<PAGE>
As filed with the Securities and Exchange Commission on May 26, 1999
Registration No. 333-69207
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------
AMENDMENT NO. 8 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
CARESIDE, INC.
(Exact name of registrant as specified in its charter)
Delaware 3841 23-2863507
(Primary Standard (I.R.S. Employer
(State or other Industrial Identification No.)
jurisdiction of Classification Code
incorporation or Number)
organization)
6100 Bristol Parkway, Culver City, CA 90230
(310) 338-6767
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
W. Vickery Stoughton
Chairman of the Board of Directors and
Chief Executive Officer
Careside, Inc.
6100 Bristol Parkway
Culver City, CA 90230
(310) 338-6767
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
With copies to:
Barry M. Abelson, Esq. Jonathan L. Kravetz, Esq.
Julia D. Corelli, Esq. Mintz, Levin, Cohn, Ferris,
Pepper Hamilton LLP Glovsky and Popeo, P.C.
3000 Two Logan Square One Financial Center
Philadelphia, PA 19103 Boston, MA 02111
(215) 981-4000 (617) 542-6000
---------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act,
check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Proposed Proposed
Maximum Maximum Amount of
Title of Each Class of Securities to be Amount to be Offering Price Aggregate Registration
Registered Registered Per Unit Offering Price (1) Fee
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Units, each consisting
of...................... 2,875,000(2) $ 8.00 $23,000,000 $ 6,394
- ------------------------------------------------------------------------------------------------------
(i) one share of common
stock, and ............ 2,875,000 -- -- --
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(ii) one warrant to
purchase one share of
common stock........... 2,875,000 -- -- --
- ------------------------------------------------------------------------------------------------------
Representatives' Warrants
(3) 250,000 $ 0.00 $ 0 $ 0
- ------------------------------------------------------------------------------------------------------
Units issuable upon
exercise of the
Representatives'
Warrants, each
consisting of........... 250,000 $ 9.60 $ 2,400,000 $ 668
- ------------------------------------------------------------------------------------------------------
(i) one share of common
stock; and............. 250,000 -- -- --
- ------------------------------------------------------------------------------------------------------
(ii) one warrant to
purchase one share of
common stock........... 250,000 -- -- --
- ------------------------------------------------------------------------------------------------------
Shares of common stock
issuable upon exercise
of warrants, including
warrants underlying
Representatives'
Warrants (4)............ 3,125,000 $12.00 $37,500,144 $ 10,425
- ------------------------------------------------------------------------------------------------------
Totals................... 6,500,000 -- $62,900,144 $17,487(5)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) promulgated under the Securities Act of 1933, as
amended.
(2) Includes 375,000 units that the underwriters have the option to purchase
to cover over-allotments, if any.
(3) In connection with the sale of the units, Careside is granting to Paulson
Investment Company, Inc., Millennium Financial Group, Inc. and marion bass
securities corporation, the representatives of the several underwriters
(the "Representatives"), warrants to purchase 250,000 units (the
"Representatives' Warrants").
(4) Pursuant to Rule 416 promulgated under the Securities Act of 1933, as
amended, there are also being registered such additional shares of common
stock as may be issuable pursuant to the anti-dilution provisions of the
warrants and the Representatives' Warrants.
(5) Fees totaling an aggregate amount of $17,487 were previously paid by
Careside in connection with the filing of the Registration Statement on
December 18, 1998, Amendment No. 1 to the Registration Statement on
February 1, 1999 and Amendment No. 7 to the Registration Statement on May
5, 1999.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
Subject to Completion, Dated May 26, 1999
2,500,000 Units
[LOGO OF CARESIDE]
Each Unit Consists of One Share of Common Stock and One Redeemable Common
Stock Purchase Warrant
---------------
This is an initial public offering of 2,500,000 units. Each unit consists of
one share of common stock and a redeemable warrant to purchase one share of
common stock. We expect that the offering price per unit will be between $7.00
and $8.00. This prospectus relates to the units offered to the public and
2,500,000 shares of common stock and 2,500,000 redeemable warrants included in
the units.
This prospectus also relates to warrants to purchase up to 250,000 units
which the representatives of the underwriters will receive as part of their
compensation in connection with the offering of the units. The exercise price
of each of the representatives' warrants is $ [120% of the initial public
offering price per unit]. We will receive proceeds of $ if all of the
representatives' warrants are exercised.
In addition, this prospectus relates to the 2,750,000 shares of common stock
which will be received in the future when warrants included in units are
exercised. The exercise price of each warrant is $ [150% of the initial
public offering price per unit]. We will receive proceeds of $ if all of
the warrants included in units are exercised.
We have granted the underwriters a 45-day option to purchase up to 375,000
additional units to cover over-allotments. This prospectus also relates to
those units.
We have applied to have the common stock, warrants and units listed for
quotation on the American Stock Exchange under the symbols "CSA", "CSA.WS" and
"CSA.U", respectively. There is currently no public market for the common
stock, warrants or units.
Investing in the units involves significant risks. See "Risk Factors"
beginning on page 7.
<TABLE>
<CAPTION>
Per Unit Total
-------- -----
<S> <C> <C>
Offering price of units.......................................... $ $
Underwriting discount on units................................... $ $
Proceeds to Careside from the sale of units...................... $ $
</TABLE>
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
---------------
Paulson Investment Company, Inc.
Millennium Financial Group, Inc.
marion bass securities corporation
, 1999
<PAGE>
[Inside Front Cover]
[CARESIDE LOGO] THE CARESIDE SYSTEM IS A PROPRIETARY BLOOD TESTING
SYSTEM. IT INCLUDES THE CARESIDE ANALYZER(TM) AND
DISPOSABLE TEST CARTRIDGES.
CARESIDE ANALYZER(TM) [Photo of CareSide
Analyzer and
Cartridges]
(A) CHEMISTRY
The CareSide (B) ELECTROCHEMISTRY
Analyzer(TM) combines (C) IMMUNOCHEMISTRY
multiple testing (D) COAGULATION
methodologies.
[Photo Close-up of [Photo of Different
Cartridge] Cartridges]
THE CARESIDE CARTRIDGE
The proprietary test cartridges have unique design
features.
COMPREHENSIVE MENU LOW COST EASE OF USE
At launch, Careside The Careside system's A non-technical
expects to offer more approach to testing is individual with
than 50 tests. This designed to produce a simple training can
would be the most rapid test result at a easily operate the
comprehensive menu for a competitive price. CareSide
single point-of-care Analyzer(TM).
system.
----------------
We have not yet commercialized the Careside system. We currently have 31
tests cleared or exempt for professional laboratory use by the United States
Food and Drug Administration. We plan to complete development and seek to
obtain FDA clearance or exemption for additional tests and uses prior to
commercial introduction.
Careside(TM), CareSide Analyzer(TM) and Careside's logo are our trademarks
for which registration applications have been filed with the United States
Patent and Trademark Office. All other tradenames, trademarks or servicemarks
appearing in this prospectus are the property of their respective owners and
are not our property.
2
<PAGE>
PROSPECTUS SUMMARY
The following summary highlights information from this prospectus. Because
this is a summary, it does not contain all of the information that you should
consider before investing in the units. You should read the entire prospectus
carefully, including the "Risk Factors" section, the financial statements and
the notes to those financial statements.
Careside
Careside has developed and plans to sell a proprietary blood testing system
called the Careside system. It is designed to decentralize laboratory
operations. The system consists of a testing instrument called the CareSide
Analyzer and disposable test cartridges. It performs blood tests in the same
location as the patient, or what is commonly called point-of-care testing.
Blood testing is a significant part of routine and critical patient care.
Today, almost all blood testing is done by sending the blood samples to
hospital or commercial laboratories. Because of transportation time and several
processing steps, these central laboratories generally take between 4 and 24
hours to provide test results to the doctor. We believe that the Careside
system provides the platform for solving the limitations of central blood
testing laboratories and redefines the market for point-of-care testing. Here
are the reasons why:
. Cost-Effective Results -- Our system is designed to provide test results
that are cost competitive with both hospital and commercial
laboratories.
. Rapid Test Results -- Our system produces test results within 10 to 15
minutes from the time the blood is drawn from the patient.
. Comprehensive Test Menu -- We believe that our planned menu of tests
represents over 80% of all blood tests ordered on an out-patient basis,
including all of the most commonly ordered blood tests.
. Ease of Use -- Our system is designed for use by non-technical
personnel, with only simple training.
. Industry Standard Technology -- Our system uses the same test methods
and technology as large testing devices in hospital and commercial
laboratories.
. Embedded Quality Assurance/Quality Control -- Our system captures all
data required to comply with regulations governing laboratory
operations, including those under the Clinical Laboratory Improvement
Amendments of 1988.
. Ability for Practice Enhancement -- By providing rapid test results for
a broad menu of tests, our system will enable doctors to treat patients
more quickly, see more patients, improve office productivity and improve
patient satisfaction and quality of care. In addition, healthcare
providers can increase their revenue by performing and billing for tests
themselves.
Our goal is to make decentralized testing with the Careside system the
standard for routine and critical care blood testing.
The Careside System Status
The FDA has already granted pre-market clearance for the CareSide Analyzer
and clearance or exemption for 31 blood tests for professional laboratory use.
We recently filed three additional blood tests for clearance. Our commercial
product launch is planned for the fourth quarter of 1999. We expect to have the
CareSide Analyzer and a comprehensive menu of over 50 tests cleared or exempt
at that time.
3
<PAGE>
We intend to complete pilot site marketing studies by the end of the third
quarter of 1999. These studies will demonstrate our system's cost-effectiveness
and how potential customers will use it. We have arranged pilot site studies
with APRIA Healthcare in the home care services market, three hospitals
affiliated with Child Health Corporation of America in the hospital market,
Reliant Care Group, L.L.C. in the nursing home market and SmithKline Beecham
Clinical Laboratories, Inc. for its own use. We are also arranging pilot site
studies with several group practices located in Arizona and California.
Market Opportunity
The lack of timely test results from central laboratories has given rise to a
growing market for point-of-care tests. According to 1997 industry data and
estimates, the worldwide product market for testing of blood and other bodily
fluids and tissues was $18.3 billion in 1997 and was expected to grow to $20
billion in 2000. Based on their prior industry experience, our senior
management believes that the Careside system's 50 test menu will address over
38% of this market. The rest of the market includes complex and specialized
tests not performed by the Careside system. The U.S. and Canadian market is
approximately 40% of the worldwide market. Our initial marketing efforts will
be targeted towards converting U.S. and Canadian blood testing to point-of-care
testing.
Early History
SmithKline Beecham Clinical Laboratories, Inc. conducted extensive surveys of
the point-of-care market beginning in 1993. As a result, in 1994, SmithKline
started our predecessor business to develop the technology we use. We acquired
this business in November 1996. Several senior members of SmithKline's
management team, including the President of SmithKline Beecham Clinical
Laboratories, worked on this point-of-care project at SmithKline. They are now
part of the executive management team of Careside.
Careside was incorporated in the State of Delaware in July 1996 under the
name Exigent Diagnostics, Inc. In May 1998, we changed our name to Careside,
Inc. Our principal executive offices are located at 6100 Bristol Parkway,
Culver City, California 90230 and our telephone number is (310) 338-6767.
4
<PAGE>
The Offering
Except as otherwise indicated, all information in this prospectus assumes no
exercise of the underwriters' over-allotment option or the representatives'
warrants, and has been adjusted to give effect to a 1-for-5.2 reverse stock
split to be effected immediately prior to the completion of the offering.
<TABLE>
<C> <S>
Securities Offered ....... 2,500,000 units. Each unit consists of one share of
common stock and one warrant to purchase an
additional share of common stock. The units will
automatically separate 30 days from the date of
this prospectus, after which the common stock and
warrants in the units will trade separately.
Warrants.................. The warrants included in the units will be
exercisable commencing 30 days after the offering.
The exercise price of a warrant is $ [150% of the
initial public offering price per unit]. They
expire on the fifth anniversary of the date of this
prospectus. If the closing price of our common
stock on each of the ten consecutive trading days
preceding our notice of redemption is at least $
[200% of the initial public offering price per
unit], we may redeem some or all of the outstanding
warrants if we provide the holders with 30 days'
prior written notice. The redemption price will be
$0.05 per warrant. No redemption can occur until
six months after the date of this prospectus.
Common Stock Outstanding.. 5,084,340 shares of common stock were outstanding
before the offering. After the offering, there will
be 7,584,340 shares outstanding. Both of these
numbers exclude 2,195,842 shares of common stock
issuable upon exercise of options and warrants
which are outstanding or will be outstanding
immediately after the offering. After the offering,
there will also be another 2,500,000 shares of
common stock issuable upon exercise of warrants
included in the units.
Dividend Policy........... We do not plan to pay cash dividends in the
foreseeable future.
Use of Proceeds........... We expect to use the proceeds from the offering,
which we estimate will be approximately
$15,838,000, to:
. complete product development, launch our product
and cover related expenses;
. purchase manufacturing equipment and expand our
facilities; and
. build inventory and provide working capital.
</TABLE>
<TABLE>
<S> <C>
Proposed American Stock Exchange Symbol for Common Stock................. CSA
Proposed American Stock Exchange Symbol for Warrants..................... CSA.WS
Proposed American Stock Exchange Symbol for Units........................ CSA.U
</TABLE>
5
<PAGE>
Summary Financial Data
The following table presents summary financial information for Careside and
the predecessor business at SmithKline Beecham Clinical Laboratories, Inc. The
as adjusted balance sheet data assumes the sale by Careside of 2,500,000 units
in the offering at $7.50 per unit and the use of the estimated net proceeds as
set forth in "Use of Proceeds" on page 15. You should read this data together
with the financial statements and related notes included in this prospectus.
<TABLE>
<CAPTION>
Predecessor Business
------------------------------------
Year ended Ten months
December 31, ended
----------------------- October 31,
1994 1995 1996
----------- ----------- -----------
(unaudited)
<S> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses:
Research and
development..... $ 949,346 $ 2,109,802 $ 3,054,503
General and
administration.. 26,069 585,058 224,399
--------- ----------- -----------
Operating loss.. $(975,415) $(2,694,860) $(3,278,902)
========= =========== ===========
Net interest
income
(expense).......
Net loss.........
Net loss per
share...........
Shares used in
computing net
loss per share..
<CAPTION>
Careside, Inc.
-------------------------------------------------------------------------------
Period from Period from
Inception Inception
(July 10, Year ended Three months (July 10,
1996) to December 31, ended March 31, 1996) to
December 31, ------------------------- ------------------------- March 31,
1996 1997 1998 1998 1999 1999
------------- ------------ ------------ ------------ ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses:
Research and
development..... $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 1,541,119 $ 2,076,046 $ 17,831,332
General and
administration.. 55,515 640,574 850,129 196,595 569,907 2,116,125
------------- ------------ ------------ ------------ ------------ -------------
Operating loss.. (1,617,362) (6,536,039) (9,148,103) (1,737,714) (2,645,953) (19,947,457)
Net interest
income
(expense)....... (20,809) 205,256 211,814 17,857 (359,724) 36,537
------------- ------------ ------------ ------------ ------------ -------------
Net loss......... $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(19,910,920)
============= ============ ============ ============ ============ =============
Net loss per
share........... $ (2.25) $ (2.04) $ (1.93) $ (0.49) $ (0.59)
============= ============ ============ ============ ============
Shares used in
computing net
loss per share.. 728,465 3,098,980 4,629,916 3,521,808 5,084,340
============= ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Careside, Inc.
----------------------------------------
March 31, 1999 (unaudited)
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............ $ 2,051,786 $ 2,051,786 $17,889,286
Total assets......................... 7,248,753 7,248,753 23,086,253
Long-term debt, including current
portion............................. 3,996,763 2,996,763 2,996,763
Deficit accumulated during
development stage................... (19,910,920) (19,910,920) (20,241,034)
Total stockholders' equity........... 1,143,468 2,164,071 18,001,571
</TABLE>
6
<PAGE>
RISK FACTORS
An investment in the units involves many risks. These risks may be
substantial and are inherent in the business of Careside. You should carefully
consider the following information about these risks, together with the other
information in this prospectus, before buying units.
If any of the following risks actually occur, our business and prospects
could be materially adversely affected, the trading price of our units, common
stock or warrants could decline, and you might lose all or part of your
investment.
We Have a Limited Operating History and Have Not Generated any Revenue
Careside was formed in 1996 and has not generated any revenue. We have
incurred net losses of approximately $20 million from inception through March
31, 1999. We will not generate any revenue from product sales and will continue
to incur significant additional operating losses until we complete the
development of our test menu, receive necessary FDA clearances, expand our
manufacturing and marketing efforts, manufacture our products according to
regulations prescribed by the FDA, and begin selling the Careside system.
The Offering May Not Raise Sufficient Funds to Meet Our Goals
The offering may not provide sufficient funds to fully implement our business
plan. We anticipate that the estimated net proceeds from the offering, together
with revenue expected after 1999 and proceeds of our current equipment lease
financing, will be sufficient to fund our operating expenses and capital
requirements for at least 12 months. However, these expenses and requirements
may change. If sufficient funds are not raised or revenues are not sufficient,
we may have to reduce our initial marketing expenses or product development
activities. In addition, we may not be able to meet our obligations to our
suppliers and strategic partners during this 12 month period. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" on page 20.
Additional Funding May Not Be Available
We intend to draw on existing availability under our equipment lease facility
or, if necessary, seek additional lease financing, to fund our purchase of
equipment for our automated cartridge assembly line. Additional funding for our
activities may come from the exercise of warrants included in units sold in the
offering. We also may seek additional financing to build inventory and to
refinance our bridge loan. To support our current and any future funding
requirements, we may need to issue additional equity securities, incur more
debt, obtain added lease financing and/or seek third-party collaboration
opportunities. Additional funding may have unacceptable terms or may not be
available at all for reasons relating to:
.Careside's inability to meet its business plan, or
.changes in lenders' or investors' views of medical device or small
capitalization companies.
If adequate funds are not available, we may be required to delay, reduce or
eliminate product development programs or to license to third parties rights to
commercialize our products or technologies.
We May Never Be Profitable
Even if we are able to generate revenue from sales of the Careside system, we
may never be profitable. There are several reasons why this might happen:
.We could build up our overhead in anticipation of sales goals that are not
met.
.We may not be able to reduce our manufacturing costs to acceptable levels.
.We may have to lower our prices to remain competitive.
.We may experience delays in developing additional tests or product
upgrades.
.We may experience problems in production, distribution or marketing.
Medical Community May Not Accept the Careside System
The CareSide Analyzer and related test cartridges are our only products. We
will not be able to operate profitably unless these products achieve a
significant level of market acceptance. The following factors are the greatest
risks to our market acceptance:
7
<PAGE>
We May Fail to Develop the Comprehensive Test Menu Needed to Sell Our Product
If we are not able to fully develop our proposed comprehensive test menu,
customers may not buy our products. One of our major selling points to
potential customers will be the breadth of our menu.
We May Be Unable to Change How Tests are Ordered
We may not be able to demonstrate the economic or clinical benefits of the
Careside system sufficiently to convince members of the medical community to
change the way they order tests. Currently, physicians and hospitals typically
order blood tests from central laboratories.
Managed Care Contracts May Limit Our Market Penetration
Our ability to sell to healthcare providers may be limited by managed care
relationships. Many health maintenance and managed care organizations have
exclusive contracts with laboratories that require participating or employed
physicians to send patient specimens only to contracted laboratories.
Consequently, such physicians may be precluded from using the Careside system
unless they obtain a waiver from the relevant health maintenance or managed
care organization.
We May Be Unable to Keep Pace With Changing Technology
Blood testing technology is evolving. Other companies may develop products in
response to technological changes that make our products noncompetitive,
particularly if the development, introduction or marketing of our products is
delayed.
CLIA May Discourage Healthcare Providers from Using Point-of-Care Testing
Careside system users will be required to be licensed under the Clinical
Laboratory Improvement Amendments of 1988. While the Careside system is
designed to make licensure easy, CLIA licensing requirements may make
healthcare providers reluctant to initiate, continue or expand patient testing
using the Careside system.
Failure to Obtain Point-of-Care Use Designation Will Limit Our Market
Opportunity
The Careside system is not currently authorized for point-of-care use or
physician office laboratory use. It is authorized for professional laboratory
use. Professional laboratories include hospital, commercial and independent
laboratories. As a result, we are presently unable to sell to an important
segment of our market. Clearance for point-of-care use and physician office
laboratory use from the FDA is necessary to expand our potential market beyond
professional laboratories. We will seek these clearances for the CareSide
Analyzer in the third quarter of 1999.
We May Not Be Able to Develop Our Products
In order for us to expand our test menu, we must complete the development of
one of the four types of disposable cartridges. Factors outside our control may
delay our proposed development schedules by one year or more. These factors
include:
.delays in regulatory clearance,
.technological difficulties,
.restrictions on access to proprietary technology of strategic partners,
and
.changes in the healthcare, regulatory or reimbursement environment.
Reductions in Third-Party Reimbursement For Tests May Hurt Our Business
Government authorities, private health insurers and other third-party payers,
such as health maintenance organizations may not reimburse providers for our
products' tests. Current reimbursement amounts for diagnostic tests may not be
maintained. Any decrease in test reimbursement amounts may reduce the demand
for our products or force us to lower our sales prices. In addition,
legislative proposals to reform healthcare and the trend toward managed
healthcare in the United States may require lower prices for our products. See
"Business--Third Party Reimbursement" on page 40.
8
<PAGE>
We Have No Sales, Marketing or Distribution Experience
We may not be able to recruit or retain direct sales and marketing personnel
who will successfully implement our marketing strategy. We have no sales,
marketing or distribution experience. We intend to distribute our products in
the United States primarily through our own sales force, and internationally
through a limited number of distributors. Establishing a sales and marketing
capability will require substantial efforts and significant resources.
Third-Party Distributors May Not Be Effective
We will depend on third party distributors to assist us in promoting market
acceptance and creating demand for our products. We have an exclusive
distribution arrangement with SmithKline Beecham Clinical Laboratories, Inc.
for the commercial laboratory market in the United States and certain foreign
countries. We have also granted Fuji a right of first refusal to distribute the
Careside system exclusively in Japan and non-exclusively in some of the other
Asian countries. We will need additional arrangements to distribute our
products worldwide. We may not be able to maintain these arrangements or enter
into additional distribution arrangements. In addition, we have little control
over the resources that the distributors will devote to the marketing of the
Careside system. See "Business--Marketing Strategy" on page 34 and "Certain
Transactions--SmithKline Beecham" on page 53.
A Pending Acquisition of SBCL Adds to Uncertainties in Our Commercial
Laboratory Market
Quest Diagnostics Incorporated and SmithKline Beechem Clinical Laboratories,
Inc. have announced that Quest is acquiring all of the stock of SBCL. Quest
will succeed to our distribution agreement with SBCL. We have had no prior
business relationship with Quest and are currently discussing with Quest their
intentions with respect to distribution of our products under this agreement.
Just as SBCL could, Quest may choose to distribute our products, terminate the
SBCL agreement or refrain from distributing our products in select areas.
Our Contract Manufacturers May Not Adequately Meet Our Future Product Demand
We will depend upon outside vendors to manufacture most of the Careside
system, including the CareSide Analyzer and components of the disposable
testing cartridges. We will have only limited control over third-party
manufacturers as to quality control and timing of production and delivery. We
cannot be certain that outside manufacturers will be able to provide us with a
sufficient number of instruments and cartridge components on a timely basis.
Our Lack of Manufacturing Experience Could Reduce Our Ability to Assemble
Cartridges
We will be assembling the cartridges at Careside. We have never operated a
manufacturing/assembly business. We will need to assemble significant and
increasing quantities of test cartridges on a timely basis, while maintaining
strict quality standards. As volume dictates, we will convert from manual
production of cartridge components and assembly to an automated system which we
are currently building. We may not be able to achieve and maintain product
accuracy and reliability when producing the cartridges in the quantities
required, on a timely basis or at an acceptable cost.
Our Third-Party Suppliers Could Interrupt Our Supply
We will purchase the materials used in the test cartridges from outside
suppliers, such as Fuji Photo Film Co., Ltd. Each of our supply agreements has
termination rights. Any interruption in supply would adversely affect our
schedule. See "Business--Manufacturing and Supply" on page 38.
9
<PAGE>
Our Ability to Add Hematology Testing Capabilities Depends on Third Parties
The CareSide Analyzer does not perform hematology tests, which are an
important part of point-of-care testing. We are negotiating arrangements for a
third party to supply hematology testing capabilities in an additional device.
We may not be able to agree upon pricing that will enable us to offer cost-
effective hematology testing. In addition, our third party developer has not
yet completed the interface between the hematology device and the CareSide
Analyzer. See "Business--The Careside System--Test Menu" on page 32.
Our CEO and Other Key Personnel Are Critical To Our Success
The loss of key employees or unsuccessful recruiting efforts will harm us.
Competition for qualified and talented individuals with experience in point-of-
care testing is intense. Our success depends on our ability to retain the
services of Mr. Stoughton, our Chairman of the Board of Directors and Chief
Executive Officer, and Dr. Grove, Executive Vice President--Research and
Development. Mr. Stoughton has over 20 years experience as a senior executive
of several large hospitals and over four years experience as President of
SmithKline Beecham Clinical Laboratories, Inc. Dr. Grove managed research and
development activities at SmithKline Beecham Clinical Laboratories, Inc. for 12
years and has extensive experience in the development of diagnostic tests. We
also need to attract additional sales and marketing, research and development,
and experienced manufacturing personnel. See "Management--Employment
Agreements" on page 49.
We May Not Be Able to Manage Our Expanding Operations
We will need to expand our operations if we are successful in achieving
market acceptance for the Careside system. This expansion will result in
additional responsibilities for management and place significant demand upon
our management, our operating and financial systems and our resources. To
accommodate this growth and to compete effectively, we will need to implement
and improve our internal operating systems and controls, and to hire and train
additional personnel.
Our Competitors Have Advantages Over Us
Our business may fail because our market is highly competitive. Our primary
competitors are large diagnostic device manufacturers, commercial and hospital
laboratories and other point-of-care device manufacturers. The large device
manufacturers and commercial and hospital laboratories have significant
marketing, manufacturing, financial and managerial resources, and have
substantially greater research and development capabilities than we do. We
expect that manufacturers of conventional blood testing products used in
centralized laboratories will compete intensely with us to maintain their
market share. Commercial and hospital laboratories may try to influence
providers against the Careside system to protect their revenue. Other point-of-
care companies have already sold their product in the marketplace. We
anticipate competition from these manufacturers in discrete tests using areas
such as critical care testing. Many of these companies offer tests that will
cost less than the Careside system and so may be attractive to some of our
customers. See "Business--Competition" on page 39.
Our Proprietary Technology is a Crucial Part of Our Business
The success of our business will depend on our ability to protect our
proprietary technology. Our business may fail if we are not able to do so.
We Do Not Have Any Patents on Our Proprietary Technology
We have two U.S. patent applications which have been allowed and are expected
to be issued as U.S. patents. We have submitted five additional U.S. and two
international patent applications, and one joint patent application with a
strategic contract partner. We intend to file additional U.S. and international
patent applications. We cannot be certain that any patent application will
result in the issuance of a patent or that our patents will withstand any
challenges by third parties.
10
<PAGE>
Our Technology May Infringe on the Proprietary Rights of Third Parties
Universities and government laboratories, physicians and other corporations
are conducting substantial research in point-of-care diagnostic blood testing
technology. Given the nature of our industry, it is possible that patent
applications have been filed by others, and patents may be issued to them,
relating to specific diagnostic products and processes. Patent applications in
the U.S. are secret until the patent is issued. We cannot know whether
competing applications have been filed. A prior conflicting patent application
would detract from the value of our patents. In addition, if we use
technologies, products or processes covered by patent applications filed by
others, or by patents issued to others, we may have to obtain licenses. We may
not be able to obtain such licenses on reasonable terms, or at all.
We May Be Unable to Build Brand Loyalty Because Our Trademarks and Trade Names
May Not Be Protected
Our registered or unregistered trademarks or trade names may be challenged,
canceled, infringed, circumvented or declared generic or determined to be
infringing on other marks. We may not be able to protect our rights to these
trademarks and trade names, which we need to build brand loyalty. Brand
recognition is critical to our short term and long term marketing strategies,
especially as we commercialize future enhancements to our products. See
"Business--Patents and Proprietary Rights" on page 39.
Our Trade Secrets May Be Disclosed
We also rely on unpatented trade secrets to protect our proprietary
technology. We attempt to protect our proprietary technology through an
employee handbook and agreements with our executive officers. Our employees
have not signed confidentiality agreements. The confidentiality provisions in
the handbook and executives' agreements may not be enforceable under applicable
law. Other companies may independently develop or otherwise acquire equivalent
technology or gain access to our proprietary technology.
Our Proprietary Rights May Fail to Protect Our Business
We may have to resort to litigation to protect or defend our rights. This
could result in substantial costs and the diversion of management's attention.
If we lost any such litigation, we could lose our competitive position, be
required to obtain licenses from third parties or be prevented from
manufacturing, selling or using certain of our products.
We Do Not Own all Necessary Intellectual Property
Some of the intellectual property we use in developing our test cartridges is
owned by others, such as Fuji Photo Film Co., Ltd., and licensed on a non-
exclusive basis to us. We believe alternative technology does exist. However,
if our access to our current technology terminated, our development efforts
could be delayed until we achieved access to the alternative technology. In
that circumstance, we cannot be sure that we would be able to achieve access to
alternative sources of technology. If alternative technology is unavailable, we
would have to change our testing methodologies. This would cause substantial
delay and cost in development of our product.
Extensive Government Regulation May Increase Our Expenses and Cause Delays in
our Product Commercialization
Our products are medical devices subject to extensive regulation by the FDA,
similar agencies in other countries, and to a lesser extent, by state
regulatory authorities. See "Business -- Government Regulation" page 40. In
addition to our need to obtain a point-of-care use designation, the following
are the greatest regulatory risks we face:
We Need Additional FDA Pre-Market Clearances to Successfully Commercialize Our
Products
FDA regulations require rigorous laboratory and clinical testing to establish
product performance before commercial marketing. Medical devices such as the
CareSide Analyzer are subject to pre-market clearance. Clearance is subject to
further review, such as when products are modified. We cannot be certain that
we will
11
<PAGE>
be able to obtain all necessary approvals on a timely basis, or at all.
Moreover, it is possible that one or more of our products will be subjected to
more extensive pre-market clinical testing and FDA pre-market approval.
We May Incur Substantial Expenses to Comply With GMP and Other Manufacturing
Regulations
Our manufacturing facilities and processes will be required to comply with
strict federal regulations, including Good Manufacturing Practices, or GMP, and
quality system requirements, regarding validation and quality of manufacturing.
We have limited experience in complying with regulations governing our products
and manufacturing facilities. We must devote substantial resources and
management attention to monitoring and maintaining compliance with governmental
regulations. If we, or our manufacturing partners, violate applicable
regulations, we may be sanctioned and our production or distribution may be
suspended. In addition, the FDA may withdraw the approval or clearance to
market any of our products.
Year 2000 Problems Could Interrupt Our Supply
Our receipt of key component products used in the Careside system may be
delayed if our suppliers' software systems are not able to read and apply
proper dates. We expect to have contingency plans in place in the event any of
our key suppliers are not Year 2000 compliant by the second half of 1999.
However, our contingency plans may not provide the same product or timing as
our current suppliers.
Significant Number of Shares Eligible for Future Sale Could Lower Market Price
Sales of large numbers of common stock after the offering, or even the
potential for those sales, are likely to lower the market price of common
stock. In addition, these sales may negatively affect our ability to raise
needed capital through the sale of our common stock. After the offering, we
will have 7,584,340 shares of common stock outstanding. In addition to the
2,500,000 shares that will be freely tradable after the offering, and the
2,500,000 additional shares that may be issued if the warrants sold in the
offering are exercised, 8,202,802 currently outstanding or reserved shares may
be sold in the future subject to compliance with the Securities Act.
<TABLE>
<CAPTION>
Number of Shares Description
<S> <C>
5,084,340 Common stock currently outstanding
411,588 Issuable upon exercise of currently outstanding options
772,620 Issuable upon exercise of options that may be granted in the future
150,000 Issuable pursuant to employee stock purchase plan
960,146 Issuable upon exercise of warrants outstanding upon completing the offering
324,108 Issuable upon conversion of Series A Convertible Preferred Stock and
exercise of warrants received on conversion beginning six months after
the effective date of the offering
500,000 Issuable upon exercise of the representatives' warrants for units beginning one
year after the effective date of the offering, and upon exercise of warrants
included in those units
---------
8,202,802
=========
</TABLE>
All of our directors, officers and principal stockholders are subject to
lock-up agreements. The parties to the lock-up agreements, other than S. R.
One, Limited, are not permitted to sell their shares until one year after the
offering without the prior written consent of Paulson Investment Company, Inc.
and Millennium Financial Group, Inc. S. R. One is subject to a six month lock-
up period. When a lock-up period expires, all of the shares previously subject
to the lock-up will become tradable. Given that over 95% of our currently
outstanding shares are subject to a lock-up, the expiration of the applicable
lock-up period could have a depressive effect on the market price of our common
stock. See "Shares Eligible for Future Sale" on page 63.
12
<PAGE>
Control of Careside By Our Management and Principal Stockholders Could Conflict
With Other Shareholders' Interests
The interests of our directors and executive officers, and our principal
stockholders could conflict with the interests of other Careside stockholders,
including the purchasers in the offering. Following completion of the offering,
our directors and executive officers, together with the principal stockholders
of Careside, will own or control approximately 26.19% of our outstanding common
stock. Accordingly, these stockholders may be able to influence the outcome of
stockholder votes, including votes concerning the election of directors,
certain amendments to our charter and bylaws, and the approval of significant
corporate transactions such as a merger or a sale of our assets. This influence
could have the effect of delaying, deferring or preventing a change in control
of Careside. See "Principal Stockholders" on page 52.
Future Issuances of Preferred Stock May Dilute Rights of Common Stockholders
Our Board of Directors will have the authority to issue up to shares of
preferred stock [5,000,000 less the number of shares of Series A Convertible
Preferred Stock outstanding upon the consummation of the offering] and to
determine the price, privileges and other terms of such shares. The Board may
exercise this authority without the approval of the stockholders. The rights of
the holders of common stock may be adversely affected by the rights of the
holders of any preferred stock that may be issued in the future. The issuance
of preferred stock may make it more difficult for a third party to acquire
control of Careside. See "Description of Capital Stock--Undesignated Preferred
Stock" on page 57.
Statute, Charter and By-laws May Delay or Prevent an Acquisition of Careside
We will be subject to the anti-takeover provisions of Section 203 of the
Delaware General Corporation Law. Section 203 could delay or prevent a third
party or a significant stockholder from acquiring control of Careside. In
addition, our charter and by-laws may have the effect of discouraging, delaying
or preventing a merger, tender offer or proxy contest involving Careside. Any
of these anti-takeover provisions could lower the market price of the common
stock. See "Description of Capital Stock--Takeover Protection and Certain
Charter and By-Law Provisions" on page 61.
Our Units, Common Stock and Warrants May Trade Below the Unit Offering Price
Our units, shares of common stock and warrants may trade at prices
significantly below the initial public offering unit price. The initial public
offering unit price may bear no relationship to the future market price of our
units, common stock or warrants. The market prices may be highly volatile
depending on many factors, including:
. the success of our new products or new products introduced by our
competitors,
. developments with respect to our patents and other proprietary rights,
. our ability to meet sales and earnings expectations of securities
analysts, and
. changes in general market conditions.
Your Warrants Can Be Redeemed on Short Notice
We could redeem your warrants for $0.05 per warrant on 30 days' prior written
notice, provided that the closing price of our common stock has been at least
$ [200% of the initial offering price per unit] for the ten consecutive
trading days immediately preceding the date of notice of redemption. If we give
notice of redemption, a holder would be forced to sell or exercise the warrants
or accept the redemption price. No redemption can occur until six months after
the date of this prospectus.
You Will Be Unable to Exercise Your Warrants in the Absence of an Effective
Registration Statement
We will be able to issue shares of our common stock upon exercise of your
warrants only if there is a then current prospectus relating to the common
stock under an effective registration statement filed with the
13
<PAGE>
Securities and Exchange Commission, and only if such common stock is qualified
for sale or exempt from qualification under applicable state securities laws.
Although we have agreed to use our best efforts to meet these requirements, we
cannot assure investors that we will be able to do so. The warrants may be
deprived of any value and the market for the warrants may be limited if we do
not meet these requirements.
Purchasers in the Offering Will Face Immediate and Substantial Dilution
The initial public offering unit price is substantially higher than the net
tangible book value per share of common stock. If 2,500,000 units are sold in
the offering at $7.50 per unit, our net tangible book value per share will be
$2.37, $5.13 below the $7.50 offering price. The net tangible book value after
the offering will thus be 68% below the $7.50 offering price. Sales of
additional common stock in the future may reduce net tangible book value per
share, resulting in further dilution to purchasers of units sold in the
offering. See "Dilution" on page 17.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained in this prospectus discuss future events and
developments, including our ability to generate revenue, income and cash flows,
or state other "forward-looking" information. We generally identify these
forward-looking statements by using the words "anticipate," "believe,"
"estimate," "expect," and similar expressions. Those statements are subject to
known and unknown risks, uncertainties and other factors that could cause the
actual results to differ materially from those contemplated by the statements.
Important factors that may cause actual results to differ include those set
forth under "Risk Factors" beginning on page 7.
We do not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements.
14
<PAGE>
USE OF PROCEEDS
We estimate that we will receive net proceeds from the sale of units in the
offering of approximately $15,838,000 after the deduction of underwriting
discounts and commissions and expenses payable by us. This assumes an initial
public offering price of $7.50 per unit. We estimate net proceeds of
$18,453,000 if the underwriters' over-allotment option is exercised in full. We
expect to use the proceeds as follows:
<TABLE>
<CAPTION>
Approximate
Amount of
Net Approximate
Proceeds Percentage
(in of Net
millions) Proceeds
----------- -----------
<S> <C> <C>
Complete product development and launch and related
expenses ............................................ $13.2 83.5%
Purchase manufacturing equipment and expand our
facilities........................................... $ 1.1 7.0%
Build inventory and provide working capital........... $ 1.5 9.5%
----- -----
Total............................................... $15.8 100.0%
</TABLE>
If warrants included in units are exercised, the total proceeds to us will be
$30,937,500 ($35,156,250 if the over-allotment option is exercised in full).
This assumes an initial public offering price of $7.50 per unit. We would
expect to use the proceeds of warrant exercises for product development and
launch and related expenses, to purchase manufacturing equipment and expand our
facilities and to build inventory and provide working capital, all in
approximately the same relative percentages as set forth above. In addition, we
would use proceeds of warrant exercises to repay debt.
