Loan Agreement") if the total
amount advanced under this Promissory Note (this "Note") is less than the Total
Principal Amount, together with interest on such portion of the Total Principal
Amount which has been advanced to Maker from the date advanced until paid.
Capitalized terms used herein, but not defined, shall have the same meanings
assigned to them in the Loan Agreement.
2. (a) Prior to the Maturity Date, interest shall accrue on the
outstanding principal balance at the following rates of interest:
(i) From the date of this Note to April 1, 1997: 12% per annum
(ii) From April 1, 1997 to June 30, 1997: 15% per annum
(b) From and after the Maturity Date, interest shall accrue on
matured unpaid amounts at the following rates of interest:
(i) From the Maturity Date to December 1, 1997: 15% per annum
(ii) After November 30, 1997: 18% per annum
3. Maker shall have the right to prepay this Note in whole or in part at
any time without penalty or premium.
4. Principal and interest are payable in monthly installments until the
Maturity Date, at that time the entire amount of principal and interest
remaining unpaid will be payable. The monthly installment due is the greater
of: (a) $50,000.00, or (b) the aggregate amount received by Payee from BCPA
under the BCPA Contract during the calendar month in which the monthly
installment is due. Maker shall pay to Payee an amount equal to the payment
received by Maker from BCPA under the BCPA Contract each month prior to the
Maturity Date; such payment by Maker shall be due not later than one day after
Maker receives the BCPA payment. If the amount paid by Maker to payee pursuant
to the immediately preceding sentence prior to the 25th day of each month is
less than $50,000.00, Maker shall pay not later than the 25th day of the month
the difference between $50,000.00 and the amount previously paid by Maker during
such month. All amounts due hereunder shall be paid to Payee at its address in
the State of Colorado specified in Section 1.
-1-
<PAGE>
5. All amounts paid hereunder shall be applied first to all interest then
accrued and unpaid hereunder, and the balance, if any, to principal. All sums
called for, payable or to be paid hereunder shall be paid in lawful money of the
United States of America which at the time of payment is legal tender for the
payment of public and private debts therein. All amounts paid hereunder will be
credited to the payment due effective as of the date Payee actually receives
such payment at its address specified herein.
6. If default is made in the payment of this Note at maturity
(regardless of how its maturity may be brought about) or the same is placed in
the hands of an attorney for collection, or if suit is filed hereon, or
proceedings are had in bankruptcy, probate, receivership, reorganization, or
other judicial proceedings for the establishment or collection of any amount
called for hereunder, or any amount payable or to be payable hereunder is
collected through any such proceedings, Maker agrees to pay the holder of this
Note a reasonable amount as attorney's or collection fees.
7. Maker hereby waives presentment and demand for payment, notice of
intent to accelerate maturity, notice of acceleration of maturity, protest or
notice of protest and nonpayment, bringing of suit and diligence in taking any
action to collect any sums owing hereunder and in proceeding against any of the
rights and properties securing payment hereof, and agrees that its liability on
this Note shall not be affected by any release of or change in any security for
the payment of this Note.
8. This Note evidences obligations and indebtedness from time to time
owing by Maker to Payee pursuant to and secured by, among other things, the Loan
Agreement. The holder of this Note is entitled to the benefits and security
provided in the Loan Documents. Under the Loan Agreement, Borrower may request
two advances of $700,000.00 each. The unpaid balance of this Note shall increase
with each such advance and shall decrease with each payment made hereunder;
provided, however, that this Note is not a revolving line of credit note and
principal amounts repaid hereunder may not be reborrowed.
9. Maker agrees that upon the occurrence of an Event of Default, the
holder of this Note may, at its option, without further notice or demand, (a)
declare the outstanding principal balance of and accrued but unpaid interest on
this Note at once due and payable, (b) refuse to advance any additional amounts
under this Note, (c) foreclose all liens securing payment hereof, (d) pursue any
and all other rights, remedies and recourses available to the holder hereof,
including but not limited to any such rights, remedies or recourses under the
Loan Documents, at law or in equity, or (e) pursue any combination of the
foregoing.
10. The failure to exercise the option to accelerate the maturity of this
Note or any other right, remedy or recourse available to the holder hereof upon
the occurrence of an Event of Default hereunder shall not constitute a waiver of
the right of the holder of this Note to exercise the same at that time or at any
subsequent time with respect to such Event of Default or any other Event of
Default. The rights, remedies and recourses of the holder hereof, as provided in
this Note and in any of the other Loan Documents, shall be cumulative and
concurrent and may be pursued separately, successively or together as often as
occasion therefore shall arise, at the sole discretion of the holder hereof. The
acceptance by the holder
-2-
<PAGE>
hereof of any payment under this Note which is less than the payment in full of
all amounts due and payable at the time of such payment shall not (a) constitute
a waiver of or impair, reduce, release or extinguish any right, remedy or
recourse of the holder hereof, or nullify any prior exercise of any such right,
remedy or recourse, or (b) impair, reduce, release or extinguish the obligations
of any party liable under any of the Loan Documents as originally provided
herein or therein.
11. All notices permitted hereunder shall be given to the addressee at the
following address: if to Payee, at the address specified in Section 1, or at
such other address as Payee may provide by notice to Maker; if to Maker, 16350
Park Ten Place, Houston, Texas 77084, Attention: CFO. All notices given
hereunder shall be in writing and shall be considered properly given if mailed
by first-class United States mail, postage prepaid, registered or certified with
return receipt requested, or by delivering same in person to the addressee, or
by prepaid telegram. Any notice given in accordance herewith shall be effective
as provided in the Loan Agreement.
12. WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW, THIS NOTE SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE
OF COLORADO AND THE LAWS OF THE UNITED STATES OF AMERICA, EXCEPT THAT TO THE
EXTENT THAT THE LAW OF THE STATE IN WHICH A PORTION OF THE COLLATERAL IS LOCATED
(OR WHICH IS OTHERWISE APPLICABLE TO A PORTION OF THE COLLATERAL) NECESSARILY
OR, IN THE SOLE DISCRETION OF PAYEE, APPROPRIATELY GOVERNS WITH RESPECT TO
PROCEDURAL AND SUBSTANTIVE MATTERS RELATING TO THE CREATION, PERFECTION AND
ENFORCEMENT OF THE LIENS, SECURITY INTERESTS AND OTHER RIGHTS AND REMEDIES OF
PAYEE GRANTED HEREIN, THE LAWS OF SUCH STATE SHALL APPLY AS TO THAT PORTION OF
THE COLLATERAL LOCATED IN (OR OTHERWISE SUBJECT TO THE LAWS OF) SUCH STATE.
13. Maker and Payee intend to conform strictly to applicable usury laws.
All agreements between Maker and Payee whether now existing or hereafter arising
and whether written or oral, are expressly limited so that in no event
whatsoever, whether by reason of acceleration of the maturity of the
indebtedness evidenced hereby or otherwise, shall the interest contracted for,
charged or received by Payee or otherwise exceed the maximum amount permissible
under Applicable Law. If from any circumstances whatsoever interest would
otherwise be payable to Payee in excess of the maximum lawful amount, the
interest payable to Payee shall be reduced automatically to the maximum amount
permitted under Applicable Law. If Payee shall ever receive anything of value
deemed to be interest under Applicable Law which would apart from this provision
be in excess of the maximum lawful amount, the amount which would have been
excessive interest shall be applied to the reduction of the principal amount
owing on the principal amount owed hereunder in inverse order of maturity and
not to the payment of interest, or if such amount which would have been
excessive interest exceeds the unpaid principal balance of this Note, such
excess shall be refunded Maker. All interest paid or agreed to be paid to Payee
shall, to the extent permitted by Applicable Law, be amortized, prorated,
allocated and spread throughout the full stated term, including any renewal of
extension, of such indebtedness so that the amount of interest on account of
such indebtedness does not exceed the maximum permitted by Applicable Law. The
terms and
-3-
<PAGE>
provisions of this Section shall control and supersede every other provision of
all existing and future agreements between Maker and Payee.
EXECUTED as of the date first written above.
POSITRON CORPORATION
By: /s/ David O. Rodrigue
---------------------------------
David O. Rodrigue, Vice President
-4-
<PAGE>
EXHIBIT 10.53
-------------
INTER-CREDITOR AGREEMENT
This Agreement is made among Positron Corporation, a Texas corporation
("Borrower"), UroTech, Ltd., a Texas Limited partnership ("UT"), and Boston
Financial & Equity Corporation, a Massachusetts corporation ("BF&EC"), and
ProFutures Bridge Capital Fund, L.P., a Delaware limited partnership
("Profutures").
1. Background.
----------
(a) Pursuant to a Loan and Security Agreement dated as of November
14, 1995, Borrower obtained loans from UT and granted security interests to UT.
(b) Pursuant to a Revolving Financing Agreement dated February 9,
1996, Borrower obtained a revolving loan from BF&EC and granted security
interests to BF&EC.
(c) Borrower proposes to enter in a financing agreement with
Profutures and grant to Profutures security interests to secure loans made by
Profutures thereunder.
(d) BF&EC, UT and Profutures have agreed to adjust the priorities
among them with respect to the security interests held by each of them in
Borrower's personal property as set forth below.
2. Definitions.
-----------
(a) As used herein, the following terms mean as follows:
"BF&EC Agreements" means all loan agreements, security agreements
and all other kinds of agreements now or hereafter in force between Borrower and
BF&EC as the same may from time to time be amended or supplemented, which relate
to loans from BF&EC to Borrower or security interests granted by Borrower to
BF&EC or both and shall also include all notes made by Borrower to BF&EC.
"BF&EC Obligations" means all loans, advances, indebtedness,
liabilities, indemnity agreements, and amounts, liquidated or unliquidated,
owing from Borrower to BF&EC at any time, each of every kind, nature and
description whether arising under the BF&EC Agreements or otherwise, and whether
secured or unsecured, direct or indirect (that is, whether the same are due
directly from Borrower to BF&EC or indirectly as an endorser or guarantor; or
otherwise), absolute or contingent, due or to become due, now existing or
hereafter arising or contracted.
"Cardiology Machine" means the POSICAM(TM) HZL-R System medical
imaging device, Catalog No.712-100030, Serial No. twenty-one (21) which is
described on the attached Exhibit A and which is currently subject to the use
and possession of Buffalo Cardiology & Pulmonary Associates ("BCPA").
Page 1
<PAGE>
"Collateral" means all of the personal property of Borrower,
including with respect to particular items of Collateral, the proceeds and
products thereof, and where applicable, insurance proceeds or escrow accounts
covering such property.
"Creditors" means UT, BF&EC and Profutures.
"Cardiology Machine Contracts" means all leases, contracts and
other arrangements, now or hereafter existing, between Borrower and any other
person relating to the possession or use of the Cardiology Machine, including
the arrangement between Borrower and BCPA relating to the Cardiology Machine in
effect as of the date hereof.
"Loan Agreements" means BF&EC Agreements, the Profutures
Agreements and the UT Agreements.
"Patents and Trademarks" means all computer hardware and
software, copyrights, license, patents, trade secrets and trademarks of
Borrower, whether now owned or hereafter acquired, including the property
described on the attached Exhibit B.
"Profutures Agreements" means all loan agreements, security
agreements and all other kinds of agreements now or hereafter in force between
Borrower and Profutures as the same may from time to time be amended or
supplemented, which relate to loans from Profutures to Borrower or security
interests granted by Borrower to Profutures or both and shall also include all
notes made by Borrower to Profutures.
"Profutures Obligations" means all loans, advances, indebtedness,
liabilities, indemnity agreements, and amounts, liquidated or unliquidated,
owing from Borrower to Profutures at any time, each of every kind, nature and
description whether arising under the Profutures Agreements or otherwise, and
whether secured or unsecured, direct or indirect (that is, whether the same are
due directly from Borrower to Profutures or indirectly as an endorser or
guarantor; or otherwise), absolute or contingent, due or to become due, now
existing or hereafter arising or contracted.
"UT Agreements" means all loan agreements, security agreements
and all other kinds of agreements now or hereafter in force between Borrower and
UT, as the same may from time to time be amended or supplemented, which relate
to loans from UT to Borrower or security interests granted by Borrower to UT or
both and shall also include all notes made by Borrower to UT.
"UT Obligations" means all loans, advances, indebtedness,
liabilities, indemnity agreements, and amounts, liquidated or unliquidated,
owing from Borrower to UT at any time, each of every kind, nature and
description whether arising under the UT Agreements or otherwise, and whether
secured or unsecured, direct or indirect (that is, whether the same are due
directly from Borrower to UT or indirectly as an endorser or guarantor; or
otherwise), absolute or contingent, due or to become due, now existing or
hereafter arising or contracted.
(b) The terms "account," "inventory," "equipment," "general
intangibles," "chattel paper," "instruments" and "documents" shall have the
meanings ascribed to them in the Uniform Commercial Code.
Page 2
<PAGE>
3. Establishment of Priority.
-------------------------
(a) Notwithstanding the date, manner or order of perfection of the
security interests granted to any Creditor, notwithstanding any applicable law
or decision and notwithstanding the terms of the Loan Agreements, and regardless
of which Creditor holds possession of all or any part of the Collateral, the
following as among the Creditors shall be the relative priority of the security
interests and liens of the Creditors in the Collateral:
(i) Patents and Trademarks, and any general intangibles
arising from or related to the Patents and Trademarks:
(A) First: Profutures
(B) Second: UT
(C) Third: BF&EC
(ii) the Cardiology Machine and Cardiology Machine Contracts,
and any accounts, general intangibles, chattel paper, instruments and documents
arising from or related to the Cardiology Machine or the Cardiology Machine
Contracts:
(A) First: Profutures
(B) Second: UT
(C) Third: BF&EC
(iii) Inventory (not including the Cardiology Machine):
(A) First: UT
(B) Second: BF&EC
(C) Third: Profutures
(iv) Equipment (not including the Cardiology Machine):
(A) First: UT
(B) Second: Profutures
(v) All other Collateral:
(A) First: BF&EC
(B) Second: UT
(C) Third: Profutures
(b) Profutures agrees that its priority in accounts is limited to
only those accounts that arise from the sale or lease of the Cardiology Machine
and that BF&EC will retain a first and prior security interest in all other
accounts of Borrower. In addition, UT agrees that notwithstanding its security
interest in Borrower's inventory and its priority therein, at that point in time
at which Borrower shall sell inventory and thereby an account shall be created,
the security interest of BF&EC in such account shall take priority over any
security interest held by UT in such account.
Page 3
<PAGE>
(c) Creditors agree that as among themselves the priorities of
Creditors in the Collateral shall be effective as set forth in this Agreement
regardless of whether any of the Loan Agreements is invalid or unenforceable or
the security interests or liens securing the obligations of Borrower under Loan
Agreements have been perfected. Nothing contained in this Agreement is intended
to affect or limit, in any way whatsoever, the security interests that each
Creditor has in any of the assets of Borrower, whether tangible or intangible,
insofar as the rights of Borrower and third parties are involved. Except as
otherwise provided herein, each Creditor reserves any and all of its respective
rights, security interests and rights to assert security interests as against
Borrower and any third parties.
4. Demand/Acceleration.
-------------------
(a) BF&EC will not demand or accelerate the full payment by Borrower
of Borrower's indebtedness owed under the BF&EC Obligations, whether as the
result of any default by Borrower under the BF&EC Agreements or otherwise, until
BF&EC shall have given UT and Profutures not less than fifteen days notice of
its intent to so demand or accelerate.
(b) Profutures will not demand or accelerate the full payment by
Borrower of Borrower's indebtedness owed under the Profutures Obligations,
whether as the result of any default by Borrower under the Profutures Agreements
or otherwise, until Profutures shall have given BF&EC and UT not less than
fifteen days notice of its intent to so demand or accelerate.
(c) UT will not demand or accelerate the full payment by Borrower of
Borrower's indebtedness owed under the UT Obligations, whether as the result of
any default by Borrower under the UT Agreements or otherwise, until UT shall
have given BF&EC and Profutures not less than fifteen days notice of its intent
to so demand or accelerate.
5. Continuation/Marshaling.
-----------------------
(a) The priorities provided herein shall remain in effect until each
of the Loan Agreements shall be terminated and the BF&EC Obligations, the
Profutures Obligations and the UT Obligations have been fully paid and
performed.
(b) The priorities herein provided shall not in any way be impaired
or affected by any amendment of any of the Loan Agreements, the release of any
collateral by any Creditor, the grant by any Creditor to Borrower of any waiver
or other indulgence or any extension of time, whether by amendment or otherwise,
or the obtaining by any Creditor of additional mortgages of, security interests
in, or other rights in any real or personal property, whether such property is
owned by the Borrower or any other person.
(c) BF&EC shall not be required to marshal any present or future
security for the BF&EC Obligations. UT and Profutures each agrees not to invoke
or claim against BF&EC any right to require BF&EC to marshal any security for
the BF&EC Obligations, and UT ProFutures specifically waives any right to assert
against BF&EC a claim that BF&EC so marshal.
Page 4
<PAGE>
(d) Profutures shall not be required to marshal any present or
future security for the Profutures Obligations. BF&EC and UT each agrees not to
invoke or claim against Profutures any right to require Profutures to marshal
any security for the ProFutures Obligations, and BF&EC and UT specifically
waives any right to assert against Profutures a claim that Profutures so
marshal.
(e) UT shall not be required to marshal any present or future
security for the UT Obligations. BF&EC and Profutures each agrees not to invoke
or claim against UT any right to require UT to marshal any security for the UT
Obligations, and BF&EC and ProFutures specifically waives any right to assert
against UT a claim that UT so marshal.
6. Notice.
------
(a) All communications herein provided shall be in writing and shall
be effective when hand-delivered or, if mailed, three days after being mailed by
United States mail, registered or certified, postage prepaid, and addressed as
provided in this paragraph.
(b) The addresses to which such communications shall be sent are as
follows:
(i) If intended to Borrower to:
Positron Corporation
16350 Park Ten Place
Houston, TX 77084
(ii) If intended to UT to:
Uro-Tech, Ltd.
1500 Three Lincoln Center
5430 LBJ Freeway
Dallas, TX 75240
(iii) If intended for BF&EC to:
Boston Financial & Equity Corporation
20 Overland Street
P.O. Box 71, Kenmore Station
Boston MA 02215
(iv) If intended for ProFutures to
ProFutures Bridge Capital Fund, L.P.
1720 South Bellaire Street
Suite 500
Denver, Colorado 80222
Attention: James H. Perry
(c) The addresses set forth herein may be changed by notice
hereunder.
Page 5
<PAGE>
7. Limitation of Rights.
--------------------
(a) The provisions of this Agreement are solely for the benefit of
the Creditors and Borrower shall obtain no rights against any Creditor by virtue
of the terms hereof.
(b) Borrower acknowledges that the priorities in security interests
are to be as hereby provided and that it shall be bound by the terms hereof.
8. Miscellaneous.
-------------
(a) Each Creditor and Borrower will from time to time execute and
deliver to a Creditor all such other and further instruments and further
documents as the Creditor shall reasonably request in order to effect and
confirm more securely in the Creditor all rights contemplated in this Agreement.
(b) This Agreement may be amended only by an instrument in writing
and duly signed by authorized officers or representatives of each Creditor.
Except to the extent any obligation is imposed on Borrower, Borrower need not be
a party to any such amendment.
(c) If any provisions of this Agreement shall be held to be illegal
or unenforceable, such illegality or unenforceability shall relate solely to
such provision and shall not affect the remainder of this Agreement.
(d) This Agreement shall take effect as an instrument under seal.
(e) The captions herein contained are inserted as a matter of
convenience only and such captions do not form a part of this Agreement and
shall not be utilized in the construction hereof.
(f) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their respective successors and assignees.
9. Counterparts. To facilitate execution this document may be executed in
------------
multiple counterparts. It shall not be necessary for the signature of each party
to appear on each counterpart. All counterparts shall collectively constitute a
single document. It shall not be necessary to produce or account for more than
one counterpart bearing the signature of the party to be charged. Any signature
page to a counterpart may be detached from such counterpart without impairing
the legal effect of the signatures thereon and thereafter attached to another
counterpart identical thereto except having attached to it additional signature
pages.
10. Prior Agreement. This Agreement supersedes the Inter-Creditor
---------------
Agreement dated February 10, 1996 among Borrower, UT and BF&EC.
11. Effective Date. The parties have executed this Agreement in multiple
--------------
counterparts of equal dignity on the date(s) set forth below. The date of this
Agreement shall be the date or the later of the dates on which all parties have
executed this Agreement as set forth below.
Page 6
<PAGE>
BOSTON FINANCIAL & EQUITY CORPORATION
November 12, 1996 By: [SIGNATURE ILLEGIBLE]
----------------------------------------
Authorized Officer
Title: President
------------------------------------
POSITRON CORPORATION
November 14, 1996 By: /s/ David Rodrigues
---------------------------------------
Authorized Officer
Title: Vice President
------------------------------------
URO-TECH, LTD.
By: Uro-Tech Management Corp.,
General Partner
November 14, 1996 By: /s/ Gary B. Wood
-----------------------------------
Authorized Officer
Title: President - UroTech MGT. Corp.
---------------------------------
PROFUTURES BRIDGE CAPITAL FUND, L.P.
BY: Bridge Capital Partners, Inc.,
General Partner
November 14, 1996 By: /s/ James H. Perry
------------------------------------
James H. Perry, President
Page 7
<PAGE>
Page 1 of 3 pages
EXHIBIT A
================================================================================
DESCRIPTION OF EQUIPMENT
================================================================================
Customer: Buffalo Cardiology & Pulmonary Associates
5305 Main Street
Williamsville, NY 14221
Attn: Dr. Michael Merhige
- --------------------------------------------------------------------------------
CATALOG NO. DESCRIPTION
- --------------------------------------------------------------------------------
712-100030 POSICAM HZL-R SYSTEM
--------------------
POSICAM Low Profile Gantry and Patient Couch
--------------------------------------------
- 53.4 cm patient opening diameter
- 1.0 RPS wobble speed
- Laser positioning reference guides, top and both sides
- Digital display for patient axial position
- Computer controlled axial couch position
- Digital display for count rate
- Digital display for acquisition time
- Retractable septa
Detector Modules
----------------
- 32 ring staggered BGO crystals
- Crystal dimensions 8.5 x 9.8 x 30mm
- 1024 PMTs with 4,096 crystals with a
4:1 ratio for optimum sensitivity
- 61 slice generation with 2.6 mm separation
- 16.6 cm axial field of view
- 260K counts/sec/microCI/cc sensitivity typical
- 1.3m counts/sec/microCI/cc sensititity with SEPTA retracted
- 5.8 mm cubic resolution
- 78 cm ring diameter
- overlapping (patented) design
- 5 msec temporal resolution
- 5 nsec FWHM coincidence resolving time with 12 ns window
POSICAM Data Acquisition System (PDAS)
- --------------------------------------
Hardware and Software
---------------------
- 68030 processor, 25 MHZ
- VME bus plus 2 dedicated VSB busses
- PDAS software
- Real time binning rate of 2 million events/sec
- 32 Mbyte memory (Optionally expandable)
- Static, real-time dynamic, real-time gated acquisition modes
<PAGE>
Page 2 of 3 pages
- --------------------------------------------------------------------------------
Operator Console/View Station
-----------------------------
- Sun SPARCstation
- 16" color monitor
- 32 MBytes memory
- 207 MByte hard disk
- Ethernet network interface
- Software applications package
POSICAM Image Workstation
-------------------------
- Viewing console table and chair
- 19" color monitor
- Sun SPARCstation
- 32 MByte memory
- 650 MByte hard disk storage minimum
- 4mm DAT Tape 2-8 GByte
- Keyboard with optical mouse and pad
- Ethernet network interface
- Dedicated applications accelerator for reconstruction
POSICAM ACS Software
--------------------
- Window Interface
- Automated protocols
- Acquisition
- Reconstruction
- Corrections
- Image processing and display
- Utilities
Rotating Fan Beam
-----------------
- Transmission scan with real-time randoms and scatter rejection
- Reduced attenuation acquisition time
- Employs sealed /68/Ge rod sources (customer supplied) from
recommended vendor
- Patient aperture cover
Communicatioms Modem
--------------------
- 9500 baud V.32 bis, V.42 bis standards
System Documentation
--------------------
<PAGE>
Page 3 of 3 pages
________________________________________________________________________________
OPTIONS
712-011003 Codonics High Resolution Color Printer
--------------------------------------
- 300 dots per inch resolution
- Over 16.7 million high quality colors
- 256 levels each of cyan, magenta and yellow
- 8.5" x 11" print size
- Paper or color transparencies
- Ethernet connection
712-013000 Cardiac Quantitative Software
-----------------------------
- RAU (Rubidlum Absolute Uptake)
712-013020 Neuro Quantitative Software
---------------------------
- FDG Uptake
712-013030 Oncology Quantitative Software
------------------------------
- FDG Uptake
712-005150 Head Holder - Adjustable
------------------------
- Foam inserts and mounting hardware included
- Adjustable elevation and tilt
712-005011 Deluxe PET Phantom
------------------
- 20 cm cylinder phantom
- Inserts inculde six solid spheres, cold rod
insert, and hardware for mounting user-
supplied capillary line sources
712-020003 Remote Physician's View Station
-------------------------------
- Sun SPARCstation
- 16" color monitor
- 32 MBytes memory
- 207 MByte harddisk
- Ethernet network interface
- Software applications package
<PAGE>
EXHIBIT B
Patent No.(s)
- -------------
4,563,582 issued 01/07/86
4,642,464 issued 02/10/87
4,667,779 issued 03/03/87
4,667,299 issued 06/30/87
4,733,083 issued 03/22/88
5,210,420 issued 05/11/93
Trademark
Application No.(s) Date Filed Name
- ------------------ ---------- ----
74/495,437 2/28/94 "Positron Technologies
74/495,450 2/28/94 "Positron Medical Systems"
74/499,181 3/11/94 "Positron Medical and Design"
Trademark
Application No.(s) Date Filed Name
- ------------------ ---------- ----
1,494,091 6/28/88 "Posicam"
<PAGE>
EXHIBIT 10.54
-------------
[LETTERHEAD OF BOSTON FINANCIAL & EQUITY CORPORATION]
March 27, 1997
Mr. David Rodrigue
Chief Financial Officer
POSITRON CORPORATION
16350 Park Ten Place
Houston, Tx 77084
RE: EXTENDED AGREEMENT BETWEEN POSITRON CORPORATION ("POSITRON")
AND
BOSTON FINANCIAL & EQUITY CORPORATION ("BF&EC")
Dear David:
In response to your request, we are pleased to have the opportunity to extend
the original terms of the Revolving Financing Agreement dated February 9, 1996
("Loan Agreement") until April 30, 1997.
This Agreement will continue the previously executed extension, as amended
herein, between BF&EC and Positron dated February 9, 1997.
The extension of the agreement between POSITRON AND Boston Financial & Equity
Corporation ("BF&EC") will have the following conditions:
EXTENSION TERM: Until 5:00 P.M. EDT Wednesday April 30, 1997.
- --------------
LOAN AMOUNT: A discretionary demand revolving line of credit of up to
- -----------
$1,000,000 of eligible accounts receivable, as defined in
original Loan Agreement.
INTEREST: .000378 per day on average Accounts Receivable loan.
- --------
COLLATERAL: First position on all assets, except where noted in original
- ----------
ageement dated 2/9/96 and Inter-Creditor Agreement dated
11/12/96
LENDING LIMIT: As defined in original Loan Agreement.
