UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO UNDER SECTION 13 OR 15(d) OF THE
---
SECURITIES EXCHANGE ACT OF 1934, FOR THE QUARTERLY PERIOD ENDED
SEPTEMBER 30, 1998
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ________ to _______.
Commission File Number
0-21015
-------
HUMASCAN INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 22-3345046
- ------------------------------- -------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
125 Moen Avenue, Cranford, New Jersey 07016
-------------------------------------------
(Address of principal executive offices)
(908) 709-3434
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-----------------------------------------------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No____.
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: As of November 12, 1998, the
issuer had outstanding 7,789,070 shares of common stock, par value $.01 per
share.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
The accompanying unaudited financial statements of HumaScan Inc. (the "Company")
have been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Rule 10-01 of Regulation S-X. All adjustments which, in the opinion of
management, are necessary for a fair presentation of the financial condition and
results of operations of the Company have been included. Operating results for
the nine month period ended September 30, 1998 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1998.
These interim consolidated financial statements should be read in conjunction
with the Company's latest Annual Report on Form 10-KSB for the year ended
December 31, 1997.
-2-
<PAGE>
HumaScan Inc.
(A Development Stage Enterprise)
Condensed Balance Sheet
September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
9/30/98 12/31/97
----------- ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 1,489,916 $ 1,443,839
Investments 0 6,443,559
Accounts Receivable 0 8,396
Inventory 0 337,754
Prepaid expenses 162,280 63,829
------------ ------------
Total current assets 1,652,196 8,297,377
Property, plant and equipment, net 469,524 2,282,873
Other assets 99,768 132,780
------------ ------------
Total assets $ 2,221,488 10,713,030
============ ============
Liabilities and Stockholders' Equity
Current Liabilities:
Accounts payable 613,013 355,245
Accrued expenses 659,000 1,305,553
Obligations under capital lease 0 9,563
------------ ------------
Total current liabilities 1,272,013 1,670,361
Obligations under capital lease, noncurrent portion 0 26,094
Stockholders' Equity:
Common Stock, $0.01 par value, 25,000,000 shares
authorized; in 1998, 7,789,070
shares issued and outstanding; in 1997,
7,738,313 shares issued and outstanding 77,891 77,384
Additional paid-in capital 15,522,380 14,932,869
Deficit accumulated during the development stage (14,650,796) (5,993,678)
------------ ------------
Total stockholders' equity 949,475 9,016,575
------------ ------------
Total liabilities and stockholders' equity $ 2,221,488 $ 10,713,030
============ ============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
- 3 -
<PAGE>
HumaScan Inc.
(A Development Stage Enterprise)
Condensed Statements of Operations
For the Nine Months Ended September 30, 1998 and 1997
and for the period from December 27, 1994
(date of inception) to September 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
For the Period
Three Months Ended Nine Months from 12/27/94
------------------------ ----------------------- (date of inception)
9/30/98 9/30/97 9/30/98 9/30/97 to 9/30/98
------- ------- ------- ------- -------------------
<S> <C> <C> <C> <C> <C>
Net Sales $ 19,273 $ 0 $ 139,668 $ 0 $ 147,248
Operating Expenses:
Facility costs 445,335 358,184 1,400,188 865,685 2,671,107
Marketing expenses 641,186 165,994 2,440,333 501,198 3,989,214
General and administrative expenses 457,824 379,683 1,309,083 1,013,282 3,956,039
Clinical development expenses 347,826 221,122 929,563 498,040 1,913,179
Special charges 2,867,947 0 2,867,947 0 2,867,947
Interest expense 0 1,419 10,823 4,575 394,408
------------ ------------ ------------ ------------ ------------
4,760,118 1,126,402 8,957,937 2,882,780 15,791,894
------------ ------------ ------------ ------------ ------------
Income from operations (4,740,845) (1,126,402) (8,818,269) (2,882,780) (15,644,646)
------------ ------------ ------------ ------------ ------------
Interest income 31,540 135,013 161,151 456,062 993,850
------------ ------------ ------------ ------------ ------------
Net loss (4,709,305) (991,389) (8,657,118) (2,426,718) (14,650,796)
============ ============ ============ ============ ============
Net loss per common share ($0.60) ($0.13) ($1.12) ($0.31) ($2.24)
============ ============ ============ ============ ============
Shares used in computing
net loss per share 7,789,070 7,720,313 7,763,692 7,720,313 6,548,393
============ ============ ============ ============ ============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
-4-
<PAGE>
HumaScan Inc.
(A Development Stage Enterprise)
Condensed Statements of Cash Flows
For the nine months ended September 30, 1998 and 1997
and for the period from December 27, 1994 (date of inception)
to September 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended Period from
September 30, December 27, 1994
----------------------- (date of inception)
1998 1997 to September 30, 1998
---- ---- ---------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ($ 8,657,118) ($ 2,426,700) ($14,650,796)
Adjustments to reconcile net loss to net cash used in
operating activities:
Noncash miscellaneous expenses -- -- 17,000
Issuance of stock options to non-employees -- -- 78,410
Noncash interest expense -- -- 343,485
Special charges 2,867,946 -- 2,867,946
Depreciation expense 302,478 85,900 469,578
Changes in operating assets and liabilities:
Increase in inventory (559,388) -- (897,142)
Increase in other assets (46,929) (246,500) (179,708)
(Increase) decrease in prepaid expenses (98,451) 67,500 (162,280)
Decrease (increase) in accounts receivable 8,396 -- --
Increase (decrease) in accounts payable 257,768 (129,100) 613,013
(Decrease) increase in accrued expenses 128,447 (42,200) 374,000
------------ ------------ ------------
Net cash provided by (used in) operating activities (5,796,851) (2,691,100) (11,126,494)
------------ ------------ ------------
Cash flows from investing activities:
Purchase of property, plant and equipment (379,992) (320,500) (2,779,976)
Payments for production line 0 (127,200) --
Payments in connection with license agreement (775,000) -- (1,325,000)
Sale (purchases) of investments 6,443,559 (257,600) --
------------ ------------ ------------
Net cash provided by (used in) investing activities 5,288,567 (705,300) (4,104,976)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from issuance of common stock -- -- 208,600
Proceeds from issuance of common stock in connection with
exercise of employee options 590,018 -- 669,924
Proceeds from officer loan -- -- 125,000
Payments on officer loan -- -- (91,000)
Proceeds from borrowings of notes payable -- -- 810,000
Principal payments on obligation under capital lease (35,657) (6,100) (49,989)
Proceeds from initial public offering -- -- 14,001,418
Proceeds from private placement -- -- 1,047,433
------------ ------------ ------------
Net cash provided by (used in) financing activities 554,361 (6,100) 16,721,386
------------ ------------ ------------
Net increase (decrease) in cash and cash equivalents 46,077 (3,402,500) 1,489,916
Cash and cash equivalents, beginning of period 1,443,839 6,413,100 --
Cash and cash equivalents, end of period $ 1,489,916 $ 3,010,600 $ 1,489,916
============ ============ ============
Supplemental disclosure of noncash transactions:
Amounts due in connection with license agreement $ 1,050,000 $ 1,050,000
============ ============
Dollar value of common stock issued in connection
with license agreement $ 3,291 $ 3,291
============ ============
Dollar value of equipment acquired under capital lease $ 49,989 $ 49,989
============ ============
Conversion of notes payable to preferred stock $ 810,000 $ 810,000
============ ============
Conversion of officer loan to preferred stock $ 34,000 $ 34,000
============ ============
Issuance of warrants in connection with license agreement $ 315,000
============
Issuance of warrants in connection with purchase of equipment $ 23,625
============
</TABLE>
See accompanying notes to unaudited condensed financial statements.
-5-
<PAGE>
HUMASCAN INC.
(A Development Stage Enterprise)
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 1998 and 1997
(UNAUDITED)
(1) Basis of Presentation
The unaudited condensed financial statements included herein have been prepared
by the Company, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission and in accordance with generally accepted
accounting principles. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. These unaudited financial statements should be read in conjunction
with the 1997 financial statements and notes thereto included in the Company's
annual report on Form 10-KSB.
In the opinion of the Company's management, the accompanying unaudited condensed
financial statements have been prepared on a basis substantially consistent with
the audited financial statements and contain adjustments, all of which are of a
normal recurring nature, except for the special charges described below,
necessary to present fairly its financial position as of September 30, 1998 and
its results of operations and cash flows for the nine months ended September 30,
1998 and 1997 and for the period December 27, 1994 (date of inception) to
September 30, 1998. Interim results are not necessarily indicative of results
for the full fiscal year.
Net loss per share was calculated by dividing the net loss by the weighted
average number of common shares outstanding for the period adjusted for the
dilutive effect of common stock equivalents which consist of stock options and
warrants using the treasury stock method.
(2) Net Loss Per Share
Basic loss per share is determined based on the weighted average number of
common shares assumed to be outstanding during each period. Dilutive loss per
share is the same as basic loss per share as all common share equivalents are
excluded from the calculation as their effect is anti-dilutive. The weighted
average number of common shares assumed to be outstanding for the nine month
periods ended September 30, 1998 and 1997 is 7,763,692 and 7,720,313,
respectively.
(3) Inventory
Inventory consists of the following:
1998 1997
---- ----
Raw Materials $ 858,588 $316,745
Work-in-process 10,000 9,689
Finished Goods 28,554 11,320
--------- --------
897,142 337,754
Less: Reserve (897,142) 0
--------- --------
$ 0 $337,754
(4) Stock Options and Warrants
On May 15, 1998, the Company agreed to issue warrants to purchase 400,000 shares
and 30,000 shares of common stock at a price of $4.725 per share to Scantek
Medical, Inc. ("Scantek") and Zigmed, Inc. ("Zigmed"), respectively, in
connection with the settlement of certain disputes with Scantek and Zigmed. The
warrants to be issued to Scantek vest as to 175,000 shares as of May 15, 1998,
as to 100,000 shares on September 30, 1998, as to 75,000 shares on December 31,
1998 and as to the remaining 50,000 shares on
-6-
<PAGE>
March 31, 1999. The warrants issued to Zigmed vest in full as of May 15, 1998.
All of the warrants have a five year term.
On August 12, 1998, the Company granted a consultant nonqualified stock options
to purchase an aggregate of 50,000 shares of common stock at an exercise price
of $1.375 per share. These options vest 50 percent upon grant and 50 percent on
December 31, 1998 and have a five year term.
On September 1, 1998, the Company granted an officer stock options to purchase
an aggregate of 150,000 shares of common stock under the Company's 1996 Stock
Incentive Plan (`Plan") at an exercise price of $0.90625 per share. These
options vest 20 percent upon grant, 20 percent on March 1, 1999 and 20 percent
each year thereafter for three years and have a five year term.
On September 29, 1998, the Company granted stock options under the Plan to
employees to purchase an aggregate of 46,000 shares of common stock at an
exercise price of $0.4375 per share. These options vest 50 percent upon grant
and 50 percent on September 29, 1999 and have a ten year term.
(5) Special Charges
In accordance with Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", the Company has recorded an impairment charge of $1,970,806 on
the carrying value of its production equipment, and has also reserved $897,142
for its inventory both due to the lack of immediate demand for its product.
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
Results of Operations for the Three and Nine Month Periods Ended September 30,
1998 and 1997
Revenues
Net sales for the three and nine month periods ended September 30, 1998 were
$19,273 and $139,668 as compared to $0 in the same periods in 1997. The Company
commenced shipments of its BreastAlert Differential Temperature Sensor
("BreastAlert DTS") on December 29, 1997 to the distribution facilities of
Physician Sales & Service Inc., the national distributor of BreastAlert DTS.
Operating Expenses:
Operating expenses consist of product and facility costs, sales and marketing
expenses, general and administrative expenses, clinical development expenses and
interest expense. These expenses increased $765,769, or 68% and $3,207,210, or
111% for the three and nine month periods ending September 30, 1998, due to
planned increases for the production ramp-up, expanded marketing for the launch
of BreastAlert DTS and for the continuing post-marketing clinical studies.
Special Charge
The Company anticipates, based on its currently proposed plans and assumptions
relating to its operations, that its existing cash will be sufficient to satisfy
its contemplated cash requirements through December 1998. The Company's future
liquidity and capital funding requirements will depend on numerous factors,
including the following: the progress of manufacturing activities, results of
clinical trials, the extent to which the BreastAlert device gains market
acceptance, the costs and timing of expansion of sales and marketing and
competition. The Company's operations are currently not expected to generate
sufficient cash to fund continuing business activities after December 1998.
Consequently, the Company is actively seeking additional financing. There can be
no assurances that any required additional financing can be obtained, or if
obtained, will be on reasonable terms.
The Company has been taking steps to conserve its financial resources. The
Company reduced its personnel from 30 persons to 20 during the quarter ended
September 30, 1998. Subsequently, the Company further reduced its personnel to 4
and suspended the relationship with its contract sales force. The Company will,
however, continue to support existing customers.
-7-
<PAGE>
As a result, in accordance with Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of", the Company has recorded an impairment charge of
$1,970,806 on the carrying value of its production equipment, and has also
reserved $897,142 for its inventory both due to the lack of immediate demand for
its product.
Interest Income
Interest income for the three and nine month period ended September 30, 1998
decreased $103,473, or 77%, and $294,911, or 65%, from the same period in 1997.
This decrease is due to the Company's use of proceeds from the Company's August
1996 initial public offering to fund operations during 1996, 1997 and 1998.
Liquidity and Capital Resources
On August 19, 1996, the Company completed an initial public offering of
2,700,000 shares of its common stock at a price of $6.00 per share, which
generated net proceeds to the Company of approximately $14.0 million after
underwriting fees and offering expenses. At September 30, 1998, the Company had
cash and cash equivalents of $1,489,916. The Company's working capital of $0.4
million at September 30, 1998 reflected a decrease of $6.2 million from December
31, 1997.
As of September 30, 1998, no lines of credit were outstanding.
The Company anticipates, based on its currently proposed plans and assumptions
relating to its operations, that its existing cash will be sufficient to satisfy
its contemplated cash requirements through December 1998. The Company's future
liquidity and capital funding requirements will depend on numerous factors,
including the following: the progress of manufacturing activities, results of
clinical trials, the extent to which the BreastAlert device gains market
acceptance, the costs and timing of expansion of sales and marketing and
competition. The Company's operations are currently not expected to generate
sufficient cash to fund continuing business activities after December 1998.
Consequently, the Company is actively seeking additional financing. There can be
no assurances that any required additional financing can be obtained, or if
obtained, will be on reasonable terms.
The Company has been taking steps to conserve its financial resources. The
Company reduced its personnel from 30 persons to 20 during the quarter ended
September 30, 1998. Subsequently, the Company further reduced its personnel to 4
and suspended the relationship with its contract sales force. The Company will,
however, continue to support existing customers.
Year 2000 Compliance
Many computer systems used in the current business environment were designed to
use only two digits in the date field and thus may experience difficulty
processing dates beyond the Year 1999. Consequently, some computer hardware and
software will need to be modified prior to the Year 2000 to remain functional.
The Company believes that its financial systems are Year 2000 compliant (which
means that the systems will accurately process date/time regardless of whether
the date is in the twentieth century or the twenty-first century).
The Company is also in the process of making an assessment of its vendors,
customers, utilities, banks and others with whom it does business to determine
whether the failure of any such persons to be Year 2000 compliant would have a
material adverse effect upon the Company or its financial position, liquidity or
results of operations. To date, nothing has come to the attention of management
that leads it to conclude that the likelihood of such adverse effect reasonably
exists. The Company's operations utilize relatively little electronic data
interchange with vendors, customers and other third parties. However, to the
extent that such third parties, particularly utilities and banks, may not be
Year 2000 compliant, the Company may be adversely affected, although the
magnitude of such affect cannot be estimated. The cost to the Company of making
its third-party Year 2000 compliance assessment is not expected to be material.
Forward-looking Statements
-8-
<PAGE>
When used in this and in future filings by the Company with the Securities and
Exchange Commission, in the Company's press releases and in oral statements made
with the approval of an authorized executive officer of the Company, the words
or phrases "will likely result," "plans," "will continue," "is anticipated,"
"estimated," "project" or "outlook" or similar expressions (including
confirmations by an authorized executive officer of the Company of any such
expressions made by a third party with respect to the Company) are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. This report contains forward-looking
statements regarding the sufficiency of the Company's existing cash resources
and the ability of the Company's operations to generate cash. The Company wishes
to caution readers not to place undue reliance on any such forward-looking
statements, each of which speaks only as of the date made. Such statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from historical earnings and those presently anticipated or
projected. These factors include the uncertain effect of governmental regulation
on the Company and the other factors set forth under the caption "Risk Factors"
in the Company's annual report on Form 10-KSB and other filings with the
Securities and Exchange Commission. The Company has no obligation to release
publicly the results of any revisions that may be made to any forward-looking
statements to reflect anticipated or unanticipated events or circumstances
occurring after the date of such statements.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
See the discussion of legal proceedings in the Company's Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998.
Item 2. Changes in Securities and Use of Proceeds
Since July 31, 1998, the Company has granted options under the Company's 1996
Stock Incentive Plan (the "Plan) to an officer and employees to purchase an
aggregate of 196,000 shares of Common Stock. Options for 150,000 shares were
granted on September 1, 1998, have an exercise price of $0.90625 per share, vest
20 percent upon grant, 20 percent on March 1, 1999 and 20 percent each year
thereafter and have a five year term. Options for 46,000 shares were granted on
September 29, 1998, have an exercise price of $0.4375 per share, vest 50% upon
grant and 50% on September 29, 1999 and have a ten year term. Options for 50,000
shares were granted on August 12, 1998 outside the Plan to a consultant in
consideration for marketing assistance relating to the BreastAlert DTS. Such
options have an exercise price of $1.375 per share and a five year term and vest
50 percent upon grant and 50 percent on December 31, 1998. The issuances of all
of these options are claimed to be exempt from registration pursuant to Section
4(2) of the Securities Act of 1933 as transactions by an issuer not involving a
public offering.
On August 9, 1996, the Securities and Exchange Commission declared the Company's
registration statement on Form SB-2, File No. 333-6607, effective, and the
offering commenced on August 14, 1996. On August 19, 1996, the Company sold
2,700,000 shares of the Company's common stock for an aggregate of $16,200,000.
Of the approximately $14.0 million of net proceeds to the Company from the
offering, $4.1 million has been spent on capital equipment and facility costs,
$3.7 million on sales and marketing expenses, $1.8 million for clinical studies,
$0.9 for inventory, and $3.5 for working capital. Except for amounts paid to
officers and directors as compensation for services in such capacities, none of
the net proceeds were paid, directly or indirectly, to directors or officers of
the Company or to any person owning 10% or more of any class of equity
securities of the Company or to any affiliates of the Company.
Item 5. Other Information
On September 1, 1998, the Company hired Dr. Chris J.M. Blaxland as its President
and Chief Executive Officer. Dr. Blaxland succeeded Elizabeth E. Tallett who had
served as Acting President and Chief Executive Officer since May 19, 1998. Dr.
Blaxland was also elected as a director of the Company on September 1, 1998. Ms.
Tallett continues to serve as Chairman of the Board of Directors of the Company.
The Company entered into an employment agreement with Dr. Chris J.M. Blaxland,
dated as of September 1, 1998, which provides for a salary of $175,000 per year,
options to purchase 150,000 shares of Common Stock and a bonus in the first year
of employment of up to $50,000, based on the attainment of certain performance
goals. After the first year, Dr. Blaxland will be entitled to annual bonuses to
be awarded at the
-9-
<PAGE>
discretion of the Board of Directors based upon Dr. Blaxland's performance
review. Dr. Blaxland's options are exercisable at a price of $0.90625 per share
and vest as to 30,000 shares on the date of grant, as to 30,000 shares on March
1, 1999 and as to an additional 30,000 shares on each of September 1, 1999,
September 1, 2000 and September 1, 2001. The employment agreement has a term of
12 months, renewable automatically for successive terms of 12 months each unless
either party gives prior notice of termination. The agreement also provides for
severance pay of a minimum of 6 months' base salary in the event Dr. Blaxland is
terminated without "cause" (as defined in the agreement) or if Mr. Blaxland
terminates the agreement for "good reason" (as defined in the agreement).
Pursuant to the employment agreement, Dr. Blaxland is prohibited from competing
with the Company during the term of the agreement and for a period of one year
after termination of the agreement and from disclosing confidential information
of the Company during the term of the agreement and for a period of five years
after termination of the agreement.
