<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended June 30, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Transition Period From ____________to _____________
Commission File Number 0-20532
LIFEQUEST MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 74-2559866
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12961 Park Central, Suite 1300
San Antonio, Texas 78216
(Address of principal executive offices)
(Zip Code)
(210) 495-8787
(Registrant's telephone number, including area code)
---------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
---------------
Indicate the number of shares outstanding of each of the issuer's classes
of Common Stock, as of the latest practicable date.
On August 7, 1998, there were outstanding 7,212,742 shares of Common
Stock, $.001 par value, of the registrant.
<PAGE> 2
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1: Consolidated Financial Statements - (Unaudited)
Consolidated Balance Sheets - December 31, 1997, and June 30, 1998 3
Consolidated Statements of Operations - For the Three Months and Six Months
Ended June 30, 1997 and 1998 4
Consolidated Statements of Cash Flows - For the Six Months Ended
June 30, 1997 and 1998 5
Notes to Consolidated Financial Statements 7
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, June 30,
ASSETS 1997 1998
----------------- ----------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 3,236,307 $ 1,256,871
Short-term investments 144,682 146,403
Accounts receivable (net of allowance for doubtful accounts of
$256,362 in 1997 and $216,573 in 1998) 2,292,235 2,362,657
Accounts receivable from related party 17,710 19,279
Interest receivable 5,318 --
Inventories, net 1,745,523 1,708,165
Prepaid and other assets 172,209 35,409
------------ ------------
Total current assets 7,613,984 5,528,784
------------ ------------
Property, Plant and Equipment 1,541,376 1,610,050
Less-accumulated depreciation (922,437) (1,008,559)
------------ ------------
Net property, plant and equipment 618,939 601,491
Investments, at cost -- 2,202,500
Intangible Assets:
Deferred finance charges 180,996 168,068
Licensed technology rights 441,358 441,358
Goodwill, net 1,882,839 1,777,287
------------ ------------
Total assets $ 10,738,116 $ 10,719,488
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,605,366 $ 2,145,735
Accrued expenses 826,695 644,344
Current portion of long-term debt and
capital lease obligations 6,838 4,318
------------ ------------
Total current liabilities 3,438,899 2,794,397
------------ ------------
Convertible Debentures 3,000,000 3,000,000
------------ ------------
Minority Interest 108,802 107,506
------------ ------------
Commitments and Contingencies (Note 7)
Stockholders' Equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized;
no shares issued and outstanding -- --
Common stock, $.001 par value; 50,000,000 shares authorized;
shares issued and outstanding: 6,653,883 (1997)
and 7,212,742 (1998) 6,654 7,213
Additional paid-in capital 21,576,854 22,925,313
Deferred compensation (40,055) (25,223)
Accumulated deficit (17,353,038) (18,089,718)
------------ ------------
Total stockholders' equity 4,190,415 4,817,585
------------ ------------
Total liabilities and stockholders' equity $ 10,738,116 $ 10,719,488
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 4
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
------------------------------- ----------------------------------
1997 1998 1997 1998
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales
Product sales $ 3,067,900 $ 4,335,421 $ 6,360,837 $ 8,418,279
Commissions earned 230,946 307,881 359,127 594,464
----------- ----------- ------------ ------------
3,298,846 4,643,302 6,719,964 9,012,743
----------- ----------- ------------ ------------
Cost And Expenses:
Cost of sales 1,949,054 2,640,729 3,954,280 5,129,088
Selling, general and administrative 2,015,381 2,358,972 3,430,185 4,708,963
Depreciation and amortization 98,969 99,803 200,519 197,798
----------- ----------- ------------ ------------
4,063,404 5,099,504 7,584,984 10,035,849
----------- ----------- ------------ ------------
Loss From Operations (764,558) (456,202) (865,020) (1,023,106)
----------- ----------- ------------ ------------
Other Income (Expense):
Gain on sale of assets -- 411,017 -- 411,017
Investment income 36,968 7,704 67,325 21,343
Interest expense (15,376) (75,132) (29,171) (148,229)
Other 28,826 -- 28,925 --
----------- ----------- ------------ ------------
Net Loss Before Minority Interest (714,140) (112,613) (797,941) (738,975)
Minority Interest in Net Loss (Income) of
Consolidated Subsidiary 3,938 750 2,541 2,295
----------- ----------- ------------ ------------
Net Loss $ (710,202) $ (111,863) $ (795,400) $ (736,680)
=========== =========== ============ ============
Basic and Diluted Loss Per Share of
Common Stock $ (.11) $ (.02) $ (.13) $ (.11)
=========== =========== ============ ============
Weighted Average Shares Used In
Computing Basic and Diluted Loss
Per Share of Common Stock 6,294,064 6,846,853 6,224,072 6,776,356
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------------
1997 1998
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (795,400) $ (736,680)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Depreciation and amortization 200,519 197,798
Amortization of deferred finance charges -- 12,928
Deferred compensation -- 14,832
Loss on disposal of fixed assets -- 400
Minority interest in net loss of consolidated subsidiary (2,541) (2,295)
Changes in operating assets and liabilities-
Increase in accounts receivable, net (160,147) (70,422)
Increase in accounts receivable from related party (5,934) (1,569)
Decrease in interest receivable 42,273 5,318
Decrease (increase) in inventories, net (31,700) 37,358
Decrease in prepaid and other assets 46,770 29,518
Increase (decrease) in accounts payable 272,892 (459,631)
Decrease in accrued expenses (103,512) (182,351)
----------- -----------
Net cash provided by (used in) operating activities (536,780) (1,154,796)
----------- -----------
Cash Flows From Investing Activities:
Additions to property and equipment (102,005) (74,199)
Investment in affiliate -- (1,000,000)
Purchases of investments (2,004,353) (146,403)
Investment maturities 2,858,324 144,682
----------- -----------
Net cash provided by (used in) investing activities 751,966 (1,075,920)
----------- -----------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options 131,426 253,800
Payments on long-term debt and capital lease obligations (24,910) (2,520)
Dividends paid by acquired entity (34,844) --
----------- -----------
Net cash provided by financing activities 71,672 251,280
----------- -----------
Net increase (decrease) in cash and cash equivalents 286,858 (1,979,436)
Cash and cash equivalents, beginning of period 294,143 3,236,307
----------- -----------
Cash and cash equivalents, end of period $ 581,001 $ 1,256,871
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
-------------------------------
1997 1998
------------- ----------
<S> <C> <C>
Supplemental Disclosures Of Cash Flow Information:
Cash paid during the period for -
Interest $ 23,301 $ 134,086
Income taxes -- --
Noncash investing and financing activities -
Issuance of common stock for ownership interest in cost $ -- $1,202,500
method investee
Cancellation of options issued under consulting -- 107,282
arrangement
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 7
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
June 30, 1998
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of LifeQuest Medical,
Inc. (the "Company"), its four operating divisions, the Company's 82% ownership
interest in ValQuest Medical, Inc., and Canwell Surgical, Inc., a corporate
joint venture. All significant intercompany accounts and transactions have been
eliminated in consolidation. In January 1998, the Company paid $1,000,000 to
acquire 19.3 percent of the stock of TFX Holding Co. ("TFX"). TFX, an affiliate
of Teleflex, Inc., is a newly formed entity. In March 1998, the Company launched
distribution of certain patented devices owned by TFX. The Company accounts for
its investment in TFX under the cost method of accounting as it is unable to
exercise significant influence over the operating and financial policies of TFX.
In June 1998, the Company issued 370,000 shares of common stock at a per share
price of $3.25 with an aggregate value of $1,202,500 in exchange for
approximately four percent (4%) of the ownership interests of Ana-Tech, L.L.C.
(Ana-Tech) pursuant to a subscription agreement dated June 9, 1998. At the same
time, Ana-Tech, L.L.C. sold ownership interests for cash to third parties at the
same unit price. The Company accounts for the investment in Ana-Tech using the
cost method of accounting. The Company also has entered into an Assignment
Agreement dated June 30, 1998 with Ana-Tech, L.L.C., pursuant to which the
Company assigned all of its rights, duties and obligations under its
Osteoport(R) device patent license agreement. As consideration for such
assignment, the Company received $600,000 cash and will receive a five percent
(5%) royalty on future gross sales of the Osteoport(R) device. The assignment
resulted in a gain of $411,000. The consolidated financial statements included
herein have been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. However, all
adjustments have been made which are, in the opinion of the Company, necessary
for a fair presentation of the results of operations for the periods covered. In
addition, all such adjustments are of a normal recurring nature. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes that the disclosures are adequate to make the information
presented not misleading. It is recommended that these consolidated financial
statements be read in conjunction with the financial statements and the notes
thereto for the fiscal year ended December 31, 1997, included in the Company's
Form 10-KSB. Certain reclassifications have been made in the prior period
financial statements to conform with the current period presentation.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue Recognition
Product sales are recognized upon the shipment of products to customers.
Commissions earned are recognized when customer orders are placed with product
suppliers. The retail values of product and commission sales for the three
months ended June 30, 1997 and 1998 were approximately $4.5 million and $5.8
million, respectively. The retail values of product and commission sales for the
six months ended June 30, 1997 and 1998 were approximately $8.5 million and
$11.1 million, respectively. These include product sales as well as the gross
sales value of products for which the Company receives commissions.
NOTE 3 - BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share ("EPS") is computed by dividing net income
(loss) by the weighted average number of shares of common stock outstanding
during the period. Diluted EPS reflects the potential dilution that could occur
if securities or other contracts to issue common stock were exercised or
converted into common stock or resulted in the issuance of common stock that
then shared in the earnings of the Company. As the Company had a net loss for
the three months and the six months ended June 30, 1997 and 1998, Diluted EPS
equals Basic EPS as potentially dilutive common stock equivalents are
antidilutive in loss periods.
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<PAGE> 8
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, June 30,
1997 1998
----------- -----------
<S> <C> <C>
Raw materials $ 328,375 $ 335,336
Work-in-process 18,557 28,274
Finished Goods 1,579,551 1,525,515
Allowances (180,960) (180,960)
----------- -----------
$ 1,745,523 $ 1,708,165
=========== ===========
</TABLE>
NOTE 5 - ACQUISITIONS
Effective June 1997, Trimedica, Inc. ("Trimedica") was acquired by the Company
for an aggregate of 57,143 shares of common stock. The transaction was accounted
for using the pooling-of-interests accounting method. The net sales and net
income of Trimedica prior to the date of acquisition that have been included in
the consolidated statement of operations for the three months ended June 30,
1997 were $67,559 and $19,324 respectively. The net sales and net income of
Trimedica prior to the date of acquisition that have been included in the
consolidated statement of operations for the six months ended June 30, 1997 were
$148,464 and $49,230 respectively.
Effective September 1997, W. H. Bookwalter and Associates, Inc. ("Bookwalter")
was acquired by the Company for an aggregate of 466,473 shares of common stock.
The transaction was accounted for using the pooling-of-interests accounting
method. The net sales and net (loss) of Bookwalter prior to the date of
acquisition that have been included in the consolidated statement of operations
for the three months ended June 30, 1997 were $645,682 and ($45,131)
respectively. The net sales and net (loss) of Bookwalter prior to the date of
acquisition that have been included in the consolidated statement of operations
for the six months ended June 30, 1997 were $1,236,571 and ($90,340)
respectively.
NOTE 6 - EQUITY TRANSACTIONS
During the three months ended June 30, 1998, the Company granted 300,000 options
to purchase common stock of the Company to various employees with exercise
prices ranging from $4.00 per share to $4.375 per share. The option exercise
prices were determined by the market value per share on date of grant. These
options vest over a four year period and expire ten years from date of grant.
NOTE 7 - COMMITMENTS AND CONTINGENCIES
In June 1998, a case was filed in the State Court of Fulton County, Georgia,
alleging that the Company breached a distribution agreement with the plaintiff.
The plaintiff asserts damages of approximately $400,000, plus unspecified
"consequential" damages. The Company is contesting the plaintiff's claims and
intends to defend itself vigorously. The Company has filed a counterclaim
against the plaintiff and removed the case to the United States District Court
for the Northern District of Georgia, Atlanta Division.
The Company is also a party to claims and legal proceedings arising in the
ordinary course of business. The Company believes it is unlikely that the final
outcome of any of the claims or proceedings to which the Company is a party,
including the case described above, would have a material adverse effect on the
Company's financial statements; however, due to the inherent uncertainty of
litigation, the range of possible loss, if any, cannot be estimated with a
reasonable degree of precision and there can be no assurance that the resolution
of any particular claim or proceeding would not have an adverse effect on the
Company's results of operations for the interim period in which such resolution
occurred.
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<PAGE> 9
NOTE 8 - PURCHASE BUSINESS COMBINATION ENTRIES
During the second quarter of 1997, the Company determined that approximately
$700,000 of accrued liabilities that had been recorded in connection with the
Val-U-Med acquisition in December 1996 were not required and the liabilities and
selling, general and administrative expenses were reduced by a corresponding
amount during the three months ended June 30, 1997. Under purchase business
combination accounting, liabilities which were established on the date of
acquisition that are ultimately deemed unnecessary should result in a reduction
of the liability with a corresponding reduction in goodwill. During the fourth
quarter of 1997, the Company recognized approximately $700,000 in selling,
general and administrative expenses with a corresponding reduction in goodwill
to reflect the appropriate accounting treatment related to these liabilities.
The accompanying interim consolidated results of operations have been revised
for the three months and six months ended June 30, 1997 to reflect the
accounting treatment reflected in the 1997 year-end financial statements.
NOTE 9 - CONVERTIBLE DEBENTURES
In December 1997, the Company sold 250,000 shares of its common stock to
affiliates of Renaissance Capital Group, Inc. (Renaissance) in a private
placement for proceeds of $1,000,000 and placed $3,000,000 in 9 percent
Convertible Debentures (Debentures) with Renaissance. The Debentures require
monthly payments of interest, and unless sooner paid, redeemed or converted,
require monthly principal payments commencing in December 2000 of $10 per $1000
of the then remaining principal amount. The remaining principal balance will
mature in December 2004. The Debenture agreement contains various affirmative
and negative covenant requirements and the maintenance of certain financial
ratios and the Debentures are secured by substantially all assets of the
Company. At December 31, 1997, the Company was in compliance with all of the
covenants of the Debentures. The Company has obtained waivers to suspend certain
affirmative financial covenant requirements for each of the quarters in the year
ending December 31, 1998. Management of the Company, based upon forecast
operations, believes that it will be able to maintain compliance with all of the
covenant requirements during 1999 and beyond. If the Company is unable to comply
with such requirements in the future, the Company could be found to be in
technical default under the Debentures, and Renaissance would have the right to
demand immediate repayment of the entire amount outstanding. There can be no
assurances that the Company will be able to maintain future compliance with all
of the covenant requirements under the Debentures and failure to do so could
have a material adverse effect on the Company's financial position. The
following table shows the principal maturities of the Debentures as of December
31, 1997:
<TABLE>
<S> <C>
1998 $ --
1999 --
2000 30,000
2001 335,000
2002 300,000
Thereafter 2,335,000
------------
Total $ 3,000,000
============
</TABLE>
The holders of the Debentures have the option to convert at any time all or a
portion of the Debentures into shares of the Company's common stock. As a result
of certain equity transactions during 1998, the conversion price per share was
reduced from $4 to $3.25. The conversion price is subject to further downward
revision in connection with the preferred stock placement discussed in Note 10.
The Debentures are also subject to a one-time adjustment to the conversion price
whereby the price will be reduced if the Company does not achieve certain
financial objectives during 1998 and the current market price, as defined in the
Debenture agreement, following the Company's public release of its 1998
financial results is less than $4 per share. The provisions of the Debenture
agreement provide that the holders of the Debentures have an option to redeem
the Debentures, in an amount equal to an 18 percent annual yield on the
principal balance, upon the occurrence of certain events including delisting of
the Company's common stock and certain "change of control" provisions, as
defined in the Debenture agreement, as they relate to the Company. The Company
may redeem the Debentures at its option subject to certain share price and
market activity levels being obtained. The Company's right of redemption is
subject to the holder's prior right of conversion of the Debentures.
NOTE 10 - SUBSEQUENT EVENT
On August 11, 1998, pursuant to the terms of a private placement, the Company
issued to two affiliates of Renaissance Capital Group, Inc. and certain
individuals, including an Officer of the Company, an aggregate of 1,170 shares
of 8% Series
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<PAGE> 10
A Cumulative Convertible Preferred Stock (the "Series A Preferred") at a per
share purchase price of $1,000. The Series A Preferred is convertible into an
aggregate of 585,000 shares of Common Stock (subject to adjustment) at a
conversion price not to exceed $2.00.
Item 2. Management's Discussion And Analysis Of Financial Condition And Results
Of Operations
Certain statements contained in this Item 2, "Management's Discussion
and Analysis of Financial Condition and Results of Operations," are
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Exchange Act of 1934, as
amended. Specifically, all statements other than statements of historical fact
included in this Item 2 regarding LifeQuest Medical, Inc. and its subsidiaries'
and affiliates' (collectively, the "Company") financial position, business
strategy and plans and objectives of management of the Company for future
operations are forward-looking statements. These forward-looking statements are
based on the beliefs of the Company's management, as well as assumptions made by
and information currently available to the Company's management. When used in
this report, the words "anticipate," "believe," "estimate," "expect" and
"intend" and words or phrases of similar import, as they relate to the Company
or Company's management are intended to identify forward-looking statements.
Such statements reflect the current view of the Company with respect to future
events and are subject to certain risks, uncertainties and assumptions related
to certain factors including, without limitation, the Company's ability to
manufacture, market and distribute safe and effective products on a
cost-effective basis, demand for and acceptance of the Company's products, the
level of competition in the marketplace, the ability of the Company's customers
to be reimbursed by third-party payors, competitive factors, general economic
conditions, customer relations, relationships with vendors, the interest rate
environment, governmental regulation and supervision, product introductions and
acceptance, technological change, changes in industry practices, one-time events
and other factors described herein, in the Company's Registration Statement on
Form S-3 filed with the Security and Exchange Commission ("SEC") on April 16,
1998, and in the Company's annual, quarterly and other reports filed with the
SEC (collectively, "cautionary statements"). Although the Company believes that
its expectations are reasonable, it can give no assurance that such expectations
will prove to be correct. Based upon changing conditions, should any one or more
of these risks or uncertainties materialize, or should any underlying
assumptions prove incorrect, actual results may vary materially from those
described herein as anticipated, believed, estimated, expected or intended. All
subsequent written and oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified in their
entirety by the applicable cautionary statements. The Company does not intend to
update these forward-looking statements.
OVERVIEW
From inception through December 31, 1995, the Company was a development
stage enterprise whose efforts and resources were devoted primarily to research
and development activities related to its initial products. During this
development stage, the Company generated minimal operating revenues. As of June
30, 1998, the Company had an accumulated deficit of approximately $18.1 million.
There can be no assurance that the Company will not continue to incur losses,
that the Company will be able to raise cash as necessary to fund operations or
that the Company will ever achieve profitability.
Effective January 1, 1998, the Company merged all of its wholly owned
subsidiaries with and into the Company. In conjunction with this upward merger,
the Company created four new operating divisions: Endo-Surgery, Surgical
Systems, Med-Service, and Technologies.
In December 1997, the Company entered into an agreement to acquire
approximately 20 percent of the stock of TFX Holding Co. ("TFX") for $1,000,000
which was paid in January 1998. TFX owns the patented Dexterity(R) Pneumo Sleeve
and Dexterity(R) Protractor products.
In December 1997, the Company and Canwell Medical, Inc. formed Canwell
Surgical, Inc. ("Canwell") for the purpose of selling minimally invasive
surgical products in China and other Asian countries. The Company and Canwell
Medical, Inc. each own 50% of the ownership interests of Canwell. Through June
30, 1998, the Company has loaned approximately $115,000 to Canwell for working
capital requirements. The loan is unsecured and bears interest at 9 percent per
annum with the principal maturing in January 2000. The Company is currently in
the process of terminating Canwell as part of the Company's central focus on the
U.S. markets.
Effective September 1997, Mishbucha, Inc. d/b/a Medex Surgical ("Medex
Surgical") was acquired by the Company and merged into Klein Medical, Inc., a
wholly owned subsidiary of the Company ("Klein"). Medex Surgical was
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<PAGE> 11
purchased for an aggregate of 98,246 shares of common stock, $.001 par value, of
the Company ("Common Stock"). Medex Surgical was formed during 1997 and the
transaction was accounted for using the pooling-of-interests accounting method.
Medex Surgical business activity has allowed the Company to further expand its
geographical area.
Effective September 1997, W. H. Bookwalter and Associates, Inc.
("Bookwalter") was acquired by the Company and merged into Val-U-Med, Inc. a
wholly owned subsidiary of the Company. Bookwalter was purchased for an
aggregate of 466,473 shares of Common Stock. The transaction was accounted for
using the pooling-of-interests accounting method, therefore, the assets,
liabilities, and operations of Bookwalter prior to the merger are included in
the consolidated financial statements for all periods reported herein.
Bookwalter business activity has provided the Company with distribution coverage
in the northeastern region of the United States.
Effective June 1997, Trimedica, Inc. ("Trimedica") was acquired by the
Company and merged into Klein. Trimedica was purchased for an aggregate of
57,143 shares of Common Stock. The transaction was accounted for using the
pooling-of-interests accounting method, therefore, the assets, liabilities, and
operations of Trimedica prior to the merger are included in the consolidated
financial statements for all periods reported herein. Trimedica business
activity constitutes the new orthopedic sales force of Klein.
LIQUIDITY AND CAPITAL RESOURCES
On August 11, 1998, pursuant to the terms of a private placement, the
Company issued to two affiliates of Renaissance Capital Group, Inc. and certain
individuals, including an Officer of the Company, an aggregate of 1,170 shares
of 8% Series A Cumulative Convertible Preferred Stock (the "Series A Preferred")
at a per share purchase price of $1,000. The Series A Preferred is convertible
into shares of Common Stock at a conversion price not to exceed $2.00.
At June 30, 1998, the Company had current assets of $5,529,000 and
current liabilities of $2,794,000 resulting in working capital of $2,735,000.
This compares to a working capital position of $4,175,000 at December 31, 1997.
The decline in working capital is primarily due to the Company's net loss and
its $1,000,000 investment in the common stock of TFX.
Pursuant to a Subscription Agreement dated June 9, 1998, the Company
issued 370,000 shares of the Company's Common Stock, at a per share price of
$3.25, with an aggregate value of $1,202,500 in exchange for approximately four
percent (4%) of the ownership interests of Ana-Tech, L.L.C. At the same time,
Ana-Tech, L.L.C. sold ownership interests for cash to third parties at the same
unit price. The Company also has entered into an Assignment Agreement dated June
30, 1998 with Ana-Tech, L.L.C., pursuant to which the Company assigned all of
its rights, duties and obligations under its Osteoport(R) device patent license
agreement. As consideration for such assignment, the Company received $600,000
cash and will receive a five percent (5%) royalty on future gross sales of the
Osteoport(R) device. The assignment resulted in a gain of $411,000.