- -------------
MINIMUM PAYMENT: A minimum payment of Fifteen (15) Thousand Dollars ($15,000)
- ---------------
for the extension term.
SUBORDINATION: BF&EC, Uro-Tech, Ltd. ("UT") and Profutures Bridge Capital
- -------------
Fund, LP. ("Profutures") will maintain their relative
positions as established by the Inter-Creditor agreement
dated November 12, 1996.
Continued ....
<PAGE>
[LETTERHEAD OF BOSTON FINANCIAL & EQUITY CORPORATION]
Page Two
Mr. David Rodrigue
POSITRON CORPORATION
March 27, 1997
If the foregoing is acceptable to POSITRON, please respond by signing this
extension letter in the space provided below.
If a signed copy of this proposal is not received by BF&EC by 5:00 p.m. Friday,
March 28, 1997, the current loan balance plus interest will become due and
payable in full on March 31, 1997.
Please call with any questions or comments.
Thanks you for the opportunity to be of continuing service to POSITRON.
Sincerely,
Boston Financial & Equity Corporation
/s/ James L. Beauregard
James L. Beauregard
Executive Vice President
AGREED AND ACCEPTED: AGREED AND ACCEPTED:
POSITRON CORPORATION URO-TECH, LTD.
By:/s/ David Rodrigue By: Uro-Tech Management Corp.,
---------------------------
General Partner
Title: CFO
------------------------
Date:_________________________ BY:__________________________
Authorized Officer
Title:________________________
<PAGE>
EXHIBIT 10.55
-------------
EXTENDED AGREEMENT BETWEEN URO-TECH, LTD. ("URO-TECH")
AND
POSITRON CORPORATION ("POSITRON")
This extension of the agreement between Positron Corporation and Uro-Tech, Ltd.
will have the following conditions:
Extension Term: Seventy-nine (79) days from date of original
- -------------- expiration (April 30, 1997) of the Loan Agreement.
Loan Amount: A line of credit of up to $663,000.
- -----------
Interest: Prime + 1%
- --------
Collateral: As specified in the original agreement and amended
- ---------- by the Inter-creditor agreement with ProFutures
Bridge Capital Fund, L.P. and Boston Financial &
Equity Corporation.
Subordination: As specified in the original agreement and amended
- ------------- by the Inter-creditor Agreement with ProFutures
Bridge Capital Fund, L.P. and Boston Financial &
Equity Corporation.
If the foregoing is acceptable to Uro-Tech, Ltd., please respond by signing this
extension letter in the space provided below.
URO-TECH POSITRON CORPORATION
By: /s/ Gary B. Wood, Ph.D. By: /s/ David O. Rodrigue
------------------------------- -------------------------------
Gary B. Wood David O. Rodrigue
Chief Financial Officer
<PAGE>
EXHIBIT 10.56
-------------
ACQUISITION AGREEMENT
BETWEEN
GENERAL ELECTRIC COMPANY,
A NEW YORK CORPORATION,
AND
POSITRON CORPORATION,
A TEXAS CORPORATION
JULY 15, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
ARTICLE I
CERTAIN DEFINITIONS
<S> <C>
Section 1.1 Certain Definitions........................................................ 1
ARTICLE II
AGREEMENT TO SELL AND PURCHASE
Section 2.1 Conveyance of the Transferred Assets; Grant of License..................... 8
Section 2.2 Assumption of Certain Liabilities.......................................... 8
Section 2.3 Purchase and Sale of Sub Shares............................................ 8
Section 2.4 Purchase Price; Allocation of Purchase Price; Adjustment to Purchase Price;
Reduction of Accounts Receivable........................................... 9
Section 2.5 Costs and Proration........................................................ 12
Section 2.6 Consents to Assignment of Contracts........................................ 13
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
Section 3.1 Corporate Existence Power and Authority.................................... 13
Section 3.2 Authorization; No Violation................................................ 14
Section 3.3 Title of Transferred Assets................................................ 14
Section 3.4 Owned Realty............................................................... 15
Section 3.5 Leased Realty.............................................................. 15
Section 3.6 Personal Property.......................................................... 15
Section 3.7 Rights..................................................................... 15
Section 3.8 Insurance.................................................................. 17
Section 3.9 Consents and Approvals..................................................... 17
Section 3.10 Compliance with Laws; Litigation; Bankruptcy............................... 17
Section 3.11 Employees.................................................................. 18
Section 3.12 Employee Benefit Plans..................................................... 19
Section 3.13 Environmental Matters...................................................... 20
Section 3.14 Tax Returns and Tax Liabilities............................................ 21
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Section 3.15 Accounts Receivable........................................................ 21
Section 3.16 Inventory.................................................................. 21
Section 3.17 Contracts.................................................................. 22
Section 3.18 Brokers or Finders......................................................... 22
Section 3.19 Liabilities to Related Parties............................................. 22
Section 3.20 Permits.................................................................... 22
Section 3.21 Transferred Assets Used in Business........................................ 23
Section 3.22 Matters Relating to Securities............................................. 23
Section 3.23 Business Relations......................................................... 23
Section 3.24 Warranties................................................................. 24
Section 3.25 Customers.................................................................. 24
Section 3.26 Power of Attorney; Agency.................................................. 24
Section 3.27 Financial Statements; Material Adverse Change.............................. 24
Section 3.28 Sub Financial Statements................................................... 24
Section 3.29 Previously Provided Financial Materials.................................... 25
Section 3.30 Sub Shares................................................................. 25
Section 3.31 Sub Capitalization......................................................... 25
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Section 4.1 Corporate Existence, Power and Authority................................... 25
Section 4.2 Authorization; No Violation................................................ 26
Section 4.3 Consents and Approvals..................................................... 26
Section 4.4 Brokers or Finders......................................................... 26
Section 4.5 Status of Shares........................................................... 27
Section 4.6 Compliance with Laws; Litigation; Bankruptcy............................... 27
Section 4.7 Capitalization............................................................. 27
Section 4.8 Fairness Opinion........................................................... 28
Section 4.9 SEC Reports; Financial Statements.......................................... 28
ARTICLE V
COVENANTS
Section 5.1 Operation of Business in Ordinary Course Pending Closing................... 28
Section 5.2 Due Diligence.............................................................. 30
Section 5.3 No Solicitations........................................................... 31
Section 5.4 Commercially Reasonable Efforts............................................ 32
Section 5.5 Proxy Statement............................................................ 32
Section 5.6 Damage or Destruction of Property.......................................... 32
Section 5.7 Employees, Benefits, Etc................................................... 33
Section 5.8 Seller's Access to Information............................................. 34
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Section 5.9 Public Announcements....................................................... 34
Section 5.10 No Hire.................................................................... 34
Section 5.11 Confidentiality............................................................ 34
Section 5.12 Financial Statements....................................................... 35
Section 5.13 Repurchase of Unpaid Accounts Receivable................................... 36
Section 5.14 Marketing Materials........................................................ 36
Section 5.15 Transition................................................................. 36
Section 5.16 Purchase Orders............................................................ 36
Section 5.17 Ownership of Securities.................................................... 37
Section 5.18 [Intentionally Omitted].................................................... 38
Section 5.19 Filing or Non-Filing of Section 338 Election............................... 38
Section 5.20 Refund of Sub Taxes........................................................ 38
ARTICLE VI
THE CLOSING
Section 6.1 Closing.................................................................... 39
Section 6.2 Closing Deliveries of Seller............................................... 39
Section 6.3 Closing Deliveries of Purchaser............................................ 40
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
Section 7.1 Accuracy of Representations and Warranties................................. 41
Section 7.2 Performance................................................................ 41
Section 7.3 No Litigation.............................................................. 42
Section 7.4 Good Standing Certificates................................................. 42
Section 7.5 No Material Adverse Change................................................. 42
Section 7.6 Deliveries of Seller....................................................... 42
Section 7.7 Personnel.................................................................. 42
Section 7.8 Financing.................................................................. 42
Section 7.9 Shareholder Approval....................................................... 42
Section 7.10 Consents Obtained.......................................................... 42
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
Section 8.1 Accuracy of Representations and Warranties................................. 43
Section 8.2 Performance................................................................ 43
Section 8.3 No litigation.............................................................. 43
Section 8.4 Good Standing Certificate.................................................. 43
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
Section 8.5 Deliveries of Purchaser....................................................... 43
Section 8.6 No Material Adverse Change.................................................... 43
Section 8.7 Consents Obtained............................................................. 43
ARTICLE IX
CERTAIN LIABILITIES OF SELLER
Section 9.1 Liabilities and Obligations................................................... 44
Section 9.2 Bulk Transfer Laws............................................................ 44
ARTICLE X
INDEMNIFICATION, LIMITATION OF LIABILITY
Section 10.1 Survival of Actions on Representations, Warranties and Covenants.............. 44
Section 10.2 Indemnification by Seller..................................................... 44
Section 10.3 Indemnification by Purchaser.................................................. 45
Section 10.4 Limitation.................................................................... 46
Section 10.5 Settlement of Claims.......................................................... 46
ARTICLE XI
GENERAL PROVISIONS
Section 11.1 Waiver of Conditions to Closing............................................... 47
Section 11.2 Termination................................................................... 48
Section 11.3 Notices....................................................................... 49
Section 11.4 Amendment; Waiver............................................................. 49
Section 11.5 Successors and Assigns........................................................ 50
Section 11.6 Governing Law................................................................. 50
Section 11.7 Invalid Provisions............................................................ 50
Section 11.8 Entire Agreement.............................................................. 50
Section 11.9 Counterparts.................................................................. 50
Section 11.10 Remedies...................................................................... 50
Section 11.11 Dispute Resolution............................................................ 51
Section 11.12 Expenses...................................................................... 52
Section 11.13 Disclosure Schedules, Transferred Assets...................................... 53
</TABLE>
iv
<PAGE>
SCHEDULES:
- ---------
2.6 --- Nonassignable Contracts
3.2(d) --- Conflicts of Seller
3.3 --- Permitted Liens
3.5 --- Leased Realty
3.6 --- Personal Property
3.7 --- Rights
3.9 --- Authorizations, Consents and Approvals
3.10 --- Compliance with Laws; Litigation
3.11 --- Employees
3.12 --- Employee Benefit Plans
3.15 --- Accounts Receivable
3.16 --- Inventory
3.17 --- Contracts
3.19 --- Liabilities to Related Parties
3.20 --- Permits
3.23 --- Business Relations
3.24 --- Warranties
3.25 --- Customers
3.28 --- Sub Financial Statements
3.29 --- Previously Delivered Financial Materials
4.2(b) --- Conflicts of Purchaser
4.3 --- Authorizations, Consents and Approvals
4.6 --- Compliance with Laws; Litigation
4.7 --- Capitalization
5.1 --- Operation of Business in Ordinary Course
5.7(b) --- Purchaser Obligations Under Benefit Plans
APPENDICES:
- ----------
Appendix I --- Purchased Assets
Appendix II --- Assumed Liabilities
EXHIBITS:
- --------
Exhibit A --- Form of Bill of Sale and Assignment
Exhibit B --- Form of License Agreement
Exhibit C --- Form of Opinion of Counsel to Seller
Exhibit D --- Form of Shareholder Agreement
Exhibit E --- Form of Purchase Agreement
Exhibit F --- Form of Opinion of Counsel to Purchaser
Exhibit G --- Form of Assumption Agreement
Exhibit H --- Form of Option Agreement
v
<PAGE>
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, made and entered into as of the 15th day of
July, 1996 (this "Agreement"), is by and between General Electric Company, a New
York corporation ("Seller"), and Positron Corporation, a Texas corporation
("Purchaser").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Seller is engaged, both directly and indirectly through Sub (as
defined below), in the business of designing, manufacturing, marketing and
servicing advanced medical imaging devices utilizing positron emission
tomography and cyclotron technologies; and
WHEREAS, Seller desires to sell, transfer and assign to Purchaser, and
Purchaser desires to purchase and accept from Seller, all of the capital stock
of Sub and substantially all of the assets of Seller used principally in the
conduct of the Business (as defined herein) by Seller, and in connection
therewith Purchaser is willing to assume certain specified liabilities of Seller
relating to the operation of the Business, all on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants, agreements,
representations and warranties herein contained and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
-------------------
Section 1.1 Certain Definitions. In addition to the terms defined above and
-------------------
in other portions of this Agreement, the following words and phrases as used in
this Agreement shall have the following meanings, unless the context otherwise
requires:
"ACCOUNTS RECEIVABLE" means all accounts receivable of Sub.
"ADJUSTMENT DATE" shall have the meaning set forth in Section 2.4(c)
hereof.
"AFFILIATE" shall mean a Person that directly, or indirectly through one or
more intermediaries, controls, is controlled by, or is under common control with
a specified Person.
"ASSIGNMENT" shall mean the Bill of Sale and Assignment, substantially in
the form of EXHIBIT A hereto, to be executed and delivered by Seller as
contemplated in Section 6.2(b)(i).
"ASSUMED LIABILITIES" means the liabilities assumed by Purchaser under
Section 2.2.
<PAGE>
"ASSUMPTION AGREEMENT" shall mean the Assumption Agreement, substantially
in the form of EXHIBIT G hereto, to be entered into by and between Seller and
Purchaser as contemplated in Sections 6.2(g)(v) and 6.3(f)(iii).
"BENEFIT PLAN" means any plan, program, trust, contract, policy or
arrangement maintained by Seller or any of its Affiliates in which one or more
employees of Sub or Seller assigned to the Business as of the date hereof or as
of the Closing participate and that provides any pension, retirement, profit
sharing, bonus, deferred or incentive compensation, life, health, dental, post-
retirement medical, disability, accident, stock option, stock purchase, stock
appreciation, severance payments, fringe benefits, vacation pay, holiday pay,
sick pay or similar benefit to employees (whether active or retired) of Seller
or Sub, including any such plan, program, trust, contract, policy or arrangement
which is an "employee benefit plan" within the meaning of Section 3(3) of ERISA.
"BUSINESS" means the businesses which are conducted by the Seller, both
directly and indirectly through Sub, which involve or are related to the design
and manufacture of PET Products; provided, however, that the term "Business" as
-------- -------
used in this Agreement shall not be deemed to include Seller's business of
marketing and servicing PET Products or the business of designing, engineering,
manufacturing, marketing or servicing medical imaging devices other than PET
Products.
"CASH CONSIDERATION" has the meaning set forth in Section 2.4(a).
"CLOSING" means the consummation of the acquisition of the Sub Shares and
the Transferred Assets, the assumption of the Assumed Liabilities and the other
transactions contemplated by this Agreement, as further described in Article VI.
"CLOSING DATE" means the date of the Closing as described in Section 6.1.
"COMMON STOCK" shall mean the Common Stock of Purchaser, par value $0.01
per share.
"COMPANY REPORTS" has the meaning set forth in Section 4.9.
"CONTRACTS" means all material contracts, employment contracts,
confidentiality agreements, licenses, Leases and all other agreements and
commitments, written or oral, principally relating to the Transferred Assets or
the Business.
"COSTS AND EXPENSES" has the meaning set forth in Section 2.4(c).
"COVENANT TO NOT COMPETE" shall mean the covenant of Seller set forth in
Section 1(d) of the Purchase Agreement.
"DISCLOSING PARTY" has the meaning set forth in Section 5.11(a) of this
Agreement.
2
<PAGE>
"ENVIRONMENTAL LAWS" mean all United States and foreign, state and local
laws, rules and regulations relating to pollution or protection of human health
or the environment (including without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including without limitation,
laws and regulations relating to Releases or threatened Releases of Hazardous
Substances, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous
Substances.
"ENVIRONMENTAL VIOLATION" shall mean any violation of Environmental Laws.
"EQUIPMENT" means all machinery, equipment, spare parts, vehicles, tools,
computers, fixtures and supplies owned or held by Sub or by Seller and used
principally in the conduct of the Business.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, together with all regulations promulgated thereunder.
"FINAL ALLOCATION" has the meaning set forth in Section 2.4(b).
"FINAL TERMINATION DATE" has the meaning set forth in Section 11.2(a).
"FINANCIAL STATEMENT DELIVERY DATE" shall mean the date on which Seller
delivers to Purchaser pursuant to Section 5.12 the final version of the
Financial Statements in such form as the SEC approves to be included in the
Proxy Statement.
"FINANCIAL STATEMENTS" shall mean such financial statements, prepared in
accordance with all applicable requirements of Regulation S-X (17 C.F.R. Part
210), covering Sub and the Business as conducted by both Seller and Sub as (i)
are required under the Securities Act to be included in the Proxy Statement and
(ii) Seller is capable of preparing using commercially reasonable efforts.
"HAZARDOUS SUBSTANCE(S)" means (a) any petroleum or petroleum products,
radioactive materials, asbestos in any form that is or could become friable, and
compressors or other equipment that contain polychlorinated biphenyls ("PCBs");
and (b) any chemicals, materials or substances which are now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous wastes," "restricted hazardous
wastes," "toxic substances," "toxic pollutants," "pollutants," "contaminants,"
or words of similar import under any Environmental Law; and (c) any other
chemical, material, substance or waste, exposure to which is now prohibited,
limited or regulated under any Environmental Law.
"INVENTORY" means all inventory owned by Seller principally relating to the
Business and all inventory owned by Sub, including, without limitation, all
inventory of raw materials or supplies, components, work in process and finished
products.
3
<PAGE>
"LEASED EQUIPMENT" means all personal property leased by Seller and used by
Seller principally in the conduct of the Business and all personal property
leased by Sub, together with any options to purchase any such personal property,
and all security deposits in connection therewith.
"LEASED REALTY" means Leases of real property listed in Schedule 3.5,
------------
together with any options to purchase the real property covered by such Leases,
all leasehold improvements thereon owned by Seller or Sub (subject to the rights
of the lessor in such leasehold improvements), and all security deposits in
connection therewith.
"LEASES" means all leases or subleases pursuant to which Sub or Seller
leases Leased Equipment or Leased Realty.
"LICENSE" shall mean the license to be granted pursuant to the License
Agreement.
"LICENSE AGREEMENT" shall mean the Patent and Technical Information License
Agreement, substantially in the form of EXHIBIT B attached hereto, to be entered
into by and between Seller and Purchaser as contemplated in Sections 6.2(g)(iv)
and 6.3(f)(v).
"LICENSED RIGHTS" shall mean the "Licensed Patents" and the "Technical
Information," as such terms are defined in the License Agreement.
"LIENS" means all liens, charges assessments, escrows, encumbrances,
pledges, options, rights of first refusal, mortgages, indentures, easements,
licenses, conditional sales contracts, title retention arrangements,
security agreements or other security interests, including but not limited to
Tax liens and liens held by the PBGC.
"MATERIAL ASSETS" has the meaning set forth in Section 5.6 of this
Agreement.
"NET ASSET VALUE" has the meaning set forth in Section 2.4(c) of this
Agreement.
"NET ASSET VALUE SURPLUS" has the meaning set forth in Section 2.4(d) of
this Agreement.
"NONASSIGNABLE CONTRACT" has the meaning set forth in Section 2.6 of this
Agreement.
"OPTION AGREEMENT" shall mean the Option Agreement, substantially in the
form of EXHIBIT H attached hereto, to be entered into by and between Seller and
Purchaser as contemplated in Sections 6.2(g)(iii) and 6.3(f)(iv).
"OPTION SHARES" shall mean a number of shares of the Company's Common Stock
which would equal fifteen percent (15%) of the number of shares of Common Stock
outstanding immediately after the Closing and assuming the issuance and full
exercise of the Seller Option. For purposes of this calculation, the following
shall be deemed outstanding immediately after the Closing: (i) the shares of
Common Stock issuable upon conversion of all shares of Preferred Stock or any
other convertible preferred stock of the Purchaser then outstanding, (ii) all of
the Shares, and
4
<PAGE>
(iii) all shares of Common Stock issuable upon exercise of outstanding options,
warrants, calls, rights, commitments or other agreements of any character
whatsoever which may, at that time or thereafter, obligate Purchaser to issue or
sell any additional shares of Common Stock, except for such shares as are
issuable pursuant to any employee stock option plan of Purchaser.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PERMITS" means permits, franchises, licenses, approvals, and
authorizations by governmental authorities required in connection with the
operation of the Business and/or the ownership, use or possession of the
Transferred Assets.
"PERMITTED LIENS" means those Liens set forth on Schedule 3.3 hereto.
------------
"PERSON" means a natural person or any legal, commercial or governmental
entity including, but not limited to, a corporation, general partnership, joint
venture, limited partnership, limited liability company, trust, business
association, or any person acting in a representative capacity.
"PET PRODUCTS" has the meaning set forth in Section 1(a) of the Purchase
Agreement.
"PREFERRED STOCK" shall mean the Series A 8% Cumulative Convertible
Redeemable Preferred Stock of Purchaser, par value $1.00 per share, and the
Series B 8% Cumulative Convertible Redeemable Preferred Stock of Purchaser, par
value $1.00 per share.
"PRELIMINARY ALLOCATION" has the meaning set forth in Section 2.4(b).
"PROXY STATEMENT" shall mean the proxy statement on Schedule 14A to be
filed with the SEC and in the form delivered to Purchaser's shareholders in
connection with the Shareholder Approval.
"PURCHASE AGREEMENT" shall mean the Purchase and Distribution Agreement,
substantially in the form of EXHIBIT E attached hereto, to be entered into by
and between Seller and Purchaser as contemplated in Sections 6.2(g)(ii) and
6.3(f)(ii).
"PURCHASE PRICE" means the purchase price for the Sub Shares, the
Transferred Assets, the Licensed Rights and the Covenant to Not Compete as
determined under Section 2.4.
"PURCHASER" has the meaning set forth in the first paragraph of this
Agreement.
"RECEIVING PARTY" has the meaning set forth in Section 5.11(a) of this
Agreement.
"RECORDS" means all books and records principally related to the operation
of the Business, including, without limitation, all files of Seller or Sub
related to the Transferred Assets; lists of suppliers and customers of the
Business; plans, drawings, records and information with respect to production,
product development, customer specifications, costs, supplies, machinery, and
5
<PAGE>
equipment; data and correspondence; sales, promotional, marketing and
advertising materials; maintenance charts; operating manuals; third party
warranties; accounting records; purchasing materials; shipping materials;
technical documentation; and research files and similar or related materials in
Seller's or Sub's possession principally related to the Business or the design,
manufacture, maintenance and operation of the Transferred Assets, whether
current or historical.
"REFERENCE AMOUNT" has the meaning set forth in Section 2.4(c).
"RELEASE(S)" means any release, spill, emission, leaking, injection,
deposit, disposal, discharge, dispersal, leaching or migration into the
atmosphere, soil, surface water, groundwater or property.
"RIGHTS" means all inventions, technical and business know-how, Trade
Secrets, ideas, Software, designs, creations, proprietary data (whether
patentable or not), and original designs and works (whether subject to copyright
or patent protection or not), patents, patent applications, copyrights,
copyright registrations and applications, trademarks, service marks, trade
names, service names, slogans, assumed names and logos, registrations and
applications for registration therefor granted to or from either of the Seller
or Sub which are owned by or licensed to Seller or Sub and principally used in
the conduct of the Business as well as all renewals and extensions thereof. The
term "Rights" shall not include any rights to the use of the name, trademark or
service mark "General Electric," "General Electric Medical Systems," "GE," the
"GE" monogram, the "GE" signature mark or any variation or derivation thereof or
to the expression "we bring good things to life."
"SEC" shall mean the U.S. Securities and Exchange Commission.
"SECURITIES" shall mean the collective reference to the Shares, the Seller
Option and the Option Shares.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, and the
rules and regulations of the Securities and Exchange Commission promulgated
thereunder.
"SELLER" shall have the meaning set forth in the first paragraph of this
Agreement.
"SELLER OPTION" shall mean the option to purchase the Option Shares to be
granted by Purchaser to Seller pursuant to the Option Agreement.
"SHAREHOLDER AGREEMENT" shall mean the Shareholder Agreement, substantially
in the form of EXHIBIT D attached hereto, to be entered into by and between
Seller and Purchaser as contemplated in Section 6.2(g)(i) and 6.3(f)(ii).
"SHAREHOLDER APPROVAL" shall mean the approval of all of the following
actions by the holders of a number of shares of Common Stock and Preferred Stock
having no less than the minimum number of votes required to approve such actions
under the applicable rules of the
6
<PAGE>
National Association of Securities Dealers Automated Quotation Stock Market and
the provisions of Purchaser's Articles of Incorporation and bylaws: (i) the
amendment to Purchaser's Articles of Incorporation to increase the authorized
shares of capital stock of Purchaser in an amount sufficient to allow the
issuance of the Shares, the Option Shares and the securities, if any, to be
issued by Purchaser in connection with the financing of the transactions
contemplated in this Agreement; (ii) the issuance of the Seller Option and the
Shares to Seller and the securities, if any, to be issued by Purchaser in
connection with the financing of the transactions contemplated in this
Agreement; and (iii) any other matter which requires the approval of Purchaser's
shareholders in order to consummate the transactions contemplated in this
Agreement.
"SHARES" shall mean a number of shares of Purchaser's Common Stock which
would equal ten percent (10%) of the number of shares of Common Stock
outstanding immediately after the Closing and assuming the issuance of such
Shares to Seller as contemplated in Sections 2.4(a) and 6.3(d). For purposes of
this calculation, the following shall be deemed outstanding immediately after
the Closing: (i) the shares of Common Stock issuable upon conversion of all
shares of Preferred Stock or any other convertible preferred stock of the
Purchaser then outstanding, (ii) the shares of Common Stock issuable upon the
issuance and full exercise of the Seller Option, and (iii) all shares of Common
Stock issuable upon exercise of outstanding options, warrants, calls, rights,
commitments or other agreements of any character whatsoever which may, at that
time or thereafter, obligate Purchaser to issue or sell any additional shares of
Common Stock, except for such shares as are issuable pursuant to any employee
stock option plan of Purchaser.
"SOFTWARE" means all computer programs or other computer software owned,
leased or licensed by the Seller and used principally in the conduct of the
Business or owned, leased or licensed by Sub, including without limitation the
software products listed in Schedule 3.7, and the source codes relating thereto.
------------
"SUB" means GEMS PET Systems AB, a Swedish corporation.
"SUB CASH" means all of Sub's cash or cash equivalents including, without
limitation, cash on deposit in financial institutions (including cash on deposit
with Seller or other Affiliates of Seller for cash management), money market
funds, certificates of deposit, commercial paper, marketable securities,
treasury bills and other similar instruments and investments.
"SUB FINANCIAL STATEMENTS" has the meaning set forth in Section 3.28.
"SUB SHARES" has the meaning set forth in Section 2.3.
"TAX" or "TAXES" shall mean any United States or foreign federal, state, or
local income, payroll, ad valorem, value added, excise, sales, use, occupancy,
real estate, capital stock, franchise or other Tax of any kind or any other
governmental charge, including any interest, fines, penalties, and additions
relating to any such Tax.
7
<PAGE>
"TAX RETURN" shall include any statement, form, return, or other document
relating to the Business or the Transferred Assets and required to be supplied
to a taxing authority in connection with Taxes.
"TRADE SECRETS" means all trade secrets, know-how, processes, procedures,
research records, studies or surveys and market surveys owned by Seller and
principally related to the Business or the Transferred Assets or owned by Sub,
including, without limitation, the future results of any research, study, survey
or market study that is currently being conducted or for which commitments to
conduct have been obtained.
"TRANSFERRED ASSETS" has the meaning set forth in Section 2.1.
