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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(AMENDMENT NO. 3)
Under the Securities Exchange Act of 1934
Jalate, Ltd.
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(Name of Issuer)
Common Stock, no par value
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(Title of Class of Securities)
470145 10 3
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(CUSIP NUMBER)
John D. Robertson
Hartzog Conger & Cason
1600 Bank of Oklahoma Plaza
201 Robert S. Kerr
Oklahoma City, Oklahoma 73102
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(Name, Address and Telephone Number
of Person authorized to Receive
Notices and Communications)
November 1, 1998
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(Date of Event which Requires Filing
of this Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition which is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(b)(3) or (4), check the following
box [_____].
Note: Six copies of this statement, including all exhibits should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are
to be sent.
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CUSIP NO. 470145 10 3
1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
William M. DeArman
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2. Check the Appropriate Box if a Member of a Group (a) / /
(b) / X /
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3. SEC Use Only
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4. Source of Funds
00
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5. Check Box if Disclosure of Legal Proceedings is Required Pursuant to items
2(d) or 2(e)
/ /
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6. Citizenship or Place of Organization
United States
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7. Sole Voting Power
1,387,493 (consisting of 1,137,493 shares and 250,000
warrants exercisable within 60 days)
Number of -----------------------------------------------------------
Shares 8. Shared Voting Power
Beneficially
Owned by Each 4,200
Reporting Person -----------------------------------------------------------
With 9. Sole Dispositive Power
1,387,493 (consisting of 1,137,493 shares and 250,000
warrants exercisable within 60 days)
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10. Shared Dispositive Power
4,200
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11. Aggregate Amount Beneficially Owned by Each Reporting Person
1,391,893 (consisting of 1,141,893 shares and 250,000
warrants exercisable within 60 days)*
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12. Check Box if the Aggregate Amount in Row (11) Excludes Certain Shares
/ X /
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Excludes 17,500 shares held by or for the benefit of the reporting person's
children.
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13. Percent of Class Represented by Amount in Row (11)
26.9%
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14. Type of Reporting Person
IN
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*Includes 200 shares owned by an individual retirement account for the benefit
of Mr. DeArman's wife, Carol DeArman.
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The purpose of this Amendment No. 3 to the previously filed Schedule 13D
is to report that the ownership of William M. DeArman in the Common Stock, no
par value (the "Common Stock"), of Jalate, Ltd. (the "Issuer") has increased
from 17.3% to 26.9%.
Item 1. SECURITY AND ISSUER.
No change.
Item 2. IDENTITY AND BACKGROUND.
No change.
Item 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Effective as of November 1, 1998, Mr. DeArman converted the outstanding
principal balance of a promissory note executed by the Issuer in favor of
Mr. DeArman into 760,000 shares of Common Stock.
Item 4. PURPOSE OF TRANSACTION.
In connection with the transactions described herein, Mr. DeArman was
appointed to serve as a director of the Issuer. Except as described in the
preceding sentence, there is no change in Mr. DeArman's response to this
Item 4.
Item 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) Mr. DeArman is the beneficial owner of an aggregate of 1,391,893
shares of Common Stock (consisting of 1,141,893 shares and 250,000
warrants) representing approximately 26.9% of the Common Stock. Of this
amount, 1,136,493 shares and 250,000 warrants were purchased by Mr.
DeArman, 4,000 shares were purchased by a trust of which Mr. DeArman is the
sole beneficiary, 200 shares were purchased by an individual retirement
account for the benefit of Mr. DeArman, 200 shares were purchased by an
individual retirement account for the benefit of Mr. DeArman's wife, Carol
DeArman, and 1,000 shares were purchased by Mr. DeArman as custodian for
the benefit of certain of Mr. DeArman's children.
This amount does not include 3,000 shares held individually by one of
Mr. DeArman's children or 14,500 shares held by trusts for the benefit of
certain of Mr. DeArman's children. Mr. DeArman disclaims beneficial
ownership of these 17,500 shares held by or for the benefit of his
children.
(b) Mr. DeArman has the sole power to vote and to dispose of 1,137,493
shares of Common Stock of the Issuer and the sole power to dispose of the
250,000
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warrants. Mr. DeArman shares the power to vote and dispose of 4,200
shares. Delaware Charter Guarantee & Trust Company, P. O. Box 8963,
Wilmington, Delaware 19899-8963, shares the power to vote and dispose of
the 4,000 shares held in trust for Mr. DeArman. Merrill Lynch Pierce
Fenner & Smith, 3100 Texas Commerce Tower, Houston, Texas 77002 shares the
power to vote and dispose of the 200 shares held by Mr. DeArman's
individual retirement account. Merrill Lynch Pierce Fenner & Smith, 3100
Texas Commerce Tower, Houston, Texas 77002 and Mr. DeArman's wife, Carol
DeArman, share the power to vote and dispose of the 200 shares held by Mrs.