Pending use of the net proceeds, we intend to invest such funds in short-term
bank deposits and investment grade securities, United States government
securities, and other short-term, income-producing securities.
The foregoing discussion is merely an estimate based on our current business
plans. Our actual expenditures may vary depending upon circumstances not yet
known, such as the time actually required to reach a positive cash flow, or to
successfully develop our products. In addition, we expect to either repay the
$2 million of our bridge financing which matures in December 1999 with proceeds
of warrant exercises or of a new loan or to negotiate to convert it into
preferred or common equity. To the extent that warrant exercise proceeds, the
new loan or conversion is not available, we may use a portion of the net
proceeds of the offering for repayment which would reduce application of the
net proceeds to purchase equipment, build inventory and provide working capital
and, if necessary, to conduct research and development. If a portion of the net
proceeds were used to repay the bridge financing, we might need additional
financing for equipment.
DIVIDEND POLICY
We have never paid any cash dividends on our shares of common stock and do
not anticipate paying any cash dividends on our shares of common stock in the
foreseeable future. Currently, we intend to retain any future earnings for
reinvestment in our business. Any future determination to pay cash dividends
will be at the discretion of our Board of Directors and will be dependent upon
our financial condition, results of operations, capital requirements and other
factors our Board of Directors deems relevant.
15
<PAGE>
CAPITALIZATION
The following table sets forth as of March 31, 1999 for Careside:
. the actual capitalization,
. the pro forma capitalization which reflects the conversion of
$1,000,000 borrowed under the bridge financing, together with accrued
interest on the $1,000,000, into shares of Series A Convertible
Preferred Stock upon consummation of the offering, and
. the pro forma as adjusted capitalization which shows the effect of the
sale of 2,500,000 units in the offering at an assumed initial public
offering price of $7.50 per unit and the use of the estimated net
proceeds of the offering.
This table should be read in conjunction with our Financial Statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
March 31, 1999
----------------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------------ ------------ ------------
<S> <C> <C> <C>
Current portion of long-term debt:
Equipment loan due finance
company........................... $ 193,671 $ 193,671 $ 193,671
Note payable under bridge
financing(1)...................... 3,000,000 2,000,000 2,000,000
------------ ------------ ------------
Total current portion of long-
term debt....................... 3,193,671 2,193,671 2,193,671
============ ============ ============
Long-term debt:
Equipment loan due finance
company........................... 803,092 803,092 803,092
------------ ------------ ------------
Stockholders' equity:
Preferred Stock, $.01 par value --
5,000,000 shares authorized; none
issued and outstanding (actual);
160,095 shares Series A
Convertible Preferred Stock issued
and outstanding (pro forma and pro
forma as adjusted)................ -- 1,020,603 1,020,603
Common Stock, $.01 par value --
50,000,000 shares authorized;
5,084,340 shares issued and
outstanding (actual and pro forma)
and 7,584,340 shares issued and
outstanding (pro forma as
adjusted) (2)..................... 50,843 50,843 75,843
Additional paid-in capital......... 21,003,545 21,003,545 37,146,159
Deficit accumulated during
development stage................. (19,910,920) (19,910,920) (20,241,034)
------------ ------------ ------------
Total stockholders' equity....... 1,143,468 2,164,071 18,001,571
------------ ------------ ------------
Total capitalization............. $ 1,946,560 $ 2,967,163 $ 18,804,663
============ ============ ============
</TABLE>
- --------
(1) For a discussion of the note payable, see the description of the 1998
bridge financing under "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" on
page 20 and "Certain Transactions--Financing Activities" on page 54.
(2) Excludes 1,871,734 shares of common stock issuable upon exercise of options
and warrants which will be outstanding upon completion of the offering.
Also excludes an aggregate of 324,108 shares of common stock issuable upon
conversion of the Series A Convertible Preferred Stock and exercise of
warrants received on conversion. The Series A Convertible Preferred Stock
will be outstanding upon completion of the offering and convertible after
six months.
16
<PAGE>
DILUTION
As of March 31, 1999, our pro forma net tangible book value was $2,164,071,
or $0.43 per share of common stock. Pro forma net tangible book value per share
represents our total tangible assets less total liabilities after giving pro
forma effect to the conversion of $1,000,000 borrowed under the bridge
financiang into shares of Series A Convertible Preferred Stock, divided by the
total number of shares of common stock outstanding. Without taking into effect
any changes in the net tangible book value after March 31, 1999, other than to
give effect to the sale of 2,500,000 units in the offering at an assumed
initial public offering price of $7.50 per unit and the application of the
estimated net proceeds of the offering, the net tangible book value of Careside
as of March 31, 1999 would have been $18,001,571 or $2.37 per share. This
represents an immediate increase of $1.94 per share of common stock to existing
stockholders and an immediate dilution of $5.13 per share of common stock to
the new stockholders who purchase units in the offering. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................... $7.50
Pro forma net tangible book value per share before the
offering....................................................... 0.43
Increase in net tangible book value per share attributable to
new stockholders............................................... 1.94
----
As adjusted net tangible book value per share after the
offering....................................................... 2.37
-----
Dilution in tangible book value per share to new stockholders... $5.13
=====
</TABLE>
If the underwriters' over-allotment option is exercised in full, dilution per
share to new stockholders would be $4.91 per share of common stock.
The following table summarizes as of March 31, 1999 the differences between
the existing stockholders and the new stockholders with respect to the number
of shares of common stock included in units purchased, the total consideration
paid, and the average price per share paid:
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
----------------- ------------------- Average
Number Percent Amount Percent Price Per Share
--------- ------- ----------- ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders..... 5,084,340 67.0% $23,318,075 55.4% $4.59
New stockholders.......... 2,500,000 33.0 18,750,000 44.6 $7.50
--------- ----- ----------- -----
Total................... 7,584,340 100.0% $42,068,075 100.0%
========= ===== =========== =====
</TABLE>
The above computations assume no exercise of outstanding options or warrants
to purchase common stock, the underwriters' over-allotment option, the warrants
included in units sold in the offering or the representatives' warrants. All of
these outstanding securities are described in "Description of Capital Stock" on
page 56. To the extent that these options and warrants are exercised, there
will be further dilution to new investors.
17
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of Careside and the predecessor
business should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on page 19 and the
Financial Statements and notes thereto beginning on page F-7. The financial
data presented for the predecessor business at SmithKline Beecham Clinical
Laboratories, Inc. represents the research and development and related general
and administrative costs incurred by SmithKline Beecham Corporation in
connection with the development of technology and know-how acquired by Careside
on November 7, 1996. The selected financial data for Careside as of December
31, 1996 and the predecessor business as of December 31, 1995 and for the year
then ended are derived from the audited financial statements not included in
this prospectus. The selected financial data for Careside as of March 31, 1999
and for the three months ended March 31, 1998 and 1999 and for the period from
inception (July 10, 1996) to March 31, 1999 and for the predecessor business as
of December 31, 1994 and for the year then ended are unaudited, but, in our
opinion, include all adjustments necessary for a fair presentation of such
financial data.
<TABLE>
<CAPTION>
Predecessor Business
-----------------------------------
Year ended Ten months
December 31, ended
---------------------- October 31,
1994 1995 1996
--------- ----------- -----------
<S> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses
Research and
development.... $ 949,346 $ 2,109,802 $ 3,054,503
General and
administration.. 26,069 585,058 224,399
--------- ----------- -----------
Operating loss.. $(975,415) $(2,694,860) $(3,278,902)
========= =========== ===========
Net interest
income
(expense).......
Net loss.........
Net loss per
share...........
Shares used in
computing net
loss per share..
<CAPTION>
Careside, Inc.
-------------------------------------------------------------------------------
Period from Period from
Inception Inception
(July 10, Year ended Three months (July 10,
1996) to December 31, ended March 31, 1996) to
December 31, ------------------------- ------------------------- March 31,
1996 1997 1998 1998 1999 1999
------------- ------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Statement of
Operations Data:
Operating
expenses
Research and
development.... $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 1,541,119 $ 2,076,046 $ 17,831,332
General and
administration.. 55,515 640,574 850,129 196,595 569,907 2,116,125
------------- ------------ ------------ ------------ ------------ -------------
Operating loss.. (1,617,362) (6,536,039) (9,148,103) (1,737,714) (2,645,953) (19,947,457)
Net interest
income
(expense)....... (20,809) 205,256 211,814 17,857 (359,724) 36,537
------------- ------------ ------------ ------------ ------------ -------------
Net loss......... $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(19,910,920)
============= ============ ============ ============ ============ =============
Net loss per
share........... $ (2.25) $ (2.04) $ (1.93) $ (0.49) $ (0.59)
============= ============ ============ ============ ============
Shares used in
computing net
loss per share.. 728,465 3,098,980 4,629,916 3,521,808 5,084,340
============= ============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
Predecessor
Business(1) Careside, Inc.
---------------------- --------------------------------------------------
December 31, December 31,
---------------------- ------------------------------------ March 31,
1994 1995 1996 1997 1998 1999
--------- ----------- ---------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents ........... $ -- $ -- $ 31,041 $1,237,149 $ 3,926,603 $ 2,051,786
Total assets............ 43,780 306,589 1,192,562 3,140,223 7,911,403 7,248,753
Long-term debt.......... -- -- -- -- 2,044,932 803,092
Deficit accumulated
during the development
stage.................. (975,415) (3,670,275) (1,638,171) (7,968,954) (16,905,243) (19,910,920)
Total stockholders'
equity (deficit)....... -- -- (1,066,818) 2,437,607 4,149,145 1,143,468
</TABLE>
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Development of the point-of-care technology used in the Careside system began
in 1994 at SmithKline Beecham Clinical Laboratories, Inc., a subsidiary of
SmithKline Beecham Corporation. In November 1996, we acquired the predecessor
business, including intellectual property, equipment and other assets, from
SmithKline, to continue the development of point-of-care diagnostic technology
and to create a commercial product. As part of the consideration paid for the
acquisition, SmithKline Beecham Corporation became an equity owner in Careside.
The initial development of our point-of-care technology at SmithKline has been
reflected in the accompanying financial statements as a predecessor business.
Since November 1996, we have devoted substantially all of our resources to
research and development activities. We have incurred losses since inception.
As of December 31, 1998, the aggregate loss incurred was approximately $16.9
million. We expect to incur significant additional losses over at least the
next 18 months as we continue product development activities, complete a pilot
marketing program and initiate marketing efforts.
Although the CareSide Analyzer and 31 tests are cleared or exempt by the FDA
for use in professional laboratory testing, our commercial product launch is
not expected to take place until the fourth quarter of 1999. To date, we have
generated no revenue. We expect that our revenue will derive primarily from the
sale of disposable test cartridges rather than of the CareSide Analyzer itself.
Results of Operations
Three Months Ended March 31, 1999 and 1998
Research and Development Expenses. Research and development expenses
increased to approximately $2.1 million for the three months ended March 31,
1999 compared to approximately $1.5 million in the same period in 1998, an
increase of 35%. This increase reflects the expanded efforts to complete
production of the CareSide Analyzer and to support additional test submissions
to the FDA.
General and Administrative Expenses. General and administrative expenses
increased to $570,000 for the three months ended March 31, 1999 compared to
$197,000 in the same period in 1998. This increase reflects the increase in the
preliminary sales and marketing efforts associated with planned pilot market
testing in 1999.
Net Interest Income (Expense). Interest income was approximately the same
for the three months ended March 31, 1999 as compared to the same period in
1998 at $42,000 and $18,000, respectively. This reflects comparable levels of
cash and cash equivalents available for investment. Interest expense was
$402,000 for the three months ended March 31, 1999 which reflects interest paid
on the line-of-credit to purchase equipment initiated in late 1998, accrued
interest on the S.R. One bridge loan, and the non-cash interest charge
associated with the cost of warrants granted to S.R. One in connection with the
bridge loan facility.
Net Loss. The net loss increased to approximately $3.0 million for the three
months ended March 31, 1999 compared to $1.7 million in the same period in
1998. This increase reflects the increase in research and development expenses
and interest expense on the line-of-credit to purchase equipment and the S.R.
One bridge loan.
Years Ended December 31, 1998 and 1997
Research and Development Expenses. Research and development expenses
increased to approximately $8.3 million for the year ended December 31, 1998
compared to approximately $5.9 million in the same period in 1997, an increase
of 41%. This increase reflects increased payments to third parties for the
development of the CareSide Analyzer and increased staffing for additional test
development and submissions to the FDA.
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General and Administrative Expenses. General and administrative expenses
increased to $850,000 for the year ended December 31, 1998 compared to $641,000
in the same period in 1997, an increase of 33%. This increase reflects the
increase in the preliminary sales and marketing efforts associated with planned
pilot market testing in the second quarter of 1999.
Net Interest Income (Expense). Interest income was approximately the same
for the year ended December 31, 1998 as compared to the same period in 1997 at
$212,000 and $205,000, respectively. This reflects comparable levels of cash
and cash equivalents available for investment.
Net Loss. The net loss was approximately $8.9 million for the year ended
December 31, 1998 compared to approximately $6.3 million in the same period in
1997, an increase of 41%. This increase reflects the increase in research and
development expenses and preliminary sales and marketing efforts.
Years Ended December 31, 1997 and 1996
Research and Development Expenses. Research and development expenses
increased to approximately $5.9 million for the year ended December 31, 1997
compared to approximately $1.6 million for the period from inception through
December 31, 1996. This increase reflects a full year of spending as well as
the expanded efforts devoted to completing additional test development and
submissions of these tests to the FDA. Combined research and development
expenses for the year ended December 31, 1996 for both Careside and the
predecessor business were approximately $4.6 million.
General and Administrative Expenses. General and administrative expenses
increased to $641,000 for the year ended December 31, 1997 compared to $56,000
for the period from inception through December 31, 1996. This increase reflects
the full year impact of general and administrative expenses and the costs
associated with raising additional capital. Combined general and administrative
expenses for the year ended December 31, 1996 for both Careside and the
predecessor business were $280,000.
Net Interest Income (Expense). Net interest income was $205,000 for the year
ended December 31, 1997 compared to net interest expense of $21,000 for the
period from inception through December 31, 1996. This increase reflects the
impact of the resulting cash and cash equivalents available for investment
after an equity financing in 1997.
Net Loss. The net loss was approximately $6.3 million for the year ended
December 31, 1997 compared to approximately $1.6 million for the period from
inception through December 31, 1996. This increase reflects the increase in
research and development expenses, a full year of activity and preliminary
sales and marketing efforts.
Liquidity and Capital Resources
We have financed our operations since inception primarily through the net
proceeds generated from the issuance of common stock, long-term debt and
certain short-term borrowings that were subsequently converted into equity
securities. As of March 31, 1999, we have received net proceeds aggregating
approximately $24.0 million from these transactions.
Net cash used in operating activities was approximately $1.7 million for the
three months ended March 31, 1999 compared to approximately $1.4 million in the
same period in 1998. For the three months ended March 31, 1999, cash used in
operating activities represents the net loss for the period offset by an
increase in accounts payable and the non-cash amortization of imputed interest
in the S.R. One bridge loan. Net cash used in operating activities was
approximately $7.7 million for the year ended December 31, 1998. This
represents the net loss for the year partially offset by an increase in
accounts payable to the manufacturer of the CareSide Analyzer. Net cash used in
operating activities was approximately $6.5 million for the year ended December
31, 1997 and $0.9 million for the period from inception through December 31,
1996. Cash used for operations was primarily related to funding expansion of
research and development activities as well as the establishment of an
administrative infrastructure.
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Cash used in investing activities for the purchase of property and equipment
was approximately $1.2 million and $300,000 for the three months ended March
31, 1999 and 1998, respectively, $2.0 million and $0.9 million for the years
ended December 31, 1998 and 1997, respectively, and $345,000 for the period
from inception through December 31, 1996. The cash was used primarily for the
acquisition of laboratory equipment used in research and development.
At March 31, 1999, our principal source of liquidity was approximately $2.1
million in cash and cash equivalents.
In December 1998, we entered into an agreement with an equipment lease
financing company regarding a $2.5 million facility secured by specific
equipment. Each draw will be a separate loan under the facility. Approximately
$1.0 million of this facility was drawn in December 1998 and was secured by our
existing equipment. We anticipate drawing the remaining amount by the end of
1999 which will be secured by manufacturing equipment for cartridge assembly
which we purchase with the loan proceeds. Each equipment loan will have a 48-
month term and bears an interest rate of approximately 14% per annum adjusted
for an index rate based on four-year U.S. Treasury Notes at the time of
borrowing.
In addition, we entered into an agreement for the bridge financing with S.R.
One, Limited of which $1.5 million was funded in December 1998 and $1.5 million
was funded in January 1999. In April 1999, S.R. One, Limited agreed to convert
$1 million of the $3 million loan, together with accrued interest at the rate
of 8% on $1 million, upon consummation of the offering, into shares of Series A
Convertible Preferred Stock. The conversion price will be 85% of the initial
public offering price per unit. This means that the number of shares of our
Series A Convertible Preferred Stock issued to S.R. One upon this conversion
will depend upon when the offering is completed and the initial public offering
price per unit. If the initial public offering price per unit is $7.50 and the
offering closes on May 31, 1999, S.R. One will receive 162,054 shares of Series
A Convertible Preferred Stock. Each share of Series A Convertible Preferred
Stock will in turn be convertible, at the option of the holder, six months
after the offering is completed, into one share of our common stock and one
warrant to purchase an additional share of our common stock. All accrued and
unpaid dividends with respect to shares of Series A Convertible Preferred Stock
that are converted by S.R. One will also be converted into units at the initial
public offering price per unit. The exercise price and other terms of the
warrant received on the conversion will be the same as the warrants included in
units sold in the offering. The remaining $2 million of the loan matures in
December 1999. At that time, we expect either to repay the $2 million balance
on the bridge financing with the proceeds of a new loan or to negotiate to
convert the balance of it into preferred or common equity. The annual interest
rate on the remaining $2 million will increase to 10% on July 1, 1999. If the
remainder of the bridge loan is not repaid by December 1, 1999, S. R. One will
have the option to convert all or any portion of the remaining loan, plus
accrued interest thereon, into shares of Series A Convertible Preferred Stock.
The Series A Convertible Preferred Stock will be issued to S.R. One on the same
basis as the Series A Convertible Preferred Stock that is issued to S. R. One
as part of the $1 million conversion at the completion of the offering.
We issued a bridge warrant to S.R. One, Limited in connection with the bridge
financing. The bridge warrant was exercisable for the number of shares of
common stock equal to $750,000 divided by 85% of the initial public offering
price of the common stock in an initial public offering. The number of warrants
doubled if the loan was not repaid by June 30, 1999. As part of the conversion
of a portion of the bridge financing into shares of Series A Convertible
Preferred Stock, the bridge warrant will be modified such that it will be
exercisable in all events for the number of shares of common stock which is
equal to $1,500,000 divided by 85% of the initial public offering price per
unit in the offering. If the offering price is $7.50 per unit, the bridge
warrant will be exercisable for 235,294 shares of common stock. The bridge
warrant has an exercise price of 85% of the initial public offering price per
unit. The bridge warrant will become exercisable on the earlier of December 17,
1999 or six months after the completion of the offering. The bridge warrant
will expire on the earlier of December 17, 2005 or four years after completion
of the offering.
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We estimate that our current liquidity, when combined with the proceeds of
this offering, sales revenue expected after 1999 and equipment lease financing
proceeds (under our current equipment lease facility already in place), will be
sufficient to fund our operating expenses and capital requirements for at least
12 months. Our operating expenses will increase as we approach the market
launch of our product in the fourth quarter of 1999. To the extent that we need
additional funds in connection with our commercial product launch, we expect to
borrow funds to complete our automated cartridge assembly line and build
sufficient cartridge inventory for launch and subsequent sales. We also expect
that the development of additional tests will require research expenditures at
a level comparable to past spending for test development. Sales and marketing
activities will require hiring and training approximately 15 additional staff
in 1999. Initiation of manufacturing activities will require hiring
approximately 20 staff and capital expenditures to purchase the equipment
needed for the automated cartridge assembly line. This estimate of the period
for which we expect our available sources of cash to be sufficient to meet our
funding needs is a forward looking statement that involves risks and
uncertainties. There can be no assurance that we will be able to meet our
capital requirements for this period as a result of certain factors set forth
under "Risk Factors--Additional Funding May Not Be Available" and elsewhere in
this prospectus. In the event our capital requirements are greater than
estimated, we may need to raise additional capital to fund our research and
development activities, to scale-up manufacturing activities and to expand our
sales and marketing efforts. Our future liquidity and capital funding
requirements will depend on numerous factors, including the extent to which our
products under development are successfully developed and gain market
acceptance, the timing of regulatory actions regarding our products, the costs
and timing of expansions of sales, marketing and manufacturing activities,
procurement and enforcement of patents important to our business, and the
impact of competitors' products. There can be no assurance that such additional
capital will be available on terms acceptable to us, if at all. Furthermore,
any additional equity financing may be dilutive to stockholders, and debt
financing, if available, may include restrictive covenants. If adequate funds
are not available, we may be forced to curtail our operations significantly or
to obtain funds through entering into collaborative agreements or other
arrangements on unfavorable terms. Our failure to raise capital on acceptable
terms could have a material adverse effect on our business, financial condition
or results of operations.
Income Taxes
As of December 31, 1998, we had approximately $2,148,000 and $225,000 of net
operating loss and research and development credit carryforwards, respectively,
for federal income tax purposes, which expire on various dates between 2011 and
2013. These amounts reflect different treatment of expenses for tax reporting
than are used for financial reporting. As of December 31, 1998, we had
capitalized approximately $12.9 million of research and development expenses
for federal income tax purposes. The Tax Reform Act of 1986 contains certain
provisions that may limit our ability to utilize net operating loss and tax
credit carryforwards in any given year. We experienced a change in ownership
interest in excess of 50% as defined under the Tax Reform Act upon the first
closing of our 1997 equity financing. We will have another change in ownership
as defined in the Tax Reform Act upon completion of the offering. We do not
believe that this change in ownership will impact our ability to utilize our
net operating loss and tax credit carryforwards. There can be no assurance that
ownership changes in future periods will not significantly limit our use of
existing or future net operating loss and tax credit carryforwards.
Year 2000 Compliance
We have identified our Year 2000 risks in three major categories: internal
business operations software; software utilized within the CareSide Analyzer;
and software used by our external suppliers and distributor. A review of our
non-information technology systems did not identify any material risks.
With respect to internal operations, most of our computers and software
programs have been recently acquired. We have relied on the efforts of computer
and software vendors to make their latest hardware and software releases Year
2000 compliant. As a result, no incremental material compliance cost is
expected to be
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incurred in this area. Our management has contacted vendors to confirm the
status of their software that we use. In addition, we have utilized Year 2000
test software to evaluate compliance.
With respect to the CareSide Analyzer, all development work has occurred
since the widespread recognition of the Year 2000 problem. We designed our
products and the software encoded in our system to be Year 2000 compliant. We
plan to issue software updates for the CareSide Analyzer on a routine basis to
add additional tests to the menu. If an unforeseen Year 2000 issue arises, we
could distribute compliant software to our customers at little or no
incremental cost as part of these routine updates. In the future, it will also
be necessary to link the CareSide Analyzer with customer systems. If these
systems are Year 2000 compliant, management's time addressing Year 2000 issues
on the CareSide Analyzer's interface with customer systems will be minimal. If
they are not, management's time may be more significant. As the specific
customers are not known at this time, it is not possible to measure the
opportunity cost.
Regarding our critical suppliers, the worst scenario that we might encounter
would be a short-term disruption of supply if a vendor were impacted by an
unforeseen Year 2000 failure. We inquire regularly regarding our suppliers'
Year 2000 compliance programs. To date, we believe that our suppliers either
are or will be Year 2000 compliant. We expect to establish appropriate
contingency plans by mid-1999 in the event certain key suppliers are not Year
2000 compliant. These contingency plans could include utilizing alternative
suppliers or building inventory of critical parts as appropriate. We do not
anticipate any incremental material costs if we are required to implement our
contingency plans.
We expect sales of our product to begin in the fourth quarter of 1999. This
may include sales pursuant to our distribution and supply agreement with SBCL.
Based on inquiries of SBCL, if the distribution of our product does commence
before the Year 2000, we do not believe that Year 2000 problems encountered by
SBCL would impact our ability to distribute our product. Distribution of our
products by other third parties is not anticipated before the year 2000.
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BUSINESS
General
We have developed and plan to sell a proprietary blood testing system. It is
designed to decentralize laboratory operations. The system provides cost-
effective, accurate test results within 10 to 15 minutes at the point-of-care,
for a comprehensive menu of routine blood tests. Because it provides rapid test
results, the Careside system can also perform blood tests required for critical
care testing. The Careside system performs chemistry, electrochemistry,
coagulation and immunochemistry tests within a single testing instrument. Tests
in these four different test categories, along with hematology tests, comprise
the vast majority of blood tests ordered. No other point-of-care product
currently in the market offers as broad a menu of tests or combines these four
test categories. Our goal is to make the Careside system the standard for
routine and critical care blood testing. If we are successful, diagnostic
information will travel more rapidly and healthcare costs for physicians,
providers and payers will be reduced.
The Careside system consists of the CareSide Analyzer and disposable test
cartridges. A separate, optional hematology testing device which has been
developed and is manufactured by a third party can be connected to the CareSide
Analyzer. We are currently developing the software that will allow data
interchange from the hematology testing device to the CareSide Analyzer. The
Careside system is easy to use and can be operated by a non-technical person
with appropriate training in connection with use of the device. Its software
will enable the user to capture all data required to comply with the Clinical
Laboratory Improvement Amendments of 1988. This law, commonly called CLIA,
governs quality assurance and quality control processes and reporting for
healthcare providers.
The FDA has granted pre-market clearance for the CareSide Analyzer and pre-
market clearance or exemption for 31 blood tests for professional laboratory
use. We recently filed three additional blood tests for clearance. Professional
laboratories include hospital, commercial and independent laboratories. As part
of our pilot marketing studies, we have arranged for clinical settings for
point-of-care and physician office laboratory validation studies to obtain FDA
designation of the Careside system for point-of-care and physician office
laboratory use by non-technical personnel with appropriate training. We have
developed protocols for these studies with guidance from the FDA. These
protocols will allow Careside to submit point-of-care validation studies for a
subset of tests for FDA point-of-care and physician office laboratory use
clearance rather than the full menu of individual tests. While the FDA has
reserved the right to request additional information on tests not included in
the protocol if it identifies issues in connection with the use of such tests
in a point-of-care setting, the FDA has informed us that if it approves the
subset of tests for point-of-care and physician office laboratory use, then the
full menu of 31 tests will be granted FDA clearance for point-of-care and
physician office laboratory use.
We intend to complete pilot site marketing studies by the end of the third
quarter of 1999. We expect the pilot studies to demonstrate how potential
customers will use the Careside system and its cost-effectiveness. At our
commercial product launch, planned for the fourth quarter of 1999, we expect to
have the CareSide Analyzer and over 50 tests, including nine hematology tests,
cleared or exempt for professional laboratory use. We expect to have all of our
tests cleared for point-of-care and physician office laboratory use as well by
the end of 1999. We believe that the Careside system's planned menu represents
over 80% of all blood tests ordered on an out-patient basis, including all of
the most commonly ordered out-patient blood tests. We plan to market and
distribute the Careside system in the United States through our own sales force
and through SBCL.
We have utilized strategic partners with specific design expertise and state-
of-the-art technology in order to develop the Careside system rapidly and on a
cost-effective basis. Many of our partners' expertise is in the area of test
reagents. Reagents are the materials within the test cartridges that react with
a patient's blood. The CareSide Analyzer then performs the test by analyzing
the reaction. Currently, we have agreements with:
. Fuji Photo Film Co., Ltd. for the supply of its dry film based chemistry
reagents,
. International Technidyne Corporation for the joint development of
coagulation reagents, and
. UMM Electronics, Inc. to design and manufacture the CareSide Analyzer.
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Currently, we are negotiating a long-term agreement with Diagnostic Reagents,
Inc. to supply reagents for the test cartridges. We previously contracted with
Hauser, Inc. for the design of the Careside system and with Battelle Memorial
Institute for the design of the system's disposable test cartridges and their
automated assembly manufacturing system.
In November 1996, we acquired the assets and contracts used in the
predecessor business, including intellectual property, equipment and other
assets, from SmithKline to continue the development of point-of-care diagnostic
technology and to create a commercial product. Several senior members of our
management team worked on this point-of-care project at SmithKline, including
our Chief Executive Officer and Executive Vice President--Research and
Development. We continue to have a business relationship with SmithKline
Beecham Clinical Laboratories, Inc. through a distribution and supply
agreement. This agreement gives SBCL distribution rights in the United States
and certain foreign countries, including the right to use the Careside system
in its commercial laboratory business.
The Laboratory Testing Market
According to 1997 industry data and estimates, the worldwide market for in
vitro testing was $18.3 billion in 1997 and was expected to grow to $20 billion
in 2000. In vitro testing is the testing of all bodily tissues and fluids,
including blood. Based on their experiences while at SmithKline, our senior
management believes that the Careside system's 50 test menu will address over
38% of this market. The rest of the market includes complex and specialized
tests not performed by the Careside system. The United States and Canadian
market for in vitro testing is approximately 40% of the worldwide market. We
will seek to convert a reasonable portion of the United States and Canadian
blood testing market to point-of-care testing and then expand into the
worldwide market.
Most routine blood tests are sent to a central location, either a commercial
or hospital laboratory, for processing. In these central laboratories, large
blood analyzers reduce individual test costs by producing high volumes of test
results. Commercial laboratories provide approximately 27% of all in vitro
diagnostic testing services, hospital laboratories provide approximately 63%,
and the balance is provided in physicians' offices.
Commercial laboratories are currently the low cost provider of blood testing
services due primarily to economies of scale in testing multiple samples in
large analyzers. Commercial laboratories' testing expenditures relate
predominantly to labor intensive functions such as distribution, customer
service, general administration, communication technology and preparation of
the blood sample. There are numerous steps involved in obtaining test results
from commercial laboratories. Blood samples are collected throughout the day
from a variety of sources including hospitals, physicians' offices, nursing
homes and home care agencies. The samples are transported to the laboratory,
usually with special care in packaging to preserve sample integrity. After the
samples arrive at the laboratory, several administrative tasks are necessary as
thousands of samples are processed daily. Each sample is split into tubes that
are then sorted for testing in multiple large analyzers. The high throughput
analyzers require the attention of highly skilled technicians to prepare
reagents, prime multiple pumps, calibrate, prepare and load blood samples,
conduct centrifuge operations, process measurement data and report results.
This complex process must be tightly controlled at each step to ensure both
administrative and analytical accuracy. Tests are generally run overnight and
results are sent back to the healthcare provider the following day. This
factory-like process limits the ability to provide test results in less than 24
hours. If results are required sooner, certain laboratory operations must be
interrupted, resulting in significantly increased costs.
The process in hospital laboratories is very similar. Blood samples are
typically collected in the early morning with tests performed late morning and
early afternoon. Results are generally returned within four to five hours.
However, in many instances, hospitals must respond to critical patient
conditions and conduct tests on an immediate basis in order to support the
healthcare provider when a patient's condition is life threatening. A hospital
must be able to process these critical care tests 24 hours a day. This requires
the hospital laboratory to remain open whether or not any tests are being
conducted. With insufficient testing volume to absorb laboratory operating
expenses and capital costs, tests performed in hospital laboratories are more
expensive.
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Many physicians' offices currently outsource their testing to commercial or
hospital laboratories. This practice is largely the result of the enactment of
the Clinical Laboratory Improvement Amendments in 1988. CLIA was an attempt to
ensure the quality and reliability of laboratory test results by placing more
stringent administrative and regulatory burdens on testing conducted in the
physician's office. Under CLIA, technicians conducting complex tests must meet
detailed proficiency requirements and must have established well-defined
quality assurance and quality control programs. As a result, for most
individual physicians, diagnostic testing became too burdensome and costly to
justify being done in the office.
Managed care has put substantial pressure on healthcare providers to reduce
costs and to treat patients using clinical treatment protocols that have been
developed for many chronic and acute illnesses. These protocols frequently
contain diagnostic tests that are used to help avoid the occurrence of acute
episodes of illness. Diagnostic blood and urine testing are two of the major
tools used in these protocols for early detection and ongoing evaluation of
treatment efficacy. Although these pressures should increase testing volume,
managed care providers and other payers are becoming more stringent by only
reimbursing tests for which there is a clear medical need. We expect these
pressures to continue to cause healthcare providers to order individual
diagnostic tests instead of "panels," or pre-determined groups, of tests
performed at one time. Managed care providers and payers will reimburse all
tests in a panel only if there is a clear medical need for each. As managed
care pressures mount to perform only medically necessary tests, reimbursement
rates for individual tests will decrease, requiring the healthcare provider and
the testing laboratory to be even more cost-effective. Therefore, we believe
that, because the Careside system performs single reagent testing and offers
packages of tests that are based on third-party payer approved panels, it will
be well received by managed care organizations and other payers.
The lack of timely test results from central laboratories has given rise to a
growing market for point-of-care tests. The initial products in the market have
targeted point-of-care tests for use in emergency rooms or critical care units.
While immediate test results benefit the patient and the healthcare provider,
current point-of-care testing devices have added costs to the system as the
hospitals must continue to operate a central laboratory using equipment that
conducts the same critical care tests as well as a much broader menu of tests
required for routine care. Furthermore, current point-of-care devices have not
attempted to provide customers with the quality assurance and quality control
data storage and retrieval capabilities necessary for CLIA requirements.
We believe that an easy-to-use diagnostic blood testing system offering a
broad menu of accurate point-of-care tests with built-in quality assurance and
quality control features can respond to the substantial unmet needs in the
diagnostic testing marketplace. We expect that the Careside system will be able
to perform all of the most commonly ordered out-patient blood tests.
Consequently, it will enable healthcare providers to decentralize laboratory
services to the point-of-care and outsource the less common tests as necessary.
Careside's Solution
We believe that the Careside system provides the platform for solving the
limitations of central blood testing laboratories and redefines the market for
point-of-care testing. In addition, we believe the features of the Careside
system will enable healthcare providers not currently conducting blood tests to
start providing this service. The following are the reasons why:
. Cost-Effective Results-- The Careside system is designed to provide test
results that are cost competitive with commercial laboratories, the
lowest cost alternative currently available in the market. This is true
even taking into consideration the initial purchase of the CareSide
Analyzer, laboratory set-up and training, and ongoing costs associated
with maintenance, cartridge and blood drawing supplies.
. Rapid Test Results--The Careside system furnishes test results within 10
to 15 minutes from the time blood is drawn from the patient. The Careside
system can test from one to six cartridges in this time period. By
comparison, 24 hours or more may elapse before a healthcare provider has
in hand the
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results of blood tests performed at commercial laboratories, and four to
five hours may elapse before results are in the provider's hands for a
blood test performed at a hospital laboratory.
. Comprehensive Test Menu--The Careside system will offer a broad menu of
the most commonly ordered blood tests, including critical care tests. The
Careside system performs chemistry, electrochemistry, coagulation and
immunochemistry tests, all within a single testing instrument. By the
time of product launch, over 50 tests, including nine hematology tests,
are expected to be available for professional laboratory use, which we
believe substantially exceeds the capabilities of any point-of-care
system currently on the market. The hematology tests will be available
through an optional separate hematology testing device, manufactured by a
third party, which can be electronically connected to the Careside
system.
. Ease of Use--The Careside system can be easily operated and maintained by
non-technical personnel with appropriate training in connection with use
of the device. The test process does not require separate centrifuging or
sample splitting, and automatically doses and mixes the patient's blood
sample with reagents within the cartridges.
. Industry Standard Technology--The Careside system uses many test methods
that are the same as those used in hospital and commercial laboratories.
The Careside system's technology is a miniaturization of the technology
in the largest testing devices utilized by centralized laboratories,
which is considered the best testing technology.
. Embedded Quality Assurance and Quality Control--The CareSide Analyzer has
operating software designed to assist in meeting the quality assurance
and quality control documentation requirements of the Clinical Laboratory
Improvement Amendments of 1988.
. Ability for Practice Enhancement--The Careside system's rapid test
results enable a provider to make clinical decisions more quickly, see
more patients, eliminate time spent reviewing records and making follow-
up calls, and improve patient satisfaction and quality of care.
Healthcare providers can also increase their revenue by performing and
billing for tests themselves.
Careside's Strategy
Our goal is to make point-of-care testing with the Careside system the
standard of care for routine and critical care blood testing. If we are
successful, diagnostic information will travel more rapidly and reduce
healthcare costs for physicians, providers and payers. The following are the
key elements of our strategy to achieve our objective:
Provide the Unique Point-of-Care Solution. Most point-of-care companies have
focused solely on the critical care testing market with a limited number of
tests. In contrast, we have developed the Careside system to replace large
analyzers and decentralize testing to the point-of-care. As an illustrative
analogy, we believe that centralized laboratory testing is like using a
mainframe computer, whereas point-of-care testing is like using a desktop
personal computer. Unlike the "mainframe computer-based" approach of large
hospital and commercial testing laboratories, the Careside system creates a
"personal computer-based" solution for blood testing. We believe this will
enable hospitals and other healthcare provider-sponsored laboratories to
substantially reduce their reliance on centralized testing services. Instead,
they could use decentralized point-of-care technology on a cost-effective basis
with test results available in 10 to 15 minutes.
More complex tests that are not supportable by our decentralized testing
system, such as microbiology, genetic and other less common tests, could then
be referred outside the hospital to commercial laboratories or to a core
laboratory supporting multiple hospitals. Centralized laboratories that
continue to provide such complex testing would be able to streamline
procedures. We expect that this would lower the cost of complex testing. With
lower costs of centralized testing and the Careside system for decentralized
testing, we expect that the entire testing process will become more efficient
and cost effective. After the Careside system's launch, we intend to continue
to build its test menu so as to have the broadest test menu of any point-of-
care system on the
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market. Its unique menu will combine the four different test categories of
chemistry, electrochemistry, coagulation and immunochemistry into a single
testing instrument.
Satisfy Healthcare System Needs. The Careside system is designed to meet the
various needs of each of our targeted customer markets. Important factors for
hospitals will include quality of test result, ease of use, impact on
personnel, benefits to patients and whether it provides a better cost
alternative than the central hospital laboratory. For physician group
practices, the Careside system will offer improvements in daily office routine,
greater convenience, enhanced patient satisfaction, and new revenue
opportunities. For the nursing home and home care markets, which traditionally
outsource testing services, the Careside system will offer improved turnaround
time on test results, individualized testing, cost savings or revenue
opportunities, and improved patient services. We believe that the Careside
system will enable each of these types of healthcare providers to replace their
centralized testing services with decentralized point-of-care technology on a
cost-effective basis. In pursuing this strategy, we will continue to benefit
from the over 20 years experience of our Chief Executive Officer as a senior
executive of several large hospitals where hospital laboratory costs were a
significant issue, as well as his more than four years experience as President
of SmithKline Beecham Clinical Laboratories, Inc. See "Management."