"TRANSACTION DOCUMENTS" means this Agreement, the Shareholder Agreement,
the Purchase Agreement, the Option Agreement, the License Agreement, the
Assumption Agreement, the Assignment and any other documents or instruments
executed in connection therewith.
"TRANSITION PLAN" has the meaning set forth in Section 5.15.
ARTICLE II
AGREEMENT TO SELL AND PURCHASE
------------------------------
Section 2.1 Conveyance of the Transferred Assets; Grant of License. On
-----------------------------------------------------
the Closing Date, upon and subject to the terms and conditions set forth herein,
Seller shall sell, transfer, assign and convey to Purchaser free and clear of
any Liens other than Permitted Liens, and Purchaser shall purchase and accept
from Seller, all of the assets, properties, and rights owned, leased or held by
Seller that are listed in Appendix I hereto (the "Transferred Assets").
----------
Section 2.2 Assumption of Certain Liabilities. Upon the Closing and
---------------------------------
subject to the terms and conditions set forth herein, Purchaser agrees to
assume, pay, perform and discharge when due, all liabilities and obligations of
Seller that are listed on Appendix II hereto (collectively, the "Assumed
--------------
Liabilities"). Other than the Assumed Liabilities, Purchaser does not agree to,
and neither this Agreement nor the Assumption Agreement shall obligate Purchaser
to, pay, assume, perform, or discharge any claim, demand, liability or
obligation of Seller of any kind whatsoever (whether direct or indirect,
absolute or contingent, known or unknown, matured or unmatured, or otherwise)
including without limitation unpaid Taxes or Benefit Plan obligations. This
Section 2.2 is not intended to and shall not benefit any Person other than
Seller and Purchaser. Nothing in this Section 2.2 shall create or be construed
as creating any third party beneficiary right in any Person.
Section 2.3 Purchase and Sale of Sub Share. On the Closing Date, upon
------------------------------
and subject to the terms and conditions set forth herein, Seller shall sell,
transfer, assign and convey to Purchaser free and clear of any Liens, and
Purchaser shall purchase and accept from Seller, all of the outstanding shares
of capital stock of Sub (the "Sub Shares").
8
<PAGE>
Section 2.4 Purchase Price; Allocation of Purchase Price; Adjustment to
-----------------------------------------------------------
Purchase Price; Reduction of Accounts Receivable.
- ------------------------------------------------
(a) The purchase price of the Sub Shares, the Transferred Assets, the
License and the Covenant to Not Compete (the "Purchase Price") shall be (i) the
sum of $25,000,000, as adjusted in accordance with the terms of Section 2.4(c)
(the "Cash Consideration"); (ii) the Shares; (iii) the Seller Option; and (iv)
assumption of the Assumed Liabilities.
(b) Within ninety (90) days after the Closing, Purchaser and Seller
shall use commercially reasonable efforts to agree upon (1) a statement of the
value of the Shares and the Seller Option as of the Closing Date, and (2) a
statement of the allocation (the "Final Allocation") of the consideration (as
defined in Treas. Reg. (S)1.1060-1T(c)) for the Sub Shares, the Transferred
Assets, the License and the Covenant to Not Compete and, upon such agreement,
each party shall use the Final Allocation for all financial and Tax reporting
purposes, including on any Form 8594 required to be filed by either. The Final
Allocation shall be made reasonably and in conformity with Treas. Reg.
(S)1.1060-1T.
(c) For purposes of this Agreement "Net Asset Value" shall mean the
sum of (i) the aggregate cost to the Seller and Sub of the Inventory calculated
pursuant to Section 2.4(c)(i), plus (ii) the balance on the Closing Date of the
Accounts Receivable determined in accordance with Section 2.4(c)(ii), plus (iii)
the balance on the Closing Date of the Sub Cash determined in accordance with
Section 2.4(c)(iii), plus (iv) the book value on the Closing Date of all
deferred charges of Sub determined in accordance with Section 2.4(c)(iv), minus
(v) the book value on the Closing Date of all liabilities of Sub determined in
accordance with Section 2.4(c)(v). Such adjustment shall be made upon the date
of the final determination or settlement of the matters described in Sections
2.4(c)(i), 2.4(c)(ii), 2.4(c)(iii), 2.4(c)(iv) and 2.4(c)(v) (the "Adjustment
Date"). If the Net Asset Value exceeds $4,825,000 (the "Reference Amount"), the
Cash Consideration shall not be adjusted. If the Net Asset Value is less than
the Reference Amount, the Cash Consideration shall be decreased by the amount of
such deficiency. Seller shall be obligated to pay to Purchaser the amount of any
adjustment to the Cash Consideration required pursuant to this Section 2.4(c) in
cash, by certified or cashier's check, or by immediately available wire
transferred funds within 30 days after the Closing (subject to extension solely
for the purpose of resolving disagreements between the parties). If the Cash
Consideration is adjusted as set forth in this Section 2.4(c), the parties agree
that such adjustment shall be allocated in such a manner as is agreed upon
between Seller and Purchaser in conformity with Treas. Reg. (S) 1.1060-1T.
(i) INVENTORY. On the day prior to the Closing Date, the
---------
Seller, Purchaser and their respective representatives shall perform a
physical inventory by actually counting and inspecting items in the
Inventory and calculating the cost of such items, as of the close of
business on the day prior to the Closing Date. Pursuant to such physical
verification, the Seller and Purchaser shall determine which items are not
in usable or, if normally held for resale, resalable condition due to
damage, obsolescence or any other reason. The Seller shall determine the
cost on a first-in, first-out basis of each such item in accordance with
generally accepted accounting
9
<PAGE>
principles consistently applied. The aggregate cost of the Inventory
for purposes of determining Net Asset Value shall be the aggregate cost
to the Seller and Sub of all items of Inventory in usable or, if normally
held for resale, resalable condition as of the close of business on the day
prior to the Closing Date as finally determined pursuant to this paragraph
(i). At the Closing, Seller shall deliver to the Purchaser a written
statement setting forth an itemization of the cost thereof as determined
above. Purchaser or its representatives shall have the right to verify the
quantities, cost and usable or, if normally held for resale, resalable
condition of the items included in such written statement. If within 15
days following delivery of such statement the Purchaser shall not have
objected in writing to such statement, the same shall become final and
binding on the parties. If within such 15 day period Purchaser objects to
such statement and the parties are unable to agree in good faith as to any
portion of such statement, then the parties shall submit such dispute for
resolution as described in Section 11.11. All items of Inventory deemed not
to be in usable or, if normally held for resale, resalable condition shall
not be included in the Inventory to be transferred to Purchaser at closing
and shall remain the property of Seller.
(ii) ACCOUNTS RECEIVABLE. At the Closing, Seller shall
-------------------
deliver to Purchaser a written schedule setting forth a listing and aging,
as of the close of business on the Closing Date, of all Accounts
Receivable. The Accounts Receivable to be reflected on such schedule shall
not include those which have been referred to legal counsel or a collection
agency for collection or which Seller in good faith has reason to believe
will not be collectible when due, it being understood and agreed that such
accounts receivable are to be transferred to Seller. If within 15 days
following the delivery of such written schedule by the Seller, the
Purchaser shall not have objected in writing to such schedule, the same
shall become final and binding on the parties. If within such 15 day period
Purchaser objects to such schedule and the parties are unable to agree in
good faith as to any portion of such schedule, then the parties shall
submit such dispute for resolution as described in Section 11.11. The
balance of the Accounts Receivable for purposes of determining Net Asset
value shall be the amount as finally determined pursuant to this paragraph
(ii). Purchaser hereby agrees to forward promptly to Seller any amounts
received by it following the Closing in respect of any Accounts Receivable
which are transferred to Seller pursuant to the terms hereof, and Seller
hereby agrees to promptly forward to Purchaser any amounts received by it
following the Closing in respect of any Accounts Receivable included in the
Net Asset Value which are not transferred to Seller pursuant to the terms
hereof.
(iii) SUB CASH. At the Closing, Seller shall deliver to
--------
Purchaser a written schedule setting forth the balance of Sub Cash as
of the close of business on the Closing Date. If within 15 days
following the delivery of such written schedule by Seller, the
Purchaser shall not have objected in writing to such schedule, the
same shall become final and binding on the parties. If within such 15-
day period
10
<PAGE>
Purchaser objects to such schedule and the parties are unable to
agree in good faith as to any portion of such schedule, then the
parties shall submit such dispute for resolution as described in
Section 11.11. The balance of the Sub Cash for purposes of
determining Net Asset Value shall be the amount as finally
determined pursuant to this paragraph (iii).
(iv) DEFERRED CHARGES. At the Closing, Seller
----------------
shall deliver to Purchaser a written schedule setting forth the
book value, if any, determined in accordance with generally
accepted accounting principles, of all deferred charges of
Sub, as of the close of business on the Closing Date. If within
15 days following the delivery of such written schedule by
Seller, the Purchaser shall not have objected in writing to such
schedule, the same shall become final and binding on the parties.
If within such 15-day period Purchaser objects to such schedule
and the parties are unable to agree in good faith as to any
portion of such schedule, then the parties shall submit such
dispute for resolution as described in Section 11.11. The book
value of all deferred charges of Sub for purposes of determining
Net Asset Value shall be the amount as finally determined
pursuant to this paragraph (iv).
(v) SUB LIABILITIES. At the Closing, Seller shall
---------------
deliver to Purchaser a written schedule setting forth the book
value, if any, determined in accordance with generally accepted
accounting principles, of all liabilities of Sub as of the close
of business on the Closing Date. If within 15 days following the
delivery of such written schedule by Seller, the Purchaser shall
not have objected in writing to such schedule, the same shall
become final and binding on the parties. If within such 15-day
period Purchaser objects to such schedule and the parties are
unable to agree in good faith as to any portion of such schedule,
then the parties shall submit such dispute for resolution as
described in Section 11.11. The book value of all liabilities of
Sub for purposes of determining Net Asset Value shall be the
amount as finally determined pursuant to this paragraph (v).
(d) If the Net Asset Value exceeds the Reference Amount, a portion of
the Accounts Receivable, Sub Cash and Inventory, in that order, up to the total
balance thereof on the Closing Date, equal in dollar amount to the amount of
such excess (the "Net Asset Value Surplus") shall be transferred to Seller. If
the Net Asset Value Surplus exceeds the aggregate balance of Accounts
Receivable, Sub Cash and Inventory on the Closing Date, no adjustment shall be
made to the Purchase Price and no further adjustment to, or conveyance of,
assets comprising a portion of the Transferred Assets or Sub's assets shall be
made. Notwithstanding the provisions set forth in Section 5.1, prior to Closing
Seller may, after notifying and obtaining the consent of Purchaser (which
consent shall not be unreasonably withheld or delayed), dispose of, or cause Sub
to distribute to Seller or otherwise dispose of, Accounts Receivable, Sub Cash
or Inventory, or to repay or otherwise remove Sub liabilities, in such amount as
is necessary to assure that the Net Asset Value will not exceed the Reference
Amount.
11
<PAGE>
Section 2.5 Cost and Proration.
----------- ------------------
(a) Seller shall pay any sales, use, value added, excise or
similar transfer Taxes, any documents or revenue stamps and any transfer, real
estate conveyance, recording or similar fees and charges arising in connection
with the transfer of the Transferred Assets, the purchase of the Sub Shares, the
grant of the License or the assumption of the Assumed Liabilities. Seller will
pay such Taxes, fees and charges without regard to whether Seller or Purchaser
would otherwise be liable for such Taxes, fees and charges in the absence of
this Section 2.5(a).
(b) At or prior to Closing, Seller shall pay any fees and
expenses in connection with the prepayment, release, satisfaction or removal of
any Liens affecting the Sub Shares or the Transferred Assets to be conveyed
hereunder other than Permitted Liens, including without limitation, any
applicable loan prepayment penalties and release fees.
(c) Any of the following types of costs and expenses shall be
prorated as of the Closing Date as follows:
(i) "Cost and Expenses" shall mean all costs and expenses
related to any (1) Contracts, (2) Permits, (3) insurance premiums for
policies being assumed by Purchaser hereunder, if any, or (4) utility or
similar regular periodic charges respecting the Transferred Assets or the
Business for which a final billing has not been received by Seller, where
such costs and expenses cover a period of time both prior and subsequent to
the Closing. Any payments made in respect of the Costs and Expenses shall
be prorated between Seller and Purchaser on the basis of the actual number
of days elapsed from the first days of such period to the Closing Date. On
or before the date which is thirty (30) days after the Closing Date, the
parties hereto shall determine the amount of all of the Costs and Expenses.
If Purchaser pays any of the Costs and Expenses for which Seller is
responsible, Seller shall, within five (5) days of the date of such
determination, reimburse Purchaser the amount of such Costs and Expenses.
If Seller pays any of the Costs and Expenses for which Purchaser is
responsible, Purchaser shall, within five (5) days of the date of such
determination, reimburse Seller the amount of such Costs and Expenses.
(ii) All property Taxes and special assessments payable but
not yet due with respect to any of the Transferred Assets shall be prorated
between Seller and Purchaser on the basis of actual days elapsed between
the commencement of the current fiscal Tax year and the Closing Date, based
on a 365-day year, provided, however, that all such assessments which
Seller has agreed to pay on an installment basis shall be paid in full at
or prior to the Closing date. In connection with such proration of Taxes
and assessments, in the event that actual Tax or assessment figures for the
year of Closing are not available at the Closing Date, an estimated,
provisional proration of Taxes and assessments shall be made using Tax and
assessment figures from the preceding year and the Purchase Price shall be
reduced by Seller's prorated amount of such Taxes and assessments. When
actual Tax and
12
<PAGE>
assessment figures for the year of Closing become available, a
corrected and definitive proration of Taxes and assessments shall be
promptly made by Purchaser. In the event that Taxes and assessments
for the year of Closing exceed the amount estimated in such
provisional proration, Seller shall pay Purchaser its pro rata share
of the amount by which the actual Taxes and assessments exceeded the
estimated Taxes and assessments within five (5) days following
delivery to Seller of the definitive proration. Similarly, in the
event that Taxes and assessments for the year of Closing are less than
the amount estimated in such provisional proration, Purchaser shall
pay Seller its pro rata share of the amount by which the estimated
Taxes and assessments exceeded the actual Taxes and assessments within
five (5) days following determination of the definitive proration.
Section 2.6 Consents to Assignment of Contracts. Schedule 2.6 hereto
----------------------------------- ------------
lists each Contract which, by its terms or by law, may not be assigned without
the consent of any other party or parties or as to which all rights or remedies
available to Seller thereunder would not by law pass to Purchaser upon the
consummation of the transactions provided for in this Agreement (a
"Nonassignable Contract"). Nothing in this Agreement shall be construed as an
attempt by Seller to assign to Purchaser pursuant to this Agreement any
Nonassignable Contract unless such consent or approval shall have been given,
and from the date hereof through the Closing Date, Seller shall use its
commercially reasonable efforts to obtain all of such consents and approvals. If
any such consent or approval in respect of, or a novation of, a Nonassignable
Contract shall not have been obtained on or before the Closing Date and the
Closing occurs, to the extent lawful, practicable and reasonable in the
circumstances, Seller, at the request and under the direction of Purchaser,
shall use its commercially reasonable efforts, including the obtaining of any
such necessary consent or approval after the Closing, to assure that the
rights under such Nonassignable Contracts shall be preserved for the benefit of
Purchaser. Purchaser shall indemnify and hold harmless Seller for any loss,
cost, claim, damage, liability or expense which Seller may suffer or incur in
performing its obligations set forth in the preceding sentence.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SELLER
---------------------------------------
Seller hereby represents and warrants to Purchaser as follows:
Section 3.1 Corporate Existence Power and Authority.
---------------------------------------
(a) Seller is a corporation duly organized, validly existing and in
good standing under the laws of the State of New York. Seller has all requisite
corporate power and authority to make, execute, deliver and perform its
obligations under this Agreement and the other Transaction Documents to be
executed and delivered by it hereunder. Seller has all requisite corporate power
to own its property and carry on the Business as now being conducted. Seller is
qualified to do business as a foreign corporation and in good standing in each
jurisdiction in which the failure to so qualify would have a material adverse
effect on the Business or the Transferred Assets. Other than
13
<PAGE>
its ownership of Sub, Seller has no equity ownership in any partnership,
corporation, joint venture or any other entity which conducts any activities
relating to the Business.
(b) Sub is a corporation duly organized, validly existing and in
good standing under the laws of Sweden. Sub has all requisite corporate power
and authority to own its property and carry on its business as now being
conducted. Sub is qualified to do business as a foreign corporation and in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on Sub's business as now being conducted. Sub does not
engage in any business activities other than the conduct of the Business. Sub
has no equity ownership in any partnership, corporation, joint venture or any
other entity which conducts any activities relating to the Business.
Section 3.2 Authorization; No Violation.
---------------------------
(a) The execution, delivery and performance of this Agreement
and the other Transaction Documents to be executed and delivered by it hereunder
have been duly and validly authorized by all necessary corporate action on the
part of Seller. This Agreement constitutes the valid and binding obligation of
Seller, enforceable against Seller in accordance with its terms, except as such
enforcement may be limited by applicable bankruptcy, insolvency, moratorium or
similar laws affecting the enforcement of creditors' rights generally.
(b) Except as disclosed in Schedule 3.2(b), neither the execution and
---------------
delivery of this Agreement or the other Transaction Documents by Seller, nor the
consummation by Seller of the transactions contemplated hereby or thereby, does
or will, after the giving of notice or the lapse of time or otherwise, (i)
conflict with, result in a breach of, or constitute a default under the articles
of incorporation, bylaws or other charter documents of Seller or Sub, (ii)
conflict with, violate or result in the creation of any Lien upon the Sub Shares
or any of the Transferred Assets under any United States or foreign federal,
state or local law, rule or regulation or any court or administrative order,
judgment, process or decree, or (iii) result in a breach or violation of,
constitute a default under, result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the Sub Shares or the
Transferred Assets under, any Contract or Permit except for such conflicts,
breaches, violations, defaults, terminations or accelerations under such
Contracts or Permits which individually or in the aggregate could not be
reasonably expected to have a material adverse effect on the Business, the
Transferred Assets or Purchaser's ability to conduct the Business (directly or
indirectly through Sub) after Closing in substantially the same manner as the
Business is presently conducted by Seller and Sub.
(c) Neither Seller nor Sub is a party to, or subject to or bound by,
any judgment, injunction or decree of any United States or foreign federal,
state or local court or governmental authority which may materially restrict or
interfere with Seller's performance of this Agreement.
Section 3.3 Title to Transferred Assets. Except as set forth on
---------------------------
Schedule 3.3. Seller has, and shall convey to Purchaser at the Closing, good and
- ------------
marketable title to or, with respect only to
14
<PAGE>
the Leased Equipment, a valid leasehold interest in, all of the Transferred
Assets, free and clear of all Liens. There are no other parties in possession of
any portion of the Transferred Assets.
Section 3.4 Owned Realty. Sub does not own any real property.
------------
Section 3.5 Leased Realty. The only real property leased by Sub in
-------------
connection with the conduct of the Business is the real property leased pursuant
to the Leases listed in Schedule 3.5. A copy of each of these Leases, as
------------
currently in effect, has been, or within fifteen (15) days after the date of
this Agreement will be, made available to Purchaser. Assuming the other party to
each such Lease has validly authorized and executed such Lease, each such Lease
is valid and in full force and effect on the date hereof. To the knowledge of
Seller or Sub, the other party to each such Lease has validly authorized and
executed such Lease and such Lease is enforceable against such party in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally. Neither Sub, nor, to the knowledge
of Seller or Sub, any other party is in default under any such Lease nor is
there any event which, with notice or lapse of time, or both, would constitute a
default thereunder by Sub or, to the knowledge of Seller of Sub, any other party
thereto. Neither Seller nor Sub has received notice that any party to any such
Lease intends to cancel, terminate or refuse to renew the same or to exercise or
decline to exercise any option or other right thereunder.
Section 3.6 Personal Property.
-----------------
(a) Schedule 3.6 contains a complete and accurate list, as of the
------------
date hereof, of all Equipment and Leased Equipment.
(b) The items of Equipment and Leased Equipment and Leased listed in
Schedule 3.6 are in good operating condition and repair, reasonable wear and
- ------------
tear excepted (or are currently covered by a service contract that will cover
the repair of such condition at no cost to Purchaser), and are reasonably fit
and useable for the purposes for which they are being used, reasonably
sufficient for the current operations of the Business and conform in all
material respects with all applicable United States and foreign federal, state
and local ordinances, regulations and laws.
Section 3.7 Rights. A list of all Rights is set forth on Schedule 3.7.
------ -------------
(a) Schedule 3.7(a) lists all United States and foreign patents and
---------------
patent applications owned by Seller and principally related to the Transferred
Assets or the Business or owned by Sub, and all of such patents and patent
applications have been duly issued by or filed with, as applicable, the
governmental agency or agencies shown on Schedule 3.7(a).
---------------
(b) Schedule 3.7(b) lists (i) all registered United States, foreign
---------------
and state trademarks and service marks owned by Seller and principally related
to the Transferred Assets or the Business, or owned by Sub, and (ii) all United
States, foreign and state trademarks and service marks owned by Seller and
principally related to the Transferred Assets or the Business, or owned by Sub,
for which application has been made. The trademarks and service marks listed as
being
15
<PAGE>
registered are still in use, have been timely renewed and are in full force and
effect. All applications for trademarks or service marks listed in Schedule
--------
3.7(b) are pending in the trademark offices of the jurisdictions shown in
- ------
Schedule 3.7(b).
- ---------------
(c) Schedule 3.7(c) lists (i) all United States and foreign copyright
---------------
registrations issued to Seller and principally related to the Transferred Assets
or the Business, or issued to Sub, and (ii) all United States and foreign
copyright applications made by Seller which are principally related to the
Transferred Assets or the Business, or made by Sub.
(d) Schedule 3.7(d) lists all licenses granted from or to Seller or
---------------
Sub with respect to any Rights and all other agreements relating to the Rights
or to which the Rights are subject. All such licenses and agreements are valid
and enforceable. Each of Seller and Sub has performed in all material respects
its obligations imposed upon it thereunder, and neither Seller or Sub nor, to
the knowledge of Seller or Sub, any other party thereto, is in default
thereunder, nor is there any event which with notice or lapse of time, or both,
would constitute a default thereunder by Seller or Sub or, to the knowledge of
Seller or Sub, any other party thereto. To the knowledge of Seller and Sub, the
other party to each such agreement validly authorized and executed such
agreement and such agreement is enforceable against such party in accordance
with its terms, except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting the enforcement of
creditors' rights generally. Except as set forth in Schedule 3.7(d), neither
---------------
Seller nor Sub has received notice that any party to any such agreement intends
to cancel, terminate or refuse to renew the same or to exercise or decline to
exercise any option or other right thereunder.
(e) Schedule 3.7(e) lists all computer programs or other computer
---------------
software (i) owned, leased or licensed by Seller and principally related to the
Transferred Assets or used principally in the conduct of the Business or (ii)
owned, leased or licensed by Sub.
(f) In the operation of the Business, neither Seller nor Sub
infringes any patents or copyrights of any other Person. In the operation of the
Business, neither Seller nor Sub infringes any trademark, trade name or service
mark of any other Person. Except as set forth on Schedule 3.7(f), either Seller
---------------
or Sub, as the case may be, has good and marketable title to each of the Rights
and each of the Rights is free of any Lien or contractual obligation of Seller
or Sub to pay any royalty or other payment for the use, reproduction, or other
disposition thereof, and such use, reproduction, or other disposition will not
infringe or violate any patents or copyrights of any other Person. Neither
Seller nor Sub is aware of any infringement by any other person of any of the
Rights.
(g) The expiration date or renewal rights, if any, of the Rights are
set forth on Schedule 3.7(g). None of the Rights is subject to any pending or,
---------------
to the knowledge of Seller or Sub, threatened challenge or reversion.
(h) Pursuant to the terms of any Contract, Permit or other document
relating to the Rights, Seller has the authority to transfer the Rights listed
in Section 3.7 of Appendix I hereto to Purchaser as contemplated herein. Except
----------- -----------------
as set forth on Schedule 3.7(h), the consummation of
---------------
16
<PAGE>
the transactions contemplated by this Agreement will not result in any change
in the terms or provisions of any Rights or create any right of termination,
cancellation or reversion with respect thereto.
(i) Except as described in Section 3.7(i), there is no claim, action,
--------------
suit, proceeding, arbitration, grievance or governmental investigation pending
or, to the knowledge of Seller or Sub, threatened which could reasonably be
expected to materially interfere with Sub's or Purchaser's right to use and
enjoy the Rights (including Trade Secrets) upon the transfer to Purchaser at
Closing of (x) the Sub Shares, and (y) the Rights listed in Section 3.7 of
Appendix I hereto.
- ----------
(j) Seller has all necessary right, power and authority to grant to
Purchaser the License to the Licensed Rights as contemplated in the License
Agreement. Upon execution and delivery of the License Agreement by Seller and
Purchaser, Purchaser shall be entitled to the use and benefits of the Licensed
Rights upon the terms and conditions set forth in the License Agreement.
Section 3.8 Insurance. All of the assets of Sub and the Transferred
---------
Assets that are of an insurable nature and of the character usually insured by
companies of similar size and in similar businesses are insured by Seller or Sub
in such amounts and against such losses, casualties or risks as is usual and
customary by such companies and for such properties.
Section 3.9 Consents and Approvals. Except as set forth on Schedule
---------------------- --------
3.9, no authorization, consent or approval of any United States or foreign
- ---
federal, state or local governmental authority or third party, and no action or
filing with any Unites States or foreign court, judicial authority,
administrative agency or other governmental or regulatory body or third party is
required for the execution, delivery and performance by Seller of this Agreement
and the Transaction Documents or the consummation of the transactions to be
consummated by Seller hereunder or thereunder, except for such authorizations,
consents or approvals the failure to obtain which could not reasonably be
expected to have a material adverse effect on (i) Sub, the Business or the
Transferred Assets, (ii) the legality, validity or enforceability of the
Transaction Documents, or (iii) the Seller's ability or obligation to perform on
a timely basis any obligation which it has under any of the Transaction
Documents.
Section 3.10 Compliance with Laws; Litigation; Bankruptcy.
--------------------------------------------
(a) Neither Seller, the Business nor the Transferred Assets are in
violation of any applicable laws, statutes, ordinances, rules, regulations,
requirements or orders of any government or governmental body relating to the
Transferred Assets or the Business which would have a material adverse effect on
(i) Sub, the Business or the Transferred Assets, (ii) the legality, validity or
enforceability of the Transaction Documents, or (iii) the Seller's ability or
obligation to perform on a timely basis any obligation which it has under any of
the Transaction Documents. Seller has not received any notice asserting any such
violation. Except as set forth on Schedule 3.10(a), there is no claim, action,
----------------
suit, proceeding, arbitration, grievance or governmental investigation pending
or, to the knowledge of Seller or Sub, threatened against Seller, and no
judgment, order, injunction, decree, stipulation or award outstanding (whether
rendered by a court administrative agency, by
17
<PAGE>
arbitration or otherwise) against Seller or by which Seller or any of its
properties is bound which would, if adversely resolved, have a material adverse
effect on (i) Sub, the Business or the Transferred Assets, (ii) the legality,
validity or enforceability of the Transaction Documents, or (iii) the Seller's
ability or obligation to perform on a timely basis any obligation which it has
under any of the Transaction Documents. Seller is not in violation of or in
default with respect to any applicable judgment, order, writ, injunction or
decree applicable to the Business or the Transferred Assets.