DeArman's individual retirement account.
(c) Effective as of November 1, 1998, Mr. DeArman acquired 760,000 shares
of Common Stock of the Issuer. These shares were acquired as the result of
the conversion of a promissory note in the principal amount of $475,000
executed by the Issuer in favor of Mr. DeArman. See Item 6 for further
details of this transaction.
(d) Not Applicable.
(e) Not Applicable.
Item 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
As previously reported, on January 27, 1998, the Issuer entered into
secured lending transactions with Mr. DeArman, John E. Drury, Don A. Sanders
and Katherine U. Sanders (collectively, the "Lenders"), whereby the Issuer
borrowed $475,000 from Mr. DeArman, $95,000 from Mr. Drury, $237,500 from Mr.
Sanders and $142,500 from Ms. Sanders. Each of these loans was payable in
full on January 31, 2000, accrued interest at the rate of ten percent (10%)
per annum and was subordinated to the Issuer's obligations to Heller
Financial, Inc. and/or Wells Fargo HSBC Trade Bank, N.A. Each of the loans
was secured by, among other things, (i) all of the capital stock of Air Shop,
Ltd., a New York corporation ("Air Shop"), owned by the Issuer, and (ii) all
of the Issuer's rights under a certain letter agreement among the Issuer,
Dominique Camacho and Air Shop dated October 17, 1997 with respect to an
investment by the Issuer in Air Shop. Mr. DeArman was appointed to act as
"agent" on behalf of all Lenders in the enforcement of their rights and
remedies under the promissory notes delivered to them by the Issuer and to
act as the secured party under a certain Security and Pledge Agreement
between the Issuer and Mr. DeArman. In connection with these secured lending
transactions, each of the Lenders also purchased, at a price of $.10 per
warrant, warrants (the "Warrants") entitling them to acquire up to 500,000
aggregate shares of Common Stock for $1.625 per share. Mr. DeArman, Mr.
Drury, Mr. Sanders and Ms. Sanders purchased 250,000 Warrants, 50,000
Warrants, 125,000 Warrants and 75,000 Warrants, respectively. In October
1998, Mr. Sanders assigned to Ms. Sanders (x) the promissory note evidencing
4
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the $237,500 indebtedness owing by the Issuer to Mr. Sanders, and (y)
Warrants entitling Mr. Sanders to purchase up to 125,000 shares of Common
Stock.
Effective as of November 1, 1998, the Issuer entered into a Conversion
Agreement with Mr. DeArman, John E. Drury and Katherine U. Sanders, whereby
Messrs. DeArman and Drury and Ms. Sanders each converted the outstanding
principal amounts of the promissory notes delivered to them by the Issuer
(including the promissory note assigned by Mr. Sanders to Ms. Sanders) into
shares of Common Stock at a conversion rate of $0.625 per share. Mr.
DeArman, as "agent" for the Lenders released all of the collateral securing
the payment of the promissory notes. Pursuant to the terms of the Conversion
Agreement, the Issuer also appointed Mr. DeArman to serve as a director of
the Issuer and granted to Messrs. DeArman and Drury and Ms. Sanders certain
"piggyback" registration rights for the shares of Common Stock received in
exchange for their respective promissory notes. Finally, pursuant to the
terms of the Conversion Agreement, the purchase price of the Warrants was
reduced from $1.625 per share to $0.625 per share and the expiration date of
the Warrants was extended until November 1, 2003.
Contemporaneous with the execution of the Conversion Agreement, Mr.
DeArman entered into a Voting Agreement with the Issuer, Larry Brahim and
Vinton W. Bacon, whereby Messrs. Brahim and Bacon agreed to vote all shares
of Common Stock beneficially owned by them in favor of Mr. DeArman's election
to the Issuer's Board of Directors. Mr. Brahim and Mr. Bacon's obligation to
vote in favor of Mr. DeArman's election to the Issuer's Board of Directors
will continue so long as Mr. DeArman continues to beneficially own at least
10% of the outstanding Common Stock.
Item 7. MATERIAL TO BE FILED AS EXHIBITS.
99.7 Conversion Agreement, dated as of November 1, 1998, among Jalate,
Ltd., Katherine U. Sanders, John E. Drury and William M. DeArman
99.8 Voting Agreement, dated as of November 1, 1998, among Jalate, Ltd.,
William M. DeArman, Larry Brahim and Vinton W. Bacon.
5
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete
and correct.
DATED: November 11, 1998.