Leverage Expertise of Strategic Partners. We expect to continue to work with
our strategic partners, such as Fuji Photo Film Co., Ltd. and UMM Electronics,
Inc. who have already developed specific expertise and state-of-the-art
technology. Fuji supplies chemistry and electrochemistry test reagents for the
Careside system's proprietary test cartridges. UMM develops the software and
manufactures the device for our system. With these and other strategic
partners, we expect to be able to develop new tests on a rapid, cost-effective
basis.
Systematic Commercial Rollout. The CareSide Analyzer and 31 tests are cleared
for marketing in the United States for use in professional laboratories. We
recently filed three additional blood tests for clearance. Our commercial
product launch is planned for the fourth quarter of 1999, at which time over 50
tests are expected to be cleared or exempt by the FDA. By the end of the third
quarter of 1999, we intend to complete pilot site marketing studies in certain
of our targeted market segments to determine utilization patterns, demonstrate
cost-effectiveness and develop a "how-to" book. The how-to book will be a tool
for customers to follow in order to take the appropriate steps in establishing
diagnostic testing services using the Careside system. We have arranged pilot
site studies with APRIA Healthcare in the home care services market, three
hospitals affiliated with Child Health Corporation of America in the hospital
market, Reliant Care Group, L.L.C. in the nursing home market, and SmithKline
Beecham Clinical Laboratories, Inc. for its own use within its commercial
laboratory business. We are also in the process of arranging pilot site studies
with several group practices for the physician office market, including group
practices in Arizona and California. We plan to market and distribute the
Careside system in the United States through our own sales force and through
our distribution arrangement with SBCL. We believe that this systematic
commercial rollout improves the chances of having a successful product launch.
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<PAGE>
Status of Careside Product Development
<TABLE>
<CAPTION>
Technology
Product Regulatory Status Partner
- --------------------------------------------------------------------------------------------------------------
<C> <S> <C> <C> <C>
CareSide Analyzer Cleared under Section 510(k) of the Federal Food, Drug and Cosmetic UMM
Act for use in professional laboratories. Section 510(k) clearance Electronics, Inc.
for point-of-care and physician office laboratory use will be applied Hauser, Inc.
for based on data to be gathered during the marketing pilot program.
- --------------------------------------------------------------------------------------------------------------
Disposable Test Test cartridges are integral to approval of the tests listed below. Battelle
Cartridges Chemistry, electrochemistry and coagulation cartridges have been Memorial
developed. The immunochemistry test cartridge is in development. Institute
- --------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------
Submitted Pending
Marketing
Clearance
Cleared/Exempt for for Professional Planned 1999
Test Category Professional Laboratory Use* Laboratory Use Submissions
- --------------------------------------------------------------------------------------------------------------
Chemistry Glucose Ammonia Carbon Dioxide Fuji Photo
BUN (Urea Magnesium Ionized Calcium Film Co., Ltd.
Nitrogen)
Creatinine Bilirubin,
Direct
BUN/Creatinine Hemoglobin
Ratio
Albumin Direct LDL-
A/G Ratio cholesterol
(calc.)
Globulin (calc.) Anion Gap
Total (Chem-Echem)
Cholesterol
HDL-Cholesterol
LDL-Cholesterol
(calc.)
Cholesterol/HDL
Cholesterol
Ratio
GGT
ALT
Total Bilirubin
Phosphorus
Total Protein
Uric Acid
Triglycerides
LDH
Total Calcium
Alkaline
Phosphatase
Osmolality
Amylase
AST
ALT/AST Ratio
Creatine Kinase
Creatine
Kinase MB
%CKMB
- --------------------------------------------------------------------------------------------------------------
Electrochemistry Chloride Fuji Photo
Potassium Film Co., Ltd.
Sodium
- --------------------------------------------------------------------------------------------------------------
Coagulation PT aPTT International
Fibrinogen Technidyne
Thrombin Time Corporation
- --------------------------------------------------------------------------------------------------------------
Immunochemistry Digoxin Diagnostic
Theophylline Reagents, Inc.
Phenytoin
</TABLE>
* Clearance or exemption for point-of-care and physician office laboratory use
by non-technical personnel is expected based on submissions after our pilot
marketing studies.
<TABLE>
<CAPTION>
Technology
Product Regulatory Status Partner
- -----------------------------------------------------------------------------------------
<C> <S> <C>
Hematology Testing Cleared under Section 510(k) of the Federal Independent third
Device Food, Drug and Cosmetic Act for use in parties with whom we
professional laboratories. are negotiating
supply agreements
- -----------------------------------------------------------------------------------------
Careside Cable Development planned for second and third Advanced Medical
Interface between quarters of 1999. Information
the CareSide Technologies, Inc.
Analyzer and the
Hematology Testing
Device
- -----------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------
Hematology Tests
Platelet count All hematology tests will be submitted with Independent third
the filing of the hematology testing device parties with whom we
under Section 510(k) in 1999 for are negotiating
laboratory, point-of-care and physician supply agreements
office laboratory use.
Lymphocyte/Monocyte
Count
%
Lymphocyte/Monocyte
Count
Total Granulocyte
Count
% Total Granulocyte
Count
White Blood Cell
Count
Hematocrit
Hemoglobin
MCHC
</TABLE>
29
<PAGE>
The Careside System
The Careside system is comprised of an instrument, the CareSide Analyzer, and
a series of disposable, diagnostic test cartridges designed for the accurate
determination of a wide variety of commonly ordered chemistry,
electrochemistry, immunochemistry and coagulation tests. In addition, the
Careside system will offer an optional separate hematology testing device
manufactured by a third party. The chart on page 28 summarizes the status of
tests that the CareSide Analyzer is intended to perform.
The CareSide Analyzer
The CareSide Analyzer is approximately 13 inches tall by 12 inches wide and
11 inches deep and weighs about 17 pounds. The exterior is made of high impact
resin plastic. The top of the CareSide Analyzer consists primarily of a touch
screen, on an ergonometric angle, on which the user inputs patient, physician
and billing information, the tests to be conducted and any desired commentary.
Alternatively, a separate keyboard is available for use if the operator so
chooses. We believe that the CareSide Analyzer's user interface software is a
significant strategic advantage. For example, its quality assurance and quality
control capabilities are equal to those required of central laboratories. The
quality assurance and quality control software stores and interprets the
quality control data generated using the embedded electronic quality control
system in the CareSide Analyzer as well as the traditional wet testing quality
control approach for test cartridges. After testing, quality control data is
flagged when out of limits and plotted on graphs for easy review. A set of five
re-usable and proprietary quality control test cartridges will be provided with
each instrument which allow the user to perform automated, electronic quality
control for all electrochemistry, chemistry, coagulation and immunochemistry
tests. These reusable quality control test cartridges will replace traditional
quality control which involved running multiple levels of commercial plasma
specimens for all the tests on the system. The software utilized by the
CareSide Analyzer is designed to govern testing of one patient at a time,
perform quality assurance and quality control documentation and conduct the
test ordering processes. It also contains a security system that is compliant
with the Clinical Laboratory Improvement Amendments of 1988. The user interface
system can be customized for each particular customer.
The process for using the CareSide Analyzer is streamlined and partially
automated compared to conducting tests in large commercial blood diagnostic
testing laboratories. The Careside system can be operated by non-technical
personnel with appropriate training in connection with the use of the device.
The operator will first select one or more test cartridges from inventory
depending on the tests ordered by the attending healthcare provider. Most
cartridges will contain one test, but some cartridges will contain two or three
tests. Up to six cartridges of a single patient's blood can be tested at the
same time. See "--Disposable Test Cartridges." The Careside system is currently
capable of conducting a maximum of eight tests per patient in a single 10 to 15
minute test cycle. When the development of additional multi-test cartridges is
completed, the Careside system will be able to handle 13 tests in a single 10
to 15 minute test cycle. To prepare a cartridge, the operator will place a
small amount of the patient's drawn blood into the test cartridge with a
pipette or other standard transfer device. The operator will then simply load
the test cartridges into the instrument. Any combination of cartridges can be
loaded in any order, thus enabling the operator flexibility to perform
individual tests or customized panels. This flexibility is designed to minimize
waste by allowing the operator to run only the tests ordered by the provider
rather than traditional pre-set panels that may contain unnecessary tests. This
feature is particularly responsive to the current and expected future
requirements of third-party payers. See "--Third-Party Reimbursement."
30
<PAGE>
ROUTINE BLOOD ANALYSIS PROCEDURE: THE CARESIDE SYSTEM
1. Draw blood. Place a few 2. Using the touch-screen or 3. 10-15 minutes later,
drops of whole blood into keyboard, input demographic CareSise Analyser(TM)
the cartridge sample well. information and select tests provides test results
to be performed. Insert via print card, screen,
appropriate cartridge and and/or electronic data
press start. transfer. Caregiver
reviews test results
with patient.
After the operator inputs patient information and test orders, the instrument
will automatically perform the tests and record and display or print the
results. To perform the tests, the CareSide Analyzer undertakes cycles for
heating, centrifuging and several types of reading. The cycle time from the
moment the cartridge is dosed with whole blood and placed into the CareSide
Analyzer to final test result is approximately 10 to 15 minutes for chemistry,
electrochemistry, immunochemistry or coagulation tests, or any combination of
these tests. A standard Chem 7 panel, comprised of sodium, potassium, chloride,
carbon dioxide, glucose, creatinine and urea nitrogen tests, can be performed
in approximately ten minutes and will utilize five cartridges. Sodium,
potassium and chloride tests are on one cartridge and they are always ordered
in combination. At the conclusion of the test, the CareSide Analyzer ejects the
cartridges into a waste container for later disposal in appropriate biohazard
vessels.
The CareSide Analyzer provides test results to the healthcare professional in
several ways. A self-adhesive label can be printed with test results for direct
transfer to the patient's chart. Each CareSide Analyzer also incorporates a
floppy disk drive so that information can be downloaded from the instrument for
analysis. An additional electronic output method is through use of the rs-232
port on the rear of the machine. We expect to routinely work with our customers
to program an appropriate software interface into the CareSide Analyzer to
allow information to be transferred electronically into the user's data system.
Linkage software is being specially developed for us for this purpose by
Advanced Medical Information Technologies, Inc.
Disposable Test Cartridges
Each test cartridge is designed to facilitate the flow of the blood, serum or
plasma specimen onto chemicals packaged in the cartridge. These chemicals,
which are called reagents, react with the specimen and change. The changes are
then read by the CareSide Analyzer to yield the test result. Each test
cartridge is designed for a single use. Its various channels and pools assure
proper reagent and specimen temperature equilibration, sample separation,
sample metering, sample dispensing, test incubation and facilitate result
detection. Each cartridge contains all reagents necessary to perform a reagent
measurement on a serum, plasma or whole blood sample for a particular test. The
proprietary cartridges are each approximately 2.5 inches long and 1.5 inches
wide and are comprised of layers of molded plastic with channels for
application of the sample to the reagent. When stored in refrigerators, the
cartridges are expected to have a maximum of an 18 month shelf life. The
cartridges are placed in the CareSide Analyzer directly from the refrigerator
after sample dosing. The first four minutes of the test cycle warms the test
cartridges to the appropriate test temperature. If
31
<PAGE>
necessary, the CareSide Analyzer then spins the cartridges using centrifugal
force to push the sample through small channels, separating it into serum or
plasma. Excess sample is deposited in an overflow well. A measured amount of
sample remains in the metering passage and is dispensed onto the reagent film
or mixed with wet reagent pushed from an interior pouch. Each test cartridge is
designed to be airtight to prevent ventilation spoilage of the specimen sample.
The three basic types of measurements that will be made are spectral
transmittance, reflectance and electrochemical. In the case of the chemistry
cartridge, the CareSide Analyzer's platter spins the cartridge containing the
dry film, which will turn color from reaction with the blood element, over
LED/photodiode pairs. The LED lights reflect through the colors of the reagent.
Multiple reflectance tests are performed to yield a result. In the case of
coagulation and immunochemistry tests, the cartridge is spun over the same
LED/photodiode pairs which shine through a small rectangular hollowed prism,
called a prismatic cuvette, built into the cartridge. The light transmission is
then read by the CareSide Analyzer. In the case of electrochemistry, the test
is done on whole blood, before the other cartridges are centrifuged. For these
tests, the CareSide Analyzer contains ion specific electrodes which interact
with the proprietary electrochemistry cartridges to yield the test result.
The disposable test cartridges have a number of key features that we believe
contribute to the Careside system's reliability, speed, low cost and accuracy
of analysis. These include:
. Unique Cartridge Design. Specimen preparation, calibration and test
performance are incorporated in an inexpensive plastic cartridge. Where
necessary, the cartridge design incorporates storage and measured
delivery of reagents and electrolytes for mixing with the patient's
sample prior to analysis. Cartridges are loaded into the instrument
manually and are designed so that they can be inserted in only one
direction to avoid error.
. Ease of Sampling. Sampling is automatic and requires small volumes using
approximately 75 to 150 microliters ((mu)l) of whole blood, as compared
to current approaches requiring much larger amounts. The dosing process
requires the tester to fill the cartridge well to a point indicated on
the cartridge. No precise measurement of the blood sample is required by
the tester, as the cartridges' channels measure how much sample is
applied to the reagent.
. Built-in Centrifuge. Separation of plasma from whole blood, as required
for many tests, is accomplished in the cartridge after placement in the
CareSide Analyzer, so that a separate centrifugation step is
unnecessary.
. Flexibility in Testing. One, two or three tests may be contained in each
cartridge. Single test cartridges and a three test cartridge have been
designed, manufactured and used in testing. Two test cartridges have
been designed, but have not yet been manufactured and used in testing.
The added cost and complications of using test panels containing
unnecessary tests is avoided.
. Quality Assurance and Quality Control Features. All test cartridges are
bar-coded for test identification. The bar codes contain the type of
test cartridge, as well as a lot number, expiration date and self-
calibration information, which are all CLIA requirements. The data from
the cartridge's bar code will be read and stored in the CareSide
Analyzer. As each test is completed, it becomes part of the CLIA
documentation. Because each cartridge contains an identifying bar code
which is read by the instrument, the order in which the cartridges are
loaded is immaterial. The Careside system will check that the ordered
tests and the cartridges entered in the device match.
Test Menu
The CareSide Analyzer combines chemistry, electrochemistry, coagulation and
immunochemistry testing in a single testing instrument. In addition, the
Careside system will offer an optional separate hematology testing device
manufactured by a third party. We are not aware of any point-of-care blood
testing system on the market that has this combined capability.
32
<PAGE>
Chemistry Tests. Chemistry tests are used to assess general health status as
well as to diagnose and monitor diseases of the major organ systems such as the
heart, liver, kidney, blood, pancreas, endocrine and bone. The film chemistry
cartridges contain dry chemistry reagents which are stacked as required for the
test. Within a few minutes after the sample has been applied, a colored dye is
produced. The color intensity of the dye is measured by reflectance and,
through calibration information coded in the instrument and on the test
cartridge, a quantitative test result is generated.
We have recently executed a long-term supply agreement with Fuji Photo Film
Co., Ltd. for the use of its dry film chemistry reagent technology. Although in
dry form, the film uses the same technology as the wet reagent technology used
in high volume commercial analyzers. The agreement replaces an earlier
agreement with Fuji that was applicable only during the development stage of
the Careside system. The new agreement continues to provide us with an
exclusive supply of Fuji's dry film chemistry reagents for use in our point-of-
care system for more than 25 chemistry tests. We have agreed to purchase our
dry chemistry reagents exclusively from Fuji. See "--Sales--International."
Fuji is also developing four additional chemistry tests at its expense. Any
additional tests that Fuji develops may be available to us over the period of
the existing agreement, which runs through 2003 and thereafter is automatically
renewed on an annual basis. If we fail to obtain the necessary regulatory
clearances for 80% of the 39 tests specified in the contract by the end of
1999, our rights become non-exclusive.
Electrochemistry Tests. Like chemistry tests, electrochemistry tests
produced by Fuji pursuant to its agreement with us, are used to assess general
health status and to diagnose and monitor diseases of the major organ systems
such as the heart, liver, kidney, blood, pancreas, endocrine and bone. The
electrochemistry cartridge contains an ion specific electrode slide. When the
slide reacts with the sample, it generates values that correlate to the
concentration of sodium, potassium and chloride in the sample. The test
compares an electrochemical signal generated from a reference solution to a
similar signal generated from the patient's blood. The reference solution is a
liquid contained in a pre-filled pouch embedded in the cartridge. One side of
the ion specific electrode slide is exposed to a reference solution during the
testing sequence and the other side is exposed to the patient's whole blood.
The CareSide Analyzer reads the difference between the two, thereby generating
the test result.
Coagulation Tests. Coagulation testing assesses the ability of a patient's
blood to coagulate. Coagulation is the series of events that leads to the
formation of a blood clot. Tests of prothrombin time, or PT, and activated
partial thromboplastin time, or aPTT, are the primary coagulation tests used by
both physicians and hospitals.
Reagents from the coagulation test cartridge are contained inside a small
hollowed prism, called a prismatic cuvette, and in a pouch. Plasma is delivered
to the cuvette by pressurization of the membrane on the cartridge. A second
reagent, such as a buffer or calcium chloride, is added via the pouch. Light is
then transmitted through the cuvette. The coagulation reaction causes a change
in the cloudiness, or turbidity, of the plasma that is detected optically by
the CareSide Analyzer. The time it takes for this optical change to occur is
reported out as the coagulation time.
We have co-developed coagulation reagent technology for the PT test and we
are co-developing coagulation reagent technology for the aPTT test with
International Technidyne Corporation. International Technidyne has agreed to
provide such reagent technology to Careside on an exclusive basis for use in
multiple test category blood testing devices such as the CareSide Analyzer.
However, International Technidyne will retain the exclusive right to use the
technology in the field of point-of-care devices that perform only coagulation
testing. International Technidyne will also manufacture the coagulation reagent
and load it in the cuvette for us.
Immunochemistry Tests. Immunochemistry tests are used for the diagnosis of
drug effectiveness for heart, thyroid analysis and for other purposes. To date,
immunochemistry systems have had limited penetration in the point-of-care
market, because they are difficult to use, related instrumentation is
expensive, reagents are costly and assay times are long. We are in the process
of developing our immunochemistry test cartridge and are in the process of
performing our first validation studies using it.
33
<PAGE>
The immunochemistry test cartridge is identical in form and function to the
coagulation test cartridge except that a much smaller sample size is delivered
to the prismatic cuvette. The reagents in the cuvette and pouch are different
for each immunochemistry test. The CareSide Analyzer measures a rate of change
or endpoint in cloudiness depending on the test. The rate of change or endpoint
is converted from calibration information coded in the instrument and on the
test cartridge, generating a test result. We currently purchase immunochemistry
reagents from Diagnostic Reagents, Inc. and are currently negotiating a long-
term supply agreement with Diagnostic Reagents.
Hematology Tests. Hematology testing determines various attributes of a
patient's blood, such as how many platelets, monocytes or lymphocytes it has.
We expect to expand the Careside system's capabilities by adding nine or more
hematology tests, which will be performed on a separate optional device
manufactured and supported by a third party. While the hematology device we
intend to use has been developed, we are currently developing the software that
will allow data interchange from the hematology device to the CareSide
Analyzer. Our contract partner, Advanced Medical Information Technologies,
Inc., also known as AdMIT, is currently developing a link between the Careside
system and other medical devices, including the hematology device. The cabled
interface developed by AdMIT will enable users of the CareSide Analyzer to
connect hematology devices and other diagnostic test devices into the CareSide
Analyzer, thereby allowing the users to further avail themselves of the
CareSide Analyzer's extensive ordering, data storage, clinical records and
quality assurance and quality control capabilities.
Future Developments
We intend to have the broadest menu of any point-of-care blood testing device
and plan to continue to develop tests for the Careside system. At product
launch, the Careside system's menu is expected to include over 50 tests,
including an option for nine hematology tests, representing over 80% of all
blood tests ordered on an out-patient basis, including all of the most commonly
ordered out-patient blood tests. Even though our point-of-care technology will
not be capable of conducting every test potentially ordered by a healthcare
provider, we believe that, within five years, our planned menu will provide
over 90% of all out-patient tests in many clinical settings, and up to 60% of
tests commonly ordered in in-patient settings. For tests not performed by the
Careside system, healthcare providers could order tests from either a hospital
laboratory or a commercial laboratory.
We plan to add enhancements to the Careside system within the next five
years, including the ability for the blood sample to be loaded from a test tube
into a test cartridge automatically. This will eliminate the need for a person
to handle an open tube containing the patient's blood. In addition, we are
evaluating alternative methods of immunochemistry testing, such as the use of
high precision latex beads for the development, within five years, of large
molecule immunochemistry tests. Also designed and under development is a multi-
test cartridge that will be able to perform two or more film tests
simultaneously on one cartridge. The CareSide Analyzer's detection technology
is capable of extensive menu expansion. This gives us the ability to add
traditional chemistry, coagulation and small molecule immunochemistry tests
such as screening tests for drugs of abuse. We expect to develop additional
tests in the large molecule immunochemistry field such as prostate specific
antigen for prostate cancer and Troponin for heart attacks, as well as tests
for infectious diseases such as Strep A and Chlamydia.
In addition to linking the CareSide Analyzer and hematology or other
diagnostic testing devices, the AdMIT product is being designed to be connected
directly into laboratory or clinical information systems, physician practice
management systems or other information systems, either directly through a
local area network or via the Internet.
Marketing Strategy
Our marketing strategy is to position the Careside system as the blood
testing system of choice by demonstrating to hospitals the benefits of
decentralized blood testing, and by providing other healthcare providers with a
profitable and cost-effective alternative to central laboratory testing. By the
end of the third quarter of 1999, we intend to complete pilot site marketing
studies with hospitals, home care organizations and physician group practices
to determine utilization patterns, create a "how-to" book, and demonstrate
cost-
34
<PAGE>
effectiveness. We currently plan to rollout our system in SmithKline's
commercial laboratories pursuant to our distribution and supply agreement with
SmithKline Beecham Clinical Laboratories, Inc., and through our own sales force
to hospitals, nursing homes, home care organizations and larger physician group
practices. SmithKline has recently entered into an agreement to sell the stock
of SBCL to Quest Diagnostics Incorporated and take a 29.5% ownership interest
in Quest. Following the announcement of the sale of SBCL to Quest, we began
discussing the timing of our product launch with Quest. The discussions are
ongoing. Quest's acquisition of SBCL is anticipated to close in July 1999. We
believe that, allowing for time within Quest for internal planning, we should
be able to undertake our initial rollout to the commercial laboratory market
through SBCL, as a subsidiary of Quest, in the last quarter of 1999. At the
time of product rollout, our goal is to have the most comprehensive menu of
tests available in any single point-of-care system.
Our key targeted market segments are as follows:
Hospitals. There are over 5,000 acute care hospitals in the United States.
Laboratory testing services required by hospitals are usually provided by a
central hospital laboratory, which services all of the hospital's testing needs
as well as the testing service needs of hospital physician groups. Hospital
laboratories are expensive to maintain because they have to be maintained on a
24 hour basis, they require specially trained personnel to be present at all
times to operate high volume analyzers and they demand significant amounts of
capital to equip and maintain. Furthermore, hospitals are often reimbursed by
institutional payers for patient admissions based on specific diagnoses
reflecting the complexity of the care needed and a predetermined payment for
such care. While laboratory testing services are an essential part of diagnosis
and monitoring the beneficial results of treatment, they also represent a cost
to the hospital as it seeks to generate a profit by completing the care and
treatment of patients before their costs exceed the level of reimbursement. The
Careside system provides hospitals with the opportunity to decentralize
laboratory testing to the patient floors and bedside, as routine and stat tests
can be conducted at the time the patient is being evaluated by providers.
Consequently, the Careside system is expected to enable some hospitals to
eliminate their central laboratories or replace certain costly analyzers and
outsource non-routine testing not done on the CareSide Analyzer to a
centralized laboratory.
Physician Groups. There are over 3,500 physician groups in the United States
with practices in excess of 35 doctors. Excluding radiology groups, the target
market for the Careside system is over 2,200 groups. Physicians usually obtain
their laboratory testing services from the hospital laboratories with which the
physicians are affiliated or from a commercial laboratory. In either case,
patient samples are collected from the physician's office and sent via courier
to the applicable laboratory, with results delivered to the physician, either
electronically, by fax or by telephone. For physician group practices, the
Careside system will offer improvements in daily office routine, greater
convenience, enhanced patient satisfaction and new revenue opportunities.
Home Care. Industry data shows that the number of home care agencies and
patients receiving home care services has grown significantly in recent years.
We believe significant growth in this market segment will continue. Industry
data reported that the total number of Medicare certified home care agencies
rose from 11,000 in 1989 to over 20,000 by the end of 1996. In 1996, the Health
Care Financing Administration estimated that 3.9 million Medicare enrollees
would receive home care services during 1997. This is twice the number that
received such services in 1990. The number of home care visits increased from
70 million in 1990 to an estimated 306 million in 1997. On average, 30% of home
care patients visited each week require laboratory testing. Common laboratory
tests include, among others, Chem 7 panels, iron, blood glucose, magnesium,
prothrombin time and immunochemistry tests for monitoring phenobarbital,
phenytoin and digoxin. Patient samples are drawn from the patient, gathered
from the home care providers and delivered via courier to a commercial
laboratory for testing. Test results are made available the next day or on a
premium price basis by fax, telephone or written report delivered four or five
hours later. The CareSide Analyzer is expected to enable the home healthcare
provider to draw the patient's sample, run the test and deliver the results
without having the sample delivered via courier to a commercial laboratory.
35
<PAGE>
Nursing Homes. In 1994, the most recent year for which industry data has
been compiled, there were over 15,000 nursing homes in the United States with
more than 1.6 million licensed beds. The average occupancy rate was over 92%
with each nursing home averaging nearly 100 patients. Common diagnostic tests
ordered for nursing home patients are complete blood counts, Chem 7 panels,
electrolytes, blood glucose, prostate specific antigen, therapeutic drug
monitoring and urinalysis. Nursing homes generally obtain their testing
services from commercial laboratories and encounter the same delays and
reimbursement issues as physicians. The CareSide System provides a profit
opportunity to the nursing home by allowing it to conduct and bill for
laboratory services, while simultaneously enhancing the nursing home's ability
to provide better care.
Pilot Program
Prior to the commercial rollout of our system commencing in the fourth
quarter of 1999, we will have completed pilot studies of the Careside system in
multiple sites within certain targeted market segments. To date, we have
arranged for pilot studies with Children's Hospital of San Diego, Children's
Hospital--Los Angeles and the Seattle Children's Hospital, all through Child
Health Corporation of America, APRIA Healthcare, one of the largest United
States home care providers, Reliant Care Group, L.L.C., a chain of nursing
homes, and SBCL. We are currently arranging for pilot studies with several
group physician practices located in Phoenix, Arizona and Los Angeles,
California.
The purposes of piloting the Careside system are to collect data
demonstrating the economic benefit of the Careside system in each customer
segment, to create a how-to book that will be tailored to the needs of each
customer type and to provide validation testing necessary to obtain FDA
marketing clearance for point-of-care and physician office laboratory use. This
how-to book will explain the process of obtaining and maintaining a laboratory
license, train personnel to conduct testing and educate personnel about the
operation of the Careside system. With both a financial model and a how-to book
that are specific to customer segments, we then intend to introduce the
Careside system to the overall market in the fourth quarter of 1999.
Sales
Domestic
We intend to hire, train and regionally deploy our own domestic sales force
to sell the Careside system to hospitals, healthcare systems, large physician
group practices, managed care organizations, home care agencies and nursing
homes, either directly or through institutional pharmaceutical service
organizations which serve them. Because we intend to target customers who order
large volumes of tests, we anticipate building a direct sales force of
approximately 40 people.
As one of the largest commercial laboratories in the United States,
SmithKline Beecham Clinical Laboratories, Inc. conducts millions of tests for
small physician groups and individual physicians annually. We expect the
Careside system to be available to small or solo practices through in-patient
service centers owned and staffed by SBCL since it may be inefficient for such
practices to own and operate a CareSide Analyzer. SBCL owns and operates over
700 patient service centers across the United States. We have entered into a
distribution agreement with SBCL which gives SBCL, with respect to domestic
sales, an exclusive right, as a commercial laboratory, to use and distribute
the Careside system within the commercial laboratory industry and the non-
exclusive rights to sell the Careside system to hospitals and healthcare
systems, other health care providers, managed care organizations and insurers.
The agreement also obligates SBCL, upon FDA clearance or exemption of 30
specified tests, to purchase a minimum number of CareSide Analyzers and test
cartridges from us for the first five years following such FDA action.
SmithKline has informed us that no amendments to our distribution and supply
agreement with SmithKline Beecham Clinical Laboratories, Inc. will occur as a
result of the sale of SBCL to Quest Diagnostics Incorporated. We are currently
in discussions with Quest regarding the implementation of our distribution and
supply agreement. SBCL will continue to be the entity with which we deal. It
will, however, be a subsidiary of Quest after the transaction closes. See
"Certain Transactions--SmithKline Beecham."
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International
In international markets, we intend initially to enter into distribution
agreements and gradually to develop our own sales force as appropriate. Our
distribution and supply agreement with SBCL gives SBCL the same exclusive and
non-exclusive distribution rights as it has in the United States in any ten of
the following countries where SBCL owns, operates, manages a commercial
laboratory on or before December 31, 2000: Great Britain, Mexico, Spain, South
Africa, Singapore, Malaysia, Indonesia, Australia, Chile, Argentina, France and
Germany. In addition, Fuji Photo Film Co., Ltd. has a right of first refusal to
be our distributor on an exclusive basis in Japan and a non-exclusive basis in
other Asian countries. The current agreement with Fuji expires in 2003 and
permits automatic annual renewals thereafter subject to cancellation by either
party. In addition, we expect to partner with other diagnostic instrument
distributors in the international markets with an initial focus on Europe. See
"Certain Transactions--SmithKline Beecham."
Research and Development
As of May 25, 1999, we employed 26 scientists and technical staff who
supervise the development of the instrument and tests, validate test results,
and perform quality assurance and quality control documentation and regulatory
submissions.
After extensive review of available test technologies, we chose Fuji Photo
Film Co., Ltd. as our partner for chemistry and electrochemistry tests. Fuji
makes dry film based chemistry tests and uses them in large analyzers that it
produces and sells in Japan and Taiwan. In addition, Fuji has agreed to supply
this reagent technology during the Careside system's development stage for more
than 25 chemistry tests. Fuji has agreed to develop four additional tests at
its expense for the Careside system. See "--The Careside System--Test Menu."
The utilization of third parties to develop our tests has allowed us to focus
on creating a platform for delivery of a highly efficient test system. For
hospital environments, the CareSide Analyzer's software has a configuration
capability that facilitates a test order entry menu and security processes as
determined by laboratory management. Fields exist for extensive data capture
including patient, physician and billing information. All of these systems are
optional to the user other than the data requirements for compliance with the
Clinical Laboratory Improvement Amendments of 1988. In addition, the Careside
system easily accommodates test menu additions by downloading new test
algorithms into the device via a floppy disk. This eliminates the need to
remove the instrument from the field as new test capabilities receive FDA
clearance/approval.
We have entered into a series of research and development agreements for our
system. As is customary in the industry, these agreements are short term and
provide for termination for any reason by either party on relatively short
notice. Battelle Memorial Institute, a leader in developing industrial
technology, has designed the disposable testing cartridge according to
specifications which we provided. All applicable patent rights under this
contract have been assigned to us. To date, two patent applications on the
cartridges have been allowed and are expected to be issued as U.S. patents in
the near future. We have also filed a third U.S. patent application on our
cartridges. See "--Patents and Proprietary Rights." Pursuant to our
relationship with Battelle, Battelle is also designing a cost-effective
manufacturing process and quality assurance methods, based on federal Good
Manufacturing Practices protocols, for the disposable cartridges.
UMM Electronics, Inc., a contract engineering and manufacturing firm,
performed the design and development work of the CareSide Analyzer and
continues to provide development services for us to further enhance our
product. Other products developed by UMM include point-of-care blood glucose
monitors, point-of-care coagulation instruments, intravenous infusion pumps,
dialysis machines and infant care warmers. UMM is an FDA-registered
manufacturer of sophisticated medical products required to comply with federal
GMP regulations.
Hauser, Inc., an industrial design consultant, provided services for the
design and development of the entire Careside system. Hauser conducted focus
groups from each target market segment in order to obtain
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customer input on the design features and to assist in the development of an
instrument and software systems involving user interaction. Currently, Hauser
is providing packaging design services.
We continue to pursue development work with other contract partners. We are
further developing coagulation reagent technology with International Technidyne
Corporation. We recently filed a joint patent application with ITC for a
coagulation reagent. In addition, we are utilizing the services of AdMIT to
develop the cabled interfaces between the CareSide Analyzer and other medical
devices and information systems.
Manufacturing and Supply
We designed and outfitted a building in Culver City, California, of
approximately 16,000 square feet in December 1996 as our development facility
and offices. The building contains space for our automated assembly system
which Battelle Memorial Institute is designing. The assembly system will mount
the reagents in the test cartridges, and package and label the cartridges. This
facility has been set up to comply with all applicable state and federal
regulatory requirements, including registration with the state and federal
governments in accordance with applicable laws governing medical devices prior
to commercial distribution. The facility will be subject to periodic FDA
inspection to determine whether our manufacturing processes comply with federal
GMP regulations for medical devices.
We intend to assemble and package at our Culver City facility all cartridges
used by the instrument. The cartridges are assembled in two main stages.
Initially, those components which are not sensitive to humidity, such as
plastic parts, are assembled in a normal humidity environment. The second stage
of the cartridge assembly process involves the mounting of dry film chemistry
strips or pouched reagents in the cartridges, which must be done in a low
humidity environment to preserve the film. This step will be performed in an
automated assembly line at our facility. We are in the process of selecting and
purchasing the equipment necessary for this process. We expect our first
automated assembly line to be in place by the end of 1999 or as our cartridge
inventory needs increase. In addition, during the cartridge manufacturing
process, our equipment must test the pressure of the ultrasonic seal between
the base plate and the upper plates of the test cartridges. Our equipment
allows for several inspection steps during the assembly process. Battelle is
assisting us in developing the fully automated assembly line for the cartridges
with these steps built in. The production capacity of the pilot cartridge
production line for chemistry and immunochemistry will be approximately 1,800
units per hour or 13,000 units per shift. Depending on the specific tests
ordered, our current facility, with additional equipment, will support between
$40 and $60 million of test cartridge sales annually. The automated production
line will utilize proprietary process technology, designed by Battelle and
owned by us, and will be scalable to meet increasing demand.
We will outsource the manufacturing of the plastic components of our
cartridges. We have been using a third party to manufacture these components
using injection molding processes. Recently, we obtained bids from a number of
manufacturers of cartridge components and have selected a supplier to meet our
manufacturing needs based on competitive terms.
We have entered into an agreement with UMM Electronics, Inc. for the
manufacture of the CareSide Analyzer at UMM Electronics' facility in
Indianapolis. Certain aspects of the manufacturing agreement, including the
price at which UMM Electronics will manufacture the device, are subject to
further negotiation and will be finalized once tooling is completed and the
manufacturing line set up.
We expect to source our chemistry, electrochemistry, coagulation and
immunochemistry reagents from Fuji, International Technidyne Corporation and
Diagnostic Reagents, Inc. See "--The Careside System--Test Menu."
We intend to purchase and distribute a hematology testing device manufactured
by a third party and are currently negotiating a supply agreement.
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Competition
We will principally compete with manufacturers of traditional diagnostic
testing equipment used by centralized laboratories and current point-of-care
diagnostic companies whose products perform testing for patients in critical
condition. Historically, most clinical testing has been performed in a
centralized laboratory setting. These laboratories provide analyses similar to
those to be conducted by our system and have traditionally been effective at
processing large panels of tests using skilled technicians and complex
equipment. While the CareSide Analyzer will not be designed to provide the same
range of tests, we believe that our products will offer several advantages over
centralized laboratories, including lower costs, mobility, faster results,
simplified specimen preparation, reduced opportunity for error through
decreased specimen handling, ease of regulatory compliance and increased
patient satisfaction.
We are also aware of other companies with point-of-care analysis devices.
These companies have focused on the testing for critical care patients or tests
that are disease specific. Examples of disease specific tests are glucose and
digoxin which measure blood sugar levels in diabetic patients or heart
complications. In all cases, these companies perform a limited number of tests
and their systems are not designed to have their test menus increase.
Consequently, these devices add costs as the large analyzers in hospital or
commercial laboratories conduct these tests and many more. We believe that our
system will offer distinct competitive advantages over these products,
including the ability to conduct tests in multiple test categories in a single
device, internal centrifugation, convenience and ease of use. Several
companies, including i-STAT Corporation, Abaxis, Inc., Diametrics Medical, Inc.
and PharmaNetics, Inc., are currently making or developing products that will
compete with our tests although not with our system. Some of these companies
also provide disease specific tests that will not be available at the time of
launch on the CareSide Analyzer but which we expect will be added later.
Some large pharmaceutical companies also have point-of-care blood testing
devices and could, given their resources, develop systems which compete with
the Careside system. Abbott Laboratories, Inc., Clinical Diagnostic Systems (a
division of Johnson & Johnson) and Roche Diagnostic Systems, Inc. all have
products which perform point-of-care testing. To date, we believe that none has
developed a point-of-care testing system comparable to our system.
Patents and Proprietary Rights
Our policy is to seek patent protection, both in the United States and
abroad, for each of the areas of invention embodied in our CareSide Analyzer
and related cartridges. To date, we have filed three patent applications on our
cartridges with the U.S. Patent and Trademark Office. Two of these applications
have been allowed and are expected to be issued as U.S. patents. We have also
filed a joint U.S. patent application with International Technidyne Corporation
for a coagulation reagent. We have filed international applications
corresponding to two of our U.S. cartridge applications and intend to file an
additional international application corresponding to the remaining U.S.
cartridge application. We have also filed one design and three utility patent
applications on the CareSide Analyzer. Our agreements with Fuji Photo Film Co.,
Ltd., Battelle Memorial Institute and International Technidyne Corporation,
assign to us certain proprietary rights that result from the research conducted
under the agreements. The Fuji agreement gives us non-exclusive rights to use
Fuji's proprietary technology in the Careside system outside of Japan. Only
Fuji will sell our system in Japan. The other agreements provide that the
technology used in the Careside system is owned either by us or jointly by us
and our partner. These agreements do not restrict us, if we choose, from
seeking other suppliers of competitive technologies. We will seek to protect
any such proprietary rights assigned to us by our technology partners. Battelle
and International Technidyne have agreed to share expenses or otherwise assist
us in prosecuting patent applications. Upon completion of the offering, we
expect to proceed with the patent application process, and anticipate the
filing of additional applications. In addition to patent protection, if any, we
will rely upon trade secrets, know-how and continuing technological innovation.