(b) Sub is not in violation of any applicable laws, statutes,
ordinances, rules, regulations, requirements or orders of any government or
governmental body which would have a material adverse effect on (i) Sub, the
Business or the Transferred Assets, (ii) the legality, validity or
enforceability of the Transaction Documents, or (iii) the Seller's ability or
obligation to perform on a timely basis any obligation which it has under any of
the Transaction Documents. Sub has not received any notices asserting any such
violation. Except as set forth on Schedule 3.10(b), there is no claim, action,
----------------
suit, proceeding, arbitration, grievance or governmental investigation pending
or, to the knowledge of Seller or Sub, threatened against Sub, and no judgment,
order, injunction, decree, stipulation or award outstanding (whether rendered by
a court, administrative agency, by arbitration or otherwise) against Sub or by
which Sub or any of its properties is bound which would, if adversely resolved,
have a material adverse effect on (i) Sub, the Business or the Transferred
Assets, (ii) the legality, validity or enforceability of the Transaction
Documents, or (iii) the Seller's ability or obligation to perform on a timely
basis any obligation which it has under any of the Transaction Documents. Sub is
not in violation of, or in default with respect to, any applicable judgment,
order, writ, injunction or decree.
(c) Neither Seller nor Sub has (i) applied for or consented to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or all or a substantial part of its property, (ii)
admitted in writing its inability to pay its debts as such debts become due,
(iii) made a general assignment for the benefit of its creditors, (iv) commenced
a voluntary case under the Federal Bankruptcy Code or similar law of a foreign
jurisdiction, or (v) filed a petition seeking to take advantage of any other
relating to bankruptcy, insolvency, reorganization, winding up or composition or
adjustments of its debts, nor has any such proceeding been commenced without the
application or consent of either Seller or Sub.
Section 3.11 Employees.
---------
(a) Schedule 3.11 sets forth an accurate list of all employees of
-------------
Seller who are principally employed in the conduct of the Business and all
employees of Sub and the following information with respect to such employee:
(1) name; (2) job description; (3) summary of salary and benefits; (4) facility
where employed; (5) date most recently hired by Seller or Sub, as the case may
be; (6) whether actively employed, on leave of absence, or on layoff; and (7)
whether the employee has been employed an average of fewer than 20 hours per
week during the 90 day period ending with the date hereof. Except as set forth
in Schedule 3.11, neither Seller nor Sub is a party to any written employment
-------------
contract or employment agreement with any employee employed in the conduct of
the Business.
18
<PAGE>
(b) Schedule 3.11 also sets forth the following information
-------------
about each of Seller's employees previously principally employed in the conduct
of the Business and each of Sub's former employees whose employment has been
terminated during the one year period preceding the date hereof: (1) name; (2)
facility where employed; (3) date most recently hired by Seller or Sub, as the
case may be; (4) date of termination; (5) whether the termination was due to
voluntary resignation, retirement, or discharge by Seller or Sub, as the case
may be; and (6) whether the employee had been employed an average of fewer than
20 hours per week during the 90 days ending with termination.
(c) Schedule 3.11 accurately lists all labor unions which
-------------
represent any employees of Sub or Seller who are employed in the conduct of the
Business. No activities the purpose of which is to achieve any other such
representation of all or some of such employees are ongoing or, to the knowledge
of Seller or Sub proposed. There is no contractual grievance or arbitration, or
administrative charge or complaint, or litigation concerning unfair or
discriminatory labor or employment practices pending or, to the knowledge of
Seller or Sub, threatened against either Seller or Sub by any of their
respective employees who are employed in the conduct of the Business, and no
pending or, to the knowledge of Seller or Sub, threatened, administrative
complaints or charges filed against either Seller or Sub relating to the conduct
of the Business with the Equal Employment Opportunity Commission, the National
Labor Relations Board, the United States Department of Labor or any other
foreign or United States federal or state agency charged with enforcing or
administering labor and/or employment laws and matters. In conducting the
Business, both Seller and Sub comply with all applicable laws relating to
collective bargaining and relating to the employment of labor, including without
limitation any provisions thereof relating to wages and hours, discrimination
because of age, religion, sex, national origin, race or color, disability, or
immigration status. There is no litigation pending or, to the knowledge of
Seller or Sub, threatened against Seller relating to the conduct of the Business
or threatened against Sub and based on any law applicable to the employment of
labor, including without limitation any provisions thereof relating to wages and
hours, wrongful discharge/breach of employment benefits, breach of a collective
bargaining agreement, or discrimination because of age, religion, sex, national
origin, race or color, disability, immigration status, participation in
protected concerted activity, or retaliation for seeking workers' compensation
benefits.
(d) Schedule 3.11 will be updated at Closing to provide the
-------------
information required by Sections 3.11(a) and (b) with respect to employees of
Seller and Sub who are employed by Seller and Sub, respectively, immediately
prior to Closing.
(e) All of Seller's employees employed in the United States in
the conduct of the Business are authorized to be employed in the United States
under the Immigration Reform & Control Act of 1986.
Section 3.12 Employee Benefit Plans.
----------------------
(a) A complete and accurate list of each Benefit Plan is set
forth on Schedule 3.12. No later than fifteen (15) days after the date of this
-------------
Agreement, Seller will provide to
19
<PAGE>
Purchaser true and complete copies of all material documents relating to each
Benefit Plan relating to Sub, including all amendments, if any, thereto.
(b) None of Seller's or Sub's employees employed in the conduct of
the Business are entitled to receive any benefits under, or are otherwise
covered by, a Benefit Plan which is a "multiemployer plan" within the meaning of
Section 3(37) of ERISA.
(c) Purchaser will not, by operation of law or otherwise solely as a
result of the consummation of the transactions contemplated in this Agreement,
become subject to any liability relating to Seller's employment of its
employees, including but not limited to any liability relating to pension,
retirement, profit sharing, bonus, deferred or incentive compensation, life,
health, dental, post-retirement medical, disability, accident, stock option,
stock purchase, stock appreciation, severance payments, fringe benefits,
vacation pay, holiday pay, sick pay or similar benefits, whether the right to
such benefits arises under a Benefit Plan, under applicable law or otherwise.
Section 3.13 Environmental Matters.
---------------------
(a) There are no claims, actions, suits, proceedings or
investigations related to any Environmental Violation pending or, to the
knowledge of Seller or Sub, threatened against either Seller or Sub with respect
to the use, condition, or operation of the Business, the Leased Realty or any of
the Transferred Assets in any court or before or by any United States or foreign
federal, state or other governmental agency or private arbitration tribunal.
(b) There are no existing Environmental Violations with respect to
Sub or the use, condition, or operation of the Business, the Leased Realty or
any of he Transferred Assets.
(c) No written or oral notice or other communication from any court,
governmental agency, official, governmental instrumentality or private party of
any alleged violation of or liability under Environmental Laws has been
delivered or communicated to Seller or Sub, and to the knowledge of Seller or
Sub, there is no basis for the allegation of any such violation or liability.
(d) All Hazardous Substances or solid waste generated by either of
the Seller or Sub or their respective agents, employees, lessors or predecessors
in interest at any site, including the Leased Realty, have, in the past, been
transported, treated and disposed of only by carriers maintaining valid permits
under any Environmental Laws, and only at treatment, storage and disposal
facilities maintaining valid permits under Environmental Laws, which carriers
and facilities have been and are operating in compliance with such permits and
are not the subject of any existing, pending or threatened action,
investigation or inquiry by any governmental authority in connection with any
Environmental Law.
(e) No conditions exist on any site at which the Business is
conducted by Seller or Sub, including the Leased Realty, resulting from
operations conducted thereon which could give rise to or result in the
imposition of remedial obligations under any Environmental Laws.
20
<PAGE>
Section 3.14 Tax Returns and Tax Liabilities.
-------------------------------
(a) All Tax Returns required to be filed on or before the
Closing Date relating to Sub, the Business and the Transferred Assets have been
filed or will be filed within the time prescribed by applicable law (including
extensions of time approved by the appropriate taxing authority). The Tax
Returns so filed are in all material respects complete and accurate
representations of the Tax liabilities relating to Sub, the Business and the
Transferred Assets, and such Tax Returns accurately set forth or will accurately
set forth in all material respects all items to the extent required to be
reflected or included in such returns. All Tax liabilities shown on such Tax
Returns have been paid and discharged when due.
(b) There is no investigation, audit, or claim pending or, to
the knowledge of Seller or Sub, threatened with respect to either Seller or Sub
regarding any Tax relating to the Business or the Transferred Assets.
(c) No later than fifteen (15) days after the date of this
Agreement, Seller will make available to Purchaser correct and complete copies,
for all taxable periods beginning on or after January 1, 1991, and ending prior
to January 1, 1995, all Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to (i) by Seller relating solely to the
Business or the Transferred Assets, or (ii) by Sub.
(d) Purchaser will not, by operation of law or otherwise as a
result of the consummation of the transactions contemplated in this Agreement,
(i) be or become liable for any Tax liability of Seller, or (ii) be or become
subject to any liability for any sales, use, value added, excise or similar
transfer Taxes, any documents or revenue stamps or any transfer, real estate
conveyance, recording or similar fees or charges arising in connection with the
transfer of the Transferred Assets or the Sub Shares, the grant of the License
or the assumption of the Assumed Liabilities.
Section 3.15 Accounts Receivable. Schedule 3.15 will contain as of
------------------- -------------
Closing a complete and accurate list of all Accounts Receivable. Each of the
Accounts Receivable (a) arose from bona fide sales of goods or services in the
ordinary course of business consistent with the normal business practices of
Seller or Sub, as the case may be, (b) are owned free and clear of any Lien
other than Permitted Liens, (c) are not subject to any offsets or claims of
offset, and (d) are collectible and may be collected in full within ninety (90)
days after the day on which it becomes due and payable. None of the obligors of
the Accounts Receivable have given notice that they will or may refuse to pay
the full amount thereof or any portion thereof.
Section 3.16 Inventory. Schedule 3.16 contains a complete and accurate
--------- -------------
list of all Inventory. Each of Seller and Sub has good and marketable title to
each item of its Inventory (including but not limited to the Inventory described
in Section 3.16 of Appendix I), free and clear of all Liens other than Permitted
----------
Liens. All items of Inventory, including Inventory in the hands of suppliers
which Seller or Sub is committed to purchase, were purchased in the ordinary
course of
21
<PAGE>
business, and all material portions of the Inventory are fit, good and useful
for their intended purpose and are not obsolete.
Section 3.17 Contracts. Schedule 3.17 contains a true and complete list
--------- -------------
of each Contract to which either Seller or Sub is a party or by which either of
Seller or Sub or its respective properties are bound. No later than fifteen (15)
days after the date of this Agreement, true and complete copies of each such
Contract will be delivered to Purchaser, or will be made available to Purchaser.
Each of such Contracts is in full force and effect and has not been modified or
amended in any material respect form the copies to be made available to
Purchaser. To the knowledge of Seller and Sub, the other party to each Contract
validly authorized and executed such Contract and such Contract is enforceable
against such party in accordance with its terms, except as such enforcement may
be limited by applicable bankruptcy, insolvency, moratorium or similar laws
affecting the enforcement of creditors' rights generally. Except as set forth on
Schedule 3.17, each of Seller and Sub has performed in all material respects its
- -------------
respective obligations under each Contract and neither Seller nor Sub nor, to
the knowledge of Seller or Sub, any other party thereto is in material default
thereunder, not is there any event which with notice or lapse of time, or both,
would constitute a material default thereunder by either Seller, Sub or, to the
knowledge of Seller or Sub, any other party thereto. Neither Seller nor Sub has
received notice that any party to any such Contract intends to cancel,
terminate, or refuse to renew the same or to exercise or decline to exercise any
option or right thereunder. Other than as disclosed in Schedule 3.17, upon the
-------------
consummation of the transactions contemplated in this Agreement, Purchaser or
Sub, as the case may be, shall be entitled to hold, enjoy and receive all of the
rights, titles and benefits accruing to Seller or Sub, as the case may be, under
such Contracts. Other than as disclosed in Schedule 3.17, and other than certain
-------------
agreements which will in no event bind, or otherwise apply to, Purchaser or Sub
after Closing, neither Seller nor Sub is subject to any noncompetition
agreements relating to the conduct of the Business.
Section 3.18 Brokers or Finders. No agent, broker, finder or investment
------------------
or commercial banker, or other Person or firm engaged by or acting on behalf of
Seller in connection with the negotiation, execution or performance of this
Agreement or the transactions contemplated hereby is or will be entitled to any
brokerage or finder's or similar fee or other commission as a result of this
Agreement other than any such fees or commissions that have been disclosed to
Purchaser and as to which the Seller shall have full responsibility.
Section 3.19 Liabilities to Related Parties. Except as disclosed on
------------------------------
Schedule 3.19, none of the Assumed Liabilities represent obligations incurred by
- -------------
Seller to any officer, director or Affiliate of Seller.
Section 3.20 Permits. Schedule 3.20 sets forth a list of all Permits held
------- -------------
by Seller or Sub which are material to the conduct of the Business. Except as
specifically set forth in Schedule 3.20, (a) such Permits are all Permits
-------------
necessary to conduct the Business as currently conducted, (b) such Permits are
in full force and effect; (c) no violations exist in respect of any Permits
which could reasonably be expected to have a material adverse effect on the
Transferred Assets or the ability of Purchaser to conduct the Business, directly
or indirectly through Sub, after Closing in substantially
22
<PAGE>
the same manner as it has been conducted prior to the date hereof; and (d) no
proceeding is pending or, to the knowledge of Seller or Sub, threatened seeking
to revoke or limit any Permit and there is no basis or ground for any such
revocation or limitation. Except as disclosed on Schedule 3.20, upon the
-------------
Closing, Purchaser or Sub, as the case may be, shall be entitled to hold, enjoy
and receive all of the rights, titles and benefits under such Permits.
Section 3.21 Transferred Assets Used in Business. The assets of Sub, the
-----------------------------------
Transferred Assets and the Licensed Rights constitute all of the assets (real,
personal, or mixed, tangible or intangible), properties, licenses, permits,
contracts and other agreements which are presently being principally used in the
operation of the Business as presently conducted by Seller and Sub, and include
all assets, properties, licenses, permits, contracts and agreements which, when
combined with the assets, properties, licenses, permits, contracts and
agreements of Purchaser, are necessary to permit Purchaser, directly or
indirectly through Sub, to conduct the Business after Closing in substantially
the same manner as it has been conducted prior to the date hereof.
Section 3.22 Matters Relating to Securities.
------------------------------
(a) Investment Intent. The Seller Option and the Shares to be
-----------------
acquired by Seller hereunder are being acquired (and upon exercise of the Seller
Option, the Option Shares will be acquired) for Seller's own account for
investment and with no intention of distributing or reselling such Securities or
any part thereof or interest therein in any transaction which would be in
violation of the securities laws of the United States of America or any State or
any foreign country or jurisdiction.
(b) Seller Status. At the time Seller was offered the Securities, it
-------------
was, and at the date hereof, Seller is an "accredited investor" as defined in
Rule 501(a) under the Securities Act, and Seller has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the Purchaser and an investment in the Securities, and is
able to bear the economic risk of such investment.
(c) Access to Information. Seller acknowledges that it has been
---------------------
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Purchaser concerning the
terms and conditions of the issuance of the Securities and the merits and risks
of investing in the Securities; (ii) access to such information about the
Purchaser, the Purchaser's financial condition, results of operations, business,
properties, management and prospects as the Seller has requested; and (iii) the
opportunity to obtain such additional information which the Purchaser possesses
or can acquire without unreasonable effort or expense as the Seller has
requested to verify the accuracy and completeness of the information contained
herein.
Section 3.23 Business Relations. Other than as described in Schedule
------------------ --------
3.23, neither Seller nor Sub has been advised, nor do either Seller or Sub have
- ----
reason to believe, that any of their respective suppliers with respect to the
Business will cease to do business with Seller or Sub, or will
23
<PAGE>
refuse to do business with Purchaser or Sub after the consummation of the
transactions contemplated in this Agreement.
Section 3.24 Warranties. Schedule 3.24 sets forth the forms of all
---------- -------------
express warranties and guaranties customarily made by Seller or Sub to third
parties with respect to the Transferred Assets, the Business and the products
manufactured by Seller and Sub in the conduct of the Business. No claim of any
breach of product or service warranty to any customer has been made against
either Seller or Sub nor, to the knowledge of Seller or Sub, is any such claim
threatened.
Section 3.25 Customers. Schedule 3.25 contains a true and complete list
--------- -------------
of all customers of Seller and Sub relating to the Business within the past five
years.
Section 3.26 Power of Attorney; Agency. Neither Seller nor Sub has
-------------------------
designated or appointed any person or other entity, except for current
management, to act for it or on its behalf pursuant to any power of attorney or
agency which is presently in effect and which affects the Business.
Section 3.27 Financial Statements; Material Adverse Change. (a) Upon the
---------------------------------------------
initial delivery of the Financial Statements, and upon each delivery of updated
Financial Statements, all as contemplated in Section 5.12 hereof, the Financial
Statements (including the notes thereto) shall, except as may be stated therein,
(i) be prepared in accordance with the books and records and accounting methods
of the Seller and Sub, as the case may be, (ii) present fairly in all material
respects the financial position and results of operation and cash flows, as
applicable, of Sub and the Business, as the case may be, as of the dates and for
the periods indicated, and (iii) have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved.
(b) Except to the extent reflected in the Financial Statements, Sub
will not have as of the dates of such Financial Statements any material
liabilities or obligations of any nature, whether accrued, absolute, fixed or
contingent, or matured or unmatured, relating to the Business and that should be
reflected in the Financial Statements.
Section 3.28 Sub Financial Statements.
------------------------
(a) Attached hereto as Schedule 3.28 are certain financial statements
-------------
of Sub (the "Sub Financial Statements").
(b) Except as may be stated therein, each of the Sub Financial
Statements (including the notes thereto) (a) were prepared in accordance with
the books and records of Sub, (b) present fairly in all material respects the
financial position and results of operation of Sub as of the dates and for the
periods indicated, and (c) have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the period
involved. Except to the extent reflected in the most recent balance sheet
included in the Sub Financial Statements, Sub has no material liabilities or
obligations of any nature, whether accrued, absolute, fixed or contingent, or
24
<PAGE>
matured or unmatured, that under applicable generally accepted accounting
principles should be reflected in the Sub Financial Statements.
Section 3.29 Previously Provided Financial Materials. Attached hereto as
---------------------------------------
Schedule 3.29 are certain financial materials relating to the Seller (the
- -------------
"Previously Provided Financial Materials"). Except as may be stated therein, the
Previously Provided Financial Materials (a) are in accordance with the books and
records and accounting methods of Seller or Sub, as the case may be, (b) present
fairly in all material respects the financial position and results of operation
of the Seller or Sub, as the case may be, as of the dates and for the periods
indicated, and (c) except for the lack of notes thereto, have been prepared
in accordance with generally accepted accounting principles consistently applied
throughout the periods involved.
Section 3.30 Sub Shares. Seller represents and warrants that (a) Seller
----------
has good and valid title to the Sub Shares free and clear of Liens other than
Permitted Liens, and (b) there are no outstanding options, warrants, calls,
rights, commitments or other agreements of any character whatsoever which give
any other Person the right to purchase or otherwise receive the Sub Shares. Upon
the delivery of certificates or other documents at the Closing by Seller in the
manner provided in Section 6.2(a), Purchaser will receive good and valid title
to the Sub Shares, fee and clear of all Liens other than Permitted Liens or any
such options, warrants, calls, rights, commitments or other such agreements.
Section 3.31 Sub Capitalization. The Sub Shares comprise, and at Closing
------------------
will comprise, all of Sub's issued and outstanding capital stock. All of such
issued and outstanding shares have been duly authorized and are validly issued,
fully paid and non-assessable, except as may be provided under applicable law
with respect to any Swedish corporation. There are no outstanding or authorized
options, warrants, purchase rights, prescription rights, conversion rights,
exchange rights, or other contracts or commitments that could require the Sub to
issue, sell or otherwise cause to become outstanding any of its capital stock.
There are no outstanding or authorized stock appreciation, phantom stock,
profit participation or similar rights with respect to Sub.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PURCHASER
-------------------------------------------
Purchaser hereby represents and warrants to Seller as follows:
Section 4.1 Corporate Existence, Power and Authority. Purchaser is a
----------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Texas. Purchaser has all requisite corporate power and
authority to make, execute, deliver and perform its obligations under this
Agreement and the other Transaction Documents to be executed and delivered by it
hereunder.
25
<PAGE>
Section 4.2 Authorization: No Violation.
---------------------------
(a) The execution, delivery and performance of this Agreement and the
other Transaction Documents to be executed and delivered by it hereunder have
been duly and validly authorized by all necessary corporate action on the part
of Purchaser other than the Shareholder Approval. This Agreement constitutes the
valid and binding obligation of Purchaser enforceable against Purchaser in
accordance with its terms, except as such enforcement may be limited by
applicable bankruptcy, insolvency, moratorium or similar laws affecting the
enforcement of creditors' rights generally.
(b) Except as disclosed in Schedule 4.2(b), neither the execution and
---------------
delivery of this Agreement or the other Transaction Documents by Purchaser, nor
the consummation by Purchaser of the transactions contemplated hereby or
thereby, does or will, after the giving of notice or the lapse of time or
otherwise, (i) conflict with, result in a breach of, or constitute a default
under the articles of incorporation or bylaws of Purchaser, (ii) conflict with,
violate or result in the creation of any Lien upon any of the assets of
Purchaser under any United States or foreign federal, state or local law, rule
or regulation, any court or administrative order, judgment, process or decree
applicable to Purchaser, or (iii) conflict with, result in a breach or violation
of, constitute a default under, result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the assets of Purchaser
under any material contract or agreement of Purchaser except for such conflicts,
breaches, violations, defaults, terminations or accelerations of such contracts
or agreements of Purchaser which individually or in the aggregate could not be
reasonably expected to have a material adverse effect on the business of
Purchaser.
(c) Purchaser is not a party to, or subject to or bound by, any
judgment, injunction or decree of any court or governmental authority which may
restrict or interfere with Purchaser's performance of this Agreement.
Section 4.3 Consents and Approvals. Except as set forth on Schedule 4.3,
---------------------- ------------
no authorization, consent or approval of any United States or foreign federal,
state or local governmental authority or third party and no action or filing
with any United States or foreign court, judicial authority, administrative
agency or governmental or regulatory body or third party is required for the
execution, delivery and performance by Purchaser of this Agreement and the
Transaction Documents or the consummation of the transactions to be consummated
by Purchaser hereunder or thereunder, except for such authorizations, consents
or approvals the failure to obtain which could not reasonably be expected to
have a material adverse effect on (i) Purchaser, (ii) the legality, validity or
enforceability of the Transaction Documents, or (iii) Purchaser's ability or
obligation to perform on a timely basis any obligation which it has under any of
the Transaction Documents.
Section 4.4 Brokers or Finders. No agent, broker, finder or investment
------------------
or commercial banker, or other Person or firm engaged by or acting on behalf of
Purchaser in connection with the negotiation, execution or performance of this
Agreement or the transactions contemplated hereby
26
<PAGE>
is or will be entitled to any brokerage or finder's or similar fee or other
commission as a result of this Agreement other than any such fees or commissions
that have been disclosed to Seller and as to which the Purchaser shall have full
responsibility.
Section 4.5 Status of Shares. The issuance and sale of the Shares has
----------------
been duly authorized by all necessary corporate action on the part of the
Purchaser other than obtaining the Shareholder Approval. The Shares, when
delivered to the Seller at the Closing as provided herein, will be validly
issued, fully paid and non-assessable and the issuance and sale of the Shares is
not subject to preemptive rights of any other shareholder of the Purchaser.
Section 4.6 Compliance with Laws; Litigation; Bankruptcy. (a) Except as
--------------------------------------------
set forth on Schedule 4.6, Purchaser is not in violation of any applicable laws,
------------
statutes, ordinances, rules, regulations, requirements or orders of any
government or governmental body which would have a material adverse effect on
(i) Purchaser, (ii) the legality, validity or enforceability of the Transaction
Documents, or (iii) the Purchaser's ability or obligation to perform on a timely
basis any obligation which it has under any of the Transaction Documents.
Purchaser has not received any notice asserting any such violation. Except as
set forth on Schedule 4.6, there is no claim, action, suit, proceeding,
------------
arbitration, grievance or governmental investigation pending or, to the
knowledge of Purchaser, threatened against Purchaser, and no judgment, order,
injunction, decree, stipulation or award outstanding (whether rendered by a
court or administrative agency, by arbitration or otherwise) against Purchaser
or by which Purchaser is bound which, if adversely resolved, would have a
material adverse effect on (i) Purchaser, (ii) the legality, validity or
enforceability of the Transaction Documents, or (iii) the Purchaser's ability or
obligation to perform on a timely basis any obligation which it has under any of
the Transaction Documents. Purchaser is not in violation of or in default with
respect to any applicable judgment, order, writ, injunction or decree.
(b) Purchaser has not (i) applied for or consented to the appointment
of, or the taking of possession by, a receiver, custodian, trustee or liquidator
of itself or all or a substantial part of its property, (ii) admitted in writing
its inability to pay its debts as such debts become due, (iii) made a general
assignment for the benefit of its creditors, (iv) commenced a voluntary case
under the Federal Bankruptcy Code, or (v) filed a petition seeking to take
advantage of any other law relating to bankruptcy, insolvency, reorganization,
winding-up or composition or adjustments of its debts, nor has any such
proceeding been commenced without the application or consent of Purchaser.
Section 4.7 Capitalization. The entire authorized capital stock of the
--------------
Purchaser consists of 15,000,000 shares of Common Stock, of which 3,637,320
shares are issued and outstanding, and 10,000,000 shares of Preferred Stock, of
which 2,692,977 shares of Purchaser's Series A 8% Cumulative Convertible
Redeemable Preferred Stock and 25,000 shares of Purchaser's Series B 8%
Cumulative Convertible Redeemable Preferred Stock are issued and outstanding.
All of such issued and outstanding shares have been duly authorized, are validly
issued, fully paid, and nonassessable. Except as set forth in the Company
Reports and on Schedule 4.7, there are no outstanding or authorized options,
------------
warrants, purchase rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require the Purchaser to
issue, sell, or otherwise cause
27
<PAGE>
to become outstanding any of it capital stock. Except as described in the
Company Reports, there are no outstanding or authorized stock appreciation,
phantom stock, profit participation, or similar rights with respect to the
Purchaser.
Section 4.8 Fairness Opinion. The Purchaser has received a written
----------------
opinion from its financial adviser to the effect that, as of the date hereof,
the terms of the transactions set forth in the Transaction Documents are fair,
from a financial point of view, to the shareholders of the Purchaser.
Section 4.9 SEC Reports; Financial Statements. The Purchaser has made
---------------------------------
available to the Seller true and complete copies of (a) each registration
statement, report on Form 8-K, proxy statement or information statement filed or
issued by it in the fiscal year prior to the date hereof (b) the Company's
Annual Report on Form 10-KSB for the fiscal years ended December 31, 1995, 1994
and 1993, and (c) the Company's Quarterly Report on Form 10-QSB for the period
ended March 31, 1996, each in the form (including exhibits and amendments) filed
with the SEC (collectively, the "Company Reports"). Each Company Report was
prepared and filed in accordance with all applicable rules and regulations of
the SEC and at the time of its filing was otherwise in compliance with such
rules and regulations in all material respects. As of their respective dates,
the Company Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary in
order to made a statement made therein not misleading, except as the same was
corrected or superseded in a subsequent report or statement filed with the SEC,
which subsequent report or statement has been delivered to Seller. Except as may
be stated therein, the financial statements (including the notes thereto)
included in the Company Reports of the Purchaser (i) were prepared in accordance
with the books and records and accounting methods of Purchaser, (ii) present
fairly in all material respects the financial position and results of operation
and cash flows of Purchaser as of the dates and for the periods indicated, and
(iii) were prepared in accordance with generally accepted accounting principals
consistently applied throughout the periods involved.