/s/ William M. DeArman
---------------------------------------------
William M. DeArman
6
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CONVERSION AGREEMENT
This Conversion Agreement (the "AGREEMENT") is entered into as of
November 1, 1998, by and among Jalate, Ltd., a California corporation (the
"COMPANY), Katherine U. Sanders, an individual ("MS. SANDERS"), John E.
Drury, an individual ("MR. DRURY"), and William M. DeArman, an individual
("MR. DEARMAN") (Ms. Sanders, Mr. Drury and Mr. DeArman hereinafter are
referred to individually as a "HOLDER" and collectively as the "HOLDERS"),
with reference to the following facts:
A. The Company has executed those certain Subordinated Secured
Promissory Notes all dated as of January 27, 1998, in the amounts and in
favor of the Holders as set forth on SCHEDULE 1 hereto (the "NOTES") (a Note
in the amount of $237,500 was originally issued by the Company to Don A.
Sanders, an individual, ("MR. SANDERS"), who subsequently assigned such Note
to Ms. Sanders).
B. In connection with the execution of the Notes, (i) the Holders
entered into an Agency and Intercreditor Agreement (the "INTERCREDITOR
AGREEMENT") between the Holders and Mr. DeArman as "SECURED PARTY," pursuant
to which, among other things, Secured Party was appointed as "Agent" for the
Holders; and (ii) the Company entered into a Security and Pledge Agreement
dated as of January 27, 1998 (the "SECURITY AND PLEDGE AGREEMENT") between
the Company and the Secured Party, pursuant to which the Company conveyed,
assigned, transferred, delivered, pledged and granted to Secured Party a
security interest in and to the Collateral (as defined in the Security and
Pledge Agreement).
C. The Company has executed those certain Stock Purchase Warrants all
dated January 27, 1998 with the Holders, each as identified on SCHEDULE 2
hereto (the "WARRANTS") (Warrant No. 1 was originally issued to Mr. Sanders,
who subsequently assigned such Warrant to Ms. Sanders).
D. The Company wishes to convert (the "CONVERSION") the outstanding
principal amounts of the Notes into shares of common stock, no par value, of
the Company ("COMMON STOCK") at a conversion rate of $0.625 per share of
Common Stock, and each of the Holders wishes to receive such shares of Common
Stock in full satisfaction of the principal amounts owed to them under the
Notes.
E. As a condition to the willingness of the Holders to effect the
Conversion, the Company has agreed to reduce the exercise prices of the
Warrants and extend the expiration dates under the Warrants as described
herein.
NOW, THEREFORE, based on the above premises and in consideration of the
mutual covenants and agreements contained herein and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged,
the parties agree as follows:
1. CONVERSION OF NOTES INTO COMMON STOCK. The parties hereby agree
that the outstanding principal amount of the Notes shall be converted into
shares of Common Stock at a conversion rate of $0.625 per share of Common
Stock. The number of shares of Common Stock to be received by each Holder in
connection with the Conversion is shown in SCHEDULE 1 attached hereto
("CONVERSION SHARES"). Each of the Holders hereby agrees that receipt of the
Conversion Shares by each of them pursuant to this Section 1 shall be in full
satisfaction and discharge of the principal amounts owed to them by the
Company under their respective Notes.
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1.1 DELIVERY OF STOCK CERTIFICATES AND CANCELLED NOTES; LISTING
APPLICATION. Concurrently herewith the Company is issuing to the Holders
certificates evidencing their respective Conversion Shares in the names of
such Holders, and the accrued and unpaid interest due on each of the Notes as
indicated on SCHEDULE 1 attached hereto, and the Holders are delivering the
original Notes to the Company marked "CANCELLED." The Company will file an
application to list the Conversion Shares on the American Stock Exchange in
connection with the earlier of (i) the registration of the Conversion Shares
pursuant to the registration rights granted under Section 3 hereof, (ii) such
date as the Conversion Shares may be sold pursuant to Rule 144 promulgated
under the Securities Act of 1933, as amended (the "ACT"), or (iii) any other
listing application filed by the Company with the American Stock Exchange
with respect to which it would be cost-effective (as determined by the
Company) to also list the Conversion Shares; PROVIDED, HOWEVER, that in any
event the Company will file the listing application with the American Stock
Exchange by November 1, 1999.
1.2 TERMINATION OF SECURITY AND PLEDGE AGREEMENT. The Company and
Secured Party hereby agree that the Security and Pledge Agreement is hereby
terminated and of no further force and effect and concurrently herewith the
Secured Party is returning the Collateral to the Company.