Although our Chief Executive Officer, Executive Vice President--Research and
Development and Chief Financial Officer have agreed to maintain in confidence
our confidential information and proprietary technology, we have not otherwise
required our
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employees to sign confidentiality agreements. We plan on seeking the execution
of such confidentiality agreements by our current and future employees.
Third-Party Reimbursement
In April 1998, the federal government instituted a policy that, in connection
with Medicare reimbursement for large panel testing, will only reimburse four
different panels of chemistry tests, the largest of which has 13 tests. The
consequence of this policy has been that more single tests are ordered as
compared to large panels. The Careside system is currently capable of
conducting eight tests in a single 10 to 15 minute test cycle. At the time of
product launch, the 13 test panel can be accommodated in two test cycles. Upon
the completion of development of additional multi-test cartridges, the Careside
system will be able to handle a 13-test panel in a single 10 to 15 minute test
cycle. The Careside system is also configured to easily test any combination of
single test cartridges with similar cycle times for up to six single tests per
cycle. Payers have stated that they will only reimburse for panels that are
disease specific. With this change in policy and reimbursement practice, the
number of tests reimbursed as part of panels has begun to drop. The Careside
system, which places primary focus on single and disease specific testing, is
very competitive in light of these changes in payer practice related to test
panels. See "Risk Factors--Uncertainty Relating to Third-Party Reimbursement
May Impact Our Business."
Managed care provides physicians with incentives to treat patients using
clinical treatment protocols that have been developed for many chronic and
acute illnesses. These protocols frequently contain preventative diagnostic
interventions that are used to help avoid the occurrence of acute episodes of
illness. Diagnostic blood testing is one of the major tools used in these
protocols for early detection and for ongoing evaluation of treatment efficacy.
We believe that a diagnostic blood testing system that is cost effective and
adds convenience and rapid information will be well received by managed care
organizations and their physicians.
Even with the growth of managed care, more than 75% of all blood tests
continue to be reimbursed on a fee for service basis. This number has remained
steady in the commercial laboratory industry for the past three years. We
believe that in both the managed care and fee-for-service markets, our point-
of-care system will be responsive to incentives that drive the respective
markets. Many managed care entities dictate to their member physicians which
laboratories they must use for blood testing. Physicians have the opportunity
to utilize exceptions to these mandates to conduct in-office testing. The
Careside system will enable physicians to offer laboratory testing services and
take advantage of these exceptions to the managed care organizations' policies.
We expect to facilitate this by working closely with the physicians and the
managed care organizations to demonstrate cost effectiveness and cost reduction
of our system. This will be a critical component of the pilot site testing
strategy and is intended to position the Careside system as the new testing
standard and the blood testing system of choice over traditional laboratory
testing methods.
Government Regulation
The FDA regulates the development, manufacture, and marketing of medical
devices including diagnostic tests. The FDA requires testing of the Careside
system in accordance with regulatory requirements in the laboratory and, as
appropriate, in clinical settings to establish product performance before
marketing. After marketing has commenced, FDA clearance must be obtained before
making certain types of product changes. The CareSide Analyzer and certain
tests have already received marketing clearance for professional laboratory
use, but not for point-of-care or physician office laboratory use. We expect
that the CareSide Analyzer and tests will receive marketing clearance for
point-of-care and physician office laboratory use following clinical testing of
the instrument at clinical sites. Without the point-of-care and physician
office laboratory use clearance, the CareSide Analyzer could be used only at
professional laboratory sites with laboratory personnel, which would limit our
potential market. Professional laboratories include hospital, commerical and
independent laboratories. As part of our pilot marketing studies, we have
arranged for clinical settings for point-of-care and physician office
laboratory use validation studies commencing in June 1999. We expect point-of-
care and physician office laboratory use clearances prior to our commercial
product launch in the fourth quarter of 1999.
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The point-of-care designation depends upon the FDA's determination that the
results obtained from clinical studies for a number of representative tests,
selected by the FDA, have accuracy and reliability when performed by a non-
laboratory user that is equivalent to or better than test results obtained from
the same tests performed by a laboratory professional.
The FDA has regulations that set varying requirements for medical devices
according to potential risk class. Class I devices represent the lowest
potential risk devices and are therefore subject only to the general controls
that include establishment registration, product listing, the prohibition of
mislabeling or adulteration, and a requirement to comply with federal Good
Manufacturing Practices regulations. Pre-market notification is required for
some Class I clinical diagnostic devices. Class II devices present greater risk
than Class I devices and are subject to special controls, such as guidelines or
performance standards, as well as the same general controls that are applicable
to Class I devices. Class II devices require pre-market clearance to
demonstrate that the FDA accepts the manufacturer's claims that the device is
substantially equivalent to other legally marketed devices, and meets generally
accepted performance criteria that may be required to demonstrate that the
device is safe and effective. Class III devices present a higher level of risk
and are additionally subject to rigorous demonstration of safety and
effectiveness through the pre-market approval process.
For some Class I and most Class II devices, a pre-market notification must be
submitted to the FDA. Usually within 90 days of the receipt of this
notification, the FDA makes the determination whether the device submitted is
substantially equivalent to a legally marketed device. A legally marketed
device is one which was marketed prior to the passage of the Medical Device
Amendments of 1976, or a post-1976 device that has been determined by the FDA
to be substantially equivalent to previously cleared devices. A determination
of substantial equivalence requires several FDA findings: first, that the
device has the same intended use as the legally marketed device; and second,
either that the device has the same technological characteristics as the
legally marketed device or, if it does not, that the device is as safe and
effective as the legally marketed device and does not present different
questions about safety and effectiveness. Class III devices require extensive
clinical testing to prove safety and effectiveness, and submission of the
resulting data to the FDA as a pre-market approval application. The FDA
ordinarily will refer a new device pre-market approval application to an
advisory panel of outside experts for a recommendation on whether to approve
the application or to request additional testing. The CareSide Analyzer and all
31 tests already cleared or exempt by the FDA have been classified in Class II.
We believe that all of the remaining tests currently expected to be performed
by the CareSide Analyzer will be similarly classified. If the FDA disagrees,
however, a pre-market approval application might be required for one or more
tests. Certain future tests, such as prostate specific antigen, are expected to
require pre-market approval.
The information required for a pre-market notification for the Company's
products will be generated by or for us. For tests that will be performed in a
clinical laboratory, validation may be performed in the manufacturer's
laboratory. For tests that are intended for use outside of the clinical
laboratory, such as physician offices or nursing homes, the FDA also requires
that validation data be gathered from at least three clinical sites. We believe
that the required laboratory or clinical studies do not constitute a
significant risk for patients. Non-significant risk device studies performed in
the clinic require institutional review board approval and may require patient
informed consent but do not require the clearance of an investigational device
exemption application by the FDA. If the FDA were to believe that such studies
constitute a significant risk, we would need to submit an investigational
device exemption application, containing an investigation and study monitoring
plan, and allow the FDA 30 days to review the investigational device exemption
application or request additional information prior to initiating an
investigation.
Where a pre-market approval application is required, FDA regulations require
the demonstration of safety and effectiveness, typically based upon extensive
clinical trials. Fulfilling the requirements of the pre-market approval
application are costly and both the preparation and review are time consuming,
commonly taking from one to several years. Before granting pre-market approval,
the FDA must inspect and find acceptable the proposed manufacturing procedures
and facilities. The pre-market approval regulations also require FDA approval
of most changes made after the tests have been approved.
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Manufacturing Regulation
For products either cleared through the pre-market notification process or
approved through the pre-market approval process, our manufacturing facility
must also be registered with the FDA. The manufacture of products subject to
Section 510(k) of the Federal Food, Drug, and Cosmetic Act or to Section 515
pre-market approval requirements must be in accordance with quality system
regulations and current federal Good Manufacturing Practices regulations. We
are also subject to various post-marketing requirements, such as complaint
handling and reporting of adverse events. Pre-market approval products are also
subject to annual reports. The FDA typically inspects manufacturing facilities
every two years. We intend to seek and maintain ISO 9001 certification. As a
result, inspections by notified bodies may be more frequent.
The CareSide Analyzer is being further developed and will be manufactured by
UMM Electronics, Inc. UMM is an FDA registered and inspected facility. UMM is
also ISO 9001 certified. In adherence to FDA and ISO 9001 requirements, UMM
follows a structured design control process.
Third-Party Safety
Third-party safety certification is not required for FDA marketing
permission, but will be required by our customers and to enter markets in other
countries. In this regard, we are in the process of obtaining an Underwriters
Laboratories, or UL, listing for the instrument. UL will review the CareSide
Analyzer according to UL 3101-1 that is equivalent to the international
standard IEC 1010. The CareSide Analyzer is also being designed to comply with
requirements that ultimately will facilitate marketing of the product in Europe
and Japan. These requirements include the Low Voltage Directive (73/23/EEC),
the Electromagnetic Compatibility Directive (89/336/EEC), and the In Vitro
Diagnostic Medical Device Directive (98/79/EC).
Clinical Laboratory Improvement Amendments of 1988
All medical testing in the United States is regulated by the Health Care
Financing Administration according to the complexity of the testing as
specified under the Clinical Laboratory Improvement Amendments of 1998. CLIA
regulations establish three categories of laboratory tests, for which
regulatory requirements become increasingly stringent as the complexity of the
test rises: (1) tests that require little or no operator skill, which allows
for a certificated waiver of the regulations; (2) tests of moderate complexity;
and (3) high complexity tests which require significant operator skill or
training. CLIA regulatory requirements apply to facilities such as clinical
laboratories, hospitals, and physician offices which perform laboratory tests.
All laboratories are subject to periodic inspection. In addition, all
laboratories performing tests of moderate or high complexity must register with
HCFA or an organization to whom HCFA has delegated such authority. They also
must meet requirements relating to personnel qualifications, proficiency
testing, quality assurance, and quality control. We expect all of the tests for
the CareSide Analyzer to be categorized as moderate or lower complexity. To
date, the tests performed by the CareSide Analyzer have been categorized within
the moderate complexity class as defined by current CLIA regulations. In
practical terms, performing a test of moderate complexity means that the
individual supervising the test, i.e., the physician, pathologist or laboratory
director, must be appropriately educated and trained, whereas the individual
who operates the CareSide Analyzer requires either formal laboratory education
or a high-school education and training in the skills required to perform
testing with the CareSide Analyzer, such as specimen collection and quality
control.
State Regulation
We and our products will be subject to a variety of state laws and
regulations in those states where our products are marketed, sold or used.
Thirteen states currently restrict or control, to varying degrees, the use of
medical devices such as the Careside system outside the clinical laboratory by
persons other than doctors or licensed technicians. For example, California,
New York and Florida all have unique requirements that define which steps in
the testing process can be performed by physicians, nursing or other personnel
who are not licensed technicians. We have designed our testing system to comply
with these requirements, while minimizing the need for higher cost labor to run
the test process. However, these restrictions may add labor
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costs to the customer, and such costs may hinder our ability to market our
products in these locations. Although we plan to seek interpretations, rulings
or changes in relevant laws and regulations to remove or ameliorate these
restrictions, there can be no assurance that we will be successful.
International Regulation
In addition to the United States market, we intend to pursue markets in Asia
and Europe through select strategic alliances. The recently published European
Community In Vitro Diagnostic Directive places our products within a category
that has a low regulatory burden. Manufacturers are allowed entry into the
market based upon self-certification that they complied with published
directives, similar to existing United States requirements, containing
performance, labeling, and other quality requirements. Japan has its own
requirements for in vitro diagnostics.
Product Liability and Property Insurance
Sale of our products entails risk of product liability claims. The medical
testing industry has historically been litigious, and we face financial
exposure to product liability claims in the event that use of our products
result in personal injury. We also face the possibility that defects in the
design or manufacture of our products might necessitate a product recall. There
can be no assurance that we will not experience losses due to product liability
claims or recalls in the future. We anticipate purchasing product liability
insurance in reasonable and customary amounts when we begin to sell products in
the third quarter of 1999. Such insurance can be expensive, difficult to obtain
and may not be available in the future on acceptable terms, or at all. No
assurance can be given that product liability insurance can be maintained in
the future at a reasonable cost or in sufficient amounts to protect us against
losses due to liability. An inability to maintain insurance at an acceptable
cost or to otherwise protect against potential product liability could prevent
or inhibit the commercialization of our products. We expect that our insurance
coverage will be adequate for the risks we face. However, a product liability
claim in excess of relevant insurance coverage or product recall could have a
material adverse effect on our business, financial condition and results of
operations.
We have liability insurance covering our property and operations with
coverage and deductible amounts and exclusions that we believe are customary
for companies of our size and adequate for our industry. There can be no
assurance that our current insurance coverage is adequate or that we will be
able to maintain insurance at an acceptable cost or otherwise to protect
against liability.
Employees
As of May 25, 1999, we had 31 full-time employees, of which 26 were engaged
in research and development and manufacturing activities and five were engaged
in administrative activities. None of our employees is covered by a collective
bargaining agreement, and we believe our relations with our employees are good.
Additionally, our contract strategic partners, Battelle Memorial Institute and
UMM Electronics, Inc. have provided approximately 40 full-time equivalent
employees on a contract basis to develop of the Careside system.
Properties
We lease approximately 16,000 square feet of space in Culver City, California
as our executive offices and for the research and development, validation,
manufacture and assembly of test cartridges. The lease has a term of five
years, with a current monthly rent of $13,620, increasing to $15,220 per month
until the expiration of the lease in October 2001. We have an option to renew
the lease for one additional five-year term at 95% of the fair market rental
value. We believe that the Culver City facility will adequately serve our needs
for the immediate future.
Legal Proceedings
We are not a party to any material legal proceedings.
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MANAGEMENT
Directors, Executive Officers and Key Employees
The following table sets forth certain information concerning the individuals
who serve as our directors, executive officers and key employees:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<C> <S> <C>
Directors and Executive Officers:
W. Vickery Stoughton (1)......... 53 Chairman of the Board of Directors and Chief Executive Officer
Thomas H. Grove.................. 49 Executive Vice President--Research and Development,
Secretary and Director
James R. Koch (2)................ 45 Chief Financial Officer, Treasurer, Executive Vice
President and Director
Anthony P. Brenner (1)........... 41 Director
William F. Flatley (2)........... 57 Director
Kenneth N. Kermes (2)............ 63 Director
C. Alan MacDonald (2)............ 66 Director
Diana Mackie (1)................. 52 Director
Philip B. Smith (1).............. 63 Director
Key Employees:
Kenneth Asarch................... 41 Vice President--Quality Systems and Regulatory Affairs
Marija N. Valentekovich.......... 67 Vice President--Manufacturing
</TABLE>
- --------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Directors and Executive Officers
W. Vickery Stoughton, Chairman of the Board of Directors and Chief Executive
Officer. Mr. Stoughton has served as our Chairman of the Board of Directors and
the Chief Executive Officer since our formation in July 1996. Prior to that, he
served as President of SmithKline Beecham Diagnostics Systems Co., a diagnostic
services and product company, from October 1995 to July 1996, and was President
of SmithKline Beecham Clinical Laboratories, Inc., a provider of diagnostic
laboratory services, from August 1992 to September 1995. As President of SBDS,
Mr. Stoughton had responsibility for SBCL, SmithKline Beecham Clinical
Laboratories International and SBDS's genetic testing and point-of-care testing
projects. In addition, Mr. Stoughton served as Chief Executive Officer and Vice
Chancellor for Health Affairs of Duke University Hospital from 1991 to 1992,
Chief Executive Officer of Toronto Hospital in Toronto, Canada from 1981 to
1991, Chief Operating Officer of Brigham and Women's Hospital in Boston from
1980 to 1981 and Chief Executive Officer of Peter Bent Brigham Hospital in
Boston from 1978 to 1980. Mr. Stoughton holds a B.S. in Chemistry from St.
Louis University and a M.B.A. from the University of Chicago. He is currently a
director of Sun Life Assurance Company of Canada, a financial services company,
and Biomira, Inc., a pharmaceutical company.
Thomas H. Grove, Executive Vice President--Research and Development,
Secretary and Director. Dr. Grove has served as our Executive Vice President--
Research and Development, Secretary and as one of our directors since our
formation in July 1996. From April 1984 to July 1996, he served in a number of
management positions at SmithKline Beecham Clinical Laboratories, Inc.
involving research and development activities, including the position of Vice
President of Scientific Affairs from January 1991 to July 1996, where, among
other things, he was in charge of National Quality Control and Quality
Assurance for SBCL. Dr. Grove has received a number of awards, including a NATO
Science Fellowship to attend Oxford University from 1978 to 1979. He was also
named Young Investigator of the Year in 1980 by the American
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Association for Clinical Chemistry and was elected to the National Academy of
Clinical Biochemistry in 1977. Dr. Grove holds a B.S. in Biology from SUNY-
Albany and a Ph.D. in Biochemistry from Syracuse University.
James R. Koch, Chief Financial Officer, Treasurer, Executive Vice President
and Director. Mr. Koch has served as our Chief Financial Officer, Treasurer,
Executive Vice President and as one of our directors since July 1998. Prior to
joining us, Mr. Koch served as Vice President and Chief Financial Officer of
ILEX Oncology, Inc., a company which develops oncology drugs, from August 1996
to July 1998. In addition, Mr. Koch served as Vice President, Finance and Chief
Financial Officer for two start-up specialty pharmaceutical companies, Symphony
Pharmaceuticals, Inc., from September 1993 to August 1996, and Neose
Pharmaceuticals, Inc., currently Neose Technologies, Inc., from September 1991
to September 1993. His prior experience also includes ten years in senior
financial management positions with G.D. Searle Pharmaceutical, a manufacturer
of pharmaceutical products. Mr. Koch holds a B.S. in Mechanical Engineering
from General Motors Institute and a M.S. from the Krannert School of Management
at Purdue University.
Anthony P. Brenner, Director. Mr. Brenner has served as one of our directors
since November 1996. Since January 1998, he has served as a Managing Director
with Omega Ventures, a venture capital firm, where he oversees investment
activities in the information and business services industries. Prior to that,
Mr. Brenner served as Senior Managing Director of Advanta Partners LP, a
private equity investment partnership, and as a member of the Board of
Directors of Advanta Corporation, a financial services company, from 1992 to
1996. In addition, since 1989 Mr. Brenner has served as President of Cedar
Point Partners, a private equity investment partnership. Mr. Brenner earned a
B.A. from Yale University and a M.B.A. from Stanford University.
William F. Flatley, Director. Mr. Flatley has served as one of our directors
since November 1996. Since July 1997, he has served as the President and Chief
Executive Officer of Executive Health Group, a provider of preventive
healthcare services to corporations. From 1980 to December 1994, he held a
number of senior management positions with Bristol-Myers Squibb Corporation, a
pharmaceutical company, including President of a multi-division medical device
business, the Health Care Group, and President of the Drackett Company, a
household products manufacturer. Mr. Flatley retired from Bristol-Myers Squibb
at the end of 1994 but continued to provide the company with certain consulting
services after his retirement. Mr. Flatley obtained a B.S. from Villanova
University and a M.B.A. from the Wharton School of the University of
Pennsylvania.
Kenneth N. Kermes, Director. Mr. Kermes has served as one of our directors
since February 1997. Since June 1998, he has served as a principal of Riparian
Partners Limited and of Bay View Equity Partners, two related investment
banking and private equity investment partnerships. Prior to that, he served as
Vice President of Business and Finance for the University of Rhode Island from
December 1994 to June 1998 and as Chief Financial Officer for SmithKline
Beecham Corporation from October 1986 to July 1989. From 1991 to 1994, Mr.
Kermes was a consultant and an investor in the venture capital industry. Mr.
Kermes obtained a B.A. from Amherst College and attended the New York
University Graduate School of Business and the Harvard Business School Advanced
Management Program.
C. Alan MacDonald, Director. Mr. MacDonald has served as one of our directors
since November 1996. Since October 1997, Mr. MacDonald has served as a Managing
Director of Directorship, Inc., a consulting firm specializing in corporate
governance issues. Prior to that, he served as General Partner of the Marketing
Partnership, Inc., a full service marketing consulting firm, from January 1995
to July 1997 and as an acquisitions consultant with the Noel Group, a venture
capital firm, from July 1994 to December 1994. In addition, he served as
Chairman and Chief Executive Officer of Lincoln Snacks Co., a caramelized
popcorn snack company, from September 1992 to July 1994. Mr. MacDonald holds a
B.S. in Hotel Administration from Cornell University and is a member of the
Cornell Society of Hotelmen and the Dean's Advisory Committee at Cornell. Mr.
MacDonald is also a director of Lincoln Snacks Co.
Diana Mackie, Director. Ms. Mackie has served as one of our directors since
February 1997. She currently is a Vice President for Strategy and Business
Development at SmithKline Beecham Healthcare
45
<PAGE>
Services, the business development division of SmithKline Beecham Corporation,
a position she has held since October 1997, where her responsibilities include
developing business plans, long-range strategy and negotiating external
alliances and investments. Prior to that, Ms. Mackie served as Vice President,
Group Business Initiatives for SBHS from November 1996 to October 1997. From
March 1996 to November 1996, she was General Manager of Diversified
Prescription Delivery, a pharmaceutical mail services company and a wholly-
owned subsidiary of Diversified Pharmaceutical Services, a pharmaceutical
benefit management group. From March 1993 to March 1996, she served as Vice
President, Strategy Development, SmithKline Beecham Pharmaceuticals, a
pharmaceutical company. Ms. Mackie holds a B.S. in Chemistry from the
University of Illinois, a M.B.A. from The Massachusetts Institute of Technology
Sloan School of Management and a M.S. in Polymer and Fiber Engineering from The
Massachusetts Institute of Technology.
Philip B. Smith, Director. Mr. Smith has served as one of our directors since
November 1996. Since June 1998, Mr. Smith has served as a Vice Chairman of
Laird & Co., LLC, a merchant bank. In addition, from 1991 until August 1998,
Mr. Smith served as a Vice Chairman with Spencer Trask Securities Incorporated,
an investment banking firm. Mr. Smith served in a number of other senior
management positions. From June 1986 to June 1988, Mr. Smith served as Managing
Director of Prudential Securities, an investment firm, in its merchant bank
division. From December 1967 to December 1972, Mr. Smith served as President
and Chief Executive Officer of Citicorp Venture Capital, a venture capital
company which he founded. Mr. Smith currently serves on the board of directors
of Movie Gallery, Inc., Digital Video Systems, Inc., and KLS Enviro Resources,
Inc. Mr. Smith has a B.S.E. from Princeton University and a M.B.A. from the
Harvard Business School.
Key Employees
Kenneth Asarch, Vice President--Quality Systems and Regulatory Affairs. Dr.
Asarch has served as our Vice President--Quality Systems and Regulatory Affairs
since November 1996. From June 1995 to October 1996, Dr. Asarch served as
Director of Regulatory Affairs for SmithKline Beecham Clinical Laboratories,
Inc. and SmithKline Beecham Diagnostics Systems Co. Prior to that, he served as
Director of Regulatory Affairs, Quality Assurance and Clinical Affairs with
Diagnostic Products Corporation, an immuno-diagnostic testing company, from
1987 to 1995, where his duties included overseeing the FDA regulatory clearance
and approval process for approximately 150 blood testing products. Dr. Asarch
holds a B.S. in Biochemistry from the University of California at Los Angeles
and doctoral degrees in both Clinical Pharmacy (Pharm.D.) and Pharmaceutical
Sciences (Ph.D.) from the University of Southern California.
Marija N. Valentekovich, Vice President--Manufacturing. Dr. Valentekovich has
served as our Vice President--Manufacturing since January 1998 when she came
out of retirement to join us. Before that, Dr. Valentekovich served as a
Production Manager with Diagnostic Products Corporation from January 1989 to
July 1997. Dr. Valentekovich received a M.S. in Chemical Engineering and a
Ph.D. in Physical Organic Chemistry, using radioisotope techniques, from the
University of Zagreb, Croatia.
Agreement Relating to Election of Directors
Each of our directors was nominated and elected pursuant to the terms and
conditions of a stockholders' agreement we entered into with our stockholders
and warrantholders in connection with two private placements of our common
stock in 1997 and 1998. Pursuant to this stockholders' agreement, SmithKline
Beecham Corporation was granted the right to nominate an individual to our
Board of Directors to serve as its representative. Spencer Trask Securities
Incorporated was also granted the right in the stockholders' agreement to
nominate one individual to our Board of Directors to serve as its
representative. Currently, Ms. Mackie serves as SmithKline's representative and
Mr. Smith serves as Spencer Trask's representative. Mr. Stoughton and Dr. Grove
were nominated and elected to our Board of Directors pursuant to this
stockholders' agreement. In addition, the stockholders' agreement requires that
three individuals who are independent of us and hold no more than five percent
of our common stock serve on our Board of Directors. The number of directors
permitted by the stockholders' agreement was increased from seven to nine with
the consent of Spencer Trask
46
<PAGE>
as called for in the stockholders' agreement. This stockholders' agreement
expires by its terms upon the completion of the offering.
Classified Board of Directors
Upon completion of the offering, our Board of Directors will be divided into
three classes. Each class will contain, as nearly as possible, an equal number
of directors. Directors within each class will be elected to serve three-year
terms and approximately one-third of the directors will sit for election at
each annual meeting of our stockholders. Mr. Koch, Mr. Kermes and Mr. Smith
will serve in the class whose term expires in 1999. Dr. Grove, Mr. Flatley and
Ms. Mackie will serve in the class whose term expires in 2000. Mr. Stoughton,
Mr. Brenner and Mr. MacDonald will serve in the class whose term expires in
2001. A classified board of directors may have the effect of deterring or
delaying any attempt by any group to obtain control of us by a proxy contest
since such third party would be required to have its nominees elected at two
separate annual meetings of our Board of Directors in order to elect a majority
of the members of our Board of Directors. See "Description of Capital Stock--
Takeover Protection and Certain Charter and By-Law Provisions."
Director Compensation
Our non-employee directors receive an annual fee of $5,000 payable semi-
annually, plus $1,000 for each Board of Directors or committee meeting they
attend in person and $500 for those meetings they attend telephonically. Ms.
Mackie is precluded by SmithKline policy from receiving any fees or stock
options for her service as a director. We reimburse all reasonable expenses
incurred by the directors in attending Board of Directors or committee
meetings. In addition, the non-employee directors, other than the SmithKline
representative, Ms. Mackie, participate in our 1996 Incentive and Non-Qualified
Stock Option Plan. For each year that Mr. Brenner, Mr. Flatley, Mr. Kermes, Mr.
MacDonald and Mr. Smith served as directors, we granted each an annual option
to purchase 2,163 shares of common stock at the then applicable market price.
The options granted after the end of 1996 were issued at $5.20 per share. The
options granted after the end of 1997 were issued at $6.76 per share. Upon
completion of the offering, options granted to non-employee directors will only
be made under our 1998 Director Stock Option Plan. Under our 1998 Director
Stock Option Plan, we will grant each non-employee director an annual option to
purchase 2,000 shares of common stock at the then applicable market price. See
"--Stock Option Plans" and "Certain Transactions."
Committees of the Board of Directors
The Compensation Committee of the Board of Directors presently consists of
Mr. Stoughton, Mr. Brenner, Ms. Mackie and Mr. Smith. The Compensation
Committee makes recommendations to the Board of Directors concerning salaries
and incentive compensation for our officers and employees other than our Chief
Executive Officer, whose compensation is determined by the Board of Directors
after consultation with the non-employee directors on the Compensation
Committee. The Audit Committee of the Board of Directors presently consists of
Mr. Koch, Mr. Flatley, Mr. Kermes and Mr. MacDonald. The Audit Committee
reviews our financial statements and accounting practices, makes
recommendations to the Board of Directors regarding the selection of
independent auditors and reviews the results and scope of all audits and other
services provided by our independent auditors.
Compensation Committee Interlocks and Insider Participation
While Mr. Stoughton, a member of our Compensation Committee, is our Chairman
of the Board of Directors and Chief Executive Officer, Mr. Brenner, Ms. Mackie
and Mr. Smith, the other members of our Compensation Committee, have not been,
at any time since our formation, an officer or employee of ours. In addition,
none of our executive officers serves as a member of the board of directors or
compensation committee of any entity that has one or more executive officers
serving on our Board of Directors or Compensation Committee. Cedar Capital
Investors, an entity owned and controlled by Mr. Brenner, provided certain
financial consulting services to us immediately following our formation and up
to the completion of our private placement of common stock in
47
<PAGE>
1997. As consideration for such services, we reimbursed Cedar Capital's out-of-
pocket expenses and granted Cedar Capital an option to purchase 1,154 shares of
common stock at an exercise price of $.052 per share. Ms. Mackie, who serves as
Vice President for Strategy and Business Development at SmithKline Beecham
Healthcare Services, the business development division of SmithKline Beecham
Corporation, was nominated to serve on the Board of Directors by SmithKline
Beecham Corporation pursuant to the terms of a stockholders' agreement by and
among us and our stockholders and warrantholders prior to the offering. Mr.
Smith, who served as a Vice Chairman of Spencer Trask Securities Incorporated
until August 1998, was nominated to serve on the Board of Directors by Spencer
Trask Securities and was formerly a partner in Exigent Partners L.P. See "--
Agreement Relating to Election of Directors" and "Certain Transactions."
Executive Compensation
The following table sets forth information regarding compensation awarded to,
earned by, or paid to our Chief Executive Officer and executive officers whose
salary and bonus exceeded $100,000 for all services rendered to us during the
years ended December 31, 1997 and 1998. No executive officer who would
otherwise have been includable in such table on the basis of salary and bonus
earned during the years ended December 31, 1997 and 1998 has resigned or
otherwise terminated employment during such years.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation
Compensation Awards
----------------- ------------
Securities
Name and Principal Underlying All Other
Position Year Salary Bonus(1) Options Compensation(2)
------------------ ---- -------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
W. Vickery Stoughton...... 1998 $203,481 -- 9,135 $20,797
Chairman of the Board of 1997 $195,281 $27,000 158,655 $20,547
Directors and Chief
Executive Officer
Thomas H. Grove........... 1998 $163,880 -- 5,529 $ 8,603
Executive Vice 1997 $154,013 $25,000 79,327 $ 8,353
President--Research and
Development
</TABLE>
- --------
(1) Bonus earned in 1997 and paid in 1998.
(2) Includes $4,750 contributed under our 401(k) Plan for the benefit of each
of Mr. Stoughton and Dr. Grove in 1997 and $5,000 for the benefit of each
of Mr. Stoughton and Dr. Grove in 1998. Also includes $15,797 and $3,603 of
premiums paid for life insurance for Mr. Stoughton and Dr. Grove, in each
year, respectively.
Stock Options Granted to Executive Officers During 1998
The following table sets forth information regarding options for the purchase
of common stock that were granted to certain executive officers during the year
ended December 31, 1998:
Option Grants in 1998
<TABLE>
<CAPTION>
Potential Realizable
Number of Percent of Value at Assumed
Shares Total Annual Rates of Stock
Underlying Options Exercise or Price Appreciation for
Options Granted Base Price Option Term (4)
Granted to Employees Per Share Expiration -----------------------
Name (1) in 1998 (2) (3) Date 5% 10%
---- ---------- ------------ ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
W. Vickery Stoughton.... 7,212 7% $6.76 7/30/08 $ 30,661 $ 77,700
1,923 2% $7.28 11/05/08 $ 8,804 $ 22,312
Thomas H. Grove......... 3,606 4% $6.76 7/30/08 $ 15,330 $ 38,850
1,923 2% $7.28 11/05/08 $ 8,804 $ 22,312
</TABLE>
- --------
(1) All options were granted under our 1996 Incentive and Non-Qualified Stock
Option Plan. The first listed grant for each person vested or will vest 12%
on December 31, 1998, 1999, 2000, 2001 and 2002 and
48
<PAGE>
40% on July 30, 2007. The second listed grant vested or will vest 20% on
each December 31, commencing December 31, 1998. See "--Stock Option Plans."
(2) Based on an aggregate of 101,135 shares of common stock underlying options
granted to employees in 1998.
(3) Options were granted at fair market value, as determined by our Board of
Directors, based on all factors available to them on the date of grant.
These factors included our history and prospects, as well as the history
and prospects of our industry, an assessment of our past and present
operations and financial performance, the prospects for our future
earnings, the present state of our development, the possibility of an
initial public offering by us and market prices of publicly traded common
stocks of comparable companies in recent periods.
(4) Assumes stock price appreciation of 5% and 10% compounded annually from the
date the respective options were granted to their expiration date, as
mandated by the rules of the Securities and Exchange Commission, and does
not represent our estimate or projection of the future appreciation of our
stock price. Actual gains, if any, on stock option exercises and common
stock holdings, are dependent upon the timing of such exercise and the
future performance of the common stock and may be greater or less than the
potential realizable value set forth in the table.
The following table sets forth certain information regarding options held as
of December 31, 1998 by certain executive officers. None of such executive
officers exercised options during the year ended December 31, 1998.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares
Underlying Unexercised Value of Unexercised
Options at Fiscal Year- In-The-Money Options at
End Fiscal Year-End (1)
------------------------- -------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Vickery Stoughton....... 80,577 87,213 $164,477 $166,312
Thomas H. Grove............ 40,481 44,375 $ 89,383 $ 90,536
</TABLE>
- --------
(1) There was no public trading market for the common stock as of December 31,
1998. Accordingly, these values have been calculated on the basis of the
assumed initial public offering price of $7.50 per share minus the
applicable per share exercise price.
Employment Agreements
We are party to employment agreements with each of Mr. Stoughton, Dr. Grove
and Mr. Koch. On the anniversary date of each employment agreement, the
agreement is automatically extended for three-year rolling terms unless either
party, at least 60 days prior to the annual extension date, gives notice that
the employment agreement shall not be extended or otherwise terminates the
agreement. Mr. Stoughton, Dr. Grove and Mr. Koch may resign upon 90 days notice
to us. Under the employment agreements, Mr. Stoughton, Dr. Grove or Mr. Koch
will be entitled to have his base salary, bonus and stock options continue to
accrue through the end of the then current term if he is terminated without
cause, or becomes disabled. "Cause" includes disloyalty, dishonesty, fraud,
conviction of a felony or the disclosure of confidential information. He will
also be entitled to such amounts if he terminates his employment agreement as a
result of a reduction in his duties, our breach of the employment agreement or
a transaction resulting in our sale. The employment agreements prohibit Mr.
Stoughton, Dr. Grove and Mr. Koch from engaging in the point-of-care
diagnostics business during the term of such employment agreements. These non-
compete clauses will remain in effect for one year after the expiration or
termination of employment. If, however, the term of employment had continued
for at least two years then the non-compete clauses have no effect when
employment is terminated or expires. However, if we terminate employment
without cause or if the employee terminates his employment following our breach
of the agreement or because of a change of control, the non-compete clause
terminates.
Under their respective employment agreements, Mr. Stoughton serves as our
Chairman of the Board of Directors and Chief Executive Officer, and currently
earns an annual base salary of $210,893, Dr. Grove serves
49
<PAGE>
as Executive Vice President--Research and Development, and currently earns an
annual base salary of $167,633, and Mr. Koch serves as our Chief Financial
Officer, Treasurer and Executive Vice President, and currently earns an annual
base salary of $160,000. In addition, Mr. Koch received a $15,000 relocation
allowance in connection with entering into his employment agreement. At the
discretion of our Board of Directors, an annual bonus may be paid to Mr.
Stoughton, Dr. Grove and Mr. Koch. In each case, we may agree to future raises
and other compensation for each of Mr. Stoughton, Dr. Grove and Mr. Koch. In
addition, Mr. Stoughton, Dr. Grove and Mr. Koch are eligible to receive stock
options pursuant to the 1996 Incentive and Non-Qualified Stock Option Plan, the
1996 Key Executive Stock Option Plan and the 1998 Incentive and Non-Qualified
Stock Option Plan. Such executive officers are also entitled to reimbursement
for certain travel and entertainment expenses incurred in connection with the
performance of their duties.
Stock Option Plans
We currently have two stock option plans in place: the 1996 Incentive and
Non-Qualified Stock Option Plan and the 1996 Key Executive Stock Option Plan.
These plans provide for the grant of stock options to purchase up to 576,923
shares of common stock. To date, we have granted options to purchase 430,315
shares of common stock under these plans. Of these, options to purchase 411,588
shares are outstanding. The weighted average exercise price of options
outstanding under the plans is $5.80. To date, we have granted Mr. Stoughton,
Dr. Grove, Mr. Koch, Dr. Asarch, and Dr. Valentekovich options to purchase
167,790, 84,856, 41,586, 21,875 and 5,769 shares of common stock, respectively,
at a weighted average exercise price of $5.69. We have also granted options to
purchase an aggregate of 19,467 shares of common stock to non-employee
directors for their service as directors. We may grant options to purchase
147,620 shares of common stock in the future under the 1996 Incentive and Non-
Qualified Stock Option Plan.
Upon completion of the offering, two additional option plans will take
effect: the 1998 Incentive and Non-Qualified Stock Option Plan and the 1998
Director Stock Option Plan. These 1998 plans provide for the grant of stock
options to purchase up to 565,000 and 60,000 shares of common stock,
respectively.
The purpose of our stock option plans is to promote our long-term growth and
profitability by providing key personnel with incentives to improve stockholder
value and to contribute to our growth and financial success. After completion
of this offering, options may be awarded under the 1996 plans and the 1998
Incentive and Non-Qualified Stock Option Plan to our executive officers,
employees and consultants. Only non-employee directors will be eligible for
awards under the 1998 Director Stock Option Plan.
Our option plans are administered by our Board of Directors or a committee of
the Board. They decide the types of options to be granted, the number of shares
to be covered, the exercise price of each stock option, the expiration date of
each stock option, the vesting schedule and any other material provisions.
Non-employee directors have received automatic, fully-vested option grants
under the 1996 Incentive and Non-Qualified Stock Option Plan. After completion
of the offering, each year, we will automatically grant each non-employee
director an option to purchase 2,000 shares of common stock under the 1998
Director Stock Option Plan. Director options always have a fair market value
exercise price. Such options vest at the end of the year of service as a
director to which the option relates. All director options under the 1998
Director Stock Option Plan generally will be exercisable for a period of five
years.