Pursuant to the terms of a private placement in December 1997, the
Company issued to two affiliates of Renaissance Capital Group, Inc. an aggregate
of (i) 250,000 shares of Common Stock at a per share purchase price of $4.00,
and (ii) 9% convertible debentures in an aggregate amount of $3,000,000. The
debentures mature in December 2004 and are convertible at any time prior to
maturity into shares of Common Stock at an initial conversion price not to
exceed $4.00. At June 30, 1998, the conversion price was $3.25 as a result of
antidilution provisions and is subject to further downward revision in
connection with the preferred stock placement discussed above. Unless the
debentures are earlier converted, the Company shall make interest payments on
the debentures for three years, and then payments of principal and interest
until maturity.
On February 2, 1996, the Company borrowed $750,000 from a commercial
bank pledging a like amount of short-term investments as collateral. The loan
proceeds were used to replace more expensive debt, mainly capital equipment
leases, acquired with the acquisition of GM Engineering, Inc. ("GME"). On
September 3, 1997, the loan was converted to a line of credit maturing September
1998 whereby all inventories, accounts receivable and intangibles of the Company
are pledged as collateral. The line of credit was paid in full in December 1997
with proceeds from the December 1997 private placement described above. There
was no outstanding balance on the line of credit at June 30, 1998.
Capital expenditures were $74,000 during the first six months of 1998.
The Company anticipates further capital expenditures as the Company's
geographical expansion continues.
-11-
<PAGE> 12
Based upon the current level of operations, the Company believes that
projected cash flow from operations plus the Company's cash from the realization
of its current assets will be adequate to meet its anticipated requirements for
working capital and capital expenditures through 1998. However, additional
capital may be required in order for the Company to take advantage of any
potential acquisition opportunities or to participate in future alliances or
joint ventures. There can be no assurance that the Company will not require
additional funding or that such additional funding, if needed, will be available
on terms beneficial to the Company or at all.
RESULTS OF OPERATIONS
For the three months ended June 30, 1998, the Company reported a net
loss of $112,000 or $.02 per share. This compares with a net loss of $710,000
for the three months ended June 30, 1997. For the six months ended June 30,
1998, the Company reported a net loss of $737,000 versus a net loss of $795,000
for the comparable period of 1997. The improvement in reported results for 1998
was primarily due to an increase in net sales and gross profit margins. The net
losses for the three months and six months ended June 30, 1998 included an
approximate $400,000 gain on the sale of the Osteoport(R) device as previously
discussed.
Product sales increased 41% in the second quarter 1998 and 32% in the
first six months of 1998 as compared with the same periods in 1997. Product
sales were $4,335,000 for the second quarter of 1998 and $3,067,900 for the
second quarter of 1997. Product sales for the first six months of 1998 and 1997
were $8,418,000 and $6,361,000 respectively. These increases were due to
continued sales growth throughout the Company within existing product lines and
sales generated by the Dexterity(R) product line which was added in March 1998.
Commission sales increased 33% in the second quarter 1998 and 66% in
the first six months of 1998 as compared with the same periods in 1997.
Commission sales were $308,000 in the second quarter of 1998 and $231,000 in the
second quarter of 1997. Commission sales for the first six months of 1998 and
1997 were $594,000 and $359,000 respectively. The increase in commission sales
reflects the continuing acquisition of new product representations and new sales
territories within existing product lines.
Gross profit from product sales in the second quarter was $1,695,000 in
1998 versus $1,119,000 in 1997. The corresponding gross profit margins were 39%
in 1998 and 36% in 1997. For the six months ended June 30, gross profit was
$3,289,000 or 39% in 1998 and $2,407,000 or 38% in 1997. The increase in margins
is a result of the realization of the efficiencies incurred through expanding
volumes and economies of scale.
For the second quarter, selling, general and administrative expenses,
which consist primarily of sales commissions, salaries and other costs necessary
to support the Company's infrastructure, increased to $2,359,000 in 1998 from
$2,015,000 in 1997. For the first six months of 1998, these expenses increased
37% from $3,430,000 to $4,709,000. These increased costs reflect higher sales
commissions due to the acquisition of new product representations and new sales
territories within existing product lines.
Investment income represents interest earned on the Company's
short-term investments. Therefore, investment income declined from $67,000 in
1997 to $21,000 in 1998 as the level of short-term investments declined from
year to year.
The minority interest in net loss of consolidated subsidiary reflects
the minority ownership share of ValQuest's operations.
The efficient operation of the Company's business is dependent on its
computer software programs and operating systems (collectively, "Programs and
Systems"). These Programs and Systems are used in several key areas of the
Company's business, including information management services and financial
reporting, as well as in various administrative functions. The Company has been
evaluating its Programs and Systems to identify potential year 2000 compliance
problems, as well as manual processes, external interfaces with customers, and
services supplied by vendors to coordinate year 2000 compliance and conversion.
The year 2000 problem refers to the limitations of the programming code in
certain existing software programs to recognize date sensitive information for
the year 2000 and beyond. Unless modified prior to December 31, 1999, such
systems may not properly recognize date-sensitive information and could generate
erroneous data or cause a system to fail to operate properly. Based on current
information, the Company expects to attain year 2000 compliance and institute
appropriate testing of its modifications and replacements in a timely fashion
and in advance of the year 2000 date change. It is anticipated that modification
or replacement of the Company's Programs and Systems will be performed in-house
by company personnel.
-12-
<PAGE> 13
The Company believes that, with modifications to existing software and
conversions to new software, the year 2000 problem will not pose a significant
operational problem for the Company. However, because most computer systems are,
by their very nature, interdependent, it is possible that non-compliant third
party computers may not interface properly with the Company's computer systems.
The Company could be adversely affected by the year 2000 problem if it or
unrelated parties fail to successfully address this issue. Management of the
Company currently anticipates that the expenses and capital expenditures
associated with its year 2000 compliance project, including costs associated
with modifying the Programs and Systems as well as the cost of purchasing or
leasing certain hardware and software, will not have a material effect on its
business, financial condition or results of operations and are expenses and
capital expenditures the Company anticipated incurring in the ordinary course of
business regardless of the year 2000 problem. Purchased hardware and software
has been and will continue to be capitalized in accordance with normal policy.
Personnel and other costs related to this process are being expensed as
incurred.
The costs of year 2000 compliance and the expected completion dates are
the best estimates of Company management and are believed to be reasonably
accurate. In the event the Company's plan to address the year 2000 problem is
not successfully or timely implemented, the Company may need to devote more
resources to the process and additional costs may be incurred, which could have
a material adverse effect on the Company's financial condition and results of
operations. Problems encountered by the Company's vendors, customers and other
third parties also may have a material adverse effect on the Company's financial
condition and results of operations.
In the event the Company determines, following the year 2000 date
change, that its Programs and Systems are not year 2000 compliant, the Company
will likely experience considerable delays in processing customer orders and
invoices, compiling information required for financial reporting and performing
various administrative functions. In the event of such occurrence, the Company's
contingency plans call for it to switch vendors to obtain hardware and/or
software that is year 2000 compliant, and until such hardware and/or software
can be obtained, the Company will plan to use non-computer systems for its
business, including information management services and financial reporting, as
well as its various administrative functions.
-13-
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings - See Note 7 of Notes to Consolidated Financial
Statements
Item 2. Changes in Securities
(a) On August 11, 1998, pursuant to the terms of a private placement,
the Company issued to two affiliates of Renaissance Capital Group,
Inc. and certain individuals, including an Officer of the Company, an
aggregate of 1,170 shares of 8% Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred") at a per share purchase
price of $1,000. The Series A Preferred is convertible into an
aggregate of 585,000 shares of Common Stock (subject to adjustment)
at a conversion price not to exceed $2.00. Dividends cumulatively
accrue on the Series A Preferred at a rate of $80 per annum per
share. So long as any accrued dividends on Series A Stock are unpaid,
no dividends may be declared on Common Stock. The holders of Series A
Stock shall be entitled, upon a liquidation of the Company, to
receive $1,000 per share of Series A Stock, plus all accrued and
unpaid dividends. The holders of the Series A Stock have the right to
one vote per share of Series A Stock on all matters submitted to a
vote of the stockholders of the Company. The affirmative vote of
66-2/3% of the shares of Series A Stock then outstanding is required
to materially amend the Certificate of Incorporation or Bylaws of the
Company. In the event two quarterly dividends on the Series A Stock
shall be in arrears, the holders of the Series A Stock have the right
to elect or designate two directors of the Company.
(b) Not applicable
(c) Pursuant to a Subscription Agreement (the "Agreement") dated June
9, 1998 between the Company and Ana-Tech, L.L.C. a Nevada limited
liability company ("Ana-Tech"), the Company issued 370,000 shares of
common stock, $.001 par value ("Common Stock"), to Ana-Tech in
exchange for approximately four percent (4%) of the ownership
interests of Ana-Tech. The Common Stock was not registered under the
Securities Act of 1933, as amended (the "Securities Act"), pursuant
to the exemptions of such registration provided under Section 4(2) of
the Securities Act and Regulation D ("Regulation D") of the rules and
regulations promulgated under the Securities Act by the Securities
and Exchange Commission. The Company relied upon certain
representations and warranties of Ana-Tech, including, among other
things, as to its status as an accredited investor (as that term is
defined in Rule 501(a) of Regulation D), and that the Common Stock
was acquired solely for its own account for investment and not with a
view to distribution.
Item 3. Defaults Upon Senior Securities - Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was held on May 19, 1998.
(b) The following directors were elected to serve until the next
Annual Meeting of Stockholders or until their successors have
been elected and qualified:
Randall K. Boatright Robert B. Johnson
Robert L. Evans Jeffrey H. Berg
Richard H. Klein Kalford C. Fadem
William H. Bookwalter
(c) (1) The directors named in (b) above were elected by the
following votes:
<TABLE>
<CAPTION>
NAME NO. OF VOTES FOR SHARES WITHHELD
---- ---------------- ---------------
<S> <C> <C>
Richard H. Klein 5,107,632 61,700
Robert L. Evans 5,107,632 61,700
Randall K. Boatright 5,107,132 62,200
Robert B. Johnson 5,107,632 61,700
Jeffrey H. Berg 5,107,632 61,700
Kalford C. Fadem 5,107,632 61,700
William H. Bookwalter 5,107,632 61,700
</TABLE>
(2) With respect to the proposal to amend the
Company's Certificate of Incorporation to
increase the number of authorized shares of
the Company's Common Stock to 50,000,000, it
was approved as 4,834,090 shares of Common
Stock were voted "For", 327,722 shares were
voted "Against", and 7,520 shares abstained
from voting.
-14-
<PAGE> 15
(3) Regarding the appointment of the independent
public accountants, 4,841,329 voted for the
ratification of the appointment of the
accounting firm of Arthur Andersen LLP as
the Company's independent accountants for
1998. The number of shares that voted
against the ratification was 8,430 and the
holders of 319,573 shares abstained from
voting.
Item 5. DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
The deadline for submission of stockholder proposals pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended ("Rule
14a-8"), for inclusion in the Company's proxy statement for its 1999
annual meeting of stockholders is December 14, 1998. After February
27, 1999, notice to the Company of a stockholder proposal submitted
otherwise than pursuant to Rule 14a-8 will be considered untimely, and
the persons named in proxies solicited by the Board of Directors of
the Company for its 1999 Annual meeting of Stockholders may exercise
discretionary authority voting power with respect to any proposal as
to which the Company does not receive timely notice.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 3.1* Restated Certificate of Incorporation of
the Company
Exhibit 10.1* Employment Agreement dated April 1, 1998
between the Company and Randall K. Boatright
Exhibit 10.2* Employment Agreement dated May 11, 1998
between the Company and Richard A. Woodfield
Exhibit 10.3 Non-Qualified Stock Option Agreement
dated May 11, 1998 between the Company and
Richard A. Woodfield (incorporated herein by
reference herein to Exhibit 4.7 to the
Company's Registration Statement on Form S-8
filed August 4, 1998)
Exhibit 10.4* Subscription Agreement dated June 9 1998
between the Company and Ana-Tech, L.L.C.
Exhibit 10.5* Series A Cumulative Convertible Stock
Purchase Agreement dated August 11, 1998,
among the Company, Renaissance Capital
Growth and Income Fund III, Inc. and
Renaissance U.S.
Growth & Income Trust, PLC.
Exhibit 10.6* Series A Cumulative Convertible Preferred
Stock Purchase Agreement dated August 11,
1998 among the Company, Richard A. Woodfield
and R. Michael Yates
Exhibit 11* Computation of Earnings (Loss) Per Share
Exhibit 27.1* Financial Data Schedule for the six months
ended June 30, 1998
Exhibit 27.2* Financial Data Schedule for the six months
ended June 30, 1997
(b) Reports on Form 8-K:
Form 8-K dated June 30, 1998 described the Subscription
Agreement dated June 9, 1998 and the Assignment Agreement dated
June 30, 1998 between the Company and Ana-Tech, L.L.C.
*Filed herewith
-15-
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
LIFEQUEST MEDICAL, INC.
(Registrant)
Dated: August 13, 1998 By /s/ RICHARD A. WOODFIELD
--------------------------------
Richard A. Woodfield
President and Chief Executive
Officer
(Principal Executive Officer)
Dated: August 13, 1998 By /s/ RANDALL K. BOATRIGHT
--------------------------------
Randall K. Boatright
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
-16-
<PAGE> 17
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
Exhibit 3.1* Restated Certificate of Incorporation of
the Company
Exhibit 10.1* Employment Agreement dated April 1, 1998
between the Company and Randall K. Boatright
Exhibit 10.2* Employment Agreement dated May 11, 1998
between the Company and Richard A. Woodfield
Exhibit 10.3 Non-Qualified Stock Option Agreement
dated May 11, 1998 between the Company and
Richard A. Woodfield (incorporated herein by
reference herein to Exhibit 4.7 to the
Company's Registration Statement on Form S-8
filed August 4, 1998)
Exhibit 10.4* Subscription Agreement dated June 9 1998
between the Company and Ana-Tech, L.L.C.
Exhibit 10.5* Series A Cumulative Convertible Stock
Purchase Agreement dated August 11, 1998,
among the Company, Renaissance Capital
Growth and Income Fund III, Inc. and
Renaissance U.S.
Growth & Income Trust, PLC.
Exhibit 10.6* Series A Cumulative Convertible Preferred
Stock Purchase Agreement dated August 11,
1998 among the Company, Richard A. Woodfield
and R. Michael Yates
Exhibit 11* Computation of Earnings (Loss) Per Share
Exhibit 27.1* Financial Data Schedule for the six months
ended June 30, 1998
Exhibit 27.2* Financial Data Schedule for the six months
ended June 30, 1997
*Filed herewith
<PAGE> 1
EXHIBIT 3.1
RESTATED
CERTIFICATE OF INCORPORATION
OF
LIFEQUEST MEDICAL, INC.
LifeQuest Medical, Inc., a corporation organized and existing under
the laws of the State of Delaware, hereby certifies as follows:
I. The name of the corporation is LifeQuest Medical, Inc. and the name
under which the corporation was originally incorporated was Lifeline, Inc. The
date of filing of its original Certificate of Incorporation with the Secretary
of State of Delaware is December 23, 1988.
II. Pursuant to Section 245 of the General Corporation Law of the State
of Delaware, this Restated Certificate of Incorporation restates and integrates
and does not further amend the provisions of the Certificate of Incorporation of
this corporation.
III. The text of the Restated Certificate of Incorporation as
heretofore amended and supplemented is hereby restated to read in its entirety
as follows:
1. The name of the corporation is LifeQuest Medical, Inc. (the
"Company").
2. The address of its registered office in the State of Delaware is
Corporation Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle. The name of its registered agent at such address is The
Corporation Trust Company.
3. The nature of the business or purposes to be conducted or promoted
is: to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of Delaware.
4. The total number of shares of all classes of stock which the
Company shall be authorized to issue is 52,000,000 shares, divided into the
following: (i) 2,000,000 shares of preferred stock, of the par value of $.001
(one tenth of one cent) per share (hereafter called "Preferred Stock"); and
(ii) 50,000,000 shares of common stock, of the par value of $.001 (one tenth of
one cent) per share (hereafter called "Common Stock"). The board of directors
of the Company shall have the authority to fix by resolution the designations,
preferences and relative, participating, optional or other special rights, and
qualifications, limitations or restrictions of any class or series of capital
stock of the Company.
4.1 NUMBER OF SHARES AND DESIGNATION. This series of Preferred Stock,
$.001 par value, shall be designated as Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock"), and the number of shares
which shall constitute such series shall be 1,170 shares.
<PAGE> 2
4.2 DEFINITIONS. For purposes of the Series A Preferred Stock, the
following terms shall have the meanings indicated below:
"Act" shall mean the Securities Act of 1933, as amended.
"Affiliate" of a person means a person that directly, or indirectly
through one or more intermediaries, controls or is controlled by, or
is under common control with, the person specified.
"Board of Directors" shall mean the Board of Directors of the
Corporation or any committee authorized by such Board of Directors to
perform any of its responsibilities with respect to the Series A
Preferred Stock.
"Business Day" shall mean any day other than a Saturday, Sunday or a
day on which state or federally chartered banking institutions in New
York, New York are not required to be open.
"Common Stock" shall mean the common stock, $.001 par value, of the
Corporation or such shares of the Corporation's capital stock into
which such Common Stock shall be reclassified.
"Current Market Price" of publicly traded shares of Common Stock or
any other class or series of capital stock or other security of the
Corporation or of any similar security of any other issuer for any day
shall mean the last reported sale price, regular way on such day, or,
if no sale takes place on such day, the reported closing bid price,
regular way on such day, in either case as reported on the NASDAQ
National Market of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ") or, if not quoted on
NASDAQ, on the principal national securities exchange on which such
security is listed or admitted for trading or, if such security is not
listed or admitted for trading on a national securities exchange or
quoted on the NASDAQ National Market, the closing bid price on such
day in the over-the-counter market as reported by NASDAQ, or, if the
bid price for such security on such day shall not have been reported
through NASDAQ, the bid price on such day as furnished by any NYSE
member firm regularly making a market in such security selected for
such purpose by the Chief Executive Officer or the Board of Directors
or if any class or series of securities are not publicly traded, the
fair value of the shares of such class as determined reasonably and in
good faith by the Board of Directors of the Corporation or other
issuer.
"Dividend Payment Date" shall mean, with respect to each Dividend
Period, the last day of March, June, September and December, in each
year, commencing on September 30, 1998; provided, however, that if any
Dividend Payment Date falls on any day other than a Business Day, the
dividend payment due on such Dividend Payment Date shall be paid on
the Business Day immediately following such Dividend Payment Date.
<PAGE> 3
"Dividend Periods" shall mean quarterly dividend periods commencing on
January 1, April 1, July 1 and October 1 of each year and ending on
and including the day preceding the first day of the next succeeding
Dividend Period (other than the initial Dividend Period, which shall
commence on the Issue Date and end on and include September 30, 1998).
"Fair Market Value" on any date shall mean the average of the daily
Current Market Price of a share of Common Stock during five (5)
consecutive Trading Days ending on the day before such date.
"Funds Available for Distribution" shall mean funds from operations
(net income, computed in accordance with generally accepted accounting
principles, excluding gains or losses from debt restructuring and
sales of property, plus depreciation and amortization) minus
non-revenue generated capital expenditures and debt principal
amortization, as determined by the Board of Directors on a basis
consistent with the policies and practices adopted by the Corporation
for reporting publicly its results of operations and financial
condition.
"Issue Date" shall mean August 11, 1998.
"Junior Stock" shall have the meaning set forth in paragraph (c) of
Section 8 hereof.
"NYSE" shall mean the New York Stock Exchange.
"Parity Stock" shall have the meaning set forth in paragraph (b) of
Section 8 hereof.
"Permitted Common Stock Cash Distributions" means cash dividends and
cash distributions paid on Common Stock after December 31, 1997 not in
excess of the sum of the Corporation's cumulative undistributed net
earnings at December 31, 1997, plus the cumulative amount of Funds
Available for Distribution after December 31, 1997, minus the
cumulative amount of dividends accumulated, accrued or paid on the
Series A Preferred Stock or any other class of Preferred Stock after
January 1, 1998.
"Person" shall mean any individual, partnership, corporation or other
entity and shall include the successor (by merger or otherwise) of
such entity.
"Redemption Date" shall have the meaning set forth in paragraph (b) of
Section 6 hereof.
"Series A Preferred Stock" shall have the meaning set forth in Section
1 hereof.
"Set apart for payment" shall be deemed to include, without any action
other than the following, the recording by the Corporation in its
accounting ledgers of any accounting or bookkeeping entry which
indicates, pursuant to a declaration of dividends or other
<PAGE> 4
distribution by the Board of Directors, the allocation of funds to be
so paid on any series or class of capital stock of the Corporation;
provided, however, that if any funds for any class or series of Junior
Stock or any class or series of Parity Stock are placed in a separate
account of the Corporation or delivered to a disbursing, paying or
other similar agent, then "set apart for payment" with respect to the
Series A Preferred Stock shall mean placing such funds in a separate
account or delivering such funds to a disbursing, paying or other
similar agent.
"Trading Day," as to any securities, shall mean any day on which such
securities are traded on the NYSE or, if such securities are not
listed or admitted for trading on the NYSE, on the principal national
securities exchange on which such securities are listed or admitted
or, if such securities are not listed or admitted for trading on any
national securities exchange, on the NASDAQ National Market or, if
such securities are not quoted on the NASDAQ National Market, in the
securities market in which such securities are traded.
4.3 DIVIDENDS.
(a) The holders of Series A Preferred Stock shall be entitled to
receive, when and as declared by the Board of Directors out of funds legally
available for that purpose, cumulative dividends payable in cash in an amount
per share of Series A Preferred Stock equal to $80 per annum. Such dividends
shall be cumulative from the Issue Date, whether or not in any Dividend Period
or Periods such dividends shall be declared or there shall be funds of the
Corporation legally available for the payment of such dividends, and shall be
payable quarterly on the Dividend Payment Dates, commencing on the first
Dividend Payment Date after the Issue Date. Each such dividend shall be payable
to the holders of record of the Series A Preferred Stock, as they appear on the
stock records of the Corporation at the close of business on a record date
which shall be not more than sixty (60) days prior to the applicable Dividend
Payment Date. Accumulated, accrued and unpaid dividends for any past Dividend
Periods may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to holders of record on such date, which date shall not
precede by more than forty-five (45) days the payment date thereof, as may be
fixed by the Board of Directors. The amount of accumulated, accrued and unpaid
dividends on any share of Series A Preferred Stock, or fraction thereof, at any
date shall be the amount of any dividends thereon calculated at the applicable
rate to and including such date, whether or not earned or declared, which have
not been paid in cash.
(b) The amount of dividends payable per share of Series A
Preferred Stock for each Dividend Period shall be computed by dividing the
annual dividend by four (4). The amount of dividends payable per share of
Series A Preferred Stock for the initial Dividend Period, or any other period
shorter or longer than a full Dividend Period, shall be computed ratably on the
basis of twelve (12) 30-day months and a 360-day year. Holders of Series A
Preferred Stock shall not be entitled to any dividends, whether payable in
cash, property or stock, in excess of cumulative dividends, as herein provided
on the Series A Preferred Stock.
<PAGE> 5
No interest, or sum of money in lieu of interest, shall be payable in respect
of any dividend payment or payments on the Series A Preferred Stock that may be
in arrears.
