<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 March 31, 1999
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
--------
DEXTERITY SURGICAL, 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 May 8, 1999, there were outstanding 10,212,742 shares of Common Stock,
$.001 par value, of the registrant.
<PAGE> 2
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
FORM 10-QSB
INDEX
<TABLE>
<CAPTION>
Page
----
PART I. FINANCIAL INFORMATION
<S> <C> <C>
Item 1: Consolidated Financial Statements - (Unaudited)
Consolidated Balance Sheets - December 31, 1998, and March 31, 1999 3
Consolidated Statements of Operations - For the Three Months
Ended March 31, 1998 and 1999 4
Consolidated Statements of Cash Flows - For the Three Months Ended
March 31, 1998 and 1999 5
Condensed Notes to Consolidated Financial Statements 6
Item 2: Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
</TABLE>
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1998 1999
------------ ------------
(Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,644,535 $ 1,645,784
Short-term investments 983,714 --
Accounts receivable (net of allowance for doubtful accounts of
$219,829 in 1998 and $189,178 in 1999) 2,786,909 4,313,771
Accounts receivable from related party 56,619 56,488
Inventories, net 1,482,899 3,131,651
Prepaid and other assets 49,715 89,613
------------ ------------
Total current assets 7,004,391 9,237,307
------------ ------------
Property, Plant and Equipment 1,604,043 1,224,009
Less-accumulated depreciation (1,051,117) (498,442)
------------ ------------
Net property, plant and equipment 552,926 725,567
Investments, at cost 2,062,500 1,202,500
Intangible Assets:
Deferred finance charges 155,139 177,675
Licensed technology rights 680,912 17,479,762
Goodwill, net 1,673,818 1,621,465
------------ ------------
Total assets $ 12,129,686 $ 30,444,276
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 2,633,032 $ 6,041,046
Accrued expenses 645,605 994,200
Current portion of long-term obligations 116,310 1,471,287
------------ ------------
Total current liabilities 3,394,947 8,506,533
------------ ------------
Convertible Debentures 3,000,000 3,000,000
------------ ------------
Royalty Obligation -- 5,534,322
------------ ------------
Minority Interest 106,544 106,544
------------ ------------
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Preferred Stock, $.001 par value; 2,000,000 shares authorized;
shares issued and outstanding: 2,170 (1998) and 2,195 (1999) 2 2
Common stock, $.001 par value; 50,000,000 shares authorized;
shares issued and outstanding: 7,212,742 (1998) and
10,212,742 (1999) 7,213 10,213
Additional paid-in capital 25,095,313 33,052,313
Deferred compensation (6,857) (1,963)
Accumulated deficit (19,467,476) (19,763,688)
------------ ------------
Total stockholders' equity 5,628,195 13,296,877
------------ ------------
Total liabilities and stockholders' equity $ 12,129,686 $ 30,444,276
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 4
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Net Sales
Product sales $ 4,082,858 $ 5,685,027
Commissions earned 286,583 241,166
----------- -----------
4,369,441 5,926,193
----------- -----------
Cost And Expenses:
Cost of sales 2,476,749 3,453,521
Research and development -- 30,868
Selling, general and administrative 2,361,201 2,561,904
Depreciation and amortization 97,995 102,153
----------- -----------
4,935,945 6,148,446
----------- -----------
Loss From Operations (566,504) (222,253)
Other Income (Expense):
Gain (loss) on sale of assets (400) 44,068
Investment income 13,639 19,234
Interest expense (73,097) (63,478)
Loss on investment in affiliate (35,000) (30,000)
----------- -----------
Net Loss Before Minority Interest (661,362) (252,429)
Minority Interest in Net Loss of
Consolidated Subsidiary 1,545 --
----------- -----------
Net Loss (659,817) (252,429)
Less dividend requirement on cumulative preferred stock -- (43,783)
----------- -----------
Net loss applicable to common stock $ (659,817) $ (296,212)
=========== ===========
Basic and Diluted Loss Per Share of Common Stock $ (.10) $ (.04)
=========== ===========
Weighted Average Shares Used In Computing Basic and
Diluted Loss Per Share of Common Stock 6,706,136 7,646,075
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 5
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
--------------------------------
1998 1999
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $ (659,817) $ (252,429)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities -
Depreciation and amortization 97,995 102,153
Amortization of deferred finance charges 6,464 6,464
Deferred compensation 7,416 4,894
(Gain) loss on disposal of fixed assets 400 (44,068)
Loss on investment in affiliate 35,000 30,000
Minority interest in net loss of consolidated subsidiary (1,545) --
Changes in operating assets and liabilities-
(Increase) decrease in accounts receivable, net 102,796 (1,106,474)
(Increase) decrease in accounts receivable from related party (5,014) 131
Decrease in interest receivable 5,318 --
Increase in inventories, net (218,749) (1,098,788)
Increase in prepaid and other assets (43,000) (39,898)
Increase (decrease) in accounts payable (289,566) 3,377,646
Decrease in accrued expenses (271,415) (52,706)
----------- -----------
Net cash provided by (used in) operating activities (1,233,717) 926,925
----------- -----------
Cash Flows From Investing Activities:
Additions to property and equipment (33,341) (53,435)
Investment in affiliate (1,000,000) --
Purchases of investments (146,403) --
Investment redemptions 144,682 983,714
Acquisitions, net of cash received -- (1,751,862)
----------- -----------
Net cash used in investing activities (1,035,062) (821,583)
----------- -----------
Cash Flows From Financing Activities:
Dividends paid to preferred stockholders -- (43,783)
Payments on debt -- (56,310)
Proceeds from exercise of stock options 253,800 --
Payments on long-term debt (1,260) --
Payments of deferred finance charges -- (29,000)
Issuance of preferred stock -- 25,000
----------- -----------
Net cash provided by (used in) financing activities 252,540 (104,093)
----------- -----------
Net increase (decrease) in cash and cash equivalents (2,016,239) 1,249
Cash and cash equivalents, beginning of period 3,236,307 1,644,535
----------- -----------
Cash and cash equivalents, end of period $ 1,220,068 $ 1,645,784
=========== ===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
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<PAGE> 6
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
March 31, 1999
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Dexterity
Surgical, Inc. (the "Company"), its four operating divisions, and the Company's
82% ownership interest in ValQuest Medical, Inc. All significant intercompany
accounts and transactions have been eliminated in consolidation. 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, 1998,
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.
The accounts and operations of Dexterity Incorporated have been included in the
consolidated financial statements from March 18, 1999. Prior to the March 18,
1999 merger with Dexterity Incorporated, the Company's 19.2% investment in
Dexterity Incorporated had been accounted for using the cost method. The
resulting change in ownership qualifies as a change in reporting entity. See
"Note 5 - Merger" for a discussion of the effect on the consolidated financial
statements.
The Company has obtained a waiver for certain affirmative financial covenant
requirements associated with its convertible debentures through June 30, 1999,
at which point the Company believes it will be in compliance with the covenants.
However, 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 the holder would have the right to demand immediate repayment of
the entire amount outstanding. The Company believes that sufficient resources
would be available to fund such amounts in the event of such acceleration. The
Company has also taken steps to improve its 1999 operating results, which
include the acquisition of Dexterity Incorporated (see "Note 5 - Merger") and
the closing of two unprofitable divisions.
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. Customers may return products in the event of product defect or
inaccurate order fulfillment. The Company maintains an allowance for sales
returns based upon an historical analysis of returns.
Licensed Technology Rights
Licensed technology rights are amortized upon the commencement of commercial
sales of the underlying products. The varying value of the licensed technology
is periodically reviewed by the Company with impairments being recognized when
the expected future operating cash flows derived from such licensed technology
rights is less than their carrying value. Except for the royalty obligation
component, licensed technology rights acquired in conjunction with the merger
with Dexterity Incorporated (see "Note 5 - Merger) are amortized over a 17 year
period. The royalty obligation component of licensed technology rights is
amortized over the royalty agreement period of 7 years.
NOTE 3 - BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
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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 ended March 31, 1998 and 1999, Diluted EPS equals Basic EPS as
potentially dilutive common stock equivalents are antidilutive in loss periods.
NOTE 4 - INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
----------- -----------
<S> <C> <C>
Raw materials $ 29,250 $ 34,322
Work-in-process 431,986 499,706
Finished Goods 1,186,279 2,772,854
Allowances (164,616) (175,231)
----------- -----------
$ 1,482,899 $ 3,131,651
=========== ===========
</TABLE>
NOTE 5 - MERGER
On March 18, 1999, the Company's stockholders approved the Merger between the
Company and Dexterity Incorporated ("DI"). Contemporaneously with the Merger,
the Company changed its name to Dexterity Surgical, Inc. The Company accounted
for this business combination as a purchase. The consideration given to the
selling stockholders by the Company for the DI stock it did not previously own
consisted of an aggregate of:
(a) $1.5 million cash.
(b) Three million shares of the Company's common stock valued at
approximately $5.6 million.
(c) Warrants to purchase 1.5 million shares of the Company's
common stock valued at approximately $2.3 million.
(d) A one year, $1 million promissory note bearing interest at 12
percent.
(e) A royalty to be paid to the selling stockholders in an amount
equal to 15 percent of all sales of DI products for a period
of seven years. The royalty is subject to minimum payments
which aggregate approximately $9.7 million over the seven-year
royalty period, with a net present value, discounted at 12
percent, of approximately $5.95 million.
The financial statements have been retroactively restated to account for the
Company's original investment in Dexterity Incorporated under the equity method
as appropriate for a step-acquisition. This investment was previously accounted
for using the cost method. The result of this restatement was a decrease in the
"Investments, at cost" and an increase in "Accumulated deficit" at December 31,
1998 of approximately $140,000, as well as an increase in net loss for the three
months ended March 31, 1998 and 1999 of $35,000 and $30,000 respectively. The
effect of the restatement on earnings per share for the three months ended March
31, 1998 was a decrease in basic and diluted earnings per share of $.01; there
was no effect on earnings per share for the three months ended March 31, 1999.
The results of operation for the three months ended March 31, 1999, include the
operations of Dexterity Incorporated from March 18, 1999. Unaudited pro forma
consolidated results of operations, assuming the Dexterity Incorporated merger
had occurred at January 1, 1998, would have been as follows:
<TABLE>
<CAPTION>
Pro Forma (Unaudited)
Three months ended March 31,
1998 1999
----------- -----------
<S> <C> <C>
Net sales $ 4,391,085 $ 5,946,276
Net loss $(1,357,532) (948,860)
Basic and diluted loss per share of common stock $ (.14) $ (.10)
</TABLE>
-7-
<PAGE> 8
The foregoing pro forma information is presented in response to applicable
accounting rules relating to business acquisitions and is not necessarily
indicative of the actual results that would have been achieved had the Dexterity
Incorporated merger occurred at the beginning of 1998, nor is it indicative of
future results of operations.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company is 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 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.
NOTE 7 - OBLIGATIONS
The Company had the following current and long-term obligations:
<TABLE>
<CAPTION>
December 31, March 31,
1998 1999
---- ----
<S> <C> <C>
Unsecured note payable for a distributorship agreement, bearing interest
at 6 percent, principal and interest due monthly, maturing in 1999 $ 100,000 $ 60,000
Secured note payable for a vehicle loan, bearing interest at 9 percent,
principal and interest due monthly, maturing in 1999 16,310 --
Unsecured note payable related to Dexterity acquisition, bearing interest
at 12 percent, interest due quarterly, maturing in 2000 -- 1,000,000
Royalty obligation related to Dexterity acquisition, subject to annual minimum
payments over a period of seven years. The minimum payments aggregate
approximately $9.7 million over the seven year royalty period, with a net
present value, discounted at 12 percent, of approximately $5.95
million -- 5,945,609
Convertible Debentures, see Note 8 3,000,000 3,000,000
--------- -----------
Total obligations 3,116,310 10,005,609
Less - Current portion 116,310 1,471,287
---------- -----------
Long-term obligations $3,000,000 $ 8,534,322
========== ===========
</TABLE>
The carrying amount of the Company's debt approximates the fair value of the
debt. This determination is based on management's estimate of the fair value at
which such instruments could be sold or obtained in a third-party transaction.
NOTE 8 - CONVERTIBLE DEBENTURES
In December 1997, the Company sold 250,000 shares of Common Stock to two
affiliates of Renaissance Capital Group, Inc. (collectively, such affiliates
referred to herein as "Renaissance") in a private placement for aggregate
proceeds of $1,000,000 and placed $3,000,000 in 9 % Convertible Debentures (the
"Debentures") with Renaissance. The proceeds from the private placement were
used to repay the Company's line of credit with another financial institution,
to make an equity investment in Dexterity, and for working capital purposes. The
Debentures are secured by substantially all of the assets of
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<PAGE> 9
the Company and require monthly payments of interest beginning in February 1998
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 Debentures require the Company to comply with the following financial
covenants (all as defined in the Debentures): (i) a Debt to Net Worth Ratio of
no greater than .85:1; (ii) an Interest Coverage Ratio of at least 5:1; (iii) a
Debt Coverage Ratio of at least .10:1; and (iv) a Current Ratio of at least
1.8:1. The Company is currently not in compliance with and has obtained a waiver
from Renaissance to suspend the Interest Coverage Ratio, Debt Coverage Ratio,
and Current Ratio covenants through June 30, 1999 at which time the Company
believes it will be in compliance with such covenants. However, if the Company
is unable to comply with such covenants in the future, the Company could be
found to be in technical default under the Debentures and holders thereof would
have the right to demand the immediate repayment of the entire amount
outstanding. The Company believes that sufficient resources would be available
to fund such amounts in the event of such acceleration. The holders of the
Debentures have the option to convert at any time all or a portion of the
Debentures into shares of Common Stock at a price of $1.60 per share of Common
Stock for a maximum of 1,875,000 shares of Common Stock.
NOTE 9 - PREFERRED STOCK PLACEMENTS
In January 1999, pursuant to the terms of a private placement, the Company
issued to an officer and director of the Company 25 shares of 8% Series B
Cumulative Preferred Stock, $.001 par value ("Series B Preferred"), for proceeds
of $25,000.
In November 1998, pursuant to the terms of a private placement, the Company
issued to Renaissance 1,000 shares of Series B Preferred for aggregate proceeds
of $1,000,000. The Company used such proceeds for working capital. Annual
dividends on the Series B Preferred are cumulative at a rate of $80 per share.
The Series B Preferred is convertible into shares of Common Stock at a
conversion price of $1.60 per share, for an aggregate of 640,625 shares of
Common Stock.
In August 1998, pursuant to the terms of a private placement, the Company issued
to Renaissance and two individuals, including one who is an officer and director
of the Company, an aggregate of 1,170 shares of 8% Series A Cumulative Preferred
Stock, $.001 par value ("Series A Preferred"), for aggregate proceeds of
$1,170,000. The Company used such proceeds for working capital. Annual dividends
on the Series A Preferred are cumulative at a rate of $80 per share. The Series
A Preferred is convertible into shares of Common Stock at a conversion price of
$1.60 per share, for an aggregate of 731,250 shares of Common Stock.
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<PAGE> 10
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 Securities Exchange Act of 1934,
as amended. Specifically, all statements other than statements of historical
fact included in this Item 2 regarding Dexterity Surgical, 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
Annual Report on Form 10-KSB for the year ended December 31, 1998 filed with the
Securities and Exchange Commission ("SEC") on March 31, 1999, 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 and, thus,
was unprofitable. In 1996, the Company decided to reduce continuing investment
in research and development related to such technologies and to focus its
efforts on acquiring and distributing minimally invasive surgical devices.
Accordingly, during the last three fiscal years, the Company has continued to
decrease its engagement in Company sponsored research and development, and in
fiscal 1998, eliminated virtually all expenditures in this area. However, due to
the Dexterity Merger (defined below) the Company intends to invest moderate
amounts in research and development in 1999. As of March 31, 1999, the Company
had an accumulated deficit of approximately $19,764,000. 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.
The Company's future operating results will depend on many factors,
including 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 to create, obtain and maintain scientifically advanced technology,
the ability of the Company's customers to be reimbursed by third-party payors
and other factors described in the Company's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1998.
In January 1998, the Company acquired approximately 20% of the common
stock of Dexterity Incorporated ("Dexterity"), a business development subsidiary
of Teleflex, Inc. In March 1999, the Company acquired the remaining common stock
of Dexterity by merging Dexterity into the Company (the "Merger") pursuant to a
Plan of Merger and Acquisition agreement between the Company and Dexterity (the
"Dexterity Agreement"). Simultaneous with the effectiveness of the Merger, the
Company changed its name to Dexterity Surgical, Inc. Under the terms of the
Dexterity Agreement, which was approved by the stockholders of the Company at a
special meeting held March 18, 1999, the Dexterity stockholders, other than the
Company, received an aggregate of:
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<PAGE> 11
o $1,500,000;
o 3,000,000 shares of Common Stock;
o warrants to purchase an aggregate of 1,500,000 shares of Common Stock,
at an exercise price per share of $2.00;
o promissory notes in the aggregate amount of $1,000,000; and
o a royalty for seven years in an amount equal to 15% of all sales
of Dexterity products (the "Royalty") pursuant to a royalty agreement
(the "Royalty Agreement") among the Company and the Dexterity
stockholders, other than the Company. The Royalty is subject to minimum
annual payments which aggregate, over the seven years of the Royalty
Agreement, approximately $9,695,095.
The Company determined the fair market value of the above consideration to be
approximately $16,000,000. The Company launched distribution of Dexterity's
primary products, the Dexterity(R) Pneumo Sleeve and Dexterity(R) Protractor, in
March 1998. The transaction was accounted for using the purchase method of
accounting.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1999, the Company had current assets of $9,237,000 and
current liabilities of $8,507,000 resulting in working capital of $730,000. This
compares to a working capital position of $3,609,000 at December 31, 1998. The
decline in working capital is primarily due to the costs related to the
Company's merger with Dexterity.
In April 1999, the Company acquired a new maximum $5,000,000 revolving
line of credit from a financial institution whereby all inventories, accounts
receivable and intangibles of the Company are pledged as collateral. At April
30, 1999, the outstanding balance due on such line of credit was $1,372,000 and
an additional $2,140,000 was available under the current borrowing base.
In January 1999, pursuant to the terms of a private placement, the
Company issued to an officer and director of the Company 25 shares of 8% Series
B Cumulative Preferred Stock $.001 par value ("Series B Preferred"), for
proceeds of $25,000. Such shares of Series B Preferred are convertible into
15,625 shares of Common Stock.
In November 1998, pursuant to the terms of a private placement, the
Company issued to two affiliates of Renaissance Capital Group, Inc.
(collectively, such affiliates referred to herein as "Renaissance") 1,000 shares
of Series B Preferred for aggregate proceeds of $1,000,000. The Company used
such proceeds for working capital. Annual dividends on the Series B Preferred
are cumulative at a rate of $80 per share. Such shares of Series B Preferred are
convertible into shares of Common Stock at a conversion price of $1.60 per
share, for an aggregate of 625,000 shares of Common Stock.
In August 1998, pursuant to the terms of a private placement, the
Company issued to Renaissance and two individuals, including one who is an
officer and director of the Company, an aggregate of 1,170 shares of 8% Series A
Cumulative Preferred Stock, $.001 par value ("Series A Preferred"), for
aggregate proceeds of $1,170,000. The Company used such proceeds for working
capital. Annual dividends on the Series A Preferred are cumulative at a rate of
$80 per share. The Series A Preferred is convertible into shares of Common Stock
at a conversion price of $1.60 per share, for an aggregate of 731,250 shares of
Common Stock.
In December 1997, the Company sold 250,000 shares of Common Stock to
Renaissance in a private placement for aggregate proceeds of $1,000,000 and
placed $3,000,000 in 9% Convertible Debentures (the "Debentures") with
Renaissance. The proceeds from the private placement were used to repay the
Company's line of credit with another financial institution, to make an equity
investment in Dexterity, and for working capital purposes. The Debentures are
secured by substantially all of the assets of the Company and require monthly
payments of interest beginning in February 1998 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 Debentures require the
Company to comply with the following financial covenants (all as defined in the
Debentures): (i) a Debt to Net Worth Ratio of no greater than .85:1; (ii) an
Interest Coverage Ratio of at least 5:1; (iii) a Debt Coverage Ratio of at least
.10:1; and (iv) a Current Ratio of at least 1.8:1. At March 31, 1999, the
Company was not in compliance with the Interest Coverage Ratio, Debt Coverage
Ratio, and Current Ratio covenants, and has obtained a waiver from Renaissance
to suspend the Interest Coverage Ratio, Debt Coverage Ratio and Current Ratio
covenants through June 30, 1999, at which time the Company believes it will be
in compliance with such covenants. However, if the Company is unable to comply
with such covenants in the future, the Company could be found to be in technical
default under the Debentures and the holders thereof would have the right to
demand the immediate repayment of the entire amount outstanding. The Company
believes that sufficient resources would be available to fund such amounts in
the event of such
-11-
<PAGE> 12
acceleration. The holders of the Debentures have the option to convert at any
time all or a portion of the Debentures into shares of Common Stock at a price
of $1.60 per share of Common Stock for a maximum of 1,875,000 shares of Common
Stock.
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.
For the quarter ended March 31, 1999, operating activities provided
cash of $927,000. Investment activities during the quarter utilized cash of
$822,000, primarily due to the acquisition of Dexterity. During the quarter, the
Company's financing activities utilized $104,000 primarily for repayment of
debt.
Based upon the current level of operations, the Company believes that
projected cash flow from operations plus the Company's cash from its line of
credit and from the realization of its current assets will be adequate to meet
its anticipated requirements for working capital and capital expenditures
through at least 1999. 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 March 31, 1999, the Company reported a net
loss applicable to common stock of $296,000 or $.04 per basic and diluted share.
This compares with a net loss applicable to common stock of $660,000 or $.10 per
basic and diluted share for the three months ended March 31, 1998. The
improvement in reported results for 1999 was primarily due to an increase in net
sales and cost cutting initiatives. The Company is continually monitoring
non-profitable divisions and non-performing assets. Accordingly, during 1999,
the Company closed the Technologies division and the Surgical Systems division.
As a result, excess equipment was sold at a gain of approximately $44,000.
Product sales increased 39% in the first quarter 1999 as compared with
the same period in 1998. Product sales were $5,685,000 for the first quarter
1999 and $4,083,000 for the first quarter of 1998. These increases were due to
continued sales growth throughout the Company.
Commissions earned declined 16% in the first quarter 1999 as compared
with the first quarter 1998. Commissions earned were $241,000 in 1999 and
$287,000 in 1998. The decrease in commissions earned reflects the decreasing
emphasis on orthopedic products, which are typically agency commission sales,
and are accounted for as a separate line item on the Statement of Operations.
The Company has continued to focus on laparoscopic surgery products which
generate a higher gross profit margin and are accounted for as product sales on
the Statement of Operations.
Gross profit from product sales was $2,232,000 in the first quarter
1999 versus $1,606,000 in the first quarter 1998. The corresponding gross profit
margins were approximately 39% in both 1999 and 1998.
In the three months ended March 31, 1999, selling, general and
administrative expenses, which consist primarily of sales commissions, salaries
and other costs necessary to support the Company's infrastructure, increased 8%
to $2,562,000 from $2,362,000 in the three months ended March 31, 1998. These
increased costs primarily reflect higher sales commissions due to the increased
level of sales. However, as a percentage of net sales, selling, general and
administrative expenses have decreased: 43% for 1999 versus 54% for 1998.
YEAR 2000 ISSUE
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
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<PAGE> 13
business, including information management services and financial reporting, as
well as in various administrative functions. The Company has evaluated 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 believes its Programs and Systems are year 2000
compliant. 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. 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.
The above Year 2000 disclosure constitutes a "Year 2000 Readiness Disclosure" as
defined in The Year 2000 Information and Readiness Disclosure Act (the "Act"),
which was signed into law on October 19, 1998. The Act provides added protection
from liability for certain public and private statements concerning a company's
Year 2000 readiness.
-13-
<PAGE> 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company is 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 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.
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) Not applicable.
(c) Sales of Unregistered Securities. Pursuant to a Plan of
Merger and Acquisition Agreement (the "Dexterity Agreement")
between the Company and Dexterity Incorporated, a Delaware
corporation ("Dexterity"), dated effective March 18, 1999,
whereby the Company acquired substantially all of the assets
of Dexterity, the Company issued 3,000,000 shares of common
stock, $.001 par value ("Common Stock"), and warrants to
purchase an aggregate of 1,500,000 shares of Common Stock, at
an exercise price per share of $2.00 (the "Warrants"), to the
stockholders of Dexterity, other than the Company. Such Common
Stock and Warrants were not registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to
the exemptions of such registration provided under Regulation
D ("Regulation D") of the rules and regulations promulgated
under the Securities Act by the Securities and Exchange
Commission and Section 4(2) of the Securities Act. The Company
relied on certain representations and warranties of the
stockholders of Dexterity, including, among other things,
their ability to evaluate the merits and risks of the
transactions contemplated in the Dexterity Agreement, the
status of certain of such Dexterity stockholders as
"accredited investors" (as that term is defined in Rule 501(a)
of Regulation D) and that the Common Stock and the Warrants
were acquired solely for their own accounts for investment and
not with a view to distribution.