Option grants to our employees may take the form of either incentive stock
options, which are intended to qualify for preferential tax treatment under
Section 422 of the Internal Revenue Code, or non-qualified stock options, which
do not qualify for such treatment. Directors may receive only non-qualified
stock options. The exercise price of an incentive stock option generally must
not be less than the fair market value of the common stock on the date the
option is granted. The exercise price of a non-qualified stock option will be
stated in the option agreement governing the non-qualified stock option and is
not required by the option plans to be the fair market value of the common
stock on the date the option is granted.
50
<PAGE>
In the event of any stock dividend, stock split, reverse stock split,
recapitalization or reclassification, involving us, appropriate proportional
adjustments will be made in the number of shares reserved for issuance under
the option plans, and the number, kind and price of shares covered by
outstanding grants. The option plans also provide for the ability of the Board
of Directors or a committee to accelerate the exercise date of any options
granted thereunder. Options may not be exercised more than 10 years after the
date of grant. In some cases, shorter periods apply. Shares underlying options
that lapse or expire are returned to the pool of shares available under the
plans. Grants under any option plan may only be made during the 10 year period
after the plan's adoption.
Our stock option plans may be amended by the Board of Directors so long as
such amendment does not change the terms of any outstanding option without the
affected optionee's consent or increase the number of shares that are the
subject of the plans.
Employee Stock Purchase Plan
Our Board of Directors adopted an Employee Stock Purchase Plan in November
1998. This plan qualifies as an employee stock purchase plan under Internal
Revenue Code Section 423 and will be effective upon completion of the offering.
It allows employees to purchase, in the aggregate, up to 150,000 shares of our
common stock at a discount through payroll deductions. The purchase price per
share offered under the Employee Stock Purchase Plan will be 85% of the lesser
of the fair market value per share of common stock on the first or last trading
day of the quarter. Stock purchased will not be subject to taxes until sold.
The plan is designed to encourage and facilitate the purchase of common stock
by our employees and thereby to provide our employees with both a personal
stake in our business and a long range inducement to remain our employee. Each
of our full-time employees is eligible to participate in the Employee Stock
Purchase Plan.
The number and price of shares of common stock available for purchase under
the plan is subject to adjustment in the event the outstanding shares of common
stock are increased or decreased through stock dividends, recapitalizations,
reorganizations or similar changes. The plan is to be administered by our Board
of Directors or a committee of the Board of Directors.
All funds we hold or receive under the Employee Stock Purchase Plan may be
used for any corporate purpose until applied to the purchase of shares of
common stock or refunded to employees and will not be segregated from our
general assets. We will pay all fees and expenses incurred (excluding
individual federal, state, local or other taxes) in connection with the
Employee Stock Purchase Plan.
Unless stockholder approval is required by law, the Board of Directors or a
committee of the Board of Directors has the right to amend, modify or terminate
the Employee Stock Purchase Plan at any time without notice, provided that no
employee's then existing rights are adversely affected without his or her
consent.
401(k) Plan
We have a 401(k) Salary Reduction Plan and Trust for eligible employees.
Eligible employees may contribute up to 15% of their current compensation, up
to a statutorily prescribed annual limit, to the 401(k) plan. Each participant
is fully-vested in his or her deferred salary contributions. A participant's
contributions are held in trust and invested pursuant to his or her directions
from among 20 or more investment funds made available under the 401(k) plan. We
may make matching contributions of 50% of each participant's deferred salary
contributions, up to a maximum of 4% of such participant's compensation. Our
matching contributions vest after a participant has completed three years of
service with us, or earlier upon attainment of age 55, death while in service,
retirement for disability or termination of the 401(k) plan. Payment of 401(k)
plan benefits are made in a single lump-sum payment. Distribution of a
participant's vested interest in his or her account generally occurs after a
participant's termination of employment for any reason, including retirement,
death or disability.
51
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock as of May 25, 1999, by (1) each person or group of
affiliated persons known by us to be the beneficial owner of more than 5% of
our outstanding common stock, (2) each of our directors, (3) each of our
executive officers and (4) all of our executive officers and directors as a
group. As of such date, there were 5,084,340 shares of common stock outstanding
before giving effect to the sale of common stock in the offering.
The number of shares of common stock actually owned by each principal
stockholder is listed in Column A, entitled "Shares of Common Stock." In
addition, each principal stockholder is deemed to be the beneficial owner of
common stock that such stockholder can acquire upon the exercise of warrants or
options on or within 60 days after May 25, 1999, including options or warrants
which vest upon consummation of the offering. These option and warrant shares
are listed separately in Column B, entitled "Shares Underlying
Options/Warrants." The total of these two columns is then set forth in Column
C. Each principal stockholder's percentage ownership before the offering is in
Column D and is based on the share numbers in Column C. Column E presents their
percentage ownership of outstanding common stock immediately after the offering
assuming 2,500,000 shares of common stock are issued as part of units sold in
the offering and no over-allotment option is exercised. The warrants included
in units sold in the offering and the warrants to purchase units issued to the
underwriters' representatives are disregarded for purposes of calculating the
percentages in Column E. Unless otherwise noted, we believe that all persons
named in the table have sole voting and investment power with respect to all
shares beneficially owned by them.
<TABLE>
<CAPTION>
(C) (D) (E)
(A) (B) Total Total Total
Shares of Shares Beneficial Ownership Percentage Percentage
Common Underlying (Column A plus Owned Before Owned After
Name of Beneficial Owner Stock Options/Warrants Column B) Offering Offering
- ------------------------ --------- ---------------- -------------------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Kevin Kimberlin......... 765,891(1) 336,349(2) 1,102,240 20.3% 13.9%
c/o Spencer Trask
Securities
Incorporated
535 Madison Avenue,
18th Floor
New York, New York
10022
SmithKline Beecham
Corporation............ 229,808 559,402(3) 789,210 14.0% 9.7%
One Franklin Plaza
Philadelphia,
Pennsylvania 19101
W. Vickery Stoughton.... 285,005 152,693 437,698 8.4% 5.7%
c/o Careside, Inc.
6100 Bristol Parkway
Culver City, California
90230
Peter Friedli........... 373,521(4) 42,974(5) 416,495 8.1% 5.5%
c/o Friedli Corp.
Finance
Freigustrasse 5
8002 Zurich,
Switzerland
Dr. Thomas H. Grove..... 205,294 76,539 281,833 5.5% 3.7%
c/o Careside, Inc.
6100 Bristol Parkway
Culver City, California
90230
Philip B. Smith......... 94,315(6) 113,097(7) 207,412 4.0% 2.7%
James R. Koch........... -- 32,676 32,676 * *
William F. Flatley...... 15,470 4,326 19,796 * *
Anthony P. Brenner...... 9,615 5,480(8) 15,095 * *
Kenneth Kermes.......... 2,959 2,163 5,122 * *
Diana Mackie............ 4,438 -- 4,438 * *
C. Alan MacDonald....... -- 4,326 4,326 * *
All executive officers
and directors as a
group (9 persons)...... 617,096 391,300 1,008,396 18.4% 12.6%
</TABLE>
- --------
* Represents less than 1% of our outstanding shares of common stock.
(1) Includes 426,850 shares of common stock held by Oshkim Limited Partners,
L.P., and 339,041 shares of common stock held by Kevin Kimberlin Partners,
L.P., both of which are limited partnerships of which Mr. Kimberlin is the
general partner.
(2) Includes 20,517 shares of common stock issuable upon the exercise of
warrants held by Oshkim Limited Partners, L.P., and 38,095 shares of
common stock issuable upon the exercise of warrants held by Kevin
Kimberlin Partners, L.P. Also includes 277,737 shares of common stock
issuable upon the exercise of warrants owned by Spencer Trask Securities
Incorporated of which Mr. Kimberlin is Chairman and exercises voting
control. See "Certain Transactions--Financing Activities."
(3) Includes 324,108 shares of common stock underlying shares of Series A
Convertible Preferred Stock, and underlying warrants received on
conversion thereof, owned by S.R. One, Limited, an affiliate of SmithKline
Beecham Corporation, as of completion of the offering. Also includes
235,294 shares of common stock issuable upon exercise of warrants that
will be owned by S.R. One, Limited upon completion of the offering.
Notwithstanding the exercisability of the bridge warrant by its terms,
S.R. One has separately agreed not to exercise it until the earlier of six
months after the offering or December 17, 1999.
(4) Includes 373,521 shares of common stock owned by Venturetec, Inc., of
which Mr. Friedli is the controlling stockholder.
(5) Includes 9,320 shares of common stock issuable upon the exercise of
warrants owned by Pine Incorporated, a corporation owned and controlled by
Mr. Friedli.
(6) Includes 50,952 shares of common stock owned by Private Equity
Partnership, of which Mr. Smith is the general partner.
(7) Includes 108,771 shares of common stock issuable upon exercise of warrants
held by Private Equity Partnership.
(8) Includes 1,154 shares of common stock issuable upon the exercise of
options which were issued pursuant to a consulting agreement with an
affiliate of Mr. Brenner. See "Certain Transactions--Financing
Activities."
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CERTAIN TRANSACTIONS
SmithKline Beecham
In July 1996, we entered into a letter of intent with SmithKline Beecham
Corporation and SmithKline Beecham Diagnostics Systems Co., an affiliate of
SmithKline Beecham Corporation, with respect to their point-of-care development
program. Pursuant to that letter of intent, SmithKline Beecham Corporation
supported the point-of-care development program by funding $1.8 million of the
program's operating expenses for the transition period from July 1, 1996
through October 31, 1996. This funding has been reflected in the Statement of
Operations of the predecessor business for the ten months ended October 31,
1996. Pursuant to an asset purchase agreement, SmithKline Beecham Diagnostics
Systems Co. and SmithKline Beecham Clinical Laboratories, Inc., sold us certain
fixed and intangible assets used in connection with the point-of-care
development program. As consideration for the purchase of the assets, we issued
to SmithKline Beecham Diagnostics Systems Co. 5% of our total common stock
outstanding at that time. This stock was later transferred to SmithKline
Beecham Corporation. Ms. Mackie, Vice President for Strategy and Business
Development at SmithKline Beecham Healthcare Services, a division of SmithKline
Beecham Corporation, has served as one of our directors since February 1997 as
a representative of SmithKline Beecham Corporation. SmithKline Beecham
Corporation is one of our significant stockholders.
In addition to the operating funding provided during the transition period,
SmithKline Beecham Corporation made available to us a $1.0 million credit
facility at an interest rate of 8% per annum. We used the $1.0 million to fund
research and development and to establish our production facility by funding
capital purchases, rental payments for our facilities in Culver City,
California and operating expenses. In January 1997, the SmithKline Beecham
Corporation credit facility was converted into an additional 2% of our
outstanding common stock simultaneously with the initial closing of our 1997
private placement of common stock.
Simultaneously with the closing of the asset purchase, we entered into a
distribution and supply agreement with SmithKline Beecham Clinical
Laboratories, Inc. pursuant to which SBCL received exclusive distribution
rights to sell our products to segments of the commercial laboratory industry.
The exclusive distribution rights will extend to ten of the following
countries: United States, Great Britain, Mexico, Spain, South Africa,
Singapore, Malaysia, Indonesia, Australia, Chile, Argentina, France or Germany,
if SBCL or one of its affiliates owns, operates or manages a clinical
laboratory in such country on or before December 31, 2000. Whenever we obtain
the necessary approvals to market and sell our products in a listed country,
SBCL must submit purchase orders for the products within designated time
periods in order to preserve its exclusive rights in that country. Otherwise,
we will be free to sell our products in that country to the commercial
laboratory industry as well. Our ability to sell our products outside the
commercial laboratory industry is not limited by the contract with SBCL. SBCL
and its affiliates are not restricted from entering into similar commercial
distribution arrangements with other point-of-care diagnostic companies. In
consideration for this grant of exclusivity, SBCL will pay us an annual fee of
up to $100,000 commencing on the date of FDA approval of the CareSide Analyzer
and 25 designated tests. Subject to earlier termination, the distribution and
supply agreement will terminate five years from the date of such FDA approval.
Under the distribution and supply agreement, SBCL will, until December 31,
2000 or any earlier termination of the agreement, supply us with clinical
samples to enable us to validate tests for our research and development of
point-of-care products. We will bear the cost of retrieving the samples and
conducting our comparative validation tests. In addition, the distribution and
supply agreement obligates SBCL, upon FDA approval of the CareSide Analyzer and
30 designated tests, to purchase minimum numbers of CareSide Analyzers and test
cartridges from us for the first five years following such FDA approval. We
have agreed to supply SBCL with its requirements of CareSide Analyzers and
cartridges at our cost plus a reasonable margin. If we do not develop the
CareSide Analyzer and obtain FDA approval of 25 designated tests by
December 31, 2000, SBCL has the option to terminate the agreement or waive the
FDA approval requirement.
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Under our distribution and supply agreement with SBCL, all intellectual
property rights to patents, trademarks or otherwise which are associated with
the marketing and development of point-of-care products remain with us although
we share rights and responsibilities with SBCL in the protection of these
rights.
Financing Activities
On December 2, 1996, in connection with the establishment of a $1 million
working capital facility, we issued 557,601 shares of common stock to Exigent
Partners, L.P. for an aggregate purchase price of $98,995. The working capital
facility was arranged by Exigent Partners, L.P. to be provided to us in the
form of a $1.0 million irrevocable letter of credit from Citibank, N.A.,
secured by pledges of cash or cash equivalents by Exigent Partners, L.P. The
general partner of Exigent Partners, L.P. was Kevin Kimberlin, an affiliate of
Spencer Trask Securities Incorporated and one of our principal stockholders,
and the limited partners were Mr. Stoughton and Dr. Grove, two of our executive
officers and directors, and Mr. Smith, one of our directors. Of the 557,601
shares of common stock issued to Exigent Partners, L.P., Mr. Kimberlin took
beneficial ownership of 426,850 shares of common stock, and Mr. Stoughton and
Dr. Grove took beneficial ownership of 36,802 and 18,958 shares of common
stock, respectively. We repaid all funds drawn under the facility and the
letter of credit, both of which have since terminated. Exigent Partners, L.P.
was dissolved and each of its partners received a pro rata distribution of
shares of common stock. See "Principal Stockholders."
In 1997 and 1998, we undertook two private placements of our common stock,
both of which were completed through Spencer Trask Securities Incorporated.
Spencer Trask received approximately $2.5 million in commissions and expenses
from the private placements, which generated aggregate net proceeds to us of
$19.0 million. Affiliates of Spencer Trask, including its employees, received
warrants to purchase 384,615 shares of common stock at $5.20 per share in the
1997 private placement and warrants to purchase 340,237 shares of common stock
at $6.76 per share in the 1998 private placement. Warrants issued in connection
with both private placements will expire three years from the closing of the
offering.
As partial consideration for its services in the 1997 private placement,
Spencer Trask was granted a right of first refusal to act as underwriter or
agent for any proposed public offering or any private placement of our
securities. Spencer Trask was also granted the right to purchase securities in
any such offering in which purchasers in the 1997 private placement are
entitled to preemptive rights under the stockholders' agreement or in any sale
of common stock by the former partners of Exigent Partners, L.P. Spencer Trask
has waived all such rights in connection with the offering.
At the first closing of the 1997 private placement, we entered into an
investment banking agreement with Spencer Trask pursuant to which Spencer Trask
will receive a percentage, ranging from seven percent to two and one-half
percent, depending upon the size of the transaction involved, of the
consideration involved in any transaction we undertake with a person introduced
to us by Spencer Trask in the five years ending March 2002. The agreement also
provides for Spencer Trask, subject to certain terms and conditions, to act as
our exclusive representative in advising us with respect to executive
compensation benefits, insurance and retirement planning, providing us with
certain investment banking services and addressing our cash management needs.
Spencer Trask has waived all such rights relating to investment banking
services.
In connection with the 1997 and 1998 private placements, we entered into a
stockholders' agreement with each of our stockholders and warrantholders. The
stockholders' agreement included preemptive rights and provided for the
nomination and election of each of our current directors including Ms. Diana
Mackie, Vice President of a division of SmithKline Beecham Corporation. The
preemptive rights do not apply to shares issued in the offering. The
stockholders' agreement will terminate by its terms upon completion of the
offering. See "Management-- Agreement Relating to Election of Directors."
In December 1997, Cedar Capital Investors, an entity owned and controlled by
Anthony P. Brenner, one of our directors, provided certain financial consulting
services to us in connection with the 1998 private placement. In consideration
for providing such services, Cedar Capital Investors was reimbursed $6,651 for
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out-of-pocket expenses and received options to purchase 1,154 shares of common
stock at an exercise price of $.052 per share. These options remain exercisable
until August 8, 2007.
In July 1998, in connection with the relocation of James R. Koch, our Chief
Financial Officer, Treasurer and Executive Vice President, as well as one of
our directors, from Texas to the Los Angeles area in August 1998, we provided a
bridge loan to Mr. Koch, pursuant to a promissory note executed in our favor by
Mr. Koch, in the aggregate principal amount of $125,000. The bridge loan, which
was subject to an interest rate of 7.5% per annum, was paid in full by Mr. Koch
on September 21, 1998. As of that date, an aggregate of $125,911 in principal
and interest was owing under the promissory note.
In December 1998, we entered into a bridge financing with S.R. One, Limited,
a business trust controlled by SmithKline Beecham Corporation. For
consideration of $3.0 million cash, we issued S.R. One a $3.0 million note
payable bearing interest at 8%. In April 1999, S.R. One agreed to convert $1
million of the $3 million loan, together with accrued interest on the $1
million, upon consummation of the offering, into shares of Series A Convertible
Preferred Stock. The conversion price will be 85% of the initial public
offering price per unit such that the number of shares of our Series A
Convertible Preferred Stock issued to S.R. One upon the conversion of the loan
will depend upon when the offering is completed and the initial public offering
price per unit. If the initial public offering price per unit is $7.50 and the
offering closes on May 31, 1999, S.R. One will receive 162,054 shares of Series
A Convertible Preferred Stock. Each share of Series A Convertible Preferred
Stock will in turn be convertible, at the option of the holder, six months
after the offering into one share of our common stock and one warrant to
purchase an additional share of our common stock. All accrued and unpaid
dividends with respect to shares of Series A Convertible Preferred Stock that
are converted by S.R. One will be converted into units at the initial public
offering price per unit. The exercise price and other terms of the warrant
received on the conversion of the Series A Convertible Preferred Stock will be
the same as the warrants included in units sold in the offering. The remaining
$2 million of the loan matures in December 1999. The annual interest rate on
the remaining $2 million will increase to 10% on July 1, 1999. If the remainder
of the bridge loan is not repaid by December 1, 1999, S.R. One will have the
option to convert all or any portion of the remaining loan, plus accrued
interest thereon, into shares of Series A Convertible Preferred Stock. The
Series A Convertible Preferred Stock will be issued to S.R. One on the same
basis as the Series A Convertible Preferred Stock that is issued to S.R. One as
part of the $1 million conversion at the completion of the offering.
In connection with the bridge financing, we issued a warrant to S.R. One
which entitled it to purchase that number of shares of common stock equal to
$750,000 divided by 85% of the initial public offering price per share of
common stock. The number of warrants doubled if the bridge loan was not repaid
by June 30, 1999. As part of the conversion of a portion of the bridge
financing into shares of Series A Convertible Preferred Stock, the bridge
warrant will be modified such that it will be exercisable in all events for the
number of shares of common stock which is equal to $1,500,000 divided by 85% of
the initial public offering price per unit in the offering. S.R. One has agreed
that it will not exercise the bridge warrant until the earlier of December 17,
1999 or six months after the offering is completed.
We consider the terms of all of the above-referenced transactions to be at
arm's length and reasonably equivalent to terms it could have obtained through
negotiations with unaffiliated third parties under similar economic conditions.
Any transactions undertaken in the future, including loans, we enter into with
any of our officers, directors and principal stockholders or their affiliates,
will be approved by a majority of the entire Board of Directors, and will be on
terms no less favorable to us than could be obtained from unaffiliated third
parties. See "Description of Capital Stock--Takeover Protection and Certain
Charter and By-Law Provisions."
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DESCRIPTION OF CAPITAL STOCK
Upon completion of the offering, our authorized capital stock will consist of
(1) 50,000,000 shares of common stock, $.01 par value per share, and (2)
5,000,000 shares of preferred stock, $.01 par value per share, of which there
will be 7,584,340 shares of common stock and [162,054 if the initial
public offering price per unit is $7.50 and the offering closes on May 31,
1999] shares of Series A Convertible Preferred Stock outstanding, assuming no
exercise of the underwriters' over-allotment option. The following description
of our capital stock is a summary and is qualified in its entirety by the
provisions of our Amended and Restated Certificate of Incorporation and Amended
(including the Certificate of Designations for our Series A Convertible
Preferred Stock) and Restated By-Laws, copies of which have been filed as
exhibits to the registration statement of which this prospectus forms a part.
Units
Each unit consists of one share of common stock and one warrant to purchase
an additional share of common stock. The units will automatically separate 30
days from the date of this prospectus, after which the common stock and
warrants in the units will trade separately.
Common Stock
The issued and outstanding shares of common stock being offered hereby will
be, when sold and issued in accordance herewith, validly issued, fully paid and
non-assessable. Each holder of shares of common stock will be entitled to one
vote for each share held of record and may not cumulate votes for election of
directors. The shares will not be entitled to preemptive rights under
applicable law and will not be subject to redemption or assessment. Subject to
the rights and preferences of the holders of any preferred stock outstanding in
the future, upon our liquidation, dissolution or winding-up, the holders of
shares of common stock will be entitled to receive, pro rata, our assets which
are legally available for distribution to stockholders. In addition, subject to
the rights and preferences of the holders of any preferred stock outstanding in
the future, the holders of shares of common stock will be entitled to share
ratably in dividends as, if and when declared by our Board of Directors. We do
not anticipate that any dividends will be paid in the foreseeable future. As of
May 25, 1999, there were 433 holders of common stock.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock will have a stated value equal to
$ per share [initial public offering price per unit]. Upon completion of the
offering, the number of shares of Series A Convertible Preferred Stock
outstanding will be equal to $1 million plus the accrued interest on $1 million
of the bridge loan from S.R. One, Limited, divided by 85% of the initial public
offering price per unit. The Series A Convertible Preferred Stock will be
preferred over common stock in dividends and will have a liquidation preference
over common stock equal to the stated value of the Series A Convertible
Preferred Stock, plus all accrued and unpaid dividends on the Series A
Convertible Preferred Stock. Each share of Series A Convertible Preferred Stock
will have one vote on all matters to be voted on by the holders of the common
stock and will vote with the holders of the common stock as one voting group.
The Series A Convertible Preferred Stock has the right to vote as a separate
class pursuant to applicable law and on any action limiting the preferences or
rights of the Series A Convertible Preferred Stock, reclassifying the common
stock or any other capital stock ranking junior to the Series A Convertible
Preferred Stock into any class of security ranking senior to or the same as the
Series A Convertible Preferred Stock, or increasing the authorized number of
shares of Series A Convertible Preferred Stock. The Series A Convertible
Preferred Stock will bear a cumulative dividend, which shall accrue if not
declared by the Board of Directors, at an annual rate of 10% of stated value.
The Series A Convertible Preferred Stock is convertible at the option of the
holder six months after the offering into a unit comprised of one share of
common stock and a warrant to purchase one additional share of common stock.
All accrued and unpaid dividends with respect to shares of Series A Convertible
Preferred
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Stock that are converted will be converted into units at the initial offering
price per unit. The terms and conditions of the warrants received on conversion
of Series A Convertible Preferred Stock, including its exercise price, are
identical to the terms and conditions of the warrants included in the units
sold in the offering.
We have the right to redeem the Series A Convertible Preferred Stock at any
time for a per share amount equal to the sum of $ [the initial public
offering price per unit], any accrued and unpaid dividends and the greater of
$0.05 or the excess of the average five day closing price of a share of common
stock over the exercise price of the warrant issuable upon conversion of the
Series A Convertible Preferred Stock.
Undesignated Preferred Stock
In addition to the common stock and the Series A Convertible Preferred Stock,
we are, without further action by stockholders, also authorized to issue up to
shares of preferred stock [5,000,000 less the number of shares of Series A
Convertible Preferred Stock outstanding upon the consummation of the offering].
Our Board of Directors may determine the timing, series, designation, and
number of shares of preferred stock to be issued, as well as the rights,
preferences, and limitations of such shares, including those relating to voting
power, redemption, conversion, dividend rights, and liquidation. The issuance
of preferred stock could adversely affect the voting power of the holders of
common stock or have the effect of deterring, delaying or preventing any
attempt by a person, entity or group to obtain control of us. We have no
current plans to issue any shares of preferred stock.
Unit Warrants
Each warrant comprising part of the units sold in the offering will entitle
the holder to purchase one share of common stock at an exercise price of $
[150% of the initial public offering price per unit]. The warrants will
generally be exercisable at any time commencing 30 days after the date of this
prospectus until the fifth anniversary of the date of this prospectus, unless
earlier redeemed. The warrants are redeemable by us, in whole or in part pro
rata from all warrant holders, at a price of $0.05 per warrant, upon 30 days'
prior written notice, if the closing price defined in the warrant agreement,
which we describe below, per share of common stock for the ten consecutive
trading days immediately preceding the date of notice of redemption equals or
exceeds $ [200% of the initial public offering price per unit]. We may not
redeem any warrants until six months after the date of this prospectus. We may
give more than one notice of redemption. If given, notices of redemption are
required to be mailed by registered or certified mail to record holders of
warrants. If we give notice of our intention to redeem, a holder will have the
choice either to sell or exercise his or her warrants before the date specified
in the redemption notice or to accept the redemption price. After the
redemption date, there can be no exercise of the warrants that were the subject
of the redemption.
Upon the completion of the offering, an additional 250,000 warrants will be
issued to the representatives of the underwriters entitling them to receive,
upon due exercise and payment of $ as the exercise price [120% of the
initial public offering price per unit], 250,000 units having the same terms as
the units sold in the offering. The representatives' warrants will expire five
years from the effective date of the offering and will be exercisable
commencing one year after the effective date of the offering. See
"Underwriting."
The warrants will be issued in registered form under a warrant agreement
between us and American Stock Transfer & Trust Company, as warrant agent. The
shares of common stock underlying the warrants, when issued upon exercise of a
warrant, will be fully paid and nonassessable. We will pay any transfer tax
incurred as a result of the issuance of common stock to the holder upon its
exercise.
The warrants contain provisions that protect the holders against dilution by
adjustment of the exercise price. These adjustments will occur in the event of
a merger, consolidation, sale or conveyance of substantially all of the assets
of Careside, stock split or reverse stock split, stock dividend, capital
reorganization or reclassification of our common stock. We have the option to
issue fractional shares or cash for fractional shares upon the exercise of a
warrant. The holder of a warrant will not, by reason of owning a warrant,
possess any rights as our shareholder until he or she exercises the warrant.
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A warrant may be exercised upon surrender of the warrant certificate on or
before the expiration or redemption date of the warrant at the offices of the
warrant agent, with the form of "Election to Purchase" on the reverse side of
the warrant certificate completed and executed as indicated, accompanied by
payment of the exercise price (by certified or bank check payable to the order
of Careside, Inc.) for the number of shares with respect to which the warrant
is being exercised.
For a holder to exercise the warrants, there must be a current registration
statement in effect with the Securities and Exchange Commission and
qualification in effect under applicable state securities laws (or applicable
exemptions from state qualification requirements) with respect to the issuance
of common stock or other securities underlying the warrants. We have agreed to
use all commercially reasonable efforts to cause the registration statement, of
which this prospectus forms a part, to remain effective in anticipation of and
before the exercise of the warrants and take such other actions under the laws
of various states as may be required to cause the sale of common stock or other
securities upon exercise of warrants to be lawful. We will not be required to
honor the exercise of warrants if, in the opinion of our Board of Directors,
with the advice of counsel, the sale of securities upon exercise would be
unlawful.
The foregoing discussion of material terms and provisions of the warrants is
qualified in its entirety by reference to the detailed provisions of the
warrant agreement, the form of which has been filed as an exhibit to the
registration statement of which this prospectus is a part.
For the life of the warrants, the holders have the opportunity to profit from
a rise in the market price of the common stock without assuming the risk of
ownership of the shares of common stock underlying the warrants. The warrant
holders may be expected to exercise their warrants at a time when we would, in
all likelihood, be able to obtain any needed capital by an offering of common
stock on terms more favorable than those provided for by the warrants.
Furthermore, the terms on which we could obtain additional capital during the
life of the warrants may be adversely affected by the existence of the
warrants.
Prior Warrants
As of May 25, 1999, we had outstanding exercisable warrants to purchase
384,615 shares of common stock at $5.20 per share. These warrants were issued
in connection with the 1997 private placement and will expire three years after
the completion of the offering. In addition, as of May 25, 1999, we had
outstanding exercisable warrants to purchase 340,237 shares of common stock at
$6.76 per share. These warrants were issued in connection with the 1998 private
placement and will expire three years from the closing of the offering.
Further, we issued a bridge warrant to S.R. One, Limited in connection with the
bridge financing. The bridge warrant will become exercisable on the earlier of
December 17, 1999 or six months after the completion of the offering for the
number of shares of common stock which is equal to $1,500,000 divided by 85% of
the initial public offering price per unit in the offering. The bridge warrant
would be exercisable for 235,294 shares of common stock if the initial public
offering price were $7.50 per unit. The bridge warrant has an exercise price of
85% of the initial public offering price per unit. The bridge warrant will
expire four years after completion of the offering.
Registration Rights
Granted in Private Placements
We granted investors in the 1997 and 1998 private placements of common stock
demand and incidental registration rights. These include the right of the
holders of a majority of the registrable shares to demand registration of their
shares and the right of these investors to include their shares in other
registrations of our equity securities, other than in connection with issuances
under our benefit and other employee plans. We granted similar rights with
respect to the shares underlying the warrants issued to Spencer Trask
Securities Incorporated in connection with the 1997 and 1998 private
placements. In addition, we agreed to effect a registration under the
Securities Act for the resale of the common stock purchased by investors in the
1997
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private placement automatically within 180 days after the date of this
prospectus. We also agreed to effect a registration for the resale of the
common stock purchased by investors in the 1998 private placement automatically
within 360 days after the date of this prospectus. This automatic registration
may be delayed by Spencer Trask together with the underwriters of this
offering. If we fail to register the common stock underlying the shares in
accordance with the terms of the agreements with the investors in the 1997 and
1998 private placements, we must either repurchase the shares at the fair
market value or give investors the ability to elect a majority of our Board of
Directors in order to provide liquidity. Pursuant to powers of attorney granted
by many investors, and amendments and waivers to the registration agreements,
our obligation to effect such registrations has been deferred until one year
after the date of this prospectus.
Granted to SmithKline
We have also granted demand and incidental registration rights to SmithKline
Beecham Corporation for the registration under the Securities Act of the resale
of any or all of the common stock held by it at any time after the date of this
prospectus. SmithKline has agreed not to make a demand for registration for a
period of at least one year after the offering. If we register an issuance of
our equity securities, other than shares issuable under employee or other
benefit plans, SmithKline may request that its shares be included in the
registration.
Granted to Management and Exigent Partners, L.P.
Additionally, Messrs. Stoughton and Smith, Drs. Grove and Asarch and three of
our employees and the former partners of Exigent Partners, L.P. have also been
granted demand and incidental registration rights with respect to their common
stock. The holders of a majority of all registrable securities owned by these
stockholders may demand on two occasions registration for the resale of any or
all of their shares. If we register an issuance of our equity securities, other
than shares issuable under our employee or other benefit plans, these holders
may request to include their shares in the registration.
Granted to S.R. One
In December 1998 in connection with the bridge financing and in April 1999 in
connection with the conversion of a portion of the bridge loan into Series A
Convertible Preferred Stock, we granted demand and incidental registration
rights to S.R. One, Limited. S.R. One may demand that its shares of common
stock purchased upon exercise of the bridge warrant, or the common stock and
warrants issued on conversion of the Series A Convertible Preferred Stock, be
registered under the Securities Act. S.R. One may make such demand anytime
after six months and before three years after this offering. S.R. One has the
same incidental registration rights as SmithKline, described above.
Granted to Representative
Pursuant to a warrant agreement that we have entered into with Paulson
Investment Company, Inc., on behalf of each of the representatives of the
underwriters, we have agreed to maintain an effective registration statement
with respect to the issuance of the common stock and warrants included in the
units issued to our underwriters' representatives, if necessary, to allow their
public resale without restriction, at all times during the period in which the
representatives' warrants are exercisable, beginning one year after the
effective date of the offering. The representatives' warrants, as well as the
shares of common stock and warrants included in the units issuable upon
exercise of the representatives' warrants, are being registered on the
registration statement of which this prospectus is a part. We will cause the
registration statement to remain effective until the earlier of the time that
all of the representatives' warrants have been exercised and the date which is
five years after the effective date of the offering. All expenses incurred in
connection with the registration of the shares of common stock and warrants
included in the units issuable upon the exercise of the representatives'
warrants will be borne by us. Under the warrant agreement, the parties will
also be bound by standard indemnification and contribution provisions with
respect to the registration of the warrant shares issuable upon the exercise of
the representatives' warrants.
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General
As of May 24, 1999, there were 5,084,340 shares of common stock subject to
registration rights. We will pay for all expenses incurred in connection with
these registrations, other than underwriting discounts and commissions. The
registration agreements also provide for customary indemnification and
contribution provisions involving the participants in any registration effected
pursuant thereto. The foregoing is only a summary of certain of the terms and
conditions of the registration rights agreements involving such parties. Copies
of the actual agreements have been filed with the Securities and Exchange
Commission as exhibits to the registration statement of which this prospectus
is a part.
Certain Federal Income Tax Considerations
The following discussion sets forth the material federal income tax
consequences, under current law, relating to the purchase and sale of the units
and the underlying common stock and warrants. The discussion is a summary and
does not purport to deal with all aspects of federal taxation that may be
applicable to an investor, nor does it consider specific facts and
circumstances that may be relevant to a particular investor's tax position.
Some holders, such as dealers in securities, insurance companies, tax exempt
organizations, foreign persons and those holding common stock or warrants as
part of a straddle or hedge transaction, may be subject to special rules that
are not addressed in this discussion. This discussion is based only on current
provisions of the Internal Revenue Code of 1986, as amended, and on
administrative and judicial interpretations as of the date hereof, all of which
are subject to change. You should consult your own tax advisor as to the
specific tax consequences to you of this offering, including the applicability
of federal, state, local and foreign tax laws.
Allocation of Purchase Price
Each unit as a whole will have a tax basis equal to the cost of the unit. The
measure of income or loss from some of the transactions described below depends
on the tax basis in each of the warrant and the common stock comprising the
unit. We have allocated the purchase price between the warrant and the common
stock so that the tax basis for the warrant will be $0.05 and the tax basis for
the common stock will be equal to the cost of the unit less $0.05. If you
disagree with the allocation, please see your tax advisor for advice on how to
notify the Internal Revenue Service that you disagree with the allocation and
claim a different basis.
Exercise or Sale of Warrants
No gain or loss will be recognized by a holder of a warrant on the purchase
of shares of common stock for cash on an exercise of a warrant, except that
gain will be recognized to the extent cash is received in lieu of fractional
shares. The tax basis of common stock received upon exercise of a warrant will
equal the sum of the holder's tax basis for the exercised warrant and the
exercise price. The holding period of the common stock acquired will begin on
the date the warrant is exercised and the common stock is purchased. It does
not include the period during which the warrant was held.
Gain or loss from the sale or other disposition of a warrant will be capital
gain or loss to its holder if the common stock to which the warrant relates
would have been a capital asset in the hands of such holder. This capital gain
or loss will be long-term capital gain or loss if the holder has held the
warrant for more than one year at the time of the sale, disposition or lapse.
On the redemption of a warrant by us, the holder generally will realize capital
gain or loss. Individuals generally have a maximum federal income tax of 20% on
long term capital gains. The deduction of capital losses is subject to
limitations.
Sale of Common Stock
A holder's sale of common stock which is not in connection with a tax free
reorganization of Careside will result in the recognition of gain or loss to
the holder in an amount equal to the difference between the amount realized and
such holder's tax basis in the common stock. If the common stock constitutes a
capital asset in the hands of the holder, gain or loss upon the sale of the
common stock will be characterized as long-
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<PAGE>
term or short-term capital gain or loss, depending on whether the common stock
has been held for more than one year. Individuals generally have a maximum
federal income tax of 20% on long term capital gains. The deductions of capital
losses is subject to limitations.
Expiration of Warrants Without Exercise
If a holder of a warrant allows it to expire without exercise, the expiration
will be treated as a sale or exchange of the warrant on the expiration date.
The holder will have a loss equal to the amount of such holder's tax basis in
the lapsed warrant. If the warrant constitutes a capital asset in the hands of
the holder, the loss will be characterized as long-term or short-term capital
loss, depending on whether the warrant was held for more than one year. The
deduction of capital losses is subject to limitations.
Takeover Protection and Certain Charter and By-Law Provisions
Certain provisions of the Delaware General Corporation Law (the "DGCL"), our
Amended and Restated Certificate of Incorporation (the "Charter") our Amended
and Restated By-Laws (the "By-Laws") and our stock option plans may have an
anti-takeover effect and may delay, deter or prevent a tender offer, proxy
contest or other takeover attempt. This may be true even in circumstances where
a takeover attempt might result in payment of a premium over market price for
shares held by stockholders.
Following the completion of the offering, we will become subject to Section
203 of the DGCL. Section 203 prohibits, subject to certain exceptions, a
Delaware corporation from engaging in any business combination with any
interested stockholder for a period of three years following the date that such
stockholder became an interested stockholder. A business combination includes
mergers, asset sales and other transactions that may result in a financial
benefit to stockholders. A person will be deemed an interested stockholder
triggering this protection if the person together with any affiliates or
associates of such person, beneficially owns, directly or indirectly, 15% or
more of our outstanding voting stock. There are three exceptions to these
provisions. First, if our Board of Directors gives prior approval to either the
business combination or the transaction which resulted in the stockholder
becoming an interested stockholder then the restrictions do not apply. Second,
the restrictions will not apply if, upon the consummation of the transaction
which resulted in the stockholder becoming an interested stockholder, the
interested stockholder owns at least 85% of our outstanding voting stock.
Finally, the restrictions will not apply if, at the time of or following the
consummation of the transaction in which the stockholder became an interested
stockholder, our Board of Directors approves the business combination and
stockholders holding at least 66 2/3% of our outstanding voting stock not owned
by the interested stockholder authorize the business combination.
Upon completion of the offering, our Board of Directors will be divided into
three classes of directors each containing, as nearly as possible, an equal
number of directors. Directors within each class will serve three-year terms.