(c) So long as any of the shares of Series A Preferred Stock are
outstanding, no dividends, except as described in the immediately following
sentence, shall be declared or paid or set apart for payment by the
Corporation, or other distribution of cash or other property declared or made
directly or indirectly by the Corporation or any affiliate or any person acting
on behalf of the Corporation or any of its affiliates with respect to any class
or series of Parity Stock for any period, unless dividends equal to the full
amount of accumulated, accrued and unpaid dividends have been or
contemporaneously are declared and paid or declared and a sum sufficient for
the payment thereof have been or contemporaneously are set apart for such
payment on the Series A Preferred Stock for all Dividend Periods terminating on
or prior to the Dividend Payment Date with respect to such class or series of
Parity Stock. When dividends are not paid in full or a sum sufficient for such
payment is not set apart, as aforesaid, all dividends declared upon the Series
A Preferred Stock and all dividends declared upon any other class or series of
Parity Stock shall be declared ratably in proportion to the respective amounts
of dividends accumulated, accrued and unpaid on the Series A Preferred Stock
and accumulated, accrued and unpaid on such Parity Stock.
(d) So long as any of the shares of Series A Preferred Stock are
outstanding, no dividends (other than dividends or distributions paid in shares
of, or options, warrants or rights to subscribe for or purchase shares of,
Junior Stock) shall be declared or paid or set apart for payment by the
Corporation, or other distribution of cash or other property declared or made
directly or indirectly by the Corporation or any affiliate or any person acting
on behalf of the Corporation or any of its affiliates with respect to any
shares of Junior Stock, nor shall any shares of Junior Stock be redeemed,
purchased or otherwise acquired (other than a redemption, purchase or other
acquisition of Common Stock made for purposes of an employee incentive or
benefit plan of the Corporation or any subsidiary) for any consideration (or
any moneys be paid to or made available for a sinking-fund for the redemption
of any shares of any such stock) directly or indirectly by the Corporation or
any affiliate or any person acting on behalf of the Corporation or any of its
affiliates (except by conversion into or exchange for Junior Stock), nor shall
any other cash or other property otherwise be paid or distributed to or for the
benefit of any holder of shares of Junior Stock in respect thereof, directly or
indirectly, by the Corporation or any affiliate or any person acting on behalf
of the Corporation or any of its affiliates, unless in each case (i) the full
cumulative dividends (including all accumulated, accrued and unpaid dividends)
on all outstanding shares of Series A Preferred Stock and any other Parity
Stock of the Corporation shall have been paid or such dividends have been
declared and set apart for payment for all past Dividend Periods with respect
to the Series A Preferred Stock and all past Dividend Periods with respect to
such Parity Stock, and (ii) sufficient funds shall have been paid or set apart
for the payment of the full dividend for the current Dividend
<PAGE> 6
Period with respect to the Series A Preferred Stock and the current Dividend
Period with respect to such Parity Stock.
4.4 LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, before any payment or
distribution of the assets of the Corporation (whether capital or surplus)
shall be made to or set apart for the holders of Junior Stock, the holders of
shares of Series A Preferred Stock shall be entitled to receive One Thousand
Dollars ($1,000.00) per share of Series A Preferred Stock, plus an amount equal
to all dividends (whether or not earned or declared) accumulated, accrued and
unpaid thereon to the date of final distribution to such holders. Until the
holders of the Series A Preferred Stock have been paid the liquidation
preference in full, no payment will be made to any holder of Junior Stock upon
the liquidation, dissolution or winding up of the Corporation. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of the
Corporation, or proceeds thereof, distributable among the holders of Series A
Preferred Stock shall be insufficient to pay in full the preferential amount
aforesaid and liquidating payments on any other shares of any class or series
of Parity Stock, then such assets, or the proceeds thereof, shall be
distributed among the holders of Series A Preferred Stock and any such other
Parity Stock ratably in the same proportion as the respective amounts that
would be payable on such Series A Preferred Stock and any such other Parity
Stock if all amounts payable thereon were paid in full. For the purposes of
this Section 4, (i) a consolidation or merger of the Corporation with one or
more corporations, (ii) a sale or transfer of all or substantially all of the
Corporation's assets, or (iii) a statutory share exchange shall not be deemed
to be a liquidation, dissolution or winding up, voluntary or involuntary, of
the Corporation.
(b) Subject to the rights of the holders of any shares of Parity
Stock, upon any liquidation, dissolution or winding up of the Corporation,
after payment shall have been made in full to the holders of Series A Preferred
Stock and any Parity Stock, as provided in this Section 4, any other series or
class or classes of Junior Stock shall, subject to the respective terms
thereof, be entitled to receive any and all assets remaining to be paid or
distributed, and the holders of the Series A Preferred Stock and any Parity
Stock shall not be entitled to share therein.
4.5 CONVERSION RIGHTS. The holders of shares of Series A Preferred
Stock shall have the right, at their option, to convert such shares into shares
of Common Stock of the Corporation at any time on and subject to the following
terms and conditions:
(a) The shares of Series A Preferred Stock shall be convertible at
the office of the transfer agent for the Common Stock or the principal
executive office of the Corporation, into fully paid and non-assessable shares
(calculated as to each conversion to the nearest 1/100th of a share) of Common
Stock of the Corporation, at the conversion price, determined as hereinafter
provided, in effect at the time of conversion, each share of Series A Preferred
Stock being taken at $1,000.00 for the purpose of such conversion. The price at
which shares of
<PAGE> 7
Common Stock shall be delivered upon conversion (the "Conversion Price") shall
initially be $2.00 per share of Common Stock. The conversion price shall be
adjusted in certain instances as provided below.
(b) In order to convert shares of Series A Preferred Stock into
Common Stock, the holder thereof shall surrender at the office or offices
hereinabove mentioned the certificate or certificates therefor, duly endorsed
or assigned to the Corporation or in blank, and give written notice to the
Corporation at said office or offices that such holder elects to convert such
shares. Shares of Series A Preferred Stock surrendered for conversion during
the period from the close of business on any record date for the payment of a
dividend on the shares of Series A Preferred Stock to the opening of business
on the date for payment of such dividend shall (except in the case of shares of
Series A Preferred Stock which have been called for redemption on a redemption
date within such period) be accompanied by a payment of an amount equal to the
dividend declared and payable on such dividend payment date on the shares of
Series A Preferred Stock being surrendered for conversion. Except as provided
in the preceding sentence, no payment or adjustment shall be made upon any
conversion on account of any unpaid or accrued dividends on the shares of
Series A Preferred Stock surrendered for conversion or on account of any
dividends on the Common Stock issued upon conversion.
Shares of Series A Preferred Stock shall be deemed to have been
converted immediately prior to the close of business on the day of the
surrender of the certificates for such shares for conversion in accordance with
the foregoing provisions, and the person or persons entitled to receive the
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such Common Stock at such time. As promptly as
practicable on or after the conversion date, the Corporation shall issue and
shall deliver at such office a certificate or certificates for the number of
full shares of Common Stock issuable upon such conversion, together with
payment in lieu of any fraction of a share, as hereinafter provided, to the
person or persons entitled to receive the same. In case shares of Series A
Preferred Stock are called for redemption, the right to convert such shares
shall cease and terminate at the close of business on the date fixed for
redemption, unless default shall be made in payment of the redemption price.
(c) No fractional shares of Common Stock shall be issued upon
conversion of shares of Series A Preferred Stock, but, instead of any fraction
of a share which would otherwise be issuable, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction
of the Closing Price (as hereinafter defined) on the date on which the
certificate or certificates for such shares were duly surrendered for
conversion, or, if such date is not a Trading Day (as hereinafter defined), on
the next Trading Day.
(d) The Conversion Price shall be adjusted from time to time as
follows:
(i) Adjustment for Issuance of Shares at Less Than the
Conversion Price. If at any time after the date of the first issuance of
Series A Preferred Stock, the Corporation shall issue any shares of
Common Stock, Convertible Securities (as
<PAGE> 8
hereinafter defined), Rights (as hereinafter defined) or Related Rights
(as hereinafter defined; any such shares, Convertible Securities, Rights
or Related Rights, "Securities") without consideration or for a
consideration per share or unit less than the Conversion Price in effect
immediately prior to the issuance of such Securities, then the
Conversion Price in effect immediately prior to each such issuance shall
forthwith be reduced to the quotient obtained by dividing:
(A) an amount equal to the sum of (1) the
total number of shares of Common Stock outstanding
immediately prior to such issuance (including for this
purpose the number of shares of Common Stock into which the
shares of Series A Preferred Stock outstanding immediately
prior to such issuance are convertible on the date of such
issuance in accordance with Subsection 5(a) (without regard
to Subsection 5(c)), without giving effect to such issuance)
multiplied by the Conversion Price in effect immediately
prior to such issuance, and (2) the amount of consideration,
if any, received by the Corporation upon such issuance, by
(B) the total number of shares of Common
Stock (1) outstanding immediately after such issuance
(including the number of shares of Common Stock into which
the shares of Series A Preferred Stock outstanding
immediately prior to such issuance are convertible on the
date of such issuance in accordance with Subsection 5(a)
(without regard to Subsection 5(c)), without giving effect to
such issuance) or (2) into or for which any such newly issued
Convertible Securities are then convertible or exchangeable
or (3) issuable upon the exercise of any such Rights or
Related Rights).
(C) For the purpose of this Subsection
5(d), the following definitions and procedures shall be
applicable:
(1) In the case of the issuance of
options, warrants or other rights to purchase or
otherwise acquire Common Stock, whether or not at
the time exercisable ("Rights"), the total number of
shares of Common Stock issuable upon exercise of
such Rights shall be deemed to have been issued at
the time such Rights are issued, for a consideration
equal to the sum of the consideration, if any,
received by the Corporation upon the issuance of
such rights and the minimum purchase or exercise
price payable upon the exercise of such Rights for
the Common Stock to be issued upon the exercise
thereof.
(2) In the case of the issuance of
any class or series of stock or any bonds,
debentures, notes or other securities or obligations
convertible into or exchangeable for Common Stock,
whether or not then convertible or exchangeable
("Convertible Securities"), or options, warrants or
other rights to purchase or otherwise acquire
Convertible
<PAGE> 9
Securities ("Related Rights"), the total number of
shares of Common Stock issuable upon the conversion
or exchange of such Convertible Securities or
exercise of such Related Rights shall be deemed to
have been issued at the time such Convertible
Securities or Related Rights are issued, for a
consideration equal to the sum of (I) the
consideration, if any, received by the Corporation
upon issuance of such Convertible Securities or
Related Rights (excluding any cash received on
account of accrued interest or dividends) and (II)
(A) in the case of Convertible Securities, the
minimum additional consideration, if any, to be
received by the Corporation upon the conversion or
exchange of such Convertible Securities or (B) in
the case of Related Rights, the sum of (x) the
minimum purchase or exercise price payable upon the
exercise of such Related Rights for Convertible
Securities and (y) the minimum additional
consideration, if any, to be received by the
Corporation upon the conversion or exchange of the
Convertible Securities issued upon the exercise of
such Related Rights.
(3) On any change in the number of
shares of Common Stock issuable upon the exercise of
Rights or Related Rights or upon the conversion or
exchange of Convertible Securities or on any change
in the minimum purchase or exercise price of Rights,
Related Rights or Convertible Securities, including,
but not limited to, a change resulting from the
anti-dilution provisions of such Rights, Related
Rights or Convertible Securities, the Conversion
Price to the extent in any way affected by such
Rights, Related Rights or Convertible Securities
shall forthwith be readjusted to be thereafter the
Conversion Price that would have been obtained had
the adjustment which was made upon the issuance of
such Rights, Related Rights or Convertible
Securities been made after giving effect to such
change. No further adjustment shall be made in
respect of such change upon the actual issuance of
Common Stock or any payment of consideration upon
the exercise of any such Rights or Related Rights or
the conversion or exchange of such Convertible
Securities.
(4) On the expiration or
cancellation of any such Rights, Related Rights or
Convertible Securities, if the Conversion Price
shall have been adjusted upon the issuance thereof,
the Conversion Price shall forthwith be readjusted
to such Conversion Price as would have been obtained
had the adjustment made upon the issuance of such
Rights, Related Rights or Convertible Securities
been made upon the basis of the issuance of only the
number of shares of Common Stock actually issued
upon the exercise of such Rights or Related Rights
or the conversion or exchange of such Convertible
Securities.
<PAGE> 10
(ii) Sale of Shares. In case of the issuance of Securities
for a consideration part or all of which shall be cash, the amount of
the cash consideration therefor shall be deemed to be the gross amount
of the cash paid to Corporation for such shares, before deducting any
underwriting compensation or discount in the sale, underwriting or
purchase thereof by underwriters or dealers or others performing similar
services or for any expenses incurred in connection therewith. In case
of the issuance of any Securities for a consideration part or all of
which shall be other than cash, the amount of the consideration
therefor, other than cash, shall be deemed to be the then fair market
value of the property received.
(iii) Reclassification of Shares. In case of the
reclassification of securities into shares of Common Stock, the shares
of Common Stock issued in such reclassification shall be deemed to have
been issued for a consideration other than cash. Securities issued by
way of dividend or other distribution on any class of stock of
Corporation shall be deemed to have been issued without consideration.
(iv) Stock Dividends, Stock Splits, Subdivisions or
Combinations. In the event of a stock dividend, stock split or
subdivision of shares of Common Stock into a greater number of shares,
the Conversion Price shall be proportionately decreased, and in the
event of a combination of shares of Common Stock into a smaller number
of shares, the Conversion Price shall be proportionately increased, such
increase or decrease, as the case may be, becoming effective at the
record date.
(v) Exceptions. The adjustments provided in Subsection
5(d)(i) shall not apply to any (A) Common Stock issued upon the
conversion of any of the Series A Preferred Stock; (B) Common Stock
issued upon exercise of any outstanding warrants, options or debentures;
(C) Common Stock issued upon exercise of outstanding employee stock
options; and (D) up to 200,000 shares of Common Stock issuable upon
exercise of employee stock options to be granted subsequent to the date
hereof.
(vi) Adjustment for Mergers and Consolidations.
(A) In the event of distribution to all
Common Stock holders of any stock, indebtedness of the
Corporation or assets (excluding cash dividends or
distributions from retained earnings) or other rights to
purchase securities or assets, then, after such event, the
shares of Series A Preferred Stock will be convertible into
the kind and amount of securities, cash and other property
which the holder of the shares of Series A Preferred Stock
would have been entitled to receive if the holder owned the
Common Stock issuable upon conversion of the shares of Series
A Preferred Stock immediately prior to the occurrence of such
event.
(B) In case of any capital reorganization,
reclassification of the stock of the Corporation (other than
a change in par value or as a result of a
<PAGE> 11
stock dividend, subdivision, split up or combination of
shares), the shares of Series A Preferred Stock shall be
convertible into the kind and number of shares of stock or
other securities or property of the Corporation to which the
holder of the shares of Series A Preferred Stock would have
been entitled to receive if the holder owned the Common Stock
issuable upon conversion of the shares of Series A Preferred
Stock immediately prior to the occurrence of such event. The
provisions of the immediately foregoing sentence shall
similarly apply to successive reorganizations,
reclassifications, consolidations, exchanges, leases,
transfers or other dispositions or other share exchanges.
(C) The term "Fair Market Value," as used
herein, is the value ascribed to consideration other than
cash as determined by the Board of Directors of the
Corporation in good faith, which determination shall be
final, conclusive and binding. If the Board of Directors
shall be unable to agree as to such fair market value, then
the issue of fair market value shall be submitted to
arbitration under and pursuant to the rules and regulations
of the American Arbitration Association, and the decision of
the arbitrators shall be final, conclusive and binding, and a
final judgment may be entered thereon; provided, however,
that such arbitration shall be limited to determination of
the fair market value of assets tendered in consideration for
the issue of Common Stock.
(e) Whenever the conversion price is adjusted as herein provided:
(i) The Corporation shall compute the adjusted conversion
price in accordance with this Section 5 and shall cause to be prepared a
certificate signed by the Corporation's treasurer setting forth the
adjusted conversion price and showing in reasonable detail the fact upon
which such adjustment is based; and
(ii) A notice stating that the conversion price has been
adjusted and setting forth the adjusted conversion price shall, as soon
as practicable, be mailed to the holders of record of outstanding shares
of Series A Preferred Stock.
(f) In case:
(i) The Corporation shall declare a dividend or other
distribution on its Common Stock payable otherwise than in cash out of
retained earnings;
(ii) The Corporation shall authorize the issuance to the
holders of its Common Stock of rights or warrants entitling them to
subscribe for or purchase any shares of capital stock of any class or
any other subscription rights or warrants; or
(iii) Of any reclassification of the capital stock of the
Corporation (other than a subdivision or combination of its outstanding
shares of Common Stock), or of any consolidation or merger to which the
Corporation is a party and for which approval of
<PAGE> 12
any stockholders of the Corporation is required, or of the sale,
transfer or other disposition of all or substantially all of the assets
of the Corporation; or
(iv) Of the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation;
then the Corporation shall cause to be mailed to the holders of
record of the outstanding shares of Series A Preferred Stock, at least 20 days
(or 10 days in any case specified in clause (i) or (ii) above) prior to the
applicable record or effective date hereinafter specified, a notice stating (x)
the date as of which the holders of record of Common Stock to be entitled to
such dividend, distribution, rights or warrants are to be determined, or (y)
the date on which such reclassification, consolidation, merger, sale, transfer,
disposition, liquidation, dissolution or winding up is expected to become
effective, and the date as of which it is expected that holders of record of
Common Stock shall be entitled to exchange their shares for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, disposition, liquidation, dissolution or winding up, or the
vote on any action authorizing such.
(g) The Corporation shall at all times reserve and keep available,
free from preemptive rights, out of its authorized but unissued Common Stock,
for the purpose of issuance upon conversion of shares of Series A Preferred
Stock, the full number of shares of Common Stock then deliverable upon the
conversion of all shares of Series A Preferred Stock then outstanding.
(h) The Corporation will pay any and all taxes that may be payable
in respect of the issuance of delivery of shares of Common Stock on conversion
of shares of Series A Preferred Stock pursuant thereto. The Corporation shall
not, however, be required to pay any tax which may be payable in respect of any
transfer involved in the issuance and delivery of shares of Common Stock in a
name other than that in which the shares of Series A Preferred Stock so
converted were registered, and no such issuance or delivery shall be made
unless and until the person requesting such issuance has paid to the
Corporation the amount of any such tax or has established to the satisfaction
of the Corporation that such tax has been paid.
(i) The certificate of any independent firm of public accountants
of nationally recognized standing selected by the Board of Directors shall be
presumptive evidence of the correctness of any computation made under this
Section 5.
(j) Notwithstanding the foregoing, if the volume-weighted average
closing bid price of the Common Stock, as determined by Bloomberg Financial
Markets and Commodities News, for the 21 consecutive trading days following the
Corporation's public press release of its December 31, 1998 fiscal year-end
financial results (such volume-weighted average closing bid price herein
referred to as the "1998 Conversion Price Adjustment") is a price less than the
existing Conversion Price, and the Corporation reports pre-tax income of less
than or equal to $4,400,000 excluding extraordinary gains for the December 31,
1998 fiscal year, then the Conversion Price shall be adjusted downward to an
amount equal to 100% of the 1998
<PAGE> 13
Conversion Price Adjustment. If an adjustment is required pursuant to this
section, then the Corporation shall furnish to each of the holders of shares of
Series A Preferred Stock a statement, within ten (10) days of the occurrence
thereof, signed by the Chief Financial Officer and the Secretary of the
Corporation, of the facts creating such adjustment and specifying the resultant
adjusted Conversion Price then in effect. No holder of any shares of Series A
Preferred Stock shall convert or sell any shares of the Corporation's Common
Stock during the 21 consecutive trading days used to determine the 1998
Conversion Price Adjustment or during the 9 trading days preceding such period.
4.6 REDEMPTION AT THE OPTION OF THE HOLDER.
(a) At any time after the date hereof, upon notice by the
Corporation of any proposed change of any provision of the Certificate of
Incorporation or Bylaws that relates to the Board of Directors or the election
of directors or any merger or consolidation involving the Corporation or a sale
of all or substantially all of the assets of the Corporation (collectively,
"Events of Redemption"), the Series A Preferred Stock is redeemable at the
option of each holder of Series A Preferred Stock at one hundred percent (100%)
of par, together with accrued and unpaid dividends through the Redemption Date.
Notice of an Event of Redemption shall be given by the Corporation to each
holder of record of Series A Preferred Stock by first class mail, postage
prepaid, at such holder's address as the same appears on the stock records of
the Corporation. Each holder may exercise his right to require the Corporation
to redeem all, but not less than all, of the shares of Series A Preferred Stock
owned by him of record by written notice to the Corporation at the address
specified in the notice of an Event of Redemption. Such notice shall be sent by
first class mail, postage prepaid, within thirty (30) days of receipt by such
holder of the notice of an Event of Redemption.
(b) Shares of Series A Preferred Stock may be redeemed at the
option of the holder by the Corporation on the date specified in the notice of
an Event of Redemption (the "Redemption Date"). The Redemption Date selected by
the Corporation shall be sixty (60) days after the date notice of an Event of
Redemption is sent by the Corporation. As a condition precedent for such
redemption, the Corporation, by resolution of its Board of Directors, shall
declare a mandatory dividend on the Series A Preferred Stock payable in cash on
the Redemption Date in an amount equal to all accumulated, accrued and unpaid
dividends as of the Redemption Date on the Series A Preferred Stock to be
redeemed, which amount shall be added to the redemption price. If the
Redemption Date falls after a dividend payment record date and prior to the
corresponding Dividend Payment Date, then each holder of Series A Preferred
Stock at the close of business on such dividend payment record date shall be
entitled to the dividend payable on such shares on the corresponding Dividend
Payment Date, notwithstanding the redemption of such shares prior to such
Dividend Payment Date. Except as provided above, the Corporation shall make no
payment or allowance for accumulated or accrued dividends on shares of Series A
Preferred Stock to be redeemed.
(c) Neither the failure to mail any notice required by Subsection
6(a), nor any defect therein or in the mailing thereof, to any particular
holder, shall affect the sufficiency of
<PAGE> 14
the notice or the validity of the proceedings for redemption with respect to
the other holders. Any notice which was mailed in the manner herein provided
shall be conclusively presumed to have been duly given on the date mailed
whether or not the holder receives the notice. Each such mailed notice shall
state, as appropriate: (1) the Redemption Date; (2) the place or places at
which certificates for such shares are to be surrendered; and (3) that
dividends on the shares of Series A Preferred Stock to be redeemed shall cease
to accrue on such Redemption Date, except as otherwise provided herein. Notice
having been mailed as aforesaid, from and after the Redemption Date (unless the
Corporation shall fail to issue and make available at the office of the
transfer agent the amount of cash necessary to effect such redemption,
including all accumulated, accrued and unpaid dividends to the Redemption Date,
whether or not earned or declared), (i) except as otherwise provided herein,
dividends on the shares of Series A Preferred Stock to be redeemed shall cease
to accumulate or accrue on the shares of Series A Preferred Stock to be
redeemed, (ii) said shares shall no longer be deemed to be outstanding, and
(iii) all rights of the holders thereof as holders of Series A Preferred Stock
of the Corporation shall cease (except the rights to receive the cash payable
upon such redemption, without interest thereon, upon surrender and endorsement
of their certificates if so required and to receive any dividends payable
thereon).