1.3 RESTRICTIONS ON TRANSFER. The Holders hereby acknowledge that
(i) the Conversion Shares have not been registered under the Act, and are
"restricted securities" within the meaning of Rule 144 under the Act; and
(ii) the Conversion Shares may not be sold, transferred or pledged by such
Holders unless the Company shall have been supplied with reasonably
satisfactory evidence that such transfer is not in violation of the Act and
any applicable state securities laws. The Company may place a legend to that
effect on each certificate representing shares issuable to the Holders
pursuant to this Section 1.3.
2. AMENDMENTS TO WARRANTS. The parties agree that each of the
Warrants is hereby amended as follows (capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Warrant
Agreements):
(a) The Purchase Price set forth in the introductory paragraph
is hereby changed from "$1.625" to "$0.625."
(b) The Expiration Date is hereby changed from "January 27,
2003" to "November 1, 2003."
(c) Section 1.1 is hereby deleted and replaced with the following:
"This Warrant may be exercised in whole or in part at any time, and from time
to time, during the period commencing on the date of this Warrant and
expiring on November 1, 2003."
3. REGISTRATION RIGHTS. The Conversion Shares will be entitled to the
registration rights set forth in EXHIBIT A attached hereto.
4. VOTING AGREEMENT. As an inducement to the Holders to enter into
this Agreement and effect the Conversion, simultaneously with the execution
and delivery of this Agreement, Larry Brahim and Vinton W. Bacon have each
executed and delivered a voting agreement substantially in the form set forth
in EXHIBIT B attached hereto.
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5. APPOINTMENT OF DIRECTOR. Simultaneously with the execution and
delivery of this Agreement, the Company appoints Mr. DeArman to serve as a
director of the Company and Mr. DeArman accepts such appointment.
6. REPRESENTATIONS OF HOLDERS. As a material inducement to the
Company to enter into this Agreement, each of the Holders individually
represents and warrants to the Company as follows:
6.1 SOLE OWNERSHIP OF NOTES; NO ENCUMBRANCES. Holder is the sole
owner of his or her Note, in the outstanding principal amount, plus accrued
and unpaid interest thereon, as set forth on such SCHEDULE 1, free and clear
of all liens, claims, security interests or any other encumbrances
whatsoever. Holder has not transferred any of its interests in his or her
Note.
6.2 AUTHORIZATION. Holder has full right, power, capacity and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. This Agreement has been duly executed and delivered
by Holder, and constitutes the legal, valid and binding obligation of Holder,
enforceable against Holder in accordance with its terms.
6.3 INVESTMENT. Holder is an "accredited investor" within the
meaning of Regulation D promulgated under the Act. Holder is acquiring the
Conversion Shares for its own account for investment and not with a view to a
distribution thereof in violation of the Securities Act.
7. REPRESENTATIONS OF COMPANY. As a material inducement to the
Holders to enter into this Agreement, the Company represents and warrants to
each of the Holders as follows:
7.1 ORGANIZATION AND GOOD STANDING; AUTHORIZATION; ABSENCE OF
CONFLICTS. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California and is duly
qualified to transact business as a foreign corporation in each jurisdiction
where the nature of its business or its ownership of property requires such
qualification, except where the failure to be so qualified would not be
reasonably likely to have a material adverse effect on the Company's
financial condition or results of operation (a "MATERIAL ADVERSE EFFECT").
The Company has full right, power, capacity and authority to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement has been duly executed and delivered by the Company, and
constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The execution,
delivery and performance of this Agreement by the Company do not violate or
conflict with or constitute a default under the Company's articles of
incorporation or bylaws or any agreement or contract to which the Company is
a party, except where such violation, conflict or default would not be
reasonably likely to have a Material Adverse Effect.
7.2 ISSUANCE OF SHARES. The issuance and delivery of the
Conversion Shares has been duly authorized by all necessary corporate action
on the part of the Company. The Conversion Shares when issued in accordance
with the provisions of this Agreement will be duly and validly issued, fully
paid and non-assessable.
7.3 CONVERSION RATE. As of the approval of this Agreement by the
Company's Board of Directors, the conversion rate of $0.625 per share was
higher than the greater of book or market value of the Common Stock.
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8. INDEMNIFICATION. The Company, on one hand, and the Holders, on the
other hand, hereby agree to defend, indemnify and hold harmless the other and
their respective affiliates, officers, directors, controlling persons,
agents, representatives and employees from and against all liabilities,
damages, losses, costs and expenses (including reasonable attorneys' fees and
other professionals' fees) which they may incur by reason of any breach of
the representations, warranties and covenants made by the Company or such
Holder herein.
9. MISCELLANEOUS.
9.1 AMENDMENTS. This Agreement may be amended or supplemented at
any time by the mutual written consent of the parties.