ARTICLE V
COVENANTS
---------
Section 5.1 Operation of Business in Ordinary Course Pending Closing.
--------------------------------------------------------
Except as disclosed in Schedule 5.1, Seller covenants and agrees with Purchaser
------------
that from the date of this Agreement to and including the Closing Date (or such
earlier date as this Agreement may be terminated in accordance with Section
11.2), except with the prior written consent of Purchaser and except as
necessary to effect the transactions contemplated in this Agreement, the
Business will be operated by Seller and Sub in the ordinary course and
consistent with past practices. Without limiting the generality of the
foregoing, until the Closing Date, Seller shall, and shall cause Sub to:
(a) maintain the Equipment comprising a portion of Sub's assets and
the Transferred Assets in substantially the same working order and condition or
repair as they are in as of the date of this Agreement, ordinary wear and tear
excepted;
28
<PAGE>
(b) not sell, transfer, lease or otherwise dispose of any Sub's
assets or the Transferred Assets, except in the ordinary course of business
consistent with past practices;
(c) not mortgage, pledge or subject to Lien any of Sub's assets or
the Transferred Assets, except in the ordinary course of business consistent
with past practices;
(d) refrain from amending any Benefit Plan (except for such
amendments which apply generally to all participants in Benefit Plans available
to employees of Seller) or, except in the ordinary course of business consistent
with past practices, increasing salaries or benefits to employees or consultants
of Seller or Sub employed or engaged in connection with the conduct of the
Business (including, without limitation, granting or entering into any agreement
or arrangement to grant bonuses or other incentive compensation, increases in
commission rates or increases in employee benefits or severance benefits);
(e) refrain from entering into additional contracts, commitments,
arrangements or transactions in the conduct of the Business or the operation or
maintenance of Sub's assets or the Transferred Assets, which individually
require payments in excess of $500,000 in any year, except in the ordinary
course of business consistent with past practices;
(f) refrain from making any material change in the accounting, credit
or collection procedures or practices of Seller or Sub in connection with the
conduct of the Business, or from making or changing any election for Tax or
accounting purposes in connection with the conduct of the Business, except in
the ordinary course of business consistent with past practices;
(g) refrain from deliberately taking or omitting to take any action
that would result in a breach of the representations and warranties contained in
this Agreement or render them inaccurate as of the date hereof or at the Closing
Date;
(h) comply in all material respects with all statutes and laws and
with all judgments, decrees, orders, regulations or rules of any court or
governmental authority applicable to the Business, Sub, Sub's assets or the
Transferred Assets;
(i) promptly advise Purchaser in writing of any matters arising or
discovered after the date of this Agreement which, if existing or known at the
date hereof, would be required to be set forth or described in this Agreement or
the Exhibits or Schedules hereto;
(j) preserve intact Sub's assets, the Transferred Assets and the
Business and use its commercially reasonable efforts to retain the services of
Seller's and Sub's present employees and independent contractors and preserve
the goodwill of its suppliers, customers and others having business
relationships with Seller or Sub, except in the ordinary course of business
consistent with past practices;
29
<PAGE>
(k) not waive, release, grant, permit the lapse of, or transfer any
Rights or Trade Secrets or modify or change in any material respect any existing
Contract, Lease, or Permit, except in the ordinary course of business consistent
with past practices;
(l) retain Sub's corporate existence and not institute proceedings
for its merger, consolidation or dissolution;
(m) promptly notify Purchaser of any lawsuits, claims, proceedings
or investigations which are threatened or commenced against Seller or Sub which,
if adversely resolved, could reasonably be expected to have a material adverse
effect on (i) Sub or its business as it is presently being conducted, (ii) the
Transferred Assets, (iii) the Business, or (iv) the ability of the parties
hereto to consummate the transactions contemplated in this Agreement;
(n) refrain from issuing, purchasing, redeeming or otherwise
effecting any transactions with respect to any equity securities of Sub, or any
right to acquire any equity securities of Sub;
(o) refrain from declaring, issuing, making, or paying any dividend
or other distribution of assets, whether consisting of money, other tangible or
intangible personal property, real property, securities, or any other thing of
value, on any shares of Sub's capital stock, or splitting, combining,
dividending, distributing or reclassifying any shares of Sub's capital stock;
(p) promptly notify Purchaser of any material adverse change, insofar
as it relates to the Business, in the financial position, results of operation
or business of Seller or Sub since the date of the most recent balance sheet
included in the Financial Statements; and
(q) refrain from entering into any agreement to take any action which
is prohibited by, or is inconsistent with, the provisions set forth in Sections
5.1(a) through 5.1(p) above.
Section 5.2 Due Diligence.
-------------
(a) From the date hereof through the Closing Date, or such earlier
date as this Agreement is terminated in accordance with its terms, Seller will,
and Seller will cause Sub to, make available for inspection to Purchaser and
Purchaser's authorized representatives, legal counsel, accountants and financing
sources all information reasonably requested by Purchaser relating to Sub, the
Business, the Transferred Assets, the Licensed Rights and the Assumed
Liabilities, and shall allow Purchaser and such representatives, legal counsel,
accountants and financing sources reasonable access to all books, records,
files, documents, assets, employees, agents, representatives, and contracts of
Sub and Seller related to Sub, the Business, the Transferred Assets, the
Licensed Rights or the Assumed Liabilities, including, without limitation, all
contracts, agreements, leases, insurance policies, stock transfer books, minute
books, ledgers and books of account, financial statements and reports, working
papers, Tax and operating records and correspondence files, to the extent
related to Sub, the Business, the Transferred Assets, the Licensed Rights or the
Assumed
30
<PAGE>
Liabilities. The parties hereto acknowledge that Purchaser has not had the
opportunity to fully perform its due diligence of Seller, Sub, the Business, the
Transferred Assets, the Licensed Rights or the Assumed Liabilities prior to the
date of this Agreement, and that the due diligence contemplated in this Section
5.2(a) is intended to give Purchaser the opportunity to conduct additional due
diligence and elect, if it chooses, to terminate this Agreement. Accordingly,
Purchaser may terminate this Agreement at any time prior to the date which is
forty-five (45) days after the date of this Agreement by notifying Seller in
writing of its election to terminate this Agreement in accordance with this
Section 5.2(a) if Purchaser determines in its reasonable judgment that the
financial position, results of operations, business or prospects of Sub, the
Business or the Transferred Assets differ materially and adversely from
Purchaser's understanding of such matters at the time of execution of this
Agreement. Purchaser's right to terminate this Agreement in accordance with this
Section 5.2(a) shall not be limited or affected in any way by the delivery by
Seller of any revised Schedule or Appendices to this Agreement delivered
pursuant to Section 11.13 or otherwise. Purchaser shall have the right to make
copies of any portion of the records referred to in this Section 5.2(a) relating
to Sub, the Business, the Transferred Assets or the Assumed Liabilities, subject
to Section 5.11.
(b) From the date hereof through the Closing Date, or such earlier
date as this Agreement is terminated in accordance with its terms, Purchaser
will make available for inspection to Seller and Seller's authorized
representatives, legal counsel and accountants all information reasonably
requested by Seller relating to Purchaser, Purchaser's financial condition,
results of operations, business, properties and management and will afford
Seller the opportunity to ask such questions of representatives of the Purchaser
as Purchaser shall reasonably request. Such information shall be inspected
during normal business hours and at mutually agreeable locations in a manner
that does not disrupt the normal business operations of Purchaser.
(c) No investigation by Purchaser or Seller shall affect the
representations or warranties of Purchaser or Seller or the conditions or
obligations of the parties hereto.
(d) If, in the course of its due diligence investigation of Seller
and Sub or otherwise, Purchaser becomes aware of information which leads it to
believe that any representation or warranty made by Seller in this Agreement is
materially inaccurate, or that any covenant contained in Section 5.1 has been
breached in any material respect, Purchaser will promptly inform Seller of such
information, at which time Purchaser shall have the right to terminate this
Agreement in accordance with Section 11.2(a)(v). If Purchaser fails to inform
Seller of such breach, or notifies Seller of such breach but does not terminate
this Agreement as permitted by Section 11.2(a)(v), Purchaser shall be deemed to
automatically waive its rights, if any, to indemnification by Seller for such
breach pursuant to Article X.
Section 5.3 No Solicitations.
----------------
(a) From the date hereof through the Closing Date, or such earlier
date as this Agreement is terminated in accordance with its terms, Seller shall
not, and Seller shall cause Sub and each of Seller's and Sub's respective
subsidiaries, Affiliates, officers, employees, directors,
31
<PAGE>
shareholders and representatives not to, solicit offers, inquires or proposals
from, or negotiate or participate in discussions with, or disclose information
to, others in connection with the possible sale or other disposition of (i) all
or substantially all of the Business, Transferred Assets or the Licensed Rights
or (ii) any equity interest in Sub.
(b) From the date hereof through the Closing Date, or such earlier
date as this agreement is terminated in accordance with its terms, Purchaser
shall not, and shall cause its subsidiaries, Affiliates, officers, employees,
directors, shareholders, and representatives not to, solicit offers, inquiries
or proposals from other in connection with the possible acquisition by Purchaser
of any business (or equity interest in any Person who operates a business) which
is substantially similar to the Business.
Section 5.4 Commercially Reasonable Efforts. Upon the terms and subject
-------------------------------
to the conditions hereof, each of Seller and Purchaser agrees to use its
commercially reasonable efforts (a) to take or cause to be taken all actions to
be taken by such party and to do or cause to be done all things to be done by
such party which are necessary, proper, or advisable to meet the conditions to
Closing set forth in Articles VII and VIII hereof, and (b) to obtain all
waivers, consents and approvals needed to be obtained by such party; provided,
however, that notwithstanding any other provision set forth in this Agreement,
any approval of this Agreement and the transactions contemplated hereby by the
Board of Directors of either Purchaser or Seller, and any recommendation, if
any, made by either of such Boards of Directors to their respective stockholders
to approve this Agreement and the transactions contemplated hereby, shall remain
subject to the fiduciary duties of the members of such Boards of Directors to
their respective stockholders under applicable law.
Section 5.5 Proxy Statement. As soon as practicable after the date
---------------
hereof, the Purchaser shall take commercially reasonable steps to promptly
prepare, file with the SEC and mail the Proxy Statement to Purchaser's
shareholders. The Purchaser represents and warrants, as to all information
contained in the Proxy Statement which is not supplied by the Seller for
inclusion therein, that such information, at the date the Proxy Statement is
mailed to the shareholders of Purchaser and at the time of the Shareholder
Meeting, will not be false or misleading with respect to any material fact
contained therein, or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The Seller
represents and warrants, as to all information contained in the Proxy Statement
which is expressly supplied by Seller for inclusion therein, that such
information, at the date the Proxy Statement is mailed to the shareholders of
Purchaser and at the time of the Shareholder Meeting, will not be false or
misleading with respect to any material fact contained therein, or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading. The Seller will have no obligation to supply
any information expressly for inclusion in the Proxy Statement other than the
Financial Statements, and the Seller may require that the Proxy Statement
include reasonable disclaimers as to Seller's liability.
Section 5.6 Damage or Destruction of Property. If any "Material Assets"
---------------------------------
shall be substantially damaged or destroyed by fire or other cause on or prior
to the Closing Date, Seller shall, and Seller shall cause Sub to, promptly
notify Purchaser and furnish to Purchaser a written
32
<PAGE>
statement of the amount of insurance, if any, that Seller believes will be
payable on account thereof. Purchaser shall then have the right, within ten (10)
days after receipt of such notice from Seller, to: (a) require that Seller
restore, or cause to be restored, prior to Closing the damaged or destroyed
Material Assets to their condition on the date of this Agreement to the extent
such damaged or destroyed Material Assets can be restored; or (b) notify Seller
of Purchaser's intent to close the transactions contemplated in this Agreement
(provided all other conditions to Closing are satisfied) at the time at which
Closing would otherwise occur under the terms of this Agreement, and the
Purchase Price shall be reduced by an amount equal to the excess of (i) the
value of the loss as determined by a third party mutually selected by Purchaser
and Seller, over (ii) the applicable insurance proceeds, if any, conveyed to
Purchaser as contemplated in Appendix I. For purposes of this Section 5.6,
----------
"Material Assets" shall be deemed to be such of Sub's assets or the Transferred
Assets for which the cost of replacement, repair or restoration exceeds $250,000
in the aggregate, and which cannot be replaced, repaired or restored by Seller
or Sub within thirty (30) days after the date such Material Assets are damaged
or destroyed. In the event of a loss of Sub's assets or Transferred Assets that
are not "Material Assets," Purchaser and Seller agree to close the transactions
contemplated in this Agreement (provided all other conditions to Closing are
satisfied) and the Purchase Price shall be reduced by an amount equal to the
excess of (1) the value of the loss as determined by a third party mutually
selected by Purchaser and Seller, over (ii) the applicable insurance proceeds,
if any, conveyed to Purchaser as contemplated in Appendix I.
----------
Section 5.7 Employees, Benefits, Etc.
------------------------
(a) Employees. From the date hereof through and including the
---------
Closing Date, Seller shall, and Seller shall cause Sub to, permit Purchaser (i)
to met with the employees of Seller who are principally employed in the Business
and with the employees of Sub ("Employees") at such times as shall be approved
by a representative of Seller (which approval shall not be unreasonably
withheld) and (ii) to distribute to such Employees such correspondence, forms
and other documents setting forth the terms and conditions upon which employment
after Closing, if any, by Purchaser or Sub is offered and any other
correspondence, forms and documents relating to employment after the Closing
Date by Purchaser or Sub as Purchaser may request. No later than forty-five (45)
days after the date of this Agreement, Purchaser shall deliver to Seller a list
of up to ten (10) Employees who Purchaser shall in good faith determine to be
essential to the conduct of the Business by Purchaser (the "Key Employee List").
It is explicitly understood and agreed that Purchaser shall have no obligation
under this Agreement to employ or otherwise retain the services of any Employee
of Seller or Sub subsequent to Closing, but many do so at Purchaser's sole
discretion and upon such terms and conditions as shall be acceptable to
Purchaser in Purchaser's sole discretion
(b) Benefits. Seller agrees that, with respect to all claims by
--------
Employees of Seller arising from claims incurred on or prior to the Closing Date
under all Benefit Plans, whether insured or otherwise (including, but not
limited to, bonus, retirement, vacation, life insurance, medical, severance and
disability programs), Seller at its own expense shall honor or cause to be
honored such claims, whether made before or after the Closing Date, in
accordance with the terms and conditions of such Benefit Plans. Except as set
forth on Schedule 5.7(b), Purchaser shall not be obligated to pay, assume,
---------------
perform or discharge any claim, demand, liability or obligation of any kind
whatsoever
33
<PAGE>
under any Benefit Plan, and Seller shall indemnify and hold harmless Purchaser
for any loss, cost, claim, damage, liability or expense which Purchaser may
suffer or incur as a result thereof.
Section 5.8 Seller's Access to Information. After the Closing, Purchaser
------------------------------
shall allow Seller and its respective authorized representatives full and
complete access at all reasonable times, and upon reasonable notice, to inspect
and copy all books, records, contracts, materials and documents transferred to
Purchaser under this Agreement to the extent reasonably requested by Seller for
its accounting, Tax and legal purposes. Purchaser shall preserve and maintain
all such books, records, contracts, materials, and documents for a period of not
less than five (5) years following the Closing Date.
Section 5.9 Public Announcements. Purchaser and Seller will, and Seller
--------------------
will cause Sub to, consult with each other before issuing any press release or
otherwise making any public statements with respect to this Agreement or the
transactions contemplated by this Agreement and will not issue any such press
release or make any such public statement before such consultation, except as
may be required by law or any listing agreement with a national securities
exchange.
Section 5.10 No Hire. Except as may be otherwise agreed to in writing
-------
between Seller and Purchaser, until the second anniversary of the Closing Date,
Seller will not employ any Employee who at Closing remains an Employee of Sub or
becomes an employee of Purchaser, unless (a) such individual leaves Sub's or
Purchaser's employment or gives notice of termination of employment without any
prior solicitation by Seller, or is given notice of termination of employment by
Sub or Purchaser, or (b) Purchaser ceases to engage in the Business or becomes
bankrupt.
Section 5.11 Confidentiality. (a) None of the parties to this Agreement
---------------
shall, nor shall they permit their respective subsidiaries, Affiliates,
officers, employees, directors, shareholders or representatives to, disclose to
any third party (other than such parties' respective legal counsel, accountants
and other advisors, all of whom shall be required to observe the provisions of
this Section 5.11) any information received from the other party in the course
of investigating, negotiating, and performing the transactions contemplated by
this Agreement; provided, however, that this provision shall not be applicable
-------- -------
to information which; (i) becomes generally available to the public other than
as a result of a disclosure by the party receiving such information (a
"Receiving Party") or such Receiving Party's Affiliates, officers, directors,
employees, shareholders or representatives, (ii) was available to the Receiving
Party on a non-confidential basis prior to its disclosure to the Receiving Party
by the other party to this Agreement (a "Disclosing Party") or its Affiliates,
officers, directors, employees, shareholders or representatives, (iii) becomes
available to the Receiving Party on a non-confidential basis from a source other
than the Disclosing Party or its Affiliates, officers, directors, employees,
shareholders or representatives when such source is entitled, to the best of the
Receiving Party's knowledge, to make the disclosure, or (iv) was independently
developed by the Receiving Party without reference to the information received
from the Disclosing Party. If either party or any of their respective
Affiliates, officers, directors, employees, shareholders or representatives is
requested or required to disclose any information received by it or to disclose
any such information which is required to be kept confidential by this Section
5.11(a), such party agrees to provide the Disclosing Party with prompt notice of
each such
34
<PAGE>
request, to the extent practicable, so that the Disclosing Party may seek an
appropriate protective order or waive compliance by the Receiving Party with the
provisions of this Section 5.11(a) or both. If, absent the entry of a protective
order or the receipt of a waiver under this Agreement, the Receiving Party, its
Affiliates, officers, directors, employees, shareholders or representatives are,
in the opinion of its counsel, legally compelled to disclose such information,
the Receiving Party may disclose such information to the persons and to the
extent required without liability under this Agreement, and such party agrees to
exercise its reasonable commercial efforts to obtain reasonable assurances that
confidential treatment will be accorded any such information so furnished.
Notwithstanding any other provision set forth in this Section 5.11 or elsewhere
in this Agreement, Seller understands and acknowledges that Purchaser will
disclose to its shareholders all information which Purchaser is required by
applicable law to disclose to its shareholders in connection with obtaining the
Shareholder Approval, including but not limited to the terms of the transactions
contemplated in this Agreement and information relating to Sub, the Business and
the Transferred Assets, and Seller hereby consents to such disclosure; provided,
that, (i) Purchaser shall consult with Seller prior to disclosing any
information in reliance on this sentence and, if Seller disputes the need for
such disclosure, the parties will work together in good faith to reach agreement
as to the extent of such information to be disclosed; and (ii) under no
circumstances will Purchaser reveal any Trade Secrets at any time prior to
Closing.
(b) Seller and Sub have taken, and after the date hereof Seller
will, and Seller will cause Sub to, take all steps reasonably necessary to
safeguard and maintain the secrecy and confidentiality of any of the Transferred
Assets that constitute Trade Secrets or other confidential or proprietary
information of Seller or Sub. From and after the date hereof, Seller shall not,
and Seller shall cause Sub to not, disclose to any Person (other than Purchaser
and such authorized representatives of Purchaser as Purchaser shall identify to
Seller in writing) any Trade Secrets or other confidential or proprietary
information with respect to the Business or the Transferred Assets except (i) as
otherwise required by law, or (ii) prior to the Closing Date, in the ordinary
course and consistent with the past business practices of Seller and Sub.
(c) If this Agreement is terminated pursuant to Section 11.2(a),
prior to December 31, 1998 neither Seller nor Purchaser shall hire (as an
employee or consultant or in any other capacity) any employee or consultant of
the other party hereto without the other party's prior written consent.
(d) To the extent that the terms of this Section 5.11 conflict
with the terms of the confidentiality Agreement made December 19, 1995 between
Seller and Purchaser, as amended, the terms of this Section 5.11 shall apply.
Section 5.12 Financial Statements. As soon as practicable after the date
--------------------
of this Agreement, but in no event later than sixty (60) days after the date of
this Agreement, Seller shall deliver to Purchaser true, complete and correct
copies of the Financial Statements. Seller hereby acknowledges and agrees that
(a) Purchaser will include the Financial Statements, and certain summary
information therefrom, in the Proxy Statement; (b) Seller has informed the
independent accountants who will prepare the Financial Statements that Purchaser
will include the Financial Statements in the Proxy
35
<PAGE>
Statement; and (c) Seller will obtain any consents, whether from the
independent accountants or otherwise, necessary to include the Financial
Statements in the Proxy Statement. If the SEC notifies Purchaser that the
financial statements initially delivered by Seller to Purchaser under this
Section 5.12 do not meet the requirements of the Securities Act governing the
form and content of Financial Statements to be included in the Proxy Statement,
as soon as practicable thereafter Seller shall use commercially reasonable
efforts to deliver to Purchaser true, complete and correct copies of Financial
Statements which meet such requirements, and from time to time thereafter, as
soon as practicable after receipt of comments from the SEC on the Proxy
Statement, Seller shall continue to revise and update such Financial Statements
in response to such comments until the SEC provides no objection to the
inclusion of such Financial Statements in the Proxy Statement. However, if
Seller reasonably determines that it is unable to provide Financial Statements
that are satisfactory to the SEC using its commercially reasonable efforts, then
it may so notify Purchaser, whereupon either of Seller or Purchaser may, upon
delivery of fifteen (15) days prior written notice, terminate this Agreement.
Section 5.13 Repurchase of Unpaid Accounts Receivable. If any Account
----------------------------------------
Receivable existing at the Closing remains unpaid in whole or in part ninety
(90) days after the Closing, Seller shall, within five (5) days after Purchaser
delivers to Seller written notice of the unpaid amount, purchase from Sub such
Account Receivable at a purchase price equal to the unpaid amount of such
Account Receivable.
Section 5.14 Marketing Materials. As soon as practicable after the date
-------------------
of this Agreement, but in no event later than fifteen (15) days after the date
of this Agreement, Seller shall deliver to Purchaser true, complete and correct
copies of all technical documentation and sales, advertising, promotional and
other marketing materials which are used by Seller to sell, advertise, promote
and market all products which Seller produces in the conduct of the Business.
Section 5.15 Transition. Purchaser and Seller will work together in good
----------
faith to establish a plan (the "Transition Plan") whereby the Transferred
Assets will be physically delivered by Seller to Purchaser at or after the
Closing. The Seller and Purchaser will develop the Transition Plan with the goal
of effecting physical delivery of the Transferred Assets to the facilities of
Purchaser as soon as practicable after the Closing; provided, however, that the
Seller and Purchaser will endeavor to effect such deliveries in a manner which
will assure that the sale of PET Products to Seller's customers and Purchaser's
customers continue with a minimum of delay or interruption in the normal
manufacturing and deliver schedules of both Seller and Purchaser. The Transition
Plan shall be agreed to in writing by Seller and Purchaser as soon as
practicable after the date of this Agreement, but in no event later than thirty
(30) days prior to the Closing Date.
Section 5.16 Purchase Orders. At Closing, Seller shall submit to
---------------
Purchaser under the terms of the Purchase Agreement one or more purchase orders
which shall bind Seller, in accordance with the terms of the Purchase Agreement,
to purchase from Purchaser any PET Products for which Seller has received
purchase orders prior to the Closing but which have not been shipped by Seller
prior to Closing.
36
<PAGE>
Section 5.17 Ownership of Securities.
-----------------------
(a) Transfer Restrictions. If Seller should decide to dispose of any
---------------------
of the Securities, Seller may do so only pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from registration
under the Securities Act. In connection with any offer, resale, pledge or other
transfer (individually and collectively, a "Transfer") of any Securities, other
than pursuant to an effective registration statement, Purchaser may require that
the transferor of such Securities provide to the Purchaser an opinion of
counsel, wich opinion shall be reasonably satisfactory in form and substance to
the Purchaser, to the effect that such Transfer is being made pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act and any State or foreign securities laws.
Seller agrees to the imprinting, so long as appropriate, of substantially the
following legend on certificates representing the Shares or Option Shares:
THE SHARES OF COMMON STOCK (THE "SHARES") EVIDENCED HEREBY HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR ANY STATE OR FOREIGN SECURITIES LAWS, AND MAY NOT BE
OFFERED OR SOLD EXCEPT IN COMPLIANCE WITH THE SECURITIES ACT AND SUCH OTHER
LAWS. BY ITS ACQUISITION HEREOF, THE HOLDER AGREES THAT IT WILL NOT OFFER,
RESELL, PLEDGE OR OTHERWISE TRANSFER (INDIVIDUALLY AND COLLECTIVELY, A
"TRANSFER") THE SHARES EVIDENCED HEREBY, EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND ANY
APPLICABLE FOREIGN OR STATE SECURITIES LAW, OR (B) PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT (SUCH AS THE EXEMPTION SET FORTH
IN RULE 144 UNDER THE SECURITIES ACT, IF AVAILABLE) AND UNDER ANY
APPLICABLE STATE OR FOREIGN SECURITIES LAWS. IF THE PROPOSED TRANSFER IS TO
BE MADE OTHER THAN PURSUANT TO CLAUSE (A) ABOVE, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE COMPANY AND THE TRANSFER AGENT SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THEY MAY REASONABLY
REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR ANY STATE OR FOREIGN SECURITIES LAW.
The legend set forth above shall be removed if and when the Shares or Option
Shares represented by such certificate are disposed of pursuant to an effective
registration statement under the Securities Act or the opinion of counsel
referred to above has been provided to Purchaser. The share certificates shall
also bear any additional legends required by applicable Federal, State or
foreign securities laws or necessary under applicable Tax laws, which legends
shall be removed when the Company receives such certifications, legal opinions
or other information as it may reasonably require to confirm that the same are
no longer required under the applicable requirements of such securities or Tax
laws. In connection with any Transfer of Shares or Option Shares by Seller
37
<PAGE>
pursuant to an effective registration statement under the Securities Act, Seller
will comply with all prospectus delivery requirements of the Securities Act.
Purchaser makes no representation, warranty or agreement as to the availability
of any exemption from registration under the Securities Act with respect to any
resale of any of the Shares or Option Shares.
(b) Stop Transfer Instruction. Purchaser shall be entitled to make a
------------------------
notation on its records and give instructions to any transfer agent for the
Company's Common Stock in order to implement the restrictions on transfer set
forth in this Agreement.
(c) Reliance. Seller also understands and acknowledges that (i) the
--------
Securities are being offered and sold without registration under the Securities
Act in a transaction that is exempt from the registration provisions of the
Securities Act and applicable state and foreign securities laws and (ii) the
availability of such exemption depends in part on, and that the Purchaser will
rely upon, the accuracy and truthfulness of the representations contained in
Section 3.22 and Seller hereby consents to such reliance.
Section 5.18 [Intentionally Omitted].