As promptly as practicable after the surrender in accordance with said
notice of the certificates for any such shares so redeemed (properly endorsed
or assigned for transfer, if the Corporation shall so require and if the notice
shall so state), such certificates shall be exchanged for cash (without
interest thereon) for which such shares have been redeemed in accordance with
such notice.
4.7 SERIES A PREFERRED STOCK TO BE RETIRED. All shares of Series A
Preferred Stock which shall have been issued and reacquired in any manner by
the Corporation shall be restored to the status of authorized, but unissued
shares of Preferred Stock, without designation as to series. The Corporation
may also retire any unissued shares of Series A Preferred Stock, and such
shares shall then be restored to the status of authorized but unissued shares
of Preferred Stock, without designation as to series.
4.8 RANKING. Any class or series of capital stock of the Corporation
shall be deemed to rank:
(a) prior or senior to the Series A Preferred Stock, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, if the holders of such class or series shall be
entitled to the receipt of dividends or of amounts distributable upon
liquidation, dissolution or winding up, as the case may be, in preference or
priority to the holders of Series A Preferred Stock;
(b) on a parity with the Series A Preferred Stock, as to the
payment of dividends and as to distribution of assets upon liquidation,
dissolution or winding up, whether or not the dividend rates, dividend payment
dates or redemption or liquidation prices per share thereof be different from
those of the Series A Preferred Stock, if the holders of such class of
<PAGE> 15
stock or series and the Series A Preferred Stock shall be entitled to the
receipt of dividends and of amounts distributable upon liquidation, dissolution
or winding up in proportion to their respective amounts of accrued and unpaid
dividends per share or liquidation preferences, without preference or priority
of one over the other ("Parity Stock"); and
(c) junior to the Series A Preferred Stock, as to the payment of
dividends or as to the distribution of assets upon liquidation, dissolution or
winding up, if such stock or series shall be Common Stock or if the holder of
Series A Preferred Stock shall be entitled to receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of shares of such class or
series ("Junior Stock").
4.9 VOTING.
(a) The holders of Series A Preferred Stock shall be entitled to
one (1) vote per share on all matters submitted to a vote of shareholders of
the Corporation.
(b) The affirmative vote of the holders of sixty-six and
two-thirds percent (66 2/3%) of the votes entitled to be cast by holders of the
Series A Preferred Stock then outstanding, voting as a single class, in person
or by proxy, either in writing without a meeting or by vote at any meeting
called for the purpose, will be required in order to amend the Certificate of
Incorporation or Bylaws to affect materially and adversely the rights,
preferences or voting power of the holders of the Series A Preferred Stock or
to authorize, create or increase the authorized amount of, any class of stock
having rights prior or senior to the Series A Preferred Stock with respect to
the payment of dividends or amounts upon liquidation, dissolution or winding
up. However, the Corporation may create additional classes, shares or series of
Parity Stock with the consent of the holders of a majority of the outstanding
shares of Series A Preferred Stock, and may create classes of Junior Stock,
increase the authorized number of shares of Junior Stock and issue additional
series of Junior Stock, without the consent of any holder of Series A Preferred
Stock.
(c) If and whenever two (2) quarterly dividends (whether or not
consecutive) payable on the Series A Preferred Stock shall be in arrears (which
shall, with respect to any such quarterly dividend, mean that any such dividend
has not been paid in full), whether or not earned or declared, the number of
directors then constituting the Board of Directors shall be increased by two
(2), and the directors then serving shall appoint to the Board of Directors two
(2) persons designated by the holders of a majority of the then outstanding
shares of Series A Preferred Stock. The holders of shares of Series A Preferred
Stock shall thereafter be entitled to designate or elect the two (2) additional
directors to serve on the Board of Directors, by the vote of a plurality of the
votes cast by the holders of the Series A Preferred Stock at an annual meeting
of stockholders or special meeting held in place thereof, or at a special
meeting of the holders of the Series A Preferred Stock called from time to time
for the election of directors. Whenever all arrears in dividends on the Series
A Preferred Stock then outstanding shall have been paid and dividends thereon
for the current quarterly dividend period shall have been paid
<PAGE> 16
or declared and set apart for payment, then the right of the holders of the
Series A Preferred Stock to elect such additional two (2) directors shall cease
(but subject always to the same provision of the vesting of such voting rights
in the case of any similar future arrearage in two (2) quarterly dividends),
and the terms of office of all persons elected as directors by the holders of
the Series A Preferred Stock shall forthwith terminate and the number of the
Board of Directors shall be reduced accordingly. At any time after such voting
power shall have been so vested in the holders of Series A Preferred Stock, if
the Board of Directors fails to appoint the two designees of the holders of the
Series A Preferred Stock, as hereinabove provided, the Secretary of the
Corporation shall, upon the written request of any holder of Series A Preferred
Stock (addressed to the Secretary at the principal office of the Corporation),
call a special meeting of the holders of the Series A Preferred Stock for the
election of the two (2) directors to be elected by them as herein provided,
such call to be made by notice similar to that provided in the Bylaws of the
Corporation for a special meeting of the stockholders or as required by law. If
any such special meeting required to be called, as above provided, shall not be
called by the Secretary within twenty (20) days after receipt of any such
request, then any holder of Series A Preferred Stock may call such meeting,
upon the notice above provided, and for that purpose shall have access to the
stock books of the Corporation. The directors elected at any such special
meeting shall hold office until the next annual meeting of the stockholders or
special meeting held in lieu thereof if such office shall not have previously
terminated as above provided. If any vacancy shall occur among the directors
elected by the holders of the Series A Preferred Stock, a successor shall be
elected by the Board of Directors, upon the nomination of the then remaining
directors elected by the holders of the Series A Preferred Stock or the
successors of such remaining directors, to serve until the next annual meeting
of the stockholders or special meeting held in place thereof if such office
shall not have previously terminated as above provided. Notwithstanding the
foregoing, the total number of directors designated or elected by the holders
of shares of Series A Preferred Stock, as such, pursuant to this Section 9(c)
or by such holders, as such, or any affiliate of any of them pursuant to any
other agreement or instrument will not exceed two (2), unless such other
agreement or instrument expressly provides for a greater number.
So long as any shares of Series A Preferred Stock are outstanding,
the number of directors of the Corporation shall at all times be such that the
exercise by the holders of shares of Series A Preferred Stock of the right to
designate or elect directors under the circumstance provided in this Section
9(c) will not contravene any provisions of the Corporation's Certificate of
Incorporation or Bylaws.
4.10 RECORD HOLDERS. The Corporation may deem and treat the record
holder of any share of Series A Preferred Stock as the true and lawful owner
thereof for all purposes, and neither the Corporation nor the Transfer Agent
shall be affected by any notice to the contrary.
5. The right to cumulate votes for the purpose of electing directors
of the Company or for any other purpose is expressly denied. The pre-emptive
right of shareholders to subscribe to and purchase shares or securities in
proportion to their respective holdings of shares is expressly denied.
<PAGE> 17
6. The Company is to have perpetual existence.
7. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized to make, alter or
repeal the bylaws of the Company.
8. To the extent permitted by the General Corporation Law of Delaware,
a director of the Company shall not be liable to the Company or its
shareholders for monetary damages for an act or omission in the director's
capacity as a director.
9. Elections of directors need not be by written ballot unless the
bylaws of the Company shall so provide.
Meetings of stockholders may be held within or without the State of
Delaware, as the bylaws may provide. The books of the Company may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
board of directors or in the bylaws of the Company.
10. The Company reserves the right to amend, alter, change or repeal
any provision contained in this Restated Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, this Restated Certificate of Incorporation has
been executed this 12th day of August, 1998.
LIFEQUEST MEDICAL, INC.
By:
--------------------------------
Randall K. Boatright
Executive Vice President
and Chief Financial Officer
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Agreement is made by and between LifeQuest Medical, Inc. (the
"Company"), located at 12961 Park Central, Suite 1300, San Antonio, Texas
78216, and Randall K. Boatright ("Employee"), whose address is 17304 Piney
Woods, San Antonio, Texas 78248.
ARTICLE 1
COMPENSATION AND TERM
1.01 Basic Compensation. As compensation for the services to be
rendered hereunder, the Company shall pay Employee a salary of $12,500 per
month ("Base Salary"), which shall be payable in at least monthly installments
during the term of this Agreement. Such basic compensation shall be subject to
annual review for possible increase by the Compensation Committee of the
Company based upon Employee's performance, as determined at the discretion of
the Company's Compensation Committee based in part upon the achievement of
goals agreed upon by the Company and Employee, the performance of the Company's
stock price and the earnings of the Company. In addition, the Company and the
Employee have entered into a NonQualified Stock Option Agreement of even date
herewith under the Company's 1989 Stock Option Plan pursuant to which the
Company has granted to Employee non-qualified stock options to receive up to
50,000 shares of Common Stock, $.001 par value, of the Company upon the terms
and conditions set forth in such agreement.
1.02 Signing Bonus. On the date of execution of this Agreement, or as
soon thereafter as practicable, the Company shall pay to Employee by Company
check a one time signing bonus in the amount of $25,000.
1.03 Incentive Compensation. Employee shall have the opportunity to
earn an annual cash bonus, the amount of which shall be determined by the
Compensation Committee of the Company and shall be based upon Employee's
performance, as determined at the discretion of the Company's Compensation
Committee based in part upon the achievement of goals agreed upon by the
Company and Employee, the performance of the Company's stock price and the
earnings of the Company. Such bonus shall be paid by the Company within 90 days
after the end of each calendar year.
1.04 Term. Subject to earlier termination pursuant to Article 5
hereof, this Agreement shall have a term commencing as of the execution date of
this Agreement and ending on March 31, 2001.
ARTICLE 2
DUTIES OF EMPLOYEE
2.01 Duties. The Company hereby employs Employee to serve as Executive
Vice President and Chief Financial Officer of the Company, or in such other
capacities as the Board of Directors of the Company may direct from time to
time, and Employee agrees to perform the duties of such offices as set forth in
the bylaws of the Company or as the Board of Directors of the Company may
direct from time to time.
<PAGE> 2
2.02 Other Activities. During the term of this Agreement, Employee
shall devote his full-time efforts to his duties hereunder.
ARTICLE 3
EMPLOYEE BENEFITS
3.01 Medical and Dental Benefits. The Company agrees to include
Employee in any hospital, surgical, medical, disability and dental benefit
plan(s) that it may adopt for its employees.
3.02 Other Benefits. Employee shall be entitled to reasonable and
customary holidays and other benefits that are available to senior management
or key employees, including three weeks paid vacation.
ARTICLE 4
OBLIGATIONS OF THE COMPANY
4.01 Office and Support Staff. The Company shall provide Employee with
such support services as are reasonable to Employee's position or required for
the performance of his duties.
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.01 Termination by the Company for Cause. The Company may at its
option terminate this Agreement for Cause (as hereinafter defined) by giving 10
days written notice of termination to Employee.
The term "Cause" shall be limited to the occurrence of the following
events, as determined by the Board of Directors of the Company in its sole
judgment: (i) Employee breaches any of the material terms of this Agreement and
fails to remedy such breach within 10 days following written notice by the
Company to Employee of such breach; (ii) Employee is convicted of a felony;
(iii) Employee fails, after at least one written warning from the Company, to
perform duties assigned under this Agreement (other than a failure due to death
or physical or mental disability); (iv) Employee intentionally engages in
conduct which is demonstrably and materially injurious to the Company; (v)
Employee commits fraud or theft of personal or Company property from Company
premises; (vi) Employee falsifies Company documents or records; (vii) Employee
engages in acts of gross carelessness or willful negligence to endanger life or
property on Company premises; (viii) Employee engages in sexual harassment
involving employees of the Company or on premises of the Company or with
respect to business of the Company; (ix) Employee uses, distributes, possesses
or is under the influence of illegal drugs, alcohol or any other intoxicant on
Company premises; or (x) Employee intentionally violates state, federal or
local laws and regulations relating to the business of the Company.
5.02 Termination on Grounds Other Than for Cause. This Agreement shall
terminate immediately on the occurrence of any one of the following events:
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<PAGE> 3
(a) The occurrence of circumstances that make it impossible or
impracticable for the business of the Company to be continued.
(b) The death of Employee.
(c) The loss of legal capacity by Employee.
(d) Insolvency of the Company.
(e) The continued incapacity on the part of Employee to perform his
duties for a continuous period of 60 days, unless waived by the Company,
and a reasonable determination by the Company that Employee has not
performed his duties during such period.
5.03 Option to Terminate if Employee Permanently Disabled. If Employee
becomes permanently disabled because of sickness, physical or mental
disability, or any other reason, so that it reasonably appears that Employee
will be unable to perform the essential aspects of his duties under this
Agreement, the Company shall have the option to terminate this Agreement
immediately by giving written notice of termination to Employee.
5.04 Effect of Termination on Compensation. In the event of the
termination of this Agreement prior to the completion of the term of employment
specified in it pursuant to Section 5.01, 5.02 or 5.03, Employee shall be
entitled to the compensation earned by Employee to the date of termination as
provided in the Agreement, computed pro rata up to and including that date, and
Employee shall be entitled to no further compensation after the date of such
termination.
5.05 Company's Option to Terminate. This Agreement may be terminated
by the Company immediately at any time without Cause upon notice given by the
Company to the Employee. In the event the Company so elects to terminate this
Agreement without Cause, the Company shall continue to pay to the Employee his
monthly base salary (subject to standard deductions) through the lesser of (a)
the balance of the term of this Agreement or (b) twelve (12) months, whereupon
the Company shall have no further obligations to Employee; provided, however;
in the event that the Company elects to require Employee to comply with the
restrictions of Section 6.08 for any period (the "Uncompensated Period") of
time during which Employee is not receiving from the Company salary or
termination payments (the Company shall advise Employee of such election at the
time of termination), then the Company shall pay Employee on the first day of
each calendar month during the Uncompensated Period his then effective current
monthly salary.
ARTICLE 6
PROPRIETARY PROPERTY; CONFIDENTIAL
INFORMATION; NON-COMPETITION
6.01 Duties. Employee understands and agrees that during the term of
this Agreement Employee's duties will include the conception of improvements
and inventions (whether or not ultimately issuing as Letters Patent in any
country), the creation of confidential
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<PAGE> 4
information protected by the Company as trade secrets and the authoring of
"works" as defined under the copyright laws of the United States of America
found in 17 United States Code. Such information is collectively referred to in
this Agreement as "Proprietary Information".
6.02 Ownership. Employee understands and agrees that for all
Proprietary Information created within the scope of Employee's employment, the
Company shall own all right, title and interest thereto. In the case of works
authored or created by Employee, such works are considered a "work made for
hire" under 17 United States Code Section 101 - the copyright laws. All
Proprietary Information, if any, created by Employee prior to his employment
with the Company, and in which Employee claims ownership, is shown in Schedule
6.2 attached hereto.
6.03 Notice and Assistance. Employee shall give adequate written
notice to the Company as soon as practicable of all Proprietary Information
created by Employee during Employee's employment with the Company, assist the
Company in evaluating the Proprietary Information for patent, trade secret and
copyright protection and sign all documents and do all things necessary at the
expense of the Company to assist the Company in the protection, development,
marketing or transfer of such Proprietary Information.
6.04 Assignment. Employee hereby assigns and agrees to assign all
right, title and interest into such Proprietary Information to the Company or
its nominee. At the request of the Company, whether during or after the
termination of Employee's employment, Employee shall timely execute or join in
executing all papers or documents required for the filing of patent
applications and copyright registrations in the United States of America and
such foreign countries as the Company may in its sole discretion select, and
shall assign all such patent applications and copyrights to the Company or its
nominee, and shall provide the Company or its agent or attorneys with all
reasonable assistance in the preparation and prosecution of patent application
and copyright registrations, including drawings, specifications, and the like,
all at the expense of the Company, and shall do all that may be necessary to
establish, protect or maintain the rights of the Company or its nominee in the
inventions, patent applications, Letters Patent and copyrights in accordance
with the spirit of this Agreement.
6.05 Confidential Information. Employee agrees to keep confidential
all information protected by the Company as trade secrets during the term of
this Agreement (including any leaves of absence) and will neither use nor
disclose the confidential information without written authorization by the
Company for ten years thereafter. For the purposes of this Agreement, such
confidential information shall include information set forth in any application
for Letters Patent unless and until such information is ultimately published.
The Company and Employee mutually agree that the following types of information
shall not be protected by this Agreement:
(a) Information already in the public domain at the time Employee
received it;
(b) Information which although disclosed in confidence to Employee is
later disseminated by the Company into the public domain;
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<PAGE> 5
(c) Information which although received in confidence by Employee is
subsequently disseminated into public domain by a third party who has not
breached any duty to any other party in disseminating such information;
and
(d) Information given by the Company in confidence to Employee which
Employee is expressly authorized in writing by the Company to use or
disclose thereafter.
Employee also understands and agrees that he will maintain in confidence all
information known to him by reason of his employment even if such information
is included in a redacted deposit of a work filed with an application for
copyright registration, if such deposit has been abridged in order to protect
the confidentiality of the information deposited with the Copyright Office. For
purposes of this Agreement, a trade secret "...may consist of any formula,
pattern, device or compilation of information which is used in one's business,
and which gives him an opportunity to obtain an advantage over competitors who
do not know or use it. It may be a formula for a chemical compound, a process
of manufacturing, trading or preserving materials, a pattern for machine or
other device, or a list of customers..." as commonly interpreted by the courts
of the State of Texas. Upon the termination of this Agreement, regardless of
how such termination may be brought about, Employee shall deliver to the
Company any and all documents, instruments, notes, papers or other expressions
or embodiments of Proprietary Property or confidential information which are in
Employee's possession or control.
6.06 Publicity. During the term of this Agreement and for a period of
ten years thereafter, Employee shall not, directly or indirectly, originate or
participate in the origination of any publicity, news release or other public
announcements, written or oral, whether to the public press or otherwise,
relating to this Agreement, to any amendment hereto, to Employee's employment
hereunder or to the Company, without the prior written approval of the Company.
6.07 Fiduciary Relationship. Employee, by virtue of his high position
of trust and reliance on him by the Company, understands that Employee enjoys a
fiduciary relationship with the Company in carrying out his obligations under
this Section 6. Accordingly, Employee agrees to honor his obligations under
this Agreement by conducting himself with the highest degree of fairness and
trust toward the Company.
6.08 Non-Competition. In consideration of the benefits of this
Agreement, including Employee's access to and limited use of proprietary and
confidential information of the Company, as well as training, education and
experience provided to Employee by the Company directly and/or as a result of
work projects assigned by the Company with respect thereto, Employee hereby
covenants and agrees that during the term of this Agreement and for a period of
two years following termination of this Agreement except pursuant to Section
5.02(a) or (d), Employee shall not, directly or indirectly, as proprietor,
partner, stockholder, director, officer, employee, consultant, joint venturer,
investor or in any other capacity, engage in, or own, manage, operate or
control, or participate in the ownership, management, operation or control, of
any entity which engages, in the United States or Canada, in any business
activity in which the Company participates during Employee's employment with
the Company; provided, however, the foregoing shall not prohibit Employee from
purchasing and holding as an investment not more than 5% of any class of
publicly traded securities, or 10% of any class of
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<PAGE> 6
other securities, of any entity which is engaged in the design, manufacturing,
marketing, sale or distribution of minimally invasive surgery products, so long
as Employee does not participate in any way in the management, operation or
control of such entity.
6.09 Judicial Reformation. Employee acknowledges that, given the
nature of the Company's business, the covenants contained in Section 6.08
establish reasonable limitations as to time, geographic area and scope of
activity to be restrained and do not impose a greater restraint than is
reasonably necessary to protect and preserve the goodwill of the Company's
business and to protect its legitimate business interests. If, however, Section
6.08 is determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too long a period of time or over too large a
geographic area or by reason of it being too extensive in any other respect or
for any other reason, it will be interpreted to extend only over the longest
period of time for which it may be enforceable and/or over the largest
geographic area as to which it may be enforceable and/or to the maximum extent
in all other aspects as to which it may be enforceable, all as determined by
such court.
6.10 Customer Lists; Non-Solicitation. In consideration of the
benefits of this Agreement, including Employee's access to and limited use of
proprietary and confidential information of the Company, as well as training,
education and experience provided to Employee by the Company directly and/or as
a result of work projects assigned by the Company with respect thereto,
Employee hereby further covenants and agrees that for a period of one year
following the termination of this Agreement, except pursuant to Section 5.02(a)
or (d), Employee shall not, directly or indirectly, (a) use or make known to
any person or entity the names or addresses of any clients or customers of the
Company or any other information pertaining to them, (b) call on, solicit, take
away or attempt to call on, solicit or take away any clients or customers of
the Company on whom Employee called or with whom he became acquainted during
his employment with the Company, nor (c) recruit, hire or attempt to recruit or
hire any employees of the Company.
6.11 Equitable Relief. In the event of a breach or a threatened breach
by Employee of any of the provisions contained in Section 6 of this Agreement,
Employee acknowledges that the Company will suffer irreparable injury not fully
compensable by money damages and, therefore, will not have an adequate remedy
available at law. Accordingly, the Company shall be entitled to obtain such
injunctive relief or other equitable remedy from any court of competent
jurisdiction as may be necessary or appropriate to prevent or curtail any such
breach, threatened or actual. The foregoing shall be in addition to and without
prejudice to any other rights that the Company may have under this Agreement,
at law or in equity, including, without limitation, the right to sue for
damages.
ARTICLE 7
GENERAL PROVISIONS
7.01 Notices. All notices or other communications required under this
Agreement may be effected either by personal delivery in writing or by
certified mail, return receipt requested. Notice shall be deemed to have been
given when delivered or mailed to the parties at their respective addresses as
set forth above or when mailed to the last address provided in writing to the
other party by the addressee.
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<PAGE> 7
7.02 Entirety of Agreement. This Agreement supersedes all other
agreements, either oral or in writing, between the parties to this Agreement,
with respect to the employment of the Employee by the Company. This Agreement
contains the entire understanding of the parties and all of the covenants and
agreements between the parties with respect to such employment.
7.03 Governing Law. This Agreement shall be governed by the laws of
the State of Texas and deemed performable in Bexar County, Texas.
7.04 Binding Agreement. This Agreement shall be binding upon all
parties hereto and their respective heirs, legal representatives and
successors.
EXECUTED effective the 1st day of April, 1998.
LIFEQUEST MEDICAL, INC.
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
---------------------------------
RANDALL K. BOATRIGHT
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<PAGE> 8
SCHEDULE 6.2
------------
PROPRIETARY PROPERTY CLAIMED BY EMPLOYEE
----------------------------------------
Proprietary Property Claimed:*
--------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------
* None, if left blank
-8-
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Agreement is made by and between LifeQuest Medical, Inc. (the
"Company"), located at 12961 Park Central, Suite 1300, San Antonio, Texas
78216, and Richard A. Woodfield ("Employee"), whose address is 604 Mountain
View Drive, Wayne, Pennsylvania 19087.