Approximately one-third of the directors will sit for election at each annual
meeting of our stockholders. All directors elected to our classified Board of
Directors serve until the election and qualification of their successors or
their earlier resignation or removal. The Board of Directors may create new
directorships and fill such positions so created. In addition, the Board of
Directors or its remaining members, even though less than a quorum may fill
vacancies on the Board of Directors occurring for any reason until the next
annual election of directors. Members of the Board of Directors may only be
removed for cause. These provisions may have the effect of deterring or
delaying any attempt by any group to obtain control of us by a proxy contest.
For example, a third party would be required to have its nominees elected at
two separate annual meetings in order to elect a majority of the members of the
Board of Directors.
We may issue shares of undesignated preferred stock [5,000,000 less the
number of shares of Series A Convertible Preferred Stock]. Under certain
circumstances, the issuance of preferred stock could be utilized as a method of
discouraging, delaying or preventing a change in control of our stock.
Our Charter provides that any action required or permitted to be taken by our
stockholders may be effected only at an annual or special meeting of
stockholders. Such action will not be permitted to be taken by
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<PAGE>
written consent in lieu of a meeting. Our Charter and the By-Laws also provide
that special meetings of stockholders may only be called by a majority of our
Board of Directors, our Chairman or our Chief Executive Officer. Stockholders
will not be permitted to call a special meeting or to require that our Board of
Directors call a special meeting of stockholders.
Our Charter provides that any director or the entire Board of Directors may
be removed only for cause and only upon the affirmative vote of holders of 80%
or more of the outstanding shares of our capital stock. Further, our Charter
provides that the amendment of this provision for removing directors for cause
may only be amended by the affirmative vote of at least 75% of the voting power
of all the then outstanding shares of our capital stock voting together as a
single class.
Our By-Laws establish an advance notice procedure for nomination, other than
by or at the direction of our Board of Directors, of candidates for election as
directors. Advance notice procedures also exist for other stockholder proposals
to be considered at annual or special meetings of stockholders. In general, we
must receive notice of intent to nominate a director or raise business at an
annual meeting not less than 60 nor more than 90 days prior to the scheduled
annual meeting. In the case of a special meeting called for the purpose of
electing directors, such notice of intent must be received not later than the
close of business on the fifth day following the day on which notice of the
date of the meeting was mailed. Such notice of intent must contain certain
specified information concerning the person to be nominated or the mater to be
brought before the meeting.
In addition, our By-Laws allow our Board of Directors to increase the number
of directors from time to time although a decrease in the number of directors
may not have the effect of shortening the term of any incumbent director. Our
By-Laws also grant the Board of Directors the authority to fill any vacancies
on the Board of Directors, including vacancies resulting from an increase in
the number of directors. Our Charter states that our By-Laws may be amended by
the stockholders only by the vote of not less than 80% of the outstanding
shares of stock entitled to vote upon the election of directors.
The provisions of the Charter and the By-Laws summarized in the preceding
paragraphs may have the effect of delaying, deferring or preventing a non-
negotiated merger or other business combination involving us. These provisions
are intended to encourage any person interested in acquiring us to negotiate
with and obtain the approval of our Board of Directors in connection with the
transaction. Certain of these provisions may, however, discourage our future
acquisition in a transaction not approved by our Board of Directors in which
stockholders might receive an attractive value for their shares or that a
substantial number or even a majority of our stockholders might believe to be
in their best interest. As a result, stockholders who desire to participate in
such a transaction may not have the opportunity to do so. Such provisions could
also discourage bids for our common stock at a premium, as well as create a
depressive effect on the market price of our common stock. See "Risk Factors--
Statute, Charter and By-laws May Delay or Prevent Acquisition of Careside."
Our stock option plans, in certain circumstances, allow our Board of
Directors or a committee thereof to accelerate the vesting or exercise date of
any options granted thereunder. The ability to accelerate the vesting or
exercise date of options could be utilized as a method of discouraging,
delaying or preventing a change in control of our stock. See "Management--Stock
Option Plans."
Transfer Agent and Registrar
The transfer agent and registrar and warrant agent for our units, common
stock and warrants is American Stock Transfer & Trust Company, New York, New
York.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, we expect to have 7,584,340 shares of common
stock outstanding, assuming no exercise of outstanding options or warrants, or
7,959,340 shares if the underwriters' over-allotment is exercised in full. Of
these shares, the 2,500,000 shares of common stock, and the shares of common
stock issued upon exercise of the warrants, issued as part of the units sold in
the offering will be freely tradeable without restrictions or further
registration under the Securities Act, except that any shares purchased by our
"affiliates", as that term is defined under the Securities Act, may generally
only be sold in compliance with the limitations of Rule 144 under the
Securities Act. All of the remaining outstanding shares of common stock are
restricted securities within the meaning of Rule 144 and may not be sold in the
absence of registration under the Securities Act unless an exemption from
registration is available, including the exemption from registration offered by
Rule 144.
Holders of more than 95% of our restricted shares of common stock, other than
those beneficially owned by S.R. One, Limited, have agreed (the "Lock-Up
Agreements") not to sell or otherwise dispose of any of their shares of common
stock for a period of one year after completion of the offering, without the
prior written consent of Paulson Investment Company, Inc. and Millennium
Financial Group, Inc., subject to certain limited exceptions. S.R. One has a
six month lock-up period. After the expiration of these lock-up periods, or
earlier with the prior written consent of Paulson and Millennium, 5,084,340
shares of the common stock may be sold in the public market pursuant to Rule
144.
In general, under Rule 144, as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned restricted
shares for at least one year, including a person who may be deemed to be our
affiliate, may sell within any three-month period a number of shares of common
stock that does not exceed a maximum number of shares. This maximum is equal to
the greater of 1% of the then outstanding shares of our common stock or the
average weekly trading volume in the common stock during the four calendar
weeks immediately preceding the sale. Sales under Rule 144 are also subject to
restrictions relating to manner of sale, notice and availability of current
public information about us. In addition, under Rule 144(k) of the Securities
Act, a person who is not our affiliate, has not been an affiliate of ours
within three months prior to the sale and has beneficially owned shares for at
least two years, would be entitled to sell such shares immediately without
regard to volume limitations, manner of sale provisions, notice or other
requirements of Rule 144.
Beginning 90 days after the date of this prospectus, certain shares issued or
issuable upon the exercise of options granted by us prior to the date of this
prospectus will also be eligible, subject to the lock-up periods, for sale in
the public market pursuant to Rule 701 under the Securities Act. Pursuant to
Rule 701, persons who purchase shares upon exercise of options granted under a
written compensatory plan or contract may sell such shares in reliance on Rule
144 without having to comply with the holding period requirements of Rule 144,
and in the case of non-affiliates, without having to comply with the public
information, volume limitation or notice provisions of Rule 144. As of May 25,
1999, we have options outstanding to purchase 411,588 shares of common stock
which have not been exercised and which become exercisable at various times in
the future. Any shares issued upon the exercise of these options will be
eligible for sale pursuant to Rule 701.
We intend to file a Form S-8 registration statement under the Securities Act
approximately 180 days after the closing of the offering to register up to an
aggregate of 1,334,208 shares of common stock reserved for issuance under our
stock option plans and the employee stock purchase plan. See "Management--Stock
Option Plans" and "--Employee Stock Purchase Plan." Accordingly, shares
registered under such registration statement will, subject to Rule 144 volume
limitations applicable to affiliates, be available for sale in the open market,
unless such options are subject to vesting restrictions or the Lock-Up
Agreements. As of May 25, 1999, options to purchase 411,588 shares of common
stock were outstanding. An additional 922,620 shares of common stock remained
available for future grants under our 1996 and 1998 stock option plans and
issuance under the employee stock purchase plan.
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<PAGE>
We previously issued warrants to purchase an aggregate of 724,852 shares of
common stock at exercise prices ranging $5.20 to $6.76 per share to Spencer
Trask Securities Incorporated. These warrants are exercisable until three years
after completion of the offering. The bridge warrant issued to S.R. One,
Limited will become exercisable on the earlier of December 17, 1999 or six
months after completion of the offering to purchase a number of shares of
common stock equal to $1,500,000 divided by 85% of the initial public offering
price per unit. The bridge warrant has an exercise price of 85% of the initial
public offering price per unit and will expire on the earlier of December 17,
2005 or four years after the completion of the offering. The holders of the
warrants and the bridge warrant are entitled to certain registration rights
with respect to the shares issuable upon exercise of such warrants. These
shares may be sold without restriction in the public market upon registration,
and with respect to more than 95% of these shares, after the lock-up period
expires.
The shares of Series A Convertible Preferred Stock issued to S.R. One upon
completion of this offering as part of the conversion of the bridge financing,
together with accrued and unpaid dividends thereon, are convertible at the
option of the holder six months after this offering into a unit comprised of
one share of common stock and a warrant to purchase one additional share of
common stock. The warrant will have the same terms as the warrants issued as
part of the units sold in this offering. The holder of the Series A Convertible
Preferred Stock is entitled to certain registration rights with respect to the
shares of common stock, and the shares of common stock issuable upon exercise
of the warrants, included in the units received upon conversion of the Series A
Convertible Preferred Stock.
In connection with the offering, the Company has agreed to issue to the
representatives of the underwriters warrants to purchase 250,000 units. This
number is equal to 10% of the number of units being offered by this prospectus,
excluding over-allotment shares. The representatives' warrants will be
exercisable into units at any time during the four-year period commencing one
year after the effective date of the offering. The common stock and warrants
issued to the representatives upon exercise of these warrants will be freely
tradable.
Prior to the offering, there has been no market for our common stock and
there can be no assurance that a significant public market for the common stock
will develop or be sustained after the offering. Future sales of substantial
amounts of common stock, including shares issued upon exercise of outstanding
options and warrants in the public market after the offering, or the perception
that such sales may occur, could adversely affect market prices prevailing from
time to time and could impair our ability to raise capital through the sale of
our securities.
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UNDERWRITING
The underwriters named below, for whom Paulson Investment Company, Inc.,
Millennium Financial Group, Inc. and marion bass securities corporation are
acting as the representatives, have severally agreed, subject to the terms and
conditions contained in an underwriting agreement, to purchase from us, and we
have agreed to sell to each underwriter, the aggregate number of units
indicated below opposite the name of such underwriter at the initial public
offering price less the underwriting discount set forth below and on the cover
page of this prospectus:
<TABLE>
<CAPTION>
Number of
Units
Name of Underwriter Purchased
- ------------------- ---------
<S> <C>
Paulson Investment Company, Inc.......................................
Millennium Financial Group, Inc.......................................
marion bass securities corporation....................................
</TABLE>
<TABLE>
<S> <C>
TOTAL.....................................................................
===
</TABLE>
The underwriting agreement provides that the obligations of the underwriters
are subject to certain conditions and that the underwriters are committed to
purchase all of the units, other than those covered by the over-allotment
option described below, if any are purchased. The underwriting agreement also
provides that we will indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act, and will contribute to payments
which the underwriters may be required to make in respect thereof.
The representatives have advised us that the underwriters propose to offer
the units directly to the public initially at the public offering price set
forth on the cover page of this prospectus and to certain dealers, who may
include the underwriters, at such public offering price less a selling
concession not to exceed $ per unit. The underwriters may allow, and such
dealers may reallow, a concession of not more than $ per unit to certain other
dealers. After the offering, the offering price, the concession to certain
dealers and other selling terms may be changed by the representatives of the
underwriters. The representatives have informed us that they do not expect the
underwriters to confirm sales of units on a discretionary basis.
We have granted to the underwriters an option, exercisable not later than 45
days after the date of this prospectus, to purchase up to a maximum of 375,000
additional units solely to cover over-allotments, if any, at the initial public
offering price less the underwriting discount set forth herein. If the
underwriters exercise the over-allotment option, each underwriter will be
committed to purchase a proportionate number of the additional units based on
its relative proportion of units to be purchased by it shown in the preceding
table.
Without the prior written consent of Paulson Investment Company, Inc. and
Millennium Financial Group, Inc., holders of more than 95% of our shares of
common stock, certain option and warrant holders, including our officers and
directors, and we, are not permitted to offer, pledge, sell, contract to sell
or otherwise transfer or dispose of, directly or indirectly, our securities
until after at least one year (six months in the case of S.R. One, Limited)
after the closing of the offering. Such prohibition does not apply to our grant
of options under our stock option plans, our issuance of warrants to the
representatives, our issuance of our units upon exercise of the over-allotment
option, our issuance of common stock upon the exercise of the warrants
contained in the units, or our issuance of common stock pursuant to conversion
of our Series A Convertible Preferred Stock or upon exercise of the bridge loan
warrants held by S.R. One or other outstanding warrants.
The following table sets forth the amount of the underwriting discount and
the nature of the compensation to be paid to the underwriters for each unit and
in total. Such amounts are shown assuming both no exercise and full exercise of
the underwriters' over-allotment option.
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<PAGE>
<TABLE>
<CAPTION>
Compensation to be paid to Underwriters
---------------------------------------------------------------
No Exercise of Over- Full Exercise of Over-
Allotment Option Allotment Option
------------------------------- -------------------------------
Per Unit Total Per Share Total
-------------- ---------------- -------------- ----------------
<S> <C> <C> <C> <C>
Underwriting Discount...
Representative's
Warrants(1)............ 1/10th Warrant 250,000 Warrants 1/10th Warrant 250,000 Warrants
Non-accountable Expense
Allowance(2)........... N/A $281,250 N/A $323,438
</TABLE>
- --------
(1) In connection with the offering, we have agreed to issue warrants to the
representatives of the underwriters to purchase a number of units equal to
ten percent (10%) of the number of units being offered hereby, excluding
over-allotment shares. The representatives' warrants will be exercisable
into units during the four-year period beginning on the first anniversary
of the effective date of the offering, at an exercise price equal to one
hundred twenty percent (120%) of the initial public offering price per unit
set forth on the cover page of this prospectus. The representatives'
warrants are restricted from sale, transfer, assignment or hypothecation
for a period of one year from the effective date of the offering except to
officers and partners of the representatives of the underwriters. See
"Description of Capital Stock--Registration Rights." To the extent that the
representatives of the underwriters realize any gain from the resale of the
shares issuable upon the exercise of such warrants, such gain may be deemed
additional underwriting compensation.
(2) We have also agreed to pay the representatives of the underwriters a non-
accountable expense allowance equal to 1.5% of the gross proceeds of the
offering. In addition, we have agreed to pay up to $ of the
underwriters' counsel's fees and expenses for their services to the
underwriters in connection with the offering during the period through
March 31, 1999. We will also pay the additional fees and expenses of
underwriters' counsel for their services after March 31, 1999 in connection
with the review and approval of underwriters' compensation by the National
Association of Securities Dealers, Inc. and the qualification or exemption
of the offering under state securities laws.
The following table sets forth an itemization of all expenses we will pay in
connection with the issuance and distribution of the securities being
registered. Except for the SEC Registration Fee, the American Stock Exchange
Listing Fee and the NASD Fee, the amounts listed below are estimates.
<TABLE>
<CAPTION>
Nature of Expense Amount
- ----------------- ----------
<S> <C>
SEC Registration Fee................................................ $ 17,487
American Stock Exchange Listing Fee................................. 50,000
NASD Fee............................................................ 6,790
Printing and engraving fees......................................... 300,000
Registrant's counsel fees and expenses.............................. 500,000
Accounting fees and expenses........................................ 200,000
Underwriters' Expenses.............................................. 281,250
Blue Sky expenses and NASD counsel fees............................. 45,000
Transfer agent and registrar fees................................... 8,000
Other Offering Expenses............................................. 107,000
Miscellaneous....................................................... 84,473
----------
TOTAL............................................................. $1,600,000
==========
</TABLE>
Prior to the offering, there has been no public market for our units, shares
of common stock or warrants. The initial public offering price of the units and
the exercise price and other terms of the warrants underlying the units, as
well as the exercise price of the representatives' warrants, were determined
through arm's length negotiations between us and the representatives of the
underwriters, and do not necessarily bear any relationship to our assets, book
value, financial condition, or other established criteria of value. In
determining such prices and terms, consideration was given to prevailing market
conditions, the prospects for the business and industry in which we compete, an
assessment of our management, our capital structure, our past and present
operations, and our prospects for future earnings. The initial public offering
price of the units and the
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exercise price of the warrants should not be considered to be indicative of our
actual value. There can be no assurance that an active trading market will
develop for our units, shares of common stock or warrants or that the aggregate
prices at which our units, common stock and warrants will sell in the public
market after the offering will be higher than the price at which the units will
be sold in the offering.
In connection with the offering, certain underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of our units, common
stock and/or warrants. Such transactions may include stabilization transactions
effected in accordance with Regulation M of the Securities Exchange Act of
1934, pursuant to which such persons may bid for or purchase units, common
stock and/or warrants for the purpose of pegging, fixing or maintaining the
price of our units, common stock and/or warrants at a level that is higher than
the market would dictate in the absence of such transactions.
The underwriters may also create a short position for the account of the
underwriters by selling more units in connection with the offering than they
are committed to purchase from the company, and in such case may purchase
units, common stock or warrants in the open market following the completion of
the offering to cover all or a portion of such short position. The underwriters
may also cover all or a portion of such short position, up to 375,000 units, by
exercising the over-allotment option described herein.
In addition, the representatives of the underwriters may also impose a
"penalty bid" under contractual arrangements with the underwriters whereby the
representatives may reclaim from an underwriter, or dealer participating in the
offering, for the account of other underwriters, the selling concession with
respect to units that are distributed in the offering but subsequently
purchased for the account of the underwriters in the open market.
In general, any of the transactions described above may result in the
maintenance of the price of our units, common stock or warrants at a level
above that which might otherwise prevail in the absence of such transactions.
We and the underwriters make no representation or prediction as to the
direction or magnitude of any effect that such transactions may have on the
price of our units, common stock or warrants. In addition, we and the
underwriters make no representation that the representatives of the
underwriters or the underwriters, as the case may be, will engage in such
transactions or that such transactions, once commenced, will not be
discontinued without notice.
Millennium Financial Group, Inc. was organized in June 1996. Since such date,
Millennium has been engaged primarily in the institutional brokerage business
and has participated as an underwriter or a member of the selling group in
seven public offerings. Millennium acted as a co-managing underwriter in four
of those offerings and has participated in a total of ten private offerings.
The offering contemplated hereby will be the fifth public offering co-managed
by Millennium.
Spencer Trask Securities Incorporated is not participating as an underwriter
or member of the selling group in the offering. Fahnestock & Co. Inc.
originally acted as lead underwriter in connection with this offering. In April
1999, Fahnestock withdrew from participation in the offering. Paulson
Investment Company, Inc. subsequently became lead underwriter. As a result of
Fahnestock's earlier involvement, we paid Fahnestock $60,000 to cover its out-
of-pocket expenses.
LEGAL MATTERS
The validity of units offered hereby will be passed upon for us by Pepper
Hamilton LLP. Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston,
Massachusetts has acted as counsel for the underwriters in connection with the
offering.
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EXPERTS
The audited financial statements included in this prospectus and elsewhere in
the registration statement have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of that firm as
experts in giving their reports. Reference is made to their report contained
elsewhere in this prospectus on us which contains an explanatory paragraph
regarding our ability to continue as a going concern.
The statements in this prospectus under the captions "Risk Factors -- Our
Proprietary Technology is a Crucial Part of Our Business -- We Do Not Have Any
Patents on Our Proprietary Technology," "Risk Factors-- Our Proprietary
Technology is a Crucial Part of Our Business -- Our Technology May Infringe on
the Proprietary Rights of Third Parties" and "Business -- Patents and
Proprietary Rights" relating to patent matters have been reviewed and approved
by Oppenheimer Wolff & Donnelly LLP, Los Angeles, California, patent counsel to
Careside, as experts on such matters, and are included herein in reliance upon
that review and approval.
WHERE YOU CAN GET MORE INFORMATION
Our fiscal year ends on December 31. We will file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information on file at the SEC's public reference room in Washington, D.C. You
can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC.
We have filed a registration statement on Form S-1 with the SEC. This
prospectus, which forms a part of the registration statement, does not contain
all of the information included in the registration statement. Certain
information is omitted. You should refer to the registration statement and its
exhibits. With respect to references made in this prospectus to any contract or
other document relating to us, such references are not necessarily complete.
You should refer to the exhibits attached to the registration statement for
copies of the actual contract or document. You may review a copy of the
registration statement at the SEC's public reference room in Washington, D.C.,
and at the SEC's regional offices in Chicago, Illinois and New York, New York.
Please call the SEC at 1-800-SEC-0330 for further information on the operation
of the public reference rooms. Our SEC filings, including the registration
statement, can also be reviewed by accessing the SEC's Internet site at
http://www.sec.gov.
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<PAGE>
CARESIDE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CARESIDE, INC.:
Report of Independent Public Accountants................................. F-2
Balance Sheets........................................................... F-3
Statements of Operations................................................. F-4
Statements of Stockholders' Equity (Deficit)............................. F-5
Statements of Cash Flows................................................. F-6
Notes to Financial Statements............................................ F-7
PREDECESSOR BUSINESS:
Report of Independent Public Accountants................................. F-14
Statement of Operations.................................................. F-15
Notes to Statement of Operations......................................... F-16
</TABLE>
F-1
<PAGE>
After the recapitalization referred to in Note 2 to the Financial Statements
is effected, we will be in a position to render the following report.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
January 29, 1999
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Careside, Inc.:
We have audited the accompanying balance sheets of Careside, Inc. (a Delaware
corporation in the development stage) as of December 31, 1997 and 1998, and the
related statements of operations, stockholders' equity (deficit) and cash flows
for the period from inception (July 10, 1996) to December 31, 1996, the years
ended December 31, 1997 and 1998, and the period from inception (July 10, 1996)
to December 31, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Careside, Inc. as of December
31, 1997 and 1998, and the results of its operations and its cash flows for the
period from inception (July 10, 1996) to December 31, 1996, the years ended
December 31, 1997 and 1998, and the period from inception (July 10, 1996) to
December 31, 1998, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company will require significant funding to continue
operations, which raises substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 1. The financial statements do not include any adjustments relating to
the recoverability and classification of asset carrying amounts or the amount
and classification of liabilities that might result should the Company be
unable to continue as a going concern.
Philadelphia, Pa.,
January 20, 1999 (except for the recapitalization discussed in Note 2, as
to which the date is , 1999)
F-2
<PAGE>
CARESIDE, INC.
(a development-stage company)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------------------- March 31,
1997 1998 1999
----------- ------------ -----------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............ $ 1,237,149 $ 3,926,603 $ 2,051,786
Prepaid expenses and other........... 226,580 251,698 83,447
----------- ------------ -----------
Total current assets............... 1,463,729 4,178,301 2,135,233
PROPERTY AND EQUIPMENT, net............ 1,578,727 3,216,959 4,206,992
DEFERRED OFFERING COSTS................ -- 498,443 888,828
DEPOSITS............................... 97,767 17,700 17,700
----------- ------------ -----------
$ 3,140,223 $ 7,911,403 $ 7,248,753
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt.... $ -- $ 186,998 $ 3,193,671
Accounts payable..................... 492,985 1,369,889 1,923,874
Accrued expenses..................... 209,631 160,439 184,648
----------- ------------ -----------
Total current liabilities.......... 702,616 1,717,326 5,302,193
----------- ------------ -----------
LONG-TERM DEBT......................... -- 2,044,932 803,092
----------- ------------ -----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY:
Preferred stock, $.01 par value,
5,000,000 shares authorized, none
issued.............................. -- -- --
Common stock, $.01 par value,
50,000,000 shares authorized,
3,365,400, 5,084,340 and 5,084,340
shares issued and outstanding....... 33,654 50,843 50,843
Additional paid-in capital........... 10,372,907 21,003,545 21,003,545
Deficit accumulated during
development stage................... (7,968,954) (16,905,243) (19,910,920)
----------- ------------ -----------
Total stockholders' equity......... 2,437,607 4,149,145 1,143,468
----------- ------------ -----------
$ 3,140,223 $ 7,911,403 $ 7,248,753
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CARESIDE, INC.
(a development-stage company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period For the Period For the Period
From From From
Inception For the Year Inception Inception
(July 10, 1996) Ended For the Three Months (July 10, 1996) (July 10, 1996)
Through December 31, Ended March 31, Through Through
December 31, ------------------------ ------------------------ December 31, March 31,
1996 1997 1998 1998 1999 1998 1999
--------------- ----------- ----------- ----------- ----------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING EXPENSES:
Research and
development......... $ 1,561,847 $ 5,895,465 $ 8,297,974 $ 1,541,119 $ 2,076,046 $ 15,755,286 $ 17,831,332
General and
administrative...... 55,515 640,574 850,129 196,595 569,907 1,546,218 2,116,125
----------- ----------- ----------- ----------- ----------- ------------ ------------
Operating loss....... (1,617,362) (6,536,039) (9,148,103) (1,737,714) (2,645,953) (17,301,504) (19,947,457)
INTEREST INCOME....... -- 213,585 234,089 17,857 42,054 447,674 489,728
INTEREST EXPENSE...... (20,809) (8,329) (22,275) -- (401,778) (51,413) (453,191)
----------- ----------- ----------- ----------- ----------- ------------ ------------
NET LOSS.............. $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(16,905,243) $(19,910,920)
=========== =========== =========== =========== =========== ============ ============
BASIC NET LOSS PER
SHARE................ $ (2.25) $ (2.04) $ (1.93) $ (0.49) $ (0.59)
=========== =========== =========== =========== ===========
SHARES USED IN
COMPUTING BASIC NET
LOSS PER SHARE 728,465 3,098,980 4,629,916 3,521,808 5,084,340
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CARESIDE, INC.
(a development-stage company)
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Deficit
Accumulated
Common Stock Additional Stock During Total
----------------- Paid-in Subscription Development Stockholders'
Shares Amount Capital Receivable Stage Equity (Deficit)
--------- ------- ----------- ------------ ------------ ----------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JULY 10, 1996
(inception)............ -- $ -- $ -- $ -- $ -- $ --
Shares issued to
founders and
management............ 659,344 6,593 (6,593) -- -- --
Shares issued to
SmithKline Beecham
Corporation in
connection with asset
purchase.............. 34,702 347 571,006 -- -- 571,353
Sale of shares to
Exigent Partners,
L.P................... 557,601 5,576 93,419 (98,995) -- --
Shares issued to
investment banker in
connection with equity
financing............. 30,173 302 (302) -- -- --
Shares issued to
SmithKline Beecham
Corporation pursuant
to antidilution
agreement............. 30,935 310 (310) -- -- --
Net loss............... -- -- -- -- (1,638,171) (1,638,171)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1996................... 1,312,755 13,128 657,220 (98,995) (1,638,171) (1,066,818)
Shares issued in
connection with
private placement, net
of expenses of
$1,291,772 1,923,090 19,231 8,688,998 -- -- 8,708,229
Shares issued to
SmithKline Beecham
Corporation upon
conversion of note
payable............... 129,555 1,295 1,026,689 -- -- 1,027,984
Payment of stock
subscription.......... -- -- -- 98,995 -- 98,995
Net loss............... -- -- -- -- (6,330,783) (6,330,783)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1997................... 3,365,400 33,654 10,372,907 -- (7,968,954) 2,437,607
Shares issued in
connection with
private placement, net
of expenses of
$1,302,029............ 1,701,225 17,012 10,180,959 -- -- 10,197,971
Shares issued in
connection with
exercise of stock
options............... 17,715 177 119,565 -- -- 119,742
Value of warrants
issued in connection
with bridge
financing............. -- -- 330,114 -- -- 330,114
Net loss............... -- -- -- -- (8,936,289) (8,936,289)
--------- ------- ----------- ------- ------------ -----------
BALANCE, DECEMBER 31,
1998 .................. 5,084,340 50,843 21,003,545 -- (16,905,243) 4,149,145
Net loss (unaudited)... -- -- -- -- (3,005,677) (3,005,677)
--------- ------- ----------- ------- ------------ -----------
BALANCE, MARCH 31, 1999
(unaudited)............ 5,084,340 $50,843 $21,003,545 $ -- $(19,910,920) $ 1,143,468
========= ======= =========== ======= ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CARESIDE, INC.
(a development-stage company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the Period For the Period For the Period
From From From
Inception Inception Inception
(July 10, 1996) For the Year Ended For the Three Months (July 10, 1996) (July 10, 1996)
Through December 31, Ended March 31, Through Through
December 31, ------------------------ ------------------------ December 31, March 31,
1996 1997 1998 1998 1999 1998 1999
--------------- ----------- ----------- ----------- ----------- --------------- ---------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net loss............. $(1,638,171) $(6,330,783) $(8,936,289) $(1,719,857) $(3,005,677) $(16,905,243) $(19,910,920)
Adjustments to
reconcile net loss
to net cash used in
operating
activities--
Depreciation......... 12,275 145,858 367,231 43,965 234,761 525,364 760,125
Imputed interest on
note payable........ -- 8,329 -- -- -- 8,329 8,329
Amortization of debt
discount............ -- -- 20,960 -- 309,154 20,960 330,114
Changes in assets and
liabilities--
Decrease (increase)
in prepaid expenses
and other........... (15,840) (210,740) (25,118) 12,164 168,251 (251,698) (83,447)
Decrease (increase)
in deposits......... (102,700) 19,933 80,067 (968) -- (2,700) (2,700)
Increase in accounts
payable............. 284,079 208,906 876,904 327,583 553,985 1,369,889 1,923,874
Increase (decrease)
in accrued
expenses............ 575,301 (346,014) (49,192) (110,483) 24,209 180,095 204,304
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash used in
operating
activities......... (885,056) (6,504,511) (7,665,437) (1,447,596) (1,715,317) (15,055,004) (16,770,321)
----------- ----------- ----------- ----------- ----------- ------------ ------------
INVESTING ACTIVITIES:
Purchases of property
and equipment....... (344,733) (888,510) (2,005,463) (299,976) (1,224,794) (3,238,706) (4,463,500)
----------- ----------- ----------- ----------- ----------- ------------ ------------
FINANCING ACTIVITIES:
Net borrowings
(repayments) on line
of credit........... 400,000 (400,000) -- -- -- -- --
Proceeds from the
issuance of notes... 1,000,000 -- 2,541,084 -- 1,500,000 3,541,084 5,041,084
Deferred offering
costs............... (191,906) -- (498,443) -- (390,385) (690,349) (1,080,734)
Proceeds from the
issuance of Common
stock............... -- 8,900,134 10,317,713 7,159,321 -- 19,217,847 19,217,847
Payments on note
payable............. -- -- -- -- (44,321) -- (44,,321)
Payment of stock
subscription........ -- 98,995 -- -- -- 98,995 98,995
Cash received from
SmithKline Beecham
Corporation in
connection with
asset purchase...... 52,736 -- -- -- -- 52,736 52,736
----------- ----------- ----------- ----------- ----------- ------------ ------------
Net cash provided by
financing
activities......... 1,260,830 8,599,129 12,360,354 7,159,321 1,065,294 22,220,313 23,285,607
----------- ----------- ----------- ----------- ----------- ------------ ------------
NET INCREASE
(DECREASE) IN CASH
AND CASH
EQUIVALENTS.......... 31,041 1,206,108 2,689,454 5,411,749 (1,874,817) 3,926,603 2,051,786
CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD.. -- 31,041 1,237,149 1,237,149 3,926,603 -- --
----------- ----------- ----------- ----------- ----------- ------------ ------------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD............... $ 31,041 $ 1,237,149 $ 3,926,603 $ 6,648,898 $ 2,051,786 $ 3,926,603 $ 2,051,786
=========== =========== =========== =========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CARESIDE, INC.
(a development-stage company)
NOTES TO FINANCIAL STATEMENTS
1. CARESIDE:
Background
Careside, Inc., formerly Exigent Diagnostics, Inc., is focused on designing
products intended to perform routine diagnostic blood tests in doctors'
offices, hospital rooms, patient homes or anywhere a patient is receiving
medical attention. Careside's first product in development is a compact
portable device with related disposables that performs chemistry,
electrochemistry, immunochemistry and coagulation testing.
Development-Stage Risks and Liquidity
Careside was incorporated in July 1996 to acquire an ongoing, point-of-care
("POC") testing, development-stage product from SmithKline Beecham Corporation
and its affiliates ("SmithKline") and to complete the development of and to
manufacture, market and distribute POC diagnostic products. Since its
inception, Careside has generated no revenues and incurred significant losses.
Careside anticipates incurring additional losses over at least the next several
years, and such losses are expected to increase as Careside expands its
research and development activities. Substantial financing will be needed by
Careside to fund its operations and to commercially develop its products. The
ability of Careside to commercialize its products will depend on, among other
things, the relative cost to the customer of Careside's products compared to
alternative products, its ability to obtain necessary regulatory approvals and
to manufacture the products in accordance with Good Manufacturing Practices,
and its ability to market and distribute its products. There can be no
assurance that Careside's research and development efforts will be successful
or that any products developed by Careside will receive regulatory clearance or
be profitable in the marketplace.
The accompanying financial statements have been prepared in conformity with
principles of accounting applicable to a going concern. These principles
contemplate the realization of assets and the satisfaction of liabilities in
the normal course of business. As shown in the accompanying financial
statements, Careside incurred a net loss of $8,936,289 and used cash for
operating activities of $7,665,437 for the year ended December 31, 1998.
Management believes that Careside's existing sources of liquidity together with
the proceeds to be received from its initial public offering (the "Offering")
contemplated in this prospectus will be sufficient to fund its planned
operations into 2000. There can be no assurance that the Offering will be
successful.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Statements
The financial statements as of March 31, 1999 and for the three months ended
March 31, 1998 and 1999 are unaudited and, in the opinion of management,
include all adjustments (consisting only of normal and recurring adjustments)
necessary for a fair presentation of results for these interim periods. The
results of operations for the three months ended March 31, 1999 are not
necessarily indicative of the results expected for the entire year.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Cash and Cash Equivalents
Careside considers all highly liquid investments consisting of purchases with
an original maturity of three months or less to be cash equivalents.
F-7
<PAGE>
Property and Equipment
Property and equipment are stated at cost. Property and equipment capitalized
under capital leases are recorded at the present value of the minimum lease
payments due over the lease term. Depreciation and amortization are provided
using the straight-line method over the estimated useful lives of the related
assets or the lease term, whichever is shorter. Careside uses lives of three to
five years for research and manufacturing equipment and five to seven years for
office equipment.
Fair Value of Financial Instruments
Cash and cash equivalents, prepaid expenses and other current assets,
accounts payable and accrued expenses are reflected in the accompanying
financial statements at fair value due to the short-term nature of those
instruments. The carrying amount of long-term debt approximates fair value on
the balance sheet dates.
Research and Development
Research and development costs are charged to expense as incurred.
Income Taxes
Careside follows Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes." Under SFAS No. 109, the liability method is
used in accounting for income taxes. Under this method, deferred tax assets and
liabilities are determined based on differences between the financial reporting
and tax bases of assets and liabilities and are measured using enacted tax
rates that are expected to be in effect when the differences reverse.
Accounting for Stock-Based Compensation
Careside applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock
options. Careside follows the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation," which permits pro forma disclosure
of the net loss using a fair value-based method of accounting for employee
stock option plans (see Note 8).
Net Loss Per Common Share
Careside has presented net loss per share pursuant to SFAS No. 128, "Earnings
per Share," and the Securities and Exchange Commission Staff Accounting
Bulletin No. 98. Net loss per share is computed using the weighted average
number of common and dilutive common equivalent shares outstanding during the
period.
Basic loss per share was computed by dividing net loss applicable to common
shareholders by the weighted average number of shares of Common stock
outstanding during the period. Dilutive loss per share has not been presented,
since the impact on loss per share using the treasury stock method is anti-
dilutive due to Careside's losses.
Recapitalization
In February 1999, Careside's stockholders approved a 1-for-5.2 reverse stock
split of Careside's Common stock to be effective upon consummation of the
offering. All references in the accompanying financial statements to the number
of shares and per share amounts have been retroactively restated to reflect the
reverse stock split.
Recently Issued Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 130, "Reporting Comprehensive Income." This statement requires companies to
classify items of other comprehensive income
F-8
<PAGE>
separately from retained earnings and additional paid-in capital in the
stockholders' equity section of the balance sheet. SFAS No. 130 is effective
for financial statements issued for fiscal years beginning after December 15,
1997. Management believes that SFAS No. 130 will not have a material adverse
effect on Careside's financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information." This statement establishes additional
standards for segment reporting in the financial statements and is effective
for fiscal years beginning after December 15, 1997. Management is currently
evaluating the need to make additional disclosures under SFAS No. 131. However,
this statement will not have any effect on Careside's reported financial
position or results of operations.
3. PROPERTY AND EQUIPMENT:
<TABLE>
<CAPTION>
December 31,
---------------------- March 31,
1997 1998 1999
---------- ---------- ----------
<S> <C> <C> <C>
Laboratory equipment.................. $1,280,663 $3,264,286 $4,475,181
Leasehold improvements................ 371,239 371,239 371,239
Computer and office equipment......... 84,958 106,798 120,697
---------- ---------- ----------
1,736,860 3,742,323 4,967,117
Less-Accumulated depreciation and
amortization......................... (158,133) (525,364) (760,125)
---------- ---------- ----------
$1,578,727 $3,216,959 $4,206,992
========== ========== ==========
</TABLE>
Depreciation and amortization expense for the period from inception (July 10,
1996) through December 31, 1996, the years ended 1997 and 1998, the three
months ended March 31, 1998 and 1999, the period from inception (July 10, 1996)
through December 31, 1998 and the period from inception (July 10, 1996) through
March 31, 1999 was $12,275, $145,858, $367,231, $43,965, $234,761, $525,364 and
$760,125, respectively.
4. INCOME TAXES:
At December 31, 1998, Careside had net operating loss carryforwards for
federal income tax purposes of approximately $2,148,000. In addition, Careside
has federal research and development credit carryforwards of approximately
$225,000. The net operating loss and credit carryforwards begin to expire in
2011 and are subject to review and possible adjustment by the Internal Revenue
Service. The Tax Reform Act of 1986 contains provisions that may limit the net
operating loss carryforwards available to be used in any given year in the
event of significant changes in ownership interest.
The approximate income tax effect of each type of temporary difference and
carryforward is as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1997 1998
---------- ----------
<S> <C> <C>
Net operating loss carryforwards........................ $ 233,188 $ 730,438
Research and development credit carryforwards........... 128,623 224,775
Capitalized research and development.................... 2,219,926 4,395,926
Start-up costs.......................................... 185,906 419,936
Nondeductible accruals.................................. 8,779 6,663
Nondeductible depreciation and amortization............. 53,765 178,623
Valuation allowance..................................... (2,830,187) (5,956,361)
---------- ----------
$ -- $ --
========== ==========
</TABLE>
Due to the uncertainty surrounding the realization of the deferred tax asset,
Careside has provided a full valuation allowance against this asset.