---------------------
Section 5.19 Filing or Non-Filing of Section 338 Election. If Purchaser
--------------------------------------------
files, or causes to be filed, an election under section 338 of the United States
Internal Revenue Code with respect to the purchase of the Sub Shares, Purchaser
covenants and agrees that it will hold Seller harmless for any increased Tax
liability owed by Seller that results from such election. If Purchaser does not
file, or cause to be filed, such an election:
(a) Except with the prior written consent of Seller, Purchaser
covenants and agrees that Sub will not make a distribution out of its earnings
and profits (as defined for United States tax purposes) during the portion of
Sub's taxable year (as determined for United States tax purposes) that begins on
the Closing Date and ends on the last day of such year; and
(b) Except with the prior written consent of Seller, Purchaser
covenants and agrees that, during the portion of Sub's taxable year (as
determined for United States tax purposes) that begins on the Closing Date and
ends on the last day of such year, Sub will not sell, transfer or otherwise
dispose of any of its assets except in the ordinary course of business
consistent with past practices.
Section 5.20 Refund of Sub Taxes. Purchaser covenants and agrees that, if
-------------------
Sub receives a refund of Taxes paid for its taxable year that includes the
Closing Date, or any prior taxable year, Purchaser will promptly notify Seller
of such refund. If Seller's United States federal income tax liability is
increased in a taxable year solely as a result of such refund of Taxes, reducing
the amount of Seller's foreign tax credits computed under section 902 of the
United States Internal Revenue Code, Purchaser will, within 30 days of the
Seller's payment of such increased United States federal income tax liability,
pay to Seller the amount of such increased United States federal income tax
liability, plus any interest due thereon; provided, however, that in no event
shall such payment by Purchaser exceed the amount of the refund of Taxes
received by Sub.
38
<PAGE>
ARTICLE VI
THE CLOSING
-----------
Section 6.1 Closing. The Closing of the transactions that are the
-------
subject of this Agreement and the transfers and deliveries to be made pursuant
thereto (the "Closing") shall take place at the offices of Vinson & Elkins
L.L.P., 3700 Trammell Crow, 2001 Ross Avenue, Dallas, Texas 75201 on the fifth
business day after all conditions to Closing have been satisfied or waived in
accordance with the terms hereof or at such other time, place or date as the
parties hereto may agree in writing (the "Closing Date").
Section 6.2 Closing Deliveries of Seller. At the Closing, Seller shall
----------------------------
deliver to Purchaser in form and substance satisfactory to Purchaser and duly
executed by the appropriate Persons:
(a) A certificate or certificates representing the Sub Shares in
genuine and unaltered form, duly endorsed in blank or accompanied by a duly
executed stock power endorsed in blank (in either case with signature guaranteed
by a national bank or trust company or member firm of a national securities
exchange);
(b) Bills of sale and assignments with respect to the Transferred
Assets and all other instruments which are necessary and appropriate to vest in
Purchaser good and marketable title to the Transferred Assets, free and clear of
all Liens other than Permitted Liens, including but not limited to:
(i) a duly executed Bill of Sale and Assignment in
substantially the form of EXHIBIT A attached hereto; and
(ii) duly executed instruments of assignment, in recordable form
if appropriate, with respect to all Rights and all applications therefore
relating to the Business.
(c) All books and records to be transferred to Purchaser hereunder.
Seller may retain copies of any of the foregoing for their own use provided that
Seller keeps all such books and records confidential.
(d) Incumbency certificates and copies, certified by the respective
Secretary or Attesting Secretary of Seller, or resolutions of Seller's board of
directors authorizing the execution, delivery and performance of, and the
transactions contemplated by, this Agreement.
(e) Certificate dated the Closing Date and signed by a duly
authorized officer of Seller to the effect that all of the conditions set forth
in Section 7.1, Section 7.2, Section 7.3 and Section 7.4 have been satisfied.
39
<PAGE>
(f) An opinion of counsel to Seller, dated as of the date of the
Closing Date, substantially in the form of EXHIBIT C attached hereto.
(g) All other documents to be entered into pursuant to this Agreement
requiring execution by Seller on or prior to the Closing Date, duly executed by
Seller, as appropriate, including but not limited to:
(i) a Shareholder Agreement substantially in the form of
EXHIBIT D attached hereto;
(ii) a Purchase Agreement substantially in the form of EXHIBIT
E attached hereto;
(iii) an Option Agreement substantially in the form of EXHIBIT H
attached hereto;
(iv) a License Agreement substantially in the form of EXHIBIT B
attached hereto; and
(v) an Assumption Agreement substantially in the form of
EXHIBIT G attached hereto.
(h) Any items which Seller is required to deliver under the terms of
the Transition Plan.
(i) The purchase orders required to be delivered by Seller pursuant
to Section 5.16.
Section 6.3 Closing Deliveries of Purchaser. At the Closing, Purchaser
-------------------------------
shall deliver to Seller:
(a) Incumbency certificates and copies, certified by the Secretary or
an Assistant Secretary of Purchaser, of resolutions of Purchaser's board of
directors authorizing the execution, delivery and performance of, and the
transactions contemplated by, this Agreement.
(b) Certificate dated the Closing Date and signed by a duly
authorized officer of Purchaser to the effect that all of the conditions set
forth in Section 8.1, Section 8.2 and Section 8.3 have been satisfied.
(c) Wire transfer of immediately available funds in the amount of
$25,000,000 (less any adjustments to the Purchase Price required under this
Agreement), payable to Seller pursuant to Section 2.4.
40
<PAGE>
(d) A share certificate representing the Shares issued by Purchaser
and registered in the name of Seller.
(e) An opinion of counsel to Purchaser dated as of the Closing Date,
substantially in the form of EXHIBIT F attached hereto.
(f) All other documents to be entered into pursuant to this Agreement
requiring execution by Purchaser on or prior to the Closing Date, duly executed
by Purchaser, including but not limited to:
(i) a Shareholder Agreement substantially in the form of
EXHIBIT D attached hereto;
(ii) a Purchase Agreement substantially in the form of EXHIBIT
E attached hereto;
(iii) an Assumption Agreement substantially in the form of
EXHIBIT G attached hereto;
(iv) an Option Agreement substantially in the form of EXHIBIT H
attached hereto; and
(v) a License Agreement substantially in the form of EXHIBIT B
attached hereto.
ARTICLE VII
CONDITIONS PRECEDENT TO OBLIGATIONS OF PURCHASER
------------------------------------------------
The obligations of Purchaser to consummate the transactions contemplated in
this Agreement are subject to the satisfaction and fulfillment at or before the
Closing of each of the following conditions, unless waived by Purchaser:
Section 7.1 Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties of Seller made in or pursuant to this Agreement
or any document or instrument delivered to Purchaser hereunder shall be true and
correct in all material respects at and as of the Closing Date with the same
force and effect as though made at and as of the Closing Date.
Section 7.2 Performance. Seller shall have performed, observed and
-----------
complied in all material respects with all obligations and conditions required
by this Agreement to be performed, observed or complied with by Seller at or
prior to the Closing.
41
<PAGE>
Section 7.3 No Litigation. No action, suit or proceeding before any
-------------
court or any governmental or regulatory authority in any jurisdiction and no
investigation by any governmental or regulatory authority in any jurisdiction
shall have been commenced, and no action, investigation, suit or proceeding
shall have been threatened by any governmental or regulatory authority or any
Person, against Seller, Purchaser, or the officers, shareholders, or directors
of any of them, seeking to restrain or prevent the transactions contemplated
hereby.
Section 7.4 Good Standing Certificates. Seller shall have provided to
--------------------------
Purchaser (a) a certificate issued by the Secretary of State of the State of New
York as of a date not more than thirty (30) days before the Closing Date,
stating that Seller is a corporation in good standing in New York, and (b) a
certificate issued by an appropriate authority as of a date not more than thirty
(30) days before the Closing Date, stating that Sub is a corporation in good
standing in Sweden.
Section 7.5 No Material Adverse Change. No material adverse change,
--------------------------
insofar as it relates to the Business, in the financial position, results of
operation or business of Seller or Sub shall have occurred since the date of the
most recent balance sheet included in the Financial Statements.
Section 7.6 Deliveries of Seller. The items required to be delivered by
--------------------
Seller under Section 6.2 shall have been delivered to Purchaser.
Section 7.7 Personnel. Purchaser shall have arranged to employ or
---------
otherwise engage, or Seller shall have arranged to retain and provide to
Purchaser (for a period of at least one year from the Closing Date) the
services of, such of Seller's or Sub's employees, consultants or other personnel
listed in the Key Employee List, all on such terms as shall be acceptable to
Purchaser, provided that such terms shall be at a cost to Purchaser which is no
greater than the terms of employment which Purchaser currently offers its own
employees who have similar titles, duties, positions and responsibilities as the
individuals listed on the Key Employee List.
Section 7.8 Financing. Purchaser shall have obtained all funds that are
---------
necessary to complete the transactions contemplated in this Agreement from such
financing sources, and upon such terms and conditions, as shall be acceptable to
Purchaser in Purchaser's sole discretion.
Section 7.9 Shareholder Approval. The Shareholder Approval shall have
--------------------
been obtained.
Section 7.10 Consents Obtained. All consents or approvals of any
-----------------
governmental authority or other third party that are necessary in order to
effectively and validly consummate the transactions contemplated hereby,
including conveyance of the Nonassignable Contracts, shall have been obtained.
42
<PAGE>
ARTICLE VIII
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
---------------------------------------------
The obligations of Seller to consummate the transactions contemplated by
this Agreement are subject to the satisfaction and fulfillment at or before
the Closing, of each of the following conditions, unless waived by Seller.
Section 8.1 Accuracy of Representations and Warranties. All
------------------------------------------
representations and warranties of Purchaser made in or pursuant to this Purchase
Agreement or any document or instrument delivered to Seller hereunder shall be
true and correct in all material respects at and as of the Closing Date with
the same force and effect as though made at and as of the Closing Date.
Section 8.2 Performance. Purchaser shall have performed, observed and
-----------
complied in all material respects with all obligations and conditions required
by this Agreement to be performed, observed or compiled with by Purchaser at or
prior to the Closing.
Section 8.3 No Litigation. No action, suit or proceeding before any
------------
court or any governmental or regulatory authority in any jurisdiction, and no
investigation by any governmental or regulatory authority in any jurisdiction,
shall have been commenced, and no action, investigation, suit or preceding shall
have been threatened by any governmental or regulatory authority or any other
Person, against Purchaser, Seller, or the officers, shareholders or directors of
any of them, seeking to restrain or prevent the transactions contemplated
hereby.
Section 8.4 Good Standing Certificate. Purchaser shall have provided to
-------------------------
Seller a certificate issued by the Secretary of State of Texas as of a date not
more than thirty (30) days before the Closing Date, stating that Purchaser is in
good standing in such jurisdiction.
Section 8.5 Deliveries of Purchaser. The items required to be delivered
-----------------------
under Section 6.3 shall have been delivered to Seller.
Section 8.6 No Material Adverse Change. No material adverse change,
--------------------------
insofar as it relates to the business, financial position or results of
operation of Purchaser, shall have occurred since the date hereof.
Notwithstanding any other provision in this Agreement, for the purposes of this
Agreement (i) a decrease in the value or market price of any capital stock of
Purchaser, and (ii) the failure of any class or series of Purchaser's capital
stock to be listed on any securities exchange or quoted on any automated
inter-dealer quotation system, shall not by itself be deemed to be a material
adverse change relating to the business, financial position or results of
operation of Purchaser.
Section 8.7 Consents Obtained. All consents or approvals of any
-----------------
governmental authority or other third party that are necessary in order to
effectively and validly consummate the transactions contemplated hereby shall
have been obtained.
43
<PAGE>
ARTICLE IX
CERTAIN LIABILITIES OF SELLER
-----------------------------
Section 9.1 Liabilities and Obligations. Seller shall retain and be
---------------------------
responsible for all of liabilities and obligations of Seller related to the
Business and the Transferred Assets other than the Assumed Liabilities.
Section 9.2 Bulk Transfer Laws. Purchaser hereby waives compliance with
------------------
any bulk transfer laws that may be applicable to the transactions contemplated
herein and in consideration therefor Seller shall indemnify Purchaser for any
liability that results therefrom in accordance with Article X.
ARTICLE X
INDEMNIFICATION LIMITATION OF LIABILITY
---------------------------------------
Section 10.1 Survival of Actions on Representations, Warranties and
------------------------------------------------------
Covenants. Except as provided in Section 5.2(d), representations, warranties and
- ---------
covenants contained herein shall not be deemed to be waived or otherwise
affected at any investigation at any time made by or on behalf of any party
hereto, whether before or after the Closing. The representations and warranties
made by Seller in Sections 3.5, 3.6, 3.8, 3.9, 3.15, 3.16, 3.20, 3.21, 3.23,
3.24, 3.25, 3.26 and 3.29 shall not survive Closing. All other representations
and warranties made by Seller and all representations and warranties made by
Purchaser pursuant to this Agreement (and in any agreement, certificate,
document or instrument delivered by or on behalf of either such party in
connection herewith) shall survive the Closing for a period of 12 months
following the Closing Date; provided, however, (a) the representations in
Sections 3.3, 3.30 and 3.31 shall survive the Closing and remain effective until
the fifth anniversary of the Closing Date, and (b) the representations and
warranties in Sections 3.13 and 3.14 shall survive the Closing and remain
effective until expiration of applicable statutes of limitations for claims that
might be asserted against Purchaser or Sub for matters related thereto. Any
claim for indemnification by Purchaser or Seller based on an alleged inaccuracy
in any such representation or warranty must be asserted in writing to the other
party within the period during which such representation or warranty survives,
or the claim shall be deemed waived and released. Unless otherwise contemplated
by this Agreement, all covenants made by Seller and Purchaser shall survive the
Closing indefinitely.
Section 10.2 Indemnification by Seller. Subject to the limitations set
-------------------------
forth in this Agreement, from and after the Closing Date, Seller shall indemnify
and hold harmless Purchaser, its subsidiaries, officers, shareholders and
directors, from and against any loss, cost, claim, damage, liability, expense
(including, without limitation, court costs and reasonable attorneys' and
accountants' fees and reasonable costs of investigation incurred in connection
with the defense of a claim) or obligation (hereinafter referred to collectively
as "Indemnifiable Damages") which they
44
<PAGE>
or any of them may suffer or incur to the extent caused by or arising out of any
one or more of the following:
(a) any material inaccuracy in or breach of any of the Seller's
representations and warranties set forth herein (or in any agreement,
certificate, document or instrument delivered by or on behalf of Seller in
connection herewith) or the failure of Seller to perform in all material
respects any of its covenants or agreements set forth herein (or in any
agreement, certificate, document or instrument delivered by or on behalf of
Seller in connection herewith); provided, that Seller shall be obligated to
indemnify Purchaser for any inaccuracy or breach of Seller's representations or
warranties set forth in Section 3.7 only to the extent Seller or Sub knew of
such inaccuracy or breach at the time such representations or warranties were
made;
(b) liabilities or obligations of Seller related to or arising out of
Seller's ownership, use, possession or operation of the Transferred Assets and
the conduct of the Business by Seller prior to the Closing Date;
(c) any claim of infringement of any issued or pending patent,
trademark, trademark registration, or application, common law trademark,
copyright or copyright registration or application or similar right of any other
Person relating to the sale of products of the Business by Seller or Sub prior
to Closing, other than such claims which relate to modifications to such
products which were made to such products after the Closing;
(d) liabilities or obligations related to or involving any claim of
whatever nature asserted against Purchaser, or against any of the Transferred
Assets, by any Person (including but not limited to creditors of Seller or Sub)
by virtue of the failure by Seller to comply with any bulk sales law;
(e) any allegation that any information contained in (i) the Proxy
Statement or (ii) any other materials used by Purchaser in connection with the
Shareholder Approval which is supplied by Seller expressly for inclusion therein
is false or misleading with respect to any material fact contained therein, or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading; and
(f) liabilities and obligations of Seller retained by it under
Section 9.1.
Section 10.3 Indemnification by Purchaser. Subject to the limitations set
----------------------------
forth in this Agreement, from and after the Closing Date, Purchaser shall
indemnify and hold harmless Seller, its subsidiaries, officers, shareholders and
directors, from and against any Indemnifiable Damages which they or any of them
may suffer or incur to the extent caused by or arising out of any one or more of
the following:
(a) any inaccuracy in or breach of Purchaser's representations and
warranties set forth herein (or in any agreement, certificate, document or
instrument delivered by or on behalf of Purchaser in connection herewith) or
Purchaser's failure to perform in all material respects any of
45
<PAGE>
its covenants or agreements set forth herein (or in any agreement, certificate,
document or instrument delivered by or on behalf of Purchaser in connection
herewith), including any failure to pay and perform the Assumed Liabilities when
and as due;
(b) any allegation that any information contained in (i) the Proxy
Statement, or (ii) any other materials used by Purchaser in connection with the
Shareholder Approval which is not supplied by Seller expressly for inclusion
therein is false or misleading with respect to any material fact contained
therein, or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; and
(c) liabilities or obligations related to or arising out of
Purchaser's ownership, use, possession or operation of the Transferred Assets
and the Business after the Closing Date, other than such liabilities or
obligations for which Purchaser has a right to be indemnified under this
Agreement.
Section 10.4 Limitation. Notwithstanding anything else contained herein
----------
to the contrary, neither Seller (on the one hand) nor Purchaser (on other hand)
shall be liable to indemnify the other for any Indemnifiable Damages hereunder
in respect of any inaccuracies in or breaches of representations and warranties
until the aggregate amount of such Indemnifiable Damages shall exceed $200,000,
and then only to the extent of such excess. There shall be no limit on the
aggregate amount of Indemnifiable Damages for which Seller shall be liable to
indemnify Purchaser as a result of all inaccuracies in or breaches of the
representations or warranties set forth in Section 3.13 or 3.14. The maximum
aggregate amount of Indemnifiable Damages for which Seller shall be liable to
indemnify Purchaser as a result of all inaccuracies in or breaches of the
representations or warranties set forth in Section 3.3, 3.30 or 3.31 shall be
$25,000,000. The maximum aggregate amount of Indemnifiable Damages for which
either Purchaser or Seller shall be liable to indemnify the other as a result of
all inaccuracies in or breaches of any of their other respective representations
or warranties set forth in, or delivered in connection with, this Agreement
(other than those previously described in this Section 10.4) shall be
$3,000,000.
Section 10.5 Settlement of Claims. Any party making a claim for
--------------------
indemnification under this Article X shall notify the indemnifying party or
parties of the claim in writing, describing the claim, the amount or estimated
amount thereof (if determinable), and the basis therefor. The party or parties
from whom indemnification is sought shall respond to each such claim within 30
days of receipt of such notice, unless the claim (a) relates to a lawsuit filed
by a third party, in which case the indemnifying party or parties shall respond
at least ten (10) days prior to the date a responsive pleading is due (but in no
event later than 30 days after receipt of such notice from the party seeking
indemnification), or (b) requires an immediate response, as in the case of a
cease and desist demand by a third party or a notice to show cause, in which
case the indemnifying party or parties shall respond in a prompt, timely manner
(but in no event later than 30 days after receipt of such notice from the party
seeking indemnification). In the event a response to a notice of claim involving
a third party claim is not timely made, a party seeking indemnification may
respond to such third party claim as it sees fit and seek indemnification
thereafter pursuant to the terms hereof. The omission of any party seeking
indemnification to notify the indemnifying party or parties of any such claim
46
<PAGE>
shall not relieve the indemnifying party from any liability in respect of such
claim which it may have to the indemnified party pursuant to this Article X,
except, and only to the extent that, such failure shall result in material
prejudice to the indemnifying party or parties. If the claim is based on a claim
by a third party, the indemnifying party or parties will be entitled to
participate in the negotiation or administration thereof and, to the extent that
such claim relates to the liability of the indemnifying party or parties, to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. Any indemnified party shall have the right to employ separate
counsel in any such action or claim and to participate in the defense thereto,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party unless (i) the indemnifying party shall have failed to timely
assume the defense of such claim, or (ii) the employment of such counsel has
been specifically authorized by the indemnifying party in writing, or (iii) the
indemnifying party's counsel, in the reasonable opinion of the indemnifying
party's counsel, is prohibited under applicable rules of professional
responsibility from representing the interests of both parties in such defense.
In the case of the events referred to in clauses (i), (ii) or (iii) of the
preceding sentence, the fees and expenses of such counsel engaged by the
indemnified party shall be the expense of the indemnifying party. If the
indemnifying party or parties respond within the time period set forth above by
notifying the indemnified party that the indemnifying party or parties will
assume the defense of the claim, no indemnification payment shall be due until
the matter giving rise to the indemnity claim is resolved; provided, however,
that any costs and expenses incurred by the indemnified party prior to the
assumption of the defense of such claim shall be paid by the indemnifying party
promptly after notifying the indemnified party of the assumption of the defense.
If the indemnifying party or parties do not assume the defense of the claim, the
indemnified party may assume the defense and (i) receive advancement of costs
and expenses incurred by the indemnified party in connection with the defense of
such claim, and (ii) seek indemnification from time to time as the amount of the
claim for which it is entitled to be indemnified becomes liquidated.
Notwithstanding the foregoing, neither party shall pay, settle or compromise any
such claim or proceeding without the prior written approval of the other party,
which approval shall not be unreasonably withheld or delayed; provided, that the
indemnifying party or parties may pay, settle or compromise any such claim or
proceeding without the consent of the indemnified party to the extent such
payment, settlement or compromise requires solely the payment of money and is
solely the liability of the indemnifying party or parties and provides a full
release and dismissal of the indemnified party from such claim or proceeding. In
connection with any claims based on claims by third parties, the party claiming
indemnification shall cooperate reasonably in the defense, including making
available to the defending party all pertinent information under its control.
ARTICLE XI
GENERAL PROVISIONS
------------------
Section 11.1 Waiver of Conditions to Closing. Anything in this Agreement
-------------------------------
to the contrary notwithstanding, if one or more of the conditions specified in
Article VII hereof shall not have been satisfied, Purchaser shall have the
right, in addition to any other right which may be available to it, to waive
such condition in writing and proceed with the transactions contemplated hereby;
and if one or more of the conditions specified in Article VIII hereof shall not
have been satisfied, Seller shall
47
<PAGE>
have the right, in addition to any other right which may be available to it, to
waive such condition in writing and proceed with the transactions contemplated
hereby. Any such waiver in writing by either Purchaser or Seller shall
constitute a waiver of its rights under the indemnification provisions of
Article X with respect to the item or items specifically identified in such
waiver.
Section 11.2 Termination. (a) This Agreement may be terminated at any
-----------
time prior to the Closing: (i) by mutual written consent of Purchaser and
Seller, (ii) by Purchaser in accordance with Section 5.2(a) or by either party
in accordance with Section 5.12 or Section 11.13; (iii) by either Purchaser or
Seller if the Closing shall not have occurred on or prior to the date which is
one hundred twenty (120) days after the Financial Statement Delivery Date (or
such later date as shall have been consented to by all parties hereto), unless
the failure of such occurrence shall be due to the failure of the party seeking
to terminate this Agreement to perform or observe in any material respect the
covenants, agreements and conditions hereunder to be performed or observed by
such party at or before the Closing; (iv) by either Purchaser or Seller if the
Closing shall not have occurred on or prior to December 31, 1996 (the "Final
Termination Date"), unless the Financial Statement Delivery Date occurs on a
date later than 30 days after the date of this Agreement, in which case the
Final Termination Date shall be postponed by a number of days equal to the
number of days by which the Financial Statement Delivery Date follows the date
which is 30 days after the date hereof, but in no event by more than 31 days
(i.e., no later than January 31, 1997); or (v) by Purchaser, on the one hand, or
Seller, on the other hand, if the other party hereto fails to perform or observe
in any material respect any of its covenants, agreements or conditions set forth
herein or if any representation or warranty given or made in this Agreement or
pursuant hereto by the other party was untrue in any material respect as of the
date given or made, unless the failure to satisfy such condition(s) shall be due
to the failure of the party seeking to terminate this Agreement to perform or
observe in any material respect the covenants, agreements and conditions
hereunder to be performed or observed by such party at or before the Closing.
(b) Notwithstanding the foregoing, if this Agreement is terminated
pursuant to Section 11.2(a)(iii), 11.2(a)(iv) or 11.2(a)(v) and such termination
is not due to the failure of Seller to perform or observe in any material
respect Seller's covenants, obligations or conditions set forth in this
Agreement, is not due to a breach of any Seller's representations or warranties
set forth in this Agreement and is not due to the failure by Seller to deliver
Financial Statements in a form which the SEC approves to be included in the
Proxy Statement, Purchaser shall be obligated to reimburse Seller for its
out-of-pocket expenses incurred in connection with the transactions contemplated
in this Agreement, up to a maximum aggregate amount of $250,000.
(c) If this Agreement is terminated by either party pursuant to
Section 11.2(a)(v) as a result of a breach of any of the party's representations
or warranties set forth in this Agreement, the other party shall be obligated to
reimburse the terminating party for all reasonable out-of-pocket expenses
incurred by the terminating party in connection with the transactions
contemplated in this Agreement, but the other party shall not otherwise have any
liability as a result of such breach.
48
<PAGE>
(d) The provisions set forth in Sections 5.11(a), 5.11(c), 5.11(d),
11.2(b), 11.2(c), 11.6, 11.10, 11.11, and 11.12 shall survive termination of
this Agreement pursuant to Section 11.2(a). Termination of this Agreement
pursuant to Section 11.2(a), shall not relieve any party hereto from any
liability for any prior breach of, or a misrepresentation under, any
representation, warranty, covenant or other term of this Agreement and shall not
be deemed to constitute a waiver of any available remedy for any such breach or
misrepresentation.
Section 11.3 Notices. All notices, requests, demands, and other
-------
communications made hereunder shall be in writing and shall be deemed duly given
if delivered by hand or sent by registered or certified mail, postage prepaid,
return receipt requested, or by reputable overnight courier service, charges
prepaid to the respective address set forth below or to such other address as
any party may specify by notice to the others in accordance with this Section
11.3, or if telecopied to the recipient at such party's telecopy number set
forth below:
If to Seller, to: GE Medical Systems
Attention: Vice President-Manager, Finance
P.O. Box 444
Milwaukee, WI 53201
With a copy to: General Electric Company
Attention: Senior Counsel for Transactions
3135 Easton Turnpike
Fairfield, CT 06431
If to Purchaser to: Positron Corporation
Attention: Chief Financial Officer
16350 Park Ten Place
Houston, Texas 77084
With a copy to: Vinson & Elkins L.L.P.
Attention: Michael D. Wortley
3700 Trammell Crow Center
2001 Ross Avenue
Dallas, Texas 75201
Notices shall be effective when received, as evidenced by the acknowledgment of
delivery issued with respect thereto by the postal authorities or the signed
receipt of the party to whom such notice is addressed or, if sent by telecopy,
by the transmission confirmation report.
Section 11.4 Amendment; Waiver. This Agreement may be amended only by an
-----------------
instrument in writing executed by each of the parties hereto. This Agreement
cannot be changed or terminated orally and no waiver of compliance with any
provisions or condition hereof and no
49
<PAGE>
consent provided for herein shall be effective unless evidenced by an instrument
in writing duly executed by the party granting such waiver or consent.