ARTICLE 1
COMPENSATION AND TERM
1.01 Basic Compensation. As compensation for the services to be
rendered hereunder, the Company shall pay Employee a salary at a rate not less
than $14,583.33 per month ("Base Salary"), subject to standard deductions,
which shall be payable in at least monthly installments during the Initial Term
(as hereinafter defined) and each Extension Term (as hereinafter defined), if
any. Such basic compensation shall be subject to annual review for possible
increase by the Compensation Committee of the Board of Directors of the Company
based upon Employee's performance, as determined at the discretion of the
Company's Compensation Committee based in part upon the achievement of goals
agreed upon by the Board of Directors of the Company and Employee, the
performance of the Company's stock price and the earnings of the Company. In
addition, the Company and the Employee have entered into a Non-Qualified Stock
Option Agreement of even date herewith pursuant to which the Company has
granted to Employee non-qualified stock options to purchase up to 250,000
shares of Common Stock, $.001 par value, of the Company upon the terms and
conditions set forth in such agreement.
1.02 Incentive Compensation. Employee shall be eligible to receive an
annual cash bonus in an amount up to 200% of Employee's Base Salary, the amount
of which shall be determined by the Compensation Committee of the Company in
its sole discretion and shall be based upon Employee's performance, the
achievement of goals agreed upon by the Board of Directors of the Company and
Employee, the performance of the Company's stock price and the earnings of the
Company, all as determined in the sole discretion of the Company's Compensation
Committee. Any such bonus shall be paid by the Company within 90 days after the
end of each calendar year.
1.03 Term. Subject to earlier termination pursuant to Article 5
hereof, the initial term (the "Initial Term") of this Agreement shall be three
(3) years commencing as of the execution date of this Agreement and ending on
May 10, 2001; provided, however, the Initial Term shall be automatically
extended for successive periods of one (1) year each (each such one-year
period, an "Extension Term") unless either party shall have given to the other
party written notice of termination not less than sixty (60) days prior to the
end of the Initial Term or the Extension Term then in effect, as the case may
be.
<PAGE> 2
ARTICLE 2
DUTIES OF EMPLOYEE
2.01 Duties. The Company hereby employs Employee to serve as President
and Chief Executive Officer of the Company or in such other capacities as may
be agreed upon by the Board of Directors of the Company and Employee from time
to time, and Employee agrees to perform the customary duties of such offices in
accordance with the bylaws of the Company and as the Board of Directors of the
Company may direct from time to time. Employee will be the chief executive
officer of the Company and, therefore, will report only to the Board of
Directors.
2.02 Other Activities. During the Initial Term and each Extension
Term, if any, Employee shall devote substantially all of his full-time efforts
to his duties hereunder and will not undertake any material business
commitments without obtaining the prior consent of the Board of Directors of
the Company, which consent may be granted or withheld in the sole discretion of
the Board of Directors of the Company.
ARTICLE 3
EMPLOYEE BENEFITS
3.01 Medical and Dental Benefits. The Company agrees to include
Employee in any hospital, surgical, medical, disability and dental benefit
plan(s) that it may adopt for its employees.
3.02 Temporary Housing Arrangements and Living Expenses. The Company
will reimburse Employee for reasonable temporary living arrangements and living
expenses for a period of up to twelve (12) months after the execution date
hereof; provided, however, the amount which shall be reimbursed by the Company
to Employee shall not exceed $2,000 per month. Arrangements for temporary
living accommodations will be made by the Company through its administrative
staff.
3.03 Attorneys' Fees. The Company will reimburse Employee for
reasonable attorneys' fees charged to Employee by the firm of Saul, Ewing,
Remick & Saul in connection with the negotiation of this Agreement.
3.04 Other Benefits. Employee shall be entitled to reasonable and
customary holidays and other benefits that are available to senior management
or key employees, including three weeks paid vacation.
ARTICLE 4
OBLIGATIONS OF THE COMPANY
4.01 Office and Support Staff. The Company shall provide Employee with
such support services as are reasonable to Employee's position or required for
the performance of his duties.
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<PAGE> 3
ARTICLE 5
TERMINATION OF EMPLOYMENT
5.01 Termination by the Company for Cause. The Company may at its
option terminate this Agreement for Cause (as hereinafter defined) by giving 10
days written notice of termination to Employee. Any such notice shall specify
with particularity the events or circumstances which the Board of Directors of
the Company has determined constituted such Cause.
The term "Cause" shall be limited to the occurrence of the following
events, as determined by the Board of Directors of the Company in its sole
judgment: (i) Employee breaches any of the material terms of this Agreement and
fails to remedy such breach within 10 days following written notice by the
Company to Employee of such breach; (ii) Employee is convicted of a felony;
(iii) Employee fails, after at least one written warning from the Company, to
perform duties assigned under this Agreement (other than a failure due to death
or physical or mental disability); (iv) Employee intentionally engages in
conduct which is demonstrably and materially injurious to the Company; (v)
Employee commits fraud or theft of personal or Company property from Company
premises; (vi) Employee falsifies Company documents or records; (vii) Employee
engages in acts of gross carelessness or willful negligence to endanger life or
property on Company premises; (viii) Employee engages in sexual harassment
involving employees of the Company or on premises of the Company or with
respect to business of the Company; (ix) Employee uses, distributes, possesses
or is under the influence of illegal drugs, alcohol or any other intoxicant on
Company premises; or (x) Employee intentionally violates state, federal or
local laws and regulations relating to the business of the Company. Any notice
referred to in the preceding sentence shall state with particularity the events
or circumstances which the Board of Directors of the Company has determined
constituted such Cause.
5.02 Option to Terminate if Employee Permanently Disabled, Etc. The
Company shall have the option to terminate this Agreement immediately by giving
written notice of termination to Employee upon the occurrence of any one of the
following events:
(a) Employee becomes permanently disabled because of sickness,
physical or mental disability, or any other reason, so that it reasonably
appears to the Board of Directors of the Company that Employee will be
unable to perform the essential aspects of his duties under this
Agreement;
(b) The death of Employee; or
(c) The continued incapacity on the part of Employee to perform his
duties for a continuous period of 60 days, unless waived by the Company,
and a reasonable determination by the Board of Directors of the Company
that Employee has not performed his duties during such period.
5.03 Effect of Termination on Compensation. In the event of the
termination of this Agreement prior to the expiration of the Initial Term or
the Extension Term then in effect, as the case may be, pursuant to Section 5.01
or Section 5.02, Employee shall be entitled
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<PAGE> 4
to Employee's Base Salary (subject to standard deductions) at the rate then in
effect to the date of such termination, computed pro rata up to and including
that date, and Employee shall be entitled to no further compensation after the
date of such termination.
5.04 Company's Option to Terminate. This Agreement may be terminated
by the Company immediately at any time without Cause pursuant to this Section
5.04 upon notice given by the Company to the Employee, after due authorization
by the Board of Directors. Such notice shall specify the date when such
termination shall be effective. A notice given by the Company pursuant to
Section 1.03 to terminate this Agreement at the end of the Initial Term or any
Extension Term, as the case may be, shall be deemed to be a termination without
Cause pursuant to this Section 5.04. In the event of the termination of this
Agreement by the Company without Cause pursuant to this Section 5.04, the
Company shall continue to pay to Employee, not less frequently than monthly,
his Base Salary (subject to standard deductions) at the rate in effect as of
such termination from the date of such termination through the date which is
the latest to occur of the following: (a) the date on which the Initial Term or
Extension Term then in effect, as the case may be, expires, (b) the date which
is twelve (12) months after the date of the Company's termination of this
Agreement without Cause pursuant to this Section 5.04 or (c) the date on which
the Non-Competition Period (as hereinafter defined) expires. As used herein,
the term "Non-Competition Period" shall mean the two-year period after the
termination of this Agreement referred to in Section 6.08; provided, however,
in the event that the Company shall give notice to Employee pursuant to this
Section 5.04 that the Company shall not require Employee to comply with the
provisions of Section 6.08 after a date prior to the expiration of such
two-year period after the termination of this Agreement, the "Non-Competition
Period" shall mean the period commencing on the date of the termination of this
Agreement and ending on the date specified in the Company's notice respecting
the shortening or elimination of the period for compliance with Section 6.08,
as the case may be. The Company shall have no further obligations to Employee
hereunder after the termination of this Agreement pursuant to this Section 5.04
except for the payments of Base Salary as set forth in this Section 5.04.
5.05 Survival of Provisions. The terms and provisions of this Article
5 shall survive the termination of this Agreement and shall be fully
enforceable despite and after any such termination.
ARTICLE 6
PROPRIETARY PROPERTY; CONFIDENTIAL
INFORMATION; NON-COMPETITION
6.01 Duties. Employee understands and agrees that, during the Initial
Term and each Extension Term, if any, Employee's duties will include the
conception of improvements and inventions (whether or not ultimately issuing as
Letters Patent in any country), the creation of confidential information
protected by the Company as trade secrets and the authoring of "works" as
defined under the copyright laws of the United States of America found in 17
United States Code. Such information is collectively referred to in this
Agreement as "Proprietary Information".
6.02 Ownership. Employee understands and agrees that for all
Proprietary Information created within the scope of Employee's employment, the
Company shall own all
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<PAGE> 5
right, title and interest thereto. In the case of works authored or created by
Employee, such works are considered a "work made for hire" under 17 United
States Code Section 101 - the copyright laws. All Proprietary Information, if
any, created by Employee prior to his employment with the Company, and in which
Employee claims ownership, is shown in Schedule 6.02 attached hereto.
6.03 Notice and Assistance. Employee shall give adequate written
notice to the Company as soon as practicable of all Proprietary Information
created by Employee during Employee's employment with the Company, assist the
Company in evaluating the Proprietary Information for patent, trade secret and
copyright protection and sign all documents and do all things necessary at the
expense of the Company to assist the Company in the protection, development,
marketing or transfer of such Proprietary Information.
6.04 Assignment. Employee hereby assigns and agrees to assign all
right, title and interest into such Proprietary Information to the Company or
its nominee. At the request of the Company, whether during or after the
termination of Employee's employment, Employee shall timely execute or join in
executing all papers or documents required for the filing of patent
applications and copyright registrations in the United States of America and
such foreign countries as the Company may in its sole discretion select, and
shall assign all such patent applications and copyrights to the Company or its
nominee, and shall provide the Company or its agent or attorneys with all
reasonable assistance in the preparation and prosecution of patent application
and copyright registrations, including drawings, specifications, and the like,
all at the expense of the Company, and shall do all that may be necessary to
establish, protect or maintain the rights of the Company or its nominee in the
inventions, patent applications, Letters Patent and copyrights in accordance
with the spirit of this Agreement.
6.05 Confidential Information. Employee agrees to keep confidential
all information protected by the Company as trade secrets during the Initial
Term and each Extension Term, if any, (including any leaves of absence) and
will neither use nor disclose the confidential information without written
authorization by the Company for ten years thereafter. For the purposes of this
Agreement, such confidential information shall include information set forth in
any application for Letters Patent unless and until such information is
ultimately published. The Company and Employee mutually agree that the
following types of information shall not be protected by this Agreement:
(a) Information already in the public domain at the time Employee
received it;
(b) Information which although disclosed in confidence to Employee is
later disseminated by the Company into the public domain;
(c) Information which although received in confidence by Employee is
subsequently disseminated into public domain by a third party who has not
breached any duty to any other party in disseminating such information;
and
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<PAGE> 6
(d) Information given by the Company in confidence to Employee which
Employee is expressly authorized in writing by the Company to use or
disclose thereafter.
Employee also understands and agrees that he will maintain in confidence all
information known to him by reason of his employment even if such information
is included in a redacted deposit of a work filed with an application for
copyright registration, if such deposit has been abridged in order to protect
the confidentiality of the information deposited with the Copyright Office. For
purposes of this Agreement, a trade secret "...may consist of any formula,
pattern, device or compilation of information which is used in one's business,
and which gives him an opportunity to obtain an advantage over competitors who
do not know or use it. It may be a formula for a chemical compound, a process
of manufacturing, trading or preserving materials, a pattern for machine or
other device, or a list of customers..." as commonly interpreted by the courts
of the State of Texas. Upon the termination of this Agreement, regardless of
how such termination may be brought about, Employee shall deliver to the
Company any and all documents, instruments, notes, papers or other expressions
or embodiments of Proprietary Property or confidential information which are in
Employee's possession or control.
6.06 Publicity. During the Initial Term and each Extension Term, if
any, and for a period of ten years thereafter, Employee shall not, directly or
indirectly, originate or participate in the origination of any publicity, news
release or other public announcements, written or oral, whether to the public
press or otherwise, relating to this Agreement, to any amendment hereto, to
Employee's employment hereunder or to the Company, without the prior written
approval of the Company.
6.07 Fiduciary Relationship. Notwithstanding any provision of Section
2.02 which may permit Employee to engage in business activities other than
Employee's duties hereunder, Employee, by virtue of his high position of trust
and reliance on him by the Company, understands that Employee enjoys a
fiduciary relationship with the Company in carrying out his obligations under
this Agreement. Accordingly, Employee agrees to honor his obligations under
this Agreement by conducting himself with the highest degree of fairness and
trust toward the Company.
6.08 Non-Competition. Notwithstanding any provision of Section 2.02
which may permit Employee to engage in business activities other than
Employee's duties hereunder, in consideration of the benefits of this
Agreement, including Employee's access to and limited use of proprietary and
confidential information of the Company, as well as training, education and
experience provided to Employee by the Company directly and/or as a result of
work projects assigned by the Company with respect thereto, Employee hereby
covenants and agrees that during the Initial Term and each Extension Term, if
any, and for a period of two years following termination of this Agreement,
Employee shall not, directly or indirectly, as proprietor, partner,
stockholder, director, officer, employee, consultant, joint venturer, investor
or in any other capacity, engage in, or own, manage, operate or control, or
participate in the ownership, management, operation or control, of any entity
which engages, in the United States or Canada, in any business activity in
which the Company participates during Employee's employment with the Company;
provided, however, the foregoing shall not prohibit Employee
-6-
<PAGE> 7
from purchasing and holding as an investment not more than 5% of any class of
publicly traded securities, or 10% of any class of other securities, of any
entity which is engaged in the design, manufacturing, marketing, sale or
distribution of minimally invasive surgery products, so long as Employee does
not participate in any way in the management, operation or control of such
entity.
6.09 Judicial Reformation. Employee acknowledges that, given the
nature of the Company's business, the covenants contained in Section 6.08
establish reasonable limitations as to time, geographic area and scope of
activity to be restrained and do not impose a greater restraint than is
reasonably necessary to protect and preserve the goodwill of the Company's
business and to protect its legitimate business interests. If, however, Section
6.08 is determined by any court of competent jurisdiction to be unenforceable
by reason of its extending for too long a period of time or over too large a
geographic area or by reason of it being too extensive in any other respect or
for any other reason, it will be interpreted to extend only over the longest
period of time for which it may be enforceable and/or over the largest
geographic area as to which it may be enforceable and/or to the maximum extent
in all other aspects as to which it may be enforceable, all as determined by
such court.
6.10 Customer Lists; Non-Solicitation. In consideration of the
benefits of this Agreement, including Employee's access to and limited use of
proprietary and confidential information of the Company, as well as training,
education and experience provided to Employee by the Company directly and/or as
a result of work projects assigned by the Company with respect thereto,
Employee hereby further covenants and agrees that, notwithstanding any
provision of Section 2.02 which may permit Employee to engage in business
activities other than Employee's duties hereunder, during the Initial Term and
each Extension Term, if any, and for a period of one year following the
termination of this Agreement, Employee shall not, directly or indirectly, (a)
use or make known to any person or entity the names or addresses of any clients
or customers of the Company or any other information pertaining to them, (b)
call on, solicit, take away or attempt to call on, solicit or take away any
clients or customers of the Company on whom Employee called or with whom he
became acquainted during his employment with the Company, nor (c) recruit, hire
or attempt to recruit or hire any employees of the Company.
6.11 Equitable Relief. In the event of a breach or a threatened breach
by Employee of any of the provisions contained in Article 6 of this Agreement,
Employee acknowledges that the Company will suffer irreparable injury not fully
compensable by money damages and, therefore, will not have an adequate remedy
available at law. Accordingly, the Company shall be entitled to obtain such
injunctive relief or other equitable remedy from any court of competent
jurisdiction as may be necessary or appropriate to prevent or curtail any such
breach, threatened or actual. The foregoing shall be in addition to and without
prejudice to any other rights that the Company may have under this Agreement,
at law or in equity, including, without limitation, the right to sue for
damages.
6.12 Survival of Provisions. The terms and provisions of this Article
6 shall survive the termination of this Agreement and shall be fully
enforceable despite and after any such termination.
-7-
<PAGE> 8
ARTICLE 7
GENERAL PROVISIONS
7.01 Notices. All notices or other communications required under this
Agreement may be effected either by personal delivery in writing or by
certified mail, return receipt requested. Notice shall be deemed to have been
given when delivered or mailed to the parties at their respective addresses as
set forth above or when mailed to the last address provided in writing to the
other party by the addressee.
7.02 Entirety of Agreement. This Agreement supersedes all other
agreements, either oral or in writing, between the parties to this Agreement,
with respect to the employment of the Employee by the Company. This Agreement
contains the entire understanding of the parties and all of the covenants and
agreements between the parties with respect to such employment.
7.03 Governing Law. This Agreement shall be governed by the laws of
the State of Texas and deemed performable in Bexar County, Texas.
7.04 Binding Agreement. This Agreement shall be binding upon all
parties hereto and their respective heirs, legal representatives and
successors.
EXECUTED effective the 11th day of May, 1998.
LIFEQUEST MEDICAL, INC.
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
-----------------------------------------
RICHARD A. WOODFIELD
-8-
<PAGE> 9
SCHEDULE 6.02
-------------
PROPRIETARY PROPERTY CLAIMED BY EMPLOYEE
----------------------------------------
Proprietary Property Claimed:*
--------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- ---------------------------------------
* None, if left blank
-9-
<PAGE> 1
EXHIBIT 10.4
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (the "Agreement") is made as of the 9th
day of June, 1998, by and between LifeQuest Medical, Inc., a Delaware
corporation (the "Company"), and Ana-Tech, LLC ("Investor").
For valuable consideration, the parties agree as follows:
1. Common Stock. Investor shall purchase 370,000 shares of common
stock, $.001 par value ("Common Stock"), of the Company in consideration for a
8.0166666 units, each of which units represents a one-half percent (1/2%)
membership interest in Investor.
2. Investment Representation. Investor hereby makes the following
certifications and representations:
(a) Investor is an "Accredited Investor" as that term is
defined in Rule 501 to the Rules and Regulations promulgated by the
Securities and Exchange Commission pursuant to the Securities Act of
1933, as amended (the "Act").
(b) Investor represents and warrants that it is acquiring the
shares of Common Stock (the "Securities"), solely for Investor's
account for investment and not with a view to or for sale or
distribution of the Securities or any part thereof. Investor also
represents that the entire legal and beneficial interests of the
Securities Investor is acquiring are being acquired for, and will be
held for, its account only.
(c) Investor understands that the Securities have not been
registered under the Act, on the basis that no distribution or public
offering of the Securities is to be effected. Investor realizes that
the basis for the exemption may not be present if, notwithstanding its
representations, it has in mind merely acquiring the Securities for a
fixed or determinable period in the future, or for a market rise, or
for sale if the market does not rise. At this time, Investor has no
such intention.
(d) Investor recognizes that the Securities being acquired by
it must be held indefinitely unless they are subsequently registered
under the Act or an exemption from such registration is available.
(e) Investor is aware that the Securities may not be sold
pursuant to Rule 144 adopted under the Act unless certain conditions
are met and until Investor has held the Securities for at least one
year.
3. This Agreement and any documents executed in connection herewith
shall be governed by and construed and interpreted in accordance with the laws
of the State of Texas as applied to contracts entered into and performed
entirely within the State of Texas.
<PAGE> 2
LIFEQUEST MEDICAL, INC.
By:
--------------------------------------
Richard A. Woodfield, President and
Chief Executive Officer
ANA-TECH, LLC
By:
--------------------------------------
John D. Brady, Sole Manager and
Chief Executive Officer
-2-
<PAGE> 1
EXHIBIT 10.5
LIFEQUEST MEDICAL, INC.
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
AUGUST 11, 1998
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
ARTICLE I - PURCHASE AND SALE............................................................................1
Section 1.1 Purchase and Sale; Purchase Price...................................................1
Section 1.2 Closing.............................................................................2
Section 1.3 Transactions at Closing.............................................................2
Section 1.4 Fees and Expenses...................................................................2
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY...............................................2
Section 2.1 Organization, Standing and Qualification............................................2
Section 2.2 Capitalization......................................................................2
Section 2.3 Validity of Stock...................................................................3
Section 2.4 Subsidiaries........................................................................3
Section 2.5 Financial Statements................................................................3
Section 2.6 No Material Changes.................................................................4
Section 2.7 Permits.............................................................................5
Section 2.8 Insurance...........................................................................5
Section 2.9 Authorization; Approvals............................................................5
Section 2.10 No Conflict with Other Instruments.................................................5
Section 2.11 Labor Agreements and Actions.......................................................6
Section 2.12 Title to Properties; Liens and Encumbrances........................................6
Section 2.13 Compliance with Law and Other Instruments..........................................6
Section 2.14 Patents, Trademarks and Other Intangible Assets....................................7
Section 2.15 Taxes..............................................................................7
Section 2.16 Contracts..........................................................................7
Section 2.17 Litigation.........................................................................8
Section 2.18 Securities Laws....................................................................8
Section 2.19 Fees and Commissions...............................................................8
Section 2.20 Interested Party Transactions......................................................8
Section 2.21 ERISA..............................................................................9
Section 2.22 Environmental and Safety Laws......................................................9
Section 2.23 SEC Reports........................................................................9
Section 2.24 Full Disclosure....................................................................9
ARTICLE III - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASERS......................................................................................9
Section 3.1 Authorization; Approvals; No Conflicts..............................................9
Section 3.2 Investment Representations.........................................................10
Section 3.3 Investment Experience; Access to Information.......................................10
Section 3.4 Restrictions on Transfer...........................................................10
Section 3.5 Transfer Instructions..............................................................11
Section 3.6 Fees and Commissions...............................................................11
ARTICLE IV - CONDITIONS TO CLOSING OF THE PURCHASERS....................................................11
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
ARTICLE V - CONDITIONS TO CLOSING OF THE COMPANY........................................................12
ARTICLE VI - REGISTRATION RIGHTS........................................................................12
Section 6.1 Shelf Registration.................................................................12
Section 6.2 Obligations of the Company.........................................................12
Section 6.3 Expenses of Registration...........................................................13
Section 6.4 Indemnification Regarding Registration Rights......................................13
Section 6.5 Reports Under the Exchange Act.....................................................15
Section 6.6 Assignment of Registration Rights..................................................16
ARTICLE VII - MISCELLANEOUS.............................................................................16
Section 7.1 Entire Agreement...................................................................16
Section 7.2 Survival of Representations and Warranties.........................................17
Section 7.3 Notices............................................................................17
Section 7.4 Amendments.........................................................................18
Section 7.5 Waiver and Consent.................................................................18
Section 7.6 Successors and Assigns.............................................................18
Section 7.7 Rights of Purchasers...............................................................18
Section 7.8 Execution and Counterparts.........................................................18
Section 7.9 No Third Party Beneficiaries.......................................................18
Section 7.10 Severability......................................................................18
Section 7.11 Governing Law.....................................................................19
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
Schedules
- ---------
<S> <C>
2.2 - Security Holders
2.5 - Financial Statements
2.6 - Material Changes
Exhibits
- --------
A - Form of Certificate of Designation and Preferences of Series A Cumulative
Convertible Preferred Stock
B - Form of Legal Opinion of the Company's Counsel
</TABLE>
iii
<PAGE> 5
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This AGREEMENT (the "Agreement"), dated as of August 11, 1998, is
entered into by and among LIFEQUEST MEDICAL, INC., a Delaware corporation (the
"Company"), RENAISSANCE CAPITAL GROWTH & INCOME FUND III, INC., a Texas
corporation, and RENAISSANCE US GROWTH & INCOME TRUST, PLC, a public limited
company registered in England and Wales (individually referred to as
Renaissance III and Renaissance PLC, respectively, and together with any
permitted assignees or successors in interest individually referred to as each
or any "Purchaser" and collectively referred to as the "Purchasers").