On January 21, 1999, pursuant to the terms of a private
placement, the Company issued to Richard A. Woodfield,
President, Chief Executive Officer and Director of the
Company, an aggregate of 25 shares of 8% Series B Cumulative
Convertible Preferred Stock (the "Series B Preferred") at a
per share purchase price of $1,000. Such shares of the Series
B Preferred are convertible into an aggregate of 15,625 shares
of Common Stock (subject to adjustment) at a conversion price
$1.60 per share. Dividends cumulatively accrue on the Series B
Preferred at a rate of $80 per annum per share. So long as any
accrued dividends on Series B Preferred are unpaid, no
dividends may be declared on Common Stock. The holders of
Series B Preferred shall be entitled, upon a liquidation of
the Company, to receive $1,000 per share of Series B
Preferred, plus all accrued and unpaid dividends. The holders
of the Series B Preferred have the right to one vote per share
of Series B Preferred 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 B Preferred 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 B Preferred shall be in
arrears, the holders of the Series B Preferred have the right
to elect or designate two directors of the Company. Such
Series B Preferred was not registered under the Securities Act
of 1933, as amended (the "Securities Act"), pursuant to the
exemptions of such registration provided under Regulation D
("Regulation D") of the rules and regulations promulgated
under the Securities Act by the Securities and Exchange
Commission and Section 4(2) of the Securities Act. The Company
relied on certain representations and warranties of Mr.
Woodfield, including, among other things, his ability to
evaluate the merits and risks of his investment in the Series
B Preferred, his status as an "accredited investor" (as that
term is defined in Rule 501(a) of Regulation D) and that the
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<PAGE> 15
Series B Preferred was acquired solely for his own account for
investment and not with a view to distribution.
(d) Not applicable.
Item 3. Defaults Upon Senior Securities - Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) A Special Meeting of Stockholders was held on March 18, 1999
(b) Not applicable
(c) The Stockholders approved and adopted the Plan of Merger and
Acquisition Agreement which merged Dexterity Incorporated with
and into the Company (the "Merger"). Simultaneous with the
effectiveness of the Merger, the Company changed its name to
Dexterity Surgical, Inc. Regarding the vote tally, 4,119,534
shares of Common Stock were voted "For" the Merger, 25,361
shares were voted "Against" the Merger and 7,550 shares
abstained.
(d) Not applicable
Item 5. Other Information - Not Applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 2.1* Plan of Merger and Acquisition Agreement
between the Company and Dexterity
Incorporated dated December 18, 1998
Exhibit 3.1* Restated Certificate of Incorporation, as
amended
Exhibit 10.1* Series B Convertible Preferred Stock
Purchase agreement dated January 21, 1999
between the Company and Richard A. Woodfield
Exhibit 10.2* Consulting Agreement between the Company
and Christopher Black dated March 18, 1999
Exhibit 10.3* Royalty Agreement among the Company and TFX
Equities Incorporated dated March 18, 1999
Exhibit 10.4* Registration Rights Agreement among the
Company and Dexterity Stockholders dated
March 18, 1999
Exhibit 11* Computation of Earnings (Loss) Per Share
Exhibit 27.1* Financial Data Schedule for the three
months ended March 31, 1999
Exhibit 27.2* Financial Data Schedule for the three
months ended March 31, 1998
(b) Reports on Form 8-K
(1) Form 8-K dated March 18, 1999 contained the required
Financial Statements and Pro Forma Financial Information
relative to the acquisition of Dexterity Incorporated.
(2) Form 8-K dated April 15, 1999 described the change in
Registrant's Certifying Accountant.
*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.
DEXTERITY SURGICAL, INC.
(Registrant)
Dated: May 13, 1999 By /s/ RICHARD A. WOODFIELD
------------------------------------
Richard A. Woodfield
President and Chief Executive Officer
(Principal Executive Officer)
Dated: May 13, 1999 By /s/ RANDALL K. BOATRIGHT
------------------------------------
Randall K. Boatright
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
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<PAGE> 17
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
Exhibit 2.1* Plan of Merger and Acquisition Agreement between the
Company and Dexterity Incorporated dated December 18, 1998
Exhibit 3.1* Restated Certificate of Incorporation, as amended
Exhibit 10.1* Series B Convertible Preferred Stock Purchase agreement
dated January 21, 1999 between the company and Richard A.
Woodfield
Exhibit 10.2* Consulting Agreement between the Company and Christopher
Black dated March 18, 1999
Exhibit 10.3* Royalty Agreement among the company and TFX Equities
Incorporated dated March 18, 1999
Exhibit 10.4* Registration Rights Agreement among the company and
Dexterity Stockholders dated March 18, 1999
Exhibit 11* Computation of Earnings (Loss) Per Share
Exhibit 27.1* Financial Data Schedule for the three months ended March
31, 1999
Exhibit 27.2* Financial Data Schedule for the three months ended March 31,
1998
* Filed herewith
</TABLE>
<PAGE> 1
EXHIBIT 2.1
PLAN OF MERGER AND ACQUISITION AGREEMENT
DATED EFFECTIVE DECEMBER 18, 1998
BETWEEN
LIFEQUEST MEDICAL, INC.
AND
DEXTERITY INCORPORATED
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
<S> <C>
1. GENERAL DEFINITIONS....................................................................................A-1
1.1 "Accounts Receivable".........................................................................A-1
1.2 "Affiliate"...................................................................................A-1
1.3 "Article".....................................................................................A-1
1.4 "Assets"......................................................................................A-1
1.5 "Authorization"...............................................................................A-2
1.6 "Balance Sheet Date"..........................................................................A-2
1.7 "Best Knowledge"..............................................................................A-2
1.8 "Brokerage Fee"...............................................................................A-2
1.9 "Business Combination"........................................................................A-2
1.10 "Business Day"................................................................................A-2
1.11 "CERCLA"......................................................................................A-2
1.12 "Certificate".................................................................................A-2
1.13 "Closing".....................................................................................A-2
1.14 "Closing Date"................................................................................A-2
1.15 "Code"........................................................................................A-2
1.16 "Contracts"...................................................................................A-2
1.17 "Control".....................................................................................A-3
1.18 "Damages".....................................................................................A-3
1.19 "Deposits"....................................................................................A-3
1.20 "Effective Time"..............................................................................A-3
1.21 "Encumbrance".................................................................................A-3
1.22 "Environmental Laws"..........................................................................A-3
1.23 "Exchange Act"................................................................................A-3
1.24 "Financial Statements"........................................................................A-3
1.25 "Governmental Authority"......................................................................A-3
1.26 "Governmental Requirement"....................................................................A-4
1.27 "Intellectual Property".......................................................................A-4
1.28 "LifeQuest Stock".............................................................................A-4
1.29 "Merger"......................................................................................A-4
1.30 "Material Adverse Effect".....................................................................A-5
1.31 "Merger Consideration"........................................................................A-5
1.32 "Parties "....................................................................................A-5
1.33 "Permitted Encumbrances"......................................................................A-5
1.34 "Person"......................................................................................A-5
1.35 "Reference Balance Sheet".....................................................................A-5
1.36 "Reorganization"..............................................................................A-5
1.37 "Representations and Warranties of LifeQuest".................................................A-5
1.38 "Representations and Warranties of Seller"....................................................A-5
1.39 "Royalty Agreement"...........................................................................A-5
1.40 "Schedule"....................................................................................A-5
1.41 "SEC" or "Commission".........................................................................A-5
1.42 "SEC Documents"...............................................................................A-5
1.43 "Section".....................................................................................A-6
1.44 "Securities Act"..............................................................................A-6
1.45 "Seller Stock"................................................................................A-6
1.46 "Shareholders"................................................................................A-6
1.47 "Subsidiary"..................................................................................A-6
1.48 "Surviving Corporation".......................................................................A-6
1.49 "Taxes".......................................................................................A-6
</TABLE>
A-i
<PAGE> 3
<TABLE>
<S> <C> <C>
1.50 "Tax Returns".................................................................................A-6
1.51 "Teleflex"....................................................................................A-6
1.52 "Waste Materials".............................................................................A-6
2. MERGER.................................................................................................A-6
2.1 The Merger....................................................................................A-6
2.2 Surviving Corporation.........................................................................A-7
2.3 Liabilities...................................................................................A-7
2.4 Certificate of Incorporation and Bylaws.......................................................A-7
2.5 Directors and Officers........................................................................A-7
2.6 Conversion or Cancellation of Stock Upon Merger...............................................A-7
2.7 Fractional Shares.............................................................................A-8
2.8 Exchange Procedures...........................................................................A-9
2.9 Interim Dividends.............................................................................A-9
2.10 Further Assurances............................................................................A-9
3. CLOSING; CLOSING DATE..................................................................................A-9
4. REPRESENTATIONS AND WARRANTIES OF SELLER..............................................................A-10
4.1 Incorporation................................................................................A-10
4.2 Share Capital................................................................................A-10
4.3 Financial Statements.........................................................................A-10
4.4 Events Since the Balance Sheet Date..........................................................A-11
4.5 Taxes........................................................................................A-11
4.6 Employee Matters.............................................................................A-12
4.7 Contracts and Agreements.....................................................................A-12
4.8 Effect of Agreement..........................................................................A-14
4.9 Properties, Assets and Leasehold Estates.....................................................A-15
4.10 Intellectual Property........................................................................A-15
4.11 Suits, Actions and Claims....................................................................A-15
4.12 Licenses and Permits; Compliance With Governmental Requirements..............................A-16
4.13 Authorization................................................................................A-16
4.14 Records......................................................................................A-16
4.15 Environmental Protection Laws................................................................A-16
4.16 Accounts Receivable..........................................................................A-17
4.17 Brokers and Finders..........................................................................A-18
4.18 Deposits.....................................................................................A-18
4.19 Work Orders..................................................................................A-18
4.20 Customer List; Supplier List.................................................................A-18
4.21 No Royalties.................................................................................A-18
4.22 Bank Accounts................................................................................A-18
4.23 Working Capital..............................................................................A-18
4.24 Shareholder Approval.........................................................................A-19
4.25 No Untrue Statements.........................................................................A-19
5. REPRESENTATIONS AND WARRANTIES OF LIFEQUEST...........................................................A-19
5.1 LifeQuest Incorporation......................................................................A-19
5.2 Authorization................................................................................A-19
5.3 Brokers and Finders..........................................................................A-19
5.4 Authorization for Stock Consideration........................................................A-19
5.5 SEC Documents................................................................................A-19
6. NATURE OF STATEMENTS AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................................A-20
</TABLE>
A-ii
<PAGE> 4
<TABLE>
<S> <C>
7. TAX TREATMENT.........................................................................................A-20
8. PRE-CLOSING COVENANTS.................................................................................A-20
8.1 General......................................................................................A-20
8.2 Notices and Consents.........................................................................A-21
8.3 Operation of Business........................................................................A-21
8.4 Full Access..................................................................................A-23
8.5 Notice of Developments.......................................................................A-23
8.6 Exclusivity..................................................................................A-23
9. CONDITIONS TO OBLIGATION TO CLOSE.....................................................................A-24
9.1 Conditions to Obligation of LifeQuest........................................................A-24
9.2 Conditions to Obligation of Seller...........................................................A-25
10. SPECIAL CLOSING AND POST-CLOSING COVENANTS............................................................A-26
10.1 General......................................................................................A-26
10.2 Litigation Support...........................................................................A-26
10.3 Transition...................................................................................A-27
10.4 Intellectual Property Assignment.............................................................A-27
10.5 Tax-Free Reorganization......................................................................A-27
10.6 Teleflex Debt................................................................................A-27
10.7 Board Representation.........................................................................A-27
11. NOTICES...............................................................................................A-27
12. TERMINATION...........................................................................................A-28
12.1 Termination of Agreement.....................................................................A-28
12.2 Effect of Termination........................................................................A-29
13. GENERAL PROVISIONS....................................................................................A-29
13.1 Governing Law; Interpretation; Section Headings..............................................A-29
13.2 Severability.................................................................................A-29
13.3 Entire Agreement.............................................................................A-30
13.4 Binding Effect...............................................................................A-30
13.5 Assignment...................................................................................A-30
13.6 Amendment; Waiver............................................................................A-30
13.7 Gender; Numbers..............................................................................A-30
13.8 Counterparts.................................................................................A-30
13.9 Telecopy Execution and Delivery..............................................................A-30
13.10 Expenses.....................................................................................A-31
13.11 Effect of Due Diligence......................................................................A-31
13.12 Press Releases and Public Announcements......................................................A-31
13.13 No Third Party Beneficiaries.................................................................A-31
13.14 Construction.................................................................................A-31
13.15 Incorporation of Exhibits, and Schedules.....................................................A-31
13.16 Specific Performance.........................................................................A-31
</TABLE>
A-iii
<PAGE> 5
<TABLE>
<CAPTION>
Exhibits
- --------
<S> <C>
1.20 Form of Certificate of Merger
2.6(a) Form of Warrant
2.6(b) Form of Promissory Note
2.6(c) Royalty Agreement
9.1(e)1 Form of Opinion of Seller's General Counsel
9.1(e)2 Form of Opinion of Seller's Intellectual Property Counsel
9.1(f) Form of Non-Competition Agreements
9.1(g) Form of Indemnity Agreement
9.2(e) Form of Consulting Agreement
9.2(g) Form of Registration Rights Agreement
9.2(i) Form of Opinion of LifeQuest's Counsel
10.4 Intellectual Property Assignment
Schedules
- ---------
4.2 Capitalization of Dexterity
4.3 Financial Statements
4.7 Material Contracts
4.8 Required Consents
4.9 Personal Property
4.10 Intellectual Property
4.11 Suits, Actions and Claims
4.12 Licenses and Permits
4.17 Brokers and Finders
4.20 Customers and Suppliers
4.21 Royalties
4.22 Bank Accounts
</TABLE>
A-iv
<PAGE> 6
PLAN OF MERGER AND ACQUISITION AGREEMENT
THIS PLAN OF MERGER AND ACQUISITION AGREEMENT (this "Agreement") is
made and entered into this 18th day of December 1998, between LifeQuest Medical,
Inc., a Delaware corporation ("LifeQuest") and Dexterity Incorporated, a
Delaware corporation ("Seller").
W I T N E S S E T H :
WHEREAS, LifeQuest is primarily in the business of distributing
minimally invasive surgical equipment and supplies; and
WHEREAS, Seller is in the business of distributing Dexterity(R)
products, including the pneumosleeve and protractor medical devices and surgical
instruments designed for use in handoscopic surgery (the "Business"); and
WHEREAS, the Shareholders own and hold all of the issued and
outstanding shares of capital stock of Seller not owned by LifeQuest; and
WHEREAS, the respective boards of directors of LifeQuest and Seller
have voted to approve the merger of Seller with and into LifeQuest (the
"Merger") pursuant to the terms and subject to the conditions of this Agreement;
and
WHEREAS, the transaction provided for in this Agreement is intended to
qualify as a corporate reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, in consideration of the mutual covenants hereinafter
contained, the parties hereto agree that Seller shall be merged with and into
LifeQuest and that the terms and conditions of the Merger, the method of
carrying the Merger into effect and certain other provisions relating thereto
shall be as hereinafter set forth:
1. GENERAL DEFINITIONS. For purposes of this Agreement, the following
terms shall have the respective meanings set forth below:
1.1 "Accounts Receivable" shall have the meaning assigned to it in
Section 4.16.
1.2 "Affiliate" of any Person shall mean any Person Controlling,
Controlled by or under common Control with such Person.
1.3 "Article" shall mean an Article of this Agreement unless otherwise
stated.
1.4 "Assets" shall mean the assets, properties and rights of Seller of
every nature, kind and description, wherever located, tangible and intangible,
real, personal and mixed, whether or not
A-1
<PAGE> 7
reflected in the books and records of Seller necessary or desirable to permit
the Business to be carried on in the manner as is presently conducted.
1.5 "Authorization" shall mean any consent, approval or authorization
of, expiration or termination of any waiting period requirement (including
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended) by, or filing, registration, qualification, declaration or designation
with, any Governmental Authority.
1.6 "Balance Sheet Date" shall have the meaning assigned to it in
Section 4.3.
1.7 "Best Knowledge" shall mean what a Person actually knew. When used
with respect to Seller, the term "Best Knowledge" shall mean Best Knowledge of
any of John J. Sickler, Christopher K. Black or Frederick C. Feiler.
1.8 "Brokerage Fee" shall mean the fee payable by Seller to Cleary &
Oxford Associates upon consummation of the transactions contemplated herein,
pursuant to the agreement referred to at Item 23 of Schedule 4.7.
1.9 "Business Combination" shall mean (i) any merger or consolidation
of, or share exchange involving, the Seller with or into any Person, (ii) any
sale, lease, exchange, transfer or other disposition (whether in one transaction
or a series of related transactions) or more than ten percent of the Seller's
consolidated assets (iii) the adoption of any plan or proposal for the
liquidation or dissolution of the Seller, (iv) any issuance, sale, purchase or
redemption of equity securities, any reclassification or equity securities of
recapitalization of the Seller, and (v) any transaction having an effect similar
to those described above.
1.10 "Business Day" shall mean any day other than Saturday, Sunday or
other day on which federally chartered commercial banks in San Antonio, Texas
are authorized or required by law to close.
1.11 "CERCLA" shall mean the Comprehensive Environmental, Response,
Compensation, and Liability Act of 1980, as amended.
1.12 "Certificate" shall mean each stock certificate representing
shares of Seller Stock.
1.13 "Closing" shall have the meaning assigned to it in Article 3.
1.14 "Closing Date" shall have the meaning assigned to it in Article 3.
1.15 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.16 "Contracts" shall have the meaning assigned to it in Section 4.7.
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1.17 "Control" and all derivations thereof shall mean the ability to
either (a) vote (or direct the vote of) 50% or more of the voting interests in
any Person or (b) direct the affairs of another, whether through voting power,
contract or otherwise.
1.18 "Damages" shall mean any and all liabilities, losses, damages,
demands, assessments, punitive damages, loss of profits, refund obligations
(including, without limitation, interest and penalties thereon) claims of any
and every kind whatsoever, costs and expenses (including interest, awards,
judgments, penalties, settlements, fines, costs of remediation, diminutions in
value, costs and expenses incurred in connection with investigating, prosecuting
and defending any claims or causes of action (including, without limitation,
reasonable attorneys' fees and reasonable expenses and all reasonable fees and
reasonable expenses of consultants and other professionals)).
1.19 "Deposits" shall have the meaning assigned to it in Section 4.18.
1.20 "Effective Time" shall mean the time at which a properly executed
certificate of merger in substantially the form attached to this Agreement as
Exhibit 1.20 (together with other documents required by law to effect the
Merger) shall have been filed with the Secretary of State of Delaware.
1.21 "Encumbrance" shall mean any security interest, mortgage, pledge,
trust, claim, lien, charge, option, defect, restriction, encumbrance or other
right or interest of any third Person of any nature whatsoever.
1.22 "Environmental Laws" shall mean any and all applicable laws,
statutes, ordinances, rules, regulations, orders, or determinations of any
Governmental Authority pertaining to the environment heretofore or currently in
effect in any and all jurisdictions in which Seller is conducting or at any time
has conducted business, or where any of the Assets are located, or where any
hazardous substances generated by or disposed of by Seller are located.
"Environmental Laws" shall include, but not be limited to, the Clean Air Act, as
amended, CERCLA, the Federal Water Pollution Control Act, as amended, RCRA, the
Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as
amended, and all other applicable laws, statutes, ordinances, rules,
regulations, orders and determinations of any Governmental Authority relating to
(a) the control of any potential pollutant or protection of the air, water or
land, (b) solid, gaseous or liquid waste generation, handling, treatment,
storage, disposal or transportation and (c) exposure to hazardous, toxic or
other substances alleged to be harmful. The terms "hazardous substance,"
"release" and "threatened release" shall have the meanings specified in CERCLA,
and the terms "solid waste" and "disposal" (or "disposed") have the meanings
specified in RCRA.
1.23 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
1.24 "Financial Statements" shall have the meaning assigned to it in
Section 4.3.
1.25 "Governmental Authority" shall mean any and all foreign, federal,
state or local governments, governmental institutions, public authorities and
governmental entities of any nature whatsoever, and any subdivisions or
instrumentalities thereof, including, but not limited to,
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departments, boards, bureaus, commissions, agencies, courts, administrations and
panels, and any divisions or instrumentalities thereof, whether permanent or ad
hoc and whether now or hereafter constituted or existing.
1.26 "Governmental Requirement" shall mean any and all applicable laws
(including, but not limited to, applicable common law principles), statutes,
ordinances, codes, rules, regulations, interpretations, guidelines, directions,
orders, judgments, writs, injunctions, decrees, decisions or similar items or
pronouncements, promulgated, issued, passed or set forth by any Governmental
Authority in effect as of the Effective Time.
1.27 "Intellectual Property" shall mean:
(a) all of Seller's patents and applications therefor, further
including, but not limited to, all divisions, reissues, substitutions,
reexaminations, continuations, continuations-in-part and extensions thereof; and
(b) all of Seller's inventions, whether or not patentable,
further including, but not limited to, all new developments and inventions, as
well as all improvements on prior inventions regardless of prior inventorship;
and
(c) all of Seller's know-how and work product, regardless of
form and whether tangible or intangible, further including, but not limited to,
invention and laboratory notebooks, source code and object code, system design,
system specifications, flow charts, test data, records and journals; blueprints,
drawings and photographs; research and engineering reports, including any models
or other hardware; licensing, marketing or development analysis; and customer or
prospective customer lists; and
(d) all of Seller's copyright interests regardless of actual
or potential registrability, and including moral rights, rights of publication
and rights of attribution and integrity; and
(e) all of Seller's trademark or service mark interests,
together with all of the goodwill of the business associated therewith and
represented thereby; and
(f) all of Seller's trade secrets; and
(g) all of Seller's other intellectual property and other
proprietary interests, whether or not identifiable as of the date of execution
hereof, relating to, or used in connection with, the Business or Assets now or
at any time in the future.
1.28 "LifeQuest Stock" shall mean the common stock, $.001 par value, of
LifeQuest.
1.29 "Merger" shall have the meaning assigned to it in Section 2.1.
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1.30 "Material Adverse Effect" shall mean a material adverse effect on
the Business, Assets, properties, operations, condition (financial or otherwise)
or results of operations of Seller, or LifeQuest and its Subsidiaries taken as a
whole, as applicable.
1.31 "Merger Consideration" shall have the meaning assigned to it in
Section 2.6.
1.32 "Parties" or "parties" shall mean collectively LifeQuest and
Seller.
1.33 "Permitted Encumbrances" shall mean (a) Encumbrances for current
taxes and assessments not yet past due or which are being contested in good
faith by appropriate proceedings and with respect to which adequate reserves are
reflected in the Financial Statements, (b) mechanics and materialmen
Encumbrances for construction in progress to the extent not perfected by filing,
recording, giving of notice or other appropriate action in the relevant
jurisdiction, (c) workmen, repairmen, warehousemen, carriers, lessors and
operators Encumbrances arising in the ordinary course of business to the extent
not perfected by filing, recording, giving of notice or other appropriate action
in the relevant jurisdiction and (d) easements, including agreements and deeds
of easement, and other minor imperfections of title which would not have a
Material Adverse Effect.
1.34 "Person" shall mean any natural person, any Governmental Authority
and any entity, the separate existence of which is recognized by any
Governmental Authority or Governmental Requirement, including, but not limited
to, corporations, partnerships, joint ventures, joint stock companies, trusts,
estates, companies and associations, whether organized for profit or otherwise.
1.35 "Reference Balance Sheet" shall have the meaning assigned to it in
Section 4.3.
1.36 "Reorganization" shall have the meaning assigned to it in Article
7.
1.37 "Representations and Warranties of LifeQuest" shall have the
meaning assigned to it in Section 6.2.
1.38 "Representations and Warranties of Seller" shall have the meaning
assigned to it in Section 6.1.
1.39 "Royalty Agreement" shall mean the Royalty Agreement referred to
in the penultimate sentence of Section 2.6.
1.40 "Schedule" shall mean a Schedule to this Agreement unless
otherwise stated. The Schedules to this Agreement may be attached to this
Agreement or may be set forth in a separate document denoted as the Schedules to
this Agreement, or both.
1.41 "SEC" or "Commission" shall mean the United States Securities and
Exchange Commission.
1.42 "SEC Documents" shall have the meaning assigned to it in Section
5.5.
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1.43 "Section" shall mean a Section of this Agreement unless otherwise
stated.
1.44 "Securities Act" shall mean the Securities Act of 1933, as
amended.
1.45 "Seller Stock" shall mean the common stock, par value $1.00, of
Seller.
1.46 "Shareholders" shall mean the record owners, other that LifeQuest,
of the Seller Stock on the Closing Date.