F-9
<PAGE>
5. COMMON STOCK PRIVATE PLACEMENTS:
In March 1997, Careside completed a private placement (the "1997 Private
Placement") of 1,923,090 shares of its Common stock at $5.20 per share. The
1997 Private Placement raised approximately $8,800,000, net of the placement
agent's commission and offering costs. In connection with the 1997 Private
Placement, the placement agent and its affiliates received warrants to purchase
384,615 shares of Careside's Common stock at $5.20 per share. These warrants
are currently exercisable and expire on the later of seven years from the date
of issuance or three years from the closing the Offering.
In June 1998, Careside completed a private placement (the "1998 Private
Placement") of 1,701,225 shares of its Common stock at $6.76 per share, which
generated net proceeds of approximately $10,200,000. In connection with the
1998 Private Placement, the placement agent and its affiliates received
warrants to purchase 340,237 shares of Careside's Common stock at $6.76 per
share. These warrants are currently exercisable and expire on the later of
seven years from the date of issuance or three years from the closing of the
Offering. In connection with providing financial consulting services for the
1998 Private Placement, Careside granted an option to purchase 1,154 shares of
Common stock at $.05 per share to an entity owned by a director of Careside.
6. TRANSACTIONS WITH SMITHKLINE:
On November 7, 1996, Careside and SmithKline entered into an Asset Purchase
Agreement (the "Agreement") under which Careside acquired certain assets and
intangible property related to SmithKline's POC business in exchange for a 5%
equity interest in Careside. In connection with the Agreement, SmithKline
loaned Careside $1,000,000, which was converted into an additional 2% equity
interest in Careside upon the closing of the 1997 Private Placement (see Note
5). The Agreement provided for certain antidilution protection, which required
Careside to issue additional shares of Common stock to SmithKline such that it
maintained its 7% ownership interest, until a defined equity financing was
completed. Upon the closing of the 1997 Private Placement, the antidilution
protection lapsed and SmithKline owned 195,192 shares, representing 5.8% of the
then outstanding Common stock. The tangible property received in connection
with the Agreement was as follows:
<TABLE>
<S> <C>
Cash........................................................... $ 52,736
Property and equipment......................................... 503,617
Deposit........................................................ 15,000
--------
$571,353
========
</TABLE>
In December 1998, Careside entered into an agreement with an affiliate of
SmithKline for up to $3,000,000 of bridge financing (see Note 7).
7. DEBT:
<TABLE>
<CAPTION>
December 31,
------------------
1997 1998
------- ----------
<S> <C> <C>
Note payable, interest at 8%, $1,500,000 due on January
31, 2000,
net of unamortized discount of $309,154................ $ -- $1,190,846
Equipment loan due to finance company, interest at 14%,
due in 47
remaining monthly installments of principal and
interest
of $26,836, with a final payment of $133,489 in
December 2002.......................................... -- 1,041,084
------- ----------
2,231,930
Less--Current portion................................... -- (186,998)
------- ----------
Long-term debt.......................................... $ -- $2,044,932
======= ==========
</TABLE>
In connection with the Agreement (see Note 6), Careside borrowed $1,000,000
from SmithKline. In connection with closing the 1997 Private Placement (see
Note 5), 129,555 shares of Common stock were issued to SmithKline upon the
conversion of the $1,000,000 note plus accrued interest of $27,985.
F-10
<PAGE>
In December 1996, Careside established a $1,000,000 line of credit facility
with a bank collateralized by a standby letter of credit guaranteed by Exigent
Partners, L.P. ("Exigent Partners"), whose partners are the founders of
Careside and an affiliate of the private placement agent. In consideration for
the establishment of the standby letter of credit, Exigent Partners was issued
557,601 shares of Common stock at $0.18 per share. The balance outstanding
under the line at December 31, 1996 was $400,000, with interest at 9.25% per
year. The line was repaid in connection with the 1997 Private Placement.
In December 1998, Careside entered into a $2,500,000 facility with an
equipment lease financing company. Borrowings under the facility will be
evidenced as separate loans and will be secured by specific equipment assets.
Each equipment loan will have a 48-month term and bears interest at
approximately 14% per year, adjusted for an index rate based on 48-month U.S.
Treasury Notes at the time of borrowing.
In December 1998, Careside entered into an agreement with an affiliate of
SmithKline for up to $3,000,000 of bridge financing, of which $1,500,000 was
drawn on December 28, 1998. The remaining $1,500,000 may be drawn, at
Careside's option, prior to January 31, 1999. The outstanding principal under
the bridge financing matures upon the earliest of the completion of the
Offering, a private equity financing of at least $8,000,000 or January 31,
2000. Careside issued a warrant (the "Bridge Warrant") in connection with the
bridge financing. The Bridge Warrant is exercisable into that number of shares
of Common stock which is equal to $750,000 divided by 85% of the Offering price
per share. The Bridge Warrant has an exercise price equal to 85% of the
Offering price. If the Offering does not occur, the Bridge Warrant is
exercisable into 103,022 shares of Common stock at an exercise price of $7.28
per share. If the outstanding principal under the bridge financing is not
repaid by June 30, 1999, the Bridge Warrant becomes exercisable for twice as
many shares of Common stock. The Bridge Warrant becomes exercisable on the
earlier of December 1999 or six months after the completion of the Offering and
expires on the earlier of December 2005 or four years after the completion of
the Offering. Using the Black-Scholes model, the estimated fair value of the
Bridge Warrant was calculated at $330,114 and was recorded as a reduction in
the carrying amount of the bridge note, with a corresponding increase in
stockholders' equity. The discount on the bridge note is being amortized over
the estimated term of the note as additional interest expense.
Future maturities of debt at December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999......................................................... $ 186,998
2000......................................................... 1,715,141
2001......................................................... 247,520
2002......................................................... 391,425
----------
2,541,084
Less--Unamortized discount................................... (309,154)
----------
$2,231,930
==========
</TABLE>
Careside borrowed the remaining $1,500,000 under the Bridge Financing in
January 1999.
8. STOCK OPTIONS AND WARRANTS:
Stock Options
Careside has adopted the 1996 Incentive and Non-Qualified Stock Option Plan
and the 1996 Key Executive Stock Option Plan (together, the "Plans"), which
provide for the granting of options to purchase up to 576,923 shares of Common
stock to directors, officers, consultants and employees of Careside. The number
of options to be granted and the option prices are determined by the Board of
Directors in accordance with the terms of the Plans. Each option expires on
such date as the Board of Directors may determine.
F-11
<PAGE>
For purposes of SFAS No. 123 disclosure requirements, the fair value of each
option grant is estimated on the date of grant using the Black-Scholes option-
pricing model using the following assumptions for options granted during 1997
and 1998: weighted average risk-free interest rate of 6.41% and 5.56%; expected
weighted average life of 6.7 and 7.0 years; dividend yield of zero; and
volatility of zero. The weighted average fair value of each option granted
during 1997 and 1998 was $1.72 and $2.20, respectively. Had the compensation
cost of these options been recorded for the year ended December 31, 1997 and
1998, the Company's net loss would have increased by approximately $28,000 and
$316,000, respectively.
Information with respect to options under the Plans is as follows:
<TABLE>
<CAPTION>
Options Outstanding
------------------------------
Available Price Aggregate
for Grant Shares Per Share Price
--------- ------- ---------- ----------
<S> <C> <C> <C> <C>
Balance, inception (July
10, 1996)................ -- -- $ -- $ --
Authorized.............. 576,923 -- -- --
-------- ------- ---------- ----------
Balance, December 31,
1996..................... 576,923 -- -- --
Granted................. (317,163) 317,163 .05--7.44 1,741,122
-------- ------- ---------- ----------
Balance, December 31,
1997..................... 259,760 317,163 .05--7.44 1,741,122
Granted................. (111,950) 111,950 6.76--7.28 762,782
Cancelled............... 673 (673) 5.20 (3,500)
Exercised............... -- (17,715) 6.76 (119,753)
-------- ------- ---------- ----------
Balance, December 31,
1998..................... 148,483 410,725 .05--7.28 2,380,651
Granted................. (1,202) 1,202 8.00 9,616
Cancelled............... 339 (339) 6.76 (2,292)
-------- ------- ---------- ----------
Balance, March 31, 1999... 147,620 411,588 $.05--8.00 $2,387,975
======== ======= ========== ==========
</TABLE>
As of March 31, 1999, 198,343 options were exercisable at prices ranging from
$.05 to $7.28 per share, with a weighted average exercise price of $5.70 per
share. At March 31, 1999, the aggregate exercise price of these options was
$1,129,802.
Stock Warrants
The following table summarizes outstanding warrants at March 31, 1999:
<TABLE>
<CAPTION>
Type of Outstanding Exercise
Warrants Warrants Price Issuance Date
-------- ----------- -------- -------------
<S> <C> <C> <C>
Common stock 384,615 $5.20 February 1997
Common stock 340,237 $6.76 April 1998
-------
724,852
=======
</TABLE>
The warrants issued in March 1997 and June 1998 are currently exercisable and
expire on the later of seven years from the date of issuance or three years
from the closing of the Offering. In addition to the above warrants, the
Company issued a Bridge Warrant in connection with the issuance of debt (See
Note 7). The Bridge Warrant becomes exercisable on the earlier of December 1999
or six months after the completion of the Offering and expires on the earlier
of December 2005 or four years after the completion of the Offering.
F-12
<PAGE>
9. COMMITMENTS:
Leases
Careside leases an office and laboratory facility under a noncancelable
operating lease. Rent expense for the period from inception (July 10, 1996)
through December 31, 1996, the years ended 1997 and 1998, the three months
ended March 31, 1998 and 1999, the period from inception (July 10, 1996)
through December 31, 1998 and the period from inception (July 10, 1996) through
March 31, 1999 was $26,126, $156,756, $156,756, $39,189, $39,189, $339,638 and
$378,827, respectively. Future minimum rental payments under these leases at
December 31, 1998 are as follows:
<TABLE>
<S> <C>
1999............................................................ 167,440
2000............................................................ 177,040
2001............................................................ 152,200
--------
$496,680
========
</TABLE>
Collaborative Arrangements
Careside has utilized strategic partners with specific design expertise and
state-of-the-art technology in order to develop the Careside system rapidly and
on a cost-effective basis. Careside has agreements with (i) Fuji Photo Film
Co., Ltd. for the supply of its dry film based chemistry reagents,(ii)
International Technidyne Corporation for the joint development of coagulation
reagents, (iii) UMM Electronics, Inc. to design and manufacture the CareSide
Analyzer and (iv) Advanced Medical Information Technologies, Inc. to develop
software to link the Careside system and other medical devices, including the
hematology device. In addition, Careside contracted with Hauser, Inc. for the
design of the Careside system and with Battelle Memorial Institute for the
design of the system's disposable test cartridges and their automated assembly
manufacturing system. Careside's agreements with its strategic partners do not
obligate Careside to any minimum purchase commitments.
Employment Agreements
Careside has entered into three-year renewable employment agreements with
three of its executive officers that provide for aggregate annual compensation
of approximately $539,000.
10.RETIREMENT PLAN:
Careside maintains a 401(k) profit sharing plan on behalf of its employees.
Participation in the plan is voluntary and eligible employees, as defined, may
contribute up to 15% of their compensation to the plan. Careside matches 50% of
the employee's contribution up to 4% of an employee's compensation. Careside's
contributions were zero, $32,315, $34,657, $9,490, $13,849, $66,972 and $80,821
for the period from inception (July 10, 1996) through December 31, 1996, the
years ended 1997 and 1998, the three months ended March 31, 1998 and 1999, the
period from inception (July 10, 1996) through December 31, 1998 and the period
from inception (July 10, 1996) through March 31, 1999, respectively.
F-13
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Careside, Inc:
We have audited the accompanying statement of operations for the ten months
ended October 31, 1996 of the Predecessor Business (see Note 1). This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
The statement of operations has been prepared for the purpose of complying
with the rules and regulations of the Securities and Exchange Commission (for
inclusion in the Form S-1 filing of Careside, Inc.) as described in Note 1 and
is not intended to be a complete presentation of the financial results of the
Predecessor Business.
In our opinion, the statement of operations referred to above presents
fairly, in all material respects, the results of operations of the Predecessor
Business for the ten months ended October 31, 1996, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.,
October 16, 1998
F-14
<PAGE>
PREDECESSOR BUSINESS (NOTE 1)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Ten Months
Ended
October 31,
1996
-----------
<S> <C>
OPERATING EXPENSES:
Research and development........................................ $ 3,054,503
General and administrative...................................... 224,399
-----------
NET LOSS.......................................................... $(3,278,902)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-15
<PAGE>
PREDECESSOR BUSINESS
NOTES TO STATEMENT OF OPERATIONS
1.BASIS OF PRESENTATION:
Careside, Inc. was incorporated in Delaware on July 12, 1996, and had no
operations until the purchase of certain assets from SmithKline Beecham
Corporation ("SmithKline") on November 7, 1996. The assets were acquired in
exchange for an equity interest in Careside. The assets acquired are referred
to as the "Predecessor Business." In connection with Careside's initial public
offering as contemplated in this Prospectus, the accompanying financial
statement has been prepared to comply with the rules and regulations of the
Securities and Exchange Commission.
The statement of operations represents the research and development and
related general and administrative expenses incurred by the Predecessor
Business in connection with the technology and know-how acquired by Careside.
The development of the technology related to the Predecessor Business commenced
in 1994.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Actual results
could differ from those estimates.
Research and Development
Research and development costs are charged to expense as incurred.
Transactions with SmithKline
For the ten months ended October 31, 1996, SmithKline allocated corporate
overhead to the Predecessor Business of $55,118 for employee benefits and other
corporate services. These allocations were based on actual payroll expense
incurred by the Predecessor Business and the estimated cost of services
provided by SmithKline. Management believes the method of allocation of such
expenses is reasonable and that the Predecessor Business would not have
incurred any other material costs if it had operated on a stand alone basis. In
addition, SmithKline funded approximately $7,450,000 of operating losses and
capital expenditures since the commencement of the Predecessor Business for
which no interest charge has been reflected in the statement of operations.
Cash Flow Information
For the ten months ended October 31, 1996, cash used in operations was
$3,233,423 and purchases of property and equipment were $242,507.
F-16
<PAGE>
[Inside Back Cover]
ROUTINE BLOOD ANALYSIS PROCEDURE
<TABLE>
<CAPTION>
THE TRADITIONAL WAY [Careside Logo] THE CARESIDE SOLUTION
<S> <C> <C> <C> <C>
[Drawings of At hospital or 1. [Photos of Draw blood. Place a
Traditional 1 commercial lab, Cartridge and Blood few drops of whole
Blood Testing caregiver or Test] blood into the
Procedures] phlebotomist draws blood cartridge sample well.
sample.
Technicians properly
2 package and store blood
sample for transport.
Hospitals hand-carry 2. [Photos of Using the touch-screen
multiple samples to the CareSide Analyzer or keyboard, input
3 clinical lab. Commercial and Test Menu] demographic
laboratories receive information and select
samples via ground tests to be performed.
and/or air courier. Insert appropriate
cartridges and press
start.
4 Lab technicians receive
and log the samples.
5 Samples are then 3. [Photos of Test 10 to 15 minutes
separated for different Results and Test later, CareSide
testing stations. Analysis] Analyzer(TM) provides
test results via print
card, screen and/or
electronic data
transfer. Caregiver
can immediately review
data with patient.
Technicians centrifuge
6 the samples to separate
whole blood into serum
and plasma.
Skilled technologists
7 prepare various large,
high-volume analyzers
for batch processing and
run the tests.
Skilled technologists CareSide Analyzer(TM): 10 to 15 Minutes
8 review results to assure
that they pass quality Hospital lab: Typically 4 to 6 Hours
control checks.
Commercial lab: Typically 24 Hours
Data is transferred to
9 laboratory information
systems and into QA/QC
records.
10 Data is disseminated to
the caregivers.
Caregiver reviews the
11 data and reconciles it
with patient charts.
Caregiver calls patient
12 to report results and to
order additional therapy
or schedule follow-up
visit if required.
</TABLE>
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
We have not authorized any dealer, salesperson or other person to give any
information or represent anything not contained in this prospectus. You must
not rely on any unauthorized information. This prospectus does not offer to
sell or buy any units in any jurisdiction where it is unlawful. The
information in this prospectus is current as of , 1999.
---------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Special Note Regarding Forward-Looking Statements........................ 14
Use of Proceeds.......................................................... 15
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 19
Business................................................................. 24
Management............................................................... 44
Principal Stockholders................................................... 52
Certain Transactions..................................................... 53
Description of Capital Stock............................................. 56
Shares Eligible for Future Sale.......................................... 63
Underwriting............................................................. 65
Legal Matters............................................................ 67
Experts.................................................................. 68
Where You Can Get More Information....................................... 68
Index to Financial Statements............................................ F-1
</TABLE>
---------------
Until , 1999 (25 days after the date of this prospectus), all dealers
that buy, sell or trade these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as underwriters and
with respect to their unsold allotments or subscriptions.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
[LOGO OF CARESIDE]
2,500,000 Units
Each Unit Consists of One Share of Common Stock and One Redeemable Common
Stock Purchase Warrant
---------------
PROSPECTUS
---------------
Paulson Investment Company, Inc.
Millennium Financial Group, Inc.
marion bass securities corporation
, 1999
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth an itemization of all estimated expenses, all
of which we will pay, in connection with the issuance and distribution of the
securities being registered:
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- ----------
<S> <C>
SEC Registration Fee............................................. $ 17,487
American Stock Exchange Listing Fee.............................. 50,000
NASD Fee......................................................... 6,790*
Printing and engraving fees...................................... 300,000
Registrant's counsel fees and expenses........................... 500,000
Accounting fees and expenses..................................... 200,000
Underwriters' Expenses........................................... 281,250
Blue Sky expenses and counsel fees............................... 45,000
Transfer agent and registrar fees................................ 8,000
Other Offering Expenses.......................................... 107,000
Miscellaneous.................................................... 84,473
----------
TOTAL.......................................................... $1,600,000
==========
</TABLE>
- ----------------
* $3,720 was previously paid by us.
Item 14. Indemnification of Directors and Officers.
Our Amended and Restated Certificate of Incorporation (the "Charter")
provides that we shall indemnify and advance expenses to the fullest extent
permitted by Section 145 of the Delaware General Corporation Law ("DGCL"), as
amended from time to time, to each person who is or was one of our directors or
officers and the heirs, executors and administrators of such a person. Any
expenses, including attorneys' fees, incurred by a person who is or was one of
our directors or officers, and the heirs, executors and administrators of such
a person in connection with defending any such proceeding in advance of its
final disposition shall be paid by us; provided, however, that if the DGCL
requires, an advancement of expenses incurred by an indemnitee in his capacity
as a director or officer, and not in any other capacity in which service was or
is rendered by such indemnitee, including, without limitation, service to an
employee benefit plan, shall be made only upon delivery to us of an undertaking
by or on behalf of such indemnitee, to repay all amounts so advanced, if it
shall ultimately be determined that such indemnitee is not entitled to be
indemnified for such expenses. Notwithstanding the aforementioned
indemnification provisions, we may, at the discretion of our Chief Executive
Officer, enter into indemnification agreements with directors or officers.
Section 145 of the DGCL provides that a corporation has the power to
indemnify any director or officer, or former director or officer, who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, other than an action by or in the right of the corporation,
by reason of the fact that such director or officer or former director or
officer is or was a director, officer, employee or agent of the corporation,
against expenses, including attorneys' fees, judgments, fines and amounts paid
in settlement actually and reasonably incurred by them in connection with such
action, suit or proceeding, if such person shall have acted in good faith and
in a manner reasonably believed to be in or not opposed to the best interests
of the corporation, and, with respect to any criminal action or proceeding,
provided that such person had no reasonable cause to believe his or her conduct
was unlawful, except that, if such action shall be in the right of the
corporation, no such indemnification shall be provided as to any claim, issue
or matter as to which such person shall have been judged to have been liable to
the corporation unless and to the extent that the Court of Chancery of the
State of Delaware, or any court in which such suit or action was brought, shall
determine upon application that, in view of all of the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as such court shall deem proper.
II-1
<PAGE>
The Charter, which will be filed prior to the completion of our initial
public offering of securities, contains a provision to limit the personal
liability of our directors to the fullest extent permitted by Section 102(b)(7)
of the DGCL, as amended. In addition, the Amended and Restated By-Laws, which
will become effective prior to the completion of the offering of securities,
provide that we shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative,
other than an action by us or in our right, by reason of the fact that he is or
was one of our directors, officers, employees or agents, or is or was serving
at our request as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, against
expenses, including attorneys' fees, judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to our best interests, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. See Exhibit 3.1c, "Form of Amended and
Restated Certificate of Incorporation of Careside, Inc."
As permitted by the DGCL, the Charter, which will be filed prior to the
completion of the offering, provides that, subject to certain limited
exceptions, none of our directors shall be liable to us or our stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (1) for any breach of the director's duty of loyalty to us or our
stockholders, (2) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (3) for the unlawful
payment of dividends on or redemption or repurchase of our capital stock or (4)
for any transaction from which the director derived an improper personal
benefit. The effect of this provision is to limit our ability and our
stockholders' ability through stockholder derivative suits on our behalf, to
recover monetary damages against a director for the breach of certain fiduciary
duties as a director, including breaches resulting from grossly negligent
conduct. In addition, the Charter and Amended and Restated By-Laws provide that
we shall, to the fullest extent permitted by the DGCL, indemnify all of our
directors and officers and that we may, to the extent permitted by the DGCL,
indemnify our employees and agents.
We have agreed to indemnify the underwriters against certain liabilities,
including civil liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities.
Since our formation in July 1996, we have issued the following securities,
giving retroactive effect to a 1-for-5.2 reverse stock split to be effected in
connection with the offering described in the prospectus, without registration
under the Securities Act:
1. In July 1996 and October 1996, we issued an aggregate of 659,344 shares
of common stock to our founder group for no consideration.
2. In November 1996, pursuant to an asset purchase agreement, SmithKline
Beecham Diagnostics Systems Co. and SmithKline Beecham Clinical
Laboratories, Inc. sold us certain fixed and intangible assets used in
connection with our point-of-care development program. As consideration
for the purchase of the assets, we issued to SBDS 34,702 shares of
common stock, representing 5% of our total common stock outstanding at
that time.
3. In December 1996, in connection with the establishment of a $1.0 million
working capital facility, we issued Exigent Partners, L.P. 557,601
shares of common stock for an aggregate purchase price of $98,995. In
the same month, we issued (1) 30,935 shares of common stock to
SmithKline Beecham Corporation pursuant to certain anti-dilution
protections granted to SmithKline Beecham Corporation in connection with
a credit facility and asset transfer and (2) 30,173 shares of common
stock to Philip B. Smith for the investment banking services he provided
in connection with our equity financing.
4. In January 1997, our credit facility from SmithKline Beecham
Corporation, pursuant to its terms, was converted into 129,555 shares of
common stock, representing 2% of our total common stock outstanding at
that time.
II-2
<PAGE>
5. In March 1997, we completed a private placement of securities through
Spencer Trask Securities Incorporated which resulted in our issuance of
1,923,090 shares of common stock at $5.20 per share to 203 investors who
were deemed to be accredited investors under Rule 501(a) of Regulation D
of the Securities Act of 1933 based upon representations made to us by
such investors. In connection with the private placement in February
1997, we issued warrants to Spencer Trask Securities Incorporated to
purchase 384,615 shares of common stock at an exercise price of $5.20
per share as partial consideration for its services in the private
placement. These warrants expire three (3) years after closing of the
offering. Of the proceeds of this private placement, which totalled in
the aggregate approximately $10 million, we received approximately $9
million with the remainder paid as a commission to Spencer Trask for its
services in the private placement.
6. In February 1997, we granted stock options to purchase an aggregate of
256,368 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan and 1996 Key Executive Stock Option Plan
(collectively, the "1996 Stock Option Plans") to ten employees and
directors. The weighted average per share exercise price of these stock
options is $5.29.
7. In May 1997, we granted stock options to purchase 192 shares of common
stock under our 1996 Incentive and Non-Qualified Stock Option Plan to
one employee. The per share exercise price of these stock options is
$5.20.
8. In June 1997, we granted stock options to purchase an aggregate of
31,731 shares of common stock under our 1996 Stock Option Plans to an
individual who was both one of our employees. The per share exercise
price of these stock options is $6.76.
9. In August 1997, we granted Cedar Capital Investors, options to purchase
1,154 shares of common stock at an exercise price of $.052 per share.
These options remain exercisable until August 8, 2007. These options
were granted to Cedar Capital Investors in consideration for providing
certain financial consulting services to us in connection with a private
placement of securities in 1998.
10. In December 1997, we granted stock options to purchase an aggregate of
27,718 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to 20 employees. The weighted average per
share exercise price of these stock options is $6.09.
11. In January 1998, we granted stock options to purchase an aggregate of
1,923 shares of common stock under our 1996 Incentive and Non-Qualified
Stock Option Plan to one employee. The per share exercise price of
these stock options is $6.76.
12. In February 1998, we granted stock options to purchase an aggregate of
13,700 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to one employee and five non-employee
directors. The per share exercise price of these stock options is
$6.76.
13. In May 1998, we granted stock options to purchase an aggregate of
17,715 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to 18 employees which were immediately
exercised. The per share exercise price of these stock options was
$6.76 per share.
14. In June 1998, we completed a second private placement of securities
through Spencer Trask Securities Incorporated which resulted in our
issuance of 1,701,225 shares of common stock at $6.76 per share to 311
investors, of whom 101 invested in the 1997 private placement of
securities, who were deemed to be accredited investors under Rule
501(a) of Regulation D of the Securities Act of 1933 based upon certain
representations made to us by such investors. In connection with the
private placement in 1998, we issued warrants to Spencer Trask
Securities Incorporated to purchase 340,237 shares of common stock at
an exercise price of $6.76 per share as partial consideration for our
services in these private placements. These warrants expire three years
from the date of closing of the offering. Of the proceeds of this
private placement, which totalled in the aggregate approximately $11.5
million, we received approximately $10 million with the remainder paid
as a commission to Spencer Trask Securities Incorporated for its
services in the private placement.
15. In July 1998, we granted stock options to purchase an aggregate of
67,074 shares of common stock under our 1996 Stock Option Plans to 29
employees two of whom are directors. The per share exercise price of
these stock options is $6.76.
II-3
<PAGE>
16. In November 1998, we granted stock options to purchase an aggregate of
11,538 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to six employees two of whom are directors.
The per share exercise price of these stock options is $7.28.
17. In December 1998, we entered into a bridge loan agreement with S.R.
One, Limited for a $3.0 million loan at 8% per annum interest. Draw
down of $1.5 million on this loan occurred on December 28, 1998 with
the remaining $1.5 million drawn down in January 1999. Prior to the
modification described in item 19 below, the bridge loan matured on the
date of completion of the offering or January 31, 2000, whichever
occurred sooner. We issued a warrant to S.R. One, Limited which, prior
to the modification described in Item 19 below, had an exercise price
based upon the initial public offering price of our common stock, less
a 15% discount, as partial consideration for providing the bridge loan.
The warrant is not exercisable until at least six months after
completion of the offering.
18. In January 1999, we granted stock options to purchase an aggregate of
1,202 shares of common stock under our 1996 Incentive and Non-Qualified
Stock Option Plan to one employee. The per share exercise price of
these stock options is $8.00.
19. In April 1999, we entered into a commitment letter with S.R. One,
Limited pursuant to which S.R. One agreed to convert $1 million of our
$3 million bridge loan, together with accrued interest at the rate of
8% on $1 million, upon consummation of the offering, into shares of
Series A Convertible Preferred Stock. The remaining $2 million of the
bridge loan matures in December 1999. The annual interest rate on the
remaining $2 million will increase to 10% on July 1, 1999. If the
remainder of the bridge loan is not repaid by December 1, 1999, S.R.
One will have the option to convert all or any portion of the remaining
loan, plus accrued interest thereon, into shares of Series A
Convertible Preferred Stock on the same basis as the Series A
Convertible Preferred Stock that is issued to S.R. One as part of the
$1 million conversion at the completion of the offering. As part of the
conversion, the bridge warrant issued to S.R. One in the bridge
financing was modified such that it will entitle S.R. One to purchase
that number of shares of common stock which is equal to $1,500,000
divided by 85% of the initial public offering price of a unit.
We believe that the transactions described in paragraphs 1 through 19 above
were exempt from registration under Section 3(b), 4(2) or 3(a)(9) of the
Securities Act because the subject securities were either (1) issued pursuant
to a compensatory benefit plan pursuant to Rule 701 under the Securities Act,
(2) issued to a limited group of persons, each of whom was believed to have
been a sophisticated investor or to have had a preexisting business or personal
relationship with us or our management and to have been purchasing for
investment without a view to further distribution or (3) exchanged by us with
our existing security holders exclusively where no commission or other
remuneration was paid or given directly or indirectly for soliciting such
exchange. In addition, the recipients of securities in each such transaction
represented their intentions to acquire the securities for investment only and
not with a view to or for sale in connection with any distribution thereof and
appropriate legends were affixed to the share certificates issued in such
transactions. All recipients had adequate access, through their relationships
with us, to information about us.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
1.1 Form of Underwriting Agreement
3.1a* Amended and Restated Certificate of Incorporation of Careside,
Inc.
3.1b* Form of Certificate of Amendment of Certificate of Incorporation
of Careside, Inc. (to be filed immediately prior to completion of
the offering)
3.1c* Form of Amended and Restated Certificate of Incorporation of
Careside, Inc. (to be filed immediately prior to the completion of
the offering)
3.1d Form of Certificate of Designations of Series A Convertible
Preferred Stock (to be filed immediately prior to completion of
the offering)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
3.2a* Amended and Restated Bylaws of Careside, Inc.
3.2b* Form of Amended and Restated Bylaws of Careside, Inc. (effective
upon completion of the offering)
4.1* Specimen Stock Certificate
4.2a Form of Warrant Certificate
4.2b Form of Unit Certificate
4.2* Placement Agent Warrant Agreement dated as of January 31, 1997 by
and between Careside, Inc. and Spencer Trask Securities
Incorporated (including Form of Warrant)
4.3* Placement Agent Warrant Agreement dated as of March 6, 1998 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
(including Form of Warrant)
4.4* Securities Purchase Agreement dated as of December 17, 1998 by and
between S.R. One, Limited and Careside, Inc. (including Form of
Note) (as amended)
4.5* Warrant Issued to S.R. One, Limited on December 17, 1998
4.6 Form of Warrant Agreement to be dated as of the closing date of
the offering, by and between Careside, Inc. and Paulson Investment
Company, Inc.
4.7 Form of Warrant Agreement to be dated as of the closing date of
the offering, by and between Careside, Inc. and American Stock
Transfer & Trust Company, as Warrant Agent
4.8 Form of Warrant to be issued to S.R. One, Limited on , 1999.
4.9 Form of New Note to be issued to S.R. One, Limited dated as of
December 17, 1999.
5.1 Opinion of Pepper Hamilton LLP
10.1* Registration Rights Agreement dated as of November 7, 1996 by and
among SmithKline Beecham Diagnostic Systems Co., SmithKline
Beecham Corporation and Careside, Inc.
10.2* Registration Rights Agreement dated as of December 4, 1996 by and
among Careside, Inc., Exigent Partners, L.P., W. Vickery
Stoughton, Thomas H. Grove, Kenneth B. Asarch, William S. Knight,
Donald S. Wong, Ashok K. Sawhney and Philip B. Smith
10.3* Amendment No. 1 to Registration Rights Agreement dated as of
January 31, 1997 by and among Careside, Inc. Exigent Partners,
L.P., W. Vickery Stoughton, Thomas H. Grove, Kenneth B. Asarch,
William S. Knight, Donald S. Wong, Ashok K. Sawhney and Philip B.
Smith
10.4* Registration Rights Agreement dated as of December 4, 1996 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.5* Registration Rights Agreement dated as of January 31, 1997 by and
among Careside, Inc. and the Investors signatory thereto
10.6* Stockholders Agreement dated as of December 4, 1996 by and among
the Careside, Inc., SmithKline Beecham Corporation, SmithKline
Beecham Diagnostic Systems Co., Spencer Trask Securities
Incorporated, Exigent Partners, L.P., W. Vickery Stoughton, Thomas
H. Grove, Kenneth B. Asarch, William S. Knight, Donald S. Wong,
Ashok K. Sawhney, Philip B. Smith and each Investor signatory
thereto
10.7* Consulting Agreement by and between Careside, Inc. and Cedar
Capital Investors dated August 8, 1997
10.8* Employment Agreement dated as of March 3, 1997 between Careside,
Inc. and W. Vickery Stoughton
10.9* Employment Agreement dated as of March 3, 1997 between Careside,
Inc. and Thomas H. Grove
10.10* Employment Agreement dated as of July 30, 1998 between Careside,
Inc. and James R. Koch
10.11* 1996 Incentive and Non-Qualified Stock Option Plan, as amended and
restated
10.12* 1996 Key Executive Stock Option Plan, as amended and restated
10.13* 1998 Incentive and Non-Qualified Stock Option Plan
10.14* 1998 Director Stock Option Plan
10.15* Standard Industrial/Commercial Single-Tenant Lease-NET dated as of
October 14, 1996, by and between Fox Hills Business Park, a
California Limited Partnership and Careside, Inc.
10.16 Agreement dated as of April 13, 1999, by and between Fuji Photo
Film Co., Ltd. and Careside, Inc.+
10.17* Agreement dated as of December 12, 1995, by and between United
Medical Manufacturing Company and SmithKline Beecham Corporation
and assignment
10.18* Product Development and Supply Agreement dated as of July 18,
1997, by and between Careside, Inc. and UMM Electronics, Inc.
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<C> <S>
10.19* Agreement executed December 7, 1995 and February 28, 1996, by and
between SmithKline Beecham Corporation and Hauser, Inc. and
assignment
10.20* Agreement Number CP032284 Cost Type executed December 5 and 17,
1996 by and between Battelle Memorial Institute and Careside, Inc.
10.21* Joint Research and Development Agreement dated as of October 28,
1996 by and between Careside, Inc. and International Technidyne
Corporation
10.22 Commitment Letter between S.R. One, Limited and Careside, Inc.
dated April 29, 1999.
10.23* Distribution and Supply Agreement dated as of November 7, 1996, by
and between SmithKline Beecham Clinical Laboratories, Inc. and
Careside, Inc, as amended on February 12, 1999.+
10.24* Asset Purchase Agreement dated as of November 7, 1996, by and
among SmithKline Beecham Clinical Laboratories, Inc., SmithKline
Beecham Diagnostic Systems Co. and Careside, Inc.
10.25* Loan and Security Agreement dated as of October 1, 1996, by and
between Careside, Inc. and SmithKline Beecham Corporation
10.26* Placement Agency Agreement dated as of December 10, 1996, by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.27* Placement Agency Agreement dated as of January 29, 1998, by and
between Spencer Trask Securities Incorporated and Careside, Inc.
10.28* Investment Banking Agreement dated as of January 31, 1997, by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.29* Agreement of Limited Partnership of Exigent Partners, L.P. dated
as of October 1996, by and between Kevin Kimberlin and those
persons listed on Schedule A attached thereto
10.30* The Lincoln National Life Insurance Company Standardized 401(k)
Salary Reduction Plan and Trust Prototype Plan Adoption Agreement
Plan #008, effective January 1, 1997, by and between Careside,
Inc. W. Vickery Stoughton and Thomas Grove
10.31* Employee Stock Purchase Plan
10.32* Registration Rights Agreement dated as of March 6, 1998 by and
among Careside, Inc. and the Investors signatory thereto
10.33* Registration Rights Agreement dated as of March 6, 1998 by and
between Careside, Inc. and Spencer Trask Securities Incorporated
10.34* Registration Rights Agreement dated as of December 17, 1998 by and
between Careside, Inc. and S.R. One, Limited
10.35 Waiver Letter Agreement dated as of May 25, 1999 by and between
Careside, Inc. and Spencer Trask Securities Incorporated
10.36 Letter Agreements between Advanced Medical Information
Technologies, Inc. and Careside, Inc. dated January 11, 1999,
January 25, 1999 and February 19, 1999.+
10.37 Form of Securities Conversion Agreement dated as of , 1999
between S.R. One, Limited and Careside, Inc.
10.38 Form of Amended and Restated Registration Rights Agreement dated
as of , 1999 between S.R. One, Limited and Careside, Inc.
23.1 Consent of Arthur Andersen LLP
23.2* Consent of Pepper Hamilton LLP (included in Exhibit 5.1)
23.3 Consent of Oppenheimer Wolff & Donnelly LLP
24.1* Power of Attorney (included on Signature Pages)
27.1* Financial Data Schedule
</TABLE>
- --------
* Previously filed with the Securities and Exchange Commission.
+ Portions of these documents have been omitted pursuant to a request for
confidential treatment. The material has been filed separately with the
Securities and Exchange Commission.
(b) Financial Statement Schedules:
Financial Statement Schedules are omitted because the information is included
in the Financial Statements or notes thereto.
II-6
<PAGE>
Item 17. Undertakings.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) To file during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933, as amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in volume of securities
offered (if the dollar value of the securities offered would not
exceed that which was registered) and any deviation from the low
or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement,
and
(iii) Include additional or changed material information on the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement.
(2) For purposes of determining liability under the Securities Act, treat
each post-effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time to
be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(5) For purposes of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
In addition, the undersigned registrant hereby undertakes to provide to the
underwriters at the closing specified in the underwriting agreements,
certificates in such denominations and registered in such names as required by
the underwriters to permit prompt delivery to each purchaser.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Amendment No. 8 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in Culver City, California, on the 26th day of May,
1999.
CARESIDE, INC.
/s/ W. Vickery Stoughton
By: _________________________________
W. Vickery Stoughton
Chairman of the Board of
Directors
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 8 to the Registration Statement has been signed by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ W. Vickery Stoughton Chairman of the Board of May 26, 1999
______________________________________ Directors, Chief
W. Vickery Stoughton Executive Officer and
Director (principal
executive officer)
/s/ Thomas H. Grove Executive Vice President-- May 26, 1999
______________________________________ Research and Development
Thomas H. Grove and Director
/s/ James R. Koch Chief Financial Officer, May 26, 1999
______________________________________ Treasurer, Executive Vice
James R. Koch President and Director
(principal financial and
accounting officer)
* Director May 26, 1999
______________________________________
Anthony P. Brenner
* Director May 26, 1999
______________________________________
William F. Flatley
* Director May 26, 1999
______________________________________
Kenneth N. Kermes
* Director May 26, 1999
______________________________________
C. Alan MacDonald
* Director May 26, 1999
______________________________________
Diana Mackie
* Director May 26, 1999
______________________________________
Philip B. Smith
</TABLE>
/s/ W. Vickery Stoughton
*By: ________________________________
W. Vickery Stoughton Attorney-in-
Fact
II-8
<PAGE>
Exhibit 1.1
2,500,000 UNITS
CARESIDE, INC.