Dr. Blaxland was the President of Cell Pathways, Inc., a company involved in the
development and commercialization of products to prevent and treat cancer, from
September 1993 to December 1997. From February 1992 to August 1993, he was
general manager of the Pharmaceutical Division of Greenwich Pharmaceuticals,
Inc. From 1970 to February 1992, he held various positions with SmithKline
Beecham, most recently serving as Vice President, Gastrointestinal Products.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
4.7 Form of Warrant issued to Scantek Medical, Inc. as of May 15, 1998
4.8 Form of Warrant issued to Zigmed, Inc. as of May 15, 1998
4.9 Form of Option Agreement for options issued to Physicians World
Communications Group
10.18 Employment Agreement between the Company and Dr. Chris J. M. Blaxland,
dated as of September 1, 1998
27 Financial Data Schedule (9/30/98).
(b) Reports on Form 8-K.
No reports on Form 8-K were filed during the quarter for which this report
on Form 10-Q is filed.
-10-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HUMASCAN INC.
Registrant
November 13, 1998 /s/ Kenneth S. Hollander
------------------------------------
Kenneth S. Hollander
Chief Financial Officer (Principal
Financial and Accounting Officer)
-11-
<PAGE>
EXHIBIT INDEX
4.10 Form of Warrant issued to Scantek Medical, Inc. as of May 15, 1998
4.11 Form of Warrant issued to Zigmed, Inc. as of May 15, 1998
4.12 Form of Option Agreement for options issued to Physicians World
Communications Group
10.18 Employment Agreement between the Company and Dr. Chris J. M. Blaxland,
dated as of September 1, 1998
27 Financial Data Schedule (9/30/98).
-12-
NEITHER THIS WARRANT NOR THE COMMON STOCK THAT MAY BE ACQUIRED UPON THE EXERCISE
HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE AND NEITHER THIS WARRANT NOR THE WARRANT SHARES
MAY BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
For the Purchase of
400,000 shares of Common Stock
of
HumaScan Inc.
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT Scantek Medical, Inc. ("Holder"), as registered owner
of this Warrant, is entitled to subscribe for, purchase and receive, in whole or
in part, up to 400,000 shares ("Shares") of common stock ("Common Stock") of
HumaScan Inc. (the "Company") upon the terms and conditions set forth below. The
Shares are sometimes referred to herein as the "Securities." This Warrant is
initially exercisable at $4.725 per Share purchased; provided, however, that
upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Warrant, including the exercise price and the number of
shares of Common Stock to be received upon such exercise, shall be adjusted as
therein specified. The term "Exercise Price" shall mean the initial exercise
price or the adjusted exercise price, depending on the context.
2. Exercise.
2.1. Exercisability. The right to purchase 175,000 of the Shares vested
immediately upon the grant of this Warrant and shall expire at 5:00 p.m. on May
14, 2003. The right to purchase another 100,000 of the Shares shall vest on
September 30, 1998 and expire at 5:00 p.m. on September 29, 2003, the right to
purchase another 75,000 of the Shares shall vest on December 31, 1998 and expire
at 5:00 p.m. on December 30, 2003, and the right to purchase the remaining
50,000 Shares shall vest on March 31, 1999 and expire at 5:00 p.m. on March 30,
2004.
2.2. Exercise Form. In order to exercise this Warrant, the exercise form
attached hereto must be duly executed and completed and delivered to the
Company, together with this Warrant and payment of the Exercise Price in cash or
by certified check or official bank check for the Shares being purchased.
<PAGE>
2.3. Legend. Each certificate for Securities purchased under this Warrant
shall bear a legend as follows unless such Securities have been registered under
the Securities Act of 1933, as amended ("Act"):
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), or
applicable state law. The securities may not be offered for sale,
sold or otherwise transferred except pursuant to an effective
registration statement under the Act, or pursuant to an exemption
from registration under the Act and applicable state law."
2.4. Cashless Exercise
2.4.1. Determination of Amount. In lieu of the payment of the Exercise
Price in the manner required by Section 2.2, the Holder shall have the right
(but not the obligation) to pay the Exercise Price for the Securities being
purchased with this Warrant upon exercise by the surrender to the Company of any
exercisable but unexercised portion of this Warrant having a "Value" (as defined
below), at the close of trading on the last trading day immediately preceding
the exercise of this Warrant, equal to the Exercise Price multiplied by the
number of shares of Common Stock being purchased upon exercise ("Cashless
Exercise Right"). The sum of (a) the number of shares of Common Stock being
purchased upon exercise of the non-surrendered portion of this Warrant pursuant
to this Cashless Exercise Right and (b) the number of shares of Common Stock
underlying the portion of this Warrant being surrendered shall not in any event
be greater than the total number of shares of Common Stock purchasable upon the
complete exercise of this Warrant if the Exercise Price were paid in cash. The
"Value" of the portion of this Warrant being surrendered shall equal the
remainder derived from subtracting (a) the Exercise Price multiplied by the
number of shares of Common Stock underlying the portion of this Warrant being
surrendered from (b) the Market Price of the shares of Common Stock multiplied
by the number of shares of Common Stock underlying the portion of this Warrant
being surrendered. As used herein, the term "Market Price" at any date shall be
deemed to be the last reported sale price of the Common Stock on such date, or,
in case no such reported sale takes place on such day, the average of the last
reported sale prices for the immediately preceding three trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or if any such
exchange on which the Common Stock is listed is not its principal trading
market, the last reported sale price as furnished by the NASD through the Nasdaq
National Market or SmallCap Market, or, if applicable, the OTC Bulletin Board,
or if the Common Stock is not listed or admitted to trading on the Nasdaq
National Market or SmallCap Market or OTC Bulletin Board or similar
organization, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
2.4.2. Mechanics of Cashless Exercise. The Cashless Exercise Right may
be exercised by the Holder on any business day on or after the Commencement Date
and not later than the Expiration Date by delivering the Warrant with a duly
executed exercise form attached hereto with the cashless exercise section
completed to the Company, exercising the Cashless Exercise Right and specifying
the total number of shares of Common Stock the Holder will purchase pursuant to
such Cashless Exercise Right.
3. Transfer Restrictions. This Warrant and the Securities underlying this
Warrant shall not be transferred unless and until (i) the Company has received
the opinion of counsel for the Holder that
2
<PAGE>
this Warrant or the Securities, as the case may be, may be transferred pursuant
to an exemption from registration under the Act and applicable state law, the
availability of which is established to the reasonable satisfaction of the
Company, or (ii) a registration statement relating to such Warrant or
Securities, as the case may be, has been filed by the Company and declared
effective by the Securities and Exchange Commission ("Commission") and is in
compliance with applicable state law.
4. New Warrants to be Issued.
4.1. Partial Exercise or Transfer. Subject to the restrictions in Section 3
hereof, this Warrant may be exercised or assigned in whole or in part. In the
event of the exercise, conversion or assignment hereof in part only, upon
surrender of this Warrant for cancellation, together with the duly executed
exercise or assignment form and funds (except in the case of cashless exercise)
sufficient to pay any Exercise Price and/or transfer tax, the Company shall
cause to be delivered to the Holder without charge a new Warrant of like tenor
to this Warrant in the name of the Holder evidencing the right of the Holder to
purchase the aggregate number of Shares purchasable hereunder as to which this
Warrant has not been exercised or assigned.
4.2. Lost Certificate. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant and of
reasonably satisfactory indemnification, the Company shall execute and deliver a
new Warrant of like tenor and date. Any such new Warrant executed and delivered
as a result of such loss, theft, mutilation or destruction shall constitute a
substitute contractual obligation on the part of the Company.
5. Registration Rights.
5.1. Registration of Warrant Shares.
5.1.1. Grant of Right. The Company agrees to register all of the
Securities. The Company will file a registration statement covering the
Securities on or before November 16, 1998 and use its best efforts to have such
registration statement declared effective promptly thereafter.
5.1.2. Terms. The Company shall bear all fees and expenses attendant to
registering the Securities, but the Holder shall pay any and all underwriting
commissions and expenses and the fees and expenses of any legal counsel selected
by the Holder to represent them in connection with the sale of the Securities.
The Company agrees to qualify or register the Securities in such States as are
reasonably requested by the Holder; provided, however, that in no event shall
the Company be required to register the Securities in a State in which such
registration would cause (i) the Company to be obligated to register or license
to do business in such State or consent to general service of process in such
jurisdiction, or (ii) the principal stockholders of the Company to be obligated
to escrow their shares of capital stock of the Company. The Company shall cause
any registration statement filed pursuant to Section 5.1.1 to remain effective
until the earlier of (x) the first date on which all of the Securities covered
by such registration statement have been sold by the Holder or (y) the first
date on which all of the Securities are eligible for resale by the Holder
pursuant to the provisions of Rule 144(k) under the Act.
5.2. General Terms.
5.2.1. Indemnification. The Company shall indemnify the Holder and each
person, if any, who controls the Holder within the meaning of Section 15 of the
Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably incurred
3
<PAGE>
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact in (i) the registration statement or the prospectus filed as
part of the registration statement (as from time to time each may be amended and
supplemented); (ii) in any post-effective amendment or amendments; or (iii) any
application or other document or written communication (in this Section 5.2
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Securities under the securities laws thereof or filed with the Commission, any
state securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon information furnished to the Company with
respect to the Holder by or on behalf of the Holder expressly for use in any
preliminary prospectus, the registration statement or the final prospectus, or
any amendment or supplement thereof, or in any application, as the case may be;
provided, further, that the indemnification hereunder shall not be applicable to
any preliminary prospectus if the untrue statement or alleged untrue statement
was contained in a preliminary prospectus and was corrected in the final
prospectus. The Holder, and its successors and assigns, shall indemnify the
Company and each director of the Company, each officer of the Company who signed
such registration statement and each controlling person of the Company (within
the meaning of Section 15 of the Act and Section 20(a) of the Exchange Act)
against all loss, claim, damage, expense or liability (including all reasonable
attorneys' fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of the Holder, or its successors or assigns, in
writing, for specific inclusion in such registration statement.
5.2.2. Exercise of Warrant. Nothing contained in this Warrant shall be
construed as requiring the Holder to exercise this Warrant prior to or after the
initial filing of any registration statement or the effectiveness thereof.
5.2.3. Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter selected by the Holder
whose Securities are being registered pursuant to Section 5.1. Such agreement
shall be reasonably satisfactory in form and substance to the Company, the
Holder and such managing underwriter, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the underwriter.
5.2.4. Documents to be Delivered by Holder. The Holder shall furnish to
the Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling security holders.
6. Adjustments.
6.1. Adjustments to Exercise Price and Number of Securities. The Exercise
Price and the number of Shares underlying this Warrant shall be subject to
adjustment from time to time as hereinafter set forth:
6.1.1. Stock Dividends, Recapitalization, Reclassification, Split-Ups.
If after the date hereof, and subject to the provisions of Section 6.3 below,
the number of outstanding shares of Common Stock is increased by a stock
dividend payable in shares of Common Stock or by a split-up, recapitalization or
reclassification of shares of Common Stock or other similar event that
4
<PAGE>
affects the corporate structure of the Company and the Common Stock of the
Company, as a class, then, on the effective date thereof, the number of Shares
issuable on exercise of this Warrant shall be increased in proportion to such
increase in outstanding shares.
6.1.2. Aggregation of Shares. If after the date hereof, and subject to
the provisions of Section 6.3, the number of outstanding shares of Common Stock
is decreased by a reverse stock split, consolidation, combination or
reclassification of shares of Common Stock or other similar event, then, upon
the effective date thereof, the number of shares of Common Stock issuable on
exercise of this Warrant shall be decreased in proportion to such decrease in
outstanding shares.
6.1.3. Adjustments in Exercise Price. Whenever the number of shares of
Common Stock issuable upon exercise of this Warrant is adjusted, as provided in
this Section 6.1, the Exercise Price shall be adjusted (to the nearest cent) by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction (x) the numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and (y) the denominator of which shall be the number of Shares so
purchasable immediately thereafter.
6.1.4. Replacement of Securities upon Reorganization, etc. In case of
any reclassification or reorganization of the outstanding shares of Common Stock
other than a change covered by Section 6.1.1 hereof or which solely affects the
par value of such shares of Common Stock, or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is dissolved,
the Holder of this Warrant shall have the right thereafter (until the expiration
of the right of exercise of this Warrant) to receive upon the exercise hereof,
for the same aggregate Exercise Price payable hereunder immediately prior to
such event, the kind and amount of shares of stock or other securities or
property (including cash) receivable upon such reclassification, reorganization,
merger or consolidation, or upon a dissolution following any such sale or other
transfer, by a Holder of the number of shares of Common Stock of the Company
obtainable upon exercise of this Warrant immediately prior to such event; and if
any reclassification also results in a change in shares of Common Stock covered
by Section 6.1.1, then such adjustment shall be made pursuant to Sections 6.1.1,
6.1.2, 6.1.3 and this Section 6.1.4. The provisions of this Section 6.1.4 shall
similarly apply to successive reclassifications, reorganizations, mergers or
consolidations, sales or other transfers.
6.2. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of Shares upon the exercise or
transfer of this Warrant, nor shall it be required to issue scrip or pay cash in
lieu of any fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up or down to
the nearest whole number of Shares or other securities, properties or rights.
7. Reservation. The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the purpose of issuance
upon exercise of this Warrant, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise of this
Warrant.
8. Certain Notice Requirements.
5
<PAGE>
8.1. Holder's Right to Receive Notice. Nothing herein shall be construed as
conferring upon the Holder the right to vote or consent or to receive notice as
a shareholder for the election of directors or any other matter, or as having
any rights whatsoever as a shareholder of the Company.
8.2. Notice of Change in Exercise Price. The Company shall, promptly after
an event requiring a change in the Exercise Price pursuant to Section 6 hereof,
send notice to the Holder of such event and change ("Price Notice").
8.3. Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed to
have been duly made on the date of delivery if delivered personally or sent by
overnight courier, with acknowledgment of receipt to the party to which notice
is given, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of the Warrant, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. Miscellaneous.
9.1. Amendments. All modifications or amendments of this Warrant shall
require the written consent of the party against whom enforcement of the
modification or amendment is sought.
9.2. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Warrant.
9.3. Entire Agreement. This Warrant constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
9.4. Binding Effect. This Warrant shall inure solely to the benefit of and
shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Warrant or any provisions herein contained.
9.5. Governing Law. This Warrant shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of laws.
9.6. Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Warrant shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Warrant or any provision hereof or the right of the Company or any Holder
thereafter to enforce each and every provision of this Warrant. No waiver of any
breach, non-compliance or non-fulfillment of any of the provisions of this
Warrant shall be effective unless set forth in a written instrument executed by
the party or parties against whom or which enforcement of such waiver is sought;
and no waiver of any such breach, non-compliance or non-fulfillment shall be
construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused the within Warrant to be signed
by its duly authorized officer as of the 15th day of May, 1998.
HUMASCAN INC.
By: /s/ Kenneth S. Hollander
---------------------------------
Name: Kenneth S. Hollander
Title: Chief Financial Officer
7
<PAGE>
Form to be used to exercise the Warrant:
HumaScan Inc.
125 Moen Avenue
Cranford, New Jersey 07016
Date:_________________, _____
The undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ________ shares of Common Stock of HumaScan Inc. and hereby
makes payment of $____________ (at the rate of $___ per share) in payment of the
Exercise Price pursuant thereto. Please issue the Common Stock as to which this
Warrant is exercised in accordance with the instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ____________ shares of Common Stock of HumaScan Inc. by
surrender of the unexercised portion of the within Warrant (with a "Value" of
$_______ based on a "Market Price" of $___ per share of Common Stock). Please
issue the Common Stock in accordance with the instructions given below.
_______________________________
Signature
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ____________________________________________________
(Print in Block Letters)
Address ____________________________________________________
8
<PAGE>
Form to be used to assign the Warrant:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within
Warrant):
FOR VALUE RECEIVED,____________________________________ does hereby sell,
assign and transfer unto _______________________________ the right to purchase
_______________________ shares of common stock of HumaScan Inc. ("Company")
evidenced by the within Warrant and does hereby authorize the Company to
transfer such right on the books of the Company.
Dated:___________________, 19__
_______________________________
Signature
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever.
9
NEITHER THIS WARRANT NOR THE COMMON STOCK THAT MAY BE ACQUIRED UPON THE EXERCISE
HEREOF ("WARRANT SHARES"), AS OF THE DATE OF ISSUANCE HEREOF, HAS BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER
THE SECURITIES LAWS OF ANY STATE AND NEITHER THIS WARRANT NOR THE WARRANT SHARES
MAY BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT WITH RESPECT THERETO UNDER THE ACT AND COMPLIANCE WITH
ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
For the Purchase of
30,000 shares of Common Stock
of
HumaScan Inc.
(A Delaware Corporation)
1. Purchase Option.
THIS CERTIFIES THAT Zigmed Corporation ("Holder"), as registered owner of
this Warrant, is entitled to subscribe for, purchase and receive, in whole or in
part, up to 30,000 shares ("Shares") of common stock ("Common Stock") of
HumaScan Inc. (the "Company") upon the terms and conditions set forth below. The
Shares are sometimes referred to herein as the "Securities." This Warrant is
initially exercisable at $4.725 per Share purchased; provided, however, that
upon the occurrence of any of the events specified in Section 6 hereof, the
rights granted by this Warrant, including the exercise price and the number of
shares of Common Stock to be received upon such exercise, shall be adjusted as
therein specified. The term "Exercise Price" shall mean the initial exercise
price or the adjusted exercise price, depending on the context.
2. Exercise.
2.1. Exercisability. The right to purchase all 30,000 of the Shares vested
immediately upon the grant of this Warrant and shall expire at 5:00 p.m. on May
14, 2003.
2.2. Exercise Form. In order to exercise this Warrant, the exercise form
attached hereto must be duly executed and completed and delivered to the
Company, together with this Warrant and payment of the Exercise Price in cash or
by certified check or official bank check for the Shares being purchased.
2.3. Legend. Each certificate for Securities purchased under this Warrant
shall bear a legend as follows unless such Securities have been registered under
the Securities Act of 1933, as amended ("Act"):
<PAGE>
"The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended ("Act"), or
applicable state law. The securities may not be offered for
sale, sold or otherwise transferred except pursuant to an
effective registration statement under the Act, or pursuant to
an exemption from registration under the Act and applicable
state law."
2.4. Cashless Exercise
2.4.1. Determination of Amount. In lieu of the payment of the Exercise
Price in the manner required by Section 2.2, the Holder shall have the right
(but not the obligation) to pay the Exercise Price for the Securities being
purchased with this Warrant upon exercise by the surrender to the Company of any
exercisable but unexercised portion of this Warrant having a "Value" (as defined
below), at the close of trading on the last trading day immediately preceding
the exercise of this Warrant, equal to the Exercise Price multiplied by the
number of shares of Common Stock being purchased upon exercise ("Cashless
Exercise Right"). The sum of (a) the number of shares of Common Stock being
purchased upon exercise of the non-surrendered portion of this Warrant pursuant
to this Cashless Exercise Right and (b) the number of shares of Common Stock
underlying the portion of this Warrant being surrendered shall not in any event
be greater than the total number of shares of Common Stock purchasable upon the
complete exercise of this Warrant if the Exercise Price were paid in cash. The
"Value" of the portion of this Warrant being surrendered shall equal the
remainder derived from subtracting (a) the Exercise Price multiplied by the
number of shares of Common Stock underlying the portion of this Warrant being
surrendered from (b) the Market Price of the shares of Common Stock multiplied
by the number of shares of Common Stock underlying the portion of this Warrant
being surrendered. As used herein, the term "Market Price" at any date shall be
deemed to be the last reported sale price of the Common Stock on such date, or,
in case no such reported sale takes place on such day, the average of the last
reported sale prices for the immediately preceding three trading days, in either
case as officially reported by the principal securities exchange on which the
Common Stock is listed or admitted to trading, or, if the Common Stock is not
listed or admitted to trading on any national securities exchange or if any such
exchange on which the Common Stock is listed is not its principal trading
market, the last reported sale price as furnished by the NASD through the Nasdaq
National Market or SmallCap Market, or, if applicable, the OTC Bulletin Board,
or if the Common Stock is not listed or admitted to trading on the Nasdaq
National Market or SmallCap Market or OTC Bulletin Board or similar
organization, as determined in good faith by resolution of the Board of
Directors of the Company, based on the best information available to it.
2.4.2. Mechanics of Cashless Exercise. The Cashless Exercise Right may
be exercised by the Holder on any business day on or after the Commencement Date
and not later than the Expiration Date by delivering the Warrant with a duly
executed exercise form attached hereto with the cashless exercise section
completed to the Company, exercising the Cashless Exercise Right and specifying
the total number of shares of Common Stock the Holder will purchase pursuant to
such Cashless Exercise Right.
3. Transfer Restrictions. This Warrant and the Securities underlying this
Warrant shall not be transferred unless and until (i) the Company has received
the opinion of counsel for the Holder that this Warrant or the Securities, as
the case may be, may be transferred pursuant to an exemption from registration
under the Act and applicable state law, the availability of which is established
to the reasonable satisfaction of the Company, or (ii) a registration statement
relating to such Warrant or Securities, as the case may be, has been filed by
the Company and declared effective by the
2
<PAGE>
Securities and Exchange Commission ("Commission") and is in compliance with
applicable state law.
4. New Warrants to be Issued.
4.1. Partial Exercise or Transfer. Subject to the restrictions in Section 3
hereof, this Warrant may be exercised or assigned in whole or in part. In the
event of the exercise, conversion or assignment hereof in part only, upon
surrender of this Warrant for cancellation, together with the duly executed
exercise or assignment form and funds (except in the case of cashless exercise)
sufficient to pay any Exercise Price and/or transfer tax, the Company shall
cause to be delivered to the Holder without charge a new Warrant of like tenor
to this Warrant in the name of the Holder evidencing the right of the Holder to
purchase the aggregate number of Shares purchasable hereunder as to which this
Warrant has not been exercised or assigned.
4.2. Lost Certificate. Upon receipt by the Company of evidence satisfactory
to it of the loss, theft, destruction or mutilation of this Warrant and of
reasonably satisfactory indemnification, the Company shall execute and deliver a
new Warrant of like tenor and date. Any such new Warrant executed and delivered
as a result of such loss, theft, mutilation or destruction shall constitute a
substitute contractual obligation on the part of the Company.
5. Registration Rights.
5.1. Registration of Warrant Shares.
5.1.1. Grant of Right. The Company agrees to register all of the
Securities. The Company will file a registration statement covering the
Securities on or before November 16, 1998 and use its best efforts to have such
registration statement declared effective promptly thereafter.
5.1.2. Terms. The Company shall bear all fees and expenses attendant to
registering the Securities, but the Holder shall pay any and all underwriting
commissions and expenses and the fees and expenses of any legal counsel selected
by the Holder to represent them in connection with the sale of the Securities.
The Company agrees to qualify or register the Securities in such States as are
reasonably requested by the Holder; provided, however, that in no event shall
the Company be required to register the Securities in a State in which such
registration would cause (i) the Company to be obligated to register or license
to do business in such State or consent to general service of process in such
jurisdiction, or (ii) the principal stockholders of the Company to be obligated
to escrow their shares of capital stock of the Company. The Company shall cause
any registration statement filed pursuant to Section 5.1.1 to remain effective
until the earlier of (x) the first date on which all of the Securities covered
by such registration statement have been sold by the Holder or (y) the first
date on which all of the Securities are eligible for resale by the Holder
pursuant to the provisions of Rule 144(k) under the Act.
5.2. General Terms.
5.2.1. Indemnification. The Company shall indemnify the Holder and each
person, if any, who controls the Holder within the meaning of Section 15 of the
Act or Section 20(a) of the Securities Exchange Act of 1934, as amended
("Exchange Act"), against all loss, claim, damage, expense or liability
(including all reasonable attorneys' fees and other expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact in (i) the registration statement or the prospectus filed as
part of the registration statement (as from time to time each may be
3
<PAGE>
amended and supplemented); (ii) in any post-effective amendment or amendments;
or (iii) any application or other document or written communication (in this
Section 5.2 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, Nasdaq or any securities
exchange; or the omission or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
unless such statement or omission was made in reliance upon information
furnished to the Company with respect to the Holder by or on behalf of the
Holder expressly for use in any preliminary prospectus, the registration
statement or the final prospectus, or any amendment or supplement thereof, or in
any application, as the case may be; provided, further, that the indemnification
hereunder shall not be applicable to any preliminary prospectus if the untrue
statement or alleged untrue statement was contained in a preliminary prospectus
and was corrected in the final prospectus. The Holder, and its successors and
assigns, shall indemnify the Company and each director of the Company, each
officer of the Company who signed such registration statement and each
controlling person of the Company (within the meaning of Section 15 of the Act
and Section 20(a) of the Exchange Act) against all loss, claim, damage, expense
or liability (including all reasonable attorneys' fees and other expenses
reasonably incurred in investigating, preparing or defending against any claim
whatsoever) to which they may become subject under the Act, the Exchange Act or
otherwise, arising from information furnished by or on behalf of the Holder, or
its successors or assigns, in writing, for specific inclusion in such
registration statement.
5.2.2. Exercise of Warrant. Nothing contained in this Warrant shall be
construed as requiring the Holder to exercise this Warrant prior to or after the
initial filing of any registration statement or the effectiveness thereof.
5.2.3. Underwriting Agreement. The Company shall enter into an
underwriting agreement with the managing underwriter selected by the Holder
whose Securities are being registered pursuant to Section 5.1. Such agreement
shall be reasonably satisfactory in form and substance to the Company, the
Holder and such managing underwriter, and shall contain such representations,
warranties and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the underwriter.
5.2.4. Documents to be Delivered by Holder. The Holder shall furnish to
the Company a completed and executed questionnaire provided by the Company
requesting information customarily sought of selling security holders.
6. Adjustments.
6.1. Adjustments to Exercise Price and Number of Securities. The Exercise
Price and the number of Shares underlying this Warrant shall be subject to
adjustment from time to time as hereinafter set forth:
6.1.1. Stock Dividends, Recapitalization, Reclassification, Split-Ups.
If after the date hereof, and subject to the provisions of Section 6.3 below,
the number of outstanding shares of Common Stock is increased by a stock
dividend payable in shares of Common Stock or by a split-up, recapitalization or
reclassification of shares of Common Stock or other similar event that affects
the corporate structure of the Company and the Common Stock of the Company, as a
class, then, on the effective date thereof, the number of Shares issuable on
exercise of this Warrant shall be increased in proportion to such increase in
outstanding shares.
4
<PAGE>
6.1.2. Aggregation of Shares. If after the date hereof, and subject to
the provisions of Section 6.3, the number of outstanding shares of Common Stock
is decreased by a reverse stock split, consolidation, combination or
reclassification of shares of Common Stock or other similar event, then, upon
the effective date thereof, the number of shares of Common Stock issuable on
exercise of this Warrant shall be decreased in proportion to such decrease in
outstanding shares.
6.1.3. Adjustments in Exercise Price. Whenever the number of shares of
Common Stock issuable upon exercise of this Warrant is adjusted, as provided in
this Section 6.1, the Exercise Price shall be adjusted (to the nearest cent) by
multiplying such Exercise Price immediately prior to such adjustment by a
fraction (x) the numerator of which shall be the number of shares of Common
Stock purchasable upon the exercise of this Warrant immediately prior to such
adjustment, and (y) the denominator of which shall be the number of Shares so
purchasable immediately thereafter.
6.1.4. Replacement of Securities upon Reorganization, etc. In case of
any reclassification or reorganization of the outstanding shares of Common Stock
other than a change covered by Section 6.1.1 hereof or which solely affects the
par value of such shares of Common Stock, or in the case of any merger or
consolidation of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification or reorganization of the
outstanding shares of Common Stock), or in the case of any sale or conveyance to
another corporation or entity of the property of the Company as an entirety or
substantially as an entirety in connection with which the Company is dissolved,
the Holder of this Warrant shall have the right thereafter (until the expiration
of the right of exercise of this Warrant) to receive upon the exercise hereof,
for the same aggregate Exercise Price payable hereunder immediately prior to
such event, the kind and amount of shares of stock or other securities or
property (including cash) receivable upon such reclassification, reorganization,
merger or consolidation, or upon a dissolution following any such sale or other
transfer, by a Holder of the number of shares of Common Stock of the Company
obtainable upon exercise of this Warrant immediately prior to such event; and if
any reclassification also results in a change in shares of Common Stock covered
by Section 6.1.1, then such adjustment shall be made pursuant to Sections 6.1.1,
6.1.2, 6.1.3 and this Section 6.1.4. The provisions of this Section 6.1.4 shall
similarly apply to successive reclassifications, reorganizations, mergers or
consolidations, sales or other transfers.
6.2. Elimination of Fractional Interests. The Company shall not be required
to issue certificates representing fractions of Shares upon the exercise or
transfer of this Warrant, nor shall it be required to issue scrip or pay cash in
lieu of any fractional interests, it being the intent of the parties that all
fractional interests shall be eliminated by rounding any fraction up or down to
the nearest whole number of Shares or other securities, properties or rights.
7. Reservation. The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock, solely for the purpose of issuance
upon exercise of this Warrant, such number of shares of Common Stock or other
securities, properties or rights as shall be issuable upon the exercise of this
Warrant.
8. Certain Notice Requirements.
8.1. Holder's Right to Receive Notice. Nothing herein shall be construed as
conferring upon the Holder the right to vote or consent or to receive notice as
a shareholder for the election of directors or any other matter, or as having
any rights whatsoever as a shareholder of the Company.
5
<PAGE>
8.2. Notice of Change in Exercise Price. The Company shall, promptly after
an event requiring a change in the Exercise Price pursuant to Section 6 hereof,
send notice to the Holder of such event and change ("Price Notice").
8.3. Transmittal of Notices. All notices, requests, consents and other
communications under this Warrant shall be in writing and shall be deemed to
have been duly made on the date of delivery if delivered personally or sent by
overnight courier, with acknowledgment of receipt to the party to which notice
is given, or on the fifth day after mailing if mailed to the party to whom
notice is to be given, by registered or certified mail, return receipt
requested, postage prepaid and properly addressed as follows: (i) if to the
registered Holder of the Warrant, to the address of such Holder as shown on the
books of the Company, or (ii) if to the Company, to its principal executive
office.
9. Miscellaneous.
9.1. Amendments. All modifications or amendments of this Warrant shall
require the written consent of the party against whom enforcement of the
modification or amendment is sought.
9.2. Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Warrant.
9.3. Entire Agreement. This Warrant constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof, and supersedes all
prior agreements and understandings of the parties, oral and written, with
respect to the subject matter hereof.
9.4. Binding Effect. This Warrant shall inure solely to the benefit of and
shall be binding upon, the Holder and the Company and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Warrant or any provisions herein contained.
9.5. Governing Law. This Warrant shall be governed by and construed and
enforced in accordance with the laws of the State of New York, without giving
effect to principles of conflicts of laws.
9.6. Waiver, Etc. The failure of the Company or the Holder to at any time
enforce any of the provisions of this Warrant shall not be deemed or construed
to be a waiver of any such provision, nor to in any way affect the validity of
this Warrant or any provision hereof or the right of the Company or any Holder
thereafter to enforce each and every provision of this Warrant. No waiver of any
breach, non-compliance or non-fulfillment of any of the provisions of this
Warrant shall be effective unless set forth in a written instrument executed by
the party or parties against whom or which enforcement of such waiver is sought;
and no waiver of any such breach, non-compliance or non-fulfillment shall be
construed or deemed to be a waiver of any other or subsequent breach,
non-compliance or non-fulfillment.
6
<PAGE>
IN WITNESS WHEREOF, the Company has caused the within Warrant to be signed
by its duly authorized officer as of the 15th day of May, 1998.
HUMASCAN INC.
By: /s/ Kenneth S. Hollander
--------------------------------
Name: Kenneth S. Hollander
Title: Chief Financial Officer
7
<PAGE>
Form to be used to exercise the Warrant:
HumaScan Inc.
125 Moen Avenue
Cranford, New Jersey 07016
Date:_________________, _____
The undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ________ shares of Common Stock of HumaScan Inc. and hereby
makes payment of $____________ (at the rate of $___ per share) in payment of the
Exercise Price pursuant thereto. Please issue the Common Stock as to which this
Warrant is exercised in accordance with the instructions given below.
or
--
The undersigned hereby elects irrevocably to exercise the within Warrant
and to purchase ____________ shares of Common Stock of HumaScan Inc. by
surrender of the unexercised portion of the within Warrant (with a "Value" of
$_______ based on a "Market Price" of $___ per share of Common Stock). Please
issue the Common Stock in accordance with the instructions given below.
__________________________
Signature
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever.
INSTRUCTIONS FOR REGISTRATION OF SECURITIES
Name ____________________________________________________
(Print in Block Letters)
Address ____________________________________________________
8
<PAGE>
Form to be used to assign the Warrant:
ASSIGNMENT
(To be executed by the registered Holder to effect a transfer of the within
Warrant):
FOR VALUE RECEIVED,____________________________________ does hereby sell,
assign and transfer unto _______________________________ the right to purchase
_______________________ shares of common stock of HumaScan Inc. ("Company")
evidenced by the within Warrant and does hereby authorize the Company to
transfer such right on the books of the Company.
Dated:___________________, 19__
__________________________
Signature
NOTICE: The signature to this form must correspond with the name as written
upon the face of the within Warrant in every particular without alteration or
enlargement or any change whatsoever.
9
NONQUALIFIED STOCK OPTION AGREEMENT
AGREEMENT made as of the 12th day of August, 1998, by and between HUMASCAN
INC., a Delaware corporation ("Company"), and PHYSICIANS WORLD COMMUNICATIONS
GROUP ("Consultant").
WHEREAS, the Consultant and the Company have entered into a Consulting
Agreement, dated as of July 1, 1998 ("Consulting Agreement"), pursuant to which
the Consultant shall provide certain consulting services to the Company;
WHEREAS, by written consent dated August 12, 1998 ("Grant Date"), the Board
of Directors of the Company ("Board") authorized the grant to the Consultant of
an option ("Option") to purchase an aggregate of 50,000 shares of the authorized
but unissued Common Stock of the Company, $.01 par value ("Common Stock"),
conditioned upon the Consultant's acceptance thereof upon the terms and
conditions set forth in this Agreement; and
WHEREAS, the Consultant desires to acquire the Option on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. Grant of Stock Option. The Company hereby grants the Consultant the Option
to purchase all or any part of an aggregate of 50,000 shares of Common Stock
("Option Shares") on the terms and conditions set forth herein.
2. Nonqualified Stock Option. The Option represented hereby is not intended to
be an Option which qualifies as an "Incentive Stock Option" under Section 422 of
the Internal Revenue Code of 1986, as amended.
3. Exercise Price. The exercise price of the Option shall be $1.375 per share,
subject to adjustment as hereinafter provided.
4. Exercisability. The Option is exercisable as follows: (i) the right to
purchase 25,000 of the Option Shares shall become exercisable on the Grant Date;
and (ii) the right to purchase 25,000 of the Option Shares shall become
exercisable on December 31, 1998. After a portion of the Option becomes
exercisable, it shall remain exercisable, except as otherwise provided herein,
until the date that is 5 years after the Grant Date.
5. Effect of Termination of Service.
5.1 Termination by Consultant. If the Consultant's service as a consultant
to the Company is terminated by the Consultant for any reason, the portion of
the Option, if any, that was exercisable as of the date of termination of
service may thereafter be exercised by the Consultant until the expiration of
the Exercise Period. The portion of the Option, if any, that was not exercisable
as of the date of the termination of service shall immediately terminate upon
the termination of service.
5.2 Termination by the Company. If the Consultant's service as a consultant
to the Company is terminated by the Company for proper cause pursuant to Section
3.2 of the Consulting Agreement, the Option, whether or not then exercisable,
shall immediately expire upon such termination.
<PAGE>
6. Adjustments. In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than cash dividend), stock split, reverse
stock split, or other change in corporate structure affecting the number of
issued shares of Common Stock, the Company shall adjust the number and kind of
Option Shares and the exercise price of the Option proportionally in order to
prevent the dilution or enlargement of the Consultant's proportionate interest
in the Company and his rights hereunder, provided that the number of Option
Shares shall always be a whole number and any fractional shares resulting from
such adjustments shall be eliminated.
7. Method of Exercise.
7.1 Notice to the Company. The Option shall be exercised in whole or in
part by written notice in substantially the form attached hereto as Exhibit A
directed to the Company at its principal place of business accompanied by full
payment as hereinafter provided of the exercise price for the number of Option
Shares specified in the notice.
7.2 Delivery of Option Shares. The Company shall deliver a certificate for
the Option Shares to the Consultant as soon as practicable after payment
therefor.
7.3 Payment of Purchase Price.
7.3.1 Cash Payment. The Consultant shall make cash payments by wire
transfer, certified or bank check or personal check, in each case payable to the
order of the Company; the Company shall not be required to deliver certificates
for Option Shares until the Company has confirmed the receipt of good and
available funds in payment of the purchase price thereof.
7.3.2 Cashless Payment. The Consultant may, with the consent of the
Board, use Common Stock of the Company owned by it to pay the purchase price for
the Option Shares by delivery of stock certificates in negotiable form which are
effective to transfer good and valid title thereto to the Company, free of any
liens or encumbrances. Shares of Common Stock used for this purpose shall be
valued at the fair market value, as determined by the Board in its sole
discretion. Alternatively, at the election of the Consultant and with the
consent of the Board, the Company may retain from the Option Shares that number
of shares having a fair market value on the date of exercise (as determined by
the Board in its sole discretion) equal to the option price of the number of
Option Shares for which the Option is being exercised.
7.3.3 Exchange Act Compliance. Notwithstanding the foregoing, the
Company shall have the right to reject payment in the form of Common Stock if in
the opinion of counsel for the Company, (i) it could result in an event of
"recapture" under Section 16(b) of the Securities Exchange Act of 1934
("Exchange Act"); (ii) such shares of Common Stock may not be sold or
transferred to the Company; or (iii) such transfer could create legal
difficulties for the Company.
8. Nonassignability. The Option shall not be assignable or transferable except
to the principals of the Consultant and by will or by the laws of descent and
distribution in the event of the death of a holder that is a principal of the
Consultant. No transfer of the Option by a principal of the Consultant by will
or by the laws of descent and distribution shall be effective to bind the
Company unless the Company shall have been furnished with written notice thereof
and a copy of the will and such other evidence as the Company may deem necessary
to establish the validity of the transfer and the acceptance by the transferee
or transferees of the terms and conditions of the Option.
2
<PAGE>
9. Company Representations. The Company hereby represents and warrants to the
Consultant that:
(1) the Company, by appropriate and all required action, is duly authorized
to enter into this Agreement and consummate all of the transactions contemplated
hereunder; and
(2) the Option Shares, when issued and delivered by the Company to the
Consultant in accordance with the terms and conditions hereof, will be duly and
validly issued and fully paid and non-assessable.
10. Consultant Representations. The Consultant hereby represents and warrants
to the Company that:
(1) it is acquiring the Option and shall acquire the Option Shares for its
own account and not with a view towards the distribution thereof;
(2) it has received a copy of all reports and documents required to be
filed by the Company with the Securities and Exchange Commission pursuant to the
Exchange Act within the last 24 months and all reports issued by the Company to
its stockholders;
(3) it understands that it must bear the economic risk of the investment in
the Option Shares, which cannot be sold by it unless they are registered under
the Securities Act of 1933 ("Securities Act") or an exemption therefrom is
available thereunder and that the Company is under no obligation to register the
Option Shares for sale under the Securities Act;
(4) it has had both the opportunity to ask questions and receive answers
from the officers and directors of the Company and all persons acting on its
behalf concerning the terms and conditions of the offer made hereunder and to
obtain any additional information to the extent the Company possesses or may
possess such information or can acquire it without unreasonable effort or
expense necessary to verify the accuracy of the information obtained pursuant to
clause (ii) above; (1)
(5) it is aware that the Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the Securities Act or an exemption therefrom as provided
herein; and
(6) The certificates evidencing the Option Shares shall bear the following
legends:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933. The shares may not be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
"The shares represented by this certificate have been acquired pursuant
to a Stock Option Agreement, dated as of August 12, 1998, a copy of
which is on file with the Company, and may not be transferred, pledged
or disposed of except in accordance with the terms and conditions
thereof."
3
<PAGE>
11. Restriction on Transfer of Option Shares. Anything in this Agreement to the
contrary notwithstanding, the Consultant hereby agrees that it shall not sell,
transfer by any means or otherwise dispose of the Option Shares acquired by him
or her without registration under the Securities Act, or in the event that they
are not so registered, unless (i) an exemption from the Securities Act
registration requirements is available thereunder, and (ii) the Consultant has
furnished the Company with notice of such proposed transfer and the Company's
legal counsel, in its reasonable opinion, shall deem such proposed transfer to
be so exempt.
12. Miscellaneous.
12.1 Notices. All notices, requests, deliveries, payments, demands and
other communications which are required or permitted to be given under this
Agreement shall be in writing and shall be either delivered personally or sent
by registered or certified mail, or by private courier, return receipt
requested, postage prepaid to the parties at their respective addresses set
forth herein, or to such other address as either shall have specified by notice
in writing to the other. Notice shall be deemed duly given hereunder when
delivered or mailed as provided herein.
12.2 Stockholder Rights. The Consultant shall not have any of the rights of
a stockholder with respect to the Option Shares until such shares have been
issued after the due exercise of the Option.
12.3 Waiver. The waiver by any party hereto of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
12.4 Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof. This Agreement
may not be amended except by writing executed by the Consultant and the Company.
12.5 Binding Effect; Successors. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and, to the extent not prohibited
herein, their respective heirs, successors, assigns and representatives. Nothing
in this Agreement, expressed or implied, is intended to confer on any person
other than the parties hereto and as provided above, their respective heirs,
successors, assigns and representatives any rights, remedies, obligations or
liabilities.
12.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York (without regard to choice of
law provisions).
12.7 Headings. The headings contained herein are for the sole purpose of
convenience of reference, and shall not in any way limit or affect the meaning
or interpretation of any of the terms or provisions of this Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the
day and year first above written.
HUMASCAN INC. Address:
125 Moen Avenue
Cranford, New Jersey 07016
By:____________________________
Kenneth S. Hollander
Chief Financial Officer
CONSULTANT: Address:
PHYSICIANS WORLD COMMUNICATIONS 400 Plaza Drive
GROUP Secaucus, New Jersey 07094
By:_____________________________________
Name:
Title:
5
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE OF OPTION
- --------------------
DATE
HumaScan Inc.
125 Moen Avenue
Cranford, New Jersey 07016
Attention: Board of Directors
Re: Purchase of Option Shares
Gentlemen:
In accordance with my Stock Option Agreement dated as of August 12, 1998
("Agreement") with HumaScan Inc. ("Company"), I hereby irrevocably elect to
exercise the right to purchase _________ shares of the Company's common stock,
par value $.01 per share ("Common Stock"), which are being purchased for
investment and not for resale.
As payment for my shares, enclosed is (check and complete applicable
box[es]):
/ / a [personal check] [certified check] [bank check] payable to the order
of "HumaScan Inc." in the sum of $_________;
/ / confirmation of wire transfer in the amount of $_____________; and/or
/ / certificate for ____ shares of the Company's Common Stock, free and
clear of any encumbrances, duly endorsed, having a fair market value of
$_________.
I hereby represent, warrant to, and agree with, the Company that:
(1) I am acquiring the Option and shall acquire the Option Shares for my
own account and not with a view towards the distribution thereof;
(2) I have received a copy of all reports and documents required to be
filed by the Company with the Securities and Exchange Commission pursuant to the
Securities Exchange Act of 1934 within the last 24 months and all reports issued
by the Company to its stockholders;
(3) I understand that I must bear the economic risk of the investment in
the Option Shares, which cannot be sold by me unless they are registered under
the Securities Act of 1933 ("Securities Act") or an exemption therefrom is
available and that the Company is under no obligation to register the Option
Shares for sale under the Securities Act;
(4) I have had both the opportunity to ask questions and receive answers
from the officers and directors of the Company and all persons acting on its
behalf concerning the terms and conditions of the offer made hereunder and to
obtain any additional information to the extent the Company possesses or may
possess such information or can acquire it without unreasonable effort or
expense necessary to verify the accuracy of the information obtained pursuant to
clause (ii) above;
<PAGE>
(5) I am aware that the Company shall place stop transfer orders with its
transfer agent against the transfer of the Option Shares in the absence of
registration under the Securities Act or an exemption therefrom as provided
herein;
(6) the certificates evidencing the Option Shares shall bear the following
legends:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of
1933. The shares may not be sold or transferred in the absence of such
registration or an exemption therefrom under said Act."
"The shares represented by this certificate have been acquired pursuant
to a Stock Option Agreement, dated as of August 12, 1998, a copy of
which is on file with the Company, and may not be transferred, pledged
or disposed of except in accordance with the terms and conditions
thereof."
Kindly forward to me my certificate at your earliest convenience.
Very truly yours,
(Signature) (Address)
(Print Name) (Address)
(Social Security Number)
2
HumaScan Inc.
CONTRACT OF EMPLOYMENT
This agreement, made as of the 1st day of September 1998, between HUMASCAN
INC. (the "Company"), and Chris J. M. Blaxland (the "Employee").
R E C I T A L S:
The Company wishes to employ Employee on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, for and in consideration of the mutual promises and
agreements of the parties and other good and valuable consideration, the Company
and the Employee agree as follows:
1. Employment. The Company hereby employs the Employee as President and
Chief Executive Officer of the Company. The Company undertakes to have the
Employee elected to the Board of Directors of the Company as soon as reasonably
practicable. The Employee shall, consistent with the position and dignity of the
office of President, Chief Executive Officer and Director of the Company,
perform such duties as shall be reasonably directed by the Company's Board of
Directors from time to time.
2. Performance. The Employee agrees to serve the Company faithfully and to
the best of his ability solely under the direction of the Company's Board of
Directors. The Employee shall report solely to the Board of Directors and shall
devote his full working time, energy and skills to the performance of his duties
hereunder, provided, that the Employee shall be permitted to serve as a member
of up to three boards of directors or advisory boards of other companies or
organizations. Notwithstanding the foregoing sentence, the Employer shall not
serve on the board of directors or advisory board of any company or organization
(i) that supplies goods or materials used by the Company in the construction of
its BreastAlert units or any other products, or (ii) if such service violates
Section 9(c) of this Agreement regarding competition.
3. Term. The initial term of Employee's employment hereunder shall commence
on the date hereof and continue for twelve months. Thereafter, the term of this
Agreement shall automatically be extended for successive terms of twelve months
each, unless employee or the Company gives notice of termination to the other
within 30 days prior to the end of the initial term or any additional twelve
month term, as the case may be.
4. Compensation. The Company shall pay the Employee, commencing as of the
date of this Agreement, the following compensation for services rendered
hereunder:
(a) Salary. The Company shall pay the Employee a base salary of ONE HUNDRED
SEVENTY-FIVE THOUSAND and 00/100 DOLLARS ($175,000.00) per year during the term
of this Agreement. The Employee's salary shall be reviewed annually by the Board
of Directors of the Company in accordance with the Company's compensation
program solely for the purpose of determining increases.
(b) Bonus. During the term of employment, the Employee shall be eligible to
receive an annual bonus, to be awarded at the sole discretion of the Board of
Directors of the Company, in an amount of up to $50,000 or such greater amount
as the Employee and the Board of Directors may agree upon. The Board shall use
as a basis for determining the extent of such bonus awards the attainment of
stated goals and objectives for the Employee to be set by the Board of Directors
after consultation with the Employee. For the first year of employment
hereunder, the Company shall pay the Employee a bonus of $25,000 upon the
attainment of a goal of 750,000 BreastAlert units sold through September 1, 1999
and an additional bonus of $25,000 upon the attainment of a goal of 1,500,000
BreastAlert units sold through September 1, 1999.
(c) Options. As soon as reasonably practicable after the execution of this
Agreement, the Company shall grant to the Employee options under the Company's
1996 Stock Incentive Plan (the "Plan") to purchase 150,000
<PAGE>
(one hundred fifty thousand) shares of the Company's common stock at a per share
exercise price equal to the fair market value of a share of the Company's common
stock as determined in accordance with the Plan. The options shall vest in
accordance with the following schedule provided that the Employee is
continuously employed by the Company through the date of vesting: (i) options
for 30,000 shares shall vest on September 1, 1998, (ii) options for 30,000
shares shall vest on March 1, 1999 and (iii) options for 30,000 shares shall
vest on each anniversary of this contract to September 1, 2001. The options
shall expire five years from the date on which they vest. From time to time, the
Board of Directors will review the performance of the employee and consider
additional option grants. The following terms shall also apply to option grants
received by the Employee:
(i) The Company represents that it has available or shall cause to be
available sufficient shares under the Plan to cover stock to be issued pursuant
to the Plan upon the Employee's exercise of the options.
(ii) All unvested options will become exercisable immediately upon a
merger, consolidation, acquisition of property or stock, reorganization (other
than a mere reincorporation or the creation of a holding company) or liquidation
of the Company, as a result of which the shareholders of the Company receive
cash, stock or other property in exchange for or in connection with their shares
of the Company's Common Stock. In addition, such options shall become
immediately exercisable in the event of a change in control of the Company. A
change in control of the Company shall be deemed to occur if (a) the Company is
merged with or into or consolidated with another corporation or other entity
under circumstances where the shareholders of the Company immediately prior to
such merger or consolidation do not own after such merger or consolidation
shares representing at least fifty percent of the voting power of the Company or
the surviving or resulting corporation or other entity, as the case may be, or
(b) if the Company is liquidated or sells or otherwise disposes of substantially
all of its assets to another corporation or entity, or (c) if any person (as
such term is used in Sections 13(d) and 14(d)(2) of the Securities Exchange Act
of 1934) shall become the beneficial owner (within the meaning of Rule 13d-3
under such Act) of thirty (30%) percent or more of the Common Stock of the
Company other than pursuant to a plan or arrangement entered into by such person
and the Company or otherwise approved by the Board of Directors; provided,
however, clause (c) above shall not apply with respect to Travelers Group Inc.
unless Travelers Group Inc. becomes a beneficial owner of forty (40%) percent of
more of the Common Stock of the Company. The Employee and the Company may agree
upon other performance based milestones to cause the accelerated vesting of
unvested options.
(iii) In the event that the acceleration of any option to be granted to
the Employee (the "Accelerated Options") (1) constitutes a "parachute payment"
within the meaning of section 280G of the Internal Revenue Code of 1986, as
amended (the "Code"), and (2) but for this provision, would be subject to the
excise tax imposed by section 4999 of the Code (the "Excise Tax"), then the
amount of the Accelerated Options may be reduced to the largest amount which the
Employee, in his sole discretion, determines would result in no portion of the
Accelerated Options (or only such portion thereof as is acceptable to the
Employee) being subject to the Excise Tax. The determination by the Employee of
any reduction shall be conclusive and binding upon the Company. The Company
shall reduce such Accelerated Options only upon written notice by the Employee
indicating the amount of such reduction.
(d) Housing Allowance. Employee shall receive a $1,000.00 per month housing
allowance.
(e) Employee Benefit Plans. Employee shall participate in all medical,
pension and welfare plans, programs and benefits (the "Plans") that are
generally made available to executives of the Company and such other Plans as
may be deemed appropriate by the Board of Directors.
(f) Fringe Benefits. Employee shall be entitled to such perquisites that
are generally made available to executives of the Company or as may be deemed
appropriate by the Board of Directors. Employee will be entitled to four (4)
weeks paid vacation per year.
5. Disability. If Employee becomes incapacitated by reason of mental or
physical disability, during the term hereof, so that he is unable to perform his
principal duties and services on a full time basis for a period of three (3)
consecutive months, the Company may terminate the Employee's employment
hereunder by notice in
<PAGE>
writing to the Employee. Upon such termination, Employee shall be entitled to
all accrued and unpaid salary through the date of such termination any benefits
due under any disability policy maintained by the Company for Employee's
benefit.
6. Death. The Employee's employment hereunder shall terminate automatically
upon the death of Employee during the term of this Agreement. The Employee's
personal representative shall be entitled to receive insurance proceeds similar
to those furnished to all employees of the Company.
7. Company's Right to Terminate. The Company may terminate Employee's
employment hereunder for Cause at any time after the effective date hereof by
written notice to Employee. From and after the date of such termination, the
Company shall have no further obligation hereunder to provide compensation or
benefits to Employee. If Employee is terminated by reason of death or disability
or for a reason other than cause, or if this Agreement is not automatically
extended upon the election of the Company, the Employee shall be paid a minimum
of six (6) months base salary as severance pay, and Employee shall have no
further right to compensation upon payment of such minimum amount. For the
purpose of this Agreement "cause" means any of the following:
(i) A breach by the Employee of Section 9(d) of this Agreement;
(ii) A material breach of any other provision of this Agreement by the
Employee, including the Employee's failure to materially perform his duties
hereunder (other than a breach resulting from the Employee's incapacity due to
physical or mental illness), if that breach is not remedied within thirty (30)
days after written notice is given to the Employee describing the acts alleged
to constitute the breach;
(iii) A act of fraud, misappropriation, embezzlement or similar willful
and malicious conduct by the Employee against the Company; or
(iv) Indictment of the Employee for a felony or any conviction of, or
guilty plea or plea of nolo contendere by the Employee to, a crime involving
moral turpitude if that crime of moral turpitude tends or would reasonablely
tend to bring the Corporation into disrepute or expose it to unfavorable
publicity.
8. Employee's Right to Terminate. Employee may terminate his employment
hereunder at any time, and in the event of a termination by employee for "good
reason", he shall be entitled to the severance pay provided in section 7, where
"good reason" is defined as a reduction in pay, title or responsibility, a
transfer over the Employee's objection to a location more than seventy-five (75)
miles from the Company's office in Cranford, New Jersey, or the Company's
failure to have the Employee elected, or re-elected, to the Board of Directors
of the Company.
9. Employee's Undertakings. (a) Employee agrees to devote Employee's full
working time, attention, knowledge and skills to the Company's business and
operation to the degree required adequately to perform Employee's assigned
duties, and to use Employee's best efforts to promote the interests of the
Company.
(b) Upon termination of employment hereunder, Employee will immediately
surrender to the Company originals and all copies of correspondence, books,
lists, records, reports, samples, equipment, contracts and other written
memoranda or documents relating to the business of the Company and all other
property obtained from, relating to, or belonging to the Company.
(c) Employee agrees that during the term of this Agreement and for a period
of twelve (12) months after termination of employment with the Company, the
Employee will not directly or indirectly own, manage, join, control, be employed
by or participate in the ownership, management, operation or control of, or be
connected in any manner with any business engaged in the development,
manufacture or sale of any breast thermal activity test products or any other
products being developed, manufactured or sold by the Company at the time of
such termination; provided, however, this provision shall apply only to those
businesses located in any jurisdiction in the United States in which the
Company's products are sold in the one year period ending on the date of
termination. Notwithstanding the foregoing sentence, following the date of the
Employee's termination with the Company, the
<PAGE>
Employee shall be entitled to manage, join, be employed by or participate in the
management or operation of any branch or division of any business so long as
such branch or division does not engage in the development, manufacture or sale
of any breast thermal activity test products or any other products being
developed, manufactured or sold by the Company at the time of such termination
and such business employs at least four hundred (400) people; provided, however,
in no event shall the Employee be entitled to serve on the board of directors of
such a business during the term of this Agreement and for a period of twelve
(12) months thereafter. The Employee further agrees that during such twelve (12)
month period, the Employee, or any agent of the Employee will not solicit, in
competition with the business of the Company, business from any customer or
prospect known to the Employee to be a customer or prospect of the Company.
Notwithstanding the foregoing, the beneficial ownership by the Employee
(including ownership by any one or more members of his immediate family and any
entity under his direct or indirect control) of less then five percent (5%) of
the outstanding shares of capital stock of any corporation which may be engaged
in any of the same lines of business as the Company's business shall not
constitute a breach of the convents contained in this Agreement.
(d) The Employee shall hold in a fiduciary capacity for the benefit of the
Company all secret or confidential information, knowledge or data of the Company
obtained by the Employee during employment by the Company. The Employee shall
not during employment hereunder or for a period of five (5) years after the
termination of such employment, communicate or divulge any such information,
knowledge or data to any person, firm or corporation other than the Company, or
persons, firms or corporations designated by the Company. This Section shall not
apply to any information which (i) is or becomes generally available to the
public or a third party without obligation of confidence other than as a result
of a disclosure directly or indirectly by the Employee, or (ii) the Employee is
required to disclose pursuant to subpoena, court order or other governmental
process. In the event disclosure is necessary pursuant to the provisions of
clause (ii) of the preceding sentence, the Employee shall promptly, but in no
event more than three (3) business days after learning of such subpoena, court
order, or other governmental process, notify the Company and, at the Company's
expense, (a) take all reasonable action requested by the Company to defend
against the enforcement of such subpoena, court order or other governmental
process, and (b) permit the Company to intervene and participate with counsel of
its choice in any proceeding relating to the enforcement thereof. During the
term of the Employee's employment and for a period of twelve (12) months after
the end or termination of such employment, the Employee will not, directly or
indirectly, solicit or induce any employee of the Company to leave his or her
employment, nor will the Employee in any capacity hire or cause to be hired any
person who within twelve (12) months prior thereto shall have been employed as
an employee of the Company, for any employment, nor shall the Employee, directly
or indirectly, aid or assist any other person, firm or corporation to do any of
the aforesaid acts.
(e) The parties hereto agree and stipulate that the foregoing restraints
shall be enforceable through injunction as well as an action for damages, that
such restraints upon the Employee are reasonable with regard to their
limitations and necessary for the protection of the Company and its business,
and that such restraints will not be unduly burdensome for Employee.
10. Conflict of Interest. After the date of this Agreement and during the
term of the Employee's employment hereunder, Employee will not, at any time,
enter into, on behalf of the Company or cause the Company to enter into,
directly or indirectly any transactions with any business organization in which
he or any member of his immediate family may be interested as a partner,
trustee, director, officer, employee, shareholder, lender of money or guarantor.
However, Employee may cause the Company to enter into any such transaction if
the terms of any such transaction are approved by the Company's Board of
Directors in accordance with applicable law.
11. Representation by the Employee. The Employee is not a party to any
agreement, contract or understanding which in any way restricts or prohibits him
from fulfilling his obligations hereunder in accordance with the terms of this
Agreement.
12. Representation by the Company. The Company is duly authorized to
execute and deliver this Agreement, which has been approved by its Board of
Directors. This Agreement constitutes the binding obligation of the Company
enforceable against it in accordance with its terms.
<PAGE>
13. Expenses. During the term of employment, all travel and other
reasonable business expenses incident to the rendering of services by the
Employee under this Agreement will be paid or reimbursed by the Company subject
to the submission of appropriate vouchers and receipts in accordance with the
Company's policy from time to time in effect.
14. Notices. All notices, requests and other communications pursuant to
this Agreement shall be in writing and shall be deemed to have been duly given,
if delivered in person or by courier, telegraphed, telexed or by facsimile
transmission or five business days after being sent by registered or certified
mail, return receipt requested, postage paid, addressed as follows:
If to the Employee:
Chris J. M. Blaxland
509 County Line Road
Radnor, PA 19087
Facsimile No.: (610) 971-1518
with a copy to:
Richard J. Pinto, Esq.
Smith, Stratton, Wise, Heher & Brennan
600 College Road East
Princeton, NJ 08540
Facsimile No.: (609) 987-6651
If to the Company:
HumaScan Inc.
125 Moen Avenue
Cranford, NJ 07016
Attn: Chairman of the Board
Facsimile No.: (908) 709-4646
with a copy to:
David Alan Miller, Esq.
Graubard, Mollen and Miller
600 Third Avenue
New York, NY 10016
Facsimile No.: (212) 818-8881
Any party may, by written notice to the other in accordance with this Section
13, change the address to which notices to such party are to be delivered or
mailed.
15. Miscellaneous. This Agreement sets forth the entire understanding
of the parties and cancels and supersedes all prior agreements and
understandings, either written or oral, between the Company (including its
predecessors) and the concerning the Company's employment of the Employee. No
statement, representation, warranty or covenant has been made by either party,
except as expressly set forth herein. This Agreement shall not be changed or
terminated orally, and it shall not be assignable by the Employee, but the
benefits and obligations hereunder shall be binding upon and inure to the
benefit of and be enforceable by the respective heirs and personal
representatives of the employee and upon the successors and assigns of the
Company. This Agreement shall be construed and enforced in accordance with the
laws of New Jersey. If any provision of this Agreement is held to be void or
unenforceable, the remaining provisions shall be unaffected thereby and shall
continue in full force and
<PAGE>
effect. The Company shall reimburse the Employee for his reasonable legal
expenses incurred in connection with the negotiation and execution of this
Agreement, provided that such reimbursement shall not exceed $1,000.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
HUMASCAN INC.
By______________________________________
Elizabeth E. Tallett
For the Board of Directors
----------------------------------------
Chris J. M. Blaxland
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,489,916
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,652,196
<PP&E> 681,047
<DEPRECIATION> (211,523)
<TOTAL-ASSETS> 2,221,488
<CURRENT-LIABILITIES> 1,272,013
<BONDS> 0
0
0
<COMMON> 77,891
<OTHER-SE> 15,522,380
<TOTAL-LIABILITY-AND-EQUITY> 2,221,488
<SALES> 139,668
<TOTAL-REVENUES> 161,151
<CGS> 0
<TOTAL-COSTS> 6,089,990
<OTHER-EXPENSES> 2,867,947
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (8,657,118)
<INCOME-TAX> 0
<INCOME-CONTINUING> (8,657,118)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,657,118)
<EPS-PRIMARY> (1.12)
<EPS-DILUTED> (1.12)
</TABLE>