1.47 "Subsidiary" shall mean, with respect to any Person (the
"parent"), (a) any corporation, association, joint venture, partnership or other
business entity of which securities or other ownership interests representing
more than 50% of the ordinary voting power or beneficial interest are, at the
time as of which any determination is being made, owned or controlled by the
parent or one or more subsidiaries of the parent or by the parent and one or
more subsidiaries of the parent and (b) any joint venture or partnership of
which the parent or any Subsidiary of the parent is a general partner or has
responsibility for its management.
1.48 "Surviving Corporation" shall mean the corporation existing at and
after the Effective Time as a result of the Merger.
1.49 "Taxes" shall mean any foreign, federal, state or local tax,
assessment, levy, impost, duty, withholding, estimated payment or other similar
governmental charge, together with any penalties, additions to tax, fines,
interest and similar charges thereon or related thereto.
1.50 "Tax Returns" shall mean all Tax returns and reports (including,
without limitation, income, franchise, sales and use, unemployment compensation,
excise, severance, property, gross receipts, profits, payroll and withholding
Tax returns and information returns).
1.51 "Teleflex" means Teleflex Incorporated, a Delaware corporation.
1.52 "Waste Materials" shall mean any toxic or hazardous materials or
substances, or solid wastes, including asbestos, buried contaminants, chemicals,
flammable or explosive materials, radioactive materials, petroleum and petroleum
products, and any other chemical, pollutant, contaminant, substance or waste
that is regulated by any Governmental Authority under any Environmental Law.
2. MERGER.
2.1 The Merger. Subject to the terms and conditions of this Agreement,
Seller shall be merged with and into LifeQuest in accordance with all applicable
laws (the "Merger"), with LifeQuest being the Surviving Corporation. LifeQuest
and Seller shall cause a certificate of merger to be filed with the Secretary of
State of Delaware on the Closing Date (as hereinafter defined). The Merger shall
be effective at the Effective Time.
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2.2 Surviving Corporation. From and after the Effective Time, the
Surviving Corporation shall have the name "Dexerity Surgical, Inc." and shall
possess all assets and property of every description, and every interest in the
assets and property, wherever located, and the rights, privileges, immunities,
powers, franchises and authority, of a public as well as of a private nature, of
each of Seller and LifeQuest, and all debts and all other things in action or
belonging or due to each of Seller and LifeQuest, all of which shall be vested
in the Surviving Corporation without further act or deed, and title to any real
estate or any interest in the real estate vested in either Seller or LifeQuest
shall not revert or in any way be impaired.
2.3 Liabilities. The Surviving Corporation shall be liable for all the
debts, liabilities and duties of each of Seller and LifeQuest; any action or
proceeding pending, by or against either Seller or LifeQuest, may be prosecuted
to judgment, with right of appeal, as if the Merger had not taken place, or the
Surviving Corporation may be substituted in its place, and all the rights of
creditors of each of Seller and LifeQuest shall be preserved unimpaired, and all
liens upon the property of each of Seller and LifeQuest shall be preserved
unimpaired, on only the property affected by the liens immediately prior to the
Effective Time.
2.4 Certificate of Incorporation and Bylaws. The certificate of
incorporation and bylaws of LifeQuest in effect immediately prior to the
Effective Time shall be the certificate of incorporation and bylaws of the
Surviving Corporation following the Merger until otherwise amended or repealed.
2.5 Directors and Officers. Subject to the provisions of Section 10.7
hereof, the directors and officers of LifeQuest immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation
until their successors are duly elected or appointed and qualified in the manner
provided in the bylaws of the Surviving Corporation, or as otherwise provided by
law.
2.6 Conversion or Cancellation of Stock Upon Merger. In consideration
for the Merger and the non-competition agreements and indemnity agreements
described in Section 9.1 hereof, as of the Effective Time, by virtue of the
Merger and without any action on the part of the holders of any shares of Seller
Stock, or the holder of the shares of LifeQuest Stock:
(a) each share of Seller Stock outstanding immediately before the
Effective Time and held by the Shareholders shall be converted into the
right to receive, subject to Section 2.7,
(i) the numbers of shares of LifeQuest Stock equal to the
quotient of (1) 3,000,000 divided by (2) the number
of shares of Seller Stock held by the Shareholders
immediately before the Effective Time (the "Stock
Consideration");
(ii) the quotient of (1) $1,500,000, less 50% of Brokerage
Fee divided by (2) the number of shares of Seller
Stock held by the Shareholders immediately before the
Effective Time (the "Cash Consideration");
(iii) a warrant dated the Closing Date substantially in the
form attached hereto as Exhibit 2.6(a) to purchase
such number of shares of LifeQuest Stock equal to
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the quotient of (1) 1,500,000 divided by (2) the
number of shares of Seller Stock held by the
Shareholders immediately before the Effective Time,
all at an exercise price of $2.00 per share (the
"Warrants");
(iv) a promissory note dated the Closing Date
substantially in the form attached hereto as Exhibit
2.6(b) in a principal amount equal to the quotient of
(1) $1,000,000 divided by (2) the number of shares of
Seller Stock held by the Shareholders immediately
before the Effective Time, payable within one year
from the date of Closing and accruing interest at the
rate of 12% per annum (the "Promissory Notes" and,
together with Stock Consideration, the Cash
Consideration and the Warrants, the "Merger
Consideration"); and
(v) an undivided fractional interest in the Royalty
Agreement equal to one over the number of shares of
Seller Stock held by the Shareholders immediately
before the Effective Time.
(b) each share of Seller Stock outstanding immediately before the
Effective Time and held by LifeQuest shall be converted into the right
to receive one (1) share of common stock of the Surviving Corporation;
and
(c) each share of LifeQuest Stock outstanding immediately before the
Effective Time shall be converted into one share of Common Stock of the
Surviving Corporation.
At the Closing, LifeQuest shall (i) issue and deliver to the Shareholders
certificates representing the Stock Consideration, (ii) pay the Cash
Consideration, (iii) issue and deliver the Warrants and the Promissory Notes to
the Shareholders, (iv) execute and deliver to TFX Equities, as agent for the
Shareholders, a Royalty Agreement, dated the Closing Date, in substantially the
form of Exhibit 2.6(c) and (v) execute and deliver to the proper Persons an
assumption of the assignment of those contracts and agreements of Seller listed
on Schedule 4.7 which require an express assumption of the liabilities of Seller
as contained in such contracts or agreements. At the Closing, Seller shall
execute and deliver to LifeQuest the intellectual property assignment as
contemplated by Section 10.4.
2.7 Fractional Shares. Notwithstanding Section 2.6, no certificates or
scrip representing fractional shares of LifeQuest Stock shall be issued upon the
surrender for exchange of certificates that prior to the Effective Time
represented shares of Seller Stock, no dividend or distribution of LifeQuest
shall relate to any fractional share interest and no fractional share interest
shall entitle the owner thereof to vote or to exercise any rights of a
stockholder of LifeQuest. In the event that any Former Seller Shareholder shall
be entitled to any fractional share interest then any fractional amount shall be
rounded down to the nearest whole share.
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2.8 Exchange Procedures.
(a) After the Effective Time, each outstanding Certificate
shall, until duly surrendered to LifeQuest as contemplated by this Section 2.8,
be deemed to represent only the right to receive the Merger Consideration.
(b) After the Effective Time, there shall be no further
transfer on the records of Seller of Certificates, and each share of Seller
Stock presented or surrendered to LifeQuest shall be canceled in exchange for
the Merger Consideration as contemplated by Section 2.6. LifeQuest shall not be
obligated to deliver Merger Consideration to any holder of a Certificate until
such holder surrenders such Certificate as provided herein.
2.9 Interim Dividends. No dividends or other distributions declared
after the Effective Time on LifeQuest Stock issuable pursuant to the Merger and
payable to a Former Seller Shareholder after the Effective Time shall be paid to
the holder of any unsurrendered certificates formerly representing shares of
Seller Stock until the certificates shall be surrendered as provided herein,
provided, however, that (a) upon surrender there shall be paid to the
shareholder in whose name the certificates representing the shares of LifeQuest
Stock shall be issued the amount of unpaid dividends with respect to the
holder's shares of LifeQuest Stock and (b) at the appropriate payment date, or
as soon as practicable thereafter, there shall be paid to the shareholder the
amount of dividends declared with respect to whole shares of LifeQuest Stock
with a record date on or after the Effective Time but before surrender and a
payment date subsequent to surrender, subject in any case to any applicable
escheat laws. No interest shall be payable with respect to the payment of
dividends or other distributions on surrender of outstanding certificates.
2.10 Further Assurances. If at any time after the Effective Time the
Surviving Corporation shall consider or be advised that any further assignments
or assurances in law or otherwise are necessary or desirable to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation, all rights, title
and interests in all the Assets and all privileges, powers and franchises of
Seller, the Surviving Corporation and its proper officers and directors, in the
name and on behalf of Seller, shall execute and deliver all such proper deeds,
assignments and assurances in law and do all things necessary and proper to
vest, perfect or confirm title to such property or rights in the Surviving
Corporation and otherwise to carry out the purpose of this Agreement, and the
proper officers and directors of the Surviving Corporation are fully authorized
in the name of Seller or otherwise to take any and all such action.
3. CLOSING; CLOSING DATE.
As soon as practicable after satisfaction or waiver of all conditions
to the Merger, including the approval by the stockholders of LifeQuest of the
Merger and the issuance of the Stock Consideration, the consummation of the
transactions referenced above shall take place (the "Closing") at 10:00 a.m.,
E.S.T., at the offices of Saul, Ewing, Remick & Saul, LLP, Centre Square West,
1500 Market Street, 38th Floor, Philadelphia, Pennsylvania or at such other
time, date and place as LifeQuest and Seller shall in writing designate. The
date of the Closing is referred to herein as the "Closing Date".
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4. REPRESENTATIONS AND WARRANTIES OF SELLER. Seller hereby represents
and warrants to the LifeQuest as follows:
4.1 Incorporation. Seller is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and is
qualified and in good standing as a foreign corporation in Pennsylvania. Seller
is not required to qualify or otherwise be authorized to do business as a
foreign corporation in any other jurisdiction in order to carry on any of its
businesses as now conducted or to own, lease or operate the Assets except for
such jurisdictions where the failure to so qualify will not have a Material
Adverse Effect. Complete and correct copies of the Certificate of Incorporation
of Seller and all amendments thereto, certified in each case by the Secretary of
State of the State of Delaware, and of the Bylaws of Seller and all amendments
thereto, certified by the Secretary of Seller, heretofore have been delivered to
LifeQuest. The minute books of Seller previously made available to LifeQuest are
complete and accurately reflect all action taken prior to the date of this
Agreement by its board of directors and shareholders, in their capacities as
such. Seller has no Subsidiaries. Seller is not engaged in any business or
operations other than the Business.
4.2 Share Capital
(a) The authorized capital stock of Seller consists of 4,000
shares of Seller Stock, of which 1,263 shares are outstanding as of the date
hereof, and 1,000 shares of preferred stock of Seller, of which none shares are
outstanding as of the date hereof. All of the outstanding Seller Stock is held
of record by the Persons identified as such owners on Schedule 4.2. All
outstanding Seller Stock is duly authorized and issued in compliance with all
federal, state and foreign securities laws. True and correct copies of the stock
records of Seller, showing all issuances and transfers of shares of capital
stock of Seller since inception, have previously been provided to LifeQuest.
(b) On the Closing Date there will be outstanding no rights of
first refusal, preemptive rights, conversion rights, options, warrants or other
rights to acquire, directly or indirectly, capital stock from Seller. Set forth
in Schedule 4.2 is the number of options outstanding on the date hereof, the
grant dates and exercise prices thereof (in each case, as applicable).
(c) Seller is not a party or subject to any agreement or
understanding, and to the Best Knowledge of Seller 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 securities of Seller or the
voting by any director of Seller. No Shareholder nor any Affiliate thereof is
indebted to Seller. Seller is not indebted to any Shareholder or any Affiliate
thereof other than Teleflex Incorporated ("Teleflex").
4.3 Financial Statements. Seller has delivered to LifeQuest copies of
the following financial statements for Seller, all of which financial statements
are included in Schedule 4.3 (collectively, the "Financial Statements"):
Unaudited Balance Sheet of Seller (the "Reference Balance Sheet") as of October
31, 1998 (the "Balance Sheet Date") and Unaudited Income Statement of Seller for
the ten-month period ended on the Balance Sheet Date. The Financial Statements
have been prepared in accordance with generally accepted accounting principles
applied on a consistent
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basis throughout the periods indicated, and present fairly the financial
condition of Seller as of the dates and for the periods indicated thereon,
except that such financial statements do not include footnote disclosures which
are required by generally accepted accounting principles. However, all material
matters which would have been disclosed in such footnotes are disclosed in this
Agreement and the Schedules hereto or in the documents referred to in this
Agreement or such Schedules.
4.4 Events Since the Balance Sheet Date. Since the Balance Sheet Date,
there has not been:
(a) any change in the condition (financial or otherwise) or in
the properties, assets, liabilities, business or prospects of the Business,
except changes in the ordinary course of business, all of which in the aggregate
have not been materially adverse; (b) any breach or default by Seller or, to the
Best Knowledge of Seller, by any other party, under any agreement or obligation
included in the Assets or by which any of the Assets are bound; (c) any damage,
destruction or loss (whether or not covered by insurance) materially adversely
affecting the Assets or the Business; (d) any material change in the types,
nature, composition or quality of the services of the Business, any material
adverse change in the contributions of any of the service lines of the Business
to the revenues or net income of such Business, or any adverse change in the
sales, revenue or net income of the Business; (e) any transaction related to or
affecting the Assets or the Business other than transactions in the ordinary
course of business of Seller; (f) any declaration, setting aside or payment of
any dividend (whether in cash, stock or property) with respect to any of
Seller's capital stock except as permitted by Section 8.3; (g) (i) any granting
by Seller to any executive officer of Seller of any increase in compensation
payable after the Closing Date, (ii) any granting by Seller to any executive
officer of any increase in severance or termination pay payable after the
Closing Date, or (iii) any entry by Seller into any employment, severance or
termination agreement with any executive officer; (h) any change in accounting
methods, principles or practices by Seller materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
tax-basis or generally accepted accounting principles, and except as required by
LifeQuest; (i) any condition, event or occurrence through the date hereof which,
in the aggregate, could reasonably be expected to prevent, hinder or delay in
any material respect the ability of Seller to consummate the transactions
contemplated by this Agreement; or (j) any agreement, in writing or otherwise,
by Seller or any corporate action by Seller with respect to the foregoing.
4.5 Taxes.
(a) All Tax Returns of or relating to any Taxes that are
required to be filed on or before the Effective Time, subject to any allowable
extension periods, for, by, on behalf of or with respect to Seller, including,
but not limited to, those relating to the income, business, operations or
property of Seller (whether on a separate, consolidated, affiliated, combined,
unitary or any other basis), have been or will prior to the Effective Time be
timely filed with the appropriate foreign, federal, state and local authorities,
and all Taxes shown to be due and payable on such Tax Returns have been or will
prior to the Effective Time be paid in full on or before the Effective Time,
except Taxes which have not yet become due, before the Effective Time, liability
for which is or will prior to the Effective Time be reflected on the Seller's
books of account;
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(b) all Taxes assessed and due and owing from or against
Seller on or before the Effective Time have been or will be timely paid in full
on or before the Effective Time; and
(c) all withholding Tax, Tax deposit and estimated Tax payment
requirements imposed on Seller for any and all periods ending on or before the
Effective Time, or through and including the Effective Time for periods that
have not ended on or before the Effective Time, have been or will be satisfied
in full on or before the Effective Time or reserves adequate for the payment of
such withholding, deposit and estimated Taxes have been or will be established
in the books of account of Seller on or before the Effective Time.
4.6 Employee Matters. Seller has no employees and has not at any time
in the past had any employees.
4.7 Contracts and Agreements. (a) Except for the contracts or
arrangements referred to in Schedule 4.7, Seller is not a party to or bound by:
(i) any contract, agreement or commitment in respect of the
sale or distribution of products or services or the purchase of raw materials,
supplies or other products or utilities other than pending orders given or
received in the ordinary course of business consistent with past practice;
(ii) any offer, tender or the like outstanding and capable of
being converted into an obligation of Seller by the passage of time or by an
acceptance or other act of some other person or entity or both, except for those
incurred in the ordinary course of Seller's business, none of which have had a
Material Adverse Effect;
(iii) any sale, agency, distributorship agreement, franchise
agreement or legally enforceable commitment or obligation with respect thereto;
(iv) any collective bargaining agreement, union agreement,
employment agreement, consulting agreement, management service agreement,
agreement providing for the services of an independent contractor or any other
similar type of contract or agreement;
(v) any profit-sharing, pension, stock option, severance pay,
retirement, bonus, deferred compensation, group life and health insurance or
other employee benefit plan, agreement, arrangement or commitment of a similar
nature or any agreement with any present or former officer, director or
shareholder of Seller;
(vi) any loan or credit agreement, indenture, guarantee (other
than endorsements made for collection), mortgage, pledge, conditional sale or
other title retention agreement, any equipment financing obligation, lease and
lease-purchase agreement;
(vii) any lease related to the Assets or the Business, and any
other contract, agreement or legally enforceable commitment relating to or
affecting the Assets or the Business;
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(viii) any performance bond, bid bond, surety bond and the
like, any contract and bid covered by such bond, and any letter of credit and
guaranty;
(ix) any consent decree and other judgment, decree or order,
settlement agreement and agreement relating to competitive activities, requiring
or prohibiting any future action;
(x) any contract, commitment or agreement of any nature with a
Shareholder, or Affiliate of a Shareholder;
(xi) any contracts, commitments and agreements entered into
outside the ordinary course of the operation of the Business;
(xii) any agreement, indenture or other instrument which
contains restrictions with respect to the payment of dividends or any other
distribution in respect of its capital stock or the purchase, redemption or
other acquisition of capital stock;
(xiii) other than expenditures regularly made in the ordinary
course of business of Seller for items that are not property, plant or
equipment, any agreement, contract or commitment relating to any expenditure or
a series of related expenditures in excess of $10,000;
(xiv) any outstanding loan or advance by Seller to, or
investment by Seller in, any Person, or any agreement, contract, commitment or
understanding relating to the making of any such loan, advance or investment
(excluding trade receivables);
(xv) any contract, agreement, indenture, note or other
instrument relating to (A) the borrowing of money by Seller or the granting of
any Encumbrance or (B) any guarantee or other contingent liability (identifying
the primary contract or agreement to which such guarantee or contingent
liability relates or the agreement pursuant to which such guarantee was
delivered) in respect of any indebtedness, commitment, liability or obligation
of any Person (other than the endorsement of negotiable instruments for deposit
or collection in the ordinary course of business);
(xvi) any agreement, contract or commitment limiting the
freedom of Seller or any Affiliate of Seller to engage in any line of business,
to own, operate, sell, transfer, pledge or otherwise dispose of or encumber any
Asset or to compete with any Person or to engage in any business or activity in
any geographic area;
(xvii) any agreement, lease, contract or commitment or series
of related agreements, leases, contracts or commitments not entered into in the
ordinary course of business that is not cancelable under the terms of such
agreement, lease, contract or commitment without penalty to Seller within 30
days;
(xviii) any agreement, contract or commitment requiring (A)
the payment for goods or services whether or not such goods or services are
actually provided or (B) the furnishing of goods or services at a price less
than Seller's cost of producing such goods or providing such services;
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(xix) any agreement or contract obligating Seller or that
would obligate or require any subsequent owner of the business currently
conducted by Seller or any of the Assets to provide for indemnification or
contribution with respect to any matter (other than customary indemnification
provisions in leases of property leased by Seller);
(xx) any license, royalty or similar agreement; or
(xxi) any agreement, contract or commitment that Seller
expects to have a Material Adverse Effect on Seller and/or LifeQuest subsequent
to Closing.
(b) All of such contracts, agreements, leases, licenses,
plans, arrangements, commitments and documents specified in Schedule 4.7
(collectively, the "Contracts") are to the Best Knowledge of Seller valid,
binding and in full force and effect. To the Best Knowledge of Seller there are
no facts or documents rendering any Contract unenforceable by Seller or
otherwise invalid. There is no existing default thereunder or breach thereof by
Seller, or, to the Best Knowledge of Seller, by any other party to a Contract,
or any conditions which, with the passage of time or the giving of notice or
both, would constitute such a default by Seller, or, to the Best Knowledge of
Seller, by any other party to a Contract, and none of the Contracts will be
breached by or give any other party a right of termination as a result of the
transactions contemplated by this Agreement. There are no pending or, to the
Best Knowledge of Seller, threatened disputes with respect to the Contracts.
There are no obligations, including payment of money, past due by either party
to any Contract. There are no disclosed or undisclosed breaches of warranty,
whether or not within a time period to cure, pertaining to any Contract. There
is no condition existing that has or will trigger a right to terminate any
Contract. There is no requirement in any Contract requiring a third party to be
a signatory to this Agreement. Copies of all of the Contracts (or in the case of
oral commitments, descriptions of the material terms thereof) have been
delivered by Seller to LifeQuest, and such copies and/or descriptions are true,
complete and accurate and include all amendments, supplements or modifications
thereto. All of the contracts are assignable to and assumable by LifeQuest as
set forth herein so as to give LifeQuest exactly the same rights and/or
obligations thereunder enjoyed by Seller, without the requirement of obtaining
any consent or approval, giving any prior or subsequent notice, paying any
further royalty or fee to any party thereto or to any other third party, or
performing any duty that has not already been fully performed by Seller. All of
the Contracts will be fully vested in LifeQuest as of the Effective Time of the
Merger, without the approval or consent of any Person.
4.8 Effect of Agreement. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not (a)
violate any provision of the Articles of Incorporation or other charter
documents or bylaws of Seller; (b) result in any violation of any Governmental
Requirement applicable to Seller, the Assets or the Business; (c) conflict with,
or result in any breach of, or default or loss of any right under (or an event
or circumstance that, with notice or the lapse of time, or both, would result in
a default), or the creation of an Encumbrance pursuant to, or cause or permit
the acceleration prior to maturity or "put" right with respect to, any
obligation under, any contract, indenture, mortgage, deed of trust, lease, loan
agreement or other agreement or instrument to which Seller is a party or to
which any of the Assets or Business are subject; or (d) require notice to or the
consent, authorization, approval, clearance, waiver or order of any Person
(except as specified in Schedule 4.8). The execution, delivery and performance
of this
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Agreement by Seller will not result in the loss of any governmental license,
franchise or permit possessed by Seller.
4.9 Properties, Assets and Leasehold Estates.
(a) Set forth on Schedule 4.9 is a description of each item of
personal property, excluding inventory, owned by Seller that had a book value as
of the Balance Sheet Date greater than $10,000. For purposes of this Section
4.9, "personal property" excludes Intellectual Property. Seller owns all of such
personal property free and clear of all Encumbrances, except for Permitted
Encumbrances and those Encumbrances set forth on Schedule 4.9.
(b) Seller leases no personal property.
(c) Seller owns no real property.
(d) Seller leases no real property.
4.10 Intellectual Property.
(a) Schedule 4.10 is a complete list of Intellectual Property
in which Seller either has an ownership interest or rights/obligations pursuant
to agreements.
(b) Except as set forth in agreements itemized on, or
otherwise disclosed in, Schedule 4.10, (i) there is no contract obligation of
Seller concerning, or any license or encumbrance affecting Seller's interest in
or title to, such Intellectual Property; (ii) Seller has received no notice that
the manufacture or sale by Seller of any of the products offered for sale by
Seller infringes the patent or trademark rights of any other Person nor, to the
Best Knowledge of Seller, is there any valid basis for any such claim; and (iii)
to the Best Knowledge of Seller no product presently offered for sale by any
Person infringes the patent rights of Seller. To the Best Knowledge of Seller,
Seller's use of the Intellectual Property does not infringe on any third party
proprietary interest, including (without limitation) any third party patent,
copyright, trademark, or trade secret interest. To the Best Knowledge of Seller,
Seller's right to the exclusive use of the Intellectual Property is not being
infringed by any third party proprietary interest, including (without
limitation) any third party patent, copyright, trademark, or trade secret
interest. To the Best Knowledge of Seller, except for agreements itemized on
Schedule 4.10, no agreements or arrangements are in effect with respect to the
development, nondisclosure, marketing, distribution, licensing, or promotion of
the Intellectual Property by any independent contractor, salesperson,
distributor, sublicensor, or other remarketer or sales organization.
4.11 Suits, Actions and Claims. Except as set forth in Schedule 4.11,
(a) there are no suits, actions, claims, or to the Best Knowledge of Seller,
investigations by any Person, or any legal, administrative or arbitration
proceedings in which Seller is engaged, which are pending or, to the Best
Knowledge of Seller, threatened, against or affecting Seller or any of its
properties, assets or business, or to which Seller is or might become a party,
or which question the validity or legality of the transactions contemplated
hereby, (b) to the Best Knowledge of Seller, no reasonable basis or
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reasonable grounds for any such suit, action, claim, investigation or proceeding
exists, and (c) there is no outstanding order, writ, injunction or decree of any
Governmental Authority against or affecting Seller or any of its properties,
assets or business.
