INVESTMENT AGREEMENT
BETWEEN
FOCUS SURGERY, INC.
AND
MISONIX, INC.
MAY 3, 1999
INVESTMENT AGREEMENT
This Investment Agreement ("Agreement") is entered into as of the 3rd
day of May, 1999 by and between FOCUS SURGERY, INC, a Delaware corporation (the
"Company"), and MISONIX, INC., a New York corporation ("Misonix").
PRELIMINARY STATEMENTS
The Company is principally engaged in the business, among other things, of
developing and commercializing products which accomplish prostate therapy and
general surgical applications using High Intensity Focused Ultrasound ("HIFU").
The Company and Misonix mutually recognize that potential business opportunities
exist in the field of HIFU, including investment by Misonix in the equity
securities of the Company and certain agreements regarding development,
commercialization and production of HIFU products. Capitalized terms not
otherwise defined herein have the meanings ascribed to them in Article IX.
TERMS AND CONDITIONS
In consideration of the mutual covenants, agreements, representations, and
warranties contained in this Agreement and intending to be legally bound, the
Company and Misonix agree as follows:
ARTICLE I.
PURCHASE OF CONVERTIBLE SERIES M PREFERRED STOCK
Section 1.1. Purchase and Sale. Subject to the terms and conditions of this
Agreement, Misonix agrees to purchase from the Company and the Company agrees to
sell, convey and deliver to Misonix Two Thousand Five Hundred (2,500) shares of
the 4% Convertible Series M Preferred Stock, without par value, of the Company
("Preferred Stock"), representing 20% of the issued and outstanding capital
stock (of all classes) of the Company, calculated on a fully diluted and
converted basis as provided in Schedule 1.1 hereof at a purchase price of One
Thousand Two Hundred Dollars ($1,200.00) per share, for an aggregate amount of
Three Million Dollars ($3,000,000.00) ("Purchase Price").
The Company agrees that all Preferred Stock issued to Misonix pursuant to
this Agreement shall be validly issued, fully paid, and nonassessable and all
Preferred Stock shall be issued to Misonix free and clear of all liens,
encumbrances, equitable rights of third parties, options, claims, pledges, and
other limitations on the ownership, voting, convertibility, or transferability
of the Preferred Stock, except as contemplated by this Agreement. The terms of
the Preferred Stock shall be as set forth in the Restated Certificate of
Incorporation of the Company, a copy of which is annexed hereto as Exhibit 1.1.
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Section 1.2. Subsequent Purchase and Sale of Additional Preferred Stock.
Subject to the terms and conditions of this Agreement, and so long as the
Company is not in default in any material respect of this Agreement (after the
Company has had a reasonable opportunity to cure such default following notice
from Misonix) or the agreements incident thereto, Misonix agrees to purchase
from the Company and the Company agrees to sell to Misonix Eight Hundred
Ninety-Three (893) additional shares (the "Additional Shares") of the Company's
Series M Preferred Stock at a purchase price of One Thousand Six Hundred Eighty
Dollars ($1,680.00) per share, for an aggregate amount of One Million Five
Hundred Thousand Two Hundred Forty Dollars ($1,500,240.00) (the "Additional
Purchase Price"). The purchase and sale of the Additional Shares shall be
completed within thirty (30) days after Misonix has received written notice from
the Company certifying satisfaction of both of the following conditions: (a) the
Company has received a Pre-Market Approval from the United States Food and Drug
Administration with respect to use of the Company's Sonablate(TM) product for
Benign Prostatic Hyperplasia treatment in the United States; and (b) the Company
has publicly announced, with the concurrence of Misonix which shall not be
unreasonably withheld, that the "next generation" of the Company's Sonablate
200(TM) platform (SBX) has been developed to the point that it is ready for
manufacturing. The Company's representations and covenants in connection with
such sale shall be substantially as set forth in this Agreement, including
applicability of all conversion and anti-dilution provisions contained herein
and in the documents incident thereto, including applicability to the
description of these conversion terms.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
As a material inducement to Misonix to enter into and consummate the
transactions contemplated by this Agreement, the Company represents and warrants
to Misonix as follows:
Section 2.1. Organization, Good Standing and Qualification of the Company.
The Company is duly incorporated, validly existing, and in good standing under
the laws of the State of Delaware, without limitation on the duration of its
corporate existence, and has filed all reports that it is required to file with
the Secretary of State of the State of Delaware and all other governmental
authorities as required to maintain its corporate existence. The Company has all
requisite corporate power and authority to own, lease, and operate its
properties and to carry on its business as it is now conducted. The Company has
full corporate power and authority to enter into and perform its obligations
under this Agreement. The Company is duly qualified as a foreign corporation and
is in good standing in each state or jurisdiction where such qualification is
necessary because of the nature of the assets and properties it owns, leases, or
operates or because of the nature of the business it conducts, except to the
extent failure to be so qualified would not have a material adverse effect on
the Company. The Company is delivering to Misonix copies of its Restated
Certificate of Incorporation and Amended and Restated Bylaws at Closing
certified as true, complete and correct by the Secretary of the Company. The
Company is not in violation of its Restated Certificate of Incorporation or its
Amended and Restated Bylaws.
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Section 2.2. Capital Structure of the Company. The authorized
capitalization of the Company and the number of shares of each class or series
of the Company's capital stock which are issued and outstanding is set forth in
Section 2.2(a) of the Disclosure Schedule previously delivered by the Company to
Misonix (the "Disclosure Schedule"). All of the issued and outstanding shares of
Common Stock were duly and validly issued, are fully paid and nonassessable,
free of preemptive rights and were issued by the Company in compliance with all
applicable Laws. Any Preferred Stock, and any Common Stock issuable upon
conversion of the Preferred Stock, issued to Misonix pursuant to this Agreement
will, when issued, be duly and validly issued, fully paid and nonassessable, and
issued in compliance with all applicable Laws (assuming the accuracy of the
representations of Misonix in Article V), and will be free of any Liens other
than those created by or imposed upon the holders through no action of the
Company; provided, however, that those shares may be subject to restrictions on
transfer (a) under state and/or federal securities laws as set forth in this
Agreement and as may be required by future changes in those laws, or (b) under
the Shareholders' Agreement. The owners of record of the outstanding Common
Stock and the owners known to the Company of options or warrants to acquire
Common Stock including the number of shares owned or subject to option or to a
warrant, are set forth in Schedule 2.2(b) of the Disclosure Schedule. The
Company has no treasury stock. Except as set forth in Section 2.2(c) of the
Disclosure Schedule, the Company has no outstanding subscription right, options,
warrants, conversion rights, agreements, or commitments for the purchase,
issuance, transfer, or sale of any security of the Company, and except as set
forth in this Agreement or in the Shareholders' Agreement, the Company knows of
no restrictive stock transfer, voting trust, or other agreement or commitment
relating to the transfer or voting of any equity security of the Company. The
Company has granted no registration rights or preemptive rights with respect to
any of the Company's securities, except as contemplated by this Agreement and
the Shareholders' Agreement. There are no stock appreciation rights, phantom
stock, or similar rights in existence with respect to the Company.
Section 2.3. Title to Shares. The Company has full right, power and
authority to sell, transfer and deliver the Preferred Stock and Additional
Shares, and upon delivery of the certificates therefor as contemplated in this
Agreement, the Company will transfer to Misonix valid and marketable title to
such shares, including all voting and other rights to such shares, free and
clear of all pledges, liens, security interests, options, rights of any third
party, or other encumbrances except for any which are the result of any act of
Misonix.
Section 2.4. Compliance with Securities Laws. Assuming the accuracy of the
representations of Misonix in Article V, the transactions contemplated by this
Agreement, including but not limited to the issuance of the Preferred Stock and
the issuance of Conversion Stock, are exempt from the registration and
prospectus delivery requirements of the Securities Act and any securities
registration or prospectus delivery requirements under applicable state or other
securities laws, and the Company has complied with and shall comply with all
requirements of the exemptions from registration and prospectus delivery under
federal, state, or other securities laws upon which the Company is relying.
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Section 2.5. Authority. The execution and delivery of this Agreement and
each of the other agreements and documents executed and delivered by the Company
in connection with this Agreement (the "Investment Documents") and the
consummation of the transactions contemplated by the Investment Documents have
been duly authorized by all necessary corporate action of the Board of Directors
and the shareholders of the Company.
Section 2.6. Validity; No Violation.
(a) The Investment Documents represent or will represent valid and binding
obligations of the Company enforceable against the Company in accordance with
their respective terms, except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, and other laws of general application
affecting enforcement of creditors' rights generally, and (ii) as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies.
(b) Except as set forth in Section 2.6 of the Disclosure Schedule, neither
the execution and delivery of each of the Investment Documents by the Company
nor the consummation by the Company of the transactions contemplated by any of
the Investment Documents will:
(i) conflict with or result in a breach of any provision of the
Amended and Restated Certificate of Incorporation or the Amended and
Restated Bylaws of the Company;
(ii) constitute a default (or event which, with notice or lapse of
time, or both, would constitute a default), or trigger any right of
termination, cancellation, or acceleration under any of the terms,
conditions, or provisions of any note, lien, bond, mortgage, indenture,
license, lease, agreement, or other instrument or obligation to which the
Company is a party, or by which the Company or any of its properties or
assets is bound;
(iii) violate any Law, judgment, order, writ, injunction, or decree of
any court, arbitrator, administrative agency, or governmental body
applicable to the Company or any of its properties, assets, or outstanding
debt or equity securities; or
(iv) to the knowledge of the Company, cause, or give any person
grounds to cause (with or without notice, the passage of time, or both),
the maturity of any material liability or obligation of the Company to be
accelerated or increased.
(c) Other than the filing of the Restated Certificate of Incorporation or
as may be set forth on Section 2.6(c) of the Disclosure Schedules, no consent or
approval by, and no filing or registration with, any governmental authority or
any other person or entity is required in connection with the execution and
delivery of each of the Investment Documents or the consummation by the Company
of the transactions contemplated by the Investment Documents, including but not
limited to the issuance of Preferred Stock or the Conversion Stock by the
Company to each of the Investors.
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Section 2.7. Financial Statements. Audited balance sheets of the Company
and related statements of income and cash flows, together with the auditors'
report thereon as at June 30, 1997 and June 30, 1998 (collectively, the "Audited
Financial Statements") and internally prepared unaudited balance sheets and
income statements of the Company for the six month period ended December 31,
1998 (the "Interim Financial Statements") have been delivered to Misonix and are
set forth in Section 2.7 of the Disclosure Schedule. The Audited Financial
Statements and the Interim Financial Statements (collectively, the "Financial
Statements"), including any related schedules and notes, are true, correct, and
complete in all material respects, have been prepared from the books and records
of the Company in accordance with GAAP that were, except as otherwise stated in
the Financial Statements, consistently followed throughout the periods involved,
and present fairly the financial position and results of operations of the
Company on the dates and for the periods indicated (subject to the lack of
footnote disclosure and changes resulting from normal year-end adjustments).
Without limiting the generality of the foregoing, the balance sheets included in
the Financial Statements disclose all of the material debts, liabilities, and
monetary obligations of any nature (whether absolute, accrued, or contingent and
whether due or to become due) of the Company as of their respective dates that,
in accordance with GAAP, are required to be disclosed in the balance sheets or
notes thereto.
Section 2.8. No Undisclosed or Contingent Liabilities. Except as and to the
extent set forth in Section 2.8 of the Disclosure Schedule, the Company does not
have reason to know of, after due inquiry, any liabilities or obligations of any
material nature (whether absolute, accrued, contingent or otherwise and whether
due or to become due) which are not fully reflected or reserved against in the
Interim Financial Statements, except for liabilities and obligations incurred in
the ordinary course of business and consistent with past practice since the date
thereof or for liabilities and obligations that in accordance with GAAP are not
required to be disclosed in the Interim Financial Statements. In the reasonable
judgment of the Company: (a) the reserves for such liabilities and obligations
reflected in the Interim Financial Statements are adequate, appropriate and
reasonable; and (b) there is no basis for the assertion against the Company of
any liability or obligation of any nature whatsoever not fully reflected or
reserved against in the Interim Financial Statements or incurred in the ordinary
course of business and consistent with past practice since the date thereof.
Section 2.9. No Material Adverse Change. Since the date of the Interim
Financial Statements, there has been no material adverse change in the assets,
properties, business, operations or condition (financial or otherwise) of the
Company, nor, to the Company's knowledge, has there been any event which
reasonably can be expected to have a materially adverse effect on any of the
foregoing.
Section 2.10. Tax Matters.
(a) "Tax" or "Taxes" means any and all taxes, charges, fees, levies, duties
or other assessments whether federal, state, local or foreign, based upon or
measured by income, capital, net worth or gain and any other tax including
without limitation, recapture, gross receipts, profits, sales, use, occupation,
use and occupancy, value added, ad valorem, customers, transfer, franchise,
shares, withholding, payroll, employment, excise, or property taxes with respect
to the Company, together with any interest, fines, penalties and additions to
tax imposed with respect thereto.
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(b) The Company is not presently under, nor has it received notice of, nor
to its knowledge is it under, any investigation or audit by the Internal Revenue
Service or any foreign or state agency concerning any fiscal year or period
ended prior to the date hereof.
(c) As of the date hereof, the Company has timely filed, (i) all Tax
returns, other than Tax returns, the Tax liability with respect to which, would
not have a material adverse effect on the Company taken as a whole, which are
required to be filed on or prior to the date hereof, taking into account any
extensions of the filing deadlines which have been validly granted to the
Company; and (ii) all such returns are true and correct in all material
respects.
(d) The Company has paid all Taxes of the Company that have become or are
due with respect to any period ended on or prior to the date hereof, and has
established an adequate reserve therefor on the Interim Financial Statements for
those Taxes not yet due and payable, except for any Taxes which do not have a
material and adverse affect on the Company taken as a whole.
(e) The Company has not at any time consented under Section 336(e) or
Section 341(f)(1) of the Internal Revenue Code of 1986, as amended (the "Code")
to have the provisions of Section 336(e) or Section 341(f)(2) of the Code,
respectively, apply to any sale of its stock.
(f) All Taxes required to be withheld on or prior to the date hereof from
employees for income Taxes, social security Taxes, unemployment Taxes and other
similar withholding taxes have been properly withheld and, if required on or
prior to the date hereof, have been deposited with the appropriate governmental
agency.
Section 2.11. Intellectual Property.
(a) Section 2.11(a) of the Disclosure Schedule contain a list and
description of:
(i) all patents, copyrights, trademarks, service marks, and trade
names, and the registrations and applications therefor, owned by or
licensed to the Company which the Company believes to be material to its
operations; and
(ii) all licenses and license agreements related to the Intellectual
Property to which the Company is a party and which the Company believes to
be material to its operations.
(b) Except as set forth in Section 2.11(b) of the Disclosure Schedule and
except to the extent not material to the Company's operations:
(i) the Company owns or has the right to use all of the Intellectual
Property and registrations and applications therefor;
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(ii) all Intellectual Property and applications and registrations
therefor are duly authorized and issued, valid, and have not been canceled,
amended, or modified, and the Company is not aware of any facts that would
invalidate or render any of them unenforceable;
(iii) all personnel who have participated in the development of
proprietary works for the Company either have been party to a work for-hire
relationship or have assigned or licensed to the Company all title in or
right to use such proprietary works;
(iv) no Person has given notice to the Company that such Person
asserts any royalty claim or other claim whatsoever, including but not
limited to claims of ownership, direct or indirect, in respect of the
Intellectual Property, in respect of which or by reason of which the
Company is indebted to any person or his or her heirs or assigns; and
(v) the Company has not received any notice alleging that it is
infringing upon, likely to infringe upon, or otherwise acting adversely to
any known right or claimed right of any person under or with respect to the
Intellectual Property.
(vi) The Company, to its knowledge, does not infringe upon or
unlawfully use any patent, trademark, tradename, service mark, copyright or
trade secret owned or claimed by another.
(vii) The Company's license agreements pertaining to the use of
Intellectual Property are valid and in full force and effect and binding
upon the parties thereto and the Company is not in default under any of
such agreements.
Section 2.12. Litigation. Except as set forth in Section 2.12 of
the Disclosure Schedule:
(a) there are no actions, suits, legal or administrative proceedings,
investigations, or claims pending or, to the knowledge of the Company,
threatened against the Company involving or affecting any of its assets or
properties, whether at law or in equity, whether civil or criminal in nature or
whether before or by a federal, state, municipal, or other governmental
department, commission, board, bureau, agency, or instrumentality, domestic or
foreign;
(b) neither the Company nor any of its assets is subject to any judicial or
administrative order, judgment, injunction, restriction, or decree;
(c) the Company has not received notice of any violation or investigation
of any violation of any Laws;
(d) the designation in Section 2.12(d) of the Disclosure Schedule of
whether a claim is insured or uninsured is true and correct; and
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(e) the Company has no action, suit, or proceeding currently pending
against another party in which the Company is the plaintiff, nor does the
Company currently intend to initiate such an action, suit, or proceeding.
2.13 Section. Compliance: Governmental Authorization. Except as set forth
in Section 2.13 of the Disclosure Schedule, the Company:
(a) has complied in all material respects with, is not in default or
violation in any material respect under, any and all Laws that apply to the
Company and its operations, properties and business;
(b) has not received any or been made the subject of any claims, charges,
or investigations, or threats of claims, charges, or investigations alleging the
failure of the Company to comply with any Laws;
(c) has duly filed all reports and returns required to be filed by it with
governmental authorities and has all Permits necessary for conducting its
business and those Permits are in full force and effect, no violations have been
recorded in respect of those Permits, and no proceeding is pending or threatened
to revoke or limit any of those Permits; and
(d) has complied with all orders, writs, injunctions, and decrees
applicable to the Company or to any of the Company's operations, assets, or
properties.
Section 2.14. Insurance. The assets, properties and operations of the
Company are insured under various policies of general liability and other forms
of insurance as set forth on Section 2.14 of the Disclosure Schedule. All such
policies are in full force and effect in accordance with their terms, no notice
of cancellation has been received, and there is no existing default by the
Company or, to the Company's knowledge, event which, with the giving of notice
or lapse of time or both, would constitute a default by the Company thereunder.
All premiums to date have been paid in full.
Section 2.15. Labor Matters. No employee of the Company is covered by any
collective bargaining agreement. The Company has complied, and is currently in
compliance, in all material respects with applicable Laws relating to the
employment of labor, including without limitation those relating to wages,
hours, unfair labor practices, discrimination and payment of social security and
similar taxes.
Section 2.16. Company Benefit Plans and Arrangements. A true and complete
list and copy of all employee benefit plans (as defined in Section 3(3) of the
Employee Retirement Income Security Act of 1974 ("ERISA")), and any trust or
other funding agency created thereunder maintained or contributed to by the
Company for the benefit of employees of the Company and all other deferred
compensation or fringe benefit plans, arrangements or practices of the Company,
including without limitation, severance pay, stock options and similar plans or
arrangements and other benefit obligations of the Company, whether oral or
written, to any of its employees (the "Company Benefit Plans"), is set forth in
Section 2.16 of the Disclosure Statement. The Company Benefit Plans are the
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only Company Benefit Plans maintained by or contributed to by the Company for
the benefit of its shareholders, officers, directors, employees or former
employees which are related to the assets of the Company or the business. Each
such Company Benefit Plan, which is subject to ERISA and the Code, is and always
has been in compliance, in all material respects, with the provisions of ERISA
and the Code, and they, and all other such Company Benefit Plans are in
compliance with all other Laws applicable thereto. The Company maintains no plan
or program that provides post-retirement medical or death benefits or other
post-retirement health or welfare benefits. The Company has never contributed to
nor been obligated to contribute to any multi-employer plan as said term is
defined in Section 4001(a)(3) of ERISA.
Section 2.17. Environmental Laws. The Company and all its properties and
operations are and have been in compliance, in all material respects, with, and
are not and have not been in material violation of, any Federal, state, or local
statutes, laws, orders, ordinances, rules, regulations, policies or other
requirements of any governmental agency or authority regulating, relating to or
imposing liability or standards of conduct concerning any Hazardous Materials
(as defined below), including without limitation, the Federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), the Resource Conservation and Recovery Act of 1976, as amended
("RCRA"), the Superfund Amendment and Reauthorization Act of 1986 ("SARA"), the
Federal Water Pollution Control Act, and any state counterparts thereof (all of
the foregoing being herein referred to herein as "Environmental Laws"). As used
herein the term "Hazardous Materials" means any hazardous, toxic or dangerous
waste, substance or material defined as such in (or for purposes of) CERCLA,
SARA, RCRA or any other Environmental Laws as now in effect. The Company has not
engaged in or permitted the generation, use, treatment, storage, discharge or
disposal of any Hazardous Materials and has not caused or permitted a release of
Hazardous Materials onto, at, in, or under the real property located at 3940
Pendleton Way, Indianapolis, Indiana in violation of any Environmental Laws. The
Company has never received notice of any violation or noncompliance with any
Environmental Law.
Section 2.18. Transactions with Affiliates. Except as set forth in Section
2.18 of the Disclosure Schedule, no shareholder, director, officer or employee
of the Company, or any member of his or her immediate family or any other of
its, his or her affiliates, owns or has a 5% or more ownership interest in any
corporation or other entity that is or was during the last three years a party
to any material contract, agreement or understanding, business arrangement or
relationship with the Company.
Section 2.19. Contracts and Other Agreements. Section 2.19 of the
Disclosure Schedule sets forth all of the following contracts and other
agreements to which the Company is a party or by or to which assets or
properties are bound or subject: (i) contracts and other agreements with any
current or former officer, director, employee, consultant, agent or other
representative requiring payments of more than $50,000 in any one year; (ii)
contracts and other agreements relating to the licensing, protection or use of
intellectual property; (iii) contracts and other agreements for the purchase or
sale of materials, supplies, equipment, merchandise or services calling for a
purchase price in any one year of more than $25,000 in any one case or in the
aggregate for executory contracts with a single entity;
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(iv) contracts and other agreements for the sale of any of its assets or
properties other than in the ordinary course of business or for the grant to any
person of any preferential rights to purchase any of its assets or properties;
(v) contracts and other agreements requiring the payment to any person of an
override or similar commission or fee (other than sales agreements entered into
in the ordinary course of business); (vi) contracts and other agreements
relating to the borrowing of money; or (vii) any other contract or agreement
calling for the payment in any one year of more than $50,000, whether or not
made in the ordinary course of business. There have been made available to
Misonix true and complete copies of all of the contracts and other agreements
set forth in Section 2.19 of the Disclosure Schedule or in any other section of
the Disclosure Schedule. Except as set forth in Schedule 2.19 of the Disclosure
Schedule, all of such contracts and other agreements are valid and in full force
and effect and binding upon the parties thereto in accordance with their terms,
and the Company has paid in full or accrued all amounts due by it thereunder and
has satisfied in full or provided for all of its liabilities and obligations
thereunder, and is not in default under any of them, nor, to the knowledge of
the Company, is any other party to any such contract or other agreement in
default thereunder or does any condition exist that with notice or lapse of time
or both would constitute a default thereunder. Except as separately identified
in Section 2.19 of the Disclosure Schedule, the Company is not a party to or
bound by any contract or other agreement that either individually or in the
aggregate materially adversely affects the assets, properties, business,
operations or condition (financial or otherwise) of the Company, or that was
entered into other than in the ordinary course of business.
Section 2.20. Full Disclosure. All documents, instruments and other
materials delivered or to be delivered by or on behalf of the Company in
connection with this Agreement and the transactions contemplated hereby are true
and complete in all material respects. The information furnished by or on behalf
of the Company to Misonix in connection with this Agreement and the transactions
contemplated hereby does not and shall not contain any untrue statement of
material fact and does not and shall not omit to state any material fact
required to be stated therein or necessary to make the statements contained
therein not false or misleading. There is no fact which the Company has not
disclosed which materially adversely affects or, shall materially adversely
affect, the assets, properties, operations, business, financial condition or
prospects of the Company.
ARTICLE III.
COVENANTS OF THE COMPANY
Unless otherwise agreed in writing by the Company and Misonix, the Company
shall comply with each of the following covenants:
Section 3.1. Reservation of Stock. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of (i) Series M
Preferred Stock, solely for the purpose of allowing Misonix to purchase the
Additional Shares, on the terms and subject to the conditions set forth in this
Agreement, that number of shares of Series M Preferred Stock issuable upon such
purchase of the Additional Shares; and (ii) Series M Common Stock, solely for
the purpose of
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issuance upon the conversion of Series M Preferred Stock, that number of shares
of Series M Common Stock issuable upon conversion of all outstanding Series M
Preferred Stock (subject to adjustment as provided by the terms thereof).
Section 3.2. Board of Directors. Effective as of the Closing Date, Michael
A. McManus, Jr. shall be elected as a fully voting member of the Board of
Directors of the Company (the "Board of Directors"), as the representative of
the Series M Preferred Stock and Series M Common Stock. If Michael A. McManus,
Jr. ceases to be a director for any reason whatsoever, Misonix shall be entitled
to nominate a successor, and the Company agrees that in submitting to the
Company's shareholders or Board of Directors the name of any Misonix nominee for
election as a director or in filling interim vacancies relating to any nominee,
the Company will use its best efforts to cause the person so nominated by
Misonix to be elected as director of the Company. Such Misonix nominee shall be
permitted, at his option, to serve on all committees of the Board, including the
Executive Committee.
Section 3.3. Labeco Waiver. After the Closing, the Company shall attempt,
in good faith, to obtain, and deliver to Misonix, a waiver signed by Laboratory
Equipment Corp. ("Labeco") pursuant to which Labeco shall agree to waive its
rights under that certain Manufacturing OEM Supply and Services Agreement
between Labeco and the Company dated July 31, 1996, to the extent that such
rights pertain to the manufacture of the Company's SBX platform.
Section 3.4. Use of Proceeds. The Company agrees that the net proceeds
from the sale of the Preferred Stock shall be used solely for the purposes
described in Exhibit 3.4 attached hereto and substantially in accordance with
the dollar amounts set forth in said Exhibit.
ARTICLE IV.
MUTUAL COVENANTS
The Company and Misonix mutually acknowledge and agree that
contemporaneously with the execution and delivery of this Agreement they will
enter into the following agreements:
Section 4.1. SBX Engineering Development Agreement. The Company and
Misonix will enter into an SBX Engineering Development Agreement pursuant to
which the Company shall agree to obtain its requirements of engineering and
testing development services relating to the Company's SBX platform from
Misonix.
Section 4.2. Research and Development Agreement. The Company and Misonix
will enter into a Research and Development Agreement pursuant to which Misonix
will receive the first option to license the Company's HIFU technology for the
breast, liver and kidney applications. The Research and Development Agreement
further provides that if Misonix furnishes additional funding for the
development of any such applications of the HIFU technology, then the Company
and Misonix will enter into an agreement whereby Misonix will receive certain
rights to such technology to be mutually
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determined by the parties, contingent upon payment of mutually agreeable
royalties and other fees within the then currently accepted terms for such an
agreement.
ARTICLE V.
REPRESENTATIONS AND COVENANTS OF MISONIX
Section 5.1. Purchase for Investment. Misonix represents and warrants
that it is acquiring the Preferred Stock, including any Additional Shares, and
any Conversion Stock pursuant to the terms and conditions of this Agreement for
investment only, for its own account, and not with a present view to the
distribution or resale thereof. Misonix understands that the Preferred Stock
and any Conversion Stock may not be sold or transferred unless they are
subsequently registered under the Securities Act and any applicable state or
other securities laws, or unless exemptions from registration under such laws
are available. Misonix understands that no public market now exists for any of
the Company's securities and that the Company has not given any assurance that
a public market will ever exist for its securities. Misonix represents and
warrants that: (i) it is an "accredited investor" as that term is defined in
Regulation D of the Securities and Exchange Commission (Rule 501(a)) and all
applicable state securities laws; (ii) the Company has given Misonix the
opportunity to ask questions and receive answers concerning the Company and the
Preferred Stock; (iii) the Company has made available to Misonix the
opportunity to conduct such investigations and reviews as Misonix has requested
to conduct and all of those investigations and reviews have been completed; and
(iv) the Company did not offer the Preferred Stock to Misonix by any form of
general solicitation or general advertising, including, but not limited to, any
advertisement, article, notice, or similar media or broadcast over television
or radio, or any seminar or meeting whose attendees were invited by any general
solicitation or general advertising.
Section 5.2. Transfer Legends and Restrictions. Misonix hereby
acknowledges that the Preferred Stock and any Conversion Stock issued to it
shall be imprinted with a conspicuous legend in substantially the following form
(unless otherwise permitted under this Agreement):
THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE OR OTHER SECURITIES LAWS, AND MAY
NOT BE OFFERED, SOLD, TRANSFERRED, OR ASSIGNED EXCEPT (i) PURSUANT
TO REGISTRATIONS UNDER APPLICABLE SECURITIES LAWS, OR (ii) IF, IN
THE OPINION OF COUNSEL REASONABLY ACCEPTABLE TO THE COMPANY, THE
PROPOSED TRANSFER MAY BE EFFECTED IN COMPLIANCE WITH APPLICABLE
SECURITIES LAWS WITHOUT REGISTRATION.
Upon the request of a holder of any Preferred Stock or any Conversion
Stock, accompanied by an opinion of Ice Miller Donadio & Ryan or other counsel
selected by the holder, which opinion and other counsel are reasonably
satisfactory to the Company, to the effect that a transfer by the holder will
not violate the Securities Act or applicable state or other securities laws, the
Company
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shall remove the legend from the Preferred Stock or any Conversion Stock held by
the holder or shall issue to the holder a new certificate for the Preferred
Stock or Conversion Stock without the transfer legend.
Section 5.3. Authority; Validity; Organization. Misonix represents and
warrants to the Company that:
(a) the execution and delivery of each of the Investment Documents to which
Misonix is a party and the consummation by Misonix of the transactions
contemplated by the Investment Documents have been duly authorized by all
necessary action of the Board of Directors of Misonix;
(b) the Investment Documents executed and delivered by Misonix represent
valid and binding obligations of Misonix enforceable against Misonix in
accordance with their respective terms except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, and other laws of general
application affecting enforcement of creditors' rights generally, and (ii) as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies;
(c) the execution and delivery of each of the Investment Documents to which
Misonix is a party and the consummation by Misonix of the transactions
contemplated by such Investment Documents will not conflict with or violate any
provision of the Articles of Incorporation or Bylaws of Misonix or any other
agreement to which Misonix is a party or violate any law, regulation, judgment,
order, writ, injunction, or decree of any court, administrative agency, or
governmental body applicable to Misonix or the properties or assets of Misonix;
and
(d) Misonix is duly organized, validly existing, and in good standing under
the laws of the State of New York and has filed all reports that it is required
to file with the Secretary of State of New York and all other governmental
authorities as required to maintain the corporate status and existence of
Misonix.
ARTICLE VI.
CLOSING AND DELIVERIES
Section 6.1. Closing. The closing of the transactions contemplated by this
Agreement and the other Investment Documents ("Closing") is being held
simultaneously with the execution and delivery of this Agreement in the offices
of Ice Miller Donadio & Ryan, counsel to the Company, on May 3, 1999 (the
"Closing Date"). All of the agreements, documents, certificates, and instruments
delivered by each party at the Closing are hereby deemed and acknowledged by the
parties to have been delivered simultaneously.
Section 6.2. Items Delivered by the Company at Closing. The Company hereby
delivers, or causes to be delivered, to Misonix the following:
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(a) certificate evidencing the Preferred Stock;
(b) an opinion of Ice Miller Donadio & Ryan, counsel of the Company, in the
form attached hereto as Exhibit 6.2;
(c) a Compliance Certificate of the Company signed by the Company's
president and chief executive officer;
(d) Restated Certificate of Incorporation of the Company, as described in
Section 1.1, certified as true, complete and correct by the Secretary of the
Company;
(e) Amended and Restated By-laws of the Company, as provided in Section
2.1, certified as true, complete and correct by the Secretary of the Company;
(f) SBX Engineering Development Agreement, as provided in Section 4.1;
(g) Research and Development Agreement, as provided in Section 4.2; and
(h) Second Amended and Restated Shareholders' Agreement signed by the
Company and the Company's other shareholders.
Section 6.3. Items Delivered by Misonix at Closing. Misonix hereby
delivers, or causes to be delivered, to the Company the following:
(a) the Purchase Price by wire transfer of funds to the account designated
in writing by the Company;
(b) an opinion letter of Hartman & Craven LLP, counsel to Misonix, in the
form of Exhibit 6.3;
(c) a Compliance Certificate of Misonix signed by Misonix's president and
chief executive officer;
(d) SBX Engineering Development Agreement;
(e) Research and Development Agreement; and
(f) Second Amended and Restated Shareholder's Agreement, signed by Misonix.
Section 6.4. Other Documents. The parties to this Agreement shall in good
faith execute and deliver such other and further instruments, assignments, or
documents and take such other actions as may be reasonably requested from time
to time by the other party hereto as may be necessary or advisable to carry out
the transactions contemplated by this Agreement.
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ARTICLE VII.
INDEMNIFICATION
Section 7.1. Indemnification Obligation of the Company. From and after the
date hereof and until the end of the statute of limitations applicable to such
claim, the Company hereby agrees to indemnify, defend and hold harmless Misonix
and its successors and assigns (a "Misonix Indemnified Party") from and against
and in respect of any and all actions, suits, claims, damages, losses,
deficiencies, liabilities, costs and expenses (including reasonable legal fees
and expenses) incurred or suffered by any Misonix Indemnified Party that result
from, relate to or arise out of:
(i) any and all actions, suits, claims, or legal, administrative,
arbitration, governmental or other proceedings or investigations against
any Misonix Indemnified Party that relate to the Company in which the
principal event giving rise thereto occurred prior to the date hereof or
which result from or arise out of any action or inaction prior to the date
hereof of the Company or any director, officer, employee, agent, or
representative of the Company; and
(ii) any misrepresentation, breach of warranty or nonfulfillment of
any agreement or covenant on the part of the Company under this Agreement.
Section 7.2. Indemnification Obligation of Misonix. From and after the
date hereof and until the end of the statute of limitations applicable to such
claim, Misonix hereby agrees to indemnify, defend and hold harmless the Company
and its successors and assigns (a "Company Indemnified Party") from and against
and in respect of any and all actions, suits, claims, damages, losses,
deficiencies, costs and expenses (including reasonable legal fees and expenses)
incurred or suffered by any Company Indemnified Party that result from, relate
to or arise out of, any inaccuracy or breach of any of the following
representations: (i) the representations set forth in Section 5.1, excluding
those contained in subsections (ii), (iii) and (iv) thereof; and (ii) the
representations contained in Sections 5.2 and 5.3.
Section 7.3. Method of Asserting Claims, Etc. In case any claim, demand or
assessment is asserted or suit, action or proceeding (collectively a "Claim")
commenced against a Misonix or Company Indemnified Party (collectively the
"Indemnified Party") and it notifies the Company or Misonix, as the case may be
(collectively the "Indemnitor") of the commencement thereof, if the Indemnitor
acknowledges its indemnification obligations therefor hereunder, then, the
Indemnitor shall be entitled to participate therein, and, to the extent that it
may wish, to assume the defense, conduct or settlement thereof, with counsel
satisfactory to the Indemnified Party, whose consent to the selection of counsel
shall not be unreasonably withheld. After notice from the Indemnitor to the
Indemnified Party of its election so to assume the defense, conduct or
settlement thereof, the Indemnitor shall not be liable to the Indemnified Party
for any legal or other expenses subsequently incurred by the Indemnified Party
in connection with the defense, conduct or settlement thereof;
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provided, however, that if the Indemnified Party has any separate defenses from
those of the Indemnitor, the Indemnified Party shall have the right to be
represented by its own counsel at the Indemnitor's expense. The Indemnified
Party shall have the right in any event to participate in any such defense with
its own counsel at its own expense. The Indemnified Party will cooperate with
the Indemnitor in connection with any such Claim and make personnel, books and
records relevant to the Claim available to the Indemnitor at the Indemnitor's
expense. In the event that the Indemnitor fails timely to defend, contest or
otherwise protect against any such Claim, the Indemnified Party shall have the
right to defend, contest or otherwise protect against the same and make any
compromise or settlement thereof and recover the entire cost thereof from the
Indemnitor, including, without limitation, reasonable attorneys' fees,
disbursements and all amounts paid as a result of such Claim or compromise or
settlement thereof.
Section 7.4. Basket; Cap. Neither Indemnitor shall be liable to the
Indemnified Party for any Claim (except if the Claim is based on a breach of the
representations set forth in Sections 2.3 or 5.1, excluding those contained in
subsections (ii), (iii) and (iv) of Section 5.1), unless and until the total of
all damages or losses incurred with respect to all such Claims exceeds $25,000.
Notwithstanding anything herein to the contrary, neither Indemnitor shall be
liable to the Indemnified Party under this Agreement for more than the aggregate
Purchase Price (together with the Additional Purchase Price if paid as
contemplated under this Agreement), less an offset equal to the aggregate of any
cash dividends paid on the Preferred Stock and the Additional Shares.
Section 7.5. Expiration of Representations, Warranties and Indemnities.
Notwithstanding anything in this Agreement to the contrary, the representations
and warranties in Section 2.10 shall survive the Closing and expire upon the
expiration of the statute of limitations with respect to the matters underlying
such representations and warranties, and the Company shall have no
indemnification or other obligation with respect to any such Claim based on
those representations or warranties unless written notice thereof is given prior
to the expiration of the applicable statute of limitations. The representations
and warranties in Section 2.3 shall survive the Closing indefinitely. All other
representations, warranties, covenants and agreements shall survive the Closing
and expire on the third anniversary of the Closing Date and the Indemnitor shall
have no indemnification or other obligation with respect to any Claim based on a
breach of any of those representations, warranties, covenants or agreements
unless written notice of a Claim therefor is received prior to the expiration of
the third anniversary of the Closing.
ARTICLE VIII.
MISCELLANEOUS
Section 8.1. Amendment and Certain Waivers. This Agreement may be amended
or modified only by a written agreement executed by the Company and Misonix.
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Section 8.2. Benefit of Parties; Assignability. All of the terms and
conditions of this Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors and assigns.
Section 8.3. Confidentiality. Misonix shall use all best efforts to keep
confidential all information provided to it under the terms and conditions of
this Agreement and which is not in the public domain. No party to this Agreement
shall make any public announcement of the transactions contemplated by this
Agreement unless the form and substance of the announcement is mutually agreed
upon by all parties, which agreement shall not be unreasonably withheld or
delayed, or unless public disclosure is required by law.
Section 8.4. Cooperation. The parties agree that after the Closing they
will from time to time, upon the request of any other party and without further
consideration, execute, acknowledge, and deliver in proper form any further
instruments and take such other action as any other party may reasonably require
to carry out effectively the transactions contemplated by the Investment
Documents.
Section 8.5. 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.
Section 8.6. Entire Agreement. This Agreement, including any Exhibits and
the Disclosure Schedule, and the other Investment Documents contain the entire
understanding of the parties with respect to the subject matter in the
Investment Documents. There are no representations, promises, warranties,
covenants, or undertakings other than those expressly set forth or provided for
in each of the Investment Documents. This Agreement and the other Investment
Documents supersede all prior agreements and understandings between the parties
with respect to the transactions contemplated by this Agreement and the other
Investment Documents.
Section 8.7. Governing Law and Choice of Forum. All questions concerning
the relative rights of the Company and its shareholders shall be governed by the
laws of the State of Delaware.
Section 8.8. Interpretation. The terms and conditions of this Agreement
represent the results of bargaining and negotiations among the parties, each of
which has been represented by counsel of its own selection, and none of which
has acted under duress or compulsion, whether legal, economic or otherwise, and
represent the results of a combined draftsmanship effort. Consequently, the
terms and conditions hereof shall be interpreted and construed in accordance
with their usual and customary meanings and the parties hereby expressly waive
and disclaim in connection with the interpretation and construction hereof any
rule of law or procedures requiring otherwise, specifically including but not
limited to any rule of law to the effect that ambiguous or conflicting terms or
conditions contained herein shall be interpreted or construed against the party
whose counsel prepared this Agreement or any earlier draft hereof.
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Section 8.9. Disclosure. Any material set forth in this Agreement or any of
the Disclosure Schedule sections shall be deemed to be repeated and set forth in
any other appropriate place in this Agreement or the Disclosure Schedule without
the necessity of such material being set forth in each such place.
Section 8.10. Notices. All notices, requests, demands, or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and delivery shall be deemed sufficient in all
respects and to have been duly given on the date of service if delivered
personally or by facsimile transmission if receipt is confirmed by the party
giving notice or on the third day after mailing if mailed by first-class mail,
return receipt requested, postage prepaid, and properly addressed as follows:
If to the Company, to: Focus Surgery, Inc.
3940 Pendleton Way
Indianapolis, Indiana 46226
Attention: David P. Quigley
Facsimile: (317)541 - 1581
Copy to: Ice Miller Donadio & Ryan
One American Square, Box 82001
Indianapolis, Indiana 46282-0002
Attention: Richard J. Thrapp
Facsimile: (317)236-2219
If to Misonix to: Misonix, Inc.
1938 New Highway
Farmingdale, New York 11735
Attention: Michael A. McManus, Jr.
Facsimile: (516)694-9412
Copy to: Hartman & Craven LLP
460 Park Avenue
New York, New York 10022
Attention: Edward I. Tishelman
Facsimile: (212)688-2870
or to any other address as may be specified in writing by any of the above.
Section 8.11. Table of Contents and Captions. The Table of Contents and
captions of the Articles and Sections of this Agreement are solely for
convenient reference and shall not be deemed to affect the meaning or
interpretation of any provision of this Agreement.
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Section 8.12. Validity of Provisions. Whenever possible, each provision of
this Agreement shall be interpreted in such a manner as to be effective and
valid under applicable law. Should any part of this Agreement for any reason be
declared by any court of competent jurisdiction to be invalid, that decision
shall not affect the validity of the remaining portion, which shall continue in
full force and effect as if this Agreement had been executed with the invalid
portion eliminated, it being the intent of the parties that they would have
executed the remaining portion of the Agreement without including any part or
portion that may for any reason be declared invalid.
Section 8.13. Waiver of Breach. Neither any waiver of any breach of, nor
any failure to enforce any term or condition of, this Agreement shall operate as
a waiver of any other breach of any term or condition, nor constitute nor be
deemed a waiver or release of any other rights, in law or at equity, or claims
that any party may have against any other party for anything arising out of,
connected with, or based upon this Agreement. No waiver shall be enforceable
against any party hereto unless set forth in a written instrument or agreement
signed by that party. No waiver shall be deemed to occur as a result of the
failure of any party to enforce any term or condition of this Agreement.
Section 8.14. Brokers' and Finders' Fees. Each of the Company and Misonix
represent that it has not used or retained any broker or finder in connection
with the transactions contemplated hereby, other than McDonald & Company
Securities, Inc., the fees of which shall be paid by the Company.
ARTICLE IX.
DEFINITIONS
As used herein, the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural forms of the
terms defined):
"Affiliate" or "Affiliates" means any Person that directly or indirectly
controls, or is under common control with, or is controlled by another Person or
a subsidiary of another Person. As used in this definition, "control" (including
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 of any other Person (whether through ownership of
securities or partnership or other ownership interest, by contract or
otherwise); provided, however, any Person that owns, directly or indirectly, any
general partnership interest in another Person that is a general partnership or
50% or more of the securities having ordinary voting power for the election of
directors, managers, or other governing body of any other Person shall be deemed
to control the other Person.
"Agreement" means this Investment Agreement as from time to time amended in
accordance with the provisions hereof
"Audited Financial Statements" has the meaning specified in Section 2.7.
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"Board of Directors" has the meaning specified in Section 3.2.
"Closing" has the meaning specified in Section 6.1.
"Closing Date" has the meaning specified in Section 6.1.
"Code" means the Internal Revenue Code of 1986, as amended, any successor
federal statute and the rules and regulations issued thereunder as from time to
time in effect.
"Commission" means the United States Securities and Exchange Commission (or
any other Federal agency at that time administering the Securities Act).
"Common Stock" means the common stock, without par value, of the Company.
"Company" means Focus Surgery, Inc.
"Conversion Stock" means the issuance of Series M Common Stock upon the
conversion of Series M Preferred Stock.
"Disclosure Schedule" means the books, records, Financial Statements, other
financial and accounting records and reports, documents and other written
materials concerning the Company and its business, operations, finances and
affairs prepared by the Company and forming an integral part of this Agreement.
"Financial Statements" has the meaning specified in Section 2.7.
"GAAP" means generally accepted accounting principles set forth in opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as may be approved by a significant segment of the accounting profession,
in each case as the same are applicable to the circumstances as of the date of
determination. Unless otherwise specifically stated herein, use of the term
"GAAP" means that such principles are applied and maintained on a consistent
basis for the Company throughout the period indicated and consistent with the
prior financial practices of the Company as reflected on the Financial
Statements so as to properly reflect the financial condition, and the results of
operations and cash flow of the Company (subject to the lack of footnote
disclosure and changes resulting from normal year-end adjustments).
"HIFU" means High Intensity Focused Ultrasound.
"Intellectual Property," collectively includes patents, trade secrets,
copyrights, trademarks, service marks, trade names, trade dress and technical
data, whether patentable or not, and all other
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intellectual property which the Company believes is necessary to carry on its
business as it is presently conducted.
"Interim Financial Statements" has the meaning specified in Section 2.7.
"Investment Documents" means this Agreement, the Shareholders' Agreement
and all other agreements, instruments, documents, or certificates necessary to
effectuate the transactions contemplated therein.
"IRS" means the United States Department of Treasury, Internal Revenue
Service and any successor thereto.
"Laws" means all federal, state, local and foreign laws, regulations,
ordinances and orders, including without limitation those relating to
environmental protection, conservation, occupational safety and health,
securities, and equal employment opportunity.
"Permits" means all federal, state, local and foreign governmental
licenses, franchises, consents, approvals and permits.
"Person" means individually a corporation, partnership, joint venture,
association, limited liability company, joint-stock company, trust, or
unincorporated organization, or any governmental agency, officer, department,
commission, board, bureau, or instrumentality thereof.
"Preferred Stock" has the meaning specified in Section 1.1.
"Purchase Price" has the meaning specified in Section 1.1.
"Securities Act" means the Securities Act of 1933, as amended, and any
similar or successor federal statute and the rules and regulations of the
Commission thereunder.
"Shareholders' Agreement" means the Second Amended and Restated
Shareholders' Agreement dated as of the date hereof among the Company and its
shareholders.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized representatives as of the date first written above.
FOCUS SURGERY, INC.
By: _________________________________
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Name: ______________________________
Title: ________________________________
MISONIX, INC.
By: _________________________________
Name: ______________________________
Title: ________________________________
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INDEX OF SCHEDULES AND EXHIBITS
Number Description
Schedule 1.1 Preferred Stock calculation
Exhibit 1.1 Restated Certificate of Incorporation of the Company
Exhibit 3.4 Use of Proceeds
Exhibit 6.2 Opinion letter of Ice Miller Donadio & Ryan
Exhibit 6.3 Opinion letter of Hartman & Craven LLP
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