9.2 ENTIRE AGREEMENT. This Agreement, its exhibits and the
documents executed in connection herewith, constitute the entire agreement
between the parties hereto with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
9.3 BINDING EFFECT, BENEFITS. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective
successors and assigns. Notwithstanding anything contained in this Agreement
to the contrary, nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties hereto or their respective
successors and assigns, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except Section 8 hereof which shall
inure to the benefit of and be enforceable by indemnified parties.
9.4 ASSIGNABILITY. Neither this Agreement nor any of the parties'
rights hereunder shall be assignable by a party without the prior written
consent of the other parties; PROVIDED, HOWEVER, that a Holder may assign the
registration rights set forth in Exhibit A hereto to any transferee of the
Conversion Shares so long as (i) the Holder provides written notice to the
Company of such assignment within thirty (30) days of the transfer and (ii)
the transferee agrees in writing to be bound by all of the terms of EXHIBIT
A; and PROVIDED FURTHER that in no event may the registration rights set
forth in EXHIBIT A be assigned in such a manner that more than ten persons
are entitled to the benefits thereof.
9.5 NOTICES. All notices under this Agreement will be in writing
and will be delivered by personal service, facsimile transmission or
telegram, telecopy, certified mail (if such service is not available, then by
first class mail), postage prepaid, to such address as may be designated from
time to time by the relevant party, and which will initially be as set forth
in each party's signature block set forth below. Any notice sent by
certified mail will be deemed to have been given three (3) days after the
date on which it is mailed. All other notices will be deemed given when
received. No objection may be made to the manner of delivery of any notice
actually received in writing by an authorized agent of a party.
9.6 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of California,
without regard to any applicable conflicts of law principles thereof,
including all matters of construction, validity and performance.
9.7 FEES AND EXPENSES. Each party shall bear and be responsible
for all of the fees and expenses incurred by it in connection with the
transactions contemplated by this
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Agreement; PROVIDED, HOWEVER, that the Company will pay the fees and expenses
(up to $1,500) of one attorney for the Holders selected by Mr. DeArman.
9.8 SEVERABILITY. The validity, legality or enforceability of the
remainder of this Agreement will not be affected even if one or more of the
provisions of this Agreement will be held to be invalid, illegal or
unenforceable in any respect.
9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of
which shall be one and the same document.
[signatures on following page]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
"COMPANY" "SECURED PARTY"
JALATE, LTD.,
a California corporation
------------------------------------
William M. DeArman, an individual
By: Address: 5420 Huckleberry Lane
----------------------------- Houston, Texas 77056
John Diesenbruch Fax: (713) 552-1505
Vice President and Chief
Financial Officer
Address: 2085 South Garfield Street "HOLDERS"
City of Commerce, CA 90040
Fax: (213) 728-3752
------------------------------------
Katherine U. Sanders, an individual
Address: 4014 Inverness
Houston, Texas 77109
Fax: (713) 250-4298
Attn: Don A. Sanders
------------------------------------
John E. Drury, an individual
Address: c/o USA Waste Services, Inc.
First City Tower, Suite 4000
Houston, Texas 77002
Fax: (713) 512-6323
------------------------------------
William M. DeArman, an individual
Address: 5420 Huckleberry Lane
Houston, Texas 77056
Fax: (713) 552-1505
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SCHEDULE 1
NOTES AND HOLDERS
<TABLE>
<CAPTION>
Number of Accrued and
Conversion Unpaid
Holder Note Amount Shares Interest
------ ----------- ------ --------
<S> <C> <C> <C>
Katherine U. Sanders(1) $237,500 380,000 $2,045.14
Katherine U. Sanders $142,500 228,000 $1,227.08
John E. Drury $95,000 152,000 $ 818.06
William M. DeArman $475,000 760,000 $4,090.28
-------- ------- ---------
Total $950,000 1,520,000 $8,180.56
</TABLE>
- ---------------------
(1) By assignment from Don A. Sanders.
<PAGE>
SCHEDULE 2
WARRANTS
1. Series A Warrant No. 1, Stock Purchase Warrant issued by the Company to
Don A. Sanders on January 27, 1998, covering right to purchase up to
125,000 shares of Common Stock at an exercise price of $1.625 per share,
and subsequently assigned by Don A. Sanders to Katherine U. Sanders
2. Series A Warrant No. 2, Stock Purchase Warrant issued by the Company to
Katherine U. Sanders on January 27, 1998, covering right to purchase up to
75,000 shares of Common Stock at an exercise price of $1.625 per share.
3. Series A Warrant No. 3, Stock Purchase Warrant issued by the Company to
John E. Drury on January 27, 1998, covering right to purchase up to 50,000
shares of Common Stock at an exercise price of $1.625 per share.
4. Series A Warrant No. 4, Stock Purchase Warrant issued by the Company to
William M. DeArman on January 27, 1998, covering right to purchase up to
250,000 shares of Common Stock at an exercise price of $1.625 per share.
<PAGE>
EXHIBIT A
REGISTRATION RIGHTS
1. "PIGGYBACK" REGISTRATION. If at any time the Company proposes to file a
registration statement under the Act with respect to an offering of its
Common Stock (other than a registration statement on Form S-4 or Form S-8 or
any successor or similar forms), whether or not for sale for its own account,
then the Company each such time shall give the Holder ten (10) business days
written notice before the filing thereof, which such notice shall offer the
Holder the opportunity to register all of such Holder's Conversion Shares
which do not qualify for an exemption from such registration under Rule 144
under the Securities Act of 1933, as amended (the "ACT") or a comparable or
successor exemption from registration ("REGISTRABLE SHARES"). The Company
shall include in such registration statement all of the Holder's Registrable
Shares with respect to which the Company has received written request for
inclusion within ten (10) business days after notice has been duly given by
the Company. Notwithstanding the foregoing, the Company shall not be required
to include the Holder's Registrable Shares if the managing underwriter or
underwriters of such offering determine and advise the Company that inclusion
of the Registrable Shares and any other shares having "piggyback"
registration rights (the "OTHER SHARES") would likely adversely affect such
offering. If the managing underwriter or underwriters determine that a
portion of the Registrable Shares and Other Shares may be included in the
offering, the Registrable Shares and the Other Shares shall be included in
the registration on a pro rata basis (in relation to the number of such
Registrable Shares and Other Shares so requested to be included in the
offering).
The Holders acknowledge that nothing contained herein shall require or
obligate the Company to cause any registration statement pursuant to which
the Holder has exercised its "piggyback" registration rights pursuant to this
EXHIBIT A to become effective or, if declared effective, to maintain the
effectiveness of such registration statement.
2. REGISTRATION EXPENSES. Except as otherwise required by state securities
laws or the rules and regulations promulgated thereunder, all expenses,
disbursements and fees incurred by the Company in connection with carrying
out its obligations under this EXHIBIT A shall be borne by the Company;
provided, however, that the Holder shall pay (i) all costs and expenses of
counsel, accounting or financing professionals retained by such Holder, (ii)
all underwriting discounts, commissions, fees and expenses and all transfer
taxes with respect to the shares sold by such Holder, and (iii) all other
expenses incurred by such Holder and incidental to the sale and delivery of
the shares to be sold by such Holder.
3. CONDITIONS TO HOLDER'S RIGHTS. It shall be a condition of the Holder's
rights under this EXHIBIT A that:
3.1. COOPERATION. Such Holder shall cooperate with the Company by
supplying information and executing documents relating to such Holder or the
securities of the Company owned by such Holder in connection with such
registration which are customary for offerings of this type or is required by
applicable laws or regulations (including agreeing to sell such Holder's
Registrable Securities on the basis provided in any underwriting arrangements
containing customary terms reasonably satisfactory to such Holder); and
<PAGE>
3.2. UNDERTAKINGS. Such Holder shall enter into any undertakings and
take such other action relating to the conduct of the proposed offering which
the Company or the underwriters may reasonably request as being necessary to
insure compliance with federal and state securities laws and the rules or
other requirements of the National Association of Securities Dealers, Inc. or
the American Stock Exchange, or which the Company or the underwriters may
reasonably request to otherwise effectuate the offering.
4. DISCONTINUATION OF USE OF PROSPECTUS. The Holder agrees that upon
receipt of any written notice from the Company that the prospectus included
in the registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state any material fact required to
be stated therein or necessary to make the statements therein not misleading,
in the light of the circumstances under which they were made, the Holder will
forthwith discontinue its disposition of Registrable Shares pursuant to the
registration statement relating to such Registrable Shares until the Holder's
receipt of the copies of the supplemented or amended prospectus and, if so
directed by the Company, will deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in the Holder's
possession, of the prospectus relating to such Registrable Shares current at
the time of receipt of such notice.
5. INDEMNIFICATION.
5.1. INDEMNIFICATION BY THE COMPANY. In the event of any registration
of any Registrable Shares under the Act, the Company will, and it hereby
does, indemnify and hold harmless, to the full extent permitted by law, each
Holder, its directors, officers, partners, heirs, personal representatives,
agents and affiliates and each other person, if any, who controls such Holder
within the meaning of the Act, against any and all losses, claims, damages or
liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) which arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any registration
statement under which such securities were registered under the Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances in
which they were made not misleading, and the Company will reimburse each
Holder and each such director, officer, partner, heir, personal
representative, agent or affiliate, and controlling person for any legal or
any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding; provided, however, that the Company
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shall not be liable in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration
statement, any such preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement (i) in reliance upon and in conformity
with written information furnished to the Company through an instrument duly
executed by or on behalf of such Holder, specifically stating that it is for
use in the preparation thereof or (ii) whichis corrected in an amendment or
supplement or final prospectus (or amendment or supplement thereto) provided
to the indemnified person and such amended, supplemented or final prospectus
(or amendment or supplement thereto) was not given by or on behalf of such
indemnified person to the person who purchased the Registrable Securities, if
such is required by law at or prior to the written confirmation of the sale
of the Registrable Securities to such person; and provided, further, that the
Company shall not be liable to any person to the extent that any such loss,
claim, damage, liability (or action or proceeding in respect thereof) or
expense arises out of or is based upon any violation by such person of the
Act or the Securities Exchange Act of 1934, as amended. Such indemnity shall
remain in full force regardless of any investigation made by or on behalf of
such Holder or any such director, officer, partner, heir, personal
representative, agent or affiliate or controlling person and shall survive
the transfer of such securities by such Holder.
5.2. INDEMNIFICATION BY THE HOLDERS. As a condition to including any
Registrable Shares of a Holder in any registration statement, the Company
shall have received an undertaking reasonably satisfactory to it from such
Holder, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 5.1 of this EXHIBIT A) the Company, its
directors, officers, agents and affiliates and each other person, if any, who
controls the Company within the meaning of the Act, with respect to any
statement or alleged statement in or omission or alleged omission from such
registration statement, any preliminary prospectus, final prospectus or
summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission (i)
was made in reliance upon and in conformity with written information
furnished to the Company through an instrument duly executed by such Holder
specifically stating that it is for the use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement or (ii) is corrected in an amendment or
supplement or final prospectus (or amendment or supplement thereto) provided
to the indemnifying person and such amended, supplemented or final prospectus
(or amendment or supplement thereto) was not given by or on behalf of such
indemnifying person to the person who purchased the Registrable Securities,
if such is required by law at or prior to the written confirmation of the
sale of the Registrable Securities to such person; provided, however, that
the liability of such indemnifying party under this Section 5.2 of EXHIBIT A
shall be limited to the amount of proceeds received by such Holder in the
offering giving rise to such liability. Such indemnity shall remain in full
force and effect, regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person and shall survive
the transfer of such securities by such Holder.
5.3. NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding involving a claim referred to in the preceding subsections of this
Section 5 of EXHIBIT A, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to
the latter of the commencement of such action; provided, however, that the
failure of any indemnified party to give notice as provided herein shall not
relieve the indemnifying party of its obligations under the preceding
subsections of this Section 5 of EXHIBIT A, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. In
case any such claim or action is brought against an indemnified party, the
indemnifying party shall be entitled to participate in and, unless
representation of such indemnified party and any such indemnifying party by
the same counsel would be inappropriate under applicable standards of
professional conduct (whether or not such representation by the same counsel
has been proposed) due to actual or potential differing interests between
them, to assume the defense thereof, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with counsel
reasonably satisfactory to such indemnified party, and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party
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<PAGE>
shall not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
other than reasonable costs of investigation. No indemnifying party shall be
liable for any settlement of any action or proceeding effected without its
written consent. No indemnifying party shall, without the consent of the
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 in respect to such claim or litigation. An indemnifying party who
is not entitled to, or elects not to, assume the defense of a claim will not
be obligated to pay the fees and expenses of more than one counsel for all
parties indemnified by an indemnifying party with respect to such claim,
unless representation of such indemnified parties by the same counsel would
be inappropriate under applicable standards of professional conduct (whether
or not such representation by the same counsel has been proposed) due to
actual or potential differin interests between them with respect to such
claim, in which event the indemnifying party shall be obligated to pay the
fees and expenses of such additional counsel or counsels.