4.12 Licenses and Permits; Compliance With Governmental Requirements.
No federal, state, local or foreign governmental license or permit is necessary
for the conduct by Seller of the operation of its business as currently
conducted, except for the licenses, permits and approvals required to be
obtained by Medical Creative Technologies, Inc. referred to in Schedule 4.12.
Seller has not received and is not aware of any reports of inspections under the
United States Occupational Safety and Health Act, or under any other applicable
federal, state or local health and safety laws and regulations relating to
Seller, the Assets or the operation of Seller's business. There are no safety,
health, anti-competitive or discrimination claims that have been made or are
pending or, to the Best Knowledge of Seller, that are threatened relating to the
business or employment practices of Seller. Seller has complied with all
Governmental Requirements applicable to its business and all Governmental
Requirements with respect to the distribution and sale of products and services
by it.
4.13 Authorization. Seller has full legal right, power, and authority
to enter into and deliver this Agreement, to consummate the transactions set
forth herein and to perform all the terms and conditions hereof to be performed
by it. The execution and delivery of this Agreement by Seller and the
performance by it of the transactions contemplated herein have been duly and
validly authorized by all requisite corporate actions of Seller, and this
Agreement has been duly and validly executed and delivered by Seller and is the
legal, valid and binding obligation of Seller, enforceable against Seller in
accordance with the terms of the Agreement, except as limited by applicable
bankruptcy, moratorium, insolvency or other similar laws affecting generally the
rights of creditors or by principles of equity.
4.14 Records. The books, records and minutes kept by Seller with
respect to the Assets and the Business, including, but not limited to, all
customer files, service agreements, correspondence and historic revenue of
Seller, have been kept properly and contain records of all matters required to
be included therein by any Governmental Requirement or by generally accepted
accounting principles, and such books, records and minutes are true, accurate
and complete in all material respects.
4.15 Environmental Protection Laws.
(a) Seller has at all times operated in compliance with all
applicable limitations, restrictions, conditions, standards, prohibitions,
requirements and obligations of Environmental Laws and related orders of any
court or other Governmental Authority.
(b) There are no existing, pending or, to the Best Knowledge
of Seller, threatened actions, suits, claims, investigations or proceedings by
or before any court or any other Governmental Authority directed against Seller
or its Assets or the Business which pertain or relate to (i) any remedial
obligations under any applicable Environmental Law, (ii) violations of any
Environmental Law, (iii) personal injury or property damage claims relating to
the release of chemicals or Waste Materials or (iv) response, removal or
remedial costs under CERCLA or any similar state law.
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(c) All notices, permits, licenses or similar authorizations
required to be obtained or filed by Seller under all applicable Environmental
Laws in connection with its current and previous operation or use of the Assets,
any other assets or properties currently or previously leased or owned by Seller
or the current and previous conduct of its business have been duly obtained or
filed and are in full force and effect.
(d) Seller has not received notice that any permit, license or
similar authorization referred to in subparagraph (a) above, is to be revoked or
suspended by any Governmental Authority.
(e) Seller does not own or operate any underground storage
tanks.
(f) No portion of the Assets or any other assets or properties
currently or previously leased or owned by Seller is part of a Superfund site
under CERCLA or any similar ranking or listing under any similar state law.
(g) All Waste Materials generated by Seller have been
transported, stored, treated and disposed of by carriers, storage, treatment and
disposal facilities authorized and maintaining valid permits under all
applicable Environmental Laws.
(h) No Person has disposed or released any Waste Materials on
or under the Assets or any other asset or property currently or previously
leased or owned by Seller and Seller has not disposed or released Waste
Materials on or under the Assets or any other asset or property currently or
previously leased or owned by Seller, except in compliance with all
Environmental Laws.
(i) No facts or circumstances exist which could reasonably be
expected to result in any liability of Seller to any Person with respect to the
current or past business and operations of Seller, the Assets or any other
assets or properties currently or previously leased or owned by Seller in
connection with (i) any release, transportation or disposal of any Waste
Materials, hazardous substance or solid waste or (ii) action taken or omitted
that was not in full compliance with or was in violation of, any applicable
Environmental Law.
4.16 Accounts Receivable. All notes and accounts receivable of Seller
that are reflected on the Reference Balance Sheet or that have arisen since the
Balance Sheet Date ("Accounts Receivable") have arisen in the ordinary course of
business. All Accounts Receivable either (a) have been collected or (b) are
collectible on the respective due dates thereof, or, if no due date is stated
with respect thereto, within 150 days of their creation in the ordinary course
of business, in each case in the aggregate recorded amounts thereof, less the
applicable reserves with respect thereto reflected on the Reference Balance
Sheet. Seller has not factored or discounted or agreed to factor or discount any
Account Receivable. The values at which the Accounts Receivable are carried on
the Reference Balance Sheet reflect the accounts receivable valuation policy of
Seller which is consistent with Seller's past practice and in accordance with
generally accepted accounting principles consistently applied. No Accounts
Receivable have been written off by Seller, in whole or in part, as
uncollectible during the two years preceding the date hereof.
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4.17 Brokers and Finders. Except as set forth in Schedule 4.17, no
broker or finder has acted for Seller or, to the Best Knowledge of Seller, any
Shareholder in connection with this Agreement or the transactions contemplated
by this Agreement and no broker or finder is entitled to any brokerage or
finder's fee or to any commission in respect thereof based in any way on
agreements, arrangements or understandings made by or on behalf of Seller or
any, to the Best Knowledge of Seller, Shareholder.
4.18 Deposits. Seller does not now hold any deposits or prepayments
(except prepayments for goods ordered in the aggregate not exceeding $10,000) by
third parties with respect to any of the Assets or the Business ("Deposits").
4.19 Work Orders. There are no outstanding work orders or contracts
relating to any portion of the Assets from or required by any policy of
insurance, fire department, sanitation department, health authority or other
Governmental Authority nor is there any matter under discussion with any such
parties or authorities relating to work orders or contracts.
4.20 Customer List; Supplier List.
(a) Schedule 4.20 sets forth a true, correct and complete list of all
customers of the Business to which Seller has sold or provided products or
services since inception. This list provides an accurate statement of the gross
revenues received from each such customer by the Business during the ten-month
period ended October 31, 1998.
(b) Schedule 4.20 sets forth a true, correct and complete list of all
suppliers of the Business from which Seller has purchased or otherwise received
more than $10,000 worth of products or services since inception. This list
provides an accurate statement of the gross payments to each such supplier by
the Business during the ten-month period ended October 31, 1998.
4.21 No Royalties. Except as set forth on Schedule 4.21, no royalty or
similar item or amount is being paid or is owing by Seller, nor is any such item
accruing, with respect to the operation, ownership or use of the Business or the
Assets.
4.22 Bank Accounts. Schedule 4.22 sets forth a true and complete list
of all bank or financial accounts and safe deposit boxes of Seller and of the
credit and debit balances of such bank and financial accounts as of the most
recent practicable date. Except as set forth in Schedule 4.22, since the date of
the balances set forth on such list, there have been no payments out of or
drafts against any of the accounts included therein other than routine payments
and drafts in the ordinary course of business, and the balances in such accounts
as of the date hereof are not materially different from those reflected in such
list. Schedule 4.22 also lists all persons having signatory authority over or
access to such bank and financial accounts and safe deposit boxes.
4.23 Working Capital. On the Closing Date, the current assets of Seller
will exceed the current liabilities of Seller, as determined in accordance with
generally accepted accounting principles.
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4.24 Shareholder Approval. This Agreement and transactions contemplated
herein have been approved by the Shareholders of Seller, and such approval
cannot be revoked unless this Agreement is terminated pursuant to provisions of
Article 12 hereof.
4.25 No Untrue Statements. The Representations and Warranties of Seller
set forth in this Agreement do not include any untrue statement of a material
fact or omit to state any material fact necessary to make such Representations
and Warranties made not misleading.
5. REPRESENTATIONS AND WARRANTIES OF LIFEQUEST. LifeQuest represents
and warrants to Seller as follows:
5.1 LifeQuest Incorporation. LifeQuest is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
5.2 Authorization. LifeQuest has have full legal right, power and
authority, corporate and otherwise, to enter into this Agreement and to
consummate the transactions set forth herein and to perform all the terms and
conditions hereof to be performed by them. The execution and delivery of this
Agreement and the performance by LifeQuest of the transactions contemplated
herein have been duly authorized by all requisite corporate action of LifeQuest
and is the legal, valid and binding obligation of LifeQuest, enforceable against
LifeQuest in accordance with its terms, except as limited by applicable
bankruptcy, moratorium, insolvency or similar laws affecting generally the
rights of creditors or by principles of equity.
5.3 Brokers and Finders. No broker or finder has acted for LifeQuest in
connection with this Agreement or the transactions contemplated by this
Agreement and no broker or finder is entitled to any brokerage or finder's fee
or to any commission in respect thereof based in any way on agreements,
arrangements or understandings made by or on behalf of LifeQuest.
5.4 Authorization for Stock Consideration. LifeQuest has taken all
necessary action to permit it to issue the number of shares of Stock
Consideration required to be issued pursuant to the terms of this Agreement. The
shares of Stock Consideration issued pursuant to the terms of this Agreement
will, when issued, be validly issued, fully paid and nonassessable and not
subject to preemptive rights. The Stock Consideration issuable pursuant to this
Agreement will, when issued, be listed on the NASDAQ SmallCap Market.
5.5 SEC Documents. LifeQuest has provided to Seller and each
Shareholder its Form S-3 dated October 30, 1998, its Annual Report on Form
10-KSB/A for the year ended December 31, 1997, its Quarterly Reports on Form
10-QSB for the quarters ended March 31, 1998, June 30, 1998, and September 30,
1998 and its proxy statement with respect to the Annual Meeting of Stockholders
held on May 19, 1998 (such documents collectively referred to herein as the "SEC
Documents"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission promulgated thereunder applicable to such SEC
Documents, and none of the SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were
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made, not misleading. The consolidated financial statements of LifeQuest
included in the SEC Documents comply as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto, have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may be indicated in the notes thereto) and
fairly present the consolidated financial position of LifeQuest and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (except in the
case of interim period financial information for normal year-end adjustments).
6. NATURE OF STATEMENTS AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
6.1 "Representations and Warranties of Seller" means all of
the representations and warranties of Seller set forth in Article 4, including
the statements in the Schedules referred to in Article 4, and the statements of
Seller set forth in the certificate delivered by Seller at Closing pursuant to
Section 9.1(d). All Representations and Warranties of Seller shall survive the
Effective Time regardless of any investigation at any time made by or on behalf
of LifeQuest. The covenants and agreements made by Seller herein, shall continue
until all obligations with respect thereto shall have been performed or
satisfied or shall have been terminated in accordance with their respective
terms.
6.2 "Representations and Warranties of LifeQuest" means all of
the representations and warranties of LifeQuest set forth in Article 5,
including the statements of LifeQuest set forth in the certificate delivered by
LifeQuest at Closing pursuant to Section 9.2(d). All Representations and
Warranties of LifeQuest shall survive the Effective Time regardless of any
investigation at any time made by or on behalf of Seller. The covenants and
agreements made by LifeQuest herein, shall continue until all obligations with
respect thereto shall have been performed or satisfied or shall have been
terminated in accordance with their respective terms.
7. TAX TREATMENT.
Seller and LifeQuest intend that the transactions contemplated
hereunder constitute a tax-free reorganization (a "Reorganization") for federal
income tax purposes under Sections 368(a)(1) and 368(a)(2)(D) of the Code, and
agree to treat and report for federal income tax purposes the transactions
hereunder as a Reorganization. This Agreement shall be construed in a manner to
result in treatment of the transactions hereunder as a Reorganization for
federal income tax purposes.
8. PRE-CLOSING COVENANTS.
The Parties agree as follows with respect to the period between the
execution of this Agreement and the Closing:
8.1 General. Each of the Parties will use his or its best
efforts to take all action and to do all things necessary, proper, or advisable
in order to consummate and make
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effective the transactions contemplated by this Agreement (including
satisfaction, but not waiver, of the closing conditions set forth in
Article 9).
8.2 Notices and Consents. Each of the Parties, as promptly as
practicable, (i) will make, or cause to be made, all filings and
submissions required under laws, rules and regulations applicable to
it, or to its Subsidiaries and Affiliates, as may be required for it to
consummate the transactions contemplated hereby; (ii) will use their
best efforts to obtain, or cause to be obtained, all authorizations,
approvals, consents and waivers from all Persons and Governmental
Authorities necessary to be obtained by each of them, or any of their
respective Subsidiaries or Affiliates, in order for each of them,
respectively, so to consummate such transactions; and (iii) will use
their respective best efforts to take, or cause to be taken, all other
actions necessary, proper or advisable in order for each of them to
fulfill their respective obligations hereunder.
8.3 Operation of Business. Except as contemplated by this
Agreement or as set forth in the Schedules, during the period from the
date of this Agreement to the Effective Time, (a) Seller will conduct
its operations according to its ordinary course of business and
consistent with past practice, (b) Seller will not enter into any
transaction other than in the ordinary course of business and
consistent with past practice, (c) Seller will deliver to LifeQuest on
or before the 15th day of each month true and correct unaudited monthly
balance sheets and statements of income for the Business for the
immediately preceding month, and (d) to the extent consistent with the
foregoing, using best efforts and with no less diligence and effort
than would be applied in the absence of this Agreement, Seller will
seek to preserve intact its current business organizations, keep
available the services of its current officers and consultants and
preserve its relationships with customers, suppliers and others having
business dealings with it with the objective that their goodwill and
ongoing businesses shall be unimpaired at the Effective Time; provided
that nothing in this Agreement shall be deemed to limit the right of
Seller to declare and pay dividends in cash to its shareholders
(including the declaration of dividends to its shareholders payable
after the Effective Time) so long as no such declaration or payment
shall result in a breach of the warranty set forth in Section 4.23. For
purposes of this Agreement any such permitted declaration of cash
dividends payable after the Effective Time shall be treated as a
liability of Seller which shall be assumed by the Surviving Corporation
pursuant to Article 2. Without limiting the generality of the
foregoing, and except as otherwise permitted in this Agreement, prior
to the Effective Time, Seller will not, without the prior written
consent of LifeQuest:
(a) except for Seller Stock issued upon exercise of options
outstanding as of the date hereof, issue, deliver, sell, dispose of,
pledge or otherwise encumber, or authorize or propose the issuance,
delivery, sale, disposition or pledge or other Encumbrance of (i) any
additional shares of its capital stock of any class (including the
Seller Stock), or any securities or rights convertible into,
exchangeable for or evidencing the right to subscribe for any shares of
its capital stock, or any rights, warrants, options, calls, commitments
or any other agreements of any character to purchase or acquire any
shares of its capital stock or any securities or rights convertible
into, exchangeable for or evidencing the right to subscribe for
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any shares of its capital stock, or (ii) any other securities in
respect of, in lieu of or in substitution for Seller Stock outstanding
on the date hereof;
(b) redeem, purchase or otherwise acquire, or propose to
redeem, purchase or otherwise acquire, any of its outstanding
securities (including the Seller Stock);
(c) (i) grant any increases in the compensation of any of its
directors, officers or key employees, (ii) pay or agree to pay any
pension, retirement allowance or other employee benefit hereof to any
such director, officer or key employee, whether past or present, (iii)
enter into any new, or amend any existing, employment agreement with
any such director, officer or key employee, (iv) enter into any new, or
amend any existing, severance agreement with any such director, officer
or key employee, or (v) except as may be required to comply with
applicable law, amend any existing, or become obligated under any new
employee benefit plan;
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of Seller (other than the Merger);
(e) make any acquisition, by means of merger, consolidation or
otherwise, of (i) any direct or indirect ownership interest in or
assets comprising any business enterprise or operation or (ii) any
other assets in excess of $10,000;
(f) adopt any amendments to its Certificate of Incorporation
or Bylaws;
(g) incur any long-term indebtedness for borrowed money or
guarantee any such indebtedness or make any loans, advances or capital
contributions to, or investments in, any other Person;
(h) amend any Contract;
(i) enter into or amend or assume any mortgage, pledge,
conditional sale or other title retention agreement, lien, encumbrance
or charge of any kind upon any of the Assets, or selling, leasing,
abandoning or otherwise disposing of any of the Assets, including, but
not limited to, real property, machinery, equipment or other operating
properties;
(j) increasing the compensation of any officer or employee of
Seller associated with the Business;
(k) engage in the conduct of any business the nature of which
is different then the business Seller is currently engaged in;
(l) enter into or assume any oral or written agreement
providing for acceleration of payment or performance or other
consequence as a result of a change of control of Seller or its
Subsidiaries;
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(m) except for purchases of inventory pursuant to existing
contracts or arrangements, enter into or assume any oral or written
contract, arrangement or understanding requiring the purchase of
equipment, materials, supplies or services for the expenditure of
greater than $10,000;
(n) incur any liabilities other than in the ordinary course of
business;
(o) hire any employee; or
(p) authorize or announce an intention to do any of the
foregoing, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
8.4 Full Access. Seller will, and cause each Shareholder to,
permit representatives of LifeQuest and its financing parties to have
full access at all reasonable times, and in a manner so as not to
interfere with the normal business operations of the Seller to all
premises, properties, personnel, books, records (including Tax records
and the workpapers of the independent accountants for the Seller),
contracts and documents of or pertaining to the Seller .
8.5 Notice of Developments. Each Party will give prompt
written notice to the others of any material adverse development which
has caused a breach of any of its own representations and warranties in
Articles 4 or 5 above and not been cured within five days and Seller
will give proper notice to LifeQuest of any development which has
caused a breach of its covenants contained in Section 8.3 above and not
cured within five days. No disclosure by any Party pursuant to this
Section 8.5, however, shall be deemed to amend or supplement the
Schedules hereto or to prevent or cure any misrepresentation, breach of
warranty or breach of covenant.
8.6 Exclusivity.
(a) Unless and until this Agreement has been terminated
pursuant to Section 12.1, Seller will not, and will not cause or permit
any of the Shareholders to, (i) solicit, initiate or encourage the
submission of any proposal or offer from any Person relating to a
Business Combination or (ii) participate in any discussions or
negotiations regarding, furnish any information with respect to, assist
or participate in, or facilitate in any other manner any effort or
attempt by any Person to do or seek a Business Combination. Seller
will, and cause each Shareholder with such knowledge to, notify
LifeQuest immediately if any Person makes any proposal, offer, inquiry,
or contact with respect to any of the foregoing.
(b) The Parties hereto recognize and acknowledge that a breach
by Seller of this Section 8.6 will cause irreparable and material loss
and damage to LifeQuest as to which it will not have an adequate remedy
at law or in damages. Accordingly, each Party acknowledges and agrees
that the issuance of an injunction or other equitable remedy is an
appropriate remedy for any such breach. In addition, in the event of
any breach of the foregoing which results in Business Combination with
a Person other than LifeQuest, Seller
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shall be liable for and promptly reimburse LifeQuest for the reasonable
expenses incurred by LifeQuest in connection with the transactions
contemplated by this Agreement.
9. CONDITIONS TO OBLIGATION TO CLOSE
9.1 Conditions to Obligation of LifeQuest. The obligation of
LifeQuest to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) All Seller's Representations and Warranties
contained in this Agreement (except for the Representations
and Warranties contained in Sections 4.10(b) and 4.11 to the
extent that such Representations and Warranties relate to
claims, demands or notices, or knowledge acquired after the
date of this Agreement) all written information delivered to
LifeQuest by Seller on or prior to the Closing Date pursuant
to this Agreement, (i) that are qualified as to materiality
shall be true in all respects on and as of the Closing Date
and (ii) that are not qualified as to materiality shall be
true in all material respects on and as of the Closing Date
with the same force and affect as though such representations
and warranties were made, and such written information was
delivered, on and as of the Closing Date;
(b) Seller shall have performed and complied with all
of its covenants hereunder in all material respects through
the Closing;
(c) no action, suit or proceeding shall be pending or
threatened before any court or quasi-judicial or
administrative agency of any federal, state, local, or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would
(i) prevent consummation of any of the transactions
contemplated by this Agreement, (ii) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation, (iii) affect adversely the right of
LifeQuest to control the Seller, (iv) affect adversely the
right of the Seller to own its assets and to operate its
businesses, or (v) require or could reasonably be expected to
require any divestiture by the Seller of a portion of its
business that LifeQuest in its reasonable judgment believes
will have a material adverse effect on the Seller (and no such
injunction, judgment, order, decree, ruling or charge shall be
in effect);
(d) Seller shall have delivered to LifeQuest a
certificate to the effect that each of the conditions
specified above in Section 9.1(a), (b) and (c) is satisfied in
all respects;
(e) LifeQuest shall have received from counsel to
Seller opinions in substantially in the form attached hereto
as Exhibits 9.1(e)(1) and 9.1(e)(2), addressed to LifeQuest,
and dated as of the Closing Date;
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(f) Christopher K. Black, Surgical Visions I, Inc.,
TFX Equities, Inc. and Teleflex shall have executed and
delivered Non-Competition Agreements in the form of Exhibit
9.1(f) hereto;
(g) Christopher K. Black, TFX Equities Incorporated,
Teleflex and Surgical Visions I, Inc. shall have executed and
delivered Indemnity Agreements in the form of Exhibit 9.1(g)
hereto;
(h) The oral agreements between Seller and Teleflex
listed as items 11 and 12 on Schedule 4.7 hereto shall have
been terminated; and
(i) The stockholders of LifeQuest shall have approved
this Agreement and the consummation by LifeQuest of the
transactions contemplated hereby, including but not limited to
the issuance of the Stock Consideration.
LifeQuest may waive any condition specified in this Section 9.1 if it
executes a writing so stating at or prior to the Closing.
9.2 Conditions to Obligation of Seller. The obligation of
Seller to consummate the transactions to be performed by it in
connection with the Closing is subject to satisfaction of the following
conditions:
(a) all Representations and Warranties of LifeQuest
contained in this Agreement, and all written information
delivered to Seller by LifeQuest on or prior to the Closing
Date pursuant to this Agreement, (i) that are qualified as to
materiality shall be true in all respects on and as of the
Closing Date and (ii) that are not qualified as to materiality
shall be true in all material respects on and as of the
Closing Date, with the same force and effect as though such
representations and warranties were made, and such written
information was delivered, on and as of the Closing Date;
(b) LifeQuest shall have performed and complied with
all of its covenants hereunder in all material respects
through the Closing;
(c) no action, suit, or proceeding shall be pending
or threatened before any court or quasi-judicial or
administrative agency of any federal, state, local or foreign
jurisdiction or before any arbitrator wherein an unfavorable
injunction, judgment, order, decree, ruling or charge would
(A) prevent consummation of any of the transactions
contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded
following consummation (and no such injunction, judgment,
order, decree, ruling or charge shall be in effect);
(d) LifeQuest shall have delivered to Seller a
certificate to the effect that each of the conditions
specified above in Section 9.2(a), (b) and (c) is satisfied in
all respects;
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(e) LifeQuest shall have executed and delivered a
Consulting Agreement between LifeQuest and Christopher K.
Black in the form of Exhibit 9.2(e) hereto; and
(f) LifeQuest shall have executed and delivered the
Indemnity Agreement in the form of Exhibit 9.1(g) attached
hereto;
(g) LifeQuest shall have executed and delivered the
Registration Rights Agreement in the form attached hereto as
Exhibit 9.2(g);
(h) LifeQuest shall have executed and delivered the
Royalty Agreement with TFX Equities Incorporated as agent for
the Shareholders in the form attached hereto as Exhibit
2.6(c);
(i) Seller and the Shareholders shall have received
from counsel to LifeQuest an opinion substantially in the form
attached hereto as Exhibit 9.2(i) addressed to Seller, and
dated as of the Closing Date; and
(j) all actions to be taken by LifeQuest in
connection with consummation of the transactions contemplated
hereby and all certificates, opinions, instruments and other
documents required to effect the transactions contemplated
hereby will be reasonably satisfactory in form and substance
to Seller.
Seller may waive any condition specified in this Section 9.2 if it
executes a writing so stating at or prior to the Closing.
10. SPECIAL CLOSING AND POST-CLOSING COVENANTS.
The Parties agree as follows with respect to the period following the Closing:
10.1 General. In case at any time after the Closing any further action
is necessary or desirable to carry out the purposes of this Agreement, each of
the Parties will take such further action (including the execution and delivery
of such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor pursuant to the terms
of the Indemnity Agreement. Seller acknowledges and agrees that from and after
the Closing LifeQuest will be entitled to possession of all documents, books,
records (including Tax records), agreements, and financial data of any sort
relating to the Seller.
10.2 Litigation Support. In the event and for so long as any Party or
Teleflex or any of its Affiliates actively is contesting or defending against
any action, suit, proceeding, hearing, investigation, charge, complaint, claim
or demand in connection with (i) any transaction contemplated under this
Agreement or (ii) any fact, situation, circumstance, status, condition,
activity, practice, plan, occurrence, event, incident, action, failure to act or
transaction on or prior to the Closing Date involving the Seller, Seller will
cooperate with LifeQuest and its counsel in the contest or defense, make
available their personnel, and provide such testimony and access to their books
and records as
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shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor pursuant to the terms of
the Indemnity Agreement.
10.3 Transition. Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier or other business associate of the Seller from maintaining the same
business relationships with the Surviving Corporation after the Closing as it
maintained with the Seller prior to the Closing.
10.4 Intellectual Property Assignment. Although acknowledged by all
parties as also fully enabled by the Merger memorialized by this Agreement,
Seller shall also execute a separate assignment to LifeQuest of all of Seller's
right, title and interest in and to the Intellectual Property. This separate
assignment shall be in form reasonably satisfactory to Seller and LifeQuest, and
recordation thereof shall be at the sole discretion of LifeQuest.
10.5 Tax-Free Reorganization. Seller shall not, nor permit any
Shareholder to, nor shall LifeQuest, take any action which would disqualify the
transactions contemplated by this Agreement from treatment as a tax-free
reorganization of the Seller, to the extent that such treatment is otherwise
available to the Shareholders.
10.6 Teleflex Debt. Promptly following the Effective Time, LifeQuest
shall pay all amounts due from Seller to Teleflex.
10.7 Board Representation. At or prior to the Closing, LifeQuest's
Board of Directors shall elect Christopher K. Black and Lewis E. Hatch, Jr. to
serve as directors of LifeQuest effective as of the Effective Time. LifeQuest
shall take all requisite action to amend its Bylaws, if necessary, to increase
the size of its Board of Directors in order to effect the appointments
contemplated by this Section 10.7. For so long as Teleflex and its Affiliates
together shall hold in the aggregate more than 50% of the aggregate number of
shares of LifeQuest Stock acquired by Teleflex and its Affiliates pursuant
hereto, LifeQuest will cause each of two persons nominated by Teleflex and
acceptable to LifeQuest's Board of Directors to be nominated for election of
directors at LifeQuest's annual meetings of stockholders.
10.8 Exchange Act Filing; Cooperation. After the Closing Date, Seller
shall, and cause its Affiliates to, reasonably cooperate with and provide
information to LifeQuest as is necessary for LifeQuest to comply with its
reporting obligations under the Exchange Act, including, but not limited to, all
financial and other information, which shall include audited balance sheets,
income statements and statements of cash flow for two years prior to Closing,
and access to Seller's affiliates' personnel required in order for Seller to
comply with its reporting obligations under the Exchange Act.
11. NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and shall be
deemed to have been duly given if delivered personally, given by prepaid telex
or telegram or by facsimile or other similar instantaneous electronic
transmission device or mailed first class, postage prepaid, certified United
States mail, return receipt requested, as follows:
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(a) If to Purchaser or LifeQuest, at:
LifeQuest Medical, Inc.
12961 Park Central, Suite 1300
San Antonio, Texas 78216
Attention: Randall K. Boatright
Facsimile No.: (210) 495-4441
With a copy to:
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Attention: Phillip M. Renfro
Facsimile No.: (210) 270-7205
(b) If to Seller, at:
Dexterity Incorporated
1787 Sentry Parkway West, Bldg. Sixteen, Suite 220
Blue Bell Pennsylvania 19422
Attention: Christopher K. Black, President
Facsimile No.: (215) 641-9465
With a copy to:
Saul, Ewing, Remick & Saul, LLP
Centre Square West
1500 Market Street, 38th Floor
Philadelphia, PA 19102-2186
Attention: Donald Beckman
Facsimile No.: (215) 972-1821
provided that any party may change its address for notice by giving to the other
party written notice of such change. Any notice given under this Article 11
shall be effective (x) when delivered, if delivered personally, (y) 24 hours
after sending, if sent by telex or telegram or by facsimile or other similar
instantaneous electronic transmission device, and (z) 48 hours after mailing, if
mailed.
12. TERMINATION.
12.1 Termination of Agreement. Each of the Parties may terminate this
Agreement as provided below:
(a) LifeQuest and Seller may terminate this Agreement
by mutual written consent at any time prior to the Closing;
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(b) LifeQuest may terminate this Agreement by giving
written notice to Seller at any time prior to the Closing (i)
in the event the Seller has breached any Representation,
Warranty of Seller or covenant of Seller contained in this
Agreement in any material respect, LifeQuest has notified
Seller of the breach, and the breach has continued without
cure for a period of 15 days after the notice of breach or
(ii) if the Closing shall not have occurred on or before March
2, 1999, by reason of the failure of any condition precedent
under Section 9.1 hereof (unless the failure results primarily
from LifeQuest itself breaching any Representation, Warranty
or covenant of LifeQuest contained in this Agreement); and
(c) Seller may terminate this Agreement by giving
written notice to LifeQuest at any time prior to the Closing
(i) in the event LifeQuest has breached any representation,
warranty or covenant contained in this Agreement in any
material respect, Seller has notified LifeQuest of the breach,
and the breach has continued without cure for a period of 15
days after the notice of breach or (ii) if the Closing shall
not have occurred on or before March 2, 1999, by reason of the
failure of any condition precedent under Section 9.2 hereof
(unless the failure results primarily from Seller itself
breaching any Representation, Warranty or covenant of Seller
contained in this Agreement).
12.2 Effect of Termination. If any Party terminates this Agreement
pursuant to Section 12.1 herein, all rights and obligations of the Parties
hereunder shall terminate without any liability of any Party to any other Party
(except for any liability of any Party then in breach of its covenants
hereunder).
13. GENERAL PROVISIONS.
13.1 Governing Law; Interpretation; Section Headings. This Agreement
shall be governed by and construed and enforced in accordance with the laws of
the State of New York without regard to conflict-of-laws rules as applied in New
York. The section headings contained herein are for purposes of convenience only
and shall not be deemed to constitute a part of this Agreement or to affect the
meaning or interpretation of this Agreement in any way.
13.2 Severability. Should any provision of this Agreement be held
unenforceable or invalid under the laws of the United States of America or the
State of New York, or under any other applicable laws of any other jurisdiction,
then the parties hereto agree that such provision shall be deemed modified for
purposes of performance of this Agreement in such jurisdiction to the extent
necessary to render it lawful and enforceable, or if such a modification is not
possible without materially altering the intention of the parties hereto, then
such provision shall be severed herefrom for purposes of performance of this
Agreement in such jurisdiction. The validity of the remaining provisions of this
Agreement shall not be affected by any such modification or severance, except
that if any severance materially alters the intentions of the parties hereto as
expressed herein (a modification being permitted only if there is no material
alteration), then the parties hereto shall use commercially reasonable efforts
to agree to appropriate equitable amendments to this Agreement in light of such
severance.
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<PAGE> 35
13.3 Entire Agreement. This Agreement sets forth the entire agreement
and understanding of the parties hereto with respect to the transactions
contemplated hereby and supersedes all prior agreements, arrangements and
understandings related to the subject matter hereof. No representation, promise,
inducement or statement of intention has been made by any party hereto which is
not embodied or referenced in this Agreement and no party hereto shall be bound
by or liable for any alleged representation, promise, inducement or statement of
intention not so set forth.
13.4 Binding Effect. All the terms, provisions, covenants and
conditions of this Agreement shall be binding upon and inure to the benefit of
and be enforceable by the parties hereto and their respective heirs, executors,
administrators, representatives, successors and assigns.
13.5 Assignment. This Agreement and the rights of the parties may be
assigned by any party hereto without the prior written consent of the other
parties hereto, provided that no such assignment shall relieve any party from
its obligations under this Agreement.
13.6 Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, provisions, representations,
warranties, covenants or conditions hereof may be waived, only by a written
instrument executed by all parties hereto, or, in the case of a waiver, by the
party waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof shall in no manner affect the right
to enforce the same. No waiver by any party of any condition contained in this
Agreement, or of the breach of any term, provision, representation, warranty or
covenant contained in this Agreement, in any one or more instances, shall be
deemed to be or construed as a further or continuing waiver of any such
condition or breach, or as a waiver of any other condition or of the breach of
any other term, provision, representation, warranty or covenant.
13.7 Gender; Numbers. All references in this Agreement to the
masculine, feminine or neuter genders shall, where appropriate, be deemed to
include all other genders. All plurals used in this Agreement shall, where
appropriate, be deemed to be singular, and vice versa.
13.8 Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement
shall be binding when one or more counterparts hereof, individually or taken
together, shall bear the signatures of the parties reflected hereon as
signatories.
13.9 Telecopy Execution and Delivery. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more parties hereto,
and an executed copy of this Agreement may be delivered by one or more parties
hereto by facsimile or similar instantaneous electronic transmission device
pursuant to which the signature of or on behalf of such party can be seen, and
such execution and delivery shall be considered valid, binding and effective for
all purposes. At the request of any party hereto, all parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction hereof.
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<PAGE> 36
13.10 Expenses. In the event the transactions contemplated hereby are
not consummated, each of the parties will pay all costs and expenses of its or
his performance of and compliance with this Agreement.
13.11 Effect of Due Diligence. No investigation by or on behalf of
LifeQuest into the business, operations, prospects, assets or condition
(financial or otherwise) of the Seller shall diminish in any way the effect of
any representations or warranties made by Seller in this Agreement or shall
relieve Seller of any of its obligations under this Agreement.
13.12 Press Releases and Public Announcements. No Party shall issue any
press release or make any public announcement relating to the subject matter of
this Agreement prior to the Closing without the prior written approval of
LifeQuest and Seller; provided, however, that any Party may make any public
disclosure it believes in good faith is required by applicable law (in which
case the disclosing Party will use its reasonable best efforts to advise the
other Parties prior to making the disclosure).
13.13 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
13.14 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty and covenant contained herein shall have
independent significance. If any Party has breached any representation, warranty
or covenant contained herein in any respect, the fact that there exists another
representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the Party is in breach
of the first representation, warranty or covenant.
13.15 Incorporation of Exhibits, and Schedules. The Exhibits, and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
13.16 Specific Performance. Each of the Parties acknowledges and agrees
that the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
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<PAGE> 37
IN WITNESS WHEREOF, the parties have executed this Plan of Merger and
Acquisition Agreement as of the date first above written.
LIFEQUEST:
LIFEQUEST MEDICAL, INC.
By:
--------------------------------------------
Richard A. Woodfield
President and Chief Executive Officer
SELLER:
DEXTERITY INCORPORATED
By:
--------------------------------------------
Christopher K. Black, President
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<PAGE> 38
EXHIBIT 2.6(a)
STOCK WARRANT
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND NEITHER THE SECURITIES NOR ANY INTEREST
THEREIN MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE
DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT OR SUCH 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 COUNSEL FOR THIS CORPORATION, IS
AVAILABLE.
WARRANT TO PURCHASE SHARES OF COMMON STOCK
OF LIFEQUEST MEDICAL, INC.
Warrant Certificate No. 1999-1 Date: ___________________ ("Effective Date")
This certifies that, for value received, LifeQuest Medical, Inc., a
Delaware corporation (the "COMPANY"), hereby grants to
______________________________, or registered assigns (the "HOLDER") the right
to purchase, subject to adjustment and the other terms and conditions set forth
herein, ___________ shares of common stock, par value $.001 per share (the
"Stock"), at the exercise price of $2.00 per share (the "Warrant Exercise
Price"), subject to adjustment as set forth in SECTION 3 hereof, at any time or
from time to time after the date hereof and prior to 5:00 P.M. (Eastern Time)
on _____[ten years]______ (the "WARRANT EXPIRATION DATE").
This Warrant and all warrants hereafter issued in exchange or
substitution of this Warrant, are hereinafter referred to as the "WARRANTS."
THIS WARRANT, TO THE EXTENT NOT EXERCISED IN THE MANNER SET FORTH HEREIN, SHALL
TERMINATE AND BECOME NULL AND VOID AT 5:00 P.M. (EASTERN TIME) ON THE WARRANT
EXPIRATION DATE.
This Warrant is subject to the following terms and conditions.
1. Exercise; Issuance of Certificates; Payment of Shares.
(a) This Warrant may be exercised, at the option of the
Holder, in whole or in part as follows: (i) one-fifth (1/5), of the Stock on
the first anniversary of the Effective Date, (ii) one-fifth (1/5) of the Stock
<PAGE> 39
on the second anniversary of the Effective Date, (iii) one-fifth (1/5) of the
Stock on the third anniversary of the Effective Date, (iv) one-fifth (1/5) of
the Stock on the fourth anniversary of the Effective Date, and (v) one-fifth
(1/5) of the Stock on the fifth anniversary of the Effective Date, at any time
prior to 5:00 P.M. (Eastern Time) on the Warrant Expiration Date, by surrender
to the Company of this Warrant Certificate properly endorsed together with the
Form of Subscription attached hereto duly filled in, signed and with proper
payment of the Warrant Exercise Price multiplied by the number of shares of
Stock for which the Warrant is being exercised. Payment shall be in cash,
certified check or official bank check or check, subject to collection, payable
to the order of the Company.
(b) The Company agrees that the shares of Stock purchased on
the exercise of each Warrant shall be deemed to be issued as of the close of
business on the date on which this Warrant Certificate shall have been
surrendered and payment made for such shares of Stock. Issuance of the shares
of Stock shall be subject to compliance with all provisions of the Securities
Act of 1933, as amended (the "SECURITIES ACT"), the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT"), and any relevant state securities law.
Subject to the provisions of Section 2 hereof, certificates for the largest
whole number of shares of Stock so purchased, together with any other
securities or property to which the Holder is entitled upon such exercise,
shall be delivered to the Holder by the Company within five business days after
this Warrant has been exercised. No fractional shares of Stock shall be issued
upon exercise of this Warrant. Each Stock Certificate so delivered, in
accordance with the provisions of Section 8 hereof, shall be registered in the
name of the Holder or such other name as shall be designated by the Holder,
subject to the provisions of Section 6 hereof. If prior to the Warrant
Expiration Date, this Warrant is exercised in part, one or more new Warrants
substantially in the form of, and on the terms contained in, this Warrant
Certificate will be issued for the remaining number of shares of Stock in
respect of which this Warrant has not been exercised.
2. Shares to be Fully Paid; Reservation of Shares. The Company
covenants and agrees that all shares of Stock which may be issued upon the
exercise of this Warrant will, upon issuance, be duly authorized, validly
issued, fully paid and nonassessable. The Company further covenants and agrees
that during the period within which this Warrant may be exercised, the Company
will at all times have authorized and reserved, and will keep available solely
for issuance upon exercise of this Warrant, a sufficient number of shares of
Stock or other securities and properties as from time to time shall be
receivable upon the exercise of this Warrant. The Company shall provide that
any successor corporation will reserve a sufficient number of shares of
authorized but unissued stock or other securities or set aside sufficient other
property, as the case may be, as provided for in this Section 2.
3. Adjustment of Warrant Exercise Price and Number of Shares; Events
Requiring Notice; Changes in Stock.
3.1 Method of Adjustment. The Warrant Exercise Price and the
number of shares of Stock purchasable upon the exercise of this Warrant shall
be subject to adjustment from time to time upon the occurrence of the events
described in Section 3.2. Upon each adjustment of the
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<PAGE> 40
Warrant Exercise Price, the Holder shall thereafter be entitled to purchase, at
the Warrant Exercise Price resulting from such adjustment, the number of shares
of Stock obtained by multiplying the Warrant Exercise price in effect
immediately prior to such adjustment by the number of shares of Stock
purchasable pursuant hereto immediately prior to such adjustment, and dividing
the product thereof by the Warrant Exercise Price resulting from such
adjustment.
3.2 Subdivision or Combination of Stock and Stock Dividend.
In case the Company shall at any time subdivide its outstanding shares of Stock
into a greater number of shares of Stock or declare a dividend upon its Stock
payable in shares of Stock, the Warrant Exercise Price in effect immediately
prior to such subdivision or dividend shall be proportionately reduced, and
conversely, in case the outstanding shares of Stock of the Company shall be
combined into a smaller number of shares of Stock, the Warrant Exercise Price
in effect immediately prior to such combination shall be proportionately
increased.
3.3 Notice of Adjustment. Upon any adjustment of the Warrant
Exercise Price and any increase or decrease in the number of shares of Stock
purchasable upon the exercise of this Warrant, the Company promptly shall give
written notice thereof to the Holder, which shall state the Warrant Exercise
Price resulting from such adjustment and increase or decrease, if any, in the
number of shares of Stock purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
3.4 Consolidation, Merger or Similar Transaction. In case of
any consolidation or merger of the Company with or into any corporation or the
merger of any corporation into the Company or any sale, lease or other
conveyance to another person of all or any substantial part of the property of
the Company, the Holder shall have the right to exercise this Warrant
thereafter (but not after the Warrant Expiration Date) in the same manner as it
might have been exercised to purchase shares of Stock immediately prior to such
event and, upon any such exercise shall receive the kind and amount of shares
and other securities and property receivable upon such consolidation, merger,
sale or conveyance by a holder of the number of shares of Stock which might
have been purchased by the Holder had this Warrant been exercised immediately
prior to such consolidation, merger, sale, lease or other conveyance. The
Company shall take such action in connection with such consolidation, merger or
other transaction involving the sale, lease or other conveyance of its property
to assure that the provisions hereof shall thereafter be applicable, as nearly
as reasonably may be, in relation to any securities or property thereafter
purchasable upon the exercise of this Warrant, and the Company shall cause the
surviving corporation (if other than the Company) of such consolidation or
merger to assume the obligations of the Company hereunder.
3.5 Reclassification of Shares. In case the Company shall, at
any time after the Effective Date, change as a whole the outstanding shares of
its Stock into a different number or class of shares (by subdivision,
consolidation, reclassification of shares or otherwise), the term "Stock"
herein shall thereafter refer to such different number and class of shares, and
the Purchase Price in effect immediately prior to such event be proportionately
adjusted.
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<PAGE> 41
3.6 Other Notices. If at any time:
(a) the Company shall declare a dividend upon its Stock
payable in securities or property other than Stock;
(b) there shall be any consolidation or merger of the
Company with another corporation, or a sale of all or substantially all of the
Company's assets to another corporation; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give the Holder (i)
at least thirty (30) days' prior written notice of the date on which the books
of the Company shall close or a record date shall occur for such dividend or
distribution or for determining rights to vote in respect of any such
consolidation, merger, sale, dissolution, liquidation or winding-up and (ii) in
the case of any such consolidation, merger, sale, dissolution, liquidation or
winding-up, at least twelve (12) calendar days' written notice of the date when
the same shall take place. Any notice given in accordance with clause (i) above
shall also specify, in the case of any such dividend or distribution, the date
on which the holders of Stock shall be entitled to the receipt thereof. Any
notice given in accordance with clause (ii) above shall also specify the date
on which the holders of Stock shall be entitled to exchange their Stock for
securities or other property deliverable upon such consolidation, merger, sale,
dissolution, liquidation or winding-up, as the case may be. In the event of an
occurrence of any event described in clauses (a) through (c) above, then the
vesting schedule set forth in Section 1(a) hereof shall be accelerated such
that this Warrant may be exercised in whole or in part, from and after the date
of the received notice given in accordance with clause (i) above.
4. Issue Tax. The issuance of certificates for shares of Stock upon
the exercise of this Warrant shall be made without charge to the Holder for any
issue tax in respect thereof; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any certificate in a name other than
that of the Holder.
5. No Voting or Dividend Rights. This Warrant does not confer upon the
Holder the right to vote or to consent or to receive notice as a stockholder of
the Company, in respect of meetings of stockholders for the election of
directors of the Company or any other matters or any rights whatsoever as a
stockholder of the Company prior to the exercise hereof. No cash dividends
shall be payable or accrued in respect of this Warrant or the shares of Stock
purchasable hereunder until, and only to the extent that, this Warrant shall
have been exercised.
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<PAGE> 42
6. Restrictions on Transferability of Securities; Compliance with
Securities Act.
6.1 Restrictions on Transferability. The Holder may transfer
or assign this Warrant, except that the Company shall not be obligated to
effect any transfer of this Warrant unless a registration statement is in
effect with respect thereto under applicable state and Federal securities laws
or the Company has received an opinion in substance reasonably satisfactory to
it from counsel reasonably satisfactory to it that such registration is not
required and this Warrant is surrendered to the Company at its principal office
together with the Assignment Form annexed hereto, duly completed and executed,
and sufficient funds to pay any transfer tax.
6.2 Ownership. The Company and any agent of the Company may
treat the person in whose name this Warrant Certificate is registered on the
register which the Company shall cause to be maintained for such purpose as the
owner and holder thereof for all purposes. This Warrant Certificate, if
properly assigned, may be exercised by a new holder without first having a new
Warrant Certificate issued.
6.3 Legend. A legend setting forth or referring to the above
restrictions shall be placed on this Warrant, any replacement hereof or any
certificate representing the Stock, and a stop transfer restriction or order
shall be placed on the books of the Company and with any transfer agent until
such securities may be legally sold or otherwise transferred.
7. Modification and Waiver. This Warrant and any provision hereof may
be changed, waived, discharged or terminated only by an instrument in writing
signed by the Party against which enforcement of the same is sought.
8. Notices. Any notice, request or other document required or
permitted to be given or delivered to the Holder or the Company shall be
personally delivered or shall be sent by certified or registered mail, postage
prepaid, if to the Holder at ______________________________, or if to the
Company at its principal office at 12961 Park Central, Suite 1300, San Antonio,
Texas 78216. Any notice, request or other document shall be deemed to have been
given upon receipt if personally delivered, or on the seventh day after being
mailed if mailed, registered or certified mail. Each party shall notify the
other party in writing of any change of address of the Company within a
reasonable time following such change of address.
9. Descriptive Headings and Governing Law. The descriptive headings of
the several sections and paragraphs of this Warrant Certificate are inserted
for convenience only and do not constitute a part of this Warrant Certificate.
This Warrant Certificate shall be construed and enforced in accordance with,
and the rights of the Parties shall be governed by, the laws of the State of
Delaware.
10. Lost Warrant Certificates or Stock Certificates. Upon receipt of
evidence reasonably satisfactory to the Company of the loss, theft,
destruction, or mutilation of this Warrant Certificate
-5-
<PAGE> 43
or any stock certificate deliverable upon the exercise hereof and, in the case
of any such loss, theft or destruction, upon receipt of an indemnity and, if
requested, bond reasonably satisfactory to the Company, or in the case of any
such mutilation upon surrender and cancellation of this Warrant Certificate or
such stock certificate, the Company at its expense shall make and deliver a new
Warrant Certificate or stock certificate, of like tenor, in lieu of the lost,
stolen, destroyed or mutilated Warrant Certificate or stock certificate.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be executed by its officer, thereunder duly authorized as of the ___th day of
_______________, ____.
LIFEQUEST MEDICAL, INC.
---------------------------------------
Richard A. Woodfield, President
-6-
<PAGE> 44
FORM OF SUBSCRIPTION
(To be signed only on exercise of Warrant)
TO: LIFEQUEST MEDICAL, INC.
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise this Warrant for, and to purchase thereunder,
_______________ shares of Common Stock of LIFEQUEST MEDICAL, INC., and herewith
makes payment of $____________ therefore and requests that the certificates for
such shares be issued in the name of, and delivered to,________________________
_____________________________________________________, whose address is
.
Dated: ______________, _____
-----------------------------------
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
-----------------------------------
-----------------------------------
(Address)
<PAGE> 45
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant in
accordance with the provisions of Section 6 of the
Warrant Certificate)
For value received, the undersigned hereby sells, assigns,
and transfers unto _____________________ the right represented by the written
Warrant to purchase shares of Common Stock of LIFEQUEST MEDICAL, INC., to which
the within Warrant relates and appoints Attorney to transfer such rights on the
books of LIFEQUEST MEDICAL, INC., with full power of substitution in the
premises.
Dated: _____________, _____
-----------------------------------
(Signature must conform to name of
Holder as specified on the face of
the Warrant)
<PAGE> 46
EXHIBIT 2.6(b)
PROMISSORY NOTE
$__________ San Antonio, Texas ______________, 1998
On _______________, _________ (one year from Closing) for value
received, LifeQuest Medical, Inc., a Delaware corporation, ("Maker"), promises
to pay to the order of _________________________ (the "Payee"), at (address of
Payee) in lawful money of the United States of America, the principal amount of
_____________________ _____________________ AND __/100 DOLLARS ($____________)
together with interest on the principal balance from time to time remaining
unpaid from the date of this Note until maturity at a rate of interest equal to
the lessor of (a) twelve (12% per annum or (b) the Maximum Rate (as defined
below) from time to time in effect. The Maker agrees to pay interest at twelve
percent (12%) on all past due principal and interest on this Note from the
maturity thereof until paid. This Note may be prepaid in whole or in part at
any time without notice or prepayment penalty. All payments on this Note shall
be applied first to accrued interest and the balance, if any, to principal.
Maker shall pay all accrued and unpaid interest on this Note on each March 31,
June 30, September 30 and December 31 during any period in which amounts remain
outstanding under this Note.
"Maximum Rate" means the lesser of (a) eighteen percent (18%) per
annum or (b) the maximum lawful non-usurious rate of interest (if any) which
under Applicable Law the Payee is permitted to charge the Maker on this Note
from time to time.
"Applicable Law" means that law in effect from time to time and
applicable to this Note which lawfully permits the charging and collection of
the highest permissible lawful non-usurious rate of interest on this Note,
including laws of the Commonwealth of Pennsylvania and laws of the United
States of America.
In no event shall the aggregate of the interest on this Note, plus any
other amounts paid in connection with the loan evidenced by this Note which
would under Applicable Law be deemed "interest," ever exceed the maximum amount
of interest which, under Applicable Law, could be lawfully charged on this
Note. The Payee and the Maker specifically intend and agree to limit
contractually the interest payable on this Note to not more than an amount
determined at the Maximum Rate. Therefore, none of the terms of this Note or
any other instruments pertaining to or securing this Note shall ever be
construed to create a contract to pay interest at a rate in excess of the
Maximum Rate, and neither the Maker nor any other party liable herefor shall
ever be liable for interest in excess of that determined at the Maximum Rate,
and the provisions of this paragraph shall control over all provisions of this
Note or of any other instruments pertaining to or securing this Note. If any
amount of interest taken or received by the Payee shall be in excess of the
maximum amount of interest which, under Applicable Law, could lawfully have
been collected on this Note, then the excess shall be deemed to have been the
result of a mathematical error by the parties hereto and shall be refunded
promptly to the Maker. All amounts paid or agreed to be paid in connection with
the indebtedness evidenced by this Note which would under Applicable Law be
deemed "interest" shall, to the extent permitted by Applicable Law, be
amortized, prorated, allocated, and spread throughout the full term of this
Note.
Upon the occurrence of any one or more of the following events (each
of which will constitute an Event of Default) or at any time thereafter while
such default remains uncured, the Payee (or other holder of this Note) may
declare the entire unpaid balance of principal of and interest on this Note to
be immediately due and payable.
<PAGE> 47
(a) The failure by the Maker to pay any interest on this Note
within ten (10) days after the same becomes due;
(b) The entry of an order for relief against the Maker in an
involuntary case under the Federal Bankruptcy Code, or the entry of an order
adjudicating the Maker a bankrupt or insolvent under any similar bankruptcy or
insolvency law, or the entry of an order appointing a receiver or trustee for
the Maker or any of its property or approving a petition seeking
reorganization, dissolution, liquidation or other similar relief under the
bankruptcy or other similar laws of the United States or any state or other
jurisdiction, or the filing by the Maker of a petition commencing a voluntary
proceeding under any such law or a petition, answer or other document seeking
or consenting to any of the foregoing.
The Maker will pay all reasonable expenses of the Payee (or other
holder of this Note), including attorneys' fees, incurred by such holder in
enforcing its rights and remedies hereunder together with interest thereon at
the rate provided above. If such holder brings suit (or files any claim in any
bankruptcy, reorganization, insolvency or other proceeding) to enforce any of
its rights hereunder and shall be entitled to judgment (or other recovery) in
such action (or other proceeding) then such holder may recover, in addition to
all other amounts payable hereunder, its reasonable expenses in connection
therewith, including attorneys' fees, and the amount of such expenses shall be
included in such judgment (or other form of award).
No delay or omission on the part of the Payee (or other holder of this
Note) to exercise any right upon the occurrence of any Event of Default will
impair any such right or will be construed to be a waiver of any such default
or any acquiescence therein. No waiver of any default hereunder will affect any
later default or will impair any of the Payee's (or other holder of this Note)
rights hereunder. No single, partial or other exercise of any right by such
holder will preclude any further or other exercise thereof.
The Maker waives demand, presentment for payment, notice of
nonpayment, protest, notice of protest, notice of acceleration, notice of
intent to accelerate and all other notice, except as otherwise expressly set
forth herein, filing of suit and diligence in collecting this Note. The Payee
may transfer this Note, and the rights and privileges of the Payee under this
Note shall inure to the benefit of the Payee's successors or assigns.
LIFEQUEST MEDICAL, INC.
------------------------------------
Richard A. Woodfield
President and Chief Executive Officer
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF MERGER
OF
DEXTERITY INCORPORATED
INTO LIFEQUEST MEDICAL, INC.
Under Section 251 of the General Corporation Law of the State of
Delaware, LifeQuest Medical, Inc. hereby certifies that:
1. The name and state of incorporation of each of the constituent
corporations are:
a. Dexterity Incorporated, a Delaware corporation.
b. LifeQuest Medical, Inc., a Delaware corporation.
2. An Agreement of Merger has been approved, adopted, certified,
executed and acknowledged by each of the constituent corporations in accordance
with the provisions of Section 251 of the General Corporation Law of the State
of Delaware.
3. The name of the surviving corporation is LifeQuest Medical, Inc.
4. The Certificate of Incorporation of LifeQuest Medical, Inc. shall be
amended so that Article 1 of LifeQuest Medical, Inc.'s Certificate of
Incorporation reads in its entirety as follows:
"1. The name of the corporation is Dexterity Surgical, Inc. (the
"Company")."
and, as so amended, such Certificate of Incorporation shall be the Certificate
of Incorporation of the surviving corporation until thereafter changed or
amended as provided therein or by applicable law.
5. The executed Agreement of Merger between the aforesaid constituent
corporations is on file at the principal place of business of the surviving
corporation at 12961 Park Central, Suite 1300, San Antonio, Texas 78216.
6. A copy of the Agreement of Merger will be furnished by the surviving
corporation on request and without cost, to any stockholder of Dexterity
Incorporated.
[signatures on following page]
<PAGE> 2
IN WITNESS WHEREOF, LifeQuest Medical, Inc. has caused this certificate
to be signed by its Executive Vice President on the ____day of
_________________, 1999.
LIFEQUEST MEDICAL, INC.
By:
-----------------------------------------
Randall K. Boatright
Executive Vice President and
Chief Financial Officer
-2-
<PAGE> 3
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> 4
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> 5
"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 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
<PAGE> 6
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. 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
<PAGE> 7
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 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
<PAGE> 8
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 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
<PAGE> 9
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 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
<PAGE> 10
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 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.
<PAGE> 11
(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.
(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.
<PAGE> 12
(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 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
<PAGE> 13
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 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
<PAGE> 14
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 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.
<PAGE> 15
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 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
<PAGE> 16
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 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
<PAGE> 17
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 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
<PAGE> 18
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.
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.
<PAGE> 19
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> 20
LIFEQUEST MEDICAL, INC.
---------------------------
AMENDED
CERTIFICATE OF DESIGNATION AND PREFERENCES OF
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
---------------------------
DATED AS OF JANUARY 21, 1999
<PAGE> 21
LIFEQUEST MEDICAL, INC.
---------------------
AMENDED
CERTIFICATE OF DESIGNATION AND PREFERENCES OF
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
----------------------
LIFEQUEST MEDICAL, INC., a Delaware corporation, having its principal
office in San Antonio, Texas (the "Corporation"), hereby certifies to the
Secretary of State of the State of Delaware that:
Pursuant to authority expressly vested in the Board of Directors of the
Corporation by the Certificate of Incorporation of the Corporation (the
"Certificate of Incorporation"), the Board of Directors has duly adopted
resolutions authorizing the creation and issuance of up to One Thousand
Twenty-Five (1,025) shares of Series B Cumulative Convertible Preferred Stock,
$.001 par value, with a liquidation preference of One Thousand Dollars
($1,000.00) per share, and determining the preferences, rights, powers,
limitations, qualifications and restrictions, as follows:
SECTION 1. NUMBER OF SHARES AND DESIGNATION. This series of Preferred
Stock, $.001 par value, shall be designated as Series B Cumulative Convertible
Preferred Stock (the "Series B Preferred Stock"), and the number of shares which
shall constitute such series shall be 1,025 shares.
SECTION 2. DEFINITIONS. For purposes of the Series B 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 B
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,
<PAGE> 22
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 December 31, 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.
"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 the day immediately
preceding the Dividend Payment Date which immediately follows the Issue
Date).
"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 the date upon which shares of Series B
Preferred Stock are issued.
"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.
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"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 B 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 B 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 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 B
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.
SECTION 3. DIVIDENDS.
(a) The holders of Series B 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 B 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 B 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
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<PAGE> 24
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 B 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 B 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 B 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 B
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 B Preferred Stock. No interest, or sum of money in lieu of interest,
shall be payable in respect of any dividend payment or payments on the Series B
Preferred Stock that may be in arrears.
(c) So long as any of the shares of Series B
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 B 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 B
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 B Preferred Stock and
accumulated, accrued and unpaid on such Parity Stock.
(d) So long as any of the shares of Series B
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
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accumulated, accrued and unpaid dividends) on all outstanding shares of Series B
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 B 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 Period with respect to the Series B Preferred Stock and the
current Dividend Period with respect to such Parity Stock.
SECTION 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 B Preferred Stock shall be entitled to receive One
Thousand Dollars ($1,000.00) per share of Series B 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 B 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 B
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 B Preferred Stock and any such other Parity Stock
ratably in the same proportion as the respective amounts that would be payable
on such Series B 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
B 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 B Preferred Stock and any Parity
Stock shall not be entitled to share therein.
SECTION 5. CONVERSION RIGHTS. The holders of shares of Series B
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 B 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
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<PAGE> 26
provided, in effect at the time of conversion, each share of Series B Preferred
Stock being taken at $1,000.00 for the purpose of such conversion. The price at
which shares of 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 B 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 B 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 B Preferred Stock to the opening of
business on the date for payment of such dividend shall (except in the case of
shares of Series B 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 B 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 B Preferred Stock surrendered for conversion or on account of any
dividends on the Common Stock issued upon conversion.
Shares of Series B 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 B 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 B 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 B Preferred Stock, the Corporation shall issue
any shares of Common Stock, Convertible Securities (as hereinafter
defined), Rights (as hereinafter defined) or Related Rights (as
hereinafter defined; any such
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<PAGE> 27
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 B 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 B 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 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
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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.
(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
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<PAGE> 29
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 B 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 B Preferred Stock will be
convertible into the kind and amount of securities,
cash and other property which the holder of the shares
of Series B Preferred Stock would have been entitled to
receive if the holder owned the Common Stock issuable
upon conversion of the shares of Series B 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 stock
dividend, subdivision, split up or combination of
shares), the shares of Series B 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
B Preferred Stock would have been entitled to receive
if the holder owned the Common Stock issuable upon
conversion of the shares
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of Series B 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 B 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 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;
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then the Corporation shall cause to be mailed to the
holders of record of the outstanding shares of Series B 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 B
Preferred Stock, the full number of shares of Common Stock then deliverable upon
the conversion of all shares of Series B 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 B 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 B 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 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 B 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 B 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.
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SECTION 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 B Preferred Stock is redeemable at the
option of each holder of Series B 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 B 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 B 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 B 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 B 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 B 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 B 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 B 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 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 B 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 B Preferred Stock to be
redeemed shall cease to accumulate or
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<PAGE> 33
accrue on the shares of Series B 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 B 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.
SECTION 7. SERIES B PREFERRED STOCK TO BE RETIRED. All shares of
Series B 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 B 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.
SECTION 8. RANKING. Any class or series of capital stock of the
Corporation shall be deemed to rank:
(a) prior or senior to the Series B 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 B Preferred Stock;
(b) on a parity with the Series A Cumulative
Convertible Preferred Stock (the "Series A Preferred Stock") and any other stock
designated to be Parity Stock (as defined below), 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 B
Preferred Stock, if the holders of such class of stock or series and the Series
B 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 B 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 B 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").
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<PAGE> 34
SECTION 9. VOTING.
(a) The holders of Series B 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 B 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 B Preferred
Stock or to authorize, create or increase the authorized amount of, any class of
stock having rights prior or senior to the Series B 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 B 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 B Preferred
Stock.
(c) If and whenever two (2) quarterly dividends
(whether or not consecutive) payable on the Series B 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 B Preferred Stock. The holders of shares of Series
B 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 B 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 B Preferred Stock called from time
to time for the election of directors. Whenever all arrears in dividends on the
Series B Preferred Stock then outstanding shall have been paid and dividends
thereon for the current quarterly dividend period shall have been paid or
declared and set apart for payment, then the right of the holders of the Series
B 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
B 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 B Preferred Stock, if the
Board of Directors fails to appoint the two designees of the holders of the
Series B Preferred Stock, as hereinabove provided, the Secretary of the
Corporation shall, upon the written request of any holder of Series B Preferred
Stock (addressed to the Secretary at the principal office of the Corporation),
call a special meeting of the holders of the Series B 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 B Preferred Stock may call such
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<PAGE> 35
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 B 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 B 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 B 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 B 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 B 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.
SECTION 10. RECORD HOLDERS. The Corporation may deem and treat the
record holder of any share of Series B 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.
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IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
duly executed as of January 21, 1999.
LIFEQUEST MEDICAL, INC.
By:
--------------------------------------------
Randall K. Boatright
Executive Vice President and Chief Financial
Officer
<PAGE> 1
EXHIBIT 10.1
LIFEQUEST MEDICAL, INC.
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
JANUARY 21, 1999
<PAGE> 2
SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
This AGREEMENT (the "Agreement"), dated as of January 21, 1999, is
entered into by and among LIFEQUEST MEDICAL, INC., a Delaware corporation (the
"Company"), RICHARD A. WOODFIELD (together with any permitted assignees or
successors, the "Purchaser").
RECITAL
WHEREAS, the Purchaser desires to purchase 25 shares of Series B
Cumulative Convertible Preferred Stock, par value $.001 per share, of the
Company (the "Series B Preferred Stock"), having the rights, preferences,
privileges and restrictions set forth in the Company's Amended and Restated
Certificate of Designation and Preferences of Series B 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 Purchaser such shares of Series B 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 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 the Purchaser and the Purchaser shall purchase from the Company 25
shares of Series B Preferred Stock at the purchase price of $25,000 (the
"Purchase Price")
Section 1.2 Closing. The purchase and sale of the Series B 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 Purchaser,
at 10:00 a.m., local time, on January 21, 1999, or at such other time and date
as may be agreed upon by the Company and the Purchaser (the "Closing Date").
Section 1.3 Transactions at Closing. At the Closing, the Company shall
deliver to the Purchaser a certificate for the shares of Series B Preferred
Stock to be issued and sold to the Purchaser hereunder duly registered in the
Purchaser's name, or in such other name as the Purchaser shall have specified in
writing to the Company, against payment in full by the Purchaser of the Purchase
Price by wire transfer of immediately available funds.
<PAGE> 3
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser 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 (i) 1,170 shares are designated "Series A
Cumulative Convertible Preferred Stock" and of which 1,170 shares are issued or
outstanding and (ii) 1,025 shares will be designated "Series B Cumulative
Convertible Preferred Stock" and of which 1,000 shares will be issued and
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, 585,000
shares are reserved for issuance upon conversion of the Series A Preferred Stock
and 512,000 shares are reserved for issuance upon conversion of the Series B
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.
Section 2.2 Validity of Stock. The Series B 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 B 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 B Preferred Stock being sold
under this Agreement and of the Common Stock initially issuable upon conversion
of the Series B 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 2.4 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
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<PAGE> 4
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.
ARTICLE III - REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASER
The Purchaser represents and warrants to the Company that:
Section 3.1 Authorization; Approvals; No Conflicts. This Agreement,
when executed and delivered by the Purchaser shall constitute the valid and
binding obligation of the Purchaser, enforceable against the Purchaser in
accordance with its terms. The 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 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 the Purchaser or his properties; (ii) any agreement, contract,
understanding, indenture or other instrument to which the Purchaser is a party
or by which the 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 the Purchaser; or (iii) any statute,
rule or governmental regulation applicable to the Purchaser.
Section 3.2 Investment Representations. The Purchaser is acquiring the
Series B Preferred Stock (and any Common Stock into which the Series B Preferred
Stock may be converted) for the Purchaser's own account, 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 Purchaser
is an "accredited investor," as that term is defined in Rule 501(a) promulgated
under the Securities Act. The Purchaser 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 the Purchaser to make an
informed investment decision with respect to the purchase of the Series B
Preferred Stock.
Section 3.4 Restrictions on Transfer. The Purchaser agrees that (a) the
Purchaser will not offer, sell, transfer, give, pledge, hypothecate or otherwise
dispose of the Series B 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 Purchaser, delivered to the Company
and reasonably acceptable to counsel for the
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<PAGE> 5
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 B 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 B 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 B 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 B Preferred Stock or Common Stock is not required by the Securities
Act to continue to bear the legend.
Section 3.5 Transfer Instructions. The Purchaser agrees that the
Company may provide for appropriate transfer instructions to implement the
provisions of Section 3.4 hereof.
Section 3.6 Fees and Commissions. The Purchaser has retained not any
finder, broker, agent, financial advisor or other intermediary in connection
with the transactions contemplated by this Agreement, and the Purchaser agrees
to indemnify and hold harmless the Company from liability for any compensation
to any such finder, broker, agent, financial advisor or other intermediary and
the fees and expenses of defending against such liability or alleged liability.
ARTICLE IV - CONDITIONS TO CLOSING OF THE PURCHASER
The obligation of the Purchaser on the Closing Date to purchase the
Series B Preferred Stock shall be subject to each of the following conditions
precedent, any one or more of which may be waived by the Purchaser:
4
<PAGE> 6
(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
B Preferred Stock to be purchased by the Purchaser and to issue the Common Stock
into which the Series B Preferred Stock may be converted.
(d) Compliance Certificates. The Company shall have delivered
to the 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 B Preferred Stock to be purchased under this Agreement shall be subject
to the representations and warranties made by the Purchaser 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 B
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.
5
<PAGE> 7
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 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 the
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 the 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 the Purchaser) as soon as reasonably
possible an amended prospectus complying with the Securities Act.
(e) For so long as the Purchaser holds beneficially or of
record (including shares issuable upon the conversion of the Series B Preferred
Stock) five percent (5%) or more of the shares of Common Stock from time to time
outstanding, the Purchaser shall agree to any restrictions on his 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.
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<PAGE> 8
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 the 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 the 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, the 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 person or entity 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, representative,
underwriter, or such other person or entity, 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 the Purchaser expressly
for use in connection with such. The 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 such person
or entity, 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.
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(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.
(e) The Company, on the one hand, and the Purchaser, 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 Purchaser 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 the 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.
8
<PAGE> 10
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 Purchaser 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 the 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 the Purchaser seeking to
avail himself 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 the
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 the
Purchaser holds any Registrable Securities hereunder, either Purchaser or his
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.
9
<PAGE> 11
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 Purchaser 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
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
or such other addresses as either of the parties hereto may provide from time to
time in writing to the other 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
10
<PAGE> 12
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 B
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 B Preferred Stock purchased under this Agreement at the time outstanding
(including Common Stock into which such Series B 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 either party, shall be
deemed to constitute a waiver by the party taking such action of compliance with
the other party hereto or a breach of any representations, warranties, covenants
or agreements contained herein. The waiver by either 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 either 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 B Preferred Stock sold hereunder or any Common Stock issued upon
conversion thereof).
Section 7.7 Rights of Purchaser. The Purchaser shall have the absolute
right to exercise or refrain from exercising any right or rights that the
Purchaser may have by reason of this Agreement or any Series B 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 Purchaser 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.
11
<PAGE> 13
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
Executive Vice President and
Chief Financial Officer
PURCHASER:
---------------------------------------
RICHARD A. WOODFIELD
<PAGE> 1
EXHIBIT 10.2
CONSULTING AGREEMENT
THIS CONSULTING AGREEMENT (this "Agreement"), dated as of March 18,
1999, is between LifeQuest Medical, Inc., a Delaware corporation (the
"Company"), and Christopher K. Black, an individual whose primary residence is
located at 982 Jamie Ct., Blue Bell, Pennsylvania 19422 (the "Consultant").
WITNESSETH:
WHEREAS, the Company desires to receive the advice and consultation of
the Consultant to assist in various matters with respect to the Company and its
affiliates, pursuant to the terms and conditions of this Agreement; and
WHEREAS, the Consultant desires to provide consulting services to the
Company, pursuant to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises, the mutual covenants
and agreements contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. CONSULTATION. During the term of this Agreement, the Consultant
shall perform such advisory or consulting services for the Company and its
affiliates and such other matters as may be mutually agreed upon and as the
officers of the Company may reasonably request from time to time. The
Consultant shall devote up to 4 days per month to the performance of the
consulting services hereunder, as the Company shall request. The Company and
the Consultant hereby expressly acknowledge and agree that (a) the Consultant
is to provide advisory and consulting services to the Company in the capacity
of an independent contractor and not as an employee of the Company and the
Company is to have no right to control or direct the manner in which such
services are to be performed and (b) the Consultant is not authorized to enter
into any contract or agreement on behalf of the Company or any other affiliate
of the Company or otherwise in any manner whatsoever bind the Company or any
affiliate of the Company without the prior written authorization of such party.
The Consultant agrees to make no representation to any person or entity
inconsistent in any manner with the provisions of the preceding sentence.
2. TERM AND COMPENSATION. (a) The term (the "Term") of this Agreement
shall be from March 18, 1999, through March 28, 2001 (two years). The term of
this Agreement may be extended beyond the Term by written agreement between the
Company and the Consultant.
(b) During the Term, the Company will pay the Consultant $3,333.33 per
month. Payments shall be made on the last day of each month. The Consultant
shall be liable for all taxes and other governmental payments due and payable
based on payments made to the Consultant by the Company under this Agreement.
1
<PAGE> 2
(c) Notwithstanding the foregoing provisions of this Section 2, the
Company may terminate this Agreement and pay no further compensation to the
Consultant in accordance with Section 4 of this Agreement.
3. CONFIDENTIAL INFORMATION. During the course of performing his
services pursuant to this Agreement Consultant will have access to trade
secrets, proprietary information and other information concerning the Company,
its products and business which the Company maintains confidential and is not
generally available to the public ("Confidential Information"). Without the
prior written consent of the Company, Consultant will not disclose to any third
person, or use for the benefit of Consultant or any third person, any
Confidential information acquired by Consultant from the Company during the
term of this Agreement. The foregoing restrictions will not apply to any
information which (a) becomes available to the public generally (otherwise than
by reason of Consultant's breach of the provisions of this Section), (b) can be
shown by written records to have been known by Consultant prior to the date of
this Agreement (c) is lawfully acquired by Consultant from another person. In
the event Confidential Information is required to be disclosed by the
Consultant under court or governmental order, rule or regulation, the
Consultant shall immediately provide the Company with notice thereof and shall
give full and complete cooperation to the Company in its efforts to object to,
and to obtain protection of any Confidential Information that is the subject
of, such required disclosure. In the event of termination of the engagement of
the Consultant by the Company for any reason, the Consultant agrees to deliver
to the Company or to destroy, at the option of the Company, all Confidential
Information of the Company in the possession or control of the Consultant.
4. BUSINESS PRACTICES. Consultant agrees that he shall not use any
funds received by him from the Company pursuant to this Agreement, nor any
funds of the Company, to pay to or to provide gifts for any representative or
official of any government or to pay any political party or candidate for
political office for the purpose of obtaining or retaining business for the
Company. The Consultant understands that the Company may immediately terminate
this Agreement, and no further compensation shall be paid to the Consultant,
for any breach of this Section 4 by the Consultant.
5. MISCELLANEOUS. This Agreement and the other agreements referred to
herein represent the entire understanding of the parties hereto relating to the
subject matter hereof and supersedes any prior agreements between the parties
regarding the subject matter hereof, except as otherwise expressly provided
herein to the contrary. The terms and provisions of this Agreement may only be
modified or amended by a writing signed by each of the parties hereto. This
Agreement shall be binding upon the Company and its successors and assigns.
This Agreement shall be binding upon the Consultant and his heirs, executors,
administrators and legal representatives. The rights and obligations of the
Consultant hereunder are personal to him and no such rights or obligations
shall be subject to voluntary or involuntary alienation, assignment or
transfer. Any purported alienation, assignment or transfer in violation of the
preceding sentence shall be void. This Agreement shall be construed and
enforced in accordance with, and shall be governed by, the internal laws of New
York, without regard to the conflict of laws principles thereof.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Consulting
Agreement as of the day and year first written above.
LIFEQUEST MEDICAL, INC.
-----------------------------------
Richard A. Woodfield, President
CONSULTANT
-----------------------------------
Christopher K. Black
3
<PAGE> 1
EXHIBIT 10.3
ROYALTY AGREEMENT
THIS ROYALTY AGREEMENT is made on March 18,1999 by and between LIFEQUEST
MEDICAL, INC., a Delaware corporation ("LifeQuest"), and TFX EQUITIES
INCORPORATED, a Delaware corporation (the "Royaltyholders' Agent"), as such
agent, for the benefit of the persons whose names are set forth on the Schedule
of Royaltyholders attached hereto (the "Royaltyholders").
BACKGROUND
A. On the date hereof Dexterity Incorporated, a Delaware corporation
("Seller"), has merged with and into LifeQuest pursuant to a Plan of Merger and
Acquisition Agreement, dated December 18, 1998 between LifeQuest and Seller
(the "Merger Agreement"). Such merger is hereinafter referred to as the
"Merger."
B. Pursuant to Section 2.6 of the Merger Agreement, by virtue of the Merger,
each share of common stock of Seller held immediately before the Merger by the
Royaltyholders has been converted into the right to receive, among other
things, an undivided percentage interest (a "Royaltyholder's Percentage
Interest") in the royalty payments provided for in this Agreement. The number
of shares of such common stock of Seller so held by each of the Royaltyholders,
and the aggregate Percentage Interest held by each such person, is specified on
the Schedule of Royaltyholders.
NOW, THEREFORE, in consideration of the Merger and other valuable
consideration specified in the Merger Agreement, receipt of which is hereby
acknowledged, and intending to be legally bound hereby, LifeQuest and the
Royaltyholders' Agent agree as follows:
1. Definitions. For the purposes of this Agreement, the following
terms shall have the respective meanings set forth below:
(a) "Affiliate" of any Person means any Person, directly or
indirectly controlling, controlled by or under common control with such Person,
and includes any Person who is an officer, director or employee of such Person
and any Person that would be deemed to be an "affiliate" or an "associate" of
such Person, as those terms are defined in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act. As used in this definition,
"controlling" (including, with its correlative meanings, "controlled by" and
"under common control with") means possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether through
ownership of securities, partnership or other ownership interests, by contract
or otherwise).
<PAGE> 2
(b) "Converted Supplemental Royalties" at any date means the
aggregate amount of Supplemental Royalties for which LifeQuest's obligation
has, at or before such date, been converted into an obligation to pay amounts
from the proceeds of Infringement Actions pursuant to Section 3(a). "Converted
Supplemental Royalties Outstanding" at any time means the greater of (i) zero
or (ii) the amount determined by subtracting from the Converted Supplemental
Royalties at such time the aggregate amount of payments which have then been
made by LifeQuest pursuant to Section 3(b).
(c) "Dexterity PneumoSleeve Product" means the extracorporeal
pneumoperitoneum surgical device heretofore offered for sale by Seller, known
as the "Dexterity PneumoSleeve."
(d) "Dexterity Product" means the Dexterity PneumoSleeve Product or
the Dexterity Protractor Product, including any modification or improvement of
any such device at any time offered for sale by LifeQuest, any of its
Affiliates or any Licensee, assignee or successor of LifeQuest or any of its
Affiliates.
(e) "Dexterity Protractor Product" means the incision liner and
retractor surgical device heretofore offered for sale by Seller, known as the
"Dexterity Protractor," (including the modified protractor product developed
for use in AAA surgical procedures which is in prototype form).
(f) "Infringement Action" means any action, suit or other
proceeding instituted or maintained by LifeQuest against any Person, claiming
that such Person has manufactured, used or sold a device or apparatus which
infringes one or more claims of any patent acquired by LifeQuest from Seller
and seeking relief therefor, including a declaratory or injunctive order or
damages in respect thereof.
(g) "Licensee" of any Person means any other Person who shall be
granted a license, directly or indirectly, mediately or immediately, to use or
practice any patent rights or other intellectual property rights of such first
mentioned Person.
(h) "LifeQuest" means LifeQuest Medical, Inc., a Delaware
corporation.
(i) "Merger" has the meaning given thereto in Background paragraph
A.
(j) "Merger Agreement" has the meaning given thereto in Background
paragraph A.
(k) "Net Sales Price" of a Dexterity Product sold by any Person
means the gross sales price of such sale, less any credit for returns, any
discounts or other allowances available to the purchaser thereof and the amount
of any sales or fiscal taxes, duties and shipping and insurance charges
included in such gross sales price.
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<PAGE> 3
(l) "Percentage Interest" of any Royaltyholder means the percentage
amount set forth opposite the name of such Royaltyholder in the Schedule of
Royaltyholders.
(m) "Person" means an individual, a corporation, a partnership, an
association, a trust or other entity or a governmental body or agency.
(n) "Proceeds" of an Infringement Action means all amounts and
pecuniary benefits received by LifeQuest, net of expenses (including reasonable
attorneys' fees and costs) in respect of such Infringement Action, including
the proceeds of any judgment, settlement or other disposition of the claims of
LifeQuest asserted in such proceeding.
(o) "Quarterly Royalty Period" has the meaning given thereto in
Section 2(c).
(p) "Royalties" means the payments provided for in Section 2(a).
(q) "Royalty Amount" has the meaning given thereto in Section 2(a).
(r) "Royalty Period" has the meaning given thereto in Section 2(a).
(s) "Royalty Year" means each successive twelve (12) month period
commencing on the date of this Agreement, except that if the date of this
Agreement is other than the first day of a month, the first Royalty Year shall
be the period commencing on the date of this Agreement and ending on the last
day of the twelfth (12th) full calendar month thereafter.
(t) "Royaltyholder" means each of the Persons whose names are set
forth in the Schedule of Royaltyholders attached hereto.
(u) "Royaltyholders' Agent" at any time means TFX Equities
Incorporated, if it is then acting as such agent, or such successor thereto
then so acting pursuant to Section 4(g).
(v) "Seller" means Dexterity Incorporated, a Delaware corporation.
(w) "Supplemental Royalties" means the payments provided for in
Section 2(b).
(x) "Termination of any Infringement Action" means the entry of a
final judgment in respect of LifeQuest's claims in such proceeding which is or
has become final and unappealable or the resolution of such claims by
settlement or other amicable action.
2. Royalties.
(a) Royalty Amount and Term. LifeQuest will pay to each
Royaltyholder (or, in the circumstances specified in Section 4(a), to the
Royaltyholders' Agent) royalties (the "Royalties") in the amount of such
Royaltyholder's Percentage Interest of the Royalty Amount. The "Royalty Amount"
means the amount equal to 15% of the Net Sales Price of Dexterity Products sold
by LifeQuest, or any of its Affiliates or any Licensee, assignee or successor
of
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<PAGE> 4
LifeQuest or any of its Affiliates, during the period commencing on the
effective date of this Agreement and ending on the last day of the
eighty-fourth (84th) full calendar month thereafter (the "Royalty Period").
(b) Minimum Royalties. Subject to Section 3, if the Royalties
payable to all Royaltyholders in respect of sales of Dexterity Products made in
any Royalty Year shall be less than the Minimum Royalty Amount for such Royalty
Year specified below, LifeQuest will pay to each Royaltyholder an amount equal
to such Royaltyholder's Percentage Interest of such shortfall ("Supplemental
Royalties").
<TABLE>
<CAPTION>
Royalty Year Minimum Royalty Amount
------------ ----------------------
<S> <C> <C>
1 $ 442,908
2 $ 827,270
3 $1,307,313
4 $1,779,401
5 $1,779,401
6 $1,779,401
7 $1,779,401
</TABLE>
(c) Time of Royalty Payments. Royalties payable pursuant to Section
2(a) in respect of sales of Dexterity Products in any Quarterly Royalty Period
will be paid within thirty (30) days after the end of such Quarterly Royalty
Period. Supplemental Royalties payable pursuant to Section 2(b) in respect of
any Royalty Year will be paid within thirty (30) days after the end of such
Royalty Year. "Quarterly Royalty Periods" means the successive periods,
commencing on the date of this Agreement, each comprising three (3) months,
except that if the date of this Agreement is other than the first day of a
month, the first such period will end on the last day of the third full
calendar month after the date of this Agreement.
(d) Manner of Royalty Payments. All payments to be made by
LifeQuest pursuant hereto shall be made by check drawn on good funds on deposit
in a commercial bank in the United States, mailed at least one (1) day before
such payments are due.
(e) Records. LifeQuest will keep accurate books of account
containing all information necessary to identify sales during the Royalty
Period and to calculate the Royalties payable in respect thereof. Such books of
account will be made available for inspection by the Royaltyholders (including
representatives of the Royaltyholders), upon reasonable notice at reasonable
times.
(f) Reports. LifeQuest will accompany each payment of Royalties
with a report as to the aggregate quantity and Net Sales Price of the Dexterity
Products in respect of which such payment is made, and will supply to any
Royaltyholder such additional information in respect thereof as such
Royaltyholder may reasonably request.
-4-
<PAGE> 5
(g) Currency. All payments to be made by LifeQuest pursuant hereto
shall be made in U.S. dollars. For purposes of calculating Royalties in respect
of sales of Dexterity Products made in a currency other than U.S. dollars, the
Net Sales Price of such sales shall be translated into the U.S. dollar
equivalent thereof at the rate quoted for exchange of such currency into U.S.
dollars in the Wall Street Journal (or similar publication reasonably selected
by LifeQuest) at a date reasonably proximate to the last date of the Quarterly
Royalty Period in which such sales were made.
(h) Interest. LifeQuest will pay interest on any Royalties or other
amounts payable by it hereunder not paid when due at the rate of twelve percent
(12%) per annum.
(i) Other Competing Products. Without the prior written consent of
the Royaltyholders who hold at least a majority of the Percentage Interests of
all Royaltyholders, LifeQuest will not,during the Royalty Period, directly or
indirectly, manufacture or offer for sale any device or apparatus, other than a
Dexterity Product, which is generally similar to, may be used as a substitute
for, or otherwise is or would be competitive with any Dexterity Product.
3. Conversion of Supplemental Royalty Obligations Under Certain
Circumstances.
(a) If (i) the aggregate Royalties payable to all Royaltyholders
pursuant to Section 2(a) in respect of any Royalty Year shall be less than
seventy-five percent (75%) of the Minimum Royalty Amount for such Royalty Year
and (ii) LifeQuest shall have commenced one or more Infringement Actions at
least one of which has not been terminated before the end of such Royalty Year,
then at LifeQuest's option (exercised by notice given to the Royaltyholders on
or before the date when Supplemental Royalties in respect of such Royalty Year
would become due), LifeQuest may convert its obligation to pay Supplemental
Royalties in respect of such Royalty Year into an obligation to pay, in lieu
thereof, amounts pursuant to Section 3(b).
(b) If LifeQuest shall convert its obligation to pay any
Supplemental Royalties pursuant to Section 3(a), thereafter, upon the receipt
by LifeQuest of any Proceeds of any Infringement Action (whether or not such
Infringement Action shall have been the Infringement Action on which such
conversion election was based), LifeQuest will pay to each Royaltyholder, only
from such Proceeds, the greater of such Royaltyholder's Percentage Interest of
(i) the amount of the Converted Supplemental Royalties Outstanding at such date
or (ii) fifteen percent (15%) of such Proceeds.
(c) Nothing in this Section 3 shall be deemed to authorize the
suspension or conversion of any obligation of LifeQuest to pay Royalties
pursuant to Section 2(a), which obligations are absolute.
4. Rights and Duties of Royaltyholders' Agent.
(a) Royalty and Other Payments to be Made to Royaltyholders' Agent
Under Certain Circumstances. If any default shall occur in the timely payment
or performance by LifeQuest of any of its obligations hereunder, the
Royaltyholders' Agent may give notice to
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<PAGE> 6
LifeQuest that all Royalties and other payments due by LifeQuest hereunder
shall thenceforth be made to the Royaltyholders' Agent. In such event LifeQuest
shall thereafter make all such payments directly to the Royaltyholders' Agent,
until the Royaltyholders' Agent shall give LifeQuest notice to the contrary,
and all such payments so made shall be deemed, as between LifeQuest and the
Royaltyholders, to have been made to and received by the Royaltyholders. The
Royaltyholders' Agent may apply any such payments so received, first, to the
payment or reimbursement of the Royaltyholders' Agent for expenses incurred in
the performance of its duties hereunder, and thereafter ratably to the
Royaltyholders in accordance with their respective Percentage Interests.
(b) Enforcement Action on Behalf of Royaltyholders. Actions against
LifeQuest to enforce the rights of the Royaltyholders' Agent or of any
Royaltyholder may be brought only by the Royaltyholders' Agent.
(c) Royaltyholders' Instructions. Provided that the Royaltyholders'
Agent shall have received such indemnification for, or advances of, expenses as
the Royaltyholders' Agent may reasonably request, the Royaltyholders' Agent
will take all such action as any Royaltyholder may reasonably direct the
Royaltyholders' Agent to take to enforce the performance of LifeQuest's
obligations hereunder for the benefit of such Royaltyholder. The
Royaltyholders' Agent will not be required to institute any legal proceedings
or take any other action to enforce the performance of the obligations of
LifeQuest hereunder or to enforce or foreclose upon the security interest
granted in Section 3(c), except pursuant to specific instructions deemed by it
sufficient, duly given or consented to by the Royaltyholders holding a majority
of the Percentage Interests.
(d) Royaltyholders' Agent's Authority to Act. The Royaltyholders'
Agent shall have full authority to take all such action, without instructions
from any Royaltyholder, as the Royaltyholders' Agent shall deem appropriate to
enforce the provisions of this Agreement and to enforce the security interest
for the benefit of the Royaltyholders ratably, and the Royaltyholders' Agent
may settle, compromise, compound or otherwise release, modify or adjust any
claim which might be made by the Royaltyholders' Agent hereunder or in respect
hereof as the Royaltyholders' Agent in its absolute discretion may deem
appropriate.
(e) No Implied Duties of Royaltyholders' Agent. Without limiting
the authority of the Royaltyholders' Agent to act pursuant to Section 4(d), the
Royaltyholders' Agent shall be responsible only for performing and need only
perform those duties to the Royaltyholders specifically set forth in this
Agreement, and no implied covenants or obligations shall be read into this
Agreement against the Royaltyholders' Agent.
(f) Liability of Royaltyholders' Agent. The Royaltyholders' Agent
shall not be liable except for its own willful misconduct, bad faith or gross
negligence. The Royaltyholders' Agent shall not incur any liability in acting
upon any signature, instrument, notice, resolutions, request, consent, order,
certificate, report, opinion or other document or paper believed by it to be
genuine and to be signed by the proper person. The Royaltyholders' Agent may
accept a certified copy of a resolution of the board of directors or other
governing body of any Person as conclusive evidence that such resolution has
been duly adopted by such body and that the same is in full force and effect.
-6-
<PAGE> 7
(g) Merger or Succession of Royaltyholders' Agent. Any corporation
into which the Royaltyholders' Agent may be merged or with which it may be
consolidated or any corporation resulting from any merger or consolidation to
which the Royaltyholders' Agent shall be a party, or any corporation succeeding
to any part of the Royaltyholders' Agent's business, shall have and may
exercise the powers and authority of the Royaltyholders' Agent, as such agent
hereunder, without the execution or filing of any document or any other act on
the part of any Royaltyholder.
(h) Royaltyholders' Agent May be a Royaltyholder. The
Royaltyholders' Agent may be a Royaltyholder.
5. Notices. All notices and other communications hereunder or in
connection herewith to any of LifeQuest, the Royaltyholders' Agent or any
Royaltyholder shall be in writing and shall be deemed to have been given to
such Person if delivered (which may be by telefax or other electronic
transmission) or mailed in the continental United States by registered or
certified mail, return receipt requested, to such Person at the following
address therefor, or to such other address as such Person may hereafter specify
by notice to the others:
If to LifeQuest:
LifeQuest Medical, Inc.
12961 Park Central, Suite 1300
San Antonio, TX 78216
Attention: Randall K. Boatright
Executive Vice President and CFO
If to the Royaltyholders' Agent:
TFX Equities Incorporated
1787 Sentry Parkway West
Building Sixteen, Suite 220
Blue Bell, PA 19422
Attention: John J. Sickler, President
If to any Royaltyholder: to such Person at the address
therefor specified in the Schedule of Royaltyholders.
6. General Provisions.
(a) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania
without regard to conflict-of-laws rules as applied in Pennsylvania.
-7-
<PAGE> 8
(b) Construction. References herein to "Sections" are references to
Sections of this Agreement. The word "including" means "including without
limitation."
(c) Section Headings. The section headings contained herein are for
convenience of reference only and shall not be deemed to constitute a part of
this Agreement or affect the meaning or interpretation of it in any way.
(d) Assignment. The rights and powers of the Royaltyholders and the
Royaltyholders' Agent may be assigned and shall inure to the benefit of their
respective heirs, successors and assigns.
(e) Delay or Omission Not Waiver. No delay or omission on the part
of the Royaltyholders' Agent or any Royaltyholder to exercise any right
hereunder will impair any such right or be construed as a waiver of any default
or any acquiescence therein. No waiver of any default hereunder will affect any
later default or will impair any rights hereunder of the Royaltyholders' Agent
or any Royaltyholder. No single, partial or other exercise of any right by the
Royaltyholders' Agent or any Royaltyholder will preclude further or other
exercise hereof.
(f) Counterparts. This Agreement may be executed simultaneously in
two or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument. This Agreement
shall be binding when one or more counterparts hereof, individually or taken
together, shall bear the execution signatures of each of LifeQuest and the
Royaltyholders' Agent.
EXECUTED by LifeQuest and the Royaltyholders' Agent the date first
above written.
LIFEQUEST MEDICAL, INC.
By: ______________________________
Richard A. Woodfield,
President and Chief Executive Officer
TFX EQUITIES INCORPORATED,
as Royaltyholders' Agent
By: ______________________________
John J. Sickler,
President
-8-
<PAGE> 9
SCHEDULE OF ROYALTYHOLDERS
<TABLE>
<CAPTION>
Number of Shares of
Name and Address Seller Stock Owned Percentage Interest
---------------- ------------------- -------------------
<S> <C> <C>
TFX Equities, Inc. 731 62.85%
1787 Sentry Parkway West
Building Sixteen, Suite 220
Blue Bell, PA 19422
Christopher K. Black 202 17.37%
c/o Dexterity, Inc.
1787 Sentry Parkway West
Building Sixteen, Suite 220
Blue Bell, PA 19422
Surgical Visions I, Inc. 165 14.19%
Fulton 400 Corporate Center
1495 Hembree Road,
Suite 700
Roswell, GA 30076
Frederick C. Feiler, Jr. 40 3.44%
c/o Dexterity, Inc.
925 Tanworth Drive
Raleigh, NC 27615
Jerome F. Flaherty 20 1.72%
c/o Dexterity, Inc.
2705 Northwest Boulevard
Columbus, OH 43221
Dr. Clark Gerhart, M.D. 5 0.43%
29th Street Office Complex
Building B, Suite 415
1201 North Church Street
Hazleton, PA 19201
</TABLE>
<PAGE> 1
EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into this 18th day of March, 1999, by and among LifeQuest Medical Inc.,
a Delaware corporation ("LifeQuest"), and the persons whose names are set forth
on the Schedule of Shareholders attached hereto (individually, a "Shareholder"
and collectively, the "Shareholders").
W I T N E S S E T H :
WHEREAS, LifeQuest and Dexterity Incorporated ("Seller") have entered
into a Plan of Merger and Acquisition Agreement dated December _____, 1998 (the
"Merger Agreement"), pursuant to which Seller is about to merge into LifeQuest
on the date of this Agreement; and
WHEREAS, this Agreement is entered into pursuant to Sections 8.1 and
9.2(g) of the Merger Agreement;
NOW, THEREFORE, in consideration of the benefits of the Merger and as
a material inducement to the consummation of the Merger Agreement by LifeQuest
and Seller, the parties hereby agree as follows:
1. Definitions. For purposes of this Agreement, all capitalized words
contained herein but not defined herein shall have those definitions
ascribed to them in the Merger Agreement.
2. Representations and Warranties of the Shareholders Concerning
Securities Laws Matters. Each Shareholder, as to such Shareholder,
represents and warrants to LifeQuest as follows:
(a) Such Shareholder recognizes and understands that the Stock
Consideration to be issued to the Shareholders pursuant to
the Merger Agreement (the "securities") will not be
registered under the Securities Act, or under the securities
laws of any state (the "securities laws"). The securities are
not being so registered in reliance upon exemptions from the
Securities Act and the securities laws which are predicated,
in part, on the representations, warranties and agreements of
each Shareholder contained herein.
(b) (i) Such Shareholder has business knowledge and experience,
such experience being based on actual participation therein,
(ii) such Shareholder is capable of evaluating the merits and
risks of an investment in the Stock Consideration and the
Warrants and the suitability thereof as an investment
therefor, (iii) the Stock Consideration and the Warrants to
be acquired by such Shareholder in connection with the Merger
will be acquired solely for investment and not with a view
toward resale or redistribution in violation of the
securities laws, (iv) the State of such Shareholder's
residence and domicile is as set forth in Schedule 2 attached
hereto, (v) in connection with the ---------- transactions
contemplated hereby, no assurances have been made concerning
the
<PAGE> 2
future results of LifeQuest or as to the value of the Stock
Consideration or the Warrants and (vi) such Shareholder is an
"accredited investor" within the meaning of Regulation D
promulgated by the SEC pursuant to the Securities Act. Such
Shareholder understands that LifeQuest is under no obligation
to file a registration statement or to take any other action
under the securities laws with respect to any such securities
except as expressly set forth in this Agreement.
(c) Such Shareholder has consulted with such Shareholder's own
counsel in regard to the securities laws and is fully aware
of the circumstances under which such Shareholder is required
to hold the securities, of the limitations on the transfer or
disposition of the securities, that the securities must be
held indefinitely unless the transfer thereof is registered
under the securities laws or an exemption from registration
is available and that no exemption from registration is
likely to become available for at least one year from the
date of acquisition of the securities. Such Shareholder has
been advised by such Shareholder's counsel as to the
provisions of Rules 144 and 145 as promulgated by the
Commission under the Securities Act and has been advised of
the applicable limitations thereof. Such Shareholder
acknowledges that LifeQuest is relying upon the truth and
accuracy of the representations and warranties in this
Agreement by such Shareholder in consummating the
transactions contemplated by the Merger Agreement without
registering the securities under the securities laws.
(d) Such Shareholder has been furnished with the definitive proxy
statement filed with the Commission in connection with the
annual meeting of stockholders of LifeQuest held on May 19,
1998 and copies of LifeQuest's Registration Statement on Form
S-3 filed October 30, 1998, Annual Report on Form 10-KSB/A
for the year ended December 31, 1997, and Quarterly Reports
on Form 10-QSB for the quarters ended March 31, 1998, June
30, 1998, and September 30, 1998 filed with the Commission
under the Exchange Act. Such Shareholder has been furnished
with the complete financial statements of LifeQuest for the
fiscal years ended December 31, 1995, 1996 and 1997, and the
three, six and nine months ended March 31, 1998, June 30,
1998, and September 30, 1998, respectively. Such Shareholder
has been furnished with a summary description of the terms of
the LifeQuest Stock and LifeQuest has made available to each
Shareholder the opportunity to ask questions and receive
answers concerning the terms and conditions of the
transactions contemplated by this Agreement and to obtain any
additional information which they possess or could reasonably
acquire for the purpose of verifying the accuracy of
information furnished to the Shareholder as set forth herein
or for the purpose of considering the transactions
contemplated hereby. LifeQuest has offered to make available
to such Shareholder upon request at any time all exhibits
filed by LifeQuest with the Commission as part of any of the
reports filed therewith.
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<PAGE> 3
(e) Such Shareholder agrees that the certificates representing
such Shareholder's Stock Consideration to be acquired
pursuant to the Merger will be imprinted with the following
legend, the terms of which are specifically agreed to:
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 SECURITIES 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.
(f) Such Shareholder understands and agrees that appropriate stop
transfer notations will be placed in the records of LifeQuest
and with its transfer agent in respect of the securities
which are to be issued to such Shareholder in the Merger.
3. Registration. LifeQuest shall be obligated to the Shareholders as follows:
(a) Demand Registration Rights. As soon as reasonably practicable
after the request therefor by any Shareholder designated a
Requesting Shareholder on the Schedule of Shareholders (each,
a "Requesting Shareholder") LifeQuest will, if LifeQuest is a
registrant entitled to use Form S-3 or any similar or
successor form ("Form S-3") to register the Stock
Consideration (for the purposes of this Section 3, "Stock
Consideration" shall include at any time any shares of
LifeQuest Stock which at or before such time have been issued
upon exercise of the Warrants) for offer and sale by or on
behalf of such Requesting Shareholder, LifeQuest will use its
best efforts to file a registration statement on Form S-3
with the Commission and such applications or other filings as
required under applicable state securities or blue sky laws
sufficient to permit the public offering of the Stock
Consideration by such Requesting Shareholder to be made on a
continuous basis pursuant to Rule 415 under the Act, and
shall use its best efforts to cause such registration
statement to be declared effective so that the Stock
Consideration will be registered for the offering on such
Form; PROVIDED, HOWEVER, that (i) LifeQuest shall be obliged
to file no more than one (1) such registration statement
(which shall become effective) upon the request of the
3
<PAGE> 4
same Requesting Shareholder made pursuant to this Section
3(a) in any one calendar year nor more than two such
registrations statements upon the request of such Requesting
Shareholder made at any time (the foregoing shall not limit
the right of any Shareholder to request registration pursuant
to Section 3(b)). Notwithstanding the foregoing, LifeQuest
shall not be obligated to effect a registration pursuant to
this Section 3(a): in any particular jurisdiction in which
LifeQuest would be required to execute a general consent to
service of process in effecting such registration,
qualification or compliance unless LifeQuest is already
subject to service in such jurisdiction and except as may be
required by the Securities Act; if LifeQuest gives notice of
its bona fide intention to effect the filing of a
registration statement with the Commission within 90 days of
such notice; during the period starting with the date 30 days
prior to LifeQuest's good faith estimated date of filing of,
and ending on the date six months immediately following the
effective date of any registration statement pertaining to
securities of LifeQuest, PROVIDED that LifeQuest is actively
employing in good faith all reasonable efforts to cause such
registration statement to become effective; if LifeQuest
shall furnish to the Requesting Shareholder a certificate
signed by the President of LifeQuest stating that in the good
faith judgment of the Board of Directors the filing of a
registration statement would require the disclosure of
material information that LifeQuest has a bona fide business
purpose for preserving as confidential and that is not then
otherwise required to be disclosed, then LifeQuest's
obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed 90
days from the receipt of the request to file such
registration by the Requesting Shareholder.
(b) Incidental/Piggyback Registration. So long as any Shareholder
holds at least 25% of the Stock Consideration acquired by
such Shareholder pursuant to the Merger Agreement, each time
after the Closing that LifeQuest proposes to effect a
registration of any of its equity securities (as that term is
defined under Rule 405 of the Rules and Regulations of the
Commission promulgated under the Securities Act) under the
Securities Act, other than a registration on From S-8 or Form
S-4 or similar registration form hereafter authorized or
prescribed by the Commission, including a registration to be
effected pursuant to Section 3(a), LifeQuest will give notice
thereof at least thirty (30) days before the proposed filing
date to each Shareholder who then holds any of the Stock
Consideration and, upon the written request of any such
Shareholder, LifeQuest will include in such registration such
Stock Consideration held by such Shareholder as such
Requesting Shareholder may specify in a notice given to
LifeQuest within twenty (20) days of the first mentioned
notice of its intention to do so to the Shareholders (the
"Piggyback Registration"). Subject to the market cutback
limitations of Section 4, LifeQuest will use its best efforts
to effect the Piggyback Registration under the Securities Act
of the Stock Consideration specified by each Shareholder
under this Section 3(b). Notwithstanding any contrary
provision of this Agreement, this Section 3(b) shall not
apply to a registration effected solely to offer securities
for sale pursuant to, or in connection with, (i) an employee
benefit plan or
4
<PAGE> 5
(ii) a transaction subject to Rule 145 under the Securities
Act or in an exchange offer registered on Form S-4 or any
successor form to Form S-4, or to any registration on a form
which does not permit inclusion of Stock Consideration
pursuant to Commission rule or practice.
(c) Registration Procedures and Expenses. If and whenever
LifeQuest is required to include any of the Stock
Consideration in a registration statement under the
Securities Act, as provided in Section 3(a), LifeQuest shall,
as expeditiously as is reasonably practicable, do each of the
following:
(i) prepare and file with the SEC a registration
statement with respect to such Stock Consideration (
which, in the case of an underwritten public
offering, shall be on Form S-1 or other form of
general applicability satisfactory to the managing
underwriter selected as therein provided) and,
subject to the limitations under Section 3(a), use
its best efforts to cause such registration
statement to become effective and remain effective
as provided herein;
(ii) cooperate with the Shareholders whose Stock
Consideration is to be registered by such
registration statement (the "Selling Shareholders")
and any underwriter who shall sell such Stock
Consideration in connection with their review of
LifeQuest made in connection with such registration;
(iii) prepare and file with the SEC such amendments and
supplements to such registration statement and the
prospectus used in connection therewith as may be
necessary to keep such registration statement
effective until the earlier to occur of the sale of
all of such Stock Consideration by the Shareholders
and one year after such registration statement
becomes effective, and to comply with the provisions
of the Securities Act and the Exchange Act with
respect to the disposition of all the Stock
Consideration covered by such registration statement
for such period;
(iv) furnish to the Selling Shareholders such number of
copies of the prospectus forming a part of such
registration statement (including each preliminary
prospectus), in conformity with the requirements of
the Securities Act, and such other documents as the
Selling Shareholders may reasonably request in order
to facilitate the disposition of such Stock
Consideration; and
(v) notify the Selling Shareholders at any time when a
prospectus relating to such Stock Consideration is
required to be delivered under the Securities Act,
of the happening of any event as a result of which
the prospectus forming a part of such registration
statement, as then in effect, includes an untrue
statement of a material fact or omits to state any
material fact required to be stated therein or
necessary to make the statements therein not
misleading in the light
5
<PAGE> 6
of the circumstances then existing, and at the
request of any Selling Shareholder, prepare and
furnish to the Selling Shareholders a reasonable
number of copies of any supplement to or any
amendment of such prospectus that may be necessary
so that, as thereafter delivered to the purchasers
of the Stock Consideration, such prospectus shall
not include 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 not misleading in light of the circumstances
then existing.
(d) Agreement by the Shareholders. In the event that a
Shareholder participates, pursuant to this Section 3, in the
offering of any of the Stock Consideration, each Shareholder
shall:
(i) furnish LifeQuest all material information
reasonably requested by LifeQuest concerning such
Shareholder and the proposed method of sale or other
disposition of such Stock Consideration and such
other information and undertakings as shall be
reasonably required in connection with the
preparation and filing of the registration statement
covering such Stock Consideration in order to ensure
full compliance with the Securities Act and the
rules and regulations of the SEC thereunder;
(ii) cooperate in good faith with LifeQuest and its
underwriters, if any, in connection with such
registration, including placing such Stock
Consideration in escrow or custody to facilitate the
sale and distribution thereof PROVIDED that such
escrow or custody arrangement shall be no more
restrictive upon such Shareholder than upon any
other holder of LifeQuest Stock for the benefit of
whom such registration is undertaken; and
(iii) make no further sales or other dispositions, or
offers therefor, of such Stock Consideration under
such registration statement if, during the
effectiveness of such registration statement, an
intervening event should occur which, in the opinion
of counsel to LifeQuest, makes the prospectus
included in such registration statement no longer
comply with the Securities Act, so long as written
notice containing the facts and legal conclusions
relied upon by LifeQuest in this regard has been
received by such Shareholder from LifeQuest, until
such time as such Shareholder has received from
LifeQuest copies of a new, amended or supplemented
prospectus complying with the Securities Act, which
prospectus shall be delivered to such Shareholder by
LifeQuest as soon as practicable after such notice.
(e) Allocation of Expenses. If and whenever LifeQuest is required
by the provisions of this Section 3 to use its best efforts
to effect the registration of any of the Stock Consideration
under the Securities Act, LifeQuest shall pay the costs and
expenses
6
<PAGE> 7
in connection therewith, other than the attorneys' fees of
counsel for any Shareholder; PROVIDED, HOWEVER, that the
Selling Shareholders shall pay all underwriting discounts,
selling commissions and stock transfer taxes attributable to
any of the Stock Consideration sold by them under such
registration statement.
(f) Indemnification.
(i) In the event of any registration of any of the Stock
Consideration under the Securities Act pursuant to
this Section 3, each Selling Shareholder
participating therein shall indemnify and hold
harmless LifeQuest, each director of LifeQuest, each
officer of LifeQuest who shall sign such
registration statement, each underwriter and any
person who controls LifeQuest or such underwriter
within the meaning of the Securities Act, and
LifeQuest's accountants and legal counsel, against
all expenses, claims, losses, damages and
liabilities (or actions or proceedings in respect
thereof) including any of the foregoing incurred in
settlement of any litigation, commenced or
threatened, with respect to any untrue statement of
any material fact in, or omission of any material
fact required to be stated therein or necessary to
make the statements therein, in light of the
circumstances in which they were made, not
misleading from such registration statement, any
preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, if
such statement or omission was made in reliance upon
and in conformity with written information furnished
to LifeQuest or its underwriter through an
instrument duly executed by or on behalf of such
Shareholder specifically for use in the preparation
of such registration statement, preliminary
prospectus, final prospectus or amendment or
supplement.
(ii) LifeQuest will indemnify each such Selling
Shareholder, his legal counsel and accountants and
each person controlling such Selling Shareholder
within the meaning of Section 15 of the Securities
Act, with respect to which registration,
qualification or compliance has been effected
pursuant to this Agreement, and each underwriter, if
any, and each person who controls any underwriter
within the meaning of Section 15 of the Securities
Act, against all expenses, claims, losses, damages
and liabilities (or actions or proceedings in
respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced
or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a
material fact contained in any registration
statement, prospectus, offering circular or other
document, or any amendment or supplement thereof,
incident to any such registration, qualification or
compliance, or arising out of or based on any
omission (or alleged omission) to state therein a
material fact required to be stated therein or
necessary to make the statements therein, in the
light of the circumstances
7
<PAGE> 8
in which they were made, not misleading, PROVIDED
that LifeQuest will not be liable to indemnify such
Selling Shareholders or underwriters in any such
case to the extent that any such claim, loss,
damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon
and in conformity with written information furnished
to LifeQuest by an instrument duly executed by or on
behalf of a Selling Shareholder or underwriter and
stated to be specifically for use therein.
(iii) Each party entitled to indemnification under this
Section 3(f) (the "Indemnified Party") shall give
notice to the party required to provide
indemnification (the "Indemnifying Party") promptly
after such Indemnified Party has actual knowledge of
any claim as to which indemnity may be sought, and
shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation
resulting therefrom, PROVIDED that counsel for the
Indemnifying Party, who shall conduct the defense of
such claim or litigation, shall be approved by the
Indemnified Party (whose approval shall not
unreasonably be withheld). Without limiting the
generality of the foregoing, the Indemnified Party
may withhold its consent to any such counsel who
also acts as counsel to the Indemnifying Party (with
respect to such claim or otherwise) if the
Indemnified Party reasonably believes that there
exists a conflict of interest between the
Indemnified Party and the Indemnifying Party, with
respect to such claim or litigation. In such event,
the Indemnifying Party shall bear the expense of
another counsel who shall represent the Indemnified
Party and any other persons or entities who have
indemnification rights from the Indemnifying Party
hereunder, with respect to such claim or litigation,
and shall be selected as provided in the first
sentence of this Section 3(f)(iii). The Indemnified
Party may participate in such defense at such
party's expense (except to the extent that the
Indemnifying Party is required to pay the expense of
such counsel pursuant to this Section 3(f)(iii)),
and PROVIDED further that the failure of any
Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its
obligations under this Agreement, unless such
failure is prejudicial to the Indemnifying Party in
defending such claim or litigation. No Indemnifying
Party, in the defense of any such claim or
litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment
or enter into any settlement which does not include
as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a
release from all liability with respect to such
claim or litigation.
(iv) If the indemnification provided for in this Section
3(f) is held by a court of competent jurisdiction to
be unavailable to an Indemnified Party with respect
to any loss, liability, claim, damage or expense
referred to therein, then the
8
<PAGE> 9
Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the
amount paid or payable by such Indemnified Party as
a result of such loss, liability, claim damage or
expense in such proportion as is appropriate to
reflect the relative fault of the Indemnifying Party
on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions
which resulted in such loss, liability, claim,
damage or expense as well as any other relevant
equitable considerations. The relative fault of the
Indemnifying Party and of the Indemnified Party
shall be determined by reference to, among other
things, whether the untrue or alleged untrue
statement of a material fact or the omission to
state a material fact relates to information
supplied by or on behalf of the Indemnifying Party
or by the Indemnified Party and the parties'
relative intent, knowledge, access to information
and opportunity to correct or prevent such statement
or omission.
(v) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution
contained in the underwriting agreement entered into
a connection with an underwritten public offering
are in conflict with the foregoing provisions, the
provisions in the underwriting agreement shall
control.
4. Marketing Restrictions.
(a) If:
(i) any Shareholder requests registration of any of the
Stock Consideration under Section 3(a) of this
Agreement, and
(ii) the offering proposed to be made is to be an
underwritten public offering, and
(iii) the managing underwriter or underwriters of such
public offering furnish a written opinion that the
total amount of securities to be included in such
offering would exceed the maximum number of shares
of the securities (as specified in a written opinion
of the managing underwriter or underwriters of such
public offering furnished to LifeQuest) which can be
marketed at a price reasonably related to the
current market value of such securities and without
otherwise materially and adversely affecting such
offering (the "Underwriter ----------- Maximum"),
then the Selling Shareholders, (1) if such
registration was not ------- initiated by LifeQuest
as a primary registration, shall be entitled to
participate in such relative proportions as all
holders of shares participating in such offering may
agree or, in the absence of such agreement, each
Selling Shareholder shall be entitled to participate
in the same proportion as the number of shares
proposed to be offered by such Selling Shareholder
bears to the Underwriter Maximum, and (2) if
LifeQuest has initiated such registration
9
<PAGE> 10
as a primary registration, then LifeQuest shall be
entitled to participate up to the full number of
shares of stock which LifeQuest deems necessary or
advisable to fulfill its strategic capital
requirements, with further successive pro rata
allocations among the Selling Shareholders if any
such Selling Shareholder has requested the
registration of fewer than all of such shares of the
Stock Consideration he is entitled to register.
(b) In connection with any offering involving an underwriting of
any of the Stock Consideration pursuant to Section 3(b) of
this Agreement, LifeQuest shall not be required to include
any of the Stock Consideration of a Selling Shareholder in
such offering unless such Selling Shareholder agrees to the
terms of the underwriting agreed to between LifeQuest and the
underwriter or underwriters selected by LifeQuest.
5. Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given if delivered personally, given
by prepaid telex or telegram or by facsimile or other similar
instantaneous electronic transmission device or mailed first class,
postage prepaid, certified United States mail, return receipt
requested, as follows:
If to LifeQuest, at:
LifeQuest Medical, Inc.
12961 Park Cental, Suite 1300
San Antonio, Texas 78216
Attention: Randall K. Boatright
Facsimile No.: (210) 495-4441
With a copy to:
Fulbright & Jaworski L.L.P.
300 Convent Street, Suite 2200
San Antonio, Texas 78205
Attention: Phillip M. Renfro
Facsimile No.: (210) 270-7205
If to a Shareholder, at the address of such Shareholder set
forth on the Schedule of Shareholders attached hereto.
6. GENERAL PROVISIONS.
10
<PAGE> 11
(a) Governing Law; Interpretation; Section Headings. This
Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York without
regard to conflict-of-laws rules as applied in New York. The
section headings contained herein are for purposes of
convenience only and shall not be deemed to constitute a part
of this Agreement or to affect the meaning or interpretation
of this Agreement in any way.
(b) Severability. Should any provision of this Agreement be held
unenforceable or invalid under the laws of the United States
of America or the Commonwealth of Pennsylvania, or under any
other applicable laws of any other jurisdiction, then the
parties hereto agree that such provision shall be deemed
modified for purposes of performance of this Agreement in
such jurisdiction to the extent necessary to render it lawful
and enforceable, or if such a modification is not possible
without materially altering the intention of the parties
hereto, then such provision shall be severed herefrom for
purposes of performance of this Agreement in such
jurisdiction. The validity of the remaining provisions of
this Agreement shall not be affected by any such modification
or severance, except that if any severance materially alters
the intentions of the parties hereto as expressed herein (a
modification being permitted only if there is no material
alteration), then the parties hereto shall use commercially
reasonable efforts to agree to appropriate equitable
amendments to this Agreement in light of such severance.
(c) Entire Agreement. This Agreement sets forth the entire
agreement and understanding of the parties hereto with
respect to the subject matter hereof and supersedes all prior
agreements, arrangements and understandings related thereto.
(d) Binding Effect. All the terms, provisions, covenants and
conditions of this Agreement shall be binding upon and inure
to the benefit of and be enforceable by the parties hereto
and their respective heirs, executors, administrators,
representatives, successors and assigns. Without limiting the
generality of the foregoing, the term "Shareholder" as used
in Section 3 shall include the heirs, successors and assigns
of Shareholders.
(e) Assignment. This Agreement and the rights of the parties may
be assigned by any party hereto without the prior written
consent of the other parties hereto, PROVIDED that no such
assignment shall relieve any party from its obligations under
this Agreement.
(f) Amendment; Waiver. This Agreement may be amended, modified,
superseded or canceled, and any of the terms, provisions,
representations, warranties, covenants or conditions hereof
may be waived, only by a written instrument executed by all
parties hereto, or, in the case of a waiver, by the party
waiving compliance. The failure of any party at any time or
times to require performance of any provision hereof shall in
11
<PAGE> 12
no manner affect the right to enforce the same. No waiver by
any party of any condition contained in this Agreement, or of
the breach of any term, provision, representation, warranty
or covenant contained in this Agreement, in any one or more
instances, shall be deemed to be or construed as a further or
continuing waiver of any such condition or breach, or as a
waiver of any other condition or of the breach of any other
term, provision, representation, warranty or covenant.
(g) Gender; Numbers. All references in this Agreement to the
masculine, feminine or neuter genders shall, where
appropriate, be deemed to include all other genders. All
plurals used in this Agreement shall, where appropriate, be
deemed to be singular, and vice versa.
(h) Counterparts. This Agreement may be executed simultaneously
in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument. This Agreement shall be binding when one
or more counterparts hereof, individually or taken together,
shall bear the signatures of the parties reflected hereon as
signatories.
(i) Telecopy Execution and Delivery. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one
or more parties hereto, and an executed copy of this
Agreement may be delivered by one or more parties hereto by
facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of
such party can be seen, and such execution and delivery shall
be considered valid, binding and effective for all purposes.
At the request of any party hereto, all parties hereto agree
to execute an original of this Agreement as well as any
facsimile, telecopy or other reproduction hereof.
(j) Expenses. In the event the transactions contemplated hereby
are not consummated, each of the parties will pay all costs
and expenses of its or his performance of and compliance with
this Agreement.
(k) Effect of Due Diligence. No investigation by or on behalf of
LifeQuest into the business, operations, prospects, assets or
condition (financial or otherwise) of the Seller shall
diminish in any way the effect of any representations or
warranties made by Seller in this Agreement or shall relieve
Seller of any of its obligations under this Agreement.
(l) Press Releases and Public Announcements. No party shall issue
any press release or make any public announcement relating to
the subject matter of this Agreement prior to the Closing
without the prior written approval of LifeQuest and Seller;
PROVIDED, however, that any party may make any public
disclosure it believes in good faith is required by
applicable law (in which case the disclosing party will use
its reasonable best efforts to advise the other parties prior
to making the disclosure).
12
<PAGE> 13
(m) Third Party Beneficiaries. This Agreement shall not confer
any rights or remedies upon any Person other than (i) the
parties hereto and (ii) the Shareholders not party to this
Agreement and (iii) their respective successors and permitted
assigns.
(n) Construction. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises,
this Agreement shall be construed as if drafted jointly by
the parties and no presumption or burden of proof shall arise
favoring or disfavoring any party by virtue of the authorship
of any of the provisions of this Agreement. Any reference to
any federal, state, local, or foreign statute or law shall be
deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise. The word
"including" shall mean including without limitation.
(o) Remedies Cumulative. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof
at law or in equity shall be cumulative and not alternative,
and the exercise or beginning of the exercise of any thereof
by any party shall not preclude the simultaneous or later
exercise of any other such right, power or remedy by such
party.
IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first above written.
LIFEQUEST:
LIFEQUEST MEDICAL, INC.
By:
------------------------------------
Randall K. Boatright
Executive Vice President and
Chief Financial Officer
SHAREHOLDERS:
SURGICAL VISIONS I, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
13
<PAGE> 14
TFX EQUITIES INCORPORATED
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
---------------------------------------
CHRISTOPHER K. BLACK
---------------------------------------
FREDERICK C. FEILER, JR.
---------------------------------------
JEROME F. FLAHERTY
---------------------------------------
CLARK GERHART, M.D.
---------------------------------------
MICHAEL O'REILLY, M.D.
---------------------------------------
WILLIAM B. SAYE, M.D.
14
<PAGE> 15
SCHEDULE OF SHAREHOLDERS
<TABLE>
<S> <C>
TFX Equities Incorporated(1) Jerome F. Flaherty
1787 Sentry Parkway West c/o Dexterity, Inc.
Building Sixteen, Suite 220 2705 Northwest Boulevard
Blue Bell, PA 19422 Columbus, OH 43221
Christopher K. Black(1) Clark Gerhart, M.D.
c/o Dexterity, Inc. 29th Street Office Complex
1787 Sentry Parkway West Building B. Suite 415
Building Sixteen, Suite 220 1201 North Church Street
Blue Bell, PA 19422 Hazleton, PA 19201
Surgical Visions I, Inc.(1) Michael O'Reilly, M.D.
Fulton 400 Corporate Center c/o ALTC
1495 Hembree Road, Suite 700 790 Church Street, Suite 380
Roswell, GA 30076 Marietta, GA 30060
Frederick C. Feiler, Jr. William B. Saye, M.D.
c/o Dexterity, Inc. c/o ALTC
925 Tanworth Drive 790 Church Street, Suite 380
Raleigh, NC 27615 Marietta, GA 30060
</TABLE>
(1) Requesting Shareholder
15
<PAGE> 1
EXHIBIT 11
DEXTERITY SURGICAL, INC. AND SUBSIDIARY
COMUTATION OF EARNINGS (LOSS) PER SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------------
1998 1999
------------ ------------
<S> <C> <C>
COMPUTATION OF BASIC LOSS PER SHARE
Net loss $ (659,817) $ (252,433)
Preferred Stock Dividends $ -- $ (43,783)
------------ ------------
Net loss available for common stock shareholders $ (659,817) $ (296,216)
WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING USED FOR COMPUTATION 6,706,136 7,646,075
============ ============
BASIC LOSS PER COMMON SHARE $ (.10) $ (.04)
============ ============
COMPUTATION OF DILUTED LOSS PER SHARE:
Net loss $ (659,817) $ (252,433)
Interest on Convertible Debentures $ 66,575 $ 67,500
------------ ------------
Net loss used for computation $ (593,242) $ (228,716)
============ ============
Weighted average shares of common stock outstanding 6,706,136 7,646,075
Weighted average incremental shares outstanding upon assumed
conversion of options and other dilutive securities 280,044 5,282
Weighted average incremental shares outstanding upon assumed
Conversion of preferred stock -- 1,368,229
Weighted average incremental shares outstanding upon assumed
conversion of Convertible Debentures 750,000 1,875,000
------------ ------------
WEIGHTED AVERAGE SHARES OF COMMON STOCK AND
COMMON STOCK EQUIVALENTS OUTSTANDING
USED FOR COMPUTATION 7,736,180 10,894,586
============ ============
DILUTED LOSS PER COMMON SHARE AND COMMON
SHARE EQUIVALENTS (a) $ (.08) $ (.02)
============ ============
</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>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE CONSOLIDATED
BALANCE SHEET AS OF MARCH 31,1999 AND THE YEAR TO DATE CONSOLIDATED STATEMENT OF
OPERATIONS FINANCIAL STATEMENTS FOR THE PERIOD THEN ENDED.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,645,784
<SECURITIES> 0
<RECEIVABLES> 4,502,949
<ALLOWANCES> 189,178
<INVENTORY> 3,131,651
<CURRENT-ASSETS> 9,237,307
<PP&E> 1,224,009
<DEPRECIATION> 498,442
<TOTAL-ASSETS> 30,444,276
<CURRENT-LIABILITIES> 8,506,533
<BONDS> 3,000,000
0
2
<COMMON> 10,213
<OTHER-SE> 13,286,662
<TOTAL-LIABILITY-AND-EQUITY> 30,444,276
<SALES> 5,926,193
<TOTAL-REVENUES> 5,989,495
<CGS> 3,453,521
<TOTAL-COSTS> 6,148,446
<OTHER-EXPENSES> 30,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 63,478
<INCOME-PRETAX> (296,212)
<INCOME-TAX> 0
<INCOME-CONTINUING> (296,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (296,212)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31,1998 AND THE YEAR TO DATE CONSOLIDATED
STATEMENT OF OPERATIONS FINANCIAL STATEMENTS FOR THE PERIOD THEN ENDED.
</LEGEND>
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,220,068
<SECURITIES> 146,403
<RECEIVABLES> 2,406,012
<ALLOWANCES> 216,573
<INVENTORY> 1,964,272
<CURRENT-ASSETS> 5,758,115
<PP&E> 1,568,191
<DEPRECIATION> 961,531
<TOTAL-ASSETS> 9,775,728
<CURRENT-LIABILITIES> 2,876,658
<BONDS> 3,000,000
0
0
<COMMON> 6,843
<OTHER-SE> 3,784,971
<TOTAL-LIABILITY-AND-EQUITY> 9,775,728
<SALES> 4,369,441
<TOTAL-REVENUES> 4,382,680
<CGS> 2,476,749
<TOTAL-COSTS> 4,935,945
<OTHER-EXPENSES> 35,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,097
<INCOME-PRETAX> (659,817)
<INCOME-TAX> 0
<INCOME-CONTINUING> (659,817)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (659,817)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