RECITAL
WHEREAS, the Purchasers desire to purchase 1,000 shares of Series A
Cumulative Convertible Preferred Stock, par value $.001 per share, of the
Company (the "Series A Preferred Stock"), having the rights, preferences,
privileges and restrictions set forth in the Company's Certificate of
Designation and Preferences of Series A Cumulative Convertible Preferred Stock
by resolution, substantially in the form attached hereto as EXHIBIT A (the
"Certificate of Designation"), and the Company desires to sell to the
Purchasers such shares of Series A Preferred Stock on the terms and subject to
the conditions set forth herein;
AGREEMENT
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the Company and the Purchasers hereby agree as follows:
ARTICLE I - PURCHASE AND SALE
Section 1.1 Purchase and Sale; Purchase Price. Subject to the
provisions of this Agreement, at Closing (as hereinafter defined), the Company
shall sell to the Purchasers, and the Purchasers shall purchase from the
Company 1,000 shares of Series A Preferred Stock at the aggregate purchase
price of $1,000,000 (the "Purchase Price"), as follows:
<TABLE>
<CAPTION>
PURCHASER PURCHASE PRICE NO. OF SHARES
--------- -------------- -------------
<S> <C> <C>
Renaissance Capital Growth & Income
Fund III, Inc. $500,000 500
Renaissance US Growth & Income Trust, PLC $500,000 500
</TABLE>
<PAGE> 6
Section 1.2 Closing. The purchase and sale of the Series A Preferred
Stock pursuant to Section 1.1 (the "Closing") shall take place at the offices
of Renaissance Capital Group, Inc., 8080 North Central Expressway, Suite 210,
Dallas, Texas or at such other place as may be agreed upon by the Company and
the Purchasers, at 10:00 a.m., local time, on August 11, 1998 or at such other
time and date as may be agreed upon by the Company and the Purchasers (the
"Closing Date").
Section 1.3 Transactions at Closing. At the Closing, the Company shall
deliver to the Purchasers certificates for the shares of Series A Preferred
Stock to be issued and sold to the Purchasers hereunder duly registered in the
Purchasers' names, or in such other names as the Purchasers shall have
specified in writing to the Company, against payment in full by the Purchasers
of the Purchase Price by wire transfer of immediately available funds.
Section 1.4 Fees and Expenses. At Closing:
(a) The Company shall pay to Renaissance Capital Group, Inc. a
closing fee of $20,000.
(b) The Company shall pay the legal fees and expenses of the
Purchasers in connection with the preparation and negotiation of this Agreement
and the Closing.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that:
Section 2.1 Organization, Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to own, lease and operate its property and assets and to conduct its
business as presently conducted and as proposed to be conducted by it. The
Company has all requisite corporate power and authority to enter into and
perform its obligations under this Agreement and to carry out the transactions
contemplated hereby. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction in which the failure
to so qualify would have a material adverse effect on its assets, properties,
condition (financial or otherwise), operating results, prospects or business.
Complete and correct copies of the Certificate of Incorporation and Bylaws of
the Company have been delivered to the Purchasers.
Section 2.2 Capitalization. On the Closing Date, the authorized
capital stock of the Company shall consist of (a) 2,000,000 shares of preferred
stock, par value $.001 per share, of which 1,170 shares will be designated
"Series A Cumulative Convertible Preferred Stock," and of which no shares are
issued or outstanding prior to the Closing Date and (b) 50,000,000 shares of
common stock, par value $.001 per share (the "Common Stock"), of which
7,212,742 shares are issued and outstanding, a total of 3,595,818 shares are
reserved for issuance pursuant to outstanding options, warrants and debentures,
and 585,000 shares are reserved for issuance upon conversion of the Series A
Preferred Stock. The outstanding shares of Common Stock are duly authorized and
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Holders of shares of the Company's capital stock have no preemptive
rights or rights of first refusal. Except for the transactions contemplated by
this Agreement and as set forth in its SEC Filings (as defined in
2
<PAGE> 7
Section 2.23 herein) or on Schedule 2.2, there are (i) no outstanding warrants,
options, convertible securities or rights to subscribe for or purchase any
capital stock or other securities from the Company, (ii) no existing rights of
security holders to require the Company to register any securities of the
Company or to participate with the Company in any registration by the Company
of its securities, (iii) to the best knowledge of the Company, no agreements
among stockholders providing for the purchase or sale of the Company's capital
stock and (iv) no obligations (contingent or otherwise) of the Company to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. The Company is not a party or subject to any agreement or
understanding, and, to the best knowledge of the Company, there is no agreement
or understanding between any persons, that affects or relates to the voting or
giving of written consents with respect to any security or the voting by a
director of the Company.
Section 2.3 Validity of Stock. The Series A Preferred Stock, when
issued, sold and delivered in accordance with the terms of this Agreement, will
be duly authorized and validly issued, fully paid and nonassessable, and will
be free of restrictions on transfer, other than restrictions on transfer under
applicable state and federal securities laws, and not subject to preemptive
rights. The Common Stock issuable upon conversion of the Series A Preferred
Stock purchased under this Agreement has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Certification
of Designation, will be duly and validly issued, fully paid, and nonassessable
and will be free of restrictions on transfer other than restrictions on
transfer under applicable state and federal securities laws.
Section 2.4 Subsidiaries. Except as set forth in its SEC Filings or on
Schedule 2.4, the Company (i) does not own or control, directly or indirectly,
any other corporation, partnership, association or business entity and (ii) is
not a participant in any joint venture, partnership, or similar arrangement.
Section 2.5 Financial Statements. The Company has furnished the
Purchasers with the Company's (i) unaudited balance sheet as of March 31, 1998
(the "Balance Sheet") and (ii) unaudited statements of income for the period
then ended (the "Statements of Income" and, together with the Balance Sheet,
the "Financial Statements"). The Financial Statements are attached hereto as
Schedule 2.5. The Financial Statements are true and correct in all material
respects, are in accordance with the books and records of the Company and have
been prepared in accordance with generally accepted accounting principles
("GAAP") consistently applied, and fairly and accurately present in all
material respects the financial position of the Company as of such date and the
results of its operations for the period then ended. Except as described in
Schedule 2.5, the Company has no material liabilities, debts or obligations,
whether accrued, absolute or contingent, other than liabilities reflected or
reserved for in the Balance Sheet or disclosed in the notes to the Financial
Statements. Except as disclosed in the Financial Statements, the Company is not
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company maintains and will continue to maintain a standard
system of accounting established and administered in accordance with GAAP.
Section 2.6 No Material Changes. Since March 31, 1998, except as set
forth in its SEC Filings or on Schedule 2.6, the Company has been operated in
the ordinary and usual course of business, and there has not been:
3
<PAGE> 8
(a) any change in the (i) assets, liabilities, condition (financial or
otherwise) or business of the Company from that reflected in the Balance Sheet,
or (ii) operating results of the Company from that reflected in the Statements
of Income, in either case, except changes in the ordinary course of business
which have not been, in the aggregate, materially adverse;
(b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the assets, properties, condition
(financial or otherwise), operating results, prospects or business of the
Company (as such business is presently conducted and as it is proposed to be
conducted);
(c) any waiver or compromise by the Company of a valuable right or of
a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or encumbrance or
payment of any obligation by the Company, except in the ordinary course of
business and which is not individually or in the aggregate material to the
assets, properties, condition (financial or otherwise), operating results,
prospects or business of the Company (as such business is presently conducted
and as it is proposed to be conducted);
(e) any change or amendment to a material contract or arrangement by
which the Company or any of its assets or properties is bound or subject, other
than those that have not been, individually or in the aggregate, materially
adverse to the business of the Company;
(f) any material change in any compensation arrangement or agreement
with any employee, officer, director or stockholder of the Company;
(g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;
(h) any resignation or termination of employment of any "officer" of
the Company, as such term is defined in Rule 3b-2 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company, to the best of its knowledge, does not know of the impending
resignation or termination of employment of any such officer;
(i) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;
(j) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;
(k) any loans or guarantees made by the Company to or for the benefit
of its employees, officers or directors or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of its business;
4
<PAGE> 9
(l) any declaration, setting aside, or payment or other
distribution in respect of any of the Company's capital stock, or any direct or
indirect redemption, purchase or other acquisition of any of such stock by the
Company;
(m) to the best knowledge of the Company, any other event or
condition of any character which might materially adversely affect the assets,
properties, condition (financial or otherwise), operating results, prospects or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted); or
(n) any agreement or commitment by the Company to do any of the
things described in this Section 2.6.
Section 2.7 Permits. The Company has all franchises, permits, licenses
and any similar authority necessary for the conduct of its business as now
being conducted by it, the lack of which could materially and adversely affect
the assets, properties, condition (financial or otherwise), operating results,
prospects or business of the Company. The Company is not in default in any
material respect under any of such franchises, permits, licenses or other
similar authority.
Section 2.8 Insurance. The Company has in full force and effect fire
and casualty insurance policies, with extended coverage, sufficient in amount
(subject to reasonable deductibles) to allow it to replace any of its material
properties that might be damaged or destroyed.
Section 2.9 Authorization; Approvals. All corporate action on the part
of the Company and its stockholders necessary for the authorization, execution,
delivery and performance of all its obligations under this Agreement and for
the authorization, issuance and delivery of the Series A Preferred Stock being
sold under this Agreement and of the Common Stock initially issuable upon
conversion of the Series A Preferred Stock has been (or will be) taken prior to
the Closing. This Agreement, when executed and delivered by or on behalf of the
Company, shall constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The Company has
obtained or will obtain prior to the Closing Date all necessary consents,
authorizations, approvals and orders, and has made all registrations,
qualifications, designations, declarations or filings with all federal, state
or other relevant governmental authorities required on the part of the Company
in connection with the consummation of the transactions contemplated by this
Agreement, except for such filings as may be required to be made after the
Closing in order to comply with the requirements of Regulation D promulgated
under the Securities Act of 1933, as amended (the "Securities Act") and
applicable state laws.
Section 2.10 No Conflict with Other Instruments. The execution,
delivery and performance of this Agreement will not result in any violation of,
be in conflict with, or constitute, with or without the passage of time or
giving of notice or both, a default under any terms or provisions of (i) the
Certificate of Incorporation or Bylaws of the Company; (ii) any judgment,
decree or order of any court or government agency or body having jurisdiction
over the Company or its properties; (iii) any agreement, contract,
understanding, indenture or other instrument to which the Company is a party or
by which it is bound, the effect of which would have a material adverse effect
on the assets, properties, condition (financial or otherwise), operating
results, prospects or business of the Company; or (iv) any statute, rule or
governmental regulation applicable to the Company.
5
<PAGE> 10
Section 2.11 Labor Agreements and Actions. The Company is not bound by
or subject to (and none of its assets or properties is bound by or subject to)
any written or oral, express or implied, contract, commitment or arrangement
with any labor union, and no labor union has requested or, to the best
knowledge of the Company, has sought to represent any of the employees,
representatives or agents of the Company. There is no strike or other labor
dispute involving the Company pending, or, to the best knowledge of the
Company, threatened, which could have a material adverse effect on the assets,
properties, condition (financial or otherwise), operating results, prospects or
business of the Company (as such business is presently conducted and as it is
proposed to be conducted), nor is the Company aware of any labor organization
activity involving its employees. The Company is not aware that any "officer,"
as such term is defined in Rule 3b-2 promulgated under the Exchange Act,
intends to terminate such person's employment with the Company, nor does the
Company have a present intention to terminate the employment of any of the
foregoing persons.
Section 2.12 Title to Properties; Liens and Encumbrances. Set forth in
the SEC Filings is a description of the material real and personal property of
the Company owned, leased or licensed to or by the Company. Except as set forth
in the SEC Filings, (i) the Company has good and marketable title to all of the
properties and assets, both real and personal, tangible and intangible, that it
purports to own, including the properties and assets reflected on the Balance
Sheet (except as sold or disposed of after the date thereof in the ordinary
course of business and which in any event have not individually or in the
aggregate had a material adverse affect on the assets, properties, condition
(financial or otherwise), operating results, prospects or business of the
Company), and they are not subject to any mortgage, pledge, lien, security
interest, conditional sale agreement, encumbrance or charge except routine
statutory liens securing liabilities not yet due and payable and minor liens,
encumbrances, restrictions, exceptions, reservations, limitations and other
imperfections which do not materially detract from the value of the specific
asset affected or the present use of such asset; and (ii) the Company is not in
default or in breach of any provision of its leases or licenses other than
provisions which would not permit acceleration or termination of any such lease
or license and holds a valid leasehold or licensed interest in (y) the material
property it leases or (z) the property that is licensed to it.
Section 2.13 Compliance with Law and Other Instruments. The Company is
not in violation of any provision of (i) the Certificate of Incorporation or
its Bylaws, or (ii) any judgment, decree, order, statute, rule or governmental
regulation applicable to it, the violation of which would materially and
adversely affect the assets, properties, condition (financial or otherwise),
operating results, prospects or business of the Company. The Company is not in
violation or default in any material respect of any provision of any mortgage,
indenture, agreement, instrument or contract to which it is a party or by which
it is bound. To the best knowledge of the Company, no employee of the Company
is in violation of any term of any employment contract, patent or other
proprietary information disclosure agreement or any other contract or agreement
relating to the employment of such employee with the Company.
Section 2.14 Patents, Trademarks and Other Intangible Assets. All
material patents, patent applications, trademarks, service marks, trade names
and copyrights, and licenses and rights to the foregoing presently owned or
held by the Company are disclosed in the SEC Filings, none of which is in
dispute or in any conflict with the right of any other person or entity where
an adverse outcome would have a material adverse affect on the assets,
properties, condition (financial or otherwise),
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operating results, prospects or business of the Company. Except as disclosed in
the SEC Filings, the Company (i) owns or has the unrestricted right to use,
free and clear of all liens, claims and restrictions, all patents, trademarks,
service marks, trade names, copyrights and trade secrets, including know-how,
inventions, designs, processes, works of authorship, computer programs (with
the exception of normal software purchased and sold as such) and technical data
and information (collectively, the "Intellectual Property"), and licenses and
rights with respect to the foregoing, used in the conduct of its business as
now conducted or proposed to be conducted without infringing upon or otherwise
acting adversely to the right or claimed right of any person, corporation or
other entity, including former or current consultants, or employees and former
employers of its past and present employees and (ii) is not obligated or under
any liability whatsoever to make any payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any patent,
trademark, service mark, trade name, copyright or other intangible asset, with
respect to the use thereof or in connection with the conduct of its business or
otherwise. There are no outstanding options, licenses or agreements of any kind
relating to the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the patents,
trademarks, service marks trade names, copyrights, trade secrets, licenses,
information and proprietary rights and processes of any other person or entity.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as proposed, would violate any of the
patents, trademarks, service marks, trade names, copyrights, trade secrets or
other proprietary rights or processes of any other person or entity.
Section 2.15 Taxes. The Company has accurately and timely filed all
federal income tax returns and all state and municipal tax returns that are
required to be filed by it and has paid or made provision for the payment of
all amounts due pursuant to such returns. The federal income tax returns of the
Company have not been audited by the Internal Revenue Service, and there are no
waivers in effect of the applicable statute of limitations for any period. No
deficiency assessment or proposed adjustment of federal income taxes or state
or municipal taxes of the Company is pending and the Company has no knowledge
of any proposed liability for any tax to be imposed.
Section 2.16 Contracts. Except as set forth in its SEC Filings or on
Schedule 2.16, the Company is not a party to any contract, and has no
obligation or commitment, in each case (i) involving aggregate payments by the
Company or having an aggregate value of more than $25,000, or (ii) that is
otherwise material to the business of the Company, or (iii) that is, or is
reasonably likely to be, materially adverse to the assets, properties,
condition (financial or otherwise), operating results, prospects or business of
the Company. Except as set forth in its SEC Filings or on Schedule 2.16, the
Company has no employment or consulting contracts, deferred compensation
agreements or bonus, incentive, profit-sharing or pension plans currently in
force and effect, or any understanding with respect to any of the foregoing, or
any non-competition and confidentiality agreements between the Company and any
employee of the Company, any consultant to the Company or any other entity.
Section 2.17 Litigation. Except as set forth in its SEC Filings or on
Schedule 2.17, there is no action, proceeding or governmental inquiry or
investigation pending or, to the best knowledge of the Company, threatened
against the Company or any of its officers, directors or employees (in their
capacity as such) or any of the Company's assets or properties before any
court, arbitration board or tribunal or administrative or other governmental
agency. The foregoing includes, without
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limiting its generality, actions pending or known to the Company to be
threatened involving (i) the prior employment of any of the Company's employees
or use by any of them in connection with the Company's business of any
information, property or techniques allegedly proprietary to any of their
former employers or (ii) any prior employees of the Company in connection with
rights to the Intellectual Property or any portion thereof. The Company is not
a party or subject to the provisions of any order, writ, injunction, judgment
or decree of any court or governmental agency or instrumentality. There is no
action, suit or proceeding by the Company currently pending, or that the
Company intends to initiate.
Section 2.18 Securities Laws. Assuming the accuracy of the
representations and warranties of the Purchasers set forth in Article III
hereof, the offer, sale and issuance of the shares of Series A Preferred Stock
to the Purchasers as provided herein are and will be exempt from the
registration and prospectus delivery requirements of the Securities Act and
have been registered or qualified (or are exempt from registration or
qualification) under all applicable state registration or qualification
requirements.
Section 2.19 Fees and Commissions. The Company has not retained any
finder, broker, agent, financial advisor or other intermediary (collectively
"Intermediary") in connection with the transactions contemplated by this
Agreement, and the Company shall indemnity and hold harmless the Purchasers
from liability for any compensation to any Intermediary and the fees and
expenses of defending against such liability or alleged liability.
Section 2.20 Interested Party Transactions. Except as disclosed in the
SEC Filings, no executive officer or director of the Company or holder of more
than five percent (5%) of the capital stock of the Company or, to the best of
the Company's knowledge, any "affiliate" or "associate" (as these terms are
defined in Rule 405 promulgated under the Securities Act) of any such person or
entity or the Company has or has had, either directly or indirectly, (a) an
interest in any person or entity which (i) furnishes or sells services or
products which are furnished or sold or are proposed to be furnished or sold by
the Company, or (ii) purchases from or sells or furnishes to the Company any
goods or services, or (b) a beneficial interest in any material contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as disclosed in the SEC Filings, there are no existing
material arrangements or proposed material transactions between the Company and
any officer, director or holder of more than five percent (5%) of the capital
stock of the Company, or, to the best of the Company's knowledge, any affiliate
or associate of any such person.
Section 2.21 ERISA. The Company does not maintain, sponsor, or
contribute to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multi-employer plan", as those
terms are defined in Sections 3(2), 3(l), and 3(37) of the Employee Retirement
Income Security Act of 1974, as amended.
Section 2.22 Environmental and Safety Laws. To the best knowledge of
the Company, the Company is not in violation of any applicable statute, law or
regulation relating to the environment or occupational health and safety, and
no material expenditures are or will be required in order to comply with any
such existing statute, law or regulation.
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Section 2.23 SEC Reports. The Company has filed all reports,
registration or proxy statements, forms and documents with the SEC that it was
required to file since the date of the initial public offering of its Common
Stock (the "SEC Filings"), all of which have complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act. As
of their respective dates, each of the SEC Filings, including, without
limitation, any financial statements or schedules included therein, did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. None
of the Company's subsidiaries is required to file any reports, statements,
forms or other documents with the SEC.
Section 2.24 Full Disclosure. Neither the representations and
warranties or the schedules to this Agreement, contain or will contain, as of
the date thereon, any untrue statement of a material fact or omits or will omit
to state any material fact necessary to keep the statements contained herein or
therein from being misleading in any material respect.
ARTICLE III - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASERS
The Purchasers represent and warrant to the Company that:
Section 3.1 Authorization; Approvals; No Conflicts. All corporate
action on the part of the Purchasers necessary for the authorization,
execution, delivery and performance of all their obligations under this
Agreement has been (or will be) taken prior to the Closing. This Agreement,
when executed and delivered by or on behalf of the Purchasers, shall constitute
the valid and binding obligation of the Purchasers, enforceable against the
Purchasers in accordance with its terms. The Purchasers have obtained or will
obtain prior to the Closing Date all necessary consents, authorizations,
approvals and orders, and have made all registrations, qualifications,
designations, declarations or filings with all federal, state or other relevant
governmental authorities required on the part of the Purchasers in connection
with the consummation of the transactions contemplated by this Agreement. The
execution, delivery and performance of this Agreement will not result in any
violation of, be in conflict with, or constitute, with or without the passage
of time or giving of notice or both, a default under any terms or provisions of
(i) the respective Certificates of Incorporation or Bylaws of the Purchasers;
(ii) any judgment, decree or order of any court or government agency or body
having jurisdiction over the Purchasers or their properties; (iii) any
agreement, contract, understanding, indenture or other instrument to which the
Purchasers are a party or by which they are bound, the effect of which would
have a material adverse effect on the assets, properties, condition (financial
or otherwise), operating results, prospects or business of the Purchasers; or
(iv) any statute, rule or governmental regulation applicable to the Purchasers.
Section 3.2 Investment Representations. The Purchasers are acquiring
the Series A Preferred Stock (and any Common Stock into which the Series A
Preferred Stock may be converted) for the Purchasers' own accounts, for
investment purposes and not with a view to, or for sale in connection with, any
distribution of such shares.
Section 3.3 Investment Experience; Access to Information. The
Purchasers are "accredited investors," as that term is defined in Rule 501(a)
promulgated under the Securities Act.
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The Purchasers have been afforded prior to the Closing Date the opportunity to
ask questions of, and to receive answers from, the Company and to obtain any
additional information, written and oral, to the extent the Company has such
information or could have acquired it without unreasonable effort or expense,
all as necessary for the Purchasers to make an informed investment decision
with respect to the purchase of the Series A Preferred Stock.
Section 3.4 Restrictions on Transfer. The Purchasers agree that (a)
they will not offer, sell, transfer, give, pledge, hypothecate or otherwise
dispose of the Series A Preferred Stock (or the Common Stock into which it may
be converted) or make any attempt to do the foregoing unless such offer, sale,
transfer, gift, pledge, hypothecation or other disposition is (i) registered
under the Securities Act and any applicable state securities law, or (ii) in
compliance with an opinion of counsel to the Purchasers, delivered to the
Company and reasonably acceptable to counsel for the Company, to the effect
that such offer, sale, pledge, hypothecation or other disposition thereof does
not violate the Securities Act or applicable state securities law, and (b) the
certificate(s) representing the Series A Preferred Stock (and any Common Stock
into which it may be converted) shall bear a legend stating in substance:
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY APPLICABLE STATE
SECURITIES LAWS AND ARE "RESTRICTED
SECURITIES" AS THAT TERM IS DEFINED IN RULE
144 UNDER THE ACT. NEITHER THE SHARES NOR ANY
INTEREST THEREIN MAY BE OFFERED FOR SALE,
SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT AND SUCH
STATE SECURITIES LAWS OR AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT AND SUCH LAWS
WHICH, IN THE OPINION OF COUNSEL FOR THE
HOLDER, WHICH COUNSEL AND OPINION ARE
REASONABLY SATISFACTORY TO THE COUNSEL FOR
THIS CORPORATION, IS AVAILABLE.
Upon request of a holder of Series A Preferred Stock (or the Common
Stock into which it has been converted), the Company shall remove the legend
set forth above from the certificates evidencing such Series A Preferred Stock
or Common Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion of
counsel selected by the holder and reasonably satisfactory to the Company, in
form and substance reasonably satisfactory to the Company, to the effect that
such Series A Preferred Stock or Common Stock is not required by the Securities
Act to continue to bear the legend.
Section 3.5 Transfer Instructions. The Purchasers agree that the
Company may provide for appropriate transfer instructions to implement the
provisions of Section 3.4 hereof.
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Section 3.6 Fees and Commissions. The Purchasers have retained no
Intermediary in connection with the transactions contemplated by this
Agreement, and the Purchasers agree to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary and the fees and
expenses of defending against such liability or alleged liability.
ARTICLE IV - CONDITIONS TO CLOSING OF THE PURCHASERS
The obligation of the Purchasers on the Closing Date to purchase the
Series A Preferred Stock shall be subject to each of the following conditions
precedent, any one or more of which may be waived by the Purchasers:
(a) Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate in all
material respects on and as of the Closing Date as if made on the Closing Date.
(b) Performance. The Company shall have performed and complied
with all agreements and conditions contained herein and other documents
incident to the transactions contemplated by this Agreement required to be
performed or complied with by it prior to or at the Closing.
(c) Consents. The Company shall have secured all permits, consents
and authorizations that shall be necessary or required lawfully to consummate
the transactions contemplated by this Agreement, to issue the Series A
Preferred Stock to be purchased by the Purchasers and to issue the Common Stock
into which the Series A Preferred Stock may be converted.
(d) Compliance Certificates. The Company shall have delivered to
the Purchasers or their representative at the Closing an Officer's Certificate
to the effect that all conditions specified in subsections (a) to (c),
inclusive, have been fulfilled.
(e) Opinion of the Company's Counsel. The Purchasers shall have
received from counsel for the Company, a legal opinion, dated the Closing Date
and satisfactory in form and substance to the Purchasers, substantially in the
form attached hereto as EXHIBIT B.
(f) Certificate of Designation. The Certificate of Designation
shall have been duly filed with the Secretary of State of the State of
Delaware.
(g) Proceedings and Documents. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchasers, and the Purchasers shall
have received all such counterpart originals or certified or other copies of
such documents as the Purchasers may reasonably request.
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ARTICLE V - CONDITIONS TO CLOSING OF THE COMPANY
The obligation of the Company on the Closing Date to issue and sell
the Series A Preferred Stock to be purchased under this Agreement shall be
subject to the representations and warranties made by the Purchasers herein
being true and accurate on and as of such Closing Date.
ARTICLE VI - REGISTRATION RIGHTS
Section 6.1 Shelf Registration. The Company shall file a "shelf"
registration statement on an appropriate form under the 1933 Act (the "Shelf
Registration") covering all of the Common Stock into which the Series A
Preferred Stock is convertible (the "Registrable Securities") within ninety
(90) days from the Closing and shall use its best efforts to cause the Shelf
Registration to be declared effective and to keep the Shelf Registration
continuously effective until all of the Registrable Securities registered
therein cease to be Registrable Securities. The securities shall cease to be
Registrable Securities when (a) the Shelf Registration shall have become
effective under the Securities Act and such securities shall have been disposed
of pursuant to the Shelf Registration, or (b) such securities shall have been
sold as permitted by Rule 144 under the Securities Act. The Company agrees, if
necessary, to supplement or amend the Shelf Registration, as required by the
registration form utilized by the Company or by the instructions applicable to
such registration form or by the Securities Act, and the Company agrees to
furnish to the holders of the Registrable Securities copies of any such
supplement or amendment prior to its being used.
Section 6.2 Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities pursuant to this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Furnish to the Purchasers such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(b) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Purchasers, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify as a broker-dealer in any states
or jurisdictions or to do business or to file a general consent to service of
process in any such states or jurisdictions;
(c) Notify each Purchaser of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(d) In the event of the notification provided for in Section
6.2(c) above, the Company shall use its best efforts to prepare and file with
the SEC (and to provide copies thereof to
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the Purchasers) as soon as reasonably possible an amended prospectus complying
with the Securities Act.
(e) For so long as any Purchaser holds beneficially or of record
(including shares issuable upon the conversion of the Series A Preferred Stock)
five percent (5%) or more of the shares of Common Stock from time to time
outstanding, such Purchaser shall agree to any restrictions on its resale of
the Registrable Securities, whether in public or non-public transactions, for a
period not in excess of ninety (90) days in any period of twelve (12)
consecutive months, as required by the managing underwriter, representative or
selling agent of any public or private offering of securities by the Company
and shall execute and deliver to the Company and such managing underwriter,
representative or selling agent an agreement to such effect, if each other
director and executive officer of the Company and holder of five percent (5%)
or more of the shares of Common Stock from time to time outstanding likewise
agrees to such restrictions on resale and executes and delivers such an
agreement.
Section 6.3 Expenses of Registration. All expenses (other than
underwriting discounts and commissions) incurred in connection with the
registration or sale of the Registrable Securities pursuant to this Section,
including, without limitation, all registration, filing and qualification fees,
printer's expenses, and accounting and legal fees and expenses of the Company,
shall be borne by the Company.
Section 6.4 Indemnification Regarding Registration Rights. If any
Registrable Securities are included in a registration statement under this
Section:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Purchaser, the officers and directors of each Purchaser and
each person, if any, who controls such Purchaser or underwriter within the
meaning of the Securities Act or the Exchange Act, against any losses, claims,
damages, liabilities (joint or several) or any legal or other costs and
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages, costs, expenses or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (each a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact with
respect to the Company or its securities contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements therein; (ii) the omission or alleged
omission to state therein a material fact with respect to the Company or its
securities required to be stated therein or necessary to make the statements
therein not misleading; or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any federal or state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law. Notwithstanding the foregoing,
the indemnity agreement contained in this Section 6.4(a) shall not apply and
the Company shall not be liable (i) in any such case for any such loss, claim,
damage, costs, expenses, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Purchaser, underwriter or controlling person, or (ii)
for amounts paid in settlement of any
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<PAGE> 18
such loss, claim, damage, liability or action if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld.
(b) To the extent permitted by law, each Purchaser who
participates in a registration pursuant to the terms and conditions of this
Agreement shall indemnify and hold harmless the Company, each of its directors
and officers who have signed the registration statement, each Person, if any,
who controls the Company within the meaning of the Securities Act or the
Exchange Act, each of the Company's employees, agents, counsel and
representatives, any underwriter and any other Purchaser selling securities in
such registration statement, or any of its directors or officers, or any person
who controls such Purchaser, against any losses, claims, damages, costs,
expenses, liabilities (joint or several) to which the Company or any such
director, officer, controlling person, employee, agent, representative,
underwriter, or other such Purchaser, or director, officer or controlling
person thereof, may become subject, under the Securities Act, the Exchange Act
or other federal or state law, only insofar as such losses, claims, damages,
costs, expenses or liabilities or actions in respect thereto arise out of or
are based upon any Violation, in each case to the extent and only to the extent
that such Violation occurs in reliance upon and in conformity with written
information furnished by such Purchaser expressly for use in connection with
such. Each such Purchaser will indemnify any legal or other expenses reasonably
incurred by the Company or any such director, officer, employee, agent
representative, controlling person, underwriter or other Purchaser, or officer,
director or of any controlling person thereof, in connection with investigating
or defending any such loss, claim, damage, liability or action; provided,
however, that the indemnity agreement contained in this Section 6.4(b) shall
not apply to amounts paid in settlement of any such loss, claim, damage, costs,
expenses, liability or action if such settlement is effected without the prior
written consent of the Purchaser, which consent shall not be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party under this
Section 6.4 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6.4,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
of such counsel to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve the indemnifying party of its obligations under this Section 6.4,
except to the extent that the failure results in a failure of actual notice to
the indemnifying party and such indemnifying party is materially prejudiced in
its ability to defend such action solely as a result of the failure to give
such notice.
(d) If the indemnification provided for in this Section 6.4 is
unavailable to an indemnified party under this Section 6.4 in respect of any
losses, claims, damages, costs, expenses, liabilities or actions referred to
herein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result
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of such losses, claims, damages, costs, expenses, liabilities or actions in
such proportion as is appropriate to reflect the relative fault of the Company,
on the one hand and of the Purchaser, on the other, in connection with the
Violation that resulted in such losses, claims, damages, costs, expenses,
liabilities or actions. The relative fault of the Company, on the one hand, and
of the Purchaser, on the other, shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of the material
fact or the omission to state a material fact relates to information supplied
by the Company or by the Purchaser, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
(e) The Company, on the one hand, and the Purchasers, on the other
hand, agree that it would not be just and equitable if contribution pursuant to
this Section 6.4 were determined by a pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of losses, claims, damages,
costs, expenses, liabilities and actions referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses incurred by such
indemnified party in connection with defending any such action or claim.
Notwithstanding the provisions of this Section 6.4, neither the Company nor the
Purchasers shall be required to contribute any amount in excess of the amount
by which the total price at which the securities were offered to the public
exceeds the amount of any damages which the Company or each such Purchaser has
otherwise been required to pay by reason of such Violation. No person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
Section 6.5 Reports Under the Exchange Act. So long as the Company has
a class of securities registered pursuant to Section 12 of the Exchange Act,
with a view to making available to the Purchasers the benefits of Rule 144
under the Securities Act and any other rule or regulation of the SEC that may
at any time permit a Purchaser to sell securities of the Company to the public
without registration or pursuant to a shelf registration on Form S-3, if
applicable, the Company agrees to use its reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act;
(c) Use its best efforts to include, upon notice of issuance, all
Common Stock covered by such registration statement on NASDAQ National Market
if the Common Stock is then quoted on NASDAQ National Market; or list all
Common Stock covered by such registration statement on such securities exchange
on which any of the Common Stock is then listed; or, if the Common Stock is not
then quoted on NASDAQ National Market or listed on any national securities
exchange, use its best efforts to have such Common Stock covered by such
registration statement quoted on NASDAQ National Market or, at the option of
the Company, listed on a national securities exchange; and
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(d) Furnish to any Purchaser, so long as the Purchaser owns any
Registrable Securities, (i) forthwith upon request a copy of the most recent
annual or quarterly report of the Company and such other SEC reports and
documents so filed by the Company, and (ii) such other information (but not any
opinion of counsel) as may be reasonably requested by any Purchaser seeking to
avail itself of any rule or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to such form.
Section 6.6 Assignment of Registration Rights. Subject to the terms
and conditions of this Agreement, the right to cause the Company to register
Registrable Securities pursuant to this Agreement may be assigned by Purchaser
to any transferee or assignee of such securities; provided that said transferee
or assignee is a transferee or assignee of at least ten percent (10%) of the
Registrable Securities and provided that the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; and provided, further, that such
assignment shall be effective only if immediately following such transfer the
further disposition of such securities by the transferee or assignee is
restricted under the Securities Act; it being the intention that so long as
Purchaser holds any Registrable Securities hereunder, either Purchaser or its
transferee or assignee of at least ten percent may exercise the registration
rights hereunder. Other than as set forth above, the parties hereto hereby
agree that the registration rights hereunder shall not be transferable or
assigned and any contemplated transfer or assignment in contravention of this
Agreement shall be deemed null and void and of no effect whatsoever.
ARTICLE VII - MISCELLANEOUS
Section 7.1 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements and
understandings, oral and written, between the parties hereto with respect to
the subject matter hereof. No party shall be liable or bound to any other party
in any manner by any warranties, representation, or covenants except as
specifically set forth herein or therein.
Section 7.2 Survival of Representations and Warranties. The
warranties, representations and covenants of the Company and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing.
Section 7.3 Notices. All notices, requests, demands, consents and
other communications herein shall be in writing and shall be deemed, unless
otherwise specified herein, to have been duly given if personally delivered or
mailed, first-class certified mail, postage prepaid and return receipt
requested or sent by recognized overnight courier service or transmitted by
telex or facsimile, as follows:
16
<PAGE> 21
(a) If to the Company:
LifeQuest Medical, Inc.
12961 Park Central, Suite 1300
San Antonio, Texas 78216
Attention: Chief Financial Officer
Facsimile number: (210) 495-4441
with a copy to (which shall not constitute
effective notice to the Company):
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Attention: Phillip M. Renfro, Esq.
Facsimile number: (210) 270-7205
(b) If to the Purchasers:
Renaissance Capital Growth & Income Fund III, Inc.
Renaissance US Growth & Income Trust, PLC
8080 North Central Expressway, Suite 210-LB59
Dallas, Texas 75206
Attention: President
Facsimile number: (214) 891-8291
with a copy to (which shall not constitute
effective notice to the Purchasers):
Wolin, Ridley & Miller LLP
3100 Bank One Center
1717 Main Street
Dallas, Texas 75201
Attn: Norman R. Miller, Esq.
Facsimile number: (214) 939-4949
or such other addresses as each of the parties hereto may provide from time to
time in writing to the party. For purposes of computing the time periods set
forth in this Section 7.3, the delivery date shall be deemed to be (i) three
(3) days after the date of mailing, (ii) the date personally delivered or sent
by telex or facsimile, or (iii) the business day after the date sent by
recognized overnight courier service.
Section 7.4 Amendments. Any term of this Agreement may be amended only
with the written consent of the Company and the Purchasers. Any amendment
effected in accordance with this paragraph shall be binding upon each holder of
Series A Preferred Stock purchased under this
17
<PAGE> 22
Agreement at the time outstanding (including Common Stock into which such
Series A Preferred Stock have been converted), each future holder of such
securities, and the Company.
Section 7.5 Waiver and Consent. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance
with any party hereto or a breach of any representations, warranties, covenants
or agreements contained herein. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach, and no failure by any party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's
rights or privileges hereunder or shall be deemed a waiver of such party's
rights to exercise the same at any subsequent time or times hereunder.
Section 7.6 Successors and Assigns. Except as otherwise expressly
provided in this Agreement, all of the terms of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto (including permitted transfers of
any shares of Series A Preferred Stock sold hereunder or any Common Stock
issued upon conversion thereof).
Section 7.7 Rights of Purchasers. The Purchasers shall have the
absolute right to exercise or refrain from exercising any right or rights that
the Purchasers may have by reason of this Agreement or any Series A Preferred
Stock, including the right to consent to the waiver of any obligation of the
Company under this Agreement and to enter into any agreement with the Company
for the purpose of modifying this Agreement or any agreement effecting any such
modification.
Section 7.8 Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, and
all of which together shall constitute one instrument.
Section 7.9 No Third Party Beneficiaries. Except as otherwise
provided, this Agreement has been and is made solely for the benefit of and
shall be binding upon the Company and the Purchasers and no other person shall
acquire or have any rights under or by virtue of this Agreement.
Section 7.10 Severability. Any provision of this Agreement that is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or lack of authorization without invalidating the remaining
provisions hereof or affecting the validity, unenforceability or legality of
such provision in any other jurisdiction.
Section 7.11 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS
AMONG THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICTS OF LAW
DOCTRINE.
[Signatures on following page]
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<PAGE> 23
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized officers as of the date first above written.
COMPANY:
LIFEQUEST MEDICAL, INC.
By:
---------------------------------------------
Randall K. Boatright
Vice President and Chief Financial Officer
PURCHASERS:
RENAISSANCE CAPITAL GROWTH & INCOME
FUND III, INC.
By:
---------------------------------------------
Name:
-------------------------------------------
Title:
------------------------------------------
RENAISSANCE US GROWTH & INCOME
TRUST, PLC
By: Renaissance Capital Group, Inc.,
Investment Manager
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE> 1
EXHIBIT 10.6
LIFEQUEST MEDICAL, INC.
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
AUGUST 11, 1998
<PAGE> 2
SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This AGREEMENT (the "Agreement"), dated as of August 11, 1998, is
entered into by and among LIFEQUEST MEDICAL, INC., a Delaware corporation (the
"Company"), RICHARD A. WOODFIELD and R. MICHAEL YATES (individually referred to
as "Woodfield" and "Yates", respectively, and together with any permitted
assignees or successors in interest individually referred to as each or any
"Purchaser" and collectively referred to as the "Purchasers").
RECITAL
WHEREAS, the Woodfield and Yates desire to purchase 20 shares and 150
shares, respectively, of Series A Cumulative Convertible Preferred Stock, par
value $.001 per share, of the Company (the "Series A Preferred Stock"), having
the rights, preferences, privileges and restrictions set forth in the Company's
Certificate of Designation and Preferences of Series A Cumulative Convertible
Preferred Stock by resolution, substantially in the form attached hereto as
EXHIBIT A (the "Certificate of Designation"), and the Company desires to sell
to the Purchasers such shares of Series A Preferred Stock on the terms and
subject to the conditions set forth herein;
AGREEMENT
NOW, THEREFORE, in consideration of the premises, mutual covenants and
agreements hereinafter contained and for other good and valuable consideration,
the Company and each Purchaser hereby agree as follows:
ARTICLE I - PURCHASE AND SALE
Section 1.1 Purchase and Sale; Purchase Price. Subject to the
provisions of this Agreement, at Closing (as hereinafter defined), the Company
shall sell to Woodfield and Yates and the Woodfield and Yates shall purchase
from the Company 20 shares and 150 shares, respectively, of Series A Preferred
Stock at the purchase price of $20,000 (the "Woodfield Purchase Price") and
$150,000 (the "Yates Purchase Price") (the Woodfield Purchase Price and the
Yates Purchase Price, collectively, the "Purchase Price"), as follows:
<TABLE>
<CAPTION>
PURCHASE NO. OF
PURCHASER PRICE SHARES
--------- ----- ------
<S> <C> <C>
Richard A. Woodfield $20,000 20
R. Michael Yates $150,000 150
</TABLE>
<PAGE> 3
Section 1.2 Closing. The purchase and sale of the Series A Preferred
Stock pursuant to Section 1.1 (the "Closing") shall take place at the offices
of Fulbright & Jaworski, L.L.P., 300 Convent, Suite 2200, San Antonio, Texas
78205 or at such other place as may be agreed upon by the Company and the
Purchasers, at 10:00 a.m., local time, on August 11, 1998 or at such other time
and date as may be agreed upon by the Company and the Purchasers (the "Closing
Date").
Section 1.3 Transactions at Closing. At the Closing, the Company shall
deliver to each Purchaser a certificate for the shares of Series A Preferred
Stock to be issued and sold to such Purchaser hereunder duly registered in such
Purchaser's name, or in such other name as such Purchaser shall have specified
in writing to the Company, against payment in full by such Purchaser of the
Purchase Price by wire transfer of immediately available funds.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that:
Section 2.1 Capitalization. On the Closing Date, the authorized
capital stock of the Company shall consist of (a) 2,000,000 shares of preferred
stock, par value $.001 per share, of which 1,170 shares will be designated
"Series A Cumulative Convertible Preferred Stock," and of which no shares are
issued or outstanding prior to the Closing Date and (b) 50,000,000 shares of
common stock, par value $.001 per share (the "Common Stock"), of which
7,212,742 shares are issued and outstanding, a total of 3,595,818 shares are
reserved for issuance pursuant to outstanding options, warrants and debentures,
and 585,000 shares are reserved for issuance upon conversion of the Series A
Preferred Stock. The outstanding shares of Common Stock are duly authorized and
validly issued, fully paid and nonassessable and not subject to preemptive
rights. Holders of shares of the Company's capital stock have no preemptive
rights or rights of first refusal. the Company.
Section 2.2 Validity of Stock. The Series A Preferred Stock, when
issued, sold and delivered in accordance with the terms of this Agreement, will
be duly authorized and validly issued, fully paid and nonassessable, and will
be free of restrictions on transfer, other than restrictions on transfer under
applicable state and federal securities laws, and not subject to preemptive
rights. The Common Stock issuable upon conversion of the Series A Preferred
Stock purchased under this Agreement has been duly and validly reserved for
issuance and, upon issuance in accordance with the terms of the Certification
of Designation, will be duly and validly issued, fully paid, and nonassessable
and will be free of restrictions on transfer other than restrictions on
transfer under applicable state and federal securities laws.
Section 2.3 Authorization; Approvals. All corporate action on the part
of the Company and its stockholders necessary for the authorization, execution,
delivery and performance of all its obligations under this Agreement and for
the authorization, issuance and delivery of the Series A Preferred Stock being
sold under this Agreement and of the Common Stock initially issuable upon
conversion of the Series A Preferred Stock has been (or will be) taken prior to
the Closing. This Agreement, when executed and delivered by or on behalf of the
Company, shall constitute the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The Company has
obtained or will obtain prior to the Closing
2
<PAGE> 4
Date all necessary consents, authorizations, approvals and orders, and has made
all registrations, qualifications, designations, declarations or filings with
all federal, state or other relevant governmental authorities required on the
part of the Company in connection with the consummation of the transactions
contemplated by this Agreement, except for such filings as may be required to
be made after the Closing in order to comply with the requirements of
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act") and applicable state laws.
Section 2.4 SEC Reports. The Company has filed all reports,
registration or proxy statements, forms and documents with the SEC that it was
required to file since the date of the initial public offering of its Common
Stock (the "SEC Filings"), all of which have complied in all material respects
with all applicable requirements of the Securities Act and the Exchange Act. As
of their respective dates, each of the SEC Filings, including, without
limitation, any financial statements or schedules included therein, did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. None
of the Company's subsidiaries is required to file any reports, statements,
forms or other documents with the SEC.
ARTICLE III - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASERS
Each Purchaser represents and warrants to the Company that:
Section 3.1 Authorization; Approvals; No Conflicts. All corporate
action on the part of such Purchaser necessary for the authorization,
execution, delivery and performance of all such Purchaser's obligations under
this Agreement has been (or will be) taken prior to the Closing. This
Agreement, when executed and delivered by or on behalf of the such Purchaser
shall constitute the valid and binding obligation of such Purchaser,
enforceable against such Purchaser in accordance with its terms. Such Purchaser
has obtained or will obtain prior to the Closing Date all necessary consents,
authorizations, approvals and orders, and have made all registrations,
qualifications, designations, declarations or filings with all federal, state
or other relevant governmental authorities required on the part of the such
Purchaser in connection with the consummation of the transactions contemplated
by this Agreement. The execution, delivery and performance of this Agreement
will not result in any violation of, be in conflict with, or constitute, with
or without the passage of time or giving of notice or both, a default under any
terms or provisions of (i) any judgment, decree or order of any court or
government agency or body having jurisdiction over such Purchasers or his
properties; (ii) any agreement, contract, understanding, indenture or other
instrument to which such Purchasers is a party or by which such Purchaser is
bound, the effect of which would have a material adverse effect on the assets,
properties, condition (financial or otherwise), operating results, prospects or
business of such Purchaser; or (iii) any statute, rule or governmental
regulation applicable to such Purchaser.
Section 3.2 Investment Representations. Such Purchaser is acquiring
the Series A Preferred Stock (and any Common Stock into which the Series A
Preferred Stock may be converted) for such Purchaser's own accounts, for
investment purposes and not with a view to, or for sale in connection with, any
distribution of such shares.
3
<PAGE> 5
Section 3.3 Investment Experience; Access to Information. Such
Purchaser is an "accredited investor," as that term is defined in Rule 501(a)
promulgated under the Securities Act. s has been afforded prior to the Closing
Date the opportunity to ask questions of, and to receive answers from, the
Company and to obtain any additional information, written and oral, to the
extent the Company has such information or could have acquired it without
unreasonable effort or expense, all as necessary for such Purchaser to make an
informed investment decision with respect to the purchase of the Series A
Preferred Stock.
Section 3.4 Restrictions on Transfer. Such Purchaser agrees that (a)
such Purchaser will not offer, sell, transfer, give, pledge, hypothecate or
otherwise dispose of the Series A Preferred Stock (or the Common Stock into
which it may be converted) or make any attempt to do the foregoing unless such
offer, sale, transfer, gift, pledge, hypothecation or other disposition is (i)
registered under the Securities Act and any applicable state securities law, or
(ii) in compliance with an opinion of counsel to such Purchaser, delivered to
the Company and reasonably acceptable to counsel for the Company, to the effect
that such offer, sale, pledge, hypothecation or other disposition thereof does
not violate the Securities Act or applicable state securities law, and (b) the
certificate(s) representing the Series A Preferred Stock (and any Common Stock
into which it may be converted) shall bear a legend stating in substance:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR UNDER ANY APPLICABLE STATE SECURITIES LAWS AND ARE
"RESTRICTED SECURITIES" AS THAT TERM IS DEFINED IN RULE 144 UNDER
THE ACT. NEITHER THE SHARES NOR ANY INTEREST THEREIN MAY BE
OFFERED FOR SALE, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT AND SUCH STATE SECURITIES LAWS OR AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS WHICH,
IN THE OPINION OF COUNSEL FOR THE HOLDER, WHICH COUNSEL AND
OPINION ARE REASONABLY SATISFACTORY TO THE COUNSEL FOR THIS
CORPORATION, IS AVAILABLE.
Upon request of a holder of Series A Preferred Stock (or the Common
Stock into which it has been converted), the Company shall remove the legend
set forth above from the certificates evidencing such Series A Preferred Stock
or Common Stock or issue to such holder new certificates therefor free of such
legend, if with such request the Company shall have received an opinion of
counsel selected by the holder and reasonably satisfactory to the Company, in
form and substance reasonably satisfactory to the Company, to the effect that
such Series A Preferred Stock or Common Stock is not required by the Securities
Act to continue to bear the legend.
Section 3.5 Transfer Instructions. Such Purchaser agrees that the
Company may provide for appropriate transfer instructions to implement the
provisions of Section 3.4 hereof.
4
<PAGE> 6
Section 3.6 Fees and Commissions. Such Purchaser has retained not an
Intermediary in connection with the transactions contemplated by this
Agreement, and such Purchaser agrees to indemnify and hold harmless the Company
from liability for any compensation to any Intermediary and the fees and
expenses of defending against such liability or alleged liability.
ARTICLE IV - CONDITIONS TO CLOSING OF THE PURCHASERS
The obligation of each Purchaser on the Closing Date to purchase the
Series A Preferred Stock shall be subject to each of the following conditions
precedent, any one or more of which may be waived by such Purchaser:
(a) Representations and Warranties. The representations and
warranties made by the Company herein shall be true and accurate in all
material respects on and as of the Closing Date as if made on the Closing Date.
(b) Performance. The Company shall have performed and complied
with all agreements and conditions contained herein and other documents
incident to the transactions contemplated by this Agreement required to be
performed or complied with by it prior to or at the Closing.
(c) Consents. The Company shall have secured all permits, consents
and authorizations that shall be necessary or required lawfully to consummate
the transactions contemplated by this Agreement, to issue the Series A
Preferred Stock to be purchased by such Purchaser and to issue the Common Stock
into which the Series A Preferred Stock may be converted.
(d) Compliance Certificates. The Company shall have delivered to
such Purchaser or his representative at the Closing an Officer's Certificate to
the effect that all conditions specified in subsections (a) to (c), inclusive,
have been fulfilled.
(e) Certificate of Designation. The Certificate of Designation
shall have been duly filed with the Secretary of State of the State of
Delaware.
ARTICLE V - CONDITIONS TO CLOSING OF THE COMPANY
The obligation of the Company on the Closing Date to issue and sell
the Series A Preferred Stock to be purchased under this Agreement shall be
subject to (a) the representations and warranties made by each Purchaser herein
being true and accurate on and as of such Closing Date and (b) the closing of
that one certain Series A Cumulative Convertible Preferred Stock Purchase
Agreement dated August 11, 1998 between the Company, Renaissance Capital Growth
& Income Fund III, Inc. and Renaissance US Growth & Income Trust, PLC.
ARTICLE VI - REGISTRATION RIGHTS
Section 6.1 Shelf Registration. The Company shall file a "shelf"
registration statement on an appropriate form under the 1933 Act (the "Shelf
Registration") covering all of the Common Stock into which the Series A
Preferred Stock is convertible (the "Registrable
5
<PAGE> 7
Securities") within ninety (90) days from the Closing and shall use its best
efforts to cause the Shelf Registration to be declared effective and to keep
the Shelf Registration continuously effective until all of the Registrable
Securities registered therein cease to be Registrable Securities. The
securities shall cease to be Registrable Securities when (a) the Shelf
Registration shall have become effective under the Securities Act and such
securities shall have been disposed of pursuant to the Shelf Registration, or
(b) such securities shall have been sold as permitted by Rule 144 under the
Securities Act. The Company agrees, if necessary, to supplement or amend the
Shelf Registration, as required by the registration form utilized by the
Company or by the instructions applicable to such registration form or by the
Securities Act, and the Company agrees to furnish to the holders of the
Registrable Securities copies of any such supplement or amendment prior to its
being used.
Section 6.2 Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities pursuant to this Agreement, the
Company shall, as expeditiously as reasonably possible:
(a) Furnish to each Purchaser such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by him;
(b) Use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities
or Blue Sky laws of such jurisdictions as shall be reasonably requested by such
Purchaser, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify as a broker-dealer in any states
or jurisdictions or to do business or to file a general consent to service of
process in any such states or jurisdictions;
(c) Notify each Purchaser of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto and
covered by such registration statement is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing; and
(d) In the event of the notification provided for in Section
6.2(c) above, the Company shall use its best efforts to prepare and file with
the SEC (and to provide copies thereof to each Purchaser) as soon as reasonably
possible an amended prospectus complying with the Securities Act.
(e) For so long as any Purchaser holds beneficially or of record
(including shares issuable upon the conversion of the Series A Preferred Stock)
five percent (5%) or more of the shares of Common Stock from time to time
outstanding, such Purchaser shall agree to any restrictions on its resale of
the Registrable Securities, whether in public or non-public transactions, for a
period not in excess of ninety (90) days in any period of twelve (12)
consecutive months, as required by the managing underwriter, representative or
selling agent of
6
<PAGE> 8
any public or private offering of securities by the Company and shall execute
and deliver to the Company and such managing underwriter, representative or
selling agent an agreement to such effect, if each other director and executive
officer of the Company and holder of five percent (5%) or more of the shares of
Common Stock from time to time outstanding likewise agrees to such restrictions
on resale and executes and delivers such an agreement.
Section 6.3 Expenses of Registration. All expenses (other than
underwriting discounts and commissions) incurred in connection with the
registration or sale of the Registrable Securities pursuant to this Section,
including, without limitation, all registration, filing and qualification fees,
printer's expenses, and accounting and legal fees and expenses of the Company,
shall be borne by the Company.
Section 6.4 Indemnification Regarding Registration Rights. If any
Registrable Securities are included in a registration statement under this
Section:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Purchaser against any losses, claims, damages, liabilities
(joint or several) or any legal or other costs and expenses reasonably incurred
by him in connection with investigating or defending any such loss, claim,
damage, liability or action to which he may become subject under the Securities
Act, the Exchange Act or other federal or state law, insofar as such losses,
claims, damages, costs, expenses or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (each a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact with respect to the Company or its securities
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements therein;
(ii) the omission or alleged omission to state therein a material fact with
respect to the Company or its securities required to be stated therein or
necessary to make the statements therein not misleading; or (iii) any violation
or alleged violation by the Company of the Securities Act, the Exchange Act,
any federal or state securities law or any rule or regulation promulgated under
the Securities Act, the Exchange Act or any state securities law.
Notwithstanding the foregoing, the indemnity agreement contained in this
Section 6.4(a) shall not apply and the Company shall not be liable (i) in any
such case for any such loss, claim, damage, costs, expenses, liability or
action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Purchaser,
underwriter or controlling person, or (ii) for amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld.
(b) To the extent permitted by law, each Purchaser who
participates in a registration pursuant to the terms and conditions of this
Agreement shall indemnify and hold harmless the Company, each of its directors
and officers who have signed the registration statement, each Person, if any,
who controls the Company within the meaning of the Securities Act or the
Exchange Act, each of the Company's employees, agents, counsel and
representatives, any underwriter and any other Purchaser selling securities in
such registration statement, against any losses, claims, damages, costs,
expenses, liabilities (joint or several) to which the Company or any such
director, officer, controlling person, employee, agent,
7
<PAGE> 9
representative, underwriter, or other such Purchaser, may become subject, under
the Securities Act, the Exchange Act or other federal or state law, only
insofar as such losses, claims, damages, costs, expenses or liabilities or
actions in respect thereto arise out of or are based upon any Violation, in
each case to the extent and only to the extent that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Purchaser expressly for use in connection with such. Each such Purchaser will
indemnify any legal or other expenses reasonably incurred by the Company or any
such director, officer, employee, agent representative, controlling person,
underwriter or other Purchaser, in connection with investigating or defending
any such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 6.4(b) shall not apply to amounts
paid in settlement of any such loss, claim, damage, costs, expenses, liability
or action if such settlement is effected without the prior written consent of
the Purchaser, which consent shall not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this
Section 6.4 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 6.4,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonable fees and expenses
of such counsel to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action shall not
relieve the indemnifying party of its obligations under this Section 6.4,
except to the extent that the failure results in a failure of actual notice to
the indemnifying party and such indemnifying party is materially prejudiced in
its ability to defend such action solely as a result of the failure to give
such notice.
(d) If the indemnification provided for in this Section 6.4 is
unavailable to an indemnified party under this Section 6.4 in respect of any
losses, claims, damages, costs, expenses, liabilities or actions referred to
herein, then each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, costs, expenses, liabilities or
actions in such proportion as is appropriate to reflect the relative fault of
the Company, on the one hand and of the Purchaser, on the other, in connection
with the Violation that resulted in such losses, claims, damages, costs,
expenses, liabilities or actions. The relative fault of the Company, on the one
hand, and of the Purchaser, on the other, shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of the
material fact or the omission to state a material fact relates to information
supplied by the Company or by the Purchaser, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
8
<PAGE> 10
(e) The Company, on the one hand, and the Purchasers, on the other
hand, agree that it would not be just and equitable if contribution pursuant to
this Section 6.4 were determined by a pro rata allocation or by any other
method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an indemnified party as a result of losses, claims, damages,
costs, expenses, liabilities and actions referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any reasonable legal or other expenses incurred by such
indemnified party in connection with defending any such action or claim.
Notwithstanding the provisions of this Section 6.4, neither the Company nor the
Purchasers shall be required to contribute any amount in excess of the amount
by which the total price at which the securities were offered to the public
exceeds the amount of any damages which the Company or each such Purchaser has
otherwise been required to pay by reason of such Violation. No person guilty of
fraudulent misrepresentations (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation.
Section 6.5 Reports Under the Exchange Act. So long as the Company has
a class of securities registered pursuant to Section 12 of the Exchange Act,
with a view to making available to the Purchasers the benefits of Rule 144
under the Securities Act and any other rule or regulation of the SEC that may
at any time permit a Purchaser to sell securities of the Company to the public
without registration or pursuant to a shelf registration on Form S-3, if
applicable, the Company agrees to use its reasonable efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act;
(c) Use its best efforts to include, upon notice of issuance, all
Common Stock covered by such registration statement on NASDAQ National Market
if the Common Stock is then quoted on NASDAQ National Market; or list all
Common Stock covered by such registration statement on such securities exchange
on which any of the Common Stock is then listed; or, if the Common Stock is not
then quoted on NASDAQ National Market or listed on any national securities
exchange, use its best efforts to have such Common Stock covered by such
registration statement quoted on NASDAQ National Market or, at the option of
the Company, listed on a national securities exchange; and
(d) Furnish to any Purchaser, so long as the Purchaser owns any
Registrable Securities, (i) forthwith upon request a copy of the most recent
annual or quarterly report of the Company and such other SEC reports and
documents so filed by the Company, and (ii) such other information (but not any
opinion of counsel) as may be reasonably requested by any Purchaser seeking to
avail itself of any rule or regulation of the SEC which permits the selling of
any such securities without registration or pursuant to such form.
Section 6.6 Assignment of Registration Rights. Subject to the terms
and conditions of this Agreement, the right to cause the Company to register
Registrable Securities pursuant
9
<PAGE> 11
to this Agreement may be assigned by Purchaser to any transferee or assignee of
such securities; provided that said transferee or assignee is a transferee or
assignee of at least ten percent (10%) of the Registrable Securities and
provided that the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; and provided, further, that such assignment shall be effective
only if immediately following such transfer the further disposition of such
securities by the transferee or assignee is restricted under the Securities
Act; it being the intention that so long as Purchaser holds any Registrable
Securities hereunder, either Purchaser or its transferee or assignee of at
least ten percent (10%) may exercise the registration rights hereunder. Other
than as set forth above, the parties hereto hereby agree that the registration
rights hereunder shall not be transferable or assigned and any contemplated
transfer or assignment in contravention of this Agreement shall be deemed null
and void and of no effect whatsoever.
ARTICLE VII - MISCELLANEOUS
Section 7.1 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto and supersedes all prior agreements and
understandings, oral and written, between the parties hereto with respect to
the subject matter hereof. No party shall be liable or bound to any other party
in any manner by any warranties, representation, or covenants except as
specifically set forth herein or therein.
Section 7.2 Survival of Representations and Warranties. The
warranties, representations and covenants of the Company and the Purchasers
contained in or made pursuant to this Agreement shall survive the execution and
delivery of this Agreement and the Closing.
Section 7.3 Notices. All notices, requests, demands, consents and
other communications herein shall be in writing and shall be deemed, unless
otherwise specified herein, to have been duly given if personally delivered or
mailed, first-class certified mail, postage prepaid and return receipt
requested or sent by recognized overnight courier service or transmitted by
telex or facsimile, as follows:
(a) If to the Company:
LifeQuest Medical, Inc.
12961 Park Central, Suite 1300
San Antonio, Texas 78216
Attention: Chief Financial Officer
Facsimile number: (210) 495-4441
10
<PAGE> 12
with a copy to (which shall not constitute
effective notice to the Company):
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Attention: Phillip M. Renfro, Esq.
Facsimile number: (210) 270-7205
(b) If to Woodfield:
Richard A. Woodfield
12961 Park Central, Suite 1300
San Antonio, Texas 78216
Facsimile number: (210) 495-4441
(c) If to Yates:
R. Michael Yates
6 Oxford Hall
San Antonio, Texas 78209
Facsimile number: (210) 805-1145
or such other addresses as each of the parties hereto may provide from time to
time in writing to the party. For purposes of computing the time periods set
forth in this Section 7.3, the delivery date shall be deemed to be (i) three
(3) days after the date of mailing, (ii) the date personally delivered or sent
by telex or facsimile, or (iii) the business day after the date sent by
recognized overnight courier service.
Section 7.4 Amendments. Any term of this Agreement may be amended only
with the written consent of the Company and the holders of the Series A
Preferred Convertible Stock not previously sold to the public. Any amendment
effected in accordance with this paragraph shall be binding upon each holder of
Series A Preferred Stock purchased under this Agreement at the time outstanding
(including Common Stock into which such Series A Preferred Stock have been
converted), each future holder of such securities, and the Company.
Section 7.5 Waiver and Consent. No action taken pursuant to this
Agreement, including any investigation by or on behalf of any party, shall be
deemed to constitute a waiver by the party taking such action of compliance
with any party hereto or a breach of any representations, warranties, covenants
or agreements contained herein. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver
of any preceding or succeeding breach, and no failure by any party to exercise
any right or privilege hereunder shall be deemed a waiver of such party's
rights or privileges hereunder or shall be deemed a waiver of such party's
rights to exercise the same at any subsequent time or times hereunder.
11
<PAGE> 13
Section 7.6 Successors and Assigns. Except as otherwise expressly
provided in this Agreement, all of the terms of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto (including permitted transfers of
any shares of Series A Preferred Stock sold hereunder or any Common Stock
issued upon conversion thereof).
Section 7.7 Rights of Purchasers. Each Purchaser shall have the
absolute right to exercise or refrain from exercising any right or rights that
such Purchaser may have by reason of this Agreement or any Series A Preferred
Stock, including the right to consent to the waiver of any obligation of the
Company under this Agreement and to enter into any agreement with the Company
for the purpose of modifying this Agreement or any agreement effecting any such
modification.
Section 7.8 Execution and Counterparts. This Agreement may be executed
in any number of counterparts, each of which shall be deemed an original, and
all of which together shall constitute one instrument.
Section 7.9 No Third Party Beneficiaries. Except as otherwise
provided, this Agreement has been and is made solely for the benefit of and
shall be binding upon the Company and the Purchasers and no other person shall
acquire or have any rights under or by virtue of this Agreement.
Section 7.10 Severability. Any provision of this Agreement that is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or lack of authorization without invalidating the remaining
provisions hereof or affecting the validity, unenforceability or legality of
such provision in any other jurisdiction.
Section 7.11 GOVERNING LAW. THIS AGREEMENT AND THE LEGAL RELATIONS
AMONG THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO ITS CONFLICTS OF LAW
DOCTRINE.
[Signatures on following page]
12
<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
LIFEQUEST MEDICAL, INC.
By:
-----------------------------------------------
Randall K. Boatright
Vice President and Chief Financial Officer
PURCHASERS:
--------------------------------------------------
RICHARD A. WOODFIELD
--------------------------------------------------
R. MICHAEL YATES
<PAGE> 1
EXHIBIT 11
LIFEQUEST MEDICAL, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS (LOSS) PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended June 30, Six Months Ended June 30,
---------------------------- ----------------------------
1997 1998 1997 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
COMPUTATION OF BASIC LOSS PER SHARE:
Net loss $ (710,702) $ (111,863) $ (795,400) $ (736,680)
=========== =========== =========== ===========
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING USED FOR COMPUTATION 6,294,064 6,846,853 6,224,072 6,776,356
=========== =========== =========== ===========
BASIC LOSS PER COMMON SHARE $ (.11) $ (.02) $ (.13) $ (.11)
=========== =========== =========== ===========
COMPUTATION OF DILUTED LOSS PER SHARE:
Net loss $ (710,702) $ (111,863) $ (795,400) $ (736,680)
Interest on Convertible Debentures $ -- $ 67,315 $ -- $ 133,890
----------- ----------- ----------- -----------
Net loss used for computation $ (710,202) $ (44,548) $ (795,400) $ (602,790)
=========== =========== =========== ===========
Weighted average shares of common stock outstanding 6,294,064 6,846,853 6,224,072 6,776,356
Weighted average incremental shares outstanding upon assumed
conversion of options and other dilutive securities 441,263 251,653 445,419 266,506
Weighted average incremental shares outstanding upon assumed
conversion of Convertible Debentures -- 230,137 -- 230,137
----------- ----------- ----------- -----------
WEIGHTED AVERAGE SHARES OF COMMON STOCK
AND COMMON STOCK EQUIVALENTS OUTSTANDING
USED FOR COMPUTATION 6,735,327 7,328,643 6,669,491 7,272,999
=========== =========== =========== ===========
DILUTED LOSS PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS (a) $ (.11) $ (.01) (.12) (.08)
=========== =========== =========== ===========
</TABLE>
(a) This calculation is submitted in accordance with Item 601(b)(11) of
Regulation S-B although it is not required by SFAS No. 128 because it
is antidilutive. As a result, it is not the amount reflected on the
statements of operations.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1998 AND THE YEAR TO DATE
CONSOLIDATED STATEMENT OF OPERATIONS FINANCIAL STATEMENTS FOR THE PERIOD THEN
ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,256,871
<SECURITIES> 146,403
<RECEIVABLES> 2,579,230
<ALLOWANCES> 216,573
<INVENTORY> 1,708,165
<CURRENT-ASSETS> 5,528,784
<PP&E> 1,610,050
<DEPRECIATION> 1,008,559
<TOTAL-ASSETS> 10,719,488
<CURRENT-LIABILITIES> 2,794,397
<BONDS> 3,000,000
0
0
<COMMON> 7,213
<OTHER-SE> 4,810,372
<TOTAL-LIABILITY-AND-EQUITY> 10,719,488
<SALES> 9,012,743
<TOTAL-REVENUES> 9,445,103
<CGS> 5,129,088
<TOTAL-COSTS> 10,035,849
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148,229
<INCOME-PRETAX> (736,680)
<INCOME-TAX> 0
<INCOME-CONTINUING> (736,680)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (736,680)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1997 AND THE YEAR TO DATE CONSOLIDATED
STATEMENT OF OPERATIONS FINANCIAL STATEMENTS FOR THE PERIOD THEN ENDED.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 581,001
<SECURITIES> 1,610,772
<RECEIVABLES> 1,589,918
<ALLOWANCES> 86,891
<INVENTORY> 1,660,613
<CURRENT-ASSETS> 5,421,935
<PP&E> 1,354,487
<DEPRECIATION> 849,907
<TOTAL-ASSETS> 8,200,301
<CURRENT-LIABILITIES> 3,028,681
<BONDS> 77,008
0
0
<COMMON> 6,353
<OTHER-SE> 4,970,420
<TOTAL-LIABILITY-AND-EQUITY> 8,200,301
<SALES> 6,719,964
<TOTAL-REVENUES> 6,816,214
<CGS> 3,954,280
<TOTAL-COSTS> 7,584,984
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 29,171
<INCOME-PRETAX> (795,400)
<INCOME-TAX> 0
<INCOME-CONTINUING> (795,400)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (795,400)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
</TABLE>