FORM OF
UNDERWRITING AGREEMENT
----------------------
May ___ , 1999
Paulson Investment Company, Inc.
Millennium Financial Group, Inc.
marion bass securities corporation
As Representatives of the Several
Underwriters
c/o Paulson Investment Company, Inc.
811 S.W. Front Avenue, Suite 200
Portland, Oregon 97204
Ladies and Gentlemen:
Careside, Inc., a Delaware corporation (the "Company"), proposes to sell to
the several underwriters (the "Underwriters") named in Schedule I hereto, for
whom Paulson Investment Company, Inc. ("Paulson"), Millennium Financial Group,
Inc. and marion bass securities corporation are acting as representatives
(collectively, the "Representatives"), an aggregate of 2,500,000 Units (the
"Firm Units"). Each Unit (hereinafter defined) will consist of one share of the
Company's Common Stock, $.01 par value per share ("Common Stock"), and a warrant
to purchase one additional share of Common Stock ("Warrant"). The respective
amounts of the Firm Units to be so purchased by the Underwriters are set forth
opposite their names in Schedule I hereto. The Company also proposes to grant to
the Underwriters an option to purchase an aggregate of up to 375,000 additional
Units, identical to the Firm Units (the "Option Units"), as set forth below. The
offer and sale of the Firm Units and the Option Units pursuant to this Agreement
is referred to as the "Offering."
In addition, the Company proposes to issue to the Representatives and/or
their designees, warrants (the "Representatives' Warrants") pursuant to a
certain Purchase Warrant Agreement, dated as of [__________], 1999, among the
Company and Paulson (the "Representatives' Warrant Agreement"), for the purchase
of an additional 250,000 Units in the aggregate (the "Representatives' Units").
The Firm Units; the Common Stock and Warrants underlying the Firm Units; the
Option Units; the Common Stock and Warrants underlying the Option Units; the
Representatives' Warrants; and the Common Stock and Warrants underlying the
Representatives' Warrants (collectively, hereinafter referred to as the
"Securities"), are more fully described in the Registration Statement and the
Prospectus referred to below.
<PAGE>
SmithKline Beecham Clinical Laboratories, Inc. ("SBCL"), a Delaware
corporation and subsidiary of SmithKline Beecham Corporation, a Pennsylvania
corporation, started the Company's predecessor business (the "Predecessor
Business"), to develop the technology that the Company currently uses. The
Company acquired the Predecessor Business in November 1996. The Company was
incorporated in the State of Delaware on July 10, 1996 under the name Exigent
Diagnostics, Inc. On May 21, 1998, the Company changed its name to Careside,
Inc.
As the Representatives, you have advised the Company that (a) you are
authorized to enter into this Agreement for yourself as Representatives and on
behalf of the several Underwriters, and (b) the several Underwriters are
willing, acting severally and not jointly, to purchase the numbers of Firm Units
set forth opposite their respective names in Schedule I. The Firm Units and the
Option Units (to the extent the aforementioned option is exercised) are herein
collectively called the "Units."
In consideration of the mutual agreements contained herein and the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. Representations and Warranties of the Company. The Company represents
---------------------------------------------
and warrants to, and agrees with, each of the Underwriters, as of the date
hereof, as of the Closing Date (hereinafter defined) and as of the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form S-1 (File No. 333-69207), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Firm Units, the Option Units and the Representatives' Units under the
Securities Act of 1933, as amended (the "Act"), which registration statement and
amendment or amendments have been prepared by the Company in conformity, in all
material respects, with the requirements of the Act, and the rules and
regulations of the Commission under the Act (the "Regulations"). The Company
will promptly file a further amendment to said registration statement in the
form heretofore delivered to the Underwriters, and will not file any other
amendment thereto to which the Underwriters shall have reasonably objected in
writing after having been furnished with a copy thereof. Except as the context
may otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to those documents or information incorporated by reference therein) and
all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430(A) of the Regulations), is hereinafter called the
"Registration Statement," and the form of prospectus in the form first filed
with the Commission pursuant to Rule 424(b) of the Regulations, is hereinafter
called the "Prospectus." For purposes hereof, "Rules and Regulations" mean the
rules and regulations adopted by the Commission under either the Act or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
2
<PAGE>
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any of the foregoing
and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted,
are pending or, to the Company's knowledge, are threatened. Each of the
Preliminary Prospectus, Registration Statement and Prospectus, at the time of
filing thereof, conformed, in all material respects, with the requirements of
the Act and the Rules and Regulations, and none of the Preliminary Prospectus,
Registration Statement or Prospectus, at the time of filing thereof, contained
an untrue statement of a material fact or omitted to state a material fact
required to be stated therein and necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; provided,
--------
however, that this representation and warranty does not apply to statements made
- -------
or statements omitted in reliance upon and in conformity with written
information furnished to the Company with respect to the Underwriters by or on
behalf of the Underwriters, expressly for use in such Preliminary Prospectus,
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto.
(c) When the Registration Statement becomes effective and at all times
subsequent thereto up to the Closing Date and each Option Closing Date, if any,
and during such longer period as the Prospectus is required under the Act or the
Regulations to be delivered in connection with sales by the Underwriters or a
dealer, the Registration Statement and the Prospectus will contain all
statements which are required to be stated therein in accordance with the Act
and the Rules and Regulations, and will conform, in all material respects, to
the requirements of the Act and the Rules and Regulations. Neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, at the time of the effectiveness of the Registration Statement or any
amendment thereto and at the time of delivery of the Prospectus or any amendment
or supplement thereto, will contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading. Notwithstanding the
above, the representation and warranty contained in this subsection (c) of
Section 1 does not apply to statements made or statements omitted in reliance
- -------
upon and in conformity with information furnished to the Company in writing by
or on behalf of any Underwriter expressly for use in the Preliminary Prospectus,
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company does not own an interest in any corporation,
partnership, trust, joint venture or other business entity. The Company is duly
qualified and licensed, and is in good standing as a foreign corporation, in
each jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing, except
where the failure to be so qualified or licensed would not have a material
adverse effect upon the business, results of operations, financial condition or,
insofar as can reasonably be foreseen, prospects of the Company (a "Company
Material Adverse Effect"). The Company has all requisite corporate power and
authority, and has obtained any and all necessary authorizations, approvals,
orders,
3
<PAGE>
licenses, certificates, franchises and permits ("Governmental Authorizations")
of and from all governmental or regulatory officials and bodies (including,
without limitation, those having jurisdiction over environmental or similar
matters), to own or lease its properties and conduct its business as described
in the Prospectus, except where the failure to obtain or maintain a Governmental
Authorization would not have a Company Material Adverse Effect. The Company is
and has been doing business in compliance with all such authorizations,
approvals, orders, licenses, certificates, franchises, permits and all federal,
state and local laws, rules and regulations, and has not received any notice of
proceedings relating to the revocation or modification of any such Governmental
Authorization which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Company Material Adverse
Effect. The disclosures in the Registration Statement concerning the effects of
federal, state and local laws, rules and regulations on the Company's business
as currently conducted and as contemplated to be conducted as set forth in the
Registration Statement are correct in all material respects and do not omit to
state a material fact necessary to make the statements contained therein not
misleading in light of the circumstances in which they were made.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, under "Capitalization" and
"Description of Capital Stock" and will, upon the closing of the purchase of the
Firm Units in accordance with the terms of this Agreement, have the adjusted
capitalization set forth therein on the Closing Date based upon the assumptions
set forth therein. The Company is not a party to or bound by any instrument,
agreement or other arrangement providing for it to issue any capital stock,
rights, warrants, options or other securities, except for this Agreement, the
Representatives' Warrant Agreement and as otherwise described in the Prospectus.
The Securities and all other securities issued or issuable by the Company as
described in the Prospectus conform or, when issued and paid for in accordance
with the terms of this Agreement or the Representatives' Warrant Agreement or as
described in the Prospectus, as applicable, will conform, in all material
respects, to all statements with respect thereto contained in the Registration
Statement and the Prospectus. All issued and outstanding securities of the
Company have been duly authorized and validly issued and are fully paid and non-
assessable, and the holders thereof have no rights of rescission with respect
thereto, and, subject to the requirements of applicable law, are not subject to
personal liability by reason of being such holders; and none of such securities
were issued in violation of the preemptive rights of any holders of any security
of the Company or similar contractual rights granted by the Company. The
Securities (i) are not and will not be subject to any preemptive or other
similar rights of any stockholder, (ii) have been duly authorized and (iii) when
issued, paid for and delivered in accordance with the terms hereof, will be
validly issued, fully paid and non-assessable and will conform to the
description thereof contained in the Prospectus. The holders of the Securities
will not be subject to any personal liability solely by reason of being such
holders, subject to the requirements of applicable law. All corporate action
required to be taken for the authorization, issue and sale of the Securities has
been duly and validly taken; and the certificates representing the Securities
will be in due and proper form according to the corporate law of the
jurisdiction of the Company's incorporation. Upon the issuance and delivery,
pursuant to the terms hereof, of the Securities to be sold by the Company
hereunder, the Underwriters or the Representatives, as the case may be, will
acquire good and marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest,
4
<PAGE>
defect or other restriction or equity of any kind whatsoever (a "Lien"), other
than Liens imposed as a result of actions or omissions by the Underwriters, the
Representatives or those persons or entities purchasing any such Securities from
the Underwriters or the Representatives.
(f) The consolidated financial statements, including the related notes
and schedules thereto, included in the Registration Statement, each Preliminary
Prospectus and the Prospectus, fairly present, in all material respects, the
financial position, income, changes in cash flow, changes in stockholders'
equity, and results of operations of the Company at the respective dates and for
the respective periods to which they apply. Such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no Company Material Adverse Effect or development involving a
prospective Company Material Adverse Effect, whether or not arising in the
ordinary course of business, since the date of the financial statements included
in the Registration Statement and the Prospectus. The outstanding debt, the
property, both tangible and intangible, and the business of the Company conform,
in all material respects, to the descriptions thereof contained in the
Registration Statement and the Prospectus. Financial information set forth in
the Prospectus under the headings "Summary Financial Data," "Selected Financial
Data," "Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations," fairly present, in all material respects,
on the basis stated in the Prospectus, the information set forth therein, and
have been derived from, or compiled on, a basis consistent with that of the
audited financial statements included in the Prospectus.
(g) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable and for which payment is due, including, but not
limited to, withholding taxes and amounts payable under Chapters 21 through 24
of the Internal Revenue Code of 1986, as amended (the "Code"), and, to its
knowledge, based on consultation with its tax advisors, has furnished all
information and returns it is required to furnish pursuant to the Code and
applicable state, local and foreign tax laws, (ii) has established adequate
reserves for such taxes which are not due and payable, and (iii) does not have
any tax deficiency or claims outstanding, proposed or assessed against it. All
tax liabilities have been adequately provided for in the financial statements of
the Company.
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Securities to be
sold by the Company hereunder, (iii) the purchase by the Representatives of the
Representatives' Warrants from the Company, or (iv) resales of the Securities in
connection with the distribution by the Underwriters contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, product liability and property insurance, and
surety bonds which insure the Company and its employees against such losses and
risks generally insured against by comparable businesses. The Company (i) has
given notice or presented insurance claims with respect to all matters covered
by such insurance policies or surety bonds, including, but not
5
<PAGE>
limited to, claims involving the Company's business, property or employees, in a
due and timely manner, (ii) has no disputes or claims against any underwriter of
such insurance policies or surety bonds, (iii) has paid all premiums due and
payable with respect to such insurance policies and surety bonds and (iv) has
complied, in all material respects, with all conditions contained in such
insurance policies and surety bonds so as to avail itself of coverage in the
event of any claim.
(j) There is no action, suit, proceeding, inquiry, arbitration,
litigation, governmental proceeding (including, without limitation, those having
jurisdiction over environmental or similar matters) or, to the knowledge of the
Company, investigation, domestic or foreign, pending or, to the knowledge of the
Company, threatened against the Company or expressly involving the properties or
business of the Company which (i) questions the validity of the capital stock of
the Company, this Agreement, the Representatives' Warrant Agreement or any
action taken or to be taken by the Company pursuant to or in connection with
this Agreement or the Representatives' Warrant Agreement, (ii) is required to be
disclosed in the Registration Statement which is not so disclosed or (iii)
except for matters disclosed in the Prospectus, could reasonably be expected to
have a Company Material Adverse Effect.
(k) The Company has full legal right, corporate power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Representatives' Warrant Agreement and to consummate the transactions
provided for in such agreements; and this Agreement and the Representatives'
Warrant Agreement have each been duly and properly authorized, executed and
delivered by the Company. Each of this Agreement and the Representatives'
Warrant Agreement constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms, except (i)
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification or
contribution provisions may be limited under applicable laws or the public
policies underlying such laws and (iii) that the remedies of specific
performance and injunctive and other forms of equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceedings may be brought. None of the Company's issuance and sale of the
Securities, execution or delivery of this Agreement or the Representatives'
Warrant Agreement, performance hereunder and thereunder, or consummation of the
transactions contemplated herein and therein, (A) conflicts with or will
conflict with, (B) results in or will result in any breach or violation of any
of the terms or provisions of, (C) constitutes or will constitute a default
under, or (D) result in the creation or imposition of any Lien upon any property
or assets (tangible or intangible) of the Company pursuant to the terms of, any
of the following: (i) the Certificate of Incorporation or By-laws of the
Company, (ii) any material license, contract, indenture, mortgage, deed of
trust, voting trust agreement, stockholders agreement, note, indebtedness, loan,
credit agreement or any other agreement or instrument to which the Company is a
party or by which it is bound or to which any of its properties or assets
(tangible or intangible) is expressly subject, or (iii) any statute, rule or
regulation, applicable to the Company, or any judgment, decree or order which by
its terms is expressly applicable to the Company, of any arbitrator, court,
regulatory body or administrative agency or other governmental agency or body
(including, without limitation, those having
6
<PAGE>
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(l) Except as described in the Prospectus, no consent, approval,
authorization or order of, and no filing with, any court, regulatory body,
government agency or other body, domestic or foreign, is required for the
issuance of the Units pursuant to the Prospectus and the Registration Statement,
the issuance of the Representatives' Warrants, the performance of this Agreement
and the Representatives' Warrant Agreement and the transactions contemplated
hereby and thereby, including without limitation, any waiver of any preemptive,
first refusal or other rights that any entity or person may have with respect to
the issuance and/or sale of any of the Securities, except such as have been or
may be obtained under the Act or may be required under state securities or Blue
Sky laws in connection with the Underwriters' purchase and distribution of the
Units, and the Representatives' Warrants to be sold by the Company hereunder and
under the Representatives' Warrant Agreement.
(m) All executed agreements, contracts or other documents or copies of
executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which any of its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company, and
constitute the legal, valid and binding agreements of the Company, enforceable
against the Company in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law). The descriptions in the
Registration Statement of agreements, contracts and other documents are accurate
in all material respects and fairly present, in all material respects, the
information required to be shown with respect thereto on Form S-1. There are no
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required, and the exhibits which have been
filed are, in all material respects, complete and correct copies of the
documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (ii) entered into any transaction other than in the ordinary
course of business, (iii) considered entering into a material transaction that
is probable of occurring, or (iv) declared or paid any dividend or made any
other distribution on or in respect of its capital stock of any class; and there
has not been any change in the Company's capital stock, material increase in its
debt (long or short term) or liabilities or material adverse change in or
affecting its general affairs, management, financial operations, stockholders'
equity or results of operations. The Company has no material contingent
obligations that are not disclosed in the Company's financial statements
included in the Registration Statement.
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(o) No default by the Company exists in the due performance and
observance of any term, covenant or condition of any license, contract,
indenture, mortgage, installment sale agreement, lease, deed of trust, voting
trust agreement, stockholders' agreement, partnership agreement, note, loan,
credit agreement, purchase order, or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the property or assets (tangible or intangible) of the Company are
subject or affected, except where such default would not have a Company Material
Adverse Effect.
(p) The Company is in compliance, in all material respects, with all
federal, state, local, and foreign laws and regulations respecting employment
and employment practices, terms and conditions of employment, and wages and
hours. To the knowledge of the Company, there are no pending investigations
involving the Company by the United States Department of Labor, or any other
governmental agency responsible for the enforcement of any of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, organized slowdown
or stoppage pending or, to the knowledge of the Company, threatened against or
involving the Company. No question exists with respect to the employees of the
Company being represented by a labor union, and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company. No labor dispute with the
employees of the Company exists or, to the knowledge of the Company, is
imminent.
(q) Except as described in the Prospectus, the Company does not
maintain, sponsor or contribute to any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan" or a
"multiemployer plan" (collectively, "ERISA Plan") as such terms are defined in
Sections 3(2), 3(1) and 3(37), respectively, of the Employee Retirement Income
- --------
Security Act of 1974, as amended ("ERISA"). To the Company's knowledge, the
Company does not maintain or contribute, now or at any time previously, to a
defined benefit plan, as defined in Section 3(35) of ERISA. To the Company's
-------
knowledge, no ERISA Plan (or any trust created thereunder), has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
------- -------
4975 of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. To the
Company's knowledge, each ERISA Plan is in compliance, in all material respects,
with all reporting, disclosure and other requirements of the Code and ERISA as
they relate to any such ERISA Plan. The Company has never completely or
partially withdrawn from a "multiemployer plan."
(r) Neither the Company nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Regulations) of
any of the foregoing has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act, or otherwise, stabilization or manipulation
of the price of any security of the Company to facilitate the sale or resale of
the Securities or otherwise. The Company acknowledges that the Underwriters may
engage in
8
<PAGE>
passive market making transactions in the Units, Common Stock and/or Warrants on
the American Stock Exchange in accordance with the Rules and Regulations.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, service names, trade
names and copyrights, and none of the licenses and rights to the foregoing
presently owned or held by the Company is in dispute or is in any conflict with
the right of any other person or entity. Except as set forth in the Prospectus,
the Company (i) owns or has the right to use, free and clear of all Liens, all
patents, patent applications, trademarks, service marks, service names, trade
names, copyrights, technology, licenses and rights with respect to the
foregoing, used in the conduct of its business as now conducted or proposed to
be conducted without infringing upon or otherwise acting adversely to the right
or claimed right of any person, corporation or other entity under or with
respect to any of the foregoing and (ii) is not obligated or under any liability
whatsoever to make any payment by way of royalties, fees or otherwise to any
owner or licensee of, or other claimant to, any patent, patent application,
trademark, service mark, service name, trade name, copyright, know-how,
technology or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
(t) There is no action, suit, proceeding, inquiry, arbitration,
litigation, governmental or other proceeding or, to the knowledge of the
Company, investigation, domestic or foreign, pending or, to the knowledge of the
Company, threatened (or circumstances that may give rise to the same) against
the Company which challenges the exclusive rights of the Company with respect to
any trademarks, trade names, service marks, service names, copyrights, patents,
patent applications, licenses or rights to the foregoing used in the conduct of
its business, or which challenge the right of the Company to use any technology
presently used or contemplated to be used in the conduct of its business.
(u) Subject to the various license and other agreements described in
the Prospectus, the Company owns and has the right to use all material trade
secrets, know-how (including all other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information (collectively herein, "intellectual property")
that are material to the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the Company, free and clear
of, and without violating, any right, Lien, or claim of others, including,
without limitation, former employers of its employees; provided, however, that
-------- -------
the possibility exists that other persons or entities, completely independently
of the Company, or their employees or agents, could have developed trade secrets
or items of technical information similar or identical to those of the Company.
The Company is not aware of any such development of similar or identical trade
secrets or technical information by others.
(v) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all material items of real and personal
property stated in the Prospectus to be owned or leased by it, free and clear of
all Liens, other than those referred to in the Prospectus,
9
<PAGE>
lessor's interests, Liens for taxes not yet due and payable, and other Liens
which would not have a Company Material Adverse Effect.
(w) Arthur Andersen LLP ("Andersen"), whose report is filed with the
Commission as a part of the Registration Statement, is an independent public
accountant as required by the Act and the Rules and Regulations.
(x) The Company has caused each officer, director and other person
who owns, beneficially or of record, shares of Common Stock, to execute and
deliver to Paulson, on or prior to the date of this Agreement, a letter or
letters, in substantially the form of Exhibit A attached hereto ("Lock-up
---------
Agreements") covering not less than an aggregate of ____ percent (____%) of the
outstanding shares of Common Stock immediately prior to the Offering (treating
all outstanding options and warrants to purchase shares of Common Stock issuable
thereunder as outstanding for purposes of such calculation), pursuant to which
each such person agreed not to (A) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, lend, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or other capital
stock of the Company, or any other securities convertible, exchangeable or
exercisable for Common Stock or derivatives of Common Stock owned by such
person, or (B) request the registration for the offer or sale of any of the
foregoing (or as to which such person has the right to direct the disposition
of), for a period of one year after the date of this Agreement, except with the
prior written consent of the Representatives, which consent shall not be
unreasonably withheld. The Company is not aware of any facts which would give
the Company reason to believe that any Lock-up Agreement has not been duly
executed and is not a legally binding and enforceable agreement (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable).
(y) Except as described in the Prospectus under "Underwriting" and
except for the rights of Spencer Trask Securities Incorporated, which have been
expressly waived, there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, to which the Company is a party, for
services in the nature of a finder's or origination fee with respect to the sale
of the Securities hereunder or any other arrangements, agreements,
understandings, payments or issuances with respect to the Company or, to the
knowledge of the Company, any of its officers, directors, stockholders,
partners, employees or affiliates that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(z) The Units, Common Stock and Warrants have been approved for
quotation on the American Stock Exchange.
(aa) Neither the Company nor any of its officers, employees, agents,
or any other person acting on behalf of the Company, has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary
10
<PAGE>
course of business) to any customer, supplier, employee or agent of a customer
or supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is or may be in a position to help or hinder the business of the
Company (or assist the Company in connection with any actual or proposed
transaction) which (i) would subject the Company, or any other such person, to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign), (ii) if not given in the past, might have had
a materially adverse effect on the assets, business or operations of the
Company, or (iii) if not continued in the future, could reasonably be expected
to result in a Company Material Adverse Effect. The Company's internal
accounting controls are sufficient to cause the Company to comply with the
Foreign Corrupt Practices Act of 1977, as amended.
(bb) Except as set forth in the Prospectus, to the best of the
Company's knowledge, no officer, director or stockholder of the Company, or any
"affiliate" or "associate" (as these terms are defined in Rule 405 promulgated
under the Regulations) of any of the foregoing persons or entities has or has
had, either directly or indirectly, (i) an interest in any person or entity
which (A) furnishes or sells services or products which are furnished or sold or
are proposed to be furnished or sold by the Company, or (B) purchases from or
sells or furnishes to the Company any goods or services, or (ii) a beneficial
interest in any contract or agreement to which the Company is a party or by
which it may be bound or affected which is material to the Company or is
otherwise required by the Regulations to be disclosed in the Prospectus. Except
as set forth in the Prospectus, there have been, and are, no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company, on the one hand, and any officer, director, or Principal Stockholder
(as such term is defined in the Prospectus) of the Company, or any partner,
affiliate or associate of any of the foregoing persons or entities, on the other
hand, which the Company is a party or by which it may be bound or affected which
are material to the Company or are otherwise required by the Regulations to be
disclosed in the Prospectus.
(cc) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' counsel, shall be deemed a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
(dd) The minute book of the Company has been made available to the
Underwriters and, in all material respects, (i) contains a complete summary of
all meetings and actions of the directors, stockholders, audit committee,
compensation committee and any other committee of the Board of Directors of the
Company, since the time of its incorporation, and (ii) reflects all transactions
referred to in such minutes accurately.
(ee) No holders of any securities of the Company or of any options,
warrants or other convertible or exchangeable securities of the Company have the
right to include any securities issued by the Company in the Registration
Statement or any registration statement to be filed by the Company or to require
the Company to file a registration statement under the Act, other than those
holders who have effectively waived such rights. Except as described in the
Prospectus, no holder of any securities of the Company or any other person has
the right,
11
<PAGE>
contractual or otherwise, which has not been satisfied or effectively waived, to
cause the Company to sell or otherwise issue to them, or permit them to
underwrite the sale of, any of the Securities.
(ff) The Company has, as of the date that the Commission has entered
an order declaring the Registration Statement effective under the Act (the
"Effective Date"), (i) entered into an employment agreement with each of W.
Vickery Stoughton, Thomas H. Grove and James R. Koch, substantially in the forms
filed as Exhibit 10.8, 10.9 and 10.10, respectively, to the Registration
Statement and (ii) purchased individual term key-man life insurance policies on
the lives of Mr. Stoughton and Dr. Grove in the amounts of $3,000,000 and
$2,000,000 respectively, which policies name the Company as the sole
beneficiary.
(gg) On the Effective Date, the Company amended its Certificate of
Incorporation to effect a plan of recapitalization by consummating a 1-for-5.2
reverse stock split with respect to the Common Stock (the "Recapitalization"),
without any change in the powers, preferences, rights, qualifications,
limitations or restrictions thereof, such that every 5.2 shares of Common Stock
outstanding or held by the Company in its treasury on the date of the filing of
the Certificate of Amendment to the Company's Certificate of Incorporation was
changed and reclassified into one (1) share of Common Stock, which share was
fully paid and nonassessable. The Recapitalization has been duly and validly
authorized by the Company and its respective shareholders and all certificates,
agreements, contracts, minutes or other documents necessary to effect the
Recapitalization (collectively, the "Recapitalization Documents"), have been
duly and validly authorized, executed and delivered and, if necessary, filed
with the appropriate regulatory body, government agency or other body, domestic
or foreign, by the appropriate parties, and constitute the legal, valid and
binding agreements of such parties, enforceable against each of them in
accordance with their respective terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law), and none of the execution or delivery of any of the
Recapitalization Documents by the parties thereto, the performance by the
Company hereunder or thereunder, or the consummation of the transactions
contemplated herein or therein, (i) conflicts with or will conflict with, (ii)
results in or will result in any breach or violation of any of the terms or
provisions of, (iii) constitutes or will constitute a default under, (iv) or
result in the creation or imposition of any Lien upon any property or assets
(tangible or intangible) of the Company pursuant to the terms of, (A) the
Certificate of Incorporation or By-laws of the Company, (B) any material
license, contract, collective bargaining agreement, indenture, mortgage, deed of
trust, lease, voting trust agreement, stockholders' agreement, note,
indebtedness, loan, credit agreement or any other agreement or instrument to
which the Company is a party or by which it is or may be bound or to which any
of its properties or assets (tangible or intangible) is or may be subject or (C)
any statute, judgment, decree, order, rule or regulation, applicable to the
Company, of any arbitrator, court, regulatory body, administrative agency or
other governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties. The
Recapitalization Documents properly effect the
12
<PAGE>
Recapitalization as described in the Prospectus; and the descriptions in the
Registration Statement of the Recapitalization are accurate and fairly present,
in each case in all material respects, the information required to be shown with
respect thereto by Form S-1.
(hh) The Company is not an "investment company" within the meaning of
such term under the Investment Company Act of 1940, as amended (the "Investment
Company Act"), and the rules and regulations of the Commission thereunder.
(ii) At least five (5) days prior to the Effective Date, the Company
filed a Form 8-A with the Commission providing for the registration of the Units
and the Representatives' Units under the Exchange Act.
(jj) The Company owns all of the assets (the "Purchased Assets"),
related to the Predecessor Business which it acquired from SmithKline Beecham
Corporation and its affiliates (within the meaning of the Regulations;
collectively, "SmithKline") free and clear of all Liens, other than Liens
disclosed in the Prospectus. For purposes of the preceding sentence, Purchased
Assets shall not mean assets that have been disposed of or used in the ordinary
course of the Company's business, or assets that are obsolete or otherwise not
used in the ordinary course of the Company's business.
(kk) The only liabilities acquired (i.e., assumed) from SmithKline
related to the Predecessor Business, other than those stated on the Company's
balance sheets for the years ended December 31, 1997 and 1998, are set forth in
that certain Asset Purchase Agreement, dated as of November 7, 1996, between the
Company and SmithKline.
(ll) The Company is in all material respects in compliance with all
applicable Environmental Laws. The Company does not have any knowledge of any
past, present or, as reasonably anticipated by the Company, future events,
conditions, activities, investigations, studies, plans or proposals that (i)
would interfere with or prevent compliance with any Environmental Law by the
Company or (ii) could reasonably be expected to give rise to any common law or
liability, or otherwise form the basis of a claim, action, suit, proceeding,
hearing or investigation, involving the Company which is related in any way to
Hazardous Substances or Environmental Laws. Except for the prudent and safe use
and management of Hazardous Substances in the ordinary course of the Company's
business, (A) no Hazardous Substance is or has been used, treated, stored,
generated, manufactured or otherwise handled on or at any Facility and (B) to
the Company's best knowledge, no Hazardous Substance has otherwise come to be
located in, on or under any Facility. No Hazardous Substances are stored at any
Facility except in quantities necessary to satisfy the reasonably anticipated
use or consumption by the Company. No litigation, claim, proceeding or
governmental investigation is pending regarding any environmental matter for
which the Company has been served or otherwise notified or, to the knowledge of
the Company, threatened or asserted against the Company, or the officers or
directors of the Company, in their capacities as such, any Facility or the
Company's business. There are no orders, judgments or decrees of any court or
any governmental agency or instrumentality under any Environmental Law which
specifically apply to the Company, any Facility or any of the Company's
operations. The Company has not received from a
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<PAGE>
governmental authority or other person (1) any notice that it is a potentially
responsible person for any Contaminated site or (2) any request for information
about a site alleged to be Contaminated or regarding the disposal of Hazardous
Substances. There is no litigation or proceeding against any other person by the
Company regarding any environmental matter. The Company has disclosed in the
Prospectus or made available to the Underwriters and their counsel true,
complete and correct copies of any reports, studies, investigations, audits,
analysis, tests and monitoring results in the possession of or initiated by the
Company pertaining to any environmental matter relating to the Company, its past
or present operations or any Facility.
For the purposes of the foregoing paragraph, "Environmental Laws"
means any applicable federal, state or local statute, regulation, code, rule,
ordinance, order, judgment, decree, injunction or common law pertaining in any
way to the protection of human health (excluding, for this purpose, federal and
state statutes, regulations and other statements of law regulating drug
discovery, development, delivery and related matters) and the environment,
including, without limitation, the Resource Conservation and Recovery Act, the
Comprehensive Environmental Response, Compensation and Liability Act, the Toxic
Substances Control Act, the Clean Air Act, the Federal Water Pollution Control
Act and any similar or comparable state or local law; "Hazardous Substance"
means any hazardous, toxic, radioactive or infectious substance, material or
waste as defined, listed or regulated under any Environmental Law;
"Contaminated" means the actual existence of Hazardous Substances on or under
any real property if the existence of such Hazardous Substances triggers a
requirement to perform any investigatory, remedial, removal or other response
action under any Environmental Laws or if such response action legally could be
required by any governmental authority; and "Facility" means any property
currently owned, leased or occupied by the Company.
(mm) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted only in
accordance with management's general or specific authorization; and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2. Purchase, Sale and Delivery of the Units.
----------------------------------------
(a) On the basis of the representations, warranties and covenants
herein contained, and subject to the conditions herein set forth, the Company
agrees to sell to the Underwriters and each Underwriter agrees, severally and
not jointly, to purchase, at a price of $[________] per Unit, the number of Firm
Units set forth opposite the name of each Underwriter in Schedule I hereof,
subject to adjustments in accordance with Section 9 hereof.
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(b) Payment for the Firm Units to be sold hereunder is to be made in
New York Clearing House (next day) funds or, at the option of the
Representatives, by certified or bank cashier's checks drawn to the order of the
Company or bank wire to an account specified by
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<PAGE>
the Company against either uncertificated delivery of the securities comprising
the Firm Units or certificates therefor (which delivery, if certificated, shall
take place in such location in New York, New York as may be specified by the
Representatives) to the Representatives for the accounts of the several
Underwriters. Such payment is to be made at the offices of the Company, at the
address set forth on the first page of the Registration Statement, at 7:00 a.m.,
Pacific time, on the third business day after the date of this Agreement or at
such other time and date not later than five business days thereafter as the
Representatives and the Company shall agree, such time and date being herein
referred to as the "Closing Date." (As used herein, "business day" means a day
on which the New York Stock Exchange is open for trading and on which banks in
New York are open for business and not permitted by law or executive order to be
closed.) Except to the extent uncertificated securities comprising the Firm
Units are delivered on the Closing Date, the certificates for the securities
comprising the Firm Units will be delivered in such denominations and in such
registrations as the Representatives request in writing not later than the
second full business day prior to the Closing Date, and will be made available
for inspection by the Representatives at least one business day prior to the
Closing Date.
(c) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Representatives to purchase the Option
Units at the price per Unit set forth in paragraph (a) of this Section 2. The
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option granted hereby may be exercised in whole or in part by giving written
notice (i) at any time before the Closing Date and (ii) only once thereafter
within 45 days after the date of this Agreement, by the Representatives to the
Company setting forth the number of Option Units as to which the Representatives
are exercising the option, the names and denominations in which the securities
comprising the Option Units are to be registered and the time and date at which
certificates representing securities comprising such Option Units are to be
delivered. The time and date at which certificates for securities comprising
the Option Units are to be delivered shall be determined by the Representatives
but shall not be earlier than three nor later than 10 full business days after
the exercise of such option, nor in any event prior to the Closing Date (such
time and date being herein referred to as the "Option Closing Date"). If the
date of exercise of the option is three or more days before the Closing Date,
the notice of exercise shall set the Closing Date as the Option Closing Date.
The option with respect to the Option Units granted hereunder may be exercised
only to cover over-allotments in the sale of the Firm Units by the Underwriters.
The Representatives may cancel such option at any time prior to its expiration
by giving written notice of such cancellation to the Company. To the extent, if
any, that the option is exercised, payment for the Option Units shall be made on
the Option Closing Date in New York Clearing House (next day) funds or, at the
option of the Representatives, by certified or bank cashier's check drawn to the
order of the Company for the Option Units to be sold by the Company or bank wire
to an account specified by the Company against delivery of certificates therefor
at the offices of the Company set forth on the first page of the Registration
Statement.
(d) In addition to the sums payable to the Representatives as
provided elsewhere herein, the Representatives shall be entitled to receive the
Representatives' Warrants on the Closing Date, for themselves alone and not as
representatives of the Underwriters, as additional compensation for their
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<PAGE>
3. Offering by the Underwriters.
----------------------------
It is understood that the several Underwriters are to make a public
offering of the Firm Units as soon as the Representatives deem it advisable to
do so. The Firm Units are to be initially offered to the public at the initial
public offering price set forth in the Prospectus. The Representatives may from
time to time thereafter change the public offering price and other selling
terms. To the extent, if at all, that any Option Units are purchased pursuant
to Section 2 hereof, the Representatives will offer them to the public on the
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foregoing terms.
It is further understood that the Representatives will act as the
representatives for the Underwriters in the offering and sale of the Units in
accordance with an Agreement Among Underwriters entered into by the
Representatives and the other several Underwriters.
4. Covenants of the Company.
------------------------
The Company covenants and agrees with the several Underwriters that:
(a) The Company will (i) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A of
the Regulations is followed, to prepare and timely file with the Commission
under Rule 424(b) of the Regulations a Prospectus in a form approved by the
Representatives containing information previously omitted on the Effective Date
in reliance on Rule 430A of the Regulations, and (ii) not file any amendment to
the Registration Statement or supplement to the Prospectus of which the
Representatives shall not previously have been advised and furnished with a
copy, or to which the Representatives shall have reasonably objected in writing
or which is not in compliance with the Rules and Regulations.
(b) The Company will advise the Representatives promptly (i) when the
Registration Statement or any post-effective amendment thereto shall have become
effective, (ii) of receipt of any comments from the Commission, (iii) of any
request of the Commission for an amendment of the Registration Statement or for
a supplement to the Prospectus or for any additional information, and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or the use of the Prospectus or of the institution of
any proceedings for that purpose. The Company will use its best efforts to
prevent the issuance of any such stop order preventing or suspending the use of
the Prospectus and to obtain as soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Units for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in writing
and will make such applications, file such documents, and furnish such
information as may be reasonably required for that purpose, provided the Company
shall not be required to qualify as a foreign corporation or to file a general
consent to service of process in any jurisdiction where it is not now so
qualified or required to file such a consent. The Company will, from time to
time, prepare and file such statements, reports, and other documents, as are or
may be required to continue such qualifications in effect for so long a period
as the Representatives may reasonably request for distribution of the Units.
16
<PAGE>
(d) The Company will deliver to the Representatives, from time to
time, as many copies of any Preliminary Prospectus as the Representatives may
reasonably request. The Company will deliver to the Representatives during the
period when delivery of a Prospectus is required under the Act, as many copies
of the Prospectus in final form, or as thereafter amended or supplemented, as
the Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representatives such number of copies of the
Registration Statement (including such number of copies of the exhibits filed
therewith that may reasonably be requested), and all amendments thereto, as the
Representatives may reasonably request.
(e) The Company will comply with the Act, the Exchange Act and the
Rules and Regulations, so as to permit the completion of the distribution of the
Units as contemplated in this Agreement and the Prospectus. If during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, any event shall occur as a result of which, in the
judgment of the Company or in the reasonable opinion of the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time the
Prospectus is delivered to a purchaser, not misleading, or, if it is necessary
at any time to amend or supplement the Prospectus to comply with any law, the
Company will promptly prepare and file with the Commission an appropriate
amendment to the Registration Statement or supplement to the Prospectus so that
the Prospectus as so amended or supplemented will not, in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with the law.
(f) The Company will make generally available to its security holders,
as soon as it is practicable to do so, but in any event not later than 15 months
after the Effective Date, an earnings statement (which need not be audited),
covering a period of at least 12 consecutive months beginning after the
Effective Date, which earnings statement shall satisfy the requirements of
Section 11(a) of the Act and Rule 158 of the Rules and Regulations.
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(g) During the period ending on the earlier of (i) five years from the
Closing Date and (ii) the date when the Company no longer has a class of equity
securities registered under the Exchange Act, the Company will deliver to the
Representatives copies of annual reports and copies of all other documents,
reports and information furnished by the Company to its shareholders or filed
with any securities exchange pursuant to the requirements of such exchange or
with the Commission pursuant to the Act or the Exchange Act. The Company will
deliver to the Representatives similar reports with respect to significant
subsidiaries, as that term is defined in the Rules and Regulations, which are
not consolidated in the Company's financial statements.
(h) