U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-QSB
(Mark One)
[ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended March 31, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT.
For the transition period from __________ to __________
Commission file number 0-27610
LCA-Vision Inc.
(Exact name of small business issuer as specified in its charter)
Delaware 11-2882328
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7840 Montgomery Road, Cincinnati, Ohio 45236
(Address of principal executive offices)
(513) 792-9292
(Issuer's telephone number)
(Former name, former address and formal fiscal year, if changes
since last report.)
Check whether then issuer (1) filed all reports required to be
filed by Section 3 or 15(d) of the Exchange Act during the past 12
months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to filing
requirements for the past 90 days.
Yes X No
State the number of shares outstanding of each of the issuer's
classes of common equity, as of the latest practicable date:
36,664,860 shares as of April 24,1998.
Transitional Small Business Disclosure Format (check one):
Yes No X
<PAGE>
LCA-VISION INC.
INDEX
Page No.
Facing Sheet
Index 1
Part I. Financial Information 2
Item 1. Financial Statements
Unaudited Condensed Consolidated Balance Sheet, 3
March 31, 1998
Unaudited Condensed Consolidated Statements 4
of Operations for the Three Months ended
March 31, 1998 and 1997
Unaudited Condensed Consolidated Statements of 5
Cash Flows for the Three Months ended
March 31, 1998 and 1997
Notes to Unaudited Condensed Consolidated 6
Financial Statements
Item 2. Management's Discussion and 10
Analysis of Financial Condition
and Results of Operations
Part II. Other Information 14
Item 1. Legal Proceedings
Item 2. Changes in Securities
Item 3. Defaults upon Senior Securities
Item 4. Submission of Matters to a Vote of
Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
Signatures 16
<PAGE>
LCA-VISION INC.
Condensed Consolidated Balance Sheet
March 31, 1998
(unaudited)
Dollars in thousands March 31, Pro Forma
1998 (Note 2)
---- --------
ASSETS
Current assets
Cash and cash equivalents $1,631 $6,540
Cash held in escrow 5,900 1,100
Accounts receivable, net 2,513 2,513
Prepaid expenses, inventory and other 2,446 2,446
------ ------
Total current assets 12,490 12,599
Property and equipment, net 14,897 14,897
Investment in affiliates 264 264
Goodwill, net 13,758 13,758
Other assets 1,853 1,853
-------- -------
Total assets $ 43,262 $43,371
======== =======
LIABILITIES and SHAREHOLDERS' INVESTMENT
Current liabilities
Accounts payable $1,996 $1,996
Line of credit 6,935 --
Term loan 2,957 --
Accrued liabilities and other 2,126 2,719
Capital lease obligations 663 663
Other 34 34
-------- -------
Total current liabilities 14,711 5,412
Capital lease obligations 1,181 1,181
Obligations to shareholders 2,215 2,215
Other 75 75
-------- --------
Total liabilities 18,18 28,883
Commitments and contingencies
Shareholders' investment
Preferred stock 2,522 11,930
Common stock 96 96
Additional paid-in capital 36,776 36,776
Accumulated (deficit) (14,037) (14,037)
Accrued preferred stock dividend (226) (226)
Treasury stock, at cost (30) (30)
Translation adjustment (21) (21)
--------- ---------
Total shareholders' investment 25,080 34,488
--------- ---------
Total liabilities and shareholders'
investment $ 43,262 $ 43,371
========== =========
The Notes to Condensed Consolidated Financial Statements are an
integral part of this statement.
LCA-VISION INC.
Condensed Consolidated Statements of Operations
for the Three Months Ended March 31, 1998 and 1997
(unaudited)
Dollars in thousands, except share data
Three Months Ended
March 31,
1998 1997
Net revenues:
Laser refractive eye surgery $6,514 $1,585
Multi-specialty laser surgery programs 497 699
Other 198 478
------- ------
Total net revenues 7,209 2,762
Direct operating expenses 5,475 1,871
General and administrative expenses 2,093 1,879
Center pre-opening expenses 163
Depreciation and amortization 1,055 413
------- ------
Income (loss) from operations (1,414) (1,564)
Equity in income (loss) from
unconsolidated affiliates 56 (9)
Interest income 112 19
Interest expense (344) (236)
Other income (expense) 25 6
------ ------
Income (loss) before income tax (1,565) (1,784)
Income tax expense (28) (50)
------ ------
Net income (loss) (1,593) (1,834)
Accrued dividend - Class B preferred
stock (43)
------ ------
Amount applicable to income (loss)
per common share $(1,636) $(1,834)
======= =======
Income (loss) per common share
Basic $(0.04) $(0.09)
Diluted $(0.04) $(0.09)
Weighted average shares outstanding -
basic and diluted 36,664,816 19,596,398
The Notes to Condensed Consolidated Financial Statements are an
integral part of this statement
<PAGE>
LCA-VISION INC.
Condensed Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1998 and 1997
(unaudited)
Dollars in thousands
Three Months Ended
March 31,
1998 1997
---- ----
Cash flows from operating activities:
Net (loss) $(1,636) $(1,784)
Adjustments to reconcile net (loss)
to net cash (used) in operating activities:
Depreciation and amortization 1,055 413
Equity in earnings of unconsolidated
affiliates (56) 9
Changes in operating assets and
liabilities net of effect of acquisitions
(Increase) decrease
Accounts receivable (466) (115)
Other current assets 366 84
Increase (decrease)
Accounts payable 165 (207)
Accrued liabilities and other (23) 85
---- ------
Net cash (used) by operations (595) (1,516)
Cash flows from investing activities:
Purchase of property and equipment (482) (248)
Other (56)
----- ------
Net cash (used) by investing activities (538) (248)
Cash flows from financing activities:
Net borrowing under line of credit 294 2,054
Repayment of long-term notes payable and
capitalized lease obligations (310) (202)
Proceeds from sale of common stock 51
Other (22)
----- ------
Net cash provided (used) by financing
activities (16) 1,880
----- ------
Net increase (decrease) in cash (1,149) 117
Cash at beginning of period 8,680 724
----- ------
Cash at end of period $ 7,531 $ 841
========= =========
The Notes to Condensed Consolidated Financial Statements are an
integral part of this statement.<PAGE>
LCA-VISION INC.
Notes to Condensed Consolidated Financial Statements
for the Three Months Ended March 31, 1998 and 1997
(unaudited)
Dollars in thousands, except per share and share information
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The March 31, 1998 and 1997 financial data are unaudited; however,
in the opinion of the Company, such data include all adjustments,
consisting only of normal recurring adjustments, necessary for a
fair statement of the interim periods.
Business
LCA-Vision is a leading developer and operator of free-standing
laser refractive surgery centers. The Company also manages laser
and minimally invasive surgery programs for hospitals and medical
centers.
The laser refractive surgery centers operated by the Company
provide the facilities, equipment and support services for
performing various corrective eye surgeries that employ
state-of-the-art laser technologies. The surgeries performed in
the
Company's centers primarily include photorefractive keratectomy
("PRK") and laser in situ keratomileusis ("LASIK") for treatment
of myopia (nearsightedness) and astigmatism.
The Company manages multi-specialty laser surgery programs at
various medical facilities on a contract basis. The Company
structures its contractual arrangements to match compensation with
the value of the specific services it provides. The Company is
generally paid a fixed amount for the initial work performed to
render a center operational and then receives compensation to
service a center on an ongoing basis. Compensation is generally
fixed based on procedures performed; based on increased surgical
volume or reduced surgical costs; or a combination of such.
Contracts may also compensate the Company for conducting the
marketing programs of the surgical center and educating its staff
including doctors.
Principles of Presentation
The consolidated financial statements include the accounts of
LCA-Vision Inc., a Delaware corporation, and its wholly-owned
subsidiaries after elimination of intercompany balances and
transactions.
Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the dates of the financial statements and the
reported amounts of revenues and expenses during the reporting
periods. Actual results could differ from those estimates.
Per Share Data
Basic earnings per share is net income to common shareholders
divided by weighted average common shares outstanding; diluted
earnings per share is net income to common shareholders divided by
weighted average common shares outstanding plus potential common
shares from dilutive securities such as options and convertible
securities.
The Company's weighted average shares for the diluted calculation
for the three months ended March 1998 and 1997 does not assume
exercise of any stock options or conversion of other securities
since they would be antidilutive.
Investments in Unconsolidated Affiliates
The equity method is used for investments in laser refractive
surgery centers in which the Company has 50% or less ownership.
These investments are recorded at the Company's initial
investment, increased or decreased by the Company's share of the
center's income or loss, less distributions received.
Impact of Recently Issued Accounting Standards
The Financial Accounting Standards Board recently issued
Statements No. 130, "Reporting Comprehensive Income" and No. 131,
"Disclosure about Segments of an Enterprise and Related
Information." Statement No. 130 was adopted in the first quarter
of 1998 and did not have a material impact on financial
disclosures or any previously reported information. Statement 131
is effective for the year ending December 31, 1998 and will be
adopted at that time.
2. SUBSEQUENT EVENTS
The balances shown in the pro forma consolidated balance sheet
reflect the effects of the issuance of the convertible preferred
stock discussed below. The pro forma consolidated balance sheet
assumes that $8 million of the proceeds from the issuance of the
convertible preferred stock together with cash held in escrow are
used to repay the bank line of credit and term loan, both maturing
on September 30, 1998.
On May 11, 1998 the Company issued 10,000 shares of 6% Series B-1
Convertible Preferred Stock ("Convertible Preferred Shares") for
$10,000. Each share has a par value of $0.001 per share and a
stated value of $1,000 per share. The Convertible Preferred Shares
were recorded at stated value less issuance costs of $593.
Each Convertible Preferred Share is convertible into LCA-Vision
common stock at the lesser of $3.90625 per share or the average of
the four (4) lowest per share market values (which need to occur
on consecutive trading days) of its common stock during the
twenty-two (22) trading days prior to the applicable conversion
notice. The purchasers of the Convertible Preferred Shares may
convert their shares as follows: up to 33% in the first 90 days
following issuance; up to 66-2/3% in the first 180 days following
issuance; and any and all unconverted shares from and after 180
days following issuance. The Company may require conversion if its
common stock trades at $5.46875 per share for fifteen (15)
consecutive trading days.
Dividends on the Convertible Preferred Shares are cumulative from
the date of issuance and are payable on a quarterly basis
beginning June 30, 1998. The Company has the option to pay the
dividends in cash or in shares of its common stock.
On May 4, 1998, the Company issued 200,000 shares of its common
stock to Donaldson, Lufkin & Jenrette Securities Corporation
("DLJ") as compensation for certain investment banking services
related to the acquisition of Refractive Centers International,
Inc. The shares were recorded at their fair value on the date of
issuance.
3. ACQUISITIONS
a) Refractive Centers International, Inc.
On August 18, 1997, the Company purchased 100% of the issued and
outstanding common stock of Refractive Centers International, Inc.
("RCII"), a subsidiary of Summit Technology, Inc. ("Summit") (the
"Acquisition"). The Company issued 17,065,579 shares of its common
stock: 901,218 shares to individuals who held options for RCII
common stock and exercised them prior to the closing and
16,164,361 shares to Summit. The fair value of the assets acquired
consisted of $10,671, $9,511 and $12,802 for working capital,
equipment, and goodwill, respectively. Goodwill is being amortized
over 40 years using the straight-line method.
The Acquisition agreement restricts Summit from owning or
operating laser vision correction centers for a period ending on
the earlier of (i) July 22, 2000, or (ii) the date on which Summit
owns less than five percent (5%) of the issued and outstanding
shares of the Company's common stock.
Summit and the Company have entered into a registration rights
agreement pursuant to which Summit has the right to demand that
the Company register under the Securities Act of 1933 the
7,164,361 shares of Company Common Stock owned by Summit to enable
Summit to sell such shares on any date after May 17, 1998.
In connection with the Acquisition, the Company signed service
contracts with Summit for all Summit lasers owned or leased by the
company. These contracts each have a term of three years and
require fees of $80 per laser system for such three-year period.
With respect to up to five service contracts, if during the term
of a service contract the Company discontinues all use of the
laser system under the contract (except in connection with the
closing of a laser refractive eye surgery center), and does not
replace the laser system with any Summit excimer laser system,
then the Company may terminate the contract.
The Acquisition was accounted for under the "purchase" method of
accounting, as described in Accounting Principles Board Opinion
No. 16 and the interpretations thereof, pursuant to which the
assets and liabilities of RCII were adjusted to their respective
fair values and included with those of the Company as of August
18, 1997. The results of operations of the Company subsequent to
August 18, 1997 include the revenues and expenses of RCII; the
historical results of operations of the Company for periods prior
to August 18, 1997 were not restated.
Unaudited pro forma data for the three months ended March 31, 1997
as though the Company had acquired RCII as of the beginning of
1997 are: revenues - $4,406; net (loss) - $(4,040); and (loss) per
share - $(0.11). The pro forma information does not purport to be
indicative of operating results which would have occurred had the
acquisition of RCII been made at the beginning of the respective
period or of results which may occur in the future.
4. CREDIT ARRANGEMENTS
In connection with the acquisition of RCII, the Company entered
into a debt facility with its primary lender to replace the
Company's previous facility. The facility consists of an $8
million line of credit and a term loan in the amount of $3,053.
The line of credit and the term loan mature on September 30, 1998
and bear interest as follows: August 18, 1997 until February 28,
1998, 1% above the lender's prime rate; February 28, 1998 until
August 31, 1998, 3% above the lender's prime rate; and August 31,
1998 until maturity, 6% above the lender's prime rate. Interest on
borrowings under the line of credit is payable monthly. The term
loan is payable in 14 monthly installments of $14 plus interest
with the unpaid principal ($2,874) due at maturity.
The facility requires the Company to maintain $4 million in cash
on deposit with the lender and is collateralized by a blanket lien
on all Company assets, including the Company's headquarters
building. The credit facility requires the Company to maintain (i)
a debt to tangible net worth ratio of less than 1.0:1.0, and (ii)
maintain tangible net worth; defined as the sum of shareholders'
investment, obligations due shareholders, and accrued preferred
stock dividends; of at least $15 million. The facility also
restricts the Company's ability to pay dividends, issue stock,
incur indebtedness, enter into lease commitments or acquire
capital equipment with a purchase price in excess of $75 without
the consent of the lender. The Company received a waiver of the
minimum net worth requirement at March 31, 1998.
5. OBLIGATIONS TO SHAREHOLDERS
Obligations to shareholders at March 31, 1997 is comprised of:
Notes payable - shareholders $1,500
Accrued interest 489
Accrued dividends on preferred stock - Series B 226
------
$2,215
=======
The notes payable - shareholders mature on September 25, 2005, and
bear interest at 6.91%.
In connection with the acquisition of RCII, the notes
payable-shareholders were amended to limit payment of principal
and
accrued interest to 25% of the amount earnings for the prior
fiscal year exceed $1 million. Earnings for this purpose are
defined as income before taxes, amortization of goodwill and
depreciation, net of capital expenditures, for such fiscal year.
6. RELATED PARTY TRANSACTIONS
The Company's President is the principal stockholder of The LCA
Center for Surgery, Ltd. ("Surgery Center."). The Company does not
hold an investment in the Surgery Center. The Company has leased
to the Surgery Center, for a period of twenty (20) years at an
annual rental of $190, a portion of its headquarters building
located at 7840 Montgomery Road. In February 1997, the Company
agreed to forego rent in return for the Surgery Center providing
to the Company certain systems and processes for research and
development, for providing additional staffing, and for giving the
Company unlimited use of the leased premises for research,
testing, educational and other agreed purposes. During the three
months ended March 31, 1998 the Company advanced $150 to the
Surgery Center. Included in accounts receivable at March 31, 1998
is $258 due from Surgery Center.
7. COMMITMENTS AND CONTINGENCIES
The Company is a defendant in a case entitled Cabrini Development
Council, et al. V. LCA-Vision Inc., et al., which was commenced in
October, 1997 in the Supreme Court of the State of New York,
County of New York and subsequently removed to the United States
District Court for the Southern District of New York, in November,
1997. Various employees, officers, directors and former directors
of the Company are co-defendants. The case arises out of the
operations and the termination of operations of a New York limited
liability company (the "LLC") which had been formed by the
Company, the plaintiff in the action and a New York professional
corporation (the "PC") owned by certain physicians, for the
purpose of opening and operating a Laser Refractive Surgery center
or centers in New York City. Business activities commenced in
1995, but were unprofitable. After the LLC's resources were
exhausted, the Company paid its operating costs for a period of
time. In August, 1997, after further losses and after the parties
were unable to come to a final understanding as to their
respective rights and obligations, the operations of the LLC
ceased.
In its complaint, the plaintiffs allege breaches of various
agreements entered into between them, the Company, and the PC
concerning the LLC and its operations, as well as alleged fraud
and alleged conversion of a business opportunity arising out of
the operation of a center in Mt. Kisco, New York, which the
plaintiffs claim constituted business of the LLC. The plaintiffs
have demanded on all of their causes of action compensatory
damages which total not less than $4,500 punitive damages which
total not less than $2,000, as well as the creation of a
constructive trust over the Company's operations for the benefit
of the LLC. The Company believes that the plaintiffs' claims are
without merit and intends to vigorously defend the action. It has
made a motion to dismiss the complaint on various grounds. In
response, the plaintiffs filed a motion for leave to amend the
complaint. The Company has opposed such motion and cross-moved for
attorneys' fees incurred by the Company in opposing the
plaintiffs' motion. These motions are pending.
In the opinion of management the outcome will not have a material
adverse effect on the Company's financial position or results of
operations.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
This Quarterly Report on Form 10-Q contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of important
factors. For a discussion of important factors that could affect
the Company's results, refer to the Overview and financial
statement line item discussions set forth in Management's
Discussion and Analysis or Plan of Operation.
Overview
LCA-Vision Inc. ("LCA-Vision" or the "Company") is a leading
developer and operator of freestanding laser refractive eye
surgery centers. The laser refractive eye surgery centers
operated by the Company provide the facilities, equipment and
support services for performing various corrective eye surgeries
that employ state of the art laser technologies. The laser vision
correction surgeries performed in the Company's centers primarily
include photorefractive keratectomy ("PRK") and laser in situ
keratomileusis ("LASIK") for treatment of myopia
(nearsightedness). The Company also manages multispecialty laser
surgery programs at medical facilities on a contract basis.
The Company derives its revenue from three sources: (i) fees for
surgeries performed at its laser refractive eye surgery centers,
(ii) contractual fees for managing multispecialty laser surgery
programs, and (iii) fees for marketing and education programs;
management fees for operating laser vision correction centers of
investees; and miscellaneous sources.
Management anticipates that the composition of future revenue will
change as PRK and LASIK become more widely known and accepted by
ophthalmic physicians and their patients. Revenues from
hospital-based multi-specialty centers will be less significant to
the
Company while revenues from laser vision correction centers are
expected to increase.
The Company classifies operating expenses as follows: (a) direct
operating expenses which include: (i) laser refractive eye surgery
centers labor, physician fees, Pillar Point royalty fees (a
royalty fee paid to the manufacturers of the FDA approved lasers
of $250 per procedure), facility rent and utilities, and surgical
supplies; (ii) multispecialty laser surgery programs labor; and
(iii) other services and products labor and cost of products
sold; (b) general and administrative expenses which primarily
include marketing program costs, headquarters staff expenses and
other overhead costs; (c) center preopening expenses which include
direct costs incurred prior to opening a laser vision correction
center; and (d) depreciation and amortization.
Results of Operations
The Company's results of operations in any period are
significantly affected by the number of laser refractive eye
surgery centers opened and operating, the number of hospitals
under management contract, and the level of services contracted by
hospitals and others during such period. Given the limited period
of time that the laser refractive eye surgery centers have been
opened, the Company's results of operations may not be indicative
of future results.
On August 18, 1997, the Company purchased 100% of the issued and
outstanding common stock of Refractive Centers International, Inc.
("RCII"), a majority-owned subsidiary of Summit Technology, Inc.
(the "Acquisition") for 17,065,579 shares of its common stock. The
Acquisition was accounted for under the "purchase" method of
accounting, as described in Accounting Principles Board Opinion
No. 16 and interpretations thereof.
Sources of Revenues
Sources of revenues for the three months ended March 31, 1998 and
1997 were (dollars in thousands):
1998 1997
Laser refractive eye surgery centers $ 6,514 $1,585
Multi-specialty surgery programs 497 699
Other 198 478
------ ------
Total $7,209 $2,762
====== ======
1998 revenues from the laser refractive surgery centers grew 311%
compared to the same period 1997. The extent of the shift in the
Company's future revenues is dependent on the number of laser
vision correction procedures.
Laser refractive surgery centers
Laser refractive surgery center revenue increased due to more
centers being opened in 1997 and the growth in the number of
procedures performed, including those applicable to RCII.
The following table illustrates the growth of laser vision
correction procedures performed at the Company's centers.
Historical Pro Forma
Wholly- Combined Wholly- Combined
owned owned
1998
Q1 3,857 4,451 3,857 4,451
1997
Q4 2,888 3,296 2,888 3,296
Q3 2,375 2,790 3,196 3,611
Q2 1,506 2,078 2,973 3,543
Q1 979 1,443 2,262 2,726
1996
Q4 745 1,089 1,789 2,133
Q3 596 864 1,257 1,525
Q2 790 1,054 1,155 1,419
Q1 532 613 548 629
Pro forma procedures include those performed at RCII centers prior
to their acquisition by the Company. Combined procedures include
those performed at investee centers. The Company records the
results of its investee centers using the equity method.
The growth and profitability of the Company are predicated on
increases in procedure volume. Industry sources estimate that
70,000 and 220,000 procedures were performed in the U.S. in 1996
and 1997, respectively, and that 300,000 to 350,000 procedures
will be performed in 1998. As more people have the procedure
performed the critical mass for word-of-mouth referrals is
attained and, together with marketing and advertising, procedure
volume should increase.
Multi-specialty surgery programs
At March 31, 1998, the Company manages multi-specialty laser
surgery programs at 11 medical facilities on a contract basis. At
December 31, 1997 the Company had contracts at 13 medical
facilities.
The renewal of the Company's contracts with the hospital providers
has become increasingly difficult due to price pressures and the
lengthening of sales cycle. Hospital providers and other entities
are being driven to reduce costs and scaleback their operations,
sometimes including the programs that the Company manages. The
Company's existing contracts provide positive cash flow; however,
the Company has decided to reduce its providing of this service
due to the difficult environment. In addition, budget reductions
at the facilities have reduced the marketing and education
programs, key elements to a successful surgery program.
Expenses
Direct operating expenses increased compared to 1997. The increase
of direct operating expenses is primarily a result of the
Company's expansion into the laser refractive eye surgery
business. Direct operating expenses comprise the significant fixed
costs of performing the procedure as well as the costs of
maintaining a facility. Certain of these costs will become a
lesser percentage of revenue as procedure volume increases. Direct
operating expenses related to the other sources of revenue are
more variable and fluctuate generally with the level of revenue.
General and administrative expenses increased $214 compared to
1997. The increase was primarily due to additional costs incurred
as a result of the acquisition of RCII. For the three months ended
March 31, 1998, the Company spent approximately $556 for marketing
and advertising programs to educate and inform individuals about
PRK and LASIK. Other expenses such as telephone, legal, insurance,
and repairs and maintenance increased as the Company added new
laser vision correction centers acquired from Summit.
Depreciation and amortization increased in 1998 compared to 1997
due to the increase in goodwill and property and equipment,
primarily equipment, for the laser vision correction centers
acquired from Summit.
Interest expense increased primarily due to the increased
borrowings under the line of credit to fund current operating
needs and capital equipment, offset by the reduction in loans from
the principal shareholders. Interest income increased due to more
funds on deposit in interest bearing accounts.
Liquidity and Capital Resources
On May 11, 1998 the Company issued 10,000 shares of 6% Series B-1
Convertible Preferred Stock for $10,000,000. Each share has a par
value of $0.001 per share and a stated value of $1,000 per share.
The net proceeds from this issuance, estimated to be $9,407,000
will be used to reduce debt and for general corporate purposes.
On August 18, 1997, the Company issued 17,065,579 shares of its
Common Stock for 100% of the issued and outstanding common stock
of RCII, a majority-owned subsidiary of Summit. At the time of the
acquisition, RCII owned and operated 19 laser refractive eye
surgery centers and had management service agreements with six
"centers of excellence" located at prestigious hospitals and
university medical centers. The acquisition agreement required
RCII to have a minimum cash balance of $10 million at closing.
Subsequent to the acquisition, the Company has closed four of the
RCII laser refractive eye surgery centers. In addition, the
Company closed the RCII corporate office in Waltham, MA and
terminated certain administrative personnel. The responsibilities
of the Waltham staff have been re-assigned to field and company
headquarters personnel. This closure will result in significant
cost savings due to the elimination of redundant general and
administrative expenses and the consolidation of marketing and
advertising programs.
In connection with the acquisition of RCII, the Company entered
into a debt facility ("Facility") with its primary lender to
replace the Company's previous facility. The facility consisted of
an $8 million line of credit ("Revolver") and a term loan ("Term
Loan") in the amount of $3.053 million. The Revolver and Term Loan
bear interest as follows: August 18, 1997 until February 28, 1998,
1% above the lender's prime rate in effect from time to time
("Prime Rate"); February 28, 1998 until August 31, 1998, 3% above
the lender's Prime Rate; and (iii) August 31, 1998 until September
30, 1998, 6% above the lender's Prime rate. September 30, 1998 is
the maturity date of the Revolver and Term Loan. The Term Loan is
payable in 14 monthly installments, due on the first day of each
calendar month, commencing September 1, 1997 and ending with a
final payment on September 30, 1998. Availability under the
Revolver was $1.065 million at March 31, 1998.
The Facility requires, among other things, that the Company
maintain a minimum tangible net worth and meet a debt coverage
ratio. The facility also restricts and/or prohibits certain
transactions; including but not limited to, additional borrowing,
the issuance of additional shares of capital stock, the payment of
dividends and capital expenditures greater than $75,000. The
facility further requires the Company to maintain $4,000,000 in
cash on deposit with the lender and is secured by a blanket lien
in favor of the lender on all Company assets, including the
Company's headquarters building. The Company received a waiver of
default at March 31, 1998 with respect to the minimum net worth
requirement.
As of January 1, 1998, the Company's open access concept and
management techniques are in place at the RCII laser refractive
eye surgery centers. Management anticipates that these changes,
together with the switch to VISX lasers at five of the centers,
will result in increased procedures and profitability in 1998.
During 1998 the Company continues to focus on making its centers
profitable rather than expansion. This could result in additional
centers or possibly relocations if profitability objectives are
not achieved. The Company believes that procedures will continue
to increase in 1998 and will result in the laser refractive eye
surgery center business turning profitable.
With the Facility expiring on September 30, 1998, the Company is
actively seeking a new financing package that will allow the
$5,900,000 of cash in escrow to be available or significantly
reduced. The Company believes that the cash flow resulting from
the procedure increase together with the freeing of restricted
cash will allow the Company to fund its activities without the
need for an increased credit facility. The Company is optimistic
that it can refinance the Facility; however, there can be no
assurance that the Company will be able to do such on satisfactory
terms.
The Company is discussing a sale-leaseback transaction for certain
of its ophthalmic equipment and lasers with several leasing
companies. Funds generated from a sale-leaseback transaction would
be used to reduce the Company's existing bank debt. The Company is
also considering a private placement of equity or mezzanine
financing as a means to reduce its bank debt. However, there can
be no assurance that it can enter into such transactions or on
satisfactory terms.
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
The Company is a defendant in a case entitled Cabrini Development
Council, et al. V. LCA-Vision Inc., et al., which was commenced in
October, 1997 in the Supreme Court of the State of New York,
County of New York and subsequently removed to the United States
District Court for the Southern District of New York, in November,
1997. Various employees, officers, directors and former directors
of the Company are co-defendants. The case arises out of the
operations and the termination of operations of a New York limited
liability company (the "LLC") which had been formed by the
Company, the plaintiff in the action and a New York professional
corporation (the "PC") owned by certain physicians, for the
purpose of opening and operating a Laser Refractive Surgery center
or centers in New York City. Business activities commenced in
1995, but were unprofitable. After the LLC's resources were
exhausted, the Company paid its operating costs for a period of
time. In August, 1997, after further losses and after the parties
were unable to come to a final understanding as to their
respective rights and obligations, the operations of the LLC
ceased.
In its complaint, the plaintiffs allege breaches of various
agreements entered into between them, the Company, and the PC
concerning the LLC and its operations, as well as alleged fraud
and alleged conversion of a business opportunity arising out of
the operation of a center in Mt. Kisco, New York, which the
plaintiffs claim constituted business of the LLC. The plaintiffs
have demanded on all of their causes of action compensatory
damages which total not less than $4,500 punitive damages which
total not less than $2,000, as well as the creation of a
constructive trust over the Company's operations for the benefit
of the LLC. The Company believes that the plaintiffs' claims are
without merit and intends to vigorously defend the action. It has
made a motion to dismiss the complaint on various grounds. In
response, the plaintiffs filed a motion for leave to amend the
complaint. The Company has opposed such motion and cross-moved for
attorneys' fees incurred by the Company in opposing the
plaintiffs' motion. These motions are pending.
In the opinion of management the outcome will not have a material
adverse effect on the Company's financial position or results of
operations.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security
Holders
The Annual Meeting of Stockholders was held on May 11, 1998.
Stockholders were solicited and elected the following four
individuals to serve as directors until the 1999 Annual meeting:
Stephen N. Joffe, John C. Hassan, William O. Coleman, and John H.
Gutfreund.
Item 5. Other Information.
None
Part II. Other Information (continued)
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit
Number Description of Exhibit
- ------
4 Certificate of Designation of the Series B-1
Preferred Stock, as corrected
10(a) Convertible Preferred Stock Purchase Agreement
between LCA-Vision Inc. and Certain Purchasers dated
as of May 8, 1998.
10(b) Agreement between LCA-Vision Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation dated May 4,
1998.
27 Financial Data Schedule
(b) Reports on Form 8-K.
None
<PAGE>
Signatures
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
LCA-VISION INC.
Date May 13, 1998 /s/Stephen N. Joffe
-----------------------------------
Stephen N. Joffe
President and Chief Executive Officer
Date May 13, 1998 /s/ Larry P. Rapp
-----------------------------------
Larry P. Rapp
Chief Financial Officer
Exhibit 4
CERTIFICATE OF DESIGNATION
6% SERIES B-1 CONVERTIBLE PREFERRED STOCK
OF
LCA-VISION INC.
LCA-Vision Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that, pursuant to authority
conferred upon the Corporation's Board of Directors by the
Corporation's Restated Certificate of Incorporation, as amended,
and pursuant to Section 151 of Title 8 of the Delaware Code of
1953, said Board of Directors, at a meeting of the Board of
Directors duly called and held on May 6, 1998, duly filed with the
minutes of the Board, adopted a resolution providing for a
Certificate of Designation of 10,000 shares of 6% Series B-1
Convertible Preferred Stock, the text of which is appended hereto
as Exhibit A and made a part hereof.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to
be signed by Susan B. Zaunbrecher, its Assistant Secretary, this
7th day of May, 1998.
LCA-VISION INC.
By /s/ Susan B. Zaunbrecher
Susan B. Zaunbrecher
Assistant Secretary
<PAGE>
RESOLUTION OF THE BOARD OF DIRECTORS
OF LCA-VISION INC.
ADOPTED AT A MEETING HELD ON
MAY 6, 1998
RESOLVED, that the Certificate of Designation to the Company's
Certificate of Incorporation regarding the terms of 10,000 shares
of the 6% Series B-1 Convertible Preferred Stock, $.001 par value,
in the form presented to the Board of Directors, with such changes
as the President, in his sole discretion, determines to be
necessary or appropriate, be, and it hereby is, approved, adopted,
ratified and confirmed, and that the President and other proper
officers are hereby authorized, empowered and directed to take all
actions necessary and appropriate to file such Certificate of
Designations with the Delaware Secretary of State to give effect
to the 10,000 shares of 6% Series B-1 Convertible Preferred Stock.
<PAGE>
EXHIBIT A
Terms of Preferred Stock
Section 1. Designation, Amount and Par Value. The series of
preferred stock shall be designated as 6% Series B-1 Convertible
Preferred Stock (the "Preferred Stock") and the number of shares
so designated shall be 10,000 (which shall not be subject to
increase without the consent of the holders of the Preferred Stock
(each, a "Holder" and collectively, the "Holders"). Each share of
Preferred Stock shall have a par value of $.001 per share and a
stated value of $1,000 per share (the "Stated Value").
Section 2. Dividends.
(a) Holders of Preferred Stock shall be
entitled to receive, when and as declared by the Board of
Directors out of funds legally available therefor, and the Company
shall pay, cumulative dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 6% per annum,
payable on a quarterly basis on March 31, June 30, September 30
and December 31 of each year during the term hereof (each a
"Dividend Payment Date"), commencing on June 30, 1998, in cash or
shares of Common Stock (as defined in Section 7) at (subject to
the terms and conditions set fort herein) the option of the
Company. Dividends on the Preferred Stock shall be calculated on
the basis of a 360-day year, shall accrue daily commencing on the
Original Issue Date (as defined in Section 7), and shall be deemed
to accrue from such date whether or not earned or declared and
whether or not there are profits, surplus or other funds of the
Company legally available for the payment of dividends. Accrued
dividends of the Preferred Stock shall be paid on the date on
which such Preferred Stock is converted. Any dividends not paid
on any Dividend Payment Date shall continue to accrue and shall be
due and payable upon conversion of the Preferred Stock. A party
that holds shares of Preferred Stock on a Dividend Payment Date
will be entitled to receive such dividend payment and any other
accrued and unpaid dividends which accrued prior to such Dividend
Payment Date, without regard to any sale or disposition of such
Preferred Stock subsequent to the applicable record date. All
overdue accrued and unpaid dividends and other amounts due
herewith shall entail a late fee at the rate of 15% per annum (to
accrue daily, from the date such dividend is due hereunder through
and including the date of payment). Except as otherwise provided
herein, if at any time the Company pays less than the total amount
of dividends then accrued on account of the Preferred Stock, such
payment shall be distributed ratably among the Holders based upon
the number of shares held by each Holder. Payment of dividends on
the Preferred Stock is further subject to the provisions of
Section 5(c)(i). The Company shall provide the Holders notice of
its intention to pay dividends in cash or shares of Common Stock
not less than 10 Trading Days prior to the Dividend Payment Date
for so long as shares of Preferred Stock are outstanding. If
dividends are paid in shares of Common Stock, the number of shares
of Common Stock issuable on account of such dividend shall equal
the cash amount of such dividend on such Dividend Payment Date
divided by the Conversion Price (as defined below) on such date.
(b) Notwithstanding anything to the contrary contained
herein, the Company may not issue shares of Common Stock in
payment of dividends (and must deliver cash in respect thereof) on
the Preferred Stock if:
(i) the number of shares of Common Stock at the time
authorized, unissued and unreserved for all purposes is
insufficient to pay such dividends in shares of Common Stock;
(ii) such shares are not registered for resale pursuant to an
effective registration statement that names the recipient of such
dividend as a selling stockholder thereunder and may not be sold
without volume restrictions pursuant to Rule 144 promulgated under
the Securities Act of 1933, as amended (the "Securities Act"), as
determined by counsel to the Company pursuant to a written opinion
letter, addressed to the Company's transfer agent in the form and
substance acceptable to the Holders and such transfer agent;
(iii) the shares of Common Stock to be issued in respect of
such dividends are not listed on the NASDAQ SmallCap Market (the
"NASDAQ");
(iv) the Company has failed to timely satisfy its
conversion obligations hereunder; or
(v) the issuance of such shares would result in the
recipient thereof beneficially owning, as determined in accordance
with Rule 13d-3 promulgated under the Securities Exchange Act of
1934, as amended (the Exchange Act"), more than 4.999% of the
then issued and outstanding shares of Common Stock.
Payment of dividends hereunder in shares of Common
Stock shall also be subject to the provisions of Section
5(a)(iii).
(c) So long as any Preferred Stock shall remain
outstanding, neither the Company nor any subsidiary thereof shall
redeem, purchase or otherwise acquire directly or indirectly any
Junior Securities (as defined in Section 7), nor shall the Company
directly or indirectly pay or declare any dividend or make any
distribution (other than a dividend or distribution described in
Section 5) upon, nor shall any distribution be made in respect of,
any Junior Securities, nor shall any monies be set aside for or
applied to the purchase or redemption (through a sinking fund or
otherwise) of any Junior Securities or shares pari passu with the
Preferred Stock, except for repurchases effected by the Company on
the open market, pursuant to a direct stock purchase plan.
Section 3. Voting Rights. Except as otherwise
provided herein and as otherwise required by law, the Preferred
Stock shall have no voting rights. However, so long as any shares
of Preferred Stock are outstanding, the Company shall not and
shall cause its subsidiaries not to, without the affirmative vote
of the Holders of all of the shares of the Preferred Stock then
outstanding, (a) alter or change adversely the powers, preferences
or rights given to the Preferred Stock, (b) alter or amend this
Certificate of Designation, (c) authorize or create any class of
stock ranking as to dividends or distribution of assets upon a
Liquidation (as defined in Section 4) or otherwise pari passu with
or senior to the Preferred Stock, except for any series of
Preferred Stock issued and sold in accordance with the Purchase
Agreement, (d) amend its Certificate of Incorporation, bylaws or
other charter documents so as to affect adversely any rights of
any Holders, (e) increase the authorized number of shares of
Preferred Stock, or (f) enter into any agreement with respect to
the foregoing.
Section 4. Liquidation. Upon any liquidation,
dissolution or winding-up of the Company, whether voluntary or
involuntary (a "Liquidation"), the Holders shall be entitled to
receive out of the assets of the Company, whether such assets are
capital or surplus, for each share of Preferred Stock an amount
equal to the Stated Value plus all due but unpaid dividends per
share, whether declared or not, before any distribution or payment
shall be made to the holders of any Junior Securities, and if the
assets of the Company shall be insufficient to pay in full such
amounts, then the entire assets to be distributed to the Holders
of Preferred Stock shall be distributed among the Holders of
Preferred Stock ratably in accordance with the respective amounts
that would be payable on such shares if all amounts payable
thereon were paid in full. A sale, conveyance or disposition of
all or substantially all of the assets of the Company or the
effectuation by the Company of a transaction or series of related
transactions in which more than 50% of the voting power of the
Company is disposed of, or a consolidation or merger of the
Company with or into any other company or companies shall not be
treated as a Liquidation, but instead shall be subject to the
provisions of Section 5. The Company shall mail written notice of
any such Liquidation, not less than 45 days prior to the payment
date stated therein, to each record Holder of Preferred Stock.
Section 5. Conversion.
(a)(i) Each share of Preferred Stock shall be
convertible into shares of Common Stock (subject to reduction
pursuant to Section 5(a)(iii) hereof and Section 3.8 of the
Purchase Agreement) at the Conversion Ratio (as defined in Section
7) at the option of the Holder as follows: (1) between the
Original Issue Date and the 90th day thereof, up to 33% of the
shares of Preferred Stock issued to such Holder; (2) between the
90th day after the Original Issue Date and the 180th day after the
Original Issue Date, up to 66-2/3% of the shares of Preferred
Stock issued to such Holder may be converted; and (3) from and
after the 181st day after the Original Issue Date, all of the
unconverted shares of Preferred Stock then held by such Holder may
be converted. The Holders shall effect conversions by surrendering
the certificate or certificates representing the shares of
Preferred Stock to be converted to the Company, together with the
form of conversion notice attached hereto as Exhibit A (a "Holder
Conversion Notice"). Each Holder Conversion Notice shall specify
the number of shares of Preferred Stock to be converted and the
date on which such conversion is to be effected, which date may
not be prior to the date the Holder delivers such Holder
Conversion Notice by facsimile (the "Holder Conversion Date"). If
no Holder Conversion Date is specified in a Conversion Notice, the
Holder Conversion Date shall be the date that the Holder
Conversion Notice is deemed delivered hereunder. Subject to
Sections 5(b) and 5(a)(iii) hereof, each Holder Conversion Notice,
once given, shall be irrevocable. If the Holder is converting
less than all shares of Preferred Stock represented by the
certificate or certificates tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected
in full for any reason, the Company shall promptly deliver to such
Holder (in the manner and within the time set forth in Section
5(b)) a certificate for such number of shares as have not been
converted.
(ii) If the Per Share Market Value shall be
greater than 175% of the Per Share Market Value measured on the
Trading Day immediately preceding the Original Issue Date for any
period of at least 15 consecutive Trading Days (as adjusted for
stock splits, reverse stock splits and stock dividends), then the
Company may, upon 15 Trading Days notice provided to the Holders
no later than five Trading Days after the conclusion of any such
period, require the conversion of then outstanding and
unconverted shares of Preferred Stock at the Conversion Ratio
calculated on the Company Conversion Date (as defined below)
(subject to reduction pursuant to Section 5(a)(iii), but not
subject to reduction pursuant to Section 3.8 of the Purchase
Agreement) by delivering to the Holders a notice in the form
attached hereto as Exhibit B (the "Company Conversion Notice"),
provided, that, no such conversion shall be permitted unless from
the time of the delivery of the Company Conversion Notice until
the Company Conversion Date (as defined below), (a) an Underlying
Shares Registration Statement covering the resale of the shares of
Common Stock issuable upon such conversion is effective, (b) the
shares of Common Stock issuable upon such conversion are
designated for quotation or listed for trading on the NASDAQ and,
(c) the Company has duly reserved for issuance the shares of
Common Stock issuable upon such conversion. Each Company
Conversion Notice under this Section shall specify the date on
which such conversion is to be effected, which date may not be
prior to the 30th Trading Day after the Company delivers such
Company Conversion Notice by facsimile (the "Company Conversion
Date"). If no Company Conversion Date is specified in a Company
Conversion Notice given under this Section, the Company Conversion
Date shall be the 30th Trading Day after the Company Conversion
Notice is deemed delivered hereunder. Any conversion pursuant to
this Section 5(a)(ii) shall be subject to Section 5(b) with
respect to the consequences of the Company's failure to deliver
shares of Common Stock in respect of a conversion under this
Section.
(iii) If on any date (the "Determination Date")
(A) the Common Stock is listed for trading on the Nasdaq National
Market or the Nasdaq SmallCap Market, (B) (i) if such date is
between the Original Issue Date and the 90th day thereof, the
Conversion Price then in effect is $.55 or less, (ii) if such date
is between the 90th day after the Original Issue Date and the
180th
day after the Original Issue Date, the Conversion Price then in
effect is $1.00 or less and (iii) if such date is on or after the
181st day after the Original Issue Date, the Conversion Price in
effect is $1.45 or less and (C) the Company shall not have
previously obtained the vote of shareholders (the "Shareholder
Approval"), if any, as may be required by the rules and
regulations of The Nasdaq Stock Market (or successor entity)
applicable to approve the issuance of Common Stock in an amount
equal to or in excess of 20% of the number of shares of Common
Stock outstanding on the Original Issue Date (such number of
shares as would not equal or exceed such 20% limit, the "Issuable
Maximum") in a private placement whereby shares of Common Stock
are deemed to have been issued at a price that is less than the
greater of book or fair market value of the Common Stock, then the
Company, on the third day following the Determination Date, shall
provide each Holder with notice (the "Company Election") of its
intention to either (and the Company shall be obligated to either)
(1) use its best efforts to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any
event not later than the 60th day after the Company Election, and
shall use its best efforts to file and to cause to be declared
effective under the Securities Act an Underlying Shares
Registration Statement covering the number of Underlying Shares in
excess of the Issuable Maximum as soon as possible but in any
event not later than the 90th day after the Company Election or
(2) pay cash to each Holder in an amount equal to the Mandatory
Redemption Amount (as defined in Section 7) for the number of
shares of Preferred Stock held by such Holder that would otherwise
(but for the provisions of this Section) be convertible into
Underlying Shares in excess of the Issuable Maximum. With respect
to clause (2) in the immediately preceding sentence, the payment
of the Mandatory Redemption Amount to each Holder shall be
determined on a pro rata basis based on the number of shares of
Preferred Stock held by such Holder on the Determination Date. If
the Company fails to pay the Mandatory Redemption Amount in full
pursuant to this Section within seven (7) days after the date
payable, the Company will pay interest thereon at a rate of 15%
per annum to the converting Holder, accruing daily from the
Determination Date until such amount, plus all such interest
thereon, is paid in full.
(b)(i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a
certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement) representing the number
of shares of Common Stock being acquired upon the conversion of
shares of Preferred Stock (subject to reduction pursuant to
Section 5(a)(iii) and Section 3.8 of the Purchase Agreement), (ii)
one or more certificates representing the number of shares of
Preferred Stock not converted, (iii) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected to pay
accrued dividends in cash), and (iv) if the Company has elected
and is permitted hereunder to pay accrued dividends in shares of
Common Stock, certificates, which shall be free of restrictive
legends and trading restrictions (other than those required by
Section 3.1 (b) of the Purchase Agreement), representing such
shares of Common Stock; provided, however, that the Company shall
not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon conversion of any shares of Preferred
Stock until certificates evidencing such shares of Preferred Stock
are either delivered for conversion to the Company or any transfer
agent for the Preferred Stock or Common Stock, or the Holder of
such Preferred Stock notifies the Company that such certificates
have been lost, stolen or destroyed and provides a bond (or other
adequate security) reasonably satisfactory to the Company to
indemnify the Company from any loss incurred by it in connection
therewith. The Company shall, upon request of the Holder, if
available, use its best efforts to deliver any certificate or
certificates required to be delivered by the Company under this
Section electronically through the Depository Trust Corporation or
another established clearing corporation performing similar
functions. If in the case of any Conversion Notice such
certificate or certificates, including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on
account of accrued but unpaid dividends hereunder, are not
delivered to or as directed by the applicable Holder by the third
Trading Day after the Conversion Date, the Holder shall be
entitled by written notice to the Company at any time on or before
its receipt of such certificate or certificates thereafter, to
rescind such conversion, in which event the Company shall
immediately return the certificates representing the shares of
Preferred Stock tendered for conversion.
(ii) If the Company fails to deliver to the Holder
such certificate or certificates pursuant to Section 5(b)(i),
including for purposes hereof, any shares of Common Stock to be
issued on the Conversion Date on account of accrued but unpaid
dividends hereunder, prior to the third Trading Day after the
Conversion Date, the Company shall pay to such Holder, in cash, as
liquidated damages and not as a penalty, $1,500 for each day after
such third Trading Day until such certificates are delivered.
Nothing herein shall limit a Holder's right to pursue actual
damages for the Company's failure to deliver certificates
representing shares of Common Stock upon conversion within the
period specified herein and such Holder shall have the right to
pursue all remedies available to it at law or in equity including,
without limitation, a decree of specific performance and/or
injunctive relief. The exercise of any such rights shall not
prohibit the Holders from seeking to enforce damages pursuant to
any other Section hereof or under applicable law. Further, if the
Company shall not have delivered any cash due in respect of
conversions of Preferred Stock or as payment of dividends thereon
by the third (3rd) Trading Day after the Conversion Date, the
Holder may, by notice to the Company, require the Company to issue
Underlying Shares pursuant to Section 5(c), except that for such
purpose the Conversion Price applicable thereto shall be the
lesser of the Conversion Price on the Conversion Date and the
Conversion Price on the date of such Holder demand. Any such
Underlying Shares will be subject to the provision of this
Section.
(iii) In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such
certificate or certificates pursuant to Section 5(b)(i), including
for purposes hereof, any shares of Common Stock to be issued on
the Conversion Date on account of accrued but unpaid dividends
hereunder, prior to the third Trading Day after the Conversion
Date, and if after such third Trading Day the Holder purchases (in
an open market transaction or otherwise) shares of Common Stock to
deliver in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such conversion
(a "Buy-In"), then the Company shall pay in cash to the Holder (in
addition to any remedies available to or elected by the Holder)
the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common
Stock so purchased exceeds (y) the aggregate stated value of the
shares of Preferred Stock for which such conversion was not timely
honored. For example, if the Holder purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In
with respect to an attempted conversion of $10,000 aggregate
stated value of the shares of Preferred Stock, the Company shall
be required to pay the Holder $1,000. The Holder shall provide
the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In.
(c) (i) The conversion price for each share of Preferred
Stock (the "Conversion Price") in effect on any Conversion Date
shall be the lesser of (a) 125% of the Per Share Market Value for
the Trading Day immediately preceding the Original Issue Date (the
"Initial Conversion Price") or (b) the average of the four (4)
lowest Per Share Market Values (which need not occur on
consecutive Trading Days) during the twenty-two (22) Trading Days
prior to the date of the applicable Conversion Notice, which Per
Share Market Values shall be chosen by the Holder converting such
shares of Preferred Stock; provided, however, that if at any time
during the Effectiveness Period" (as defined in the Registration
Rights Agreement) the Registration Statement ceases to be
effective for all Registrable Securities (as defined in the
Registration Rights Agreement) , or the Company advises the
Holders that the prospectus included in the Underlying Shares
Registration Statement may not be used by the Holders, or the
Common Stock shall fail at any time to be listed or quoted on the
NASDAQ SmallCap Market or other national securities exchange, then
such twenty-two (22) Trading Day period shall be extended for a
number of days equal to the total number of days during which the
Underlying Shares Registration Statement was not effective, the
prospectus not permitted to be used by the Holders and the Common
Stock is not listed for trading; provided, further, however, that,
(a) if the Underlying Shares Registration Statement (as defined in
the Registration Rights Agreement) is not filed on or prior to the
Filing Date (as defined in the Registration Rights Agreement), or
(b) if the Company fails to file with the Commission a request for
acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days
of the date that the Company is notified (orally or in writing,
whichever is earlier) by the Commission that an Underlying Shares
Registration Statement will not be "reviewed," or not subject to
further review, or (c) if the Underlying Shares Registration
Statement is not declared effective by the Commission on or prior
to the 90th day after the Original Issue Date, or (d) if such
Underlying Shares Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is
defined in the Registration Rights Agreement) at any time prior to
the expiration of the "Effectiveness Period" (as such term is
defined in the Registration Rights Agreement), without being
succeeded within 10 Trading Days by a subsequent Underlying Shares
Registration Statement filed with and declared effective by the
Commission, or (e) if trading in the Common Stock shall be
suspended for more than three (3) consecutive Trading Days or five
(5) Trading Days in the aggregate, or (f) if the conversion rights
of the Holders are suspended for any reason, or (g) if the Company
is required to convene a shareholders meeting pursuant to Section
5(a)(iii) and fails to convene a meeting of shareholders within
the time periods specified in Section 5(a)(iii) or does so convene
a meeting of shareholders within such time period but fails to
obtain Shareholder Approval at such meeting (any such failure or
breach being referred to as an "Event," and for purposes of
clauses (a) and (c) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period
is exceeded, or for purposes of clause (d) the date which such 10
Trading Day-period is exceeded, or for purposes of clause (e) the
date on which such three Trading Day period is exceeded, being
referred to as "Event Date"), the Conversion Price shall be
decreased by 2% each month (i.e., the Conversion Price would
decrease by 2% as of the Event Date and an additional 2% as of
each monthly anniversary of the Event Date) until the earlier to
occur of the second month anniversary after the Event Date and
such time as the applicable Event is cured. Commencing the second
month anniversary after the Event Date, the Company shall pay to
each Holder 2% of the aggregate Stated Value for Preferred Stock
purchased by such Holder in cash as liquidated damages, and not as
a penalty on the first day of each monthly anniversary of the
Event Date until such time as the applicable Event, is cured. Any
decrease in the Conversion Price pursuant to this Section shall
continue notwithstanding the fact that the Event causing such
decrease has been subsequently cured.
(ii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall (a) pay a stock dividend or
otherwise make a distribution or distributions on shares of its
Junior Securities or pari passu securities payable in shares of
Common Stock, (b) subdivide outstanding shares of Common Stock
into a larger number of shares, (c) combine outstanding shares of
Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital
stock of the Company, the Initial Conversion Price shall be
multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding before such event and
of which the denominator shall be the number of shares of Common
Stock outstanding after such event. Any adjustment made pursuant
to this Section 5(c)(ii) shall become effective immediately after
the record date for the determination of stockholders entitled to
receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to
all holders of Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
Per Share Market Value at the record date mentioned below, then
the Initial Conversion Price shall be multiplied by a fraction,
the numerator of which shall be the number of shares of Common
Stock outstanding immediately prior to the issuance of such rights
or warrants plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares so offered
would purchase at such Per Share Market Value, and the denominator
of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance plus the number of
shares of Common Stock offered for subscription or purchase. Such
adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record
date for the determination of stockholders entitled to receive
such rights or warrants. However, upon the expiration of any
right or warrant to purchase shares of Common Stock the issuance
of which resulted in an adjustment in the Conversion Price
pursuant to this Section 5(c)(iii), if any such right or warrant
shall expire and shall not have been exercised, the Conversion
Price shall immediately upon such expiration shall be recomputed
and effective immediately upon such expiration shall be increased
to the price which it would have been (but reflecting any other
adjustments in the Conversion Price made pursuant to the
provisions of this Section 5 upon the issuance of other rights or
warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares
of Common Stock actually purchased upon the exercise of such
rights or warrants actually exercised.
(iv) If the Company, at any time while shares of
Preferred Stock are outstanding, shall distribute to all holders
of Common Stock (and not to Holders of Preferred Stock) evidences
of its indebtedness or assets or rights or warrants to subscribe
for or purchase any security (excluding those referred to in
Sections 5(c)(ii) and (iii) above), then in each such case the
Initial Conversion Price at which each share of Preferred Stock
shall thereafter be convertible shall be determined by multiplying
the Initial Conversion Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator
shall be the Per Share Market Value of Common Stock determined as
of the record date mentioned above, and of which the numerator
shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of
the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as
determined by the Board of Directors in good faith; provided,
however, that in the event of a distribution exceeding ten percent
(10%) of the net assets of the Company, if the Holders of a
majority in interest of the Preferred Stock dispute such
valuation, such fair market value shall be determined by a
nationally recognized or major regional investment banking firm or
firm of independent certified public accountants of recognized
standing (which may be the firm that regularly examines the
financial statements of the Company) (an "Appraiser") selected in
good faith by the Holders of a majority in interest of the shares
of Preferred Stock then outstanding; and provided, further, that
the Company, after receipt of the determination by such Appraiser
shall have the right to select an additional Appraiser, in good
faith, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to
the Holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription
rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned
above.
(v) All calculations under this Section 5 shall be made
to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(vi) Whenever the Conversion Price is adjusted pursuant
to Section 5(c)(i),(ii),(iii) or (iv), the Company shall promptly
mail to each Holder of Preferred Stock, a notice setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(vii) In case of any reclassification of the Common
Stock, or any compulsory share exchange pursuant to which the
Common Stock is converted into other securities, cash or property
(other than compulsory share exchanges which constitute Change of
Control Transactions), the Holders of the Preferred Stock then
outstanding shall have the right thereafter to convert such shares
only into the shares of stock and other securities, cash and
property receivable upon or deemed to be held by holders of Common
Stock following such reclassification or share exchange, and the
Holders of the Preferred Stock shall be entitled upon such event
to receive such amount of securities, cash or property as a holder
of the number of shares of the Common Stock of the Company into
which such shares of Preferred Stock could have been converted
immediately prior to such reclassification or share exchange would
have been entitled. This provision shall similarly apply to
successive reclassifications or share exchanges.
(viii) If:
A. the Company shall declare a dividend
(or any other distribution) on its Common Stock; or
B. the Company shall declare a special
nonrecurring cash dividend on or a redemption of its Common Stock;
or
C. the Company shall authorize the
granting to all holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock of any class
or of any rights; or
D. the approval of any stockholders of the
Company shall be required in connection with any reclassification
of the Common Stock of the Company, any consolidation or merger to
which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, of any compulsory
share of exchange whereby the Common Stock is converted into other
securities, cash or property; or
E. the Company shall authorize the
voluntary or involuntary dissolution, liquidation or winding up of
the affairs of the Company;
then the Company shall cause to be filed at each office or agency
maintained for the purpose of conversion of Preferred Stock, and
shall cause to be mailed to the Holders of Preferred Stock at
their last addresses as they shall appear upon the stock books of
the Company, at least 20 calendar days prior to the applicable
record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of
such dividend, distribution, redemption, rights or warrants, or if
a record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined
or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become
effective or close, and the date as of which it is expected that
holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation,
merger, sale, transfer or share exchange; provided, however, that
the failure to mail such notice or any defect therein or in the
mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice. Holders are
entitled to convert shares of Preferred Stock during the 20-day
period commencing the date of such notice to the effective date of
the event triggering such notice.
(ix) If the Company (i) makes a public
announcement that it intends to enter into a Change of Control
Transaction or (ii) any person, group or entity (including the
Company, but excluding a Holder or any affiliate of a Holder)
publicly announces a bona fide tender offer, exchange offer or
other transaction to purchase 50% or more of the Common Stock
(such announcement being referred to herein as a "Major
Announcement" and the date on which a Major Announcement is made,
the "Announcement Date"), then, in the event that a Holder seeks
to convert shares of Preferred Stock on or following the
Announcement Date, the Conversion Price shall, effective upon the
Announcement Date and continuing through the earlier to occur of
the consummation of the proposed transaction or tender offer,
exchange offer or other transaction and the Abandonment Date (as
defined below), be equal to the lower of (x) the average Per Share
Market Value on the five Trading Days immediately preceding (but
not including) the Announcement Date and (y) the Conversion Price
in effect on the Conversion Date for such Preferred Stock.
"Abandonment Date" means with respect to any proposed transaction
or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph has been
made, the date upon which the Company (in the case of clause (i)
above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the
proposed transaction or tender offer, exchange offer or another
transaction which caused this paragraph to become operative.
(d) The Company covenants that it will at all times
reserve and keep available out of its authorized and unissued
Common Stock solely for the purpose of issuance upon conversion of
Preferred Stock and payment of dividends on Preferred Stock, each
as herein provided, free from preemptive rights or any other
actual contingent purchase rights of persons other than the
Holders of Preferred Stock, not less than such number of shares of
Common Stock as shall (subject to any additional requirements of
the Company as to reservation of such shares set forth in the
Purchase Agreement) be issuable (taking into account the
adjustments and restrictions of Section 5(a) and Section 5(c))
upon the conversion of all outstanding shares of Preferred Stock
and payment of dividends hereunder. The Company covenants that
all shares of Common Stock that shall be so issuable shall, upon
issue, be duly and validly authorized, issued and fully paid,
nonassessable and freely tradeable, subject to the legend
requirements of Section 3.1 (b) of the Purchase Agreement.
(e) Upon a conversion hereunder the Company shall
not be required to issue stock certificates representing fractions
of shares of Common Stock, but may if otherwise permitted, make a
cash payment in respect of any final fraction of a share based on
the Per Share Market Value at such time. If the Company elects
not, or is unable, to make such a cash payment, the Holder of a
share of Preferred Stock shall be entitled to receive, in lieu of
the final fraction of a share, one whole share of Common Stock.
(f) The issuance of certificates for shares of
Common Stock on conversion of Preferred Stock shall be made
without charge to the Holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or
delivery of such certificate, provided that the Company shall not
be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of the
Holder of such shares of Preferred Stock so converted and the
Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such
tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(g) Shares of Preferred Stock converted into Common
Stock shall be canceled. The Company may not reissue any shares
of Preferred Stock.
(h) Any and all notices or other communications or
deliveries to be provided by the Holders of the Preferred Stock
hereunder, including, without limitation, any Conversion Notice,
shall be in writing and delivered personally, by facsimile or sent
by a nationally recognized overnight courier service, addressed to
the attention of the Chief Executive Officer of the Company at the
facsimile telephone number or address of the principal place of
business of the Company as set forth in the Purchase Agreement.
Any and all notices or other communications or deliveries to be
provided by the Company hereunder shall be in writing and
delivered personally, by facsimile or sent by a nationally
recognized overnight courier service, addressed to each Holder of
Preferred Stock at the facsimile telephone number or address of
such Holder appearing on the books of the Company, or if no such
facsimile telephone number or address appears, at the principal
place of business of the Holder. Any notice or other
communication or deliveries hereunder shall be deemed given and
effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00
p.m. (Eastern Standard Time), (ii) the date after the date of
transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (Eastern Standard Time) on any date
and earlier than 11:59 p.m. (Eastern Standard Time) on such date,
(iii) upon receipt, if sent by a nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom
such notice is required to be given.
Section 6. Redemption Upon Certain Events. Upon the
occurrence of a Triggering Event (as defined below), each Holder
shall (in addition to all other rights it may have hereunder or
under applicable law), have the right, exercisable at the sole
option of such Holder, to require the Company to redeem all or a
portion of the Preferred Stock then held by such Holder for a
redemption price, in cash, equal to the sum of (i) the Mandatory
Redemption Amount for each share of Preferred Stock then held by
such Holder plus (ii) the Mandatory Redemption Amount for the
number of shares of Preferred Stock that would be held by such
Holder had the Preferred Stock converted into the Underlying
Shares then held by the Holder not been so converted. For
purposes of this Section, a share of Preferred Stock is
outstanding until such date as the Holder shall have received
Underlying Shares upon a conversion (or attempted conversion)
thereof.
A "Triggering Event" means any one or more of the
following events (whatever the reason and whether it shall be
voluntary or involuntary or effected by operation of law or
pursuant to any judgement, decree or order of any court, or any
order, rule or regulation of any administrative or governmental
body):
(i) the failure of the Registration Statement
to be declared effective by the Commission on or prior to the
180th day after the Original Issue Date;
(ii) if, during the Effectiveness Period, the
effectiveness of the Registration Statement lapses for any reason
or the Holder shall not be permitted to resell Registrable
Securities under the Underlying Shares Registration Statement;
(iii) the failure of the Common Stock to be
listed on the NASDAQ for a period of three (3) days (which need
not be consecutive days);
(iv) the Company shall fail for any reason to
deliver certificates representing Underlying Shares issuable upon
a conversion hereunder that comply with the provisions hereof
prior to the 12th day after the Conversion Date or the Company
shall provide notice to any Holder, including by way of public
announcement, at any time, of its intention not to comply with
requests for conversion of any Preferred Stock in accordance with
the terms hereof;
(v) the Company shall be a party to any Change
of Control Transaction, shall agree to sell (in one or a series of
related transactions) all or substantially all of its assets
(whether or not such sale would constitute a Change of Control
Transaction) or shall redeem more than a de minimis number of
shares of Common Stock or other Junior Securities (other than
redemptions of Underlying Shares);
(vi) an Event shall not have been cured to the
satisfaction of the Holders prior to the expiration of thirty (30)
days from the Event Date relating thereto;
(vii) the Company shall fail for any reason to
deliver the certificate or certificates required pursuant to
Section 5(b)(iii) or the cash pursuant to a Buy-In within seven
(7) days after notice is deemed delivered hereunder;
(viii) the Company shall fail to have available a
sufficient number of authorized and unreserved shares of Common
Stock to issue to such Holder upon a conversion hereunder; or
(ix) the Company shall fail for any reason to
obtain Shareholder Approval in accordance with Section 5(a)(iii)
following the Company Election to obtain Shareholder Approval.
Section 7. Definitions. For the purposes hereof,
the following terms shall have the following meanings:
"Change of Control Transaction" means the occurrence of
any of (i) an acquisition after the date hereof by an individual
or legal entity or "group" (as described in Rule 13d-5(b)(1)
promulgated under the Exchange Act) of in excess of 50% of the
voting securities of the Company, (ii) a replacement of more than
one-half of the members of the Company's board of directors which
is not approved by those individuals who are members of the board
of directors on the date hereof in one or a series of related
transactions, (iii) the merger of the Company with or into another
entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions,
unless following such transaction, the holders of the Company's
securities continue to hold at least 50% of such securities
following such transaction or (iv) the execution by the Company of
an agreement to which the Company is a party or by which it is
bound, providing for any of the events set forth above in (i),
(ii) or (iii).
"Common Stock" means the Company's common stock, $.001
par value, and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of
which the numerator is Stated Value plus accrued but unpaid
dividends (including any accrued but unpaid late fees thereon) but
only to the extent not paid in shares of Common Stock in
accordance with the terms hereof, and of which the denominator is
the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other
equity securities of the Company which are junior in rights and
liquidation preference to the Preferred Stock.
"Mandatory Redemption Amount" for each share of
Preferred Stock means the sum of (i) the greater of (A) 100% of
the Stated Value of such share of Preferred Stock and all accrued
dividends with respect to such share and (B) the product of (a)
the average Per Share Market Value for the five (5) Trading Days
immediately preceding (x) the date of the Triggering Event or the
Conversion Date, as the case may be, or (y) the date of payment in
full by the Company of the applicable redemption price, whichever
is greater, and (b) the Conversion Ratio calculated on the date
of the Triggering Event, or the Determination Date, as the case
may be, and (ii) all other amounts, costs, expenses and liquidated
damages due in respect of such shares of Preferred Stock.
"Original Issue Date" shall mean the date of the first
issuance of any shares of the Preferred Stock regardless of the
number of transfers of any particular shares of Preferred Stock
and regardless of the number of certificates which may be issued
to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date
(a) the closing bid price per share of the Common Stock on such
date on the NASDAQ or any other stock exchange or quotation system
on which the Common Stock is then listed or if there is no such
price on such date, then the closing bid price on such exchange or
quotation system on the date nearest preceding such date, or (b)
if the Common Stock is not listed then on the NASDAQ or any stock
exchange or quotation system, the closing bid price for a share of
Common Stock in the over-the-counter market, as reported by the
National Quotation Bureau Incorporated or similar organization or
agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not
then reported by the National Quotation Bureau Incorporated (or
similar organization or agency succeeding to its functions of
reporting prices), then the average of the "Pink Sheet" quotes for
the relevant conversion period, as determined in good faith by the
Holder, or (d) if the Common Stock is not then publicly traded the
fair market value of a share of Common Stock as determined by an
Appraiser selected in good faith by the Holders of a majority in
interest of the shares of the Preferred Stock; provided, however,
that the Company, after receipt of the determination by such
Appraiser, shall have the right to select an additional Appraiser,
in which case, the fair market value shall be equal to the average
of the determinations by each such Appraiser; and provided,
further that all determinations of the Per Share Market Value
shall be appropriately adjusted for any stock dividends, stock
splits or other similar transactions during such period.
"Person" means a corporation, an association, a
partnership, organization, a business, an individual, a government
or political subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred
Stock Purchase Agreement, dated as of the Original Issue Date,
among the Company and the original Holders of the Preferred Stock.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated as of the Original Issue Date, by and
among the Company and the original Holders of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock
is traded on the NASDAQ or other stock exchange or market on which
the Common Stock has been listed, or (b) if the Common Stock is
not listed on the NASDAQ, on the Nasdaq SmallCap Market, or (c) if
the Common Stock is not listed on the Nasdaq SmallCap Market or
any stock exchange or market, a day on which the Common Stock is
traded in the over-the-counter market, as reported by the OTC
Bulletin Board, or (c) if the Common Stock is not quoted on the
OTC Bulletin Board, a day on which the Common Stock is quoted in
the over-the-counter market as reported by the National Quotation
Bureau Incorporated (or any similar organization or agency
succeeding its functions of reporting prices); provided, however,
that in the event that the Common Stock is not listed or quoted as
set forth in (a), (b) and (c) hereof, then Trading Day shall mean
any day except Saturday, Sunday and any day which shall be a legal
holiday or a day on which banking institutions in the State of New
York are authorized or required by law or other government action
to close.
"Underlying Shares Registration Statement" means a
registration statement that meets the requirement of the
Registration Rights Agreement and requires the resale of all
Underlying Shares by the recipient thereof, who shall be named as
a "selling stockholder" thereunder.
"Underlying Shares" means, collectively, the shares of
Common Stock into which the Shares are convertible and the shares
of Common Stock issuable upon payment of dividends thereon in
accordance with the terms hereof.
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert shares of Preferred Stock)
The undersigned hereby elects to convert the number of shares of
Series B-1 Convertible Preferred Stock indicated below, into
shares of Common Stock, $.001 par value (the "Common Stock"), of
LCA-Vision Inc. (the "Company") according to the conditions
hereof, as of the date written below. If shares are to be issued
in the name of a person other than undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be
charged to the Holder for any conversion, except for such transfer
taxes, if any.
Conversion calculations:
________________________________________
Date to Effect Conversion
________________________________________
Number of shares of Preferred Stock
to be Converted
________________________________________
Number of shares of Common Stock
to be Issued
________________________________________
Applicable Conversion Price
________________________________________
Signature
________________________________________
Name
________________________________________
Address
CERTIFICATE OF CORRECTION FILED TO CORRECT
A CERTAIN ERROR IN THE CERTIFICATE OF DESIGNATION
OF LCA-VISION INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE
OF DELAWARE ON MAY 7, 1998
LCA-Vision Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is LCA-Vision Inc.
2. That a Certificate of Designation was filed by the Secretary of
State of Delaware on May 7, 1998 and that said Certificate
requires correction as permitted by Section 103 of the General
Corporation Law of the State of Delaware.
3. The inaccuracy or defect of said Certificate to be corrected
are as follows:
Certain language in Articles 5(a)(ii), 5(b)(i) and 5(c)(i) was
inadvertently omitted.
4. Article 5(a)(ii) of the Certificate is corrected to read as
follows:
See Exhibit 1
Article 5(b)(i) of the Certificate is corrected to read as
follows:
See Exhibit 2
Article 5(c)(i) of the Certificate is corrected to read as
follows:
See Exhibit 3
IN WITNESS WHEREOF, said LCA-Vision Inc. has caused this
Certificate to be signed by Susan B. Zaunbrecher, its Assistant
Secretary*, this 11th day of May, 1998.
LCA-VISION INC.
By: Susan B. Zaunbrecher
Assistant Secretary
*Any authorized officer or the Chairman or Vice-Chairman of the
Board of Directors may execute this certificate.<PAGE>
EXHIBIT 1
(ii) If the Per Share Market Value shall be greater than 175% of
the Per Share Market Value measured on the Trading Day immediately
preceding the Original Issue Date for any period of at least 15
consecutive Trading Days (as adjusted for stock splits, reverse
stock splits and stock dividends), then the Company may, upon 15
Trading Days notice provided to the Holders no later than five
Trading Days after the conclusion of any such period, require the
conversion of then outstanding and unconverted shares of Preferred
Stock at the Conversion Ration calculated on the Company
conversion Date (as defined below) (subject to reduction pursuant
to Section 5(a)(iii), but not subject to reduction pursuant to
Section 3.8 of the Purchase Agreement) by delivering to the
Holders, a notice in the form attached hereto as Exhibit B (the
"Company Conversion Notice"), provided, that, no such conversion
shall be permitted unless from the time of the delivery of the
Company Conversion Notice until the Company Conversion Date (as
defined below), (a) an Underlying Shares Registration Statement
covering the resale of the shares of Common Stock issuable upon
such conversion is effective, (b) the shares of Common Stock
issuable upon such conversion are designated for quotation or
listed for trading on the NASDAQ and, (c) the Company has duly
reserved for issuance the shares of Common Stock issuable upon
such conversion. Each Company Conversion Notice under this Section
shall specify the date on which such conversion is to be effected,
which date may not be prior to the 30th Trading Day after the
Company delivers such Company Conversion Notice by facsimile (the
"Company Conversion Date"). If no Company Conversion Date is
specified in a Company Conversion Notice given under this Section,
the Company Conversion Date shall be the 30th Trading Day after
the Company Conversion Notice is deemed delivered hereunder. Any
conversion pursuant to this Section 5(a)(ii) shall be subject to
Section 5(b) with respect to the consequences of the Company's
failure to deliver shares of Common Stock in respect of a
conversion under this Section.
<PAGE>
EXHIBIT 2
(b) (1) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a
certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by
Section 3.1(b) of Purchase Agreement ) representing the number of
shares of Common Stock being acquired upon the conversion of
shares of Preferred Stock (subject to reduction pursuant to
Section 5(a)(iii) and Section 3.8 of the Purchase Agreement), (ii)
one or more certificates representing the number of shares of
Preferred Stock not converted, (iii) a bank check in the amount of
accrued and unpaid dividends (if the Company has elected to pay
accrued dividends in cash), and (iv) if the Company has elected
and is permitted hereunder to pay accrued dividends in shares of
Common Stock certificates, which shall be free of restrictive
legends and trading restrictions (other than those required by
Section 3.1(b) of the Purchase Agreement), representing such
shares of common Stock; provided, however, that the Company shall
not be obligated to issue certificates evidencing the shares of
Common Stock issuable upon conversion of any shares of Preferred
Stock until certificates evidencing such shares of Preferred Stock
are either delivered for conversion to the Company or any transfer
agent for the Preferred Stock are either delivered for conversion
to the Company or any transfer agent for the Preferred Stock or
Common Stock, or the holder of such preferred stock notifies the
Company that such certificates have been lost, stolen or destroyed
and provides a bond (or other adequate security) reasonably
satisfactory to the Company to indemnify the Company from any loss
incurred by it in connection therewith. The Company shall, upon
request of the Holder, if available, use its best efforts to
deliver any certificate or certificates required to be delivered
by the Company under this Section electronically through the
Depository Trust Corporation or another established clearing
corporation performing similar functions. If in the case of any
Conversion Notice such certificate or certificates, including for
purposes hereof, any shares of Common Stock to be issued on the
Conversion Date on account of accrued but unpaid dividends
hereunder, are not delivered to or as directed by the applicable
Holder by the third Trading Day after by the Conversion Date, the
Holder shall be entitled by written notice to by the Company at
any time on or before its receipt of such certificate of
certificates thereafter, to rescind such conversion, in which
event by the Company shall immediately return the certificates
representing the shares of Preferred Stock tendered for
conversion.
<PAGE>
EXHIBIT 3
(c)(i) The conversion price for each share of Preferred Stock (the
"Conversion Price") in effect on any Conversion Date shall be the
lesser of (a) 125% of the Per Share Market Value for the Trading
Day immediately preceding the Original Issue Date (the "Initial
Conversion Price") or (b) the average of the four (4) lowest Per
Share Market Values (which need not occur on consecutive Trading
Days) during the twenty-two (22) Trading Days prior to the date of
the applicable Conversion Notice, which Per Share Market Values
shall be chosen by the Holder coverting such shares of Preferred
Stock; provided, however, that if at any time during the
"Effectiveness Period" (as defined in the Registration Rights
Agreement) the Registration Statement ceases to be effective for
all Registrable Securities (as defined in the Registration Rights
Agreement), or the Company advises the Holders that the prospectus
included in the Underlying Shares Registration Statement may not
be used by the Holders, or the Common Stock shall fail at any time
to be listed or quoted on the NASDAQ SmallCap Market or other
national securities exchange, then such twenty-two (22) Trading
Day period shall be extended for a number of days equal to the
total number of days during which the Underlying Shares
Registration Statement was not effective, the prospectus not
permitted to be used by the Holders and the Common Stock is not
listed for trading; provided, further, however, that, (a) if the
Underlying Shares Registration Statement (as defined in the
Registration Rights Agreement) is not filed on or prior to the
Filing Date (as defined in the Registration Rights Agreement), or
(b) if the Company fails to file with the Commission a request for
acceleration in accordance with Rule 12d1-2 promulgated under the
Securities Exchange Act of 1934, as amended, within five (5) days
of the date the Company is notified (orally or in writing,
whichever is earlier) by the Commission that an Underlying Shares
Registration Statement will not be "reviewed," or not subject to
further review, or (c) if the Underlying Shares Registration
Statement is not declared effective by the Commission on or prior
to the 90th day after the Original Issue Date, or (d) if such
Underlying Shares Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is
defined in the Registration Rights Agreement) at any time prior to
the expiration of the "Effectiveness Period" (as such term is
defined in the Registration Rights Agreement), without being
succeeded within 10 Trading Days by a subsequent Underlying Shares
Registration Statement filed with and declared effective by the
Commission, or (e) if trading in the Common Stock shall be
suspended for more than three (3) consecutive Trading Days or five
(5) Trading Days in the aggregate, or (f) if the conversion rights
of the Holders are suspended for any reason or (g) if the Company
is required to convene a shareholders meeting pursuant to Section
5(a)(iii) and fails to convene a meeting of shareholders within
the time period specified in Section 5(a)(iii) or does so convene
a meeting of shareholders within such time period but fails to
obtain Shareholder Approval at such meeting (any such failure or
breach being referred to as an "Event", and for purposes of
clauses (a) and (c) the date on which such Event occurs, or for
purposes of clause (b) the date on which such five (5) day period
is exceeded, or for purposes of clause (d) the date which such 10
Trading Day-period is exceeded, or for purposes of clause (e) the
date on which such three Trading Day-period is exceeded, being
referred to as "Event Date"), the Conversion Price shall be
decreased by 2% each month (i.e., the Conversion Price would
decrease 2% as of the Event Date and an additional 2% as of each
monthly anniversary of the Event Date) until the earlier to occur
of the second month anniversary after the Event Date and such time
as the applicable Event is cured. Commencing the second month
anniversary after the Event Date, the Company shall pay to each
Holder 2% of the aggregate Stated Value for Preferred Stock
purchased by such Holder in cash as liquidated damages, and not as
a penalty on the first day of each monthly anniversary of the
Event Date until such time as the applicable Event, is cured.
Any decrease in the Conversion Price pursuant to this Section
shall continue notwithstanding the fact that the Event causing
such decrease has been subsequently cured.
CERTIFICATE OF CORRECTION FILED TO CORRECT CERTAIN ERRORS IN THE
CERTIFICATE OF CORRECTION OF THE CERTIFICATE OF DESIGNATION OF
LCA-VISION INC. FILED IN THE OFFICE OF THE SECRETARY OF STATE OF
DELAWARE ON MAY 11, 1998
LCA-Vision Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
1. The name of the corporation is LCA-Vision Inc.
2. That a Certificate of Designation was filed by the Secretary
of State of Delaware on May 7, 1998, that a Certificate of
Correction to the Certificate of Designation was filed by the
Secretary of State of Delaware on May 11, 1998, and that said
Certificate of Correction requires correction as permitted by
Section 103 of the General Corporation Law of the State of
Delaware.
3. The inaccuracies or defects of said Certificate to be
corrected are as follows:
The Certificate of Correction referred to certain provisions of
the Certificate of Designation as "Articles" instead of
"Sections"; certain language in Exhibits 1, 2, and 3 (Sections
5(a)(ii), 5(b)(i), and 5(c)(i) of the Certificate of Designation)
of the Certificate of Correction was inadvertently omitted, and
certain typographical errors were inadvertently included therein.
4. Exhibit 1 of the Certificate of Correction (Section 5(a)(ii)
of the Certificate of Designation) is corrected to read as
follows:
See Exhibit 1
Exhibit 2 of the Certificate of Correction (Section 5(b)(i) of the
Certificate of Designation) is corrected to read as follows:
See Exhibit 2
Exhibit 3 of the Certificate of Correction (Section 5(c)(i) of the
Certificate of Designation) is corrected to read as follows:
See Exhibit 3
IN WITNESS WHEREOF, said LCA-Vision Inc. has caused this
Certificate to be signed by Susan B. Zaunbrecher, its Assistant
Secretary*, this 12th day of May, 1998.
LCA-VISION INC.
By: /s/ Susan B. Zaunbrecher
Assistant Secretary
*Any authorized officer or the Chairman or Vice-Chairman of the
Board of Directors may execute this certificate.<PAGE>
EXHIBIT 1
(ii) If the Per Share Market Value shall be greater
than 175% of the Per Share Market Value measured on the Trading
Day
immediately preceding the Original Issue Date for any period of at
least 15 consecutive Trading Days (as adjusted for stock splits,
reverse stock splits and stock dividends), then the Company may,
upon 15 Trading Days notice provided to the Holders no later than
five Trading Days after the conclusion of any such period, require
the conversion of then outstanding and unconverted shares of
Preferred Stock at the Conversion Ratio calculated on the Company
Conversion Date (as defined below) (subject to reduction pursuant
to
Section 5(a)(iii), but not subject to reduction pursuant to
Section
3.8 of the Purchase Agreement) by delivering to the Holders, a
notice in the form attached hereto as Exhibit B (the "Company
Conversion Notice"), provided, that, no such conversion shall be
permitted unless from the time of the delivery of the Company
Conversion Notice until the Company Conversion Date (as defined
below), (a) an Underlying Shares Registration Statement covering
the
resale of the shares of Common Stock issuable upon such conversion
is effective, (b) the shares of Common Stock issuable upon such
conversion are designated for quotation or listed for trading on
the
NASDAQ and, (c) the Company has duly reserved for issuance the
shares of Common Stock issuable upon such conversion. Each Company
Conversion Notice under this Section shall specify the date on
which
such conversion is to be effected, which date may not be prior to
the 30th Trading Day after the Company delivers such Company
Conversion Notice by facsimile (the "Company Conversion Date").
If
no Company Conversion Date is specified in a Company Conversion
Notice given under this Section, the Company Conversion Date shall
be the 30th Trading Day after the Company Conversion Notice is
deemed delivered hereunder. Any conversion pursuant to this
Section
5(a)(ii) shall be subject to Section 5(b) with respect to the
consequences of the Company's failure to deliver shares of Common
Stock in respect of a conversion under this Section.
<PAGE>
EXHIBIT 2
(b) (i) Not later than three (3) Trading Days after any
Conversion Date, the Company will deliver to the Holder (i) a
certificate or certificates which shall be free of restrictive
legends and trading restrictions (other than those required by
Section 3.1(b) of Purchase Agreement) representing the number of
shares of Common Stock being acquired upon the conversion of
shares
of Preferred Stock (subject to reduction pursuant to Section
5(a)(iii) and Section 3.8 of the Purchase Agreement), (ii) one or
more certificates representing the number of shares of Preferred
Stock not converted, (iii) a bank check in the amount of accrued
and
unpaid dividends (if the Company has elected to pay accrued
dividends in cash), and (iv) if the Company has elected and is
permitted hereunder to pay accrued dividends in shares of Common
Stock, certificates, which shall be free of restrictive legends
and
trading restrictions (other than those required by Section 3.1(b)
of
the Purchase Agreement), representing such shares of Common Stock;
provided, however, that the Company shall not be obligated to
issue
certificates evidencing the shares of Common Stock issuable upon
conversion of any shares of Preferred Stock until certificates
evidencing such shares of Preferred Stock are either delivered for
conversion to the Company or any transfer agent for the Preferred
Stock or Common Stock, or the Holder of such Preferred Stock
notifies the Company that such certificates have been lost, stolen
or destroyed and provides a bond (or other adequate security)
reasonably satisfactory to the Company to indemnify the Company
from
any loss incurred by it in connection therewith. The Company
shall,
upon request of the Holder, if available, use its best efforts to
deliver any certificate or certificates required to be delivered
by
the Company under this Section electronically through the
Depository
Trust Corporation or another established clearing corporation
performing similar functions. If in the case of any Conversion
Notice such certificate or certificates, including for purposes
hereof, any shares of Common Stock to be issued on the Conversion
Date on account of accrued but unpaid dividends hereunder, are not
delivered to or as directed by the applicable Holder by the third
Trading Day after the Conversion Date, the Holder shall be
entitled
by written notice to the Company at any time on or before its
receipt of such certificate of certificates thereafter, to rescind
such conversion, in which event the Company shall immediately
return
the certificates representing the shares of Preferred Stock
tendered
for conversion.
<PAGE>
EXHIBIT 3
(c)(i) The conversion price for each share of Preferred Stock
(the
"Conversion Price") in effect on any Conversion Date shall be the
lesser of (a) 125% of the Per Share Market Value for the Trading
Day
immediately preceding the Original Issue Date (the "Initial
Conversion Price") or (b) the average of the four (4) lowest Per
Share Market Values (which need not occur on consecutive Trading
Days) during the twenty-two (22) Trading Days prior to the date of
the applicable Conversion Notice, which Per Share Market Values
shall be chosen by the Holder coverting such shares of Preferred
Stock; provided, however, that if at any time during the
"Effectiveness Period" (as defined in the Registration Rights
Agreement) the Registration Statement ceases to be effective for
all
Registrable Securities (as defined in the Registration Rights
Agreement), or the Company advises the Holders that the prospectus
included in the Underlying Shares Registration Statement may not
be
used by the Holders, or the Common Stock shall fail at any time to
be listed or quoted on the NASDAQ SmallCap Market or other
national
securities exchange, then such twenty-two (22) Trading Day period
shall be extended for a number of days equal to the total number
of
days during which the Underlying Shares Registration Statement was
not effective, the prospectus not permitted to be used by the
Holders and the Common Stock is not listed for trading; provided,
further, however, that, (a) if the Underlying Shares Registration
Statement (as defined in the Registration Rights Agreement) is not
filed on or prior to the Filing Date (as defined in the
Registration
Rights Agreement), or (b) if the Company fails to file with the
Commission a request for acceleration in accordance with Rule
12d1-2
promulgated under the Securities Exchange Act of 1934, as amended,
within five (5) days of the date that the Company is notified
(orally or in writing, whichever is earlier) by the Commission
that
an Underlying Shares Registration Statement will not be
"reviewed,"
or not subject to further review, or (c) if the Underlying Shares
Registration Statement is not declared effective by the Commission
on or prior to the 90th day after the Original Issue Date, or (d)
if
such Underlying Shares Registration Statement is filed with and
declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities (as such term is
defined
in the Registration Rights Agreement) at any time prior to the
expiration of the "Effectiveness Period" (as such term is defined
in
the Registration Rights Agreement), without being succeeded within
10 Trading Days by a subsequent Underlying Shares Registration
Statement filed with and declared effective by the Commission, or
(e) if trading in the Common Stock shall be suspended for more
than
three (3) consecutive Trading Days or five (5) Trading Days in the
aggregate, or (f) if the conversion rights of the Holders are
suspended for any reason or (g) if the Company is required to
convene a shareholders meeting pursuant to Section 5(a)(iii) and
fails to convene a meeting of shareholders within the time period
specified in Section 5(a)(iii) or does so convene a meeting of
shareholders within such time period but fails to obtain
Shareholder
Approval at such meeting (any such failure or breach being
referred
to as an "Event", and for purposes of clauses (a) and (c) the date
on which such Event occurs, or for purposes of clause (b) the date
on which such five (5) day period is exceeded, or for purposes of
clause (d) the date which such 10 Trading Day-period is exceeded,
or
for purposes of clause (e) the date on which such three Trading
Day-period is exceeded, being referred to as "Event Date"), the
Conversion Price shall be decreased by 2% each month (i.e., the
Conversion Price would decrease 2% as of the Event Date and an
additional 2% as of each monthly anniversary of the Event Date)
until the earlier to occur of the second month anniversary after
the
Event Date and such time as the applicable Event is cured.
Commencing the second month anniversary after the Event Date, the
Company shall pay to each Holder 2% of the aggregate Stated Value
for Preferred Stock purchased by such Holder in cash as liquidated
damages, and not as a penalty on the first day of each monthly
anniversary of the Event Date until such time as the applicable
Event, is cured. Any decrease in the Conversion Price pursuant
to
this Section shall continue notwithstanding the fact that the
Event
causing such decrease has been subsequently cured.
Exhibit 10(a)
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (this
"Agreement"), dated as of May 8, 1998, by and among LCA-Vision
Inc., a Delaware corporation (the "Company"), and Brown Simpson
Strategic Growth Fund, L.P., a New York limited partnership
("Brown
Simpson LP"), Brown Simpson Strategic Growth Fund, Ltd., a Cayman
Islands exempt company ("Brown Simpson Limited"), Southbrook
International Investments, Ltd., a corporation organized and
existing under the laws of the British Virgin Islands
("Southbrook"), Proprietary Convertible Investment Group, Inc., a
Delaware corporation ("Proprietary"), Westover Investments, LP,
a
Delaware limited partnership ("Westover") and Montrose Investments
Ltd., a Cayman Islands exempt limited partnership ("Montrose").
Brown Simpson LP, Brown Simpson Limited, Southbrook, Proprietary,
Westover and Montrose are each referred to herein as a "Purchaser"
and are collectively referred to herein as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in
this
Agreement, the Company desires to issue and sell to the
Purchasers,
and the Purchasers desire to purchase from the Company, 10,000
shares of the Company's 6% Series B-1 Convertible Preferred Stock,
$.001 par value per share (the "Series B-1 Shares"); and
WHEREAS, subject to the terms and conditions set forth
in
this Agreement, the Company desires to grant to the Purchasers the
right to purchase from the Company up to an additional 5,000 share
of the Company's 6% Series B-2 Convertible Preferred Stock, $.001
par value per share ("Series B-2 Shares," and together with the
Series B-1 Shares, the "Preferred Shares").
IN CONSIDERATION of the mutual covenants contained in this
Agreement, the Company and the Purchasers agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
1.1 Purchase and Sale. (a) Subject to the terms and
conditions set forth herein, (i) the Company shall issue and sell
to
each Purchaser, and each Purchaser shall purchase from the
Company,
the number of Series B-1 Shares set forth next to such Purchaser's
name on Schedule 1 attached hereto and (ii) the Purchasers shall
have the right to purchase from the Company up to 5,000 Series B-2
Shares in the aggregate.
(b) The Series B-1 Shares shall have the respective
rights, preferences and privileges set forth in Exhibit A attached
hereto (the "Series B-1 Terms"), which shall be incorporated into
a
Certificate of Designation to be approved by the Purchasers and
filed on or prior to the Series B-1 Closing (as defined below) by
the Company with the Secretary of State of Delaware (the "Series
B-1
Designation"). The Series B-2 Shares shall have respective
rights,
preferences and privileges identical to the Series B-1 Terms,
mutatis mutandis, and shall rank pari passu with the Series B-1
Shares with regard to dividends, liquidation, voting rights and
any
other preferential rights designated therein, except that the
Conversion Price (as defined below) for conversion of the Series
B-2
Shares shall be determined as of the Original Issue Date (as
defined
below) for such Series B-2 Shares. The Series B-2 Shares shall be
authorized pursuant to a Certificate of Designation to be approved
by the Purchasers and filed on or prior to the Series B-2 Closing
Date (as defined below) by the Company with the Secretary of State
of Delaware (such certificate of designation, together with the
Series B-1 Designation, the "Certificates of Designation").
For purposes of this Agreement, "Conversion Price," "Original
Issue Date," "Conversion Date," "Trading Day," "Per Share Market
Value," "Issuable Maximum," "Shareholder Approval" and
"Underlying
Shares Registration Statement" shall have the meanings set forth
in
Exhibit A attached hereto.
1.2 Purchase Price. The purchase price per Preferred
Share
shall be $1,000.
1.3 The Closings.
(a) The Series B-1 Closing. (i) The closing (the
"Series B-1 Closing") of the purchase and sale of 10,000 Series
B-1
Shares shall take place at the offices of Robinson Silverman
Pearce
Aronsohn & Berman LLP ("Robinson Silverman"), 1290 Avenue of the
Americas, New York, New York 10104, immediately following the
execution hereof or such later date as the parties shall agree,
but
not prior to the date that the conditions set forth in Section 4.1
have been satisfied or waived by the appropriate party. The date
of
the Series B-1 Closing is hereinafter referred to as the "Series
B-1
Closing Date." At the Series B-1 Closing, the Company shall sell
and issue to the Purchasers, and the Purchasers shall severally
and
not jointly purchase from the Company, 10,000 Series B-1 Shares
for
an aggregate purchase price of $10,000,000.
(ii) At the Series B-1 Closing, (a) the Company
shall deliver to each Purchaser (1) one or more stock
certificates
representing the Series B-1 Shares to be purchased by such
Purchaser, as set forth next to such Purchaser's name on Schedule
1
attached hereto, each registered in the name of such Purchaser,
(2)
the legal opinion referenced in Section 4.1(viii), substantially
in
the form of Exhibit B attached hereto, and (3) all other
documents,
instruments and writings required to have been delivered at or
prior
to the Series B-1 Closing by the Company pursuant to this
Agreement
and the Registration Rights Agreement, dated the date hereof, by
and
among the Company and the Purchasers, in the form of Exhibit C
attached hereto (the "Registration Rights Agreement"); and (b)
each
of the Purchasers shall deliver to the Company (1) United States
dollars in immediately available funds equal to the product of (x)
$1,000 and (y) the number of Series B-1 Shares to be purchased by
such Purchaser at the Series B-1 Closing in accordance with the
amount set forth next to such Purchaser's name on Schedule 1
attached hereto, by wire transfer to an account designated in
writing by the Company for such purpose prior to the Series B-1
Closing Date and (2) all documents, instruments and writings
required to have been delivered at or prior to the Series B-1
Closing by the Purchasers pursuant to this Agreement and the
Registration Rights Agreement.
(b) The Series B-2 Closing. (i) Subject to the
terms
and conditions set forth in this Agreement, the Purchasers of a
majority of the Series B-1 Shares shall have the right from
November
11, 1998 through May 11, 1999 to deliver a written notice to the
Company (a "Series B-2 Notice") requiring the Company to issue
and
sell to the Purchasers up to 5,000 Series B-2 Shares. Except as
provided in the following sentence, each Purchaser shall have the
right to purchase up to the number of Series B-2 Shares as equals
its pro rata portion of the Series B-1 Shares issued and sold at
the
Series B-1 Closing. In the event any Purchaser (the "Non-Electing
Purchaser") does not purchase its pro rata portion of the Series
B-2
Shares, each other Purchaser shall have the right to purchase its
pro rata portion of the Series B-2 Shares not purchased by the
Non-Electing Purchaser. The closing (the "Series B-2 Closing";
each of
the Series B-1 Closing and the Series B-2 Closing is referred to
herein as a "Closing") of the purchase and sale of the Series B-2
Shares hereunder shall take place at the offices of Robinson
Silverman on the date indicated in the Series B-2 Notice (which
may
not be prior to the 5th Trading Day or later than the 10th
Trading
Day after receipt by the Company of the Series B-2 Notice, or as
otherwise agreed to by the parties). The date of the Series B-2
Closing is hereinafter referred to as the "Series B-2 Closing
Date"
(each of the Series B-1 Closing Date and the Series B-2 Closing
Date
is referred to herein as a "Closing Date").
(ii) At the Series B-2 Closing, (a) the Company
shall deliver to each Purchaser (1) the number of Series B-2
Shares
to be purchased by such Purchaser at the Series B-2 Closing, each
registered in the name of such Purchaser, (2) a legal opinion
substantially in the form of Exhibit B attached hereto from the
Company's outside counsel, and (3) all other documents,
instruments
and writings that the Purchasers may reasonably request; and (b)
each of the Purchasers shall deliver to the Company United
States
dollars in immediately available funds equal to the product of (x)
$1,000 and (y) the number of the Series B-2 Shares to be issued
and
sold to such Purchaser at the Series B-2 Closing, by wire transfer
to an account designated in writing by the Company for such
purpose
prior to the Series B-2 Closing Date.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the
Company. The Company hereby makes the following representations
and
warranties to the Purchaser:
(a) Organization and Qualification. The Company is
a
corporation, duly incorporated, validly existing and in good
standing under the laws of the State of Delaware, with the
requisite
corporate power and authority to own and use its properties and
assets and to carry on its business as currently conducted. The
Company has no subsidiaries other than as set forth in Schedule
2.1(a) (collectively the "Subsidiaries"). Each of the
Subsidiaries
is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
or
organization (as applicable), with the full corporate power and
authority to own and use its properties and assets and to carry on
its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good
standing as a foreign corporation in each jurisdiction in which
the
nature of the business conducted or property owned by it makes
such
qualification necessary, except where the failure to be so
qualified
or in good standing, as the case may be, could not, individually
or
in the aggregate, (x) adversely affect the legality, validity or
enforceability of the Securities (as defined below) or any of this
Agreement, the Certificates of Designation or the Registration
Rights Agreement (collectively, the "Transaction Documents"), (y)
have or result in a material adverse effect on the results of
operations, assets, prospects, or condition (financial or
otherwise)
of the Company and the Subsidiaries, taken as a whole, or (z)
adversely impair the Company's ability to perform fully on a
timely
basis its obligations under any Transaction Document (any of (x),
(y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the
requisite corporate power and authority to enter into and to
consummate the transactions contemplated by each of the
Transaction
Documents, and otherwise to carry out its obligations thereunder.
The execution and delivery of each of the Transaction Documents by
the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary
action on the part of the Company and no further action is
required
by the Company. Each of the Transaction Documents has been duly
executed by the Company and when delivered in accordance with the
terms hereof (or, in the case of the Certificates of Designation,
when filed with the Secretary of State of the State of Delaware)
will constitute the valid and binding obligation of the Company
enforceable against the Company in accordance with its terms.
Neither the Company nor any Subsidiary is in violation of any of
the
provisions of its respective certificate of incorporation,
articles,
by-laws or other charter documents.
(c) Capitalization. The authorized, issued and
outstanding capital stock of the Company is set forth in Schedule
2.1(c). No shares of Common Stock are entitled to preemptive or
similar rights, nor is any holder of the Common Stock entitled to
preemptive or similar rights arising out of any agreement or
understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), there are no
outstanding options, warrants, script rights to subscribe to,
calls
or commitments of any character whatsoever relating to, or, except
as a result of the purchase and sale of the Preferred Shares,
securities, rights or obligations convertible into or exchangeable
for, or giving any person any right to subscribe for or acquire
any
shares of Common Stock, or contracts, commitments, understandings,
or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or secur-
ities or rights convertible or exchangeable into shares of Common
Stock. To the knowledge of the Company, except as specifically
disclosed in the SEC Documents (as defined below) or Schedule
2.1(c), no Person or group of related Persons beneficially owns
(as
determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or has the
right to acquire by agreement with or by obligation binding upon
the
Company beneficial ownership of in excess of 5% of the Common
Stock.
For purposes of this Agreement, a "Person" means an individual or
corporation, partnership, trust, incorporated or unincorporated
association, joint venture, limited liability company, joint stock
company, government (or an agency or subdivision thereof) or other
entity of any kind.
(d) Issuance of the Preferred Shares. The Preferred
Shares are duly authorized, and, when issued and paid for in
accordance with the terms hereof, shall have been validly issued,
fully paid and nonassessable, free and clear of all liens,
encumbrances and rights of first refusal of any kind
(collectively,
"Liens"). The Company has on the date hereof, and on the Series
B-2
Closing Date will have, and at all times while the Preferred
Shares
are outstanding will maintain, an adequate reserve of duly
authorized shares of Common Stock, to enable it to perform its
conversion and other obligations under this Agreement and the
Certificates of Designation with respect to the number of
Preferred
Shares issued at such Closing Date, and in no circumstances shall
the number of such reserved and available shares of Common Stock
be
less than 7,360,000. The shares of Common Stock issuable upon
conversion of the Preferred Shares and as payment of dividends
thereon are collectively referred to herein as the "Underlying
Shares". The Preferred Shares and Underlying Shares are,
collectively, the "Securities". When issued in accordance with
the
Certificates of Designation, the Underlying Shares will have been
duly authorized, validly issued, fully paid and nonassessable,
free
and clear of all Liens.
(e) No Conflicts. The execution, delivery and
performance of the Transaction Documents by the Company and the
consummation by the Company of the transactions contemplated
thereby
do not and will not (i) conflict with or violate any provision of
its certificate of incorporation, bylaws or other charter
documents
(each as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 2.1(f), conflict
with,
or constitute a default (or an event which with notice or lapse of
time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument (evidencing a Company debt
or
otherwise) to which the Company is a party or by which any
property
or asset of the Company is bound or affected, or (iii) result in a
violation of any law, rule, regulation, order, judgment,
injunction,
decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state
securities laws and regulations), or by which any property or
asset
of the Company is bound or affected, except in the case of each of
clauses (ii) and (iii), such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as could
not, individually or in the aggregate, have or result in a
Material
Adverse Effect. The business of the Company is not being
conducted
in violation of any law, ordinance or regulation of any
governmental
authority, except for violations which, individually or in the
aggregate, would not have a Material Adverse Effect.
(f) Consents and Approvals. Except as set forth in
Schedule 2.1(f), neither the Company nor any Subsidiary is
required
to obtain any consent, waiver, authorization or order of, give any
notice to, or make any filing or registration with, any court or
other Federal, state, local or other governmental authority or
other
Person in connection with the execution, delivery and performance
by
the Company of the Transaction Documents, other than (i) the
filing
of the Certificates of Designation with respect to the Preferred
Shares with the Secretary of State of Delaware, which filing with
respect to the Series B-1 Shares shall be effectuated prior to the
Series B-1 Closing Date and which filing with respect to the
Series
B-2 Shares shall be effected prior to the Series B-2 Closing Date,
(ii) the filing of the Underlying Shares Registration Statements
with the Securities and Exchange Commission (the "Commission"),
(iii) the application(s) to the Nasdaq Stock Market (or any
successor entity) for the listing of the Underlying Shares on the
Nasdaq SmallCap Market (the "NASDAQ") (and with any other national
securities exchange or market on which the Common Stock is then
listed or quoted), (iv) filings, notices or registrations under
applicable state securities laws, and (v) in all other cases where
the failure to obtain such consent, waiver, authorization or
order,
or to give such notice or make such filing or registrations could
not have or result in, individually or in the aggregate, a
Material
Adverse Effect (together with the consents, waivers,
authorizations, orders, notices, filings and registrations
referred
to in Schedule 2.1(f), the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically
disclosed in the Disclosure Materials (as hereinafter defined) or
in
Schedule 2.1(g), there is no action, suit, notice of violation,
proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its
Subsidiaries or any of their respective properties before or by
any
court, governmental or administrative agency or regulatory
authority
(Federal, state, county, local or foreign) which (i) adversely
affects or challenges the legality, validity or enforceability of
any of the Transaction Documents or the Securities or (ii) could
individually or in the aggregate have a Material Adverse Effect.
(h) No Default or Violation. Except as set forth on
Schedule 2.1(h), neither the Company nor any Subsidiary is in (i)
default under or in violation of any indenture, loan or credit
agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii)
violation of any order of any court, arbitrator or governmental
body
applicable to it, or (iii) violation of any statute, rule or regu-
lation of any governmental authority to which it is subject,
except
as could not (individually or in the aggregate) have or result in
a Material Adverse Effect.
(i) Private Offering. Neither the Company nor any
Affiliate (as defined below) nor any Person acting on the
Company's
or such Affiliate's behalf has taken or will take any action which
might subject the offering, issuance or sale of the Securities to
the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act").
(j) SEC Documents; Financial Statements; No Adverse
Change. The Company has filed all reports required to be filed by
it under the Exchange Act, including pursuant to Section 13(a) or
15(d) thereof, for the three years preceding the date hereof (the
foregoing materials being collectively referred to herein as the
"SEC Documents" and, together with the Schedules to this
Agreement,
the "Disclosure Materials") on a timely basis or has received a
valid extension of such time of filing and has filed any such SEC
Documents prior to the expiration of any such extension. As of
their respective dates, the SEC Documents complied in all material
respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Documents, when filed,
contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary
in
order to make the statements therein, in light of the
circumstances
under which they were made, not misleading. All material
agreements
to which the Company is a party or to which the property or assets
of the Company are subject have been filed as exhibits to the SEC
Documents as required. The financial statements of the Company
included in the SEC Documents comply in all material respects with
applicable accounting requirements and the rules and regulations
of
the Commission with respect thereto as in effect at the time of
filing. Such financial statements have been prepared in
accordance
with generally accepted accounting principles ("GAAP") applied on
a
consistent basis during the periods involved, except as may be
otherwise specified in such financial statements or the notes
thereto, and fairly present in all material respects the financial
position of the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then ended,
subject, in the case of unaudited statements, to normal year-end
audit adjustments. Since December 31, 1997, except as
specifically
disclosed in the SEC Documents, (a) there has been no event,
occurrence or development that has had or that could have or
result
in a Material Adverse Effect, (b) the Company has not incurred any
liabilities (contingent or otherwise) other than (x) liabilities
incurred in the ordinary course of business consistent with past
practice and (y) liabilities not required to be reflected in the
Company's financial statements pursuant to GAAP, (c) the Company
has
not altered its method of accounting or the identity of its
auditors
and (d) the Company has not declared or made any payment or
distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing
Company stock option plans) with respect to its capital stock, or
purchased, redeemed (or made any agreements to purchase or redeem)
any shares of its capital stock. The Company last filed audited
financial statements with the Commission on March 30, 1998, and
has
not received any comments from the Commission in respect thereof.
(k) Seniority. No class of equity securities of the
Company is senior to the Preferred Shares in right of payment,
whether upon liquidation, dissolution or otherwise.
(l) Investment Company. The Company is not, and is
not controlled by or under common control with an affiliate (an
"Affiliate") of, an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(m) Certain Fees. Except for certain fees payable
by
the Company to Coopers & Lybrand Securities LLC, no fees or
commissions will be payable by the Company to any broker,
financial
advisor or consultant, finder, placement agent, investment banker,
or bank with respect to the transactions contemplated by this
Agreement. The Purchasers shall have no obligation with respect
to
any fees or with respect to any claims made by or on behalf of
other
Persons for fees of a type contemplated in this Section that may
be
due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless the
Purchaser, their respective employees, officers, directors,
agents,
and partners, and their respective Affiliates (as such term is
defined under Rule 405 promulgated under the Securities Act), from
and against all claims, losses, damages, costs (including the
costs
of preparation and attorney's fees) and expenses suffered in
respect
of any such claimed or existing fees, as such fees and expenses
are
incurred.
(n) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering
and sale of the Securities, or (ii) solicited any offer to buy or
sell the Securities by means of any form of general solicitation
or
advertising.
(o) Form S-3 Eligibility. The Company is, and at
each
Closing Date will be, eligible to register securities for resale
with the Commission under Form S-3 promulgated under the
Securities
Act.
(p) Exclusivity. The Company shall not issue and
sell
the Preferred Shares to any Person other than the Purchasers other
than with the specific prior written consent of the Purchasers.
(q) Listing and Maintenance Requirements Compliance.
Except as set forth on Schedule 2.1(q), the Company has not in the
two years preceding the date hereof received notice (written or
oral) from the NASDAQ or any other stock exchange, market or
trading
facility on which the Common Stock is or has been listed (or on
which it has been quoted) to the effect that the Company is not in
compliance with the listing or maintenance requirements of such
exchange or market. The Company is in compliance with all such
maintenance requirements.
(r) Patents and Trademarks. The Company has, or has
rights to use, all patents, patent applications, trademarks,
trademark applications, service marks, trade names, copyrights,
licenses and rights (collectively, the "Intellectual Property
Rights") which are necessary for use in connection with its
business, as currently conducted and as described in the SEC
Documents, and which the failure to so have would have a Material
Adverse Effect. To the best knowledge of the Company, there is no
existing infringement by another Person of any of the Intellectual
Property Rights which are necessary for use in connection with the
Company's business.
(s) Acknowledgement of Dilution. The Company
acknowledges that the issuance of the Underlying Shares upon
conversion of the Preferred Shares and payment of dividends
thereon
in accordance with the Certificates of Designation may result in
dilution of the outstanding shares of Common Stock, which dilution
may be substantial under certain market conditions. The Company
further acknowledges that its obligation to issue Underlying
Shares
upon conversion of the Preferred Shares and payment of dividends
thereon in accordance with the Certificates of Designation is
unconditional and absolute, subject to the limitations set forth
herein in the Certificates of Designation, regardless of the
effect
of any such dilution.
(t) Registration Rights; Rights of Participation.
Except as described on Schedule 6(b) to the Registration Rights
Agreement, (A) the Company has not granted or agreed to grant to
any
Person any rights (including "piggy-back" registration rights) to
have any securities of the Company registered with the Commission
or
any other governmental authority which has not been satisfied and
(B) no Person, including, but not limited to, current or former
shareholders of the Company, underwriters, brokers, agents,
financial consultants or advisors, has any right of first refusal,
preemptive right, right of participation, or any similar right to
participate in the transactions contemplated by this Agreement or
any other Transaction Document.
(u) Title. The Company and the Subsidiaries have
good
and marketable title in fee simple to all real property and
personal
property owned by them, in each case free and clear of all Liens,
except as could not, individually or in the aggregate, have or
result in a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries
are
held by them under valid, subsisting and enforceable leases with
such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by
the Company and its Subsidiaries.
(v) Regulatory Permits. The Company and its
Subsidiaries possess all certificates, authorizations and permits
issued by the appropriate Federal, state or foreign regulatory
authorities necessary to conduct their respective businesses as
described in the SEC Documents except where the failure to possess
such permits would not, individually or in the aggregate, have a
Material Adverse Effect ("Material Permits"), and neither the
Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation, modification or suspension
of any Material Permit.
(w) Disclosure. The Company confirms that it has
not
provided any Purchaser or its agents or counsel with any
information
that constitutes or might constitute material non-public
information. The Company understands and confirms that the
Purchasers shall be relying on the foregoing representations in
effecting transactions in securities of the Company. None of the
information provided by or on behalf of the Company to any
Purchaser
in connection with the transactions contemplated by this Agreement
contains any untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to
make
the statements therein not misleading.
2.2 Representations and Warranties of the Purchaser.
Each
of the Purchasers, severally and not jointly, hereby represents
and
warrants to the Company as follows:
(a) Organization; Authority. Each Purchaser is a
corporation duly incorporated or a limited partnership duly
formed,
validly existing and in good standing under the laws of the
jurisdiction of its incorporation with the requisite corporate
power
and authority to enter into and to consummate the transactions
contemplated by the Transaction Documents and otherwise to carry
out
its obligations hereunder and thereunder. The purchase by such
Purchaser of the Securities hereunder has been duly authorized by
all necessary action on the part of such Purchaser. Each of this
Agreement and the Registration Rights Agreement has been duly
executed and delivered by such Purchaser and constitutes the valid
and legally binding obligation of such Purchaser, enforceable
against such Purchaser, in accordance with its terms.
(b) Investment Intent. Each Purchaser is acquiring
the Securities for its own account for investment purposes only
and
not with a view to or for distributing or reselling such
Securities
or any part thereof or interest therein, without prejudice,
however,
to such Purchaser's right, subject to the provisions of this
Agreement and the Registration Rights Agreement, at all times to
sell or otherwise dispose of all or any part of such Securities
pursuant to an effective registration statement under the
Securities
Act and in compliance with applicable state securities laws or
under
an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser
was
offered the Preferred Shares, it was, and at the date hereof, it
is,
and at each Closing Date, it will be, an "accredited investor" as
defined in Rule 501(a) under the Securities Act.
(d) Experience of the Purchasers. Each Purchaser
either alone or together with its representatives, has such
knowledge, sophistication and experience in business and financial
matters so as to be capable of evaluating the merits and risks of
the prospective investment in the Securities, and has so evaluated
the merits and risks of such investment.
(e) Ability of the Purchasers to Bear Risk of
Investment. Each Purchaser is able to bear the economic risk of
an
investment in the Securities and, at the present time, is able to
afford a complete loss of such investment.
(f) Access to Information. Each Purchaser
acknowledges receipt of the Disclosure Materials and further
acknowledges that it has been afforded (i) the opportunity to ask
such questions as it has deemed necessary of, and to receive
answers
from, representatives of the Company concerning the terms and
conditions of the offering of the Securities and the merits and
risks of investing in the Securities; (ii) access to information
about the Company and the Company's financial condition, results
of
operations, business, properties, management and prospects
sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the
Company
possesses or can acquire without unreasonable effort or expense
that
is necessary to make an informed investment decision with respect
to
the investment and to verify the accuracy and completeness of the
information contained in the Disclosure Materials. Neither the
access to information, nor the opportunity to obtain additional
information, nor any other investigation conducted by a Purchaser
or
any of its representatives shall modify, amend or otherwise affect
such Purchaser's right to rely on the Company's representation and
warranties contained in this Agreement.
(g) Reliance. Each Purchaser understands and
acknowledges that (i) the Securities are being offered and sold to
it without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the
Securities Act and (ii) the availability of such exemption,
depends
in part on, and the Company will rely upon the accuracy and truth-
fulness of, the foregoing representations and such Purchaser
hereby
consents to such reliance.
The Company acknowledges and agrees that the Purchasers
make no representations or warranties with respect to the
transactions contemplated hereby other than those specifically set
forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be
disposed pursuant to an effective registration statement under the
Securities Act, to the Company or pursuant to an available
exemption
from or in a transaction not subject to the registration
requirements of the Securities Act. In connection with any
transfer
of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein,
the Company may require the transferor thereof to provide to the
Company an opinion of counsel selected by the transferor, the form
and substance of which opinion shall be reasonably satisfactory to
the Company, to the effect that such transfer does not require
registration under the Securities Act. Notwithstanding the
foregoing, the Company hereby consents to and agrees to register
on
the books of the Company and with any transfer agent for the
securities of the Company (i) any transfer of Securities by one
Purchaser to another Purchaser and (ii) any transfer of Securities
by any Purchaser to an Affiliate of such Purchaser or to an
Affiliate of another Purchaser, or any transfer among any such
Affiliates, provided that transferee certifies to the Company that
it is an "accredited investor" as defined in Rule 501(a) under the
Securities Act. Any such transferee shall agree in writing to be
bound by the terms of this Agreement and shall have the rights of
a
Purchaser under this Agreement and the Registration Rights
Agreement.
(b) Each Purchaser agrees to the imprinting, so long
as is required by this Section 3.1(b), of the following legend on
the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED WITH THE
SECURITIES
AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE
,
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT") OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE
STATE SECURITIES LAWS.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RESTRICTIONS ON CONVERSION SET FORTH IN A CONVERTIBLE
PREFERRED STOCK PURCHASE AGREEMENT, DATED AS OF MAY 8, 1998,
EXECUTED BY LCA-VISION INC. (THE "COMPANY") AND THE ORIGINAL
HOLDER
HEREOF. A COPY OF THAT AGREEMENT IS ON FILE AT THE PRINCIPAL
OFFICE
OF THE COMPANY.
Underlying Shares shall not contain the legend set forth
above nor any other legend if the conversion of the Preferred
Shares, the payment of interest thereon or other issuances of
Underlying Shares as contemplated hereby or by the Certificates of
Designation occurs at any time while an Underlying Shares
Registration Statement is effective under the Securities Act or in
the event there is not an effective Underlying Shares Registration
Statement at such time, if in the opinion of counsel to the
Company
such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and
pronouncements issued by the staff of the Commission). The
Company
shall cause its counsel to issue the Transfer Agent instructions
attached hereto as Exhibit D to the Company's transfer agent on
the
day that the Underlying Shares Registration Statement is declared
effective by the Commission. The Company agrees that it will
provide each Purchaser, upon request, with a certificate or
certificates representing Underlying Shares, free from such legend
at such time as such legend is no longer required hereunder. The
Company may not make any notation on its records or give
instructions to any transfer agent of the Company which enlarge
the
restrictions of transfer set forth in this Section.
3.2 Furnishing of Information. So long as any Purchaser
owns Securities, the Company covenants to timely file (or obtain
extensions in respect thereof and file within the applicable grace
period) all reports required to be filed by the Company after the
date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act
and to promptly furnish each such Purchaser with true and
complete
copies of all such filings. So long as any Purchaser owns
Securities, if the Company is not required to file reports
pursuant
to Section 13(a) or 15(d) of the Exchange Act, it will prepare and
furnish to the Purchasers and make publicly available in
accordance
with Rule 144(c) promulgated under the Securities Act annual and
quarterly financial statements, together with a discussion and
analysis of such financial statements in form and substance
substantially similar to those that would otherwise be required to
be included in reports required by Section 13(a) or 15(d) of the
Exchange Act, as well as any other information required thereby,
in
the time period that such filings would have been required to have
been made under the Exchange Act. The Company further covenants
that it will take such further action as any holder of the
Preferred
Shares may reasonably request, all to the extent required from
time
to time to enable such Person to sell Underlying Shares without
registration under the Securities Act under Rule 144 promulgated
under the Securities Act, including the delivery of the legal
opinion referenced in the last paragraph of Section 3.1. Upon the
request of any such Person, the Company shall deliver to such
Person
a written certification of a duly authorized officer as to whether
it has complied with such requirements.
3.3 Blue Sky Laws. In accordance with the Registration
Rights Agreement, the Company shall qualify or exempt the
issuance
and sale of the Underlying Shares under the securities or Blue Sky
laws of such jurisdictions as any Purchaser may request and shall
continue such qualification or exemption at all times for so long
as
the Company must keep the Underlying Shares Registration Statement
continuously effective under the Securities Act pursuant to the
Registration Rights Agreement; provided, however, that neither the
Company nor its Subsidiaries shall be required in connection
therewith to qualify as a foreign corporation where they are not
now
so qualified or to take any action that would subject the Company
to
general service of process in any such jurisdiction where it is
not
then so subject or subject the Company to any material tax in any
such jurisdiction where it is not then so subject.
3.4 Integration. The Company has not and shall not sell,
offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in Section 2 of the Securities
Act) that would be integrated with the offer or sale of the
Securities under Rule 4310(c)(25)(H)(i) of the Nasdaq Stock Market
or in a manner that would require the registration under the
Securities Act of the sale of the Securities to any Purchaser.
3.5 Increase in Authorized Shares. At such times as the
Company would be, if a notice of conversion were to be delivered
on
such date, precluded from issuing a number of Underlying Shares
upon
conversion of the Preferred Shares that remain unconverted at such
date (and paying any earned and unpaid dividends thereon in shares
of Common Stock) equal to 200% of the number of Underlying Shares
then issuable upon conversion of such Preferred Shares due to the
unavailability of a sufficient number of shares of authorized but
unissued or reserved Common Stock, the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days
from such date) prepare and mail to the stockholders of the
Company
proxy materials requesting authorization to amend the Company's
Certificate of Incorporation to increase the number of shares of
Common Stock which the Company is authorized to issue to at least
such number of shares as reasonably requested by the Purchasers in
order to provide for such number of authorized and unissued shares
of Common Stock to enable the Company to comply with its
conversion
and reservation of shares obligations as set forth in this
Agreement
and the Certificates of Designation. In connection therewith, the
Board of Directors shall (a) adopt proper resolutions authorizing
such increase, (b) recommend to and otherwise use its best efforts
to promptly and duly obtain stockholder approval to carry out such
resolutions (and hold a special meeting of the stockholders no
later
than the 30th day after delivery of the proxy materials relating
to
such meeting) and (c) within 5 business Days of obtaining such
stockholder authorization, file an appropriate amendment to the
Company's Certificate of Incorporation to evidence such increase.
3.6 Listing and Reservation of Underlying Shares. (a)
The
Company shall (i) not later than the fifth Business Day following
the Series B-1 Closing Date prepare and file with the NASDAQ (as
well as any other national securities exchange or market or
trading
or quotation facility on which the Common Stock is then listed) an
additional shares listing application covering and listing a
number
of shares of Common Stock which is at least equal to the number of
shares required to be reserved pursuant to Section 2.1(d), (ii)
take
all steps necessary to cause the such shares to be approved for
listing in the NASDAQ (as well as on any other national securities
exchange or market or trading or quotation facility on which the
Common Stock is then listed) as soon as possible thereafter, and
(iii) provide to the Purchasers evidence of such listing, and the
Company shall maintain the listing of its Common Stock thereon.
In
the event the Company elects to use its best efforts to obtain
Shareholder Approval for the issuance of Common Stock in excess of
the Issuable Maximum pursuant to Section 5(a)(iii) of a
Certificate
of Designation for the Preferred Shares, the Company shall take
the
necessary actions on the date of the Shareholder Approval to list
the number of Underlying Shares as equal to 200% of (1) the number
of Underlying Shares then issuable upon conversion of the
Preferred
Shares and (2) the number of shares of Common Stock issuable upon
payment of dividends on the Preferred Shares assuming all
dividends
in respect of such Preferred Shares are paid in shares of Common
Stock. In the event that the number of Underlying Shares as are
issuable upon conversion in full of the then number of outstanding
Preferred Shares and as payment or dividends thereon exceeds 85%
of
the number of Underlying Shares required to be listed on account
thereof with NASDAQ (and other required exchanges) in accordance
with the immediately preceding sentence, the Company shall take
the
necessary actions to immediately list a number of Underlying
Shares
as equal 200% of the number of Underlying Shares then issuable
upon
conversion of the outstanding Preferred Shares and as payment of
dividends.
(b) The Company shall reserve for issuance upon
conversion of the Preferred Shares and for payment of dividends
thereupon in shares of Common Stock such shares as required by
Section 2.1(d) in order to fulfill such conversion and dividend
obligations, as set forth in Section 3.7(a). Shares of Common
Stock reserved for issuance upon the conversion of the Preferred
Shares as set forth in Section 2.1(d) shall be allocated pro rata
to
each of the Purchasers in accordance with the amount of Preferred
Shares issued and delivered to such Purchaser at each Closing, as
applicable.
3.7 Notice of Breaches. (a) Each of the Company and
each
Purchaser shall give prompt written notice to the other of any
breach of any representation, warranty or other agreement
contained
in the Transactions Documents, as well as any events or
occurrences
arising after the date hereof and prior to the Series B-2 Closing
Date which would reasonably be likely to cause any representation
or
warranty or other agreement of such party, as the case may be,
contained therein to be incorrect or breached as of such Closing
Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation,
warranty or other agreement contained in any such Transaction
Document.
(b) Notwithstanding the generality of this Section,
the Company shall promptly notify each Purchaser of any notice or
claim (written or oral) that it receives from any lender of the
Company to the effect that the consummation of the transactions
contemplated hereby and by the Registration Rights Agreement
violates or would violate any written agreement or understanding
between such lender and the Company, and the Company shall
promptly
furnish by facsimile to the holders of the Preferred Shares a copy
of any written statement in support of or relating to such claim
or
notice.
(c) The default by any Purchaser of any of its
obligations, representations or warranties under any Transaction
Document shall not be imputed to, and shall have no effect upon,
any
other Purchaser or affect the Company's obligations under the
Transaction Documents to any non-defaulting Purchaser.
3.8 Purchaser Ownership of Common Stock. Each Purchaser
agrees not to use its ability to convert Preferred Shares to the
extent such conversion would result in such Purchaser beneficially
owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules thereunder) in excess of 4.999% of the
then issued and outstanding shares of Common Stock, including
shares
issuable upon conversion of the Preferred Shares (and as payment
of
dividends thereon in shares of Common Stock) held by such
Purchaser
after application of this Section. To the extent that the
limitation contained in this Section applies, the determination of
whether Preferred Shares are convertible (in relation to other
securities owned by such Purchaser) and of which Preferred Shares
are convertible shall be in the sole discretion of such Purchaser,
and the submission of Preferred Shares for conversion shall be
deemed to be such Purchaser's determination of whether such
Preferred Shares are convertible (in relation to other securities
owned by such Purchaser) and of which Preferred Shares are
convertible, in each case subject to such aggregate percentage
limitation, and the Company shall have no obligation to verify or
confirm the accuracy of such determination. Nothing contained
herein shall be deemed to restrict the right of such Purchaser to
convert Preferred Shares at such time as such conversion will not
violate the provisions of this Section. The provisions of this
Section will not apply to any conversion pursuant to Section
5(a)(ii) of the Certificates of Designation and may be irrevocably
waived by any Purchaser with respect to itself upon not less than
75
days prior notice to the Company, and the provisions of this
Section
shall continue to apply until such 75th day (or later, if stated
in
the notice of waiver).
3.9 Conversion Obligations of the Company. The Company
covenants to convert the Preferred Shares and to deliver
Underlying
Shares in accordance with the terms and conditions and time period
set forth in the Certificates of Designation.
3.10 Right of First Refusal; Subsequent Registrations.
(a)
The Company shall not, directly or indirectly, without the prior
written consent of the Purchasers, offer, sell, grant any option
to
purchase, or otherwise dispose of (or announce any offer, sale,
grant or any option to purchase or other disposition) any of its
or
its Affiliates' equity or equity-equivalent securities or any
instrument that permits the holder thereof to acquire Common Stock
at any time over the life of the security or investment at a price
that is less than the market price of the Common Stock at the time
of issuance of such security or investment (a "Subsequent
Placement") for a period of 180 days after any Closing Date,
except
(i) the granting of options or warrants to employees, officers and
directors, and the issuance of shares upon exercise of options
granted, under any stock option plan heretofore or hereinafter
duly
adopted by the Company, (ii) shares issued upon exercise of any
currently outstanding warrants and upon conversion of any
currently
outstanding convertible preferred stock in each case disclosed in
Schedule 2.1(c), and (iii) shares of Common Stock issued upon
conversion of Preferred Shares or as payment of dividends thereon,
unless (A) the Company delivers to each Purchaser a written notice
(the "Subsequent Placement Notice") of its intention effect such
Subsequent Placement, which Subsequent Placement Notice shall
describe in reasonable detail the proposed terms of such
Subsequent
Placement, the amount of proceeds intended to be raised
thereunder,
the Person with whom such Subsequent Placement shall be affected,
and attached to which shall be a term sheet or similar document
relating thereto and (B) no Purchaser shall have notified the
Company by 5:00 p.m. (New York time) on the fifteenth (15th)
Trading
Day after its receipt of the Subsequent Placement Notice of its
willingness to provide (or to cause its sole designee to provide),
subject to completion of mutually acceptable documentation,
financing to the Company on substantially the terms set forth in
the
Subsequent Placement Notice. If no Purchaser shall notify the
Company of its intention to enter into such negotiations within
such
time period, the Company may effect the Subsequent Placement
substantially upon the terms and to the Persons (or Affiliates of
such Persons) set forth in the Subsequent Placement Notice;
provided, that the Company shall provide each Purchaser with a
second Subsequent Placement Notice, and the Purchasers shall again
have the right of first refusal set forth above in this paragraph
(a), if the Subsequent Placement subject to the initial Subsequent
Placement Notice shall not have been consummated for any reason on
the terms set forth in such Subsequent Placement Notice within
thirty (30) Trading Days after the date of the initial Subsequent
Placement Notice with the Person (or an Affiliate of such Person)
identified in the Subsequent Placement Notice. If the Purchasers
shall indicate a willingness to provide financing in excess of the
amount set forth in the Subsequent Placement Notice, then each
Purchaser shall be entitled to provide financing pursuant to such
Subsequent Placement Notice up to an amount equal to such
Purchaser's pro rata portion of the Preferred Stock purchased by
the
Purchasers under this Agreement at the Series B-1 Closing and the
Series B-2 Closing.
(b) Except Underlying Shares, shares permitted
pursuant to Schedule 6(b) of the Registration Right Agreement to
be
registered in an Underlying Shares Registration Statement and
other
"Registrable Securities" (as such term is defined in the
Registration Rights Agreement) required to be registered in
accordance with the Registration Rights Agreement, and other than
Company securities to be registered for resale in connection with
financings permitted pursuant to paragraph (a)(i) through (iii) of
this Section, the Company shall not, without the prior written
consent of the Purchasers, (i) issue or sell any of its or any of
its Affiliates' equity or equity-equivalent securities pursuant to
Regulation S promulgated under the Securities Act, or (ii)
register
for resale any securities of the Company for a period of not less
than 90 Trading Days after the date that the Underlying Shares
Registration Statement is declared effective by the Commission.
Any
days that any Purchaser is not permitted to sell Underlying Shares
under a Underlying Shares Registration Statement, shall be added
to
such 90 Trading Day period for the purposes of (i) and (ii) above.
3.11 Certain Securities Laws Disclosures; Publicity;
Press
Release. The Company shall timely file with the Commission a Form
D promulgated under the Securities Act as required under
Regulation
D promulgated under the Securities Act and provide a copy thereof
to
the Purchasers promptly after the filing thereof. The Company
shall
file with the Commission (i) a press release acceptable to the
Purchasers disclosing the transactions contemplated hereby within
three (3) Business Days after the Series B-1 Closing Date and (ii)
a Report on Form 8-K or a Quarterly Report on Form 10-Q disclosing
the transactions contemplated hereby and including the Transaction
Documents as exhibits thereto within ten (10) Business Days after
the Series B-1 Closing Date.
3.12 Use of Proceeds. The Company shall use all of the
net
proceeds from the sale of the Preferred Shares for working capital
purposes and not for the satisfaction of any portion of Company
borrowings in excess of an aggregate of $8,000,000 or to redeem
Company equity or equity-equivalent securities. Pending
application
of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts
and/or short-term, investment grade interest bearing securities.
3.13 Reimbursement. In the event that any Purchaser,
other
than by reason of its gross negligence or willful misconduct,
becomes involved in any capacity in any action, proceeding or
investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of
the consummation of the transactions contemplated pursuant to the
Transaction Documents, the Company will reimburse such Purchaser
for
its reasonable legal and other expenses (including the cost of any
investigation and preparation) incurred in connection therewith.
In
addition, with respect to each Purchaser, other than with respect
to
any matter in which such Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by
such Purchaser, for the time of any officers or employees of such
Purchaser devoted to appearing and preparing to appear as
witnesses,
assisting in preparation for hearings, trials or pretrial matters,
or otherwise with respect to inquiries, hearings, trials, and
other
proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph
shall
be in addition to any liability which the Company may otherwise
have, shall extend upon the same terms and conditions to any
affiliate of each Purchaser and partners, directors, agents,
employees and controlling persons (if any) as the case may be, of
each Purchaser and any such Affiliate, and shall be binding upon
and
inure to the benefit of any successors, assigns, heirs and
personal
representatives of the Company, each Purchaser and any such
Affiliate and any such Person. The Company also agrees that no
Purchaser or any such Affiliates, partners, directors, agents,
employees or controlling persons shall have any liability to the
Company or any person asserting claims on behalf of or in right of
the Company in connection with or as a result of the consummation
of
the Transaction Documents except to the extent that any losses,
claims, damages, liabilities or expenses incurred by the Company
result from the gross negligence or willful misconduct of such
Purchaser in connection with the transactions contemplated by this
Agreement. The Purchasers shall not, without the prior written
consent of the Company, effect any settlement of any action in
respect of which the Company is a party.
3.14 Conditions to Series B-2 Closing. Upon delivery of
a
Series B-2 Notice to the Company, the Company shall ensure that
the
conditions precedent to the obligation of each Purchaser to
acquire
the Series B-2 Shares set forth in Sections 4.1(i), (ii), (viii),
(ix), (x), (xi), (xii), (xiii), (xiv) and (xv) hereof are
satisfied
in full and (ii) use its best efforts to ensure that the
conditions
precedent to the obligation of each Purchaser to acquire the
Series
B-2 Shares set forth in Sections 4.1(iii), (iv), (v), (vi) and
(vii)
hereof are satisfied in full.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of each
Purchaser to Purchase the Series B-1 Shares and the Series B-2
Shares. The obligation of each Purchaser to acquire and pay for
the
Series B-1 Shares and the obligation of each Purchaser to acquire
and pay for the Series B-2 Shares upon delivery of a Series B-2
Notice is subject to the satisfaction or waiver by the Purchasers,
on or prior to the Series B-1 Closing Date or the Series B-2
Closing
Date, as the case may be, of each of the following conditions:
(i) Accuracy of the Company's Representations
and
Warranties. The representations and warranties of the Company
contained herein shall be true and correct in all material
respects
as of the date hereof and on such Closing Date, except that
representations and warranties made as of a specific date need
only
be true and correct as of such specified date;
(ii) Performance by the Company. The Company
shall have performed, satisfied and complied in all material
respects with all covenants, agreements and conditions required by
the Transaction Documents to be performed, satisfied or complied
with by the Company at or prior to the Series B-1 Closing or
Series
B-2 Closing, as the case may be;
(iii) No Injunction. No statute, rule,
regulation, executive order, decree, ruling or injunction shall
have
been enacted, entered, promulgated or endorsed by any court of
governmental authority of competent jurisdiction which prohibits
the
consummation of any of the transactions contemplated by the
Transaction Documents relating to the issuance or conversion of
any
of the Preferred Shares;
(iv) Adverse Changes. Since the date of the
financial statements included in the Company's Quarterly Report on
Form 10-Q or Annual Report on Form 10-K, whichever is more recent,
last filed prior to the date of this Agreement, no event which had
a Material Adverse Effect and no material adverse change in the
condition (financial or otherwise) or prospects of the Company
shall
have occurred which is not disclosed in the Disclosure Materials
(for purposes hereof, changes in the market price of the Common
Stock may be considered in determining whether there has occurred
an
event which has had a Material Adverse Effect or whether a
material
adverse change has occurred);
(v) Litigation. No material litigation shall
have been instituted or threatened against the Company;
(vi) Listing of Common Stock. The Common Stock
shall be listed for trading on the NASDAQ;
(vii) No Suspensions of Trading in Common
Stock.
The trading in the Common Stock shall not have been suspended by
the
Commission or on the NASDAQ (except for any suspension of trading
of
limited duration solely to permit dissemination of material
information regarding the Company);
(viii) Legal Opinion. The Company shall have
delivered to such Purchaser the opinion of the Company's outside
counsel, in substantially the form of Exhibit B attached hereto,
dated the Series B-1 Closing Date or Series B-2 Closing Date, as
the
case may be;
(ix) Required Approvals. All Required
Approvals
required to have been obtained on or prior to the Series B-1
Closing
Date or the Series B-2 Closing, as the case may be, shall have
been
obtained;
(x) Shares of Common Stock. The Company shall
have duly reserved the number of Underlying Shares required by the
Transaction Documents to be reserved for issuance upon conversion
of
all the Preferred Shares and payment of dividends thereon;
(xi) Delivery of Stock Certificates. The
Company
shall have delivered to such Purchaser or such Purchaser's
designee
the stock certificate(s) representing, in the case of the Series
B-1
Closing, the Series B-1 Shares, registered in the name of such
Purchasers or its designee, each in form satisfactory to such
Purchaser, and in the case of the Series B-2 Closing, the Series
B-2 Shares, registered in the name of such Purchasers or its
designee,
each in form satisfactory to such Purchaser;
(xii) Registration Rights Agreement. The
Company
shall have executed and delivered the Registration Rights
Agreement;
(xiii) Certificates of Designation. The
applicable Certificate of Designation shall have been duly filed
with the Secretary of State of Delaware, and the Company shall
have
delivered a copy thereof to each Purchaser, certified or filed by
the office of the Secretary of State of Delaware;
(xiv) Transfer Agent Instructions. The
Irrevocable
Transfer Agent Instructions, in the form of Exhibit D attached
hereto, shall have been delivered to and acknowledged in writing
by
the Company's transfer agent; and
(xv) Officer's Certificate. The Company shall
have delivered to each Purchaser an Officer's Certificate dated
the
Series B-1 Closing Date or the Series B-2 Closing Date, as the
case
may be, and signed by an executive officer of the Company
confirming
the accuracy of the Company's representations, warranties and
covenants as of the Series B-1 Closing Date or as of the Series
B-2
Closing Date, as the case may be, and confirming the compliance by
the Company with the conditions precedent set forth in this
Section
4.1 as of the Series B-1 Closing Date or as of the Series B-2
Closing Date, as the case may be.
ARTICLE IV
MISCELLANEOUS
5.1 Fees and Expenses. At the Series B-2 Closing,
the
Company shall pay to Robinson Silverman $5,000. Except as set
forth
in the immediately preceding sentence and as set forth in the
Registration Rights Agreement, each party shall pay the fees and
expenses of its advisers, counsel, accountants and other experts,
if
any, and all other expenses incurred by such party incident to the
negotiation, preparation, execution, delivery and performance of
this Agreement. The Company shall pay all stamp and other taxes
and
duties levied in connection with the issuance of the Preferred
Shares pursuant hereto.
5.2 Entire Agreement; Amendments. This Agreement,
together with the Exhibits and Schedules hereto, the Registration
Rights Agreement and the Certificates of Designation contain the
entire understanding of the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and
understandings, oral or written, with respect to such matters.
5.3 Notices. Any and all notices or other
communications or deliveries required or permitted to be provided
hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the
facsimile
telephone number specified in this Section prior to 8:00 p.m. (New
York time) on a Business Day, (ii) the Business Day after the date
of transmission, if such notice or communication is delivered via
facsimile at the facsimile telephone number specified in the
Purchase Agreement later than 8:00 p.m. (New York time) on any
date
and earlier than 11:59 p.m. (New York time) on such date, (iii)
the
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt
by
the party to whom such notice is required to be given to each
Purchaser at its address set forth under its name on Schedule 1
attached hereto or such other address as may be designated in
writing hereafter, in the same manner, by such Person. Copies of
notices to any Purchaser shall be sent to Robinson Silverman
Pearce
Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, NY
10104, Attn: Kenneth L. Henderson, Esq., fax: (212) 541-4630 and
copies of all notices to the Company shall be sent to Dinsmore &
Shohl, 1900 Chemed Center, 255 East 55th Street, Cincinnati, Ohio
45202 Attn: Charles F. Hertlein, Jr. , Esq., fax: (513) 977-8141
.
5.4 Amendments; Waivers. No provision of this
Agreement may be waived or amended except in a written instrument
signed, in the case of an amendment, by both the Company and the
Purchasers; or, in the case of a waiver, by the party against whom
enforcement of any such waiver is sought. No waiver of any
default
with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future
or
a waiver of any other provision, condition or requirement hereof,
nor shall any delay or omission of either party to exercise any
right hereunder in any manner impair the exercise of any such
right
accruing to it thereafter. Notwithstanding the foregoing, no such
amendment shall be effective to the extent that it applies to less
than all of the holders of the Preferred Shares outstanding.
5.5 Headings. The headings herein are for
convenience
only, do not constitute a part of this Agreement and shall not be
deemed to limit or affect any of the provisions hereof.
5.6 Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their
successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior
written consent of each of the Purchasers. Except as set forth in
Section 3.1(a), each Purchaser may assign this Agreement or any
rights or obligations hereunder without the consent of the
Company.
This provision shall not limit each Purchaser's right to transfer
securities or transfer or assign rights hereunder or under the
Registration Rights Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their
respective
permitted successors and assigns and is not for the benefit of,
nor
may any provision hereof be enforced by, any other Person.
5.8 Governing Law; Submission to Jurisdiction. This
Agreement shall be governed by and construed in accordance with
the
laws of the State of New York, without regard to principles of
conflicts of law. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of any New York state or federal court
sitting in the City of New York, Borough of Manhattan
(collectively,
the "Courts") in respect of any action, claim, suit, investigation
or proceeding (including, without limitation, an investigation or
partial proceeding), whether commenced or threatened, arising out
of
or relating to this Agreement, and irrevocably accepts for itself
and in respect of its property, generally and unconditionally,
jurisdiction of the Courts. The Company irrevocably waives to
the
fullest extent it may effectively do so under applicable law any
objection that it may now or hereafter have to the laying of the
venue of any such proceeding brought in any Court and any claim
that any such Proceeding brought in any Court has been brought in
an inconvenient forum. Nothing herein shall affect the right of
any
Holder. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit,
action or proceeding by receiving a copy thereof sent to such
party
at the address in effect for notices to it under this Agreement
and
agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in
any manner permitted by law.
5.9 Survival. The representations, warranties,
agreements and covenants contained herein shall survive each
Closing
and the delivery and conversion of the Preferred Shares.
5.10 Execution. This Agreement may be executed in
two
or more counterparts, all of which when taken together shall be
considered one and the same agreement and shall become effective
when counterparts have been signed by each party and delivered to
the other party, it being understood that both parties need not
sign
the same counterpart. In the event that any signature is
delivered
by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such
signature is executed) the same with the same force and effect as
if
such facsimile signature page were an original thereof.
5.11 Publicity. The Company and each Purchaser
shall
consult with each other in issuing any press releases or otherwise
making public statements with respect to the transactions
contemplated hereby and no party shall issue any such press
release
or otherwise make any such public statement without the prior
written consent of the others, which consent shall not be
unreasonably withheld or delayed, except that no prior consent
shall
be required if such disclosure is required by law, in which such
case the disclosing party shall provide the other party with prior
notice of such public statement. The Company shall not publicly
or
otherwise disclose the name of any of the Purchasers without each
such Purchaser's prior written consent.
5.12 Severability. In case any one or more of the
provisions of this Agreement shall be invalid or unenforceable in
any respect, the validity and enforceability of the remaining
terms
and provisions of this Agreement shall not in any way be affecting
or impaired thereby and the parties will attempt to agree upon a
valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
5.13 Remedies. In addition to being entitled to
exercise all rights provided herein or granted by law, including
recovery of damages, the Purchasers will be entitled to specific
performance of the obligations of the Company under the
Transaction
Documents. Each of the Company and the Purchasers (severally and
not jointly) agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of its
obligations described in the foregoing sentence and hereby agrees
to
waive in any action for specific performance of any such
obligation
the defense that a remedy at law would be adequate.
5.14 Independent Nature of Purchasers' Obligations
and
Rights. The obligations of each Purchaser hereunder is several
and
not joint with the obligations of the other Purchasers hereunder,
and no Purchaser shall be responsible in any way for the
performance
of the obligations of any other Purchaser hereunder. Nothing
contained herein or in any other agreement or document delivered
at
any Closing, and no action taken by any Purchaser pursuant hereto
or
thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of
entity, or create a presumption that the Purchasers are in any way
acting in concert with respect to such obligations or the
transactions contemplated by this Agreement. Each Purchaser shall
be entitled to protect and enforce its rights, including without
limitation the rights arising out of this Agreement or out of the
other Transaction Documents, and it shall not be necessary for any
other Purchaser to be joined as an additional party in any
proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Preferred Stock Purchase Agreement to be duly executed
by their respective authorized signatories as of the date first
indicated above.
LCA - VISION INC.
By:_____________________________________
Name:
Title:
BROWN SIMPSON STRATEGIC GROWTH
FUND, L.P.
By:_____________________________________
Name:
Title:
BROWN SIMPSON STRATEGIC GROWTH
FUND, LTD.
By:______________________________________
Name:
Title:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By:______________________________________
Name:
Title:
PROPRIETARY CONVERTIBLE
INVESTMENT GROUP, INC.
By:______________________________________
Name:
Title:
WESTOVER INVESTMENTS, LP
By:______________________________________
Name:
Title:
MONTROSE INVESTMENTS LTD.
By:______________________________________
Name:
Title:
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
Between
LCA-VISION INC.
and
BROWN SIMPSON STRATEGIC GROWTH FUND, L.P.,
BROWN SIMPSON STRATEGIC GROWTH FUND, LTD.,
SOUTHBROOK INTERNATIONAL INVESTMENTS, LTD.,
PROPRIETARY CONVERTIBLE INVESTMENT GROUP, INC.,
WESTOVER INVESTMENTS, LP
and
MONTROSE INVESTMENTS, LTD.
Dated as of May 8, 1998
<PAGE>
Schedule 1
Company:
LCA-Vision Inc.
7840 Montgomery Road
Cincinnati, Ohio 45236
Facsimile: (513) 792-5620
Attn: Steven N. Joffe, M.D.
Purchasers: Number of Series B-1
Shares
Brown Simpson Strategic Growth Fund, L.P. 250
c/o Brown Simpson Asset Management, LLC
Carnegie Hall Tower
4th Floor
152 West 57th Street
New York, NY 10019
Facsimile: (212)247-1329
Attn: Paul Gustus
Brown Simpson Strategic Growth Fund, Ltd. 750
c/o Brown Simpson Asset Management, LLC
Carnegie Hall Tower
4th Floor
152 West 57th Street
New York, NY 10019
Facsimile: (212)247-1329
Attn: Paul Gustus
Southbrook International Investments, Ltd. 3,000
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
Suite 2000
New York, NY 10111
Facsimile: (212)332-3256
Attn: Robert L. Miller
Proprietary Convertible Investment Group, Inc. 3,500
c/o CS First Boston
11 Madison Avenue
New York, NY 10010-3629
Facsimile: (212)325-6519
Attn: Al Weine
<PAGE>
Schedule 1
Continued
Purchasers: Number of Series B-1
Shares
Westover Investments, LP 825
777 Main Street
Suite 2750
Fort Worth, TX 76102
Facsimile:(214) 758-1221
Attn: Will Rose
Montrose Investments Ltd. 1,675
777 Main Street
Suite 2750
Fort Worth, TX 76102
Facsimile:(214) 758-1221
Attn: Will Rose<PAGE>
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is
made and entered into as of May 8, 1998, by and among LCA-Vision
Inc., a Delaware corporation (the "Company"), and Brown Simpson
Strategic Growth Fund, L.P., a New York limited partnership
("Brown Simpson LP"), Brown Simpson Strategic Growth Fund, Ltd., a
Cayman Islands exempt company ("Brown Simpson Limited"),
Southbrook International Investments, Ltd., a corporation
organized and existing under the laws of the British Virgin
Islands ("Southbrook"), Proprietary Convertible Investment Group,
Inc., a Delaware corporation ("Proprietary"), Westover
Investments, LP, a Delaware limited partnership ("Westover") and
Montrose Investments Ltd., a Cayman Island exempt limited
partnership ("Montrose"). Brown Simpson LP, Brown Simpson
Limited, Southbrook, Proprietary, Westover and Montrose are each
referred to herein as a "Purchaser" and are collectively referred
to herein as the "Purchasers."
This Agreement is made pursuant to the Convertible
Preferred Stock Purchase Agreement, dated as of the date hereof
among the Company and the Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein
and defined in the Purchase Agreement shall have the meanings
given such terms in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
"Advice" shall have meaning set forth in Section 3(o).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or
under common control with such Person. For the purposes of this
definition, "control," when used with respect to any Person, means
the possession, direct or indirect, of the power to direct or
cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and
"controlled" have meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and
any day which shall be a legal holiday or a day on which banking
institutions in the state of New York generally are authorized or
required by law or other government actions to close.
"Commission" means the Securities and Exchange
Commission.
"Common Stock" means the Company's Common Stock, $.001
par value.
"Company Election" shall have the meaning set forth in
the Certificate(s) of Designation for the Preferred Stock.
"Effectiveness Date" means (i) with respect to the
Registration Statement to be filed with respect to the Series B-1
Shares, the earlier of (a) the 90th day following the Series B-1
Closing Date and (b) five days following the receipt by the
Company of a notice (oral or written) from the Commission that the
Registration Statement filed with respect to the Series B-1 Shares
will not be subject, or is no longer subject, to review, and (ii)
with respect to the Registration Statement to be filed with
respect to the Series B-2 Shares, the earlier of (a) the 90th day
following the Series B-2 Closing Date and (b) five days following
the receipt by the Company of a notice (oral or written) from the
Commission that the Registration Statement filed with respect to
the Series B-2 Shares will not be subject to, or is no longer
subject to, review.
"Effectiveness Period" shall have the meaning set forth
in Section 2(a).
"Exchange Act" means the Securities Exchange Act of
1934, as amended.
"Filing Date" means (i) with respect to the shares of
Common Stock issuable upon conversion of, and as payment of
dividends in respect of, the Series B-1 Shares, the 30th day
following the Series B-1 Closing Date (ii) with respect to the
shares of Common Stock issuable upon conversion, and as payment
of dividends in respect of, of the Series B-2 Shares, the 30th day
following the Series B-2 Closing Date.
"Holder" or "Holders" means the holder or holders, as
the case may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Issuable Maximum" shall have the meaning set forth in
the Purchase Agreement.
"Losses" shall have the meaning set forth in Section
5(a).
"Person" means an individual or a corporation,
partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company,
government (or an agency or political subdivision thereof) or
other entity of any kind.
"Preferred Stock" means collectively, the Series B-1
Shares and Series B-2 Shares.
"Proceeding" means an action, claim, suit, investigation
or proceeding (including, without limitation, an investigation or
partial proceeding, such as a deposition), whether commenced or
threatened.
"Prospectus" means the prospectus included in the
Registration Statement (including, without limitation, a
prospectus that includes any information previously omitted from a
prospectus filed as part of an effective registration statement in
reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other
amendments and supplements to the Prospectus, including
post-effective amendments, and all material incorporated by
reference in such Prospectus.
"Registrable Securities" means (a) with respect to the
Registration Statement to be filed after the Series B-1 Closing,
the shares of Common Stock issuable upon (i) conversion in full of
the Series B-1 Shares and (ii) payment of dividends in respect of
the Series B-1 Shares, assuming all dividends in respect of the
Series B-1 Shares are paid in shares of Common Stock, and (b) with
respect to the Registration Statement to be filed after the Series
B-2 Closing, the shares of Common Stock issuable upon (i)
conversion in full of the Series B-2 Shares and (ii) payment of
dividends in respect of the Series B-2 Shares, assuming all
dividends in respect of the Series B-2 Shares are paid in shares
of Common Stock; provided, however that in order to account for
the fact that the number of shares of Common Stock that are
issuable upon conversion of shares of Preferred Stock is
determined in part upon the market price of the Common Stock at
the time of conversion, Registrable Securities with respect to the
Registration Statement to be filed after the Series B-1 Closing
shall include (but not be limited to) a minimum of 7,360,000
shares of Common Stock. Such registered shares of Common Stock
shall be allocated among the Holders pro-rata based on the total
number of Registrable Securities issued or issuable as of each
date that a Registration Statement, as amended, relating to the
resale of the Registrable Securities, is declared effective by the
Commission. Notwithstanding anything herein contained to the
contrary, if, pursuant to Section 5(a)(iii) of the Certificate of
Designation for the Preferred Stock, the Company is obligated to
make a Company Election and the Company elects to use its best
efforts to obtain Shareholder Approval for the issuance of shares
of Common Stock in excess of the Issuable Maximum, the term
"Registrable Securities" shall be deemed to include (but not
limited to) a number of shares of Common Stock equal to no less
than the sum of (1) 200% times the maximum number of shares of
Common Stock into which the outstanding shares of the applicable
series of Preferred Stock are convertible, assuming such
conversion occurred on the date that the Company Election is
delivered to each Holder, and (2) the number of shares of Common
Stock issuable upon payment of dividends on such Preferred Stock
assuming all dividends in respect of such shares of Preferred
Stock are paid in shares of Common Stock (the "200% Amount");
provided, however, that if the actual number of shares of Common
Stock into which the outstanding shares of Preferred Stock are
convertible exceeds the 200% Amount, the term "Registrable
Securities" shall be deemed to include (but not limited to) such
additional shares of Common Stock. The Company shall be required
to file additional Registration Statements to the extent the
Company is obligated to make a Company Election and the Company
elects to use its best efforts to obtain Shareholder Approval as
referred to in the preceding sentence, and the Company shall use
its best efforts to cause such additional Registration Statements
to be declared effective no later than the 90th day after the
Company Election. If on any date after the Company Election to
obtain Shareholder Approval, the number of shares of Common Stock
that should have been registered in accordance with the
immediately preceding sentence is less than 185% of the number of
shares of Common Stock into which the outstanding Preferred Stock
is convertible on such date, then each Holder shall have the
right, on notice to the Company, to require the Company to file
one or more additional registration statements covering such
additional number of shares as the Holders may reasonably request
(but in any event not less than 200% of the number of shares of
Common Stock into which the outstanding Preferred Stock is
convertible on such date) so as to ensure that a sufficient number
of shares are at all time registered. The Company shall file such
registration statement within fifteen (15) Business Days after
such notice.
"Registration Statement" means the registration
statements and any additional registration statements contemplated
by Section 2(a), including (in each case) the Prospectus,
amendments and supplements to such registration statement or
Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference in
such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such
Rule.
"Rule 158" means Rule 158 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such
Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from
time to time, or any similar rule or regulation hereafter adopted
by the Commission having substantially the same effect as such
Rule.
"Securities Act" means the Securities Act of 1933, as
amended.
"Series B-1 Closing Date" shall have the meaning set
forth in the Purchase Agreement.
"Series B-2 Closing Date" shall have the meaning set
forth in the Purchase Agreement.
"Series B-1 Shares" shall have the meaning set forth in
the Purchase Agreement.
"Series B-2 Shares" shall have the meaning set forth in
the Purchase Agreement.
"Shareholder Approval" shall have the meaning set forth
in the Purchase Agreement.
"Special Counsel" means one special counsel to the
Holders, for which the Holders will be reimbursed by the Company
pursuant to Section 4.
"Underwritten Registration or Underwritten Offering"
means a registration in connection with which securities of the
Company are sold to an underwriter for reoffering to the public
pursuant to an effective registration statement.
2. Shelf Registration
(a) On or prior to each applicable Filing Date, the
Company shall prepare and file with the Commission a "Shelf"
Registration Statement covering all Registrable Securities for an
offering to be made on a continuous basis pursuant to Rule 415.
The Registration Statement shall be on Form S-3 (except if
otherwise directed by the Holders of a majority in interest of the
applicable Registrable Securities in accordance herewith or if the
Company is not then eligible to register for resale the
Registrable Securities on Form S-3, in which case such
registration shall be on another appropriate form in accordance
herewith). The Registration Statement shall state, to the extent
permitted by Rule 416 under the Securities Act, that it also
covers such indeterminate number of shares of Common Stock as may
be required to effect conversion of the Preferred Stock to prevent
dilution resulting from stock splits, stock dividends or similar
events, or by reason of changes in the Conversion Price in
accordance with the terms of the Certificate(s) of Designation.
The Company shall (i) not permit any securities other than the
Registrable Securities and those securities listed in Schedule
2.1(u) of the Purchase Agreement to be included in the
Registration Statement and (ii) use its commercially reasonable
efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after
the filing thereof, but in any event prior to the Effectiveness
Date, and to keep such Registration Statement continuously effec-
tive under the Securities Act until the date which is two years
after the date that such Registration Statement is declared
effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have
been sold or may be sold without volume restrictions pursuant to
Rule 144 as determined by the counsel to the Company pursuant to a
written opinion letter, addressed to the Company's transfer agent
to such effect (the "Effectiveness Period"). If an additional
Registration Statement is required to be filed because the actual
number of shares of Common Stock into which the Preferred Stock is
convertible plus shares issuable upon payment of dividends and
exercise of the Warrants exceeds the number of shares of Common
Stock initially registered in respect of any particular series of
Preferred Stock based upon the computation on a particular Closing
Date, the Company shall, as promptly as reasonably possible, but
no later than 20 Business Days thereafter, file such additional
Registration Statement, and the Company shall use its best efforts
to cause such additional Registration Statement to be declared
effective by the Commission as soon as possible.
(b) If the Holders of a majority of the Registrable
Securities so elect, an offering of Registrable Securities pur-
suant to the Registration Statement may be effected on no more
than two occasions in the form of an Underwritten Offering. In
such event, and, if the managing underwriters advise the Company
and such Holders in writing that in their opinion the amount of
Registrable Securities proposed to be sold in such Underwritten
Offering exceeds the amount of Registrable Securities which can be
sold in such Underwritten Offering, there shall be included in
such Underwritten Offering the amount of such Registrable
Securities which in the opinion of such managing underwriters can
be sold, and such amount shall be allocated pro rata among the
Holders proposing to sell Registrable Securities in such
Underwritten Offering.
(c) If any of the Registrable Securities are to be
sold in an Underwritten Offering, the investment banker in
interest that will administer the offering will be selected by the
Holders of a majority of the Registrable Securities included in
such offering provided that the Company shall consent to the
inclusion of such investment banker, which consent shall not be
unreasonably withheld. No Holder may participate in any
Underwritten Offering hereunder unless such Holder (i) agrees to
sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder
to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents required under the terms of such
arrangements.
3. Registration Procedures
In connection with the Company's registration obliga-
tions hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior
to each applicable Filing Date, a Registration Statement on Form
S-3 (or if the Company is not then eligible to register for resale
the Registrable Securities on Form S-3 such registration shall be
on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other
form agreed to by the Company and by a majority-in-interest of
Holders of Registrable Securities) in accordance with the method
or methods of distribution thereof as specified by the Holders
(except if otherwise directed by the Holders), and cause the
Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5)
Business Days prior to the filing of the Registration Statement or
any related Prospectus or any amendment or supplement thereto
(including any document that would be incorporated therein by
reference), the Company shall, if reasonably practicable, (i)
furnish to the Holders, their Special Counsel and any managing
underwriters, copies of all such documents proposed to be filed,
which documents (other than those incorporated by reference) will
be subject to the review of such Holders, their Special Counsel
and such managing underwriters, and (ii) cause its officers and
directors, counsel and independent certified public accountants to
respond to such inquiries as shall be necessary, in the reasonable
opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file the
Registration Statement or any such Prospectus or any amendments or
supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing
underwriters, shall reasonably object in writing within three (3)
Business Days of their receipt thereof. In connection with the
Company's preparation of the Registration Statement hereunder the
Purchasers shall, at the Company's request, furnish the Company
with information regarding the Purchasers' beneficial ownership of
securities of the Company.
(b) (i) Prepare and file with the Commission such
amendments, including post-effective amendments, to the
Registration Statement as may be necessary to keep the
Registration Statement continuously effective as to the applicable
Registrable Securities for the Effectiveness Period and prepare
and file with the Commission such additional Registration
Statements in order to register for resale under the Securities
Act all of the Registrable Securities; (ii) cause the related
Prospectus to be amended or supplemented by any required Pro-
spectus supplement, and as so supplemented or amended to be filed
pursuant to Rule 424 (or any similar provisions then in force)
promulgated under the Securities Act; (iii) respond as promptly as
reasonably possible to any comments received from the Commission
with respect to the Registration Statement or any amendment
thereto and as promptly as reasonably possible provide the Holders
true and complete copies of all correspondence from and to the
Commission relating to the Registration Statement; and (iv) comply
in all material respects with the provisions of the Securities Act
and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended
methods of disposition by the Holders thereof set forth in the
Registration Statement as so amended or in such Prospectus as so
supplemented.
(c) Notify the Holders of Registrable Securities to
be sold, their Special Counsel and any managing underwriters as
promptly as reasonably possible (and, in the case of (i)(A) below,
not less than five (5) days prior to such filing) and (if
requested by any such Person) confirm such notice in writing no
later than one (1) Business Day following the day (i)(A) when a
Prospectus or any Prospectus supplement or post-effective
amendment to the Registration Statement is proposed to be filed;
(B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement and
(C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii)
of any request by the Commission or any other Federal or state
governmental authority for amendments or supplements to the
Registration Statement or Prospectus or for additional
information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement
covering any or all of the Registrable Securities or the
initiation of any Proceedings for that purpose; (iv) if at any
time any of the representations and warranties of the Company
contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material
respects; (v) of the receipt by the Company of any notification
with respect to the suspension of the qualification or exemption
from qualification of any of the Registrable Securities for sale
in any jurisdiction, or the initiation or threatening of any
Proceeding for such purpose; and (vi) of the occurrence of any
event that makes any statement made in the Registration Statement
or Prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect
or that requires any revisions to the Registration Statement, Pro-
spectus or other documents so that, in the case of the
Registration Statement or the Prospectus, as the case may be, it
will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of,
or, if issued, obtain the withdrawal of (i) any order suspending
the effectiveness of the Registration Statement or (ii) any
suspension of the qualification (or exemption from qualification)
of any of the Registrable Securities for sale in any jurisdiction,
at the earliest practicable moment.
(e) If requested by any managing underwriter or the
Holders of a majority in interest of the Registrable Securities to
be sold in connection with an Underwritten Offering, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment
to the Registration Statement such information as the Company
reasonably agrees should be included therein and (ii) make all
required filings of such Prospectus supplement or such post--
effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such
Prospectus supplement or post-effective amendment; provided,
however, that the Company shall not be required to take any action
pursuant to this Section 3(e) that would, in the opinion of
counsel for the Company, violate applicable law or be materially
detrimental to the business prospects of the Company.
(f) Furnish to each Holder, their Special Counsel
and any managing underwriters, without charge, at least one
conformed copy of each Registration Statement and each amendment
thereto, including financial statements and schedules, all
documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person
(including those previously furnished or incorporated by
reference) promptly after the filing of such documents with the
Commission.
(g) Promptly deliver to each Holder, their Special
Counsel, and any underwriters, without charge, as many copies of
the Prospectus or Prospectuses (including each form of prospectus)
and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each
of the selling Holders and any underwriters in connection with the
offering and sale of the Registrable Securities covered by such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable
Securities, use its best efforts to register or qualify or
cooperate with the selling Holders, any underwriters and their
Special Counsel in connection with the registration or
qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within
the United States as any Holder or underwriter requests in
writing, to keep each such registration or qualification (or
exemption therefrom) effective during the Effectiveness Period and
to do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the Registrable
Securities covered by a Registration Statement; provided, however,
that the Company shall not be required to qualify generally to do
business in any jurisdiction where it is not then so qualified or
to take any action that would subject it to general service of
process in any such jurisdiction where it is not then so subject
or subject the Company to any material tax in any such
jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing
underwriters to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered
to a transferee pursuant to a Registration Statement, which
certificates shall be free, to the extent permitted by applicable
law, of all restrictive legends, and to enable such Registrable
Securities to be in such denominations and registered in such
names as any such managing underwriters or Holders may request at
least two Business Days prior to any sale of Registrable
Securities.
(j) Upon the occurrence of any event contemplated by
Section (c)(vi), as promptly as reasonably possible, prepare a
supplement or amendment, including a post-effective amendment, to
the Registration Statement or a supplement to the related Prospec-
tus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement
nor such Prospectus will contain an untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable
Securities relating to such Registration Statement to be listed on
the NASDAQ SmallCap Market (the "NASDAQ") and any other securities
exchange, quotation system, market or over-the-counter bulletin
board, if any, on which similar securities issued by the Company
are then listed as and when required pursuant to the Purchase
Agreement.
(l) Enter into such agreements (including an under-
writing agreement in form, scope and substance as is customary in
Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any
managing underwriters and the Holders of a majority of the
Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities, and
whether or not an underwriting agreement is entered into, (i) make
such representations and warranties to such Holders and such
underwriters as are customarily made by issuers to underwriters in
underwritten public offerings, and confirm the same if and when
requested; (ii) in the case of an Underwritten Offering obtain and
deliver copies thereof to the managing underwriters, if any, of
opinions of counsel to the Company and updates thereof addressed
to each such underwriter, in form, scope and substance reasonably
satisfactory to any such managing underwriters and Special Counsel
to the selling Holders covering the matters customarily covered in
opinions requested in Underwritten Offerings and such other
matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten
Offering, at the time of delivery of any Registrable Securities
sold pursuant thereto, use its best reasonable efforts to obtain
and deliver copies to the Holders and the managing underwriters,
if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of
any subsidiary of the Company or of any business acquired by the
Company for which financial statements and financial data is, or
is required to be, included in the Registration Statement),
addressed to the Company in form and substance as are customary in
connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification
provisions and procedures no less favorable to the selling Holders
and the underwriters, if any, than those set forth in Section 6
(or such other provisions and procedures acceptable to the
managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten
Offering); and (v) deliver such documents and certificates as may
be reasonably requested by the Holders of a majority of the
Registrable Securities being sold, their Special Counsel and any
managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to clause 3(l)(i)
above and to evidence compliance with any customary conditions
contained in the underwriting agreement or other agreement entered
into by the Company.
(m) Make available for inspection by the selling
Holders, any representative of such Holders, any underwriter
participating in any disposition of Registrable Securities, and
any attorney or accountant retained by such selling Holders or
underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records,
pertinent corporate documents and properties of the Company and
its subsidiaries, and cause the officers, directors, agents and
employees of the Company and its subsidiaries to supply all
information in each case reasonably requested by any such Holder,
representative, underwriter, attorney or accountant in connection
with the Registration Statement; provided, however, that any
information that is determined in good faith by the Company in
writing to be of a confidential nature at the time of delivery of
such information shall be kept confidential by such Persons,
unless (i) disclosure of such information is required by court or
administrative order or is necessary to respond to inquiries of
regulatory authorities; (ii) disclosure of such information, in
the opinion of counsel to such Person, is required by law; (iii)
such information becomes generally available to the public other
than as a result of a disclosure or failure to safeguard by such
Person; or (iv) such information becomes available to such Person
from a source other than the Company and such source is not known
by such Person to be bound by a confidentiality agreement with the
Company.
(n) Comply with all applicable rules and regulations
of the Commission.
(o) The Company may require each selling Holder to
furnish to the Company information regarding such Holder and the
distribution of such Registrable Securities as is required by law
to be disclosed in the Registration Statement, and the Company may
exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information
within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by
name or otherwise as the holder of any securities of the Company,
then such Holder shall have the right to require (if such
reference to such Holder by name or otherwise is not required by
the Securities Act or any similar Federal statute then in force)
the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared
subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that (i) it will not
sell any Registrable Securities under the Registration Statement
until it has received copies of the Prospectus as then amended or
supplemented as contemplated in Section 3(g) and notice from the
Company that such Registration Statement and any post-effective
amendments thereto have become effective as contemplated by
Section 3(c) and (ii) it and its officers, directors or
Affiliates, if any, will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in
connection with sales of Registrable Securities pursuant to the
Registration Statement.
Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the
Company of the occurrence of any event of the kind described in
Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v) or 3(c)(vi), such
Holder will forthwith discontinue disposition of such Registrable
Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(j), or
until it is advised in writing (the "Advice") by the Company that
the use of the applicable Prospectus may be resumed, and, in
either case, has received copies of any additional or supplemental
filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
4. Registration Expenses
(a) All fees and expenses incident to the perfor-
mance of or compliance with this Agreement by the Company, except
as and to the extent specified in Section 4(b), shall be borne by
the Company whether or not pursuant to an Underwritten Offering
and whether or not the Registration Statement is filed or becomes
effective and whether or not any Registrable Securities are sold
pursuant to the Registration Statement. The fees and expenses
referred to in the foregoing sentence shall include, without
limitation, (i) all registration and filing fees (including,
without limitation, fees and expenses (A) with respect to filings
required to be made with the NASDAQ or each other securities
exchange or market on which Registrable Securities are required
hereunder to be listed and (B) in compliance with state securities
or Blue Sky laws (including, without limitation, fees and
disbursements of counsel for the Holders in connection with Blue
Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for
investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable
Securities may designate)), (ii) printing expenses (including,
without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing
underwriters, if any, or by the holders of a majority of the
Registrable Securities included in the Registration Statement),
(iii) messenger, telephone and delivery expenses, (iv) fees and
disbursements of counsel for the Company and Special Counsel for
the Holders, in the case of the Special Counsel, (v) Securities
Act liability insurance, if the Company so desires such insurance,
and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions
contemplated by this Agreement. In addition, the Company shall be
responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated
by this Agreement (including, without limitation, all salaries and
expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and
expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange as required
hereunder.
(b) If the Holders require an Underwritten Offering
pursuant to the terms hereof, the Company shall be responsible for
all costs, fees and expenses in connection therewith, except for
the fees and disbursements of the Underwriters (including any
underwriting commissions and discounts) and their legal counsel
and accountants (which shall be borne by the Holders). Therefore,
in such circumstances, the Holder shall bear the expenses of the
fees and disbursements of any legal counsel or accounting firm
retained by the underwriters in connection with such Underwritten
Offering and the costs of any determination (but not filing) by
the underwriters of the eligibility of the Registrable Securities
for investment under the applicable state securities laws. By way
of illustration which is not intended to diminish from the
provisions of Section 4(a), the Holders shall not be responsible
for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal
counsel and accountants) in connection with, the preparation and
filing of a Registration Statement and related Prospectus for such
offering, the maintenance of such Registration Statement in
accordance with the terms hereof, the listing of the Registrable
Securities in accordance with the requirements hereof, and
printing expenses incurred to comply with the requirements hereof.
Notwithstanding anything to the contrary contained in this Section
4, if at any time the Company has timely filed each Registration
Statement on or prior to each applicable Filing Date, caused each
such Registration Statement to be declared effective prior to the
Effectiveness Date and has kept such Registration Statement
continuously effective, all in accordance with the terms of this
Agreement, and if at any such time the Holders require the an
Underwritten Offering pursuant to the terms hereof, the Holders
shall be responsible for all costs, fees and expenses in
connection with such Underwritten Offering.
5. Indemnification
(a) Indemnification by the Company. The Company
shall, notwithstanding any termination of this Agreement,
indemnify and hold harmless each Holder, the officers, directors,
agents (including any underwriters retained by such Holder in
connection with the offer and sale of Registrable Securities),
brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to
perform under a margin call of Common Stock), investment advisors
and employees of each of them, each Person who controls any such
Holder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors,
agents and employees of each such controlling Person, to the
fullest extent permitted by applicable law, from and against any
and all losses, claims, damages, liabilities, costs (including,
without limitation, costs of preparation and attorneys' fees) and
expenses (collectively, "Losses"), as incurred, arising out of or
relating to any untrue or alleged untrue statement of a material
fact contained in the Registration Statement, any Prospectus or
any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to
any omission or alleged omission of a material fact required to be
stated therein or necessary to make the statements therein (in the
case of any Prospectus or form of prospectus or supplement
thereto, in light of the circumstances under which they were made)
not misleading (in the case of any Prospectus or form of
Prospectus or supplement thereto, in light of the circumstances
under which they were made), except to the extent, but only to the
extent, that such untrue statements or omissions are based solely
upon information regarding such Holder furnished in writing to the
Company by such Holder expressly for use therein, which
information was reasonably relied on by the Company for use
therein or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto. The Company shall notify the
Holders promptly of the institution, threat or assertion of any
Proceeding of which the Company is aware in connection with the
transactions contemplated by this Agreement.
(b) Indemnification by Holders. Each Holder shall,
severally and not jointly, indemnify and hold harmless the Com-
pany, the directors, officers, agents and employees, each Person
who controls the Company (within the meaning of Section 15 of the
Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling
Persons, to the fullest extent permitted by applicable law, from
and against all Losses (as determined by a court of competent
jurisdiction in a final judgment not subject to appeal or review)
arising solely out of or based solely upon any untrue statement of
a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or
supplement thereto, or arising solely out of or based solely upon
any omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading to the
extent, but only to the extent, that such untrue statement or
omission is contained in any information so furnished in writing
by such Holder to the Company specifically for inclusion in the
Registration Statement or such Prospectus and that such
information was reasonably relied upon by the Company for use in
the Registration Statement, such Prospectus or such form of
prospectus or to the extent that such information relates to such
Holder or such Holder's proposed method of distribution of
Registrable Securities and was reviewed and expressly approved in
writing by such Holder expressly for use in the Registration
Statement, such Prospectus or such form of Prospectus, or in any
amendment or supplement thereto. In no event shall the liability
of any selling Holder hereunder be greater in amount than the
dollar amount of the net proceeds received by such Holder upon the
sale of the Registrable Securities giving rise to such
indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any
Proceeding shall be brought or asserted against any Person
entitled to indemnity hereunder (an "Indemnified Party"), such
Indemnified Party shall notify the Person from whom indemnity is
sought (the "Indemnifying Party") in writing within 10 calendar
days, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the
Indemnified Party and the payment of all fees and expenses
incurred in connection with defense thereof; provided, that the
failure of any Indemnified Party to give such notice shall not
relieve the Indemnifying Party of its obligations or liabilities
pursuant to this Agreement, except (and only) to the extent that
it shall be finally determined by a court of competent
jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and
materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ
separate counsel in any such Proceeding and to participate in the
defense thereof, but the fees and expenses of such counsel shall
be at the expense of such Indemnified Party or Parties unless:
(1) the Indemnifying Party has agreed in writing to pay such fees
and expenses; or (2) the Indemnifying Party shall have failed
promptly to assume the defense of such Proceeding and to employ
counsel reasonably satisfactory to such Indemnified Party in any
such Proceeding; or (3) the named parties to any such Proceeding
(including any impleaded parties) include both such Indemnified
Party and the Indemnifying Party, and such Indemnified Party shall
have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified
Party and the Indemnifying Party (in which case, if such
Indemnified Party notifies the Indemnifying Party in writing that
it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at
the expense of the Indemnifying Party). The Indemnifying Party
shall not be liable for any settlement of any such Proceeding
effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any
settlement of any pending Proceeding in respect of which any
Indemnified Party is a party, unless such settlement includes an
unconditional release of such Indemnified Party from all liability
on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (in-
cluding reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section) shall
be paid to the Indemnified Party, as incurred, within 10 Business
Days of written notice thereof to the Indemnifying Party (regard-
less of whether it is ultimately determined that an Indemnified
Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to
undertake to reimburse all such fees and expenses to the extent it
is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(c) Contribution. If a claim for indemnification
under Section 5(a) or 5(b) is unavailable to an Indemnified Party
because of a failure or refusal of a governmental authority to
enforce such indemnification in accordance with its terms (by
reason of public policy or otherwise), then each Indemnifying
Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party
as a result of such Losses, in such proportion as is appropriate
to reflect the relative fault of the Indemnifying Party and Indem-
nified Party in connection with the actions, statements or
omissions that resulted in such Losses as well as any other
relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material
fact or omission or alleged omission of a material fact, has been
taken or made by, or relates to information supplied by, such
Indemnifying Party or Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall be
deemed to include, subject to the limitations set forth in Section
5(c), any reasonable attorneys' or other reasonable fees or
expenses incurred by such party in connection with any Proceeding
to the extent such party would have been indemnified for such fees
or expenses if the indemnification provided for in this Section
was available to such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were
determined by pro rata allocation or by any other method of allo-
cation that does not take into account the equitable considera-
tions referred to in the immediately preceding paragraph. Not-
withstanding the provisions of this Section 5(d), no Holder shall
be required to contribute, in the aggregate, any amount in excess
of the amount by which the proceeds actually received by such
Holder from the sale of the Registrable Securities subject to the
Proceeding exceeds the amount of any damages that such Holder has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
The indemnity and contribution agreements contained in
this Section are in addition to any liability that the
Indemnifying Parties may have to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Com-
pany or by a Holder, of any of their obligations under this
Agreement, each Holder or the Company, as the case may be, in
addition to being entitled to exercise all rights granted by law
and under this Agreement, including recovery of damages, will be
entitled to specific performance of its rights under this
Agreement. The Company and each Holder agree that monetary
damages would not provide adequate compensation for any losses
incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it
shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company
nor any of its subsidiaries has, as of the date hereof, nor shall
the Company or any of its subsidiaries, on or after the date of
this Agreement, enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the
Holders in this Agreement or otherwise conflicts with the
provisions hereof. Except as disclosed in Schedule 2.1(u) of the
Purchase Agreement, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting
any registration rights with respect to any of its securities to
any Person. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority of the
then outstanding Registrable Securities, the Company shall not
grant to any Person the right to request the Company to register
any securities of the Company under the Securities Act unless the
rights so granted are subject in all respects to the prior rights
in full of the Holders set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Neither the
Company nor any of its security holders (other than the Holders in
such capacity pursuant hereto or as disclosed in Schedule 6(b)
attached hereto) may include securities of the Company in the
Registration Statement other than the Registrable Securities or as
disclosed in Schedule 6(b) attached hereto, and the Company shall
not after the date hereof enter into any agreement providing any
such right to any of its security holders.
(d) Piggy-Back Registrations. If at any time when
there is not an effective Registration Statement covering
Underlying Shares, the Company shall determine to prepare and file
with the Commission a registration statement relating to an
offering for its own account or the account of others under the
Securities Act of any of its equity securities, other than on Form
S-4 or Form S-8 (each as promulgated under the Securities Act) or
their then equivalents relating to equity securities to be issued
solely in connection with any acquisition of any entity or
business or equity securities issuable in connection with stock
option or other employee benefit plans, the Company shall send to
each holder of Registrable Securities written notice of such
determination and, if within twenty (20) days after receipt of
such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any
part of such Registrable Securities such holder requests to be
registered; provided, however, that the Company shall not be
required to register any Registrable Securities pursuant to this
Section 7(d) that are eligible for sale pursuant to Rule 144(k) of
the Commission. In the case of an underwritten public offering,
if the managing underwriter(s) or underwriter(s) should reasonably
object to the inclusion of the Registrable Securities in such
registration statement, then if the Company after consultation
with the Underwriter's Representative should reasonably determine
that the inclusion of such Registrable Securities, would
materially adversely affect the offering contemplated in such
registration statement, and based on such determination recommends
inclusion in such registration statement of fewer or none of the
Registrable Securities of the Holders, then (x) the number of
Registrable Securities of the Holders included in such
registration statement shall be reduced pro-rata among such
Holders (based upon the number of Registrable Securities requested
to be included in the registration), if the Company after
consultation with the underwriter(s) recommends the inclusion of
fewer Registrable Securities, or (y) none of the Registrable
Securities of the Holders shall be included in such registration
statement, if the Company after consultation with the
underwriter(s) recommends the inclusion of none of such
Registrable Securities; provided, however, that if Securities are
being offered for the account of other persons or entities as well
as the Company, such reduction shall not represent a greater
fraction of the number of Registrable Securities intended to be
offered by the Holders than the fraction of similar reductions
imposed on such other persons or entities (other than the
Company).
(e) Amendments and Waivers. The provisions of this
Agreement, including the provisions of this sentence, may not be
amended, modified or supplemented, and waivers or consents to
departures from the provisions hereof may not be given, unless the
same shall be in writing and signed by the Company and the Holders
of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this
sentence, Registrable Securities that are owned, directly or
indirectly, by the Company, or an Affiliate of the Company are not
deemed outstanding. Notwithstanding the foregoing, a waiver or
consent to depart from the provisions hereof with respect to a
matter that relates exclusively to the rights of Holders and that
does not directly or indirectly affect the rights of other Holders
may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided,
however, that the provisions of this sentence may not be amended,
modified, or supplemented except in accordance with the provisions
of the immediately preceding sentence.
(f) Notices. Any and all notices or other
communications or deliveries required or permitted to be provided
hereunder shall be in writing and shall be deemed given and
effective on the earliest of (i) the date of transmission, if such
notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00
p.m. (Eastern Standard Time) on a Business Day, (ii) the Business
Day after the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile
telephone number specified in the Purchase Agreement later than
8:00 p.m. (Eastern Standard Time) on any date and earlier than
11:59 p.m. (Eastern Standard Time) on such date, (iii) the
Business Day following the date of mailing, if sent by nationally
recognized overnight courier service, or (iv) upon actual receipt
by the party to whom such notice is required to be given to each
Holder at its address set forth under its name on Schedule 1
attached hereto or such other address as may be designated in
writing hereafter, in the same manner, by such Person. Copies of
notices to any Holder shall be sent to Robinson Silverman Pearce
Aronsohn & Berman LLP, 1290 Avenue of the Americas, New York, NY
10104, Attn: Kenneth L. Henderson, Esq., fax: (212) 541-4630 and
copies of all notices to the Company shall be sent to Dinsmore &
Shohl, 1900 Chemed Center, 255 East Fifth Street, Cincinnati, Ohio
45202, Attn: Charles F. Hertlein, Jr, Esq., fax: (513) 977-8141.
(g) Successors and Assigns. This Agreement shall
inure to the benefit of and be binding upon the successors and
permitted assigns of each of the parties and shall inure to the
benefit of each Holder. The Company may not assign its rights or
obligations hereunder without the prior written consent of each
Holder. Each Purchaser may assign its rights hereunder in the
manner and to the Persons as permitted under the Purchase
Agreement.
(h) Assignment of Registration Rights. The rights
of each Holder hereunder, including the right to have the Company
register for resale Registrable Securities in accordance with the
terms of this Agreement, shall be automatically assignable by each
Holder to any Affiliate of such Holder, any other Holder or
Affiliate of any other Holder and up to four other assignees of
all or a portion of the shares of Preferred Stock or the
Registrable Securities if: (i) the Holder agrees in writing with
the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable
time after such assignment, (ii) the Company is, within a
reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or
assignee, and (b) the securities with respect to which such
registration rights are being transferred or assigned, (iii)
following such transfer or assignment the further disposition of
such securities by the transferee or assignees is restricted under
the Securities Act and applicable state securities laws, (iv) at
or before the time the Company receives the written notice
contemplated by clause (ii) of this Section, the transferee or
assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have
been made in accordance with the applicable requirements of the
Purchase Agreement. The rights to assignment shall apply to the
Holders (and to subsequent) successors and assigns.
(i) Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed shall
be deemed to be an original and, all of which taken together shall
constitute one and the same Agreement. In the event that any
signature is delivered by facsimile transmission, such signature
shall create a valid binding obligation of the party executing (or
on whose behalf such signature is executed) the same with the same
force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New
York, without regard to principles of conflicts of law.
(k) Cumulative Remedies. The remedies provided
herein are cumulative and not exclusive of any remedies provided
by law.
(l) Severability. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent
jurisdiction to be invalid, illegal, void or unenforceable, the
remainder of the terms, provisions, covenants and restrictions set
forth herein shall remain in full force and effect and shall in no
way be affected, impaired or invalidated, and the parties hereto
shall use their reasonable efforts to find and employ an
alternative means to achieve the same or substantially the same
result as that contemplated by such term, provision, covenant or
restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid,
illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are
for convenience of reference only and shall not limit or otherwise
affect the meaning hereof.
(n) Shares Held by The Company and its Affiliates.
Whenever the consent or approval of Holders of a specified
percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or its Affiliates
(other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by
reason of its holdings of such Registrable Securities) shall not
be counted in determining whether such consent or approval was
given by the Holders of such required percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
IN WITNESS WHEREOF, the parties have
executed this
Registration Rights Agreement as of the date first written above.
LCA - VISION INC.
By:_____________________________________
Name:
Title:
BROWN SIMPSON STRATEGIC GROWTH
FUND, L.P.
By:_____________________________________
Name:
Title:
BROWN SIMPSON STRATEGIC GROWTH
FUND, LTD.
By:_____________________________________
Name:
Title:
SOUTHBROOK INTERNATIONAL
INVESTMENTS, LTD.
By:_____________________________________
Name:
Title:
PROPRIETARY CONVERTIBLE INVESTMENT
GROUP, INC.
By:_____________________________________
Name:
Title:
WESTOVER INVESTMENTS, LP
By:_____________________________________
Name:
Title:
MONTROSE INVESTMENTS LTD.
By:_____________________________________
Name:
Title:
<PAGE>
Schedule 1
Company:
LCA-Vision Inc.
7840 Montgomery Road
Cincinnati, Ohio 45236
Facsimile: (513) 792-5620
Attn: Steven N. Joffe, M.D.
Purchasers:
Brown Simpson Strategic Growth Fund, LP
c/o Brown Simpson Asset management, LLC
Carnegie Hall Tower
40th Floor
152 West 57th Street
New York, NY 10019
Facsimile: (212)247-1329
Attn: Paul Gustus
Brown Simpson Strategic Growth Fund, Ltd.
c/o Brown Simpson Asset Management, LLC
Carnegie Hall Tower
40th Floor
152 West 57th Street
New York, NY 10019
Facsimile: (212)247-1329
Attn: Paul Gustus
Southbrook International Investments, Ltd.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue
Suite 2000
New York, NY 10111
Facsimile: (212)332-3256
Attn: Robert L. Miller
<PAGE>
Schedule 1
Continued
Purchasers:
Proprietary Convertible Investment Group, Inc.
c/o CS First Boston
11 Madison Avenue
New York, NY 10010-3629
Facsimile: (212)325-6519
Attn: Al Weine
Westover Investments, LP
777 Main Street
Suite 2750
Fort Worth, TX 76102
Facsimile: (214) 758-1221
Attn: Will Rose
Montrose Investments Ltd.
777 Main Street
Suite 2750
Fort Worth, TX 76102
Facsimile: (214) 758-1221
Attn: Will Rose<PAGE>
Exhibit 10(b)
AGREEMENT
AGREEMENT made as of this 4th day of May, 1998, by and
between DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION, 277
Park Avenue, New York, New York 10172 ("DLJ"), on the one hand,
and LCA-Vision Inc., 7848 Montgomery Road, Cincinnati, Ohio 45236
("LCA-Vision"), on the other hand.
WHEREAS DLJ and LCA-Vision entered into a letter agreement
dated October 30, 1996, whereby LCA-Vision engaged DLJ to provide
it with certain investment banking services, and disputes arose
out of that letter agreement;
WHEREAS DLJ commenced an action against LCA-Vision and Summit
Technology, Inc. ("Summit"), in the Supreme Court of the State of
New York, New York County, on March 4, 1998, entitled Donaldson,
Lufkin & Jenrette Securities Corporation v. LCA-Vision and Summit
Technology, Inc., N.Y. County Index No. 6010301/98 ("the Action"),
arising out of that agreement and those disputes;
WHEREAS DLJ and LCA-Vision are desirous of resolving the
issues in the Action, and any disputes between them, without the
expense and inconvenience of litigation;
NOW, THEREFORE, in consideration of the promises and mutual
covenants contained herein, DLJ and LCA-Vision agree as follows:
1. LCA-Vision shall execute this Agreement within ten
business days of May 4, 1998. Upon the date of the execution of
this Agreement, LCA-Vision shall transfer to DLJ, via federal
express or similar overnight courier, two hundred thousand
(200,000) shares of LCA-Vision common stock. The LCA-Vision
common stock transferred to DLJ pursuant to this Agreement will be
entitled to the benefits of the Registration Rights Agreement
annexed hereto as Schedule I.
2. LCA-Vision agrees to file a Registration Statement with
respect to the shares transferred to DLJ pursuant to this
Agreement within ninety days of the execution of this Agreement.
If LCA-Vision does not file such Registration Statement within
ninety days following the execution of this Agreement, LCA-Vision
shall be obligated to transfer to DLJ an additional ten thousand
(10,000) shares on the ninety first day following the execution of
this Agreement and an additional ten thousand (10,000) shares for
each additional thirty day period in which the Registration
Statement is not filed.
3. If the Registration Statement with respect to the shares
transferred to DLJ pursuant to this Agreement does not become
effective within one hundred and eighty days following the
execution of this Agreement, LCA-Vision shall be obligated to
transfer to DLJ an additional ten thousand (10,000) shares on the
one hundred and eighty first day following the execution of this
Agreement and an additional ten thousand (10,000) shares for each
additional thirty day period in which Registration Statement does
not become effective.
4. Any distributions of shares pursuant to paragraphs one,
two or three of this Agreement shall be appropriately adjusted in
the event LCA-Vision effects a stock split, stock dividend, stock
reclassification, recapitalization or other similar event.
5. DLJ shall release LCA-Vision from its obligations with
respect to the letter agreement dated October 30, 1996, whereby
LCA-Vision engaged DLJ to provide it with certain investment
banking services; provided, however, that LCA-Vision shall still
be bound by the indemnity provisions of the letter agreement dated
October 30, 1996.
6. DLJ will dismiss the Action with prejudice against
both LCA-Vision and Summit, and will exchange releases with LCA-Vision in the
form annexed hereto.
7. This Agreement shall be governed by and construed in
accord with the laws of the State of New York. Jurisdiction over
this Agreement shall exclusively rest with the Supreme Court of
the State of New York, New York County. If any provision of this
Agreement is found by any court to be null and void, the remaining
provisions of this Agreement shall remain in full force and effect
and shall be construed as enforceable to the greatest extent
possible consistent with the intent of the parties as reflected
herein.
8. This Agreement constitutes the entire understanding of
the parties and fully supersedes any and all prior agreements or
understandings between the parties. This Agreement may only be
changed or modified by a writing duly executed by all parties and
shall not be orally changed, modified, or altered in any way.
9. By the execution of this Agreement, each of the
parties represents and warrants to the other that it/he is
authorized to bind all of the entities intended to be bound by
this Agreement, and each of the parties represents and
acknowledges that it/he has been represented by counsel in
connection with the Action, as well as in connection with the
negotiation of this Agreement, that it/he has read and has a full
understanding of the terms hereof and has been advised by counsel
in connection with them, and that it/he voluntarily agrees to and
accepts the terms of this Agreement.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By___________________________________
Anthony M. DeLuise
Managing Director
LCA-VISION INC.
By___________________________________
Stephen N. Joffe, M.D.
<PAGE>
ACKNOWLEDGMENT
STATE OF NEW YORK, COUNTY OF NEW YORK ss.:
On May , 1998, before me personally came ANTONY M.
DELUISE to me known, who, by me duly sworn, did depose and say
that he resides at ______________________________, that he is a
Managing Director of Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), the corporation described in, and which
executed the foregoing AGREEMENT and REGISTRATION RIGHTS
AGREEMENT. Further, he did depose and say that his signature was
affixed by order of the board of DLJ, and that he signed his name
by like order of that corporation.
________________________
Notary Public
ACKNOWLEDGMENT
STATE OF OHIO, COUNTY OF ss.:
On May , 1998, before me personally came Stephen N.
Joffe, M.D., to me known, who, by me duly sworn, did depose and
say that he resides at ______________________________, that he is
president and chief executive officer of LCA-Vision, Inc., the
corporation described in, and which executed the foregoing
AGREEMENT and REGISTRATION RIGHTS AGREEMENT. Further, he did
depose and say that his signature was affixed by order of the
board of LCA-Vision, Inc., and that he signed his name by like
order of that corporation.
________________________
Notary Public
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001003130
<NAME> LCA-VISION INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> MAR-31-1998
<CASH> 7,531
<SECURITIES> 0
<RECEIVABLES> 2,610
<ALLOWANCES> 97
<INVENTORY> 123
<CURRENT-ASSETS> 12,490
<PP&E> 23,260
<DEPRECIATION> 8,363
<TOTAL-ASSETS> 43,262
<CURRENT-LIABILITIES> 14,711
<BONDS> 3,496
0
2,522
<COMMON> 96
<OTHER-SE> 22,463
<TOTAL-LIABILITY-AND-EQUITY> 43,262
<SALES> 0
<TOTAL-REVENUES> 7,209
<CGS> 0
<TOTAL-COSTS> 5,475
<OTHER-EXPENSES> 3,148
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 344
<INCOME-PRETAX> (1,565)
<INCOME-TAX> (28)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,593)
<EPS-PRIMARY> (0.04)
<EPS-DILUTED> (0.04)
</TABLE>