Section 11.5 Successors and Assigns. This Agreement shall be binding
----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. No party to this Agreement may assign or
transfer any of its rights or interests under this Agreement to any Person
without the prior written consent of each of the other parties to this
Agreement, and any purported assignment or transfer without such previous
written consent shall be void; provided, however, that at any time prior to
-------- -------
Closing, Purchaser may assign all or any portion of its rights or interests but
not its obligation under this Agreement to any Affiliate of Purchaser to the
extent necessary to allow the transfer from Seller of the Sub Shares or all or
any portion of the Transferred Assets, or the grant of the License, to such
Affiliate at Closing.
Section 11.6 Governing Law. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of New York.
Section 11.7 Invalid Provisions. If any provision of this Agreement is
------------------
held to be illegal, invalid or unenforceable under present or future laws
effective during the term of this Agreement, such provision shall be fully
severable; this Agreement shall be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof; and the
remaining provisions hereof shall remain in full force and effect and shall not
be affected by the illegal, invalid, or unenforceable provison or by its
severance herefrom. Furthermore, in lieu of such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and enforceable.
Section 11.8 Entire Agreement. This Agreement supersedes and terminates
----------------
all previous written or oral negotiations, understandings, arrangements and
agreements between the parties hereto relating to the subject matter hereof.
Section 11.9 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.
Section 11.10 Remedies. Except to the extent that liabilities of the
--------
parties hereto are limited by the terms of this Agreement or matters are
otherwise addressed in this Agreement, all rights and remedies existing under
this Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available under applicable law (it being understood that the provision
of this Agreement set forth the exclusive remedies for a breach of the
representations and warranties set forth in Articles III and IV and a breach of
the covenants set forth in Section 5.1). No failure on the part of any party to
exercise, or delay in exercising, any right hereunder shall be deemed a waiver
thereof, nor shall any single or partial exercise preclude any further or other
exercise of such or any other right. Purchaser and Seller shall be entitled to
seek any equitable remedy to the extent such remedy is available under
applicable law.
50
<PAGE>
Section 11.11 Dispute Resolution.
------------------
(a) Mediation. If a dispute arises between the parties which cannot
---------
be resolved by negotiation, each of Seller and Purchaser agree to designate two
representatives to participate in at least four hours of mediation before
pursuing any other remedies. The mediation shall be conducted by the New York
office of United States Arbitration & Mediation, Inc. or another mutually
acceptable service, with the costs of the mediator equally split by the parties.
Mediation involves each side of a dispute conferring with an impartial person to
attempt to reach a voluntary settlement, with no formal court procedures or
rules of evidence and with the mediator having no power to render a binding
decision or force an agreement between the parties.
(b) Arbitration Proceedings. If the matter has not been resolved
-----------------------
pursuant to the foregoing procedures within thirty (30) days after the first
meeting of the parties' designated representatives (which period may be extended
by mutual agreement), the matter shall be referred to arbitration conducted in
accordance with the provisions of the Federal Arbitration Act (9 U.S.C. (S)(S)
1-16), and in accordance with the Center for Public Resources, Inc.'s Rules (the
"Rules of Arbitration") for Non-Administered Arbitration of Business Disputes,
by a single arbitrator selected in accordance with such Rules of Arbitration.
The arbitrator to be selected under this Section 11.11 shall, unless the parties
mutually agree otherwise, be a person: (i) who meets the qualifications set
forth in Rule 7 of the Rules of Arbitration; and (ii) who has past experience in
settling complex litigation involving claims relating to matters similar to
those set forth in this Agreement. Any discovery that may be permitted will be
limited to (i) 60 days, (ii) single depositions of no more than three
individuals per side who are directly involved, and (iii) a single, reasonable
request for directly relevant documents.
(c) Place of Arbitration. Any arbitration proceedings hereunder shall
--------------------
be conducted in New York, New York or at such other location as the parties may
agree.
(d) Judgments. Any arbitration award hereunder shall be final and
---------
binding upon the parties, and judgment may be entered thereon, upon the
application of either party, by any court having jurisdiction.
(e) Expenses. Each party shall be entitled to be reimbursed by the
--------
other party for costs and expenses incurred in connection with commencing any
action under this Section 11.11, including reasonable attorneys' fees and
arbitrators' fees, if and to the extent determined by the arbitrator or
arbitrators arbitrating any such action.
(f) Equitable Remedies. Notwithstanding anything else in this Section
------------------
11.11 to the contrary, Purchaser and Seller shall be entitled to seek any
equitable remedies available under applicable law from any court of competent
jurisdiction, and the order or judgment of any such court shall be binding in
any proceeding pursuant to this Section 11.11.
(g) Court Proceedings. At any time within 15 days after a final
-----------------
resolution of a dispute through arbitration as provided above, either party (the
"Rejecting Party") may, by notice
51
<PAGE>
to the other, reject the decision of the arbitrator. If neither party rejects
the arbitral decision within such 15 day period, it shall become valid,
binding, enforceable and irrevocable, to the maximum extent allowed by law. If
the arbitral decision is rejected, it shall have no force or effect, except as
provided below, and either party may commence an action to resolve such
dispute in the Commercial Division (or, if recourse to such division is not
available for any reason, in the appropriate division) of the New York State
court in New York County (the "Court"). The parties submit to the exclusive
jurisdiction of the Court for this purpose, agree not to pursue trial of a
dispute in any other court, waive any right to trial by jury, and stipulate that
discovery shall be limited, to the extent permitted by the Court, to an
additional round of discovery as described above in paragraph (b). Evidence
obtained in the arbitration proceeding, including the transcript thereof, will
be admissible as evidence in the Court, but no evidence that indicates the
result of the arbitration shall be admissible in the Court, and no delay
occasioned by the arbitration proceedings will be used to the prejudice of any
party in Court proceedings. If the ultimate resolution of the dispute in the
Court and any appeal therefrom (an "Ultimate Resolution") is not materially more
favorable to the Rejecting Party than the arbitral decision, then the Rejecting
Party shall, within 3 days from the date of such Ultimate Resolution, reimburse
the other party for all of its out-of-pocket costs and attorney's fees for the
arbitration, the COurt proceeding and any appeal therefrom. If the Ultimate
Resolution is materially more favorable to the Rejecting Party, then each party
will bear its own costs and attorney's fees, subject to any allocation by the
Court or appellate court, and any allocation of costs (but not the decision on
the merits) in the arbitral decision will be given effect. For purposes of this
paragraph (g), an Ultimate Resolution which involves solely the grant of
damages, costs and/or attorney's fees shall not be deemed materially more
favorable to the Rejecting Party unless, as applicable (i) the net aggregate
amount of such damages, costs and/or attorney's fees awarded to the Rejecting
Party in the Ultimate Resolution exceeds 110% of the net aggregate amount of
damages, costs and/or attorney's fees awarded to the Rejecting Party in the
arbitral decision, or (ii) the net aggregate amount of such damages, costs
and/or attorney's fees assessed against the Rejecting Party in the Ultimate
Resolution is less than 85% of the net aggregate amount of damages, costs and/or
attorney's fees assessed against the Rejecting Party in the arbitral proceeding.
(h) Damages. No party shall seek, and no arbitrator or Court shall
-------
be authorized to award, any punitive, exemplary, statutorily enhanced or similar
damages in excess of compensatory damages relating to any matter under, arising
out of, in connection with or relating to this Agreement in the arbitration or
Court proceedings set forth herein or in any other forum. The parties intend
that this agreement with regard to dispute resolution be valid, binding,
enforceable and irrevocable.
(i) Other Transaction Documents. The provisions of this Section
---------------------------
11.11 shall apply to any dispute under any other Transaction Document unless
expressly provided to the contrary therein.
Section 11.12 Expresses. Unless otherwise expressly set forth in this
---------
Agreement, Purchaser and Seller shall each bear its own respective accounting
and legal fees and other costs and expenses incurred in connection with the
negotiation and preparation of this Agreement and the consummation of the
transactions contemplated in this Agreement.
52
<PAGE>
Section 11.13 Disclosure Schedules, Transferred Assets. Notwithstanding
----------------------------------------
any other provision set forth in this Agreement, Seller shall at any time prior
to the date which is fifteen (15) days after the date of this Agreement have the
right to provide to Purchaser a revised version of Appendix I, Appendix II and
any of the Schedules to this Agreement described in Article III. In addition,
Purchaser shall at any time prior to the date which is fifteen (15) days after
the date of this Agreement have the right to provide to Seller a revised version
of any of the Schedules to this Agreement described in Article IV. Each party to
this Agreement shall have the right, in its sole and absolute discretion, to
terminate this Agreement by giving written notice of such termination delivered
to the other party within five (5) days after receiving any revised Appendix or
Schedule delivered pursuant to this Section 11.13. Any revised version of
Appendix I and Appendix II and any revised version of any of the Schedules to
this Agreement delivered pursuant to this Section 11.13 shall be deemed to have
been delivered on the date of this Agreement; provided, that such delivery shall
not limit or affect in any way Purchaser's right to terminate this Agreement
pursuant to Section 5.2(a).
53
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and their corporate seals to be affixed hereto and attested by their duly
authorized officers by authority duly given, all as of the date first above
written.
GENERAL ELECTRIC COMPANY
By:/s/ Keith S. Shevin
----------------------------------------
Name: Keith S. Shevin
-----------------------------------
Title: Vice President Finance
----------------------------------
ATTEST: Financial Services
[SIGNATURE ILLEGIBLE] GE Medical Systems
- -------------------------------
[ILLEGIBLE] Secretary
- ------------
[Corporate seal]
POSITRON CORPORATION
By:/s/ Gary B. Wood
----------------------------------------
Name: Gary B. Wood
-----------------------------------
Title: Chairman
----------------------------------
ATTEST:
/s/ David Rodrigue
- -------------------------------
_________ Secretary
[Corporate seal]
54
<PAGE>
EXHIBIT 10.57
-------------
EXHIBIT E
PURCHASE AND DISTRIBUTION AGREEMENT NO._______
This Agreement is made this ___ day of ________, 1996 between General
Electric Company acting on behalf of its GE Medical Systems business including
corporate affiliates worldwide ("Buyer") and Positron Corporation, a Texas
corporation ("Seller").
Whereas Seller has experience and expertise in manufacturing positron
emission tomography ("PET") scanners and related cyclotron systems.
Whereas Buyer wishes to have Seller use its expertise to manufacture such
scanners and cyclotrons for Buyer in accordance with the following requirements
of Buyer:
. Purchase Specifications #46-______, Revision ________, dated _______
and attached to this Agreement as Attachment A.
. Supplier Quality Plan QCP ________, Revision ________, dated _______
and attached to this Agreement as Attachment B.
Now therefore Seller and Buyer agree as follows:
1. GENERAL
(a) Scope. This Agreement, including all attachments, states the terms on
-----
which Seller will sell to Buyer, and Buyer will purchase from Seller, the PET
scanners and related cyclotron systems which will be manufactured in strict
compliance with Attachment A and B ("Products"). Also included are any
applicable spare parts, service tools, manuals and software licenses, which,
collectively with Products, are referred to below as "Items". This Agreement
also includes provisions includes generally to "PET
Products," which term, as used in this Agreement, means:
(i) the products described in Attachment A.
(ii) any other advanced medical imaging device dedicated to the
use of coincidence detection of high energy radiation from positron emitters by
a contiguous, 360 degree array of detectors; and
-1-
<PAGE>
EXHIBIT E
(iii) cyclotron systems dedicated to use with medical imaging
devices.
PET Products do not include, among other items, imaging devices that may use
other imaging technologies in whole or in part, such as devices that may use, or
combine PET features with, any of the following: X-rays, magnetic resonance
imaging, combine tomography, ultrasound or coincidence or other detection of
high energy or radiation from positron emitters by one or more nuclear cameras,
including single photon emission computed tomography (including high energy
SPECT) and planar nuclear medicine (including whole body applications). PET
Products also do not include cyclotron systems that may be used with devices
other than medical imaging devices.
(b) EXCLUSIVITY. As long as Seller fulfills its obligations in all
-----------
material respects under this Agreement and subjects to the expectations in
paragraph (c) below, until the end of the initial term of this Agreement
referred to in Section 2, Buyer will, and will cause all of its subsidiaries and
affiliates (i.e., those controlled by GF. Medical Systems) to, procure
exclusively from Seller the Products and those related parts that are identified
on Attachment A as "Exclusive Parts."
(a) EXCLUSIVITY EXCEPTIONS. Paragraph (b) above will be suspended,
----------------------
however, with respect to any Product or Exclusive Part at any time when a
determination is made that:
(i) the features, functions, quality, and reliability of such
Product or Exclusive Part, taken as a whole, are materially inferior to a
competitive alternative (and if such circumstances continue for any Product or
Exclusive Part for more than 12 months notice thereof from Buyer to Seller,
Buyer may terminate its commitments under paragraph (b) with respect to such
Product or Exclusive Part);
(ii) the availability (including quantity and timeliness of
delivery) of such Product or Exclusive Part from Seller is inadequate to meet
the requirements set forth in the most recent forecast delivered at least ninety
(90) days prior to such determination by Buyer pursuant to Section 3(a), or
Seller is unable to fulfill on schedule any purchase order accepted by Seller
prior to such determination;
(iii) such Exclusive Part is available more quickly from another
source and speed is important to Buyer's customer; or
(iv) doing so is necessary to comply with a written commitment
of
-2-
<PAGE>
EXHIBIT E
Buyer made in the ordinary course of business prior to the date of this
Agreement.
In the event of such a suspension, Buyer may make alternative arrangements for
the procurement of such Product or Exclusive Part for the briefest, commercially
reasonable period, regardless of whether it extends past the time when the
circumstances giving rise to the suspension cease to exist. If Buyer believes
that circumstances described in this paragraph (c) exist, it may request an
acknowledgement thereof from Seller. If Seller declines to acknowledge within 10
days or denies such circumstances exist, then Buyer may either make its own
determination (by notice to Seller), which Seller may dispute pursuant to
Section 24, or refer the issue to a neutral person of suitable stature and
business experience (the "Neutral") for a determination. The Neutral will be
selected as promptly as possible, and in any event within 20 days form the date
Seller receives notice from Buyer that it wishes to refer the issue to the
Neutral by agreement of the parties or in the absence of agreement, by the
Center for Public Resources, Inc. The parties will cooperate to instruct and
enable the Neutral to make a determination within 10 days after selection.
Either party may dispute the determination of the Neutral pursuant to Section
24, but if the Neutral determines that the circumstances described in this
paragraph (c) exist, than Buyer shall be entitled to rely on such determination,
and paragraph (b) will be suspended, until final resolution of such dispute
pursuant to Section 24.
(d) PET Product Restriction. As long as Seller fulfills in all material
-----------------------
respects its obligations under this Agreement, until the end of the initial term
of this Agreement referred to in Section 2(a), Buyer will not, directly or
indirectly through any subsidiary or affiliate controlled by it (i.e.,
controlled by GE Medical Systems), engage in the design, engineering or
manufacture of PET Products, except during any period when paragraph (b) above
is suspended with respect to Products and Buyer is unable to obtain PET Products
form any other suitable source on commercially reasonable terms.
(e) Certain Entities. Nothing in this Agreement will restrict, or impose
----------------
on Buyer any obligations with respect to, procurement, sales or other activities
(i) relating to services of any kind or to products or parts other than PET
Products and Exclusive Parts, (ii) conducted through any entity acquired after
the date hereof if less than 15% of its revenues are derived from activities
prohibited by paragraph (d) or (iii) conducted through joint ventures, licenses
or other entities in which Buyer does not own a 100% equity interest; provided
that on request from Seller, with respect to a joint venture or other entity
owned more than 50% but less than 100% by Buyer. Buyer will use commercially
reasonable efforts (without being required to incur any expense) to persuade any
other owners thereof to agree that the entity will abide by
-3-
<PAGE>
EXHIBIT E
some or all of the terms of this Agreement. Seller confirms that it does not
currently own, and will not acquire during the term of the restriction in
paragraph (d) above, more than 50% but less than 100% of the equity that derives
more than 15% of its revenues from activities prohibited by paragraph (d).
(f) Documents. If a conflict exists between this Agreement and its
---------
attachments, the order of precedence will be:
1. This Agreement
2. Attachments D and E (Pricing Schedules)
3. Attachment A (Purchase Specification(s))
4. Attachment B (Purchased Material Quality Requirements 100.003 (MFG)
5. Attachment F (Buyer's Standard Conditions of Purchase)
6. Attachment C (Payment Schedule)
7. Attachment G (Definitions)
8. Attachment H (EMC Product Certification Requirements)
9. Attachment I (Non-Warranty Service Support Pricing)
(g) Changes. The parties may modify this Agreement as it applies to a
-------
specific purchase order release as long as the modification is in writing and
signed by both parties.
2. TERM
(a) Initial Term. Unless earlier terminated as provided herein, the term
------------
of this Agreement is from __________, 1996 through June 30, 2001. Buyer will
issue purchase order releases in accordance with Section 5 no later than June
30, 2001 and request delivery no later than December 31, 2001.
(b) Extensions. Buyer may extend the term of this Agreement for an
----------
additional two year period ending on June 30, 2003 except as otherwise
specifically provided below. Buyer must notify Seller in writing of its
intention to extend the term by March 31, 2001.
3. QUANTITIES AND COMMITMENTS
(a) Forecast. Buyer will provide Seller from time to time, but in any
--------
event at least once a calendar quarter, a forecast of its requirements of
Products and Exclusive Parts, which forecast will be non-binding and create no
obligation for Buyer or Seller.
-4-
<PAGE>
EXHIBIT E
(b) Marketing Commitment. As long as Seller fulfills in all material
--------------------
respects its obligations under this Agreement and subject to the exceptions in
paragraph (d) below. Buyer will make the Products available for sale through its
sales representatives in the United States and in such other countries where
Buyer has qualified personnel to sell, install and service the Products. More
specifically, subject to the foregoing, Buyer will (i) assign catalog numbers to
the Products, (ii) list them in its price book, (iii) distribute to customers
sales brochures which describe the features and functions of the Products, (iv)
dedicate at least five full-time equivalent employees (three of which shall be
dedicated full-time to the sale of PET Products) and one full-time product
manager to selling Products or related support functions (considering, for
purposes of determining the number of full-time equivalents, only those
employees who devote at least 50% of their time, on average, to such activities
which employees shall be considered only to the extent of the percentage of
their time which they so devote). (v) promote the Products at trade shows where
PET products are customarily displayed, (vi) issue quotations to sell the
Products on Buyer's standard conditions of quotation, (vii) offer standard
financing and lease arrangements to assist customers to procure the Products and
(viii) include Products in educational programming offered by Buyer where
appropriate, such as Buyer's "Training in Partnership" (TIP TV) continuing
education program; provided that Buyer may vary any of the foregoing if, after
consultation with Seller, Buyer reasonably determines that market conditions
require or permit different marketing or sales efforts without materially
reducing sales below the level of sales which could be achieved if Buyer
continued to comply with the foregoing. Except as stated in this paragraph,
Buyer has no other obligation to promote the Products. Buyer in its sole
discretion may elect to undertake additional efforts. Buyer in its sole
discretion may reject any order received from a customer for any reason,
including price, terms, credit-worthiness, manner of sale or other reasons;
provided that Buyer shall provide Seller with written notice that Buyer has
received and rejected such order.
(c) Purchase Commitment. Buyer's purchase commitment to Seller consists
-------------------
only of purchase order releases issued under Section 5.
(d) Marketing Exceptions. Notwithstanding other provisions of this
--------------------
Agreement, Buyer shall not be obliged to devote any efforts to marketing or
selling a Product made by Seller, if Buyer is not then obliged to procure such
Product exclusively from Seller by reason of Section 1(c)(i) or (ii), or if sale
of the Product would violate any applicable law or regulation, would pose a
danger to any person, would infringe the intellectual property rights of any
person or would be manifestly unreasonably for any reason of similar
significance.
-5-
<PAGE>
EXHIBIT E
4. PRICING; LICENSE
(a) Fixed Prices and Terms. The prices and payment terms specified on
----------------------
Attachment D for Products and Attachment E for spare parts and service tools are
firm for items ordered through purchase order releases issued by Buyer no later
than December 31, 1997 which request delivery no later than June 30, 1998 and,
at Buyer's request, include bar code labeling and packing in accordance with
Buyer's Directives 46-268564P1 and 46-315789P1. Thereafter, prices will be
negotiated in accordance with the following principles:
(i) Negotiated prices will be reasonably based on actual labor
and material cost increases/decreases incurred by Seller which affect the
Products. Seller will provide Buyer written documentation of these changes.
(ii) Negotiated prices will take into account real and
anticipated improvements in productivity and efficiency.
(b) Ad Hoc Prices and Terms. Buyer may from time to time request that
-----------------------
Seller agree to sell, in connection with a specified transaction or series of
transactions, Products or other Items at prices or on terms that differ from
those referred to in paragraph (a) above. Seller has no obligation to agree to
such terms, but if it does agree, it may not thereafter withdraw or modify such
agreement.
(c) Price Reductions. Seller will offer Products and Exclusive Parts
----------------
to Buyer at prices and upon terms no less attractive than those offered by
Seller to any other purchasers (whether customers or distributors) for
substantially similar products and parts, except for unusual transactions
involving, in Seller's judgment, special terms or circumstances, including but
not limited to transactions which provide Seller an economic benefit derived
other than through the payment of the sales price of the Product or Exclusive
Part to Seller. If Seller offers Products or Exclusive Parts to any purchaser at
prices or upon terms that are more attractive than those offered to Buyer,
unless the exception set forth in the first sentence of this Section 4(c)
applies, Seller shall immediately notify Buyer of such prices and terms in
writing, and the prices and terms set pursuant to paragraph 4(a) above shall be
modified accordingly.
(d) Cost Reductions. Buyer and Seller plan a continuing effort to
---------------
achieve reductions in Product cost by utilizing cost-effective design, lower
cost components that use new technology, productivity improvements, and
automation of the main manufacturing process. To assist each other in this
effort, Seller expects to provide
-6-
<PAGE>
EXHIBIT E
Buyer with cost data required to determine the feasibility and potential savings
from alternative actions, and Buyer will provide Seller with its expertise and
assistance in selecting and procuring raw materials and components for Products.
The goal of the cost reduction program is to reduce Product prices by at least
10% annually for the term of the Agreement. This paragraph creates no binding
obligations, however.
(e) License. Seller hereby irrevocably grants a paid-up worldwide license
-------
for Buyer and its agents and contractors to use in the operation, maintenance
and repair of the Products and Exclusive Parts and in the manufacture, use and
sale of other related parts, any existing or future patents, know-how or other
technology under which Seller may grant such a license for such purpose. Upon
delivery of any Product and receipt by Seller of the purchase price then due,
Seller hereby irrevocably grants to Buyer and its customers a paid-up worldwide
license to use in the operation, maintenance and repair of such Product any
software or similar technology which is normally furnished by Seller to a
customer at the time a Product is delivered; it understood that this sentence
creates no obligation with respect to any software upgrades or other licenses
that are normally granted by Seller in a separate transaction after delivery of
a Product or Exclusive Part for additional consideration.
(f) License Outside of PET Products. Seller irrevocably grants a paid-up
-------------------------------
worldwide license for Buyer and its agents and contractors to use any patents,
know-how or other technology transferred by Buyer to Seller pursuant to the
Acquisition Agreement dated July 15, 1996 (the "Acquisition Agreement") between
them, in fields other than PET Products.
5. PURCHASE ORDER RELEASES
(a) Contents. Purchase order releases for Products, Exclusive Parts, spare
--------
parts and service tools may consist of hard copies of Attachment F, electronic
messages as set forth in Section 20 or other written communications from Buyer
which state specific delivery requirements. The releases will be processed as
follows:
(i) Buyer and its affiliated entities will issue individual
purchase order releases which reference the number of this Agreement and state
delivery dates and quantities to be released for delivery within the lead times
specified in Attachments D and E. Regardless of form, every purchase order
release will be deemed to include Buyer's Standard Conditions of Purchase
located on Attachment F.
(ii) The shipping documents prepared by Seller will reference
the
-7-
<PAGE>
EXHIBIT E
applicable purchase order release number. The return goods (RG) number will also
be referenced on parts returned for repair or exchange.
(iii) As Buyer's business requirements are further defined, it
may change the quantities and delivery dates on individual purchase order
releases without penalty as long as Buyer notifies Seller of the changes in
accordance with the lead times specified on Attachments D and E.
(b) Initial Orders. Buyer hereby releases to Seller, and Seller hereby
--------------
accepts, the purchase order attached hereto as Exhibit ___.
6. DOCUMENTATION
(a) Customer Copies. Seller will deliver with each unit of Product sold
---------------
hereunder a manual containing all applicable drawings, schematics, software
license(s) and documentation, spare parts list, theory of operation, service
troubleshooting diagnostics, and instructions necessary for the installation,
operation, maintenance and repair of the Product in a format similar to what
Buyer provided to Seller for such Product or its predecessor upon execution of
this Agreement, or at Seller's option, in another format acceptable to Buyer.
(b) Buyer's Copy. Seller will provide Buyer at no additional charge a
------------
complete set of reproducible master copies of the documentation described in
paragraph (a) above, which Buyer may reproduce without charge. If a change in
the Product requires a change in the documentation, Seller will promptly notify
Buyer of the change and provide a revised reproducible master copy without
charge.
(c) Installed Base Documentation and Manual Updates. Seller agrees to
-----------------------------------------------
deliver all Field Modification Instructions, ("FMIs") Release Notes, and
updates to the Operator's Manual and/or Service and Maintenance Manual including
all software and hardware release and/or modification documentation to the
installed base without charge.
7. TRAINING
On request of Buyer, Seller will provide personnel and equipment to
adequately train Buyer's personnel at Seller's facility with respect to the
installation, operation, maintenance and repair of the Product. Any such
training will be scheduled at regular intervals or with reasonable notice. The
training will
-8-
<PAGE>
EXHIBIT E
be at no cost to Buyer except that Buyer will be responsible for travel and
living expenses incurred by its personnel.
If Seller provides training at Buyer's facility, Buyer will pay the
reasonable travel and living costs incurred by Seller's personnel to conduct the
training as long as Buyer has received and approved a cost estimate in advance.
8. TRANSPORTATION
Seller will make shipments using a carrier approved by Buyer. Additional
terms relating to transportation, insurance, risk of loss and title are
contained in Attachment F.
9. INVOICES/PAYMENT
(a) Contents: Seller's invoices will contain at least the purchase order
--------
release number, item number on the release, invoice quantity, unit of measure,
unit price and total invoice amount.
(b) Payment. If an invoice is consistent with this Agreement, including
-------
the payment terms referred to in Section 4, Buyer will settle the invoice in
timely fashion after receiving both the proof of shipment and the invoice.
However, if the schedule for payments by Buyer to Seller corresponds to the
schedule for payments to Buyer from its customer, and such customer delays its
payment, then Buyer may similarly delay its payment to Seller, provided that
Buyer may not delay any payment under this sentence by more than 5 days unless
the customer's delay is attributable to dissatisfaction with Products or Items
for which Seller may be responsible. Payments to Seller shall be in U.S. dollars
unless Seller otherwise agrees.
10. WARRANTY/REPAIR
(a) Terms. Seller warrants that the Products provided in accordance with
-----
the terms and conditions of this Agreement shall conform in all material
respects to the specifications set forth on Attachment A, and shall be free from
defects in material and workmanship for a period of twelve (12) months from the
date of Buyer's customer's acceptance (either expressly or through the
customer's use of the Product) of title to the Product.
(b) Service. Seller agrees that Product warranty includes service support
-------
as
-9-
<PAGE>
EXHIBIT E
defined in Attachment G.
(c) Returns. Buyer may return in-warranty defective Products with advance
-------
notice to Seller. Advance notification shall also be required prior to return of
spare parts, service tools, and optional features.
(d) Freight/Risk of Loss. The transportation charges incurred in
--------------------
connection with the return of a defective in-warranty item to Seller's facility
or authorized service center pursuant to paragraph (b) above shall be paid by
Seller. Risk of loss passes to Seller when the item is delivered to the carrier.
(e) Repair. Unless Buyer elects to return a warranty item for credit only,
------
Seller will test and repair or replace any returned in-warranty defective item
within 30 calender days after receiving it or such other time agreed on by Buyer
and Seller. Items under warranty will be repaired at no cost to Buyer, and items
out-of-warranty will be repaired or replaced at the prices listed in Attachment
F.
(f) Credit. Seller will promptly refund or credit Buyer for any payment
------
Buyer made for an item which becomes defective during the warranty period and is
not repaired or replaced under warranty. Buyer may elect to take such credit on
any open invoices of Seller.
(g) Product Locator System. For Product tracking purposes. Seller agrees
----------------------
to be in compliance with Buyer's Product Locator System Supplier Requirements.
11. REPLACEMENT PARTS/TOOLS
(a) Field Replaceable Units, ("FRUs"). All FRUs (spare parts), including
---------------------------------
special tools for analyzing, performing preventive maintenance, and repairing
the system, shall be defined by Seller and Buyer by analyzing whether it is more
profitable to repair or replace in the field or return to Seller for repair or
replacement. Special tools are tools other than Fluke 87 multimeter, Tektronix
2232 oscilloscope and FACOM 2039 toolcase.
(b) FRU Policy. Seller's FRU policy shall be in compliance with Direction
----------
46-017383 (FRU System Functional Requirements).
(c) Duration. Seller, or Seller's designee, will maintain the capability
--------
of repairing and selling spare parts, service tools and instruments necessary to
effectively
-10-
<PAGE>
EXHIBIT E
service all Product(s) furnished hereunder for at least ten (10) years from the
date of the last shipment of product(s) to Buyer.
(d) Testing. Seller will test all spare parts using the same test
-------
plan/procedure as Seller uses for the spare parts it sells to its own customers
or a mutually acceptable alternative test plan/procedure.
(e) Replacement Pool Cost/Size. The replacement pool carried by Seller
--------------------------
shall be at Seller's expense. The size of the pool shall be mutually determined
by Buyer's Engineering/Service Engineering department and Seller. The size will
be dependent on the turn-around time, installed base projections, and repair
source locations.
(f) Buyer Stock Orders. For Buyer stock orders, delivery lead time of
------------------
Seller's replacement parts shall be 30 days.
(g) Priority 1's. Seller agrees to be able to provide delivery of any
------------
spare part or service tool indicated as priority 1 on Attachment E to any
location in the United States within 24 hours of notification of an inoperable
Product (priority 1) in the field.
(h) Spare Parts List. Seller shall provide in Attachment E, the list of
----------------
all spare parts and special tools of Product(s) including for each part the
following information:
. Reference number
. Description
. List Price
. Price to Buyer
. If repairable (repair price if out of warranty)
. MTBF (mean time between failure)
. Initial stock quantity
(i) International Spare Part Depots. Seller agrees that Buyer may, on a
-------------------------------
one-time basis per location, purchase a complete set of spare parts stock, as
listed in Attachment E, for its two (2) international spare parts depots at a
discount of thirty-five percent (35%) of the list price.
(j) Planned Maintenance Parts List. The list of spare parts and special
------------------------------
tools dedicated to Planned Maintenance shall appear on a separate list in
Attachment E and shall comply with paragraph (k).
-11-
<PAGE>
EXHIBIT E
(k) Transportation. All spare parts and service tools listed in Attachment
--------------
E will be shipped using Buyer's approved carriers with transportation charges
collect, except that Seller will prepay and bill Buyer for UPS delivery. Seller
agrees to list authorized prepaid transportation charges as a separate line item
on the invoice.
12. REPAIRS/GENERAL
(a) Repair Method. Seller agrees to provide repaired spare parts which
-------------
meet the original specifications listed on Attachment ___. Any spare part that
the customer will view shall be repaired to like-new condition.
(b) Test/Repair Method. The method for testing and repairing shall be
------------------
provided by the Seller for review by the Buyer. Changes or additions shall be
made after mutual agreement by both Buyer and Seller.
(c) Seller's Packaging. Seller agrees that the shipping container on
------------------
repairable parts shall be sturdy enough to withstand several cross-shipments
(i.e., the destination of the refurbished part will be designed and communicated
to Seller by Buyer's personnel. The defective part will be returned in the same
package).
(i) Electro Static Discharge (ESD) packaging protection will
be provided for all static sensitive devices, assemblies and subassemblies
ordered as spare parts by Buyer.
(ii) All devices, assemblies and subassemblies provided or
purchased by Buyer will be adequate/packaged to prevent damage during shipment.
(d) Repair History. Before Seller begins repairs, Seller shall consult the
--------------
repair history for installation date and warranty coverage information. This is
to help highlight any repeat failures and identify repair billing.
13. QUALITY/SAFETY
(a) Reporting. Seller will furnish to Buyer any reports of quality and
---------
safety issues related to Seller's Product(s). A report stating the Seller's
course of action should be returned within one (1) week of notification. It is
expected that the Seller will keep Buyer's Product(s) Manager involved
throughout the resolution process.
(b) Installed Base Upgrades. The cost, including materials and
-----------------------
documentation,
-12-
<PAGE>
EXHIBIT E
to upgrade a Product due to a quality or safety problem shall be provided by
Buyer at no charge to Seller if such Product was shipped on or prior to the date
of this Agreement and by Seller at no charge to Buyer if shipped thereafter.
(c) Purchased Material Quality Requirements. Seller acknowledges that
---------------------------------------
compliance with Attachment B, Purchase Material Quality Requirements (PMQR),
procedure 100.003MFG, is a requirement of this Agreement. Said PMQR serves to
ensure that acceptable quality processes are documented and enforced as part of
Seller's standard operating procedure in the absence of Seller's formal
certification to EN46001 standards. Seller agrees that Buyer formally audit
Seller's facility for compliance to PMQR 100.003MFG until Seller has been
formally registered and certified as compliant with EN46001 standards.
(d) Service Product Quality.
-----------------------
(i) The quality goal for all Products at the time of
installation at a customer location is zero Dead On Arrival parts ("DOA"). This
number is calculated monthly by Buyer for each Product as the number of Code 20
parts minus the number of No Defect Found ("NDF") parts. A Code 20 part is one
that fails within 7 calendar days after installation at a customer location. An
NDF part is a Code 20 part whose defect is attributable to a cause for which the
Seller is not responsible or whose defect the Seller is unable to duplicate.
Seller will report all repairs (whether NDF or not) to Buyer in a manner
satisfactory to Buyer's needs.
(ii) If the number of DOAs exceeds zero for a single Product
type, Seller will at Buyer's request submit a corrective action plan which at a
minimum contains analysis to the first root cause(s) and specific actions taken
or planned to correct the problem.
(e) Delivery.
--------
(i) The delivery goal for all Products is 100% on-time and
complete delivery. This rate will be calculated periodically by Buyer as the
number of deliveries during a rolling 3 month period which arrive at their
destination point within 7 calendar days prior to the schedule delivery date
divided by the total number of deliveries during the same period.
(ii) If on-time delivery falls below 98% and the trend is
negative, Buyer and Seller will hold discussions to develop a corrective action
plan.
-13-
<PAGE>
EXHIBIT E
(f) Field Modification Instruction ("FMI") Process. Seller agrees that
----------------------------------------------
compliance with Buyer's FMI process is a requirement of this Agreement. Seller
will make every reasonable effort to comply with Buyer's FMI process. Seller
agrees to develop and submit to Buyer for Buyer's approval its FMI process
compliance implementation plan no later than six (6) months after the date
hereof.
(g) Effect. Nothing in this Section will prevent Buyer from exercising any
------
other rights that may be available under this Agreement or applicable law.
14. NON-WARRANTY SERVICE SUPPORT
(a) Coordination. All Product service support shall be coordinated through
------------
Buyer for all of Buyer's customers. At the request of Buyer, Seller shall
provide service support to non-warranty Products pursuant to the terms of this
Section.
(b) Pricing. Prices for various non-warranty service options are shown in
-------
Attachment I.
(c) Purchaser's Service Agreements. Seller shall perform, in the capacity
------------------------------
of a subcontractor of Purchaser, all services to be provided by Purchaser to its
customers pursuant to the terms of the service contracts set forth on Attachment
J hereto, at a cost to Purchaser to be determined by mutual agreement between
Seller and Purchaser, which cost shall in no event exceed the amount to be
received by Purchaser from its customers pursuant to the terms of the relevant
service contract in consideration for such services. Furthermore, Seller shall
also perform such services in the future at the Purchaser's request, pursuant to
service contracts that may be entered into by Purchaser in the future, on
commercially reasonable terms and conditions to be negotiated by the Seller and
the Purchaser.
15. REGULATORY COMPLIANCE
(a) General. Seller will comply with all applicable laws and regulations
-------
in furnishing Products or other items listed in a Purchase Order. These laws may
include U.S. medical device laws, labor laws, employment opportunity laws,
environmental laws and product safety laws, as well as applicable laws of any
other country to which Buyer has informed Seller the Products may be delivered.
See the "Governmental Compliance" section of the Standard Conditions of Purchase
in Attachment F.
(b) Product Certification. Seller will maintain at its expense U.L., IEC,
---------------------
CSA
-14-
<PAGE>
EXHIBIT E
and MHW or equivalent listings acceptable to Buyer for all Products. Seller will
also ensure that its Products comply with applicable electro-magnetic product
standards from time to time in effect: current standards are listed in
Attachment H.
(c) Product Certification Schedule. Seller and Buyer agree that in the
------------------------------
event that a regulatory certification is required, the Seller and the Buyer
shall work together to agree upon a reasonable schedule for the receipt thereof,
which Seller will then be required to meet.
(d) Certification Notification. Seller will provide Buyer with the
--------------------------
certifying agencies' formal notifications of certification of Buyer's Product.
(e) Supplier Certification. Seller will notify Buyer in writing if Seller
----------------------
is qualified as a small business, small disadvantaged business or women-owned
small business as defined in 48 CFR 52.219-8 and 52.219-13.
(f) Small Business Plan. If Seller qualifies as a small business, small
-------------------
disadvantaged business or women-owned small business as defined in 48 CFR
52.219-8 and 52.219-13. Buyer's purchases under this Agreement exceed $500,000
in any 12 month period, Seller will adopt and implement a small business and
small disadvantaged business subcontracting plan which complies with 48 CFR
52.219-9.
(g) Buyer Assistance. If requested by Seller, Buyer will share with Seller
----------------
its experience and insights with regard to obtaining regulatory certifications.
Buyer is not obliged to incur any out-of-pocket expense in connection with any
such assistance, and will have no liability in connection therewith, and no such
assistance will derogate from Seller's obligations hereunder.
16. INSTALLATION OF PRODUCT
(a) Installation. Buyer will install, calibrate, and perform customer
------------
performance testing of Products. An installation is considered complete when
Buyer receives the customer's written acceptance of performance results.
(b) Installation Equipment. Seller agrees to provide all necessary tools
----------------------
and equipment for Buyer to completely install Products at no additional charge
to Buyer.
-15-
<PAGE>
EXHIBIT E
17. NEW PRODUCTS
(a) First Right of Review. Seller agrees that during the term of this
---------------------
Agreement. Seller will offer to Buyer, in writing, the right to market and sell
any new PET Product, which is developed during the term of this Agreement, no
later than Seller offers such PET Product to a third party or Seller begins
marketing and selling such PET Product itself. The right granted to Buyer
pursuant to the preceding sentence shall not otherwise limit the right of Seller
to market and sell any new PET Product developed by Seller during the term of
this Agreement. In addition, during the term of this Agreement, upon request by
Buyer, Seller shall inform Buyer of the development of any new PET Products,
provided, however, that Seller may require Buyer to maintain the confidentiality
of information regarding such new PET Products.
(b) Response Time. Buyer will have three (3) months from the date of
-------------
receipt of Seller's written offer to respond in writing to Seller's offer, and
six (6) months to develop a sourcing agreement.
18. INDEMNITY
Seller shall handle all claims and defend any suit or proceeding brought
against Buyer or its customers so far as based on any claim that the manufacture
or furnishing of the Product under this Agreement, or the use or sale of the
Product constitutes infringement of any U.S. patent or copyright or foreign
counterparts of U.S. patents or copyrights; if notified promptly in writing and
given information, assistance and exclusive control of defense of such claim,
suit or proceeding (all at Seller's expense), and Seller shall indemnify and
save Buyer and its customers harmless from and against any actual expense or
liability arising out of such claim, suit or proceeding; provided, that, the
foregoing shall not apply to the extent that Buyer may be obligated to indemnify
Seller with respect to such infringement pursuant to the Acquisition Agreement.
Seller shall indemnify and hold harmless Buyer from and against any actual
expense or liability arising out of a claim, suit or proceeding against Buyer
for product liability associated with Products purchased by Buyer pursuant
hereto.
19. CHANGES IN PURCHASE SPECIFICATIONS
(a) Process. Buyer or Seller may propose reasonable changes in Attachment
-------
A by submitting proposed changes to the other party's contract manager on the
PVR or SCN form appended to Attachment A. If Buyer is proposing the changes, it
will
-16-
<PAGE>
EXHIBIT E
indentify those changes which it deems mandatory to make the Product(s) suitable
for its use and Seller will respond in writing to Buyer's contract manager
within 30 calendar days with the following information:
(i) Lead time required to implement changes.
(ii) Impact of proposed changes on pricing of Products. Exclusive
Parts, parts and tools.
(iii) Impact of proposed changes on raw material, work in process and
finished goods.
Within no more than 10 calendar days after Buyer receives Seller's response to
Buyer's proposed changes or receives the changes proposed by Seller, the parties
will begin negotiations to agree on the changes to Attachment A and any related
changes to price and delivery schedules.
(b) Buyer Approval. Seller may not make any engineering change to a
--------------
Product sold to Buyer affecting form, fit, function, reliability,
serviceability, performance, functional interchangeability or interface
capability without obtaining Buyer's written approval at least 120 (or 30 with
respect to changes required for safety or regulatory reasons) calendar days
before the change is implemented, which approval shall not be unreasonably
withheld or delayed.
(c) Cost Reduction. If Buyer or Seller proposes a change which reduces
--------------
Seller's costs of providing an item to Buyer. Seller will pass on the cost
reduction to Buyer for all items shipped to Buyer after the change is
implemented.
20. ELECTRONIC DATA INTERCHANGE
(a) Access. Buyer may in its sole discretion permit, but may not require,
------
Seller to have on-line access to designated computer systems of Buyer in order
to facilitate Seller's ability to perform its obligations under this Agreement.
If such access is granted, Seller will give Buyer the name of Seller's employees
who will have access to Buyer's computer systems, and Buyer will provide a
separate user indentification code for each person. If such access is desired by
Seller and granted by Buyer, Seller will at its own expense provide and
maintain any hardware, telecommunications services and software not furnished by
Buyer which are needed to communicate reliably with Buyer's computer systems.
Buyer may terminate Seller's
-17-
<PAGE>
EXHIBIT E
access to Buyer's computer network at any time.
(b) Use Restrictions. Seller will ensure that (i) computer access is
----------------
limited to its employees with a legitimate business need, and (ii) its employees
with access agree to keep any information so obtained strictly confidential, to
use such information only to perform Seller's contract obligations to Buyer, and
to cease accessing Buyer's computer systems when no longer required to perform
work under this Agreement. Seller will promptly notify Buyer if it becomes aware
of any unauthorized access to Buyer's computer systems or unauthorized use of
the information on the systems.
(c) Legal Effect. Any document properly transmitted by computer access
------------
will be considered a writing in connection with this Agreement. Electronic
documents will be considered signed by a party if they contain an agreed upon
electronic indentification symbol or code. Electronic documents will be deemed
received by a party when accessible by the recipient on the computer system.
21. MANUFACTURING ASSISTANCE
Should Seller notify Buyer that Seller is unable to supply Buyer with
Products or Exclusive Parts pursuant to this Agreement, Buyer agrees to inform
Seller of the purchase orders that exist as of the date of notification. Seller
agrees to use its commercially reasonable efforts to assist Buyer in the
fulfillment of its obligations under such purchase orders, until such time as
Buyer is able to procure an acceptable alternative source for such Products or
Exclusive Parts. Buyer agrees to use its commercially reasonable efforts to
procure an acceptable alternative source as soon as possible after Buyer's
receipt of notice of such inability to perform.
22. TERMINATION
(a) Market Conditions. Buyer may cancel any open purchase order release in
-----------------
whole or in part upon 60 calendar days written notice to Seller, if Buyer
determines that its market for Products does not support the quantities it has
ordered from Seller. If such cancellation occurs, the parties will negotiate a
settlement of any costs relating to work in process, inventory or other
commitments which Seller made to fill the canceled order. Buyer's maximum
liability in any event will not exceed its material commitments stated in
Attachment C for the cancelled items. Furthermore, Buyer may terminate this
Agreement without liability (i) if Seller becomes insolvent or makes any
assignment for the benefit of creditors or becomes subject to any federal or
state receivership, reorganization, liquidation or bankruptcy case or proceeding
(voluntary or
-18-
<PAGE>
EXHIBIT E
involuntary), but if involuntary, only if such case or proceeding is not
dismissed within ninety (90) days after the date instituted, or (ii) if there is
a change of control of Seller by merger or other operation of law or otherwise.
(b) Seller's Breach. If Seller materially breaches this Agreement, Buyer
---------------
may cancel any open purchase order release in whole or in part upon written
notice to Seller. If Seller fails to correct the breach within 30 calendar days
after receiving notice, Buyer may then terminate this Agreement without
liability except for the price of any items previously delivered and accepted by
Buyer. A material breach includes without limitation failure to comply with
Attachments A and B or delivery schedules.
(c) Buyer's Breach. If Buyer materially breaches this Agreement, Seller
--------------
may cancel any open purchase order release in whole or in part upon written
notice to Buyer. If Buyer fails to correct the breach within 30 calendar days
after receiving notice, Seller may then terminate this Agreement (other than
Section 1(d), which shall survive for the period stated therein) without
liability except for the price of any items previously delivered and accepted by
Seller. A material breach includes, without limitation, failure to comply with
Attachments D and E, including payment terms.
(d) Survival of Termination. Seller's obligations set forth in Section
-----------------------
[1)(a)] shall survive termination of this Agreement; provided, however, that
such obligations shall not survive if this Agreement is terminated pursuant to
Section 22(c).
23. CONTRACT MANAGER/NOTICES
(a) Managers. Each party will appoint a contract manager as the point of
--------
contact for all matters relating to performance of this Agreement.
(b) Addresses. Any notice required under this Agreement will be sent by
---------
fax or first-class mail to:
Buyer GE Medical Systems
P.O. Box 414
Milwaukee, WI 53201
Attention:____________ .W-______
Fax 414-548-2041
-19-
<PAGE>
EXHIBIT E
Seller ______________________
______________________
______________________
Attention: ___________
Fax:__________________
24. DISPUTE RESOLUTION
(a) Mediation. If a dispute arises between the parties which cannot be
---------
resolved by negotiation, Buyer and Seller agree to participate in at least four
hours of mediation before pursuing any other legal remedies such as commencing
litigation. The mediation shall be conducted by the New York office of United
States Arbitration & Mediation. Inc. or another mutually acceptable service with
the costs of the mediator equally split by the parties. Mediation involves each
side of a dispute sitting down with an impartial person to attempt to reach a
voluntary settlement, with no formal court procedures or rules of evidence and
with the mediator having no power to render a binding decision or force an
agreement on the parties.
(b) Arbitration Proceedings. If the matter has not been resolved pursuant
-----------------------
to the foregoing procedures, the matter shall be referred to arbitration
conducted in accordance with the provisions of the Federal Arbitration Act (9
U.S.C. (S)(S) 1-16), and in accordance with the Center for Public Resources,
Inc.'s Rules (the "Rules of Arbitration") for Non-Administered Arbitration of
Business Disputes, by a single arbitrator selected in accordance with such Rules
of Arbitration. The arbitrators to be selected under this paragraph shall,
unless the parties mutually agree otherwise, be a person: (i) who meet the
qualification set forth in Rule 7 of the Rules of Arbitration: and (ii) who has
past experience in settling complex litigation involving claims relating to
matters similar to those set forth in this Agreement. Any discovery that may be
permitted will be limited to (i) 60 days, (ii) single depositions of no more
than three individuals per side who are directly involved and (iii) a single,
reasonable request for directly relevant documents.
(c) Rejection: Court Proceedings. At any time within 30 days after a final
----------------------------
resolution of a dispute through arbitration as provided above, either party (the
"Rejecting Party") may, by notice to the other, reject the decision of the
arbitrator. If neither party rejects the arbitral decision within such 30 day
period, it shall become valid, binding, enforceable and irrevocable, except as
provided by law. If the arbitral decision is rejected, it shall have no force or
effect, except as provided below, and either party may commence an action to
resolve such dispute in the Commercial
-20-
<PAGE>
EXHIBIT E
Division (or, if recourse to such division is not available for any reason, in
the appropriate division) of the New York State court in New York County (the
"Court"). The parties submit to the exclusive jurisdiction of the Court for this
purpose, agree not to pursue trial of a dispute in any other court, waive any
right to trial by jury, and stipulate that discovery shall be limited, to the
extent permitted by the Court, to an additional round of discovery as described
above in paragraph (b). Evidence obtained in the arbitration proceeding,
including the transcript thereof, will be admissible as evidence in the Court,
but no evidence that indicates the result of the arbitration shall be admissible
in the Court, and no delay occasioned by the arbitration proceedings will be
used to the prejudice of any in Court proceedings. If the ultimate resolution of
the dispute in the Court and any appeal therefrom (an "Ultimate Resolution") is
not materially more favorable, taken as a whole, to the Rejecting Party than the
arbitral decision, then the Rejecting Party shall, within 3 days from the date
of such Ultimate Resolution, reimburse the other party for all of its out-of-
pocket costs and attorneys fees for the arbitration, the Court proceeding and
any appeal therefrom. If the Ultimate Resolution is materially more favorable to
the Rejecting Party, then each party will bear its own costs and attorney's
fees, subject to any allocation by the Court or appellate court, and any
allocation of costs (but not the decision on the merits) in the arbitral
decision will be given effect. For purposes of this paragraph (c), an Ultimate
Resolution which involves solely the grant of damages, costs and/or attorney's
fees shall not be deemed materially more favorable to the Rejecting Party
unless, as applicable (i) the net aggregate amount of such damages, costs and/or
attorney's fees awarded to the Rejecting Party in the Ultimate Resolution
exceeds 110% of the net aggregate amount of damages, costs and/or attorney's
fees awarded to the Rejecting Party in the arbitral decision, or (ii) the net
aggregate amount of such damages, costs and/or attorneys' fees assessed against
the Rejecting Party in the Ultimate Resolution is less than 85% of the net
aggregate amount damages, costs and/or attorney's fees assessed against the
Rejecting Party in the arbitral proceeding.
(d) Place of Arbitration. Any arbitration proceedings hereunder shall be
--------------------
conducted in New York City or at such other location as the parties may agree.
(e) Judgments. Any arbitration award hereunder shall be final and binding
----------
upon the parties, and judgement may be entered thereon, upon the application of
either party, by any court having jurisdiction.
(f) Expenses. Each party shall be entitled to be reimbursed by the other
--------
party for costs and expenses incurred in connection with commencing any
action under this Section, including reasonable attorneys' fees and arbitrators'
fees, if and to the extent
-21-
<PAGE>
EXHIBIT E
determined by the arbitrator or arbitrators arbitrating any such action.
(g) Equitable Remedies. Notwithstanding anything else in this Section to
------------------
the contrary, Buyer and Seller shall be entitled to seek any equitable remedies
available under applicable law from any court of competent jurisdiction, and the
order or judgment of any such court shall be binding in any arbitration
proceeding pursuant to this Section.
(h) Damages. No party shall seek, and no arbitrator or Court shall
-------
be authorized to award, any punitive, exemplary, statutorily-enhanced or other
similar damages in excess of compensatory damages relating to any matter under,
arising out of, in connection with or relating to this Agreement in the
arbitration or Court proceedings set forth herein or in any other forum. The
parties intend that this agreement with regard to dispute resolution be valid,
binding, enforceable and irrevocable.
25. GENERAL MATTERS
(a) The relationship between Buyer and Seller is that of independent
contractors. Neither party will do anything which has the effect of creating an
obligation by the other party to a third party. If one party breaches this
commitment, it indemnifies the other party for all damages and costs the injured
party incurs which arise from the breach.
(b) Seller and Buyer will consult with each other before issuing any
press release or otherwise making any public statements with respect to this
Agreement and will not issue any such press release or make any such public
statement before such consultation, except as may be required by law or any
listing with a national securities exchange.
(c) This Agreement becomes effective when it is signed by an authorized
representative of each party and will be governed by New York law. It may later
be modified only by a writing signed by the contract managers for both parties.
POSITRON CORPORATION GENERAL ELECTRIC COMPANY
By ___________________________ By ____________________
Title ________________________ Title _________________
Date _________________________ Date __________________
-22-
<PAGE>
EXHIBIT 11.1
------------
POSITRON CORPORATION
STATEMENT RE: COMPUTATION OF PER SHARE LOSS
for the years ended December 31,
(in thousands, except share data)
<TABLE>
1995 1996
----------- -----------
<S> <C> <C>
Net loss ($5,028) ($6,375)
----------- -----------
($5,028) ($6,375)
=========== ===========
Weighted Average Shares used in computing Net Loss per Share 3,637,320 3,811,026
=========== ===========
Net Loss Per Share ($1.38) ($1.67)
=========== ===========
</TABLE>
<PAGE>
[LETTERHEAD OF COOPERS & LYBRAND L.L.P. APPEARS HERE]
EXHIBIT 23
----------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Positron Corporation on Form S-3 (File No. 333-40006) of our report dated April
9, 1997, which includes an explanatory paragraph concerning the Company's
ability to continue as a going concern, dated April 9, 1997, on our audits of
the financial statements as of December 31, 1995 and 1996, and for the years
then ended, which report is included in this Annual Report on Form 10-K.
Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Houston, Texas
April 15, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996
<PERIOD-START> JAN-01-1995 JAN-01-1996
<PERIOD-END> DEC-31-1995 DEC-31-1996
<CASH> 102 382
<SECURITIES> 0 0
<RECEIVABLES> 1417 520
<ALLOWANCES> 53 813
<INVENTORY> 2666 2633
<CURRENT-ASSETS> 58 426
<PP&E> 1028 967
<DEPRECIATION> 1337 1449
<TOTAL-ASSETS> 5898 5517
<CURRENT-LIABILITIES> 4604 6107
<BONDS> 0 0
0 0
0 2430
<COMMON> 36 43
<OTHER-SE> 1179 (3131)
<TOTAL-LIABILITY-AND-EQUITY> 5898 5517
<SALES> 3310 650
<TOTAL-REVENUES> 5327 3575
<CGS> 2549 316
<TOTAL-COSTS> 3468 2098
<OTHER-EXPENSES> 6831 7490
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 56 362
<INCOME-PRETAX> (5028) (6375)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (5028) (6375)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (5028) (6375)
<EPS-PRIMARY> (1.38) (1.67)
<EPS-DILUTED> (1.38) (1.67)
</TABLE>