5.4. CONTRIBUTION. If the indemnification provided for in this Section
5 of EXHIBIT A shall for any reason be held by a court to be unavailable to
an indemnified party under Section 5.1 or 5.2 of EXHIBIT A hereof in respect
of any loss, claim, damage or liability, or any action in respect thereof,
then, in lieu of the amount paid or payable under Section 5.1 or 5.2 of
EXHIBIT A hereof, the indemnified party and the indemnifying party under
Section 5.1 or 5.2 of EXHIBIT A hereof shall contribute to the aggregate
losses, claims, damages and liabilities (including legal or other expenses
reasonably incurred in connection with investigation of the same), (a) in
such proportion as is appropriate to reflect the relative fault of the
Company and the Holder with respect to the acts, statements or omissions
which resulted in such loss, claim, damage or liability, or action in respect
thereof, as well as any other relevant equitable considerations or (b) if the
allocation provided by clause (a) above is not permitted by applicable law,
in such proportion as shall be appropriate to reflect the relative benefits
received by the Company and the Holder from the offering of the securities
covered by such registration statement. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. In addition, no person shall be obligated to
contribute hereunder any amounts in payment for any settlement of any action
or claim effected without such person's consent, which consent shall not be
unreasonably withheld.
5.5. OTHER INDEMNIFICATION. Indemnification and contribution similar to
that specified in the preceding subdivisions of this Section 5 of EXHIBIT A
(with appropriate modifications) shall be given by the Company and the Holder
with respect to any required registration or other qualification of
securities under any federal or state law or regulation of any governmental
authority other than the Act.
5.6. INDEMNIFICATION PAYMENTS. The indemnification and contribution
required by this Section 5 of EXHIBIT A shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.
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<PAGE>
VOTING AGREEMENT
This Voting Agreement (the "Agreement") is made and entered into this
1st day of November, 1998, between and among Jalate, Ltd., a California
corporation (the "Company"), Vinton W. Bacon ("Mr. Bacon"), Larry Brahim
("Mr. Brahim"), and William M. DeArman ("Mr. DeArman") (Mr. Bacon and Mr.
Brahim are hereinafter collectively referred to as the "Shareholders").
A. The Company, Mr. DeArman, Katherine U. Sanders and John E. Drury
(Mr. DeArman, Mr. Drury and Ms. Sanders are hereinafter collectively referred
to as the "Holders") have agreed to enter into a Conversion Agreement (the
"Conversion "greement") which contemplates, among other things, the
conversion of the outstanding principal amounts of certain subordinated
secured promissory notes held by the Holders into shares of common stock, no
par value, of the Company ("Common Stock").
B. The Shareholders acknowledge that, as shareholders of the Company,
they will personally derive material benefits from the consummation of the
transactions contemplated by the Conversion Agreement. The Shareholders
further acknowledge and agree that the Holders are not willing to enter into
the Conversion Agreement unless the Shareholders execute this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements set forth herein and in the Conversion
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto covenant and
agree as follows:
1. OBLIGATION TO VOTE COMPANY STOCK. Provided that Mr. DeArman
continues to beneficially own (within the meaning of Rule 13d-3 of the
Securities Exchange Act of 1934, as amended) at least ten percent (10%) of
the issued and outstanding Common Stock, each of the Shareholders shall vote
all shares of Common Stock beneficially owned by him for the election of Mr.
DeArman to the Board of Directors of the Company. The type of securities
which Mr. DeArman is required to beneficially own and which the Shareholders
are required to vote pursuant to this Section 1 shall be appropriately
adjusted to reflect any stock dividend, recapitalization or similar action.
2. SPECIFIC PERFORMANCE. The parties agree that this Agreement may be
enforced by any party hereto by bringing suit in any court having
jurisdiction within the State of California, County of Los Angeles, for
specific performance of the terms of this Agreement, it being specifically
agreed that damages at law would be inadequate to compensate for breach of
this Agreement (provided, however, that the right to any such damages is not
waived by any of the Holders). In any action brought by a party hereto to
enforce the obligations of any other party hereto, the prevailing party shall
be entitled to collect from the other parties to such action such party's
reasonable attorneys' fees, court costs and other expenses incidental to such
litigation.
<PAGE>
3. GENERAL. In the event that any term or provision of this Agreement
is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms and provisions of this Agreement
shall remain in full force and effect and shall in no way be affected,
impaired or invalidated. Neither this Agreement nor any of the parties=
rights or obligations hereunder shall be assignable by a party without the
prior written consent of all of the parties hereto. This Agreement may not
be amended except by a written instrument executed by all of the parties
hereto. This Agreement may be executed in separate counterparts, each of
which when executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument. This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of California, without regard to any applicable conflicts
of law principles thereof, including all matters of construction, validity
and performance.
IN WITNESS WHEREOF, this Agreement has been duly executed by each of the
parties as of the date first above written.
COMPANY: JALATE, LTD.
By:
-----------------------------------------
John Diesenbruch, Vice President and Chief
Financial Officer
SHAREHOLDERS:
-----------------------------------------
Vinton W. Bacon
-----------------------------------------
Larry Brahim
MR. DeARMAN:
-----------------------------------------
William M. DeArman
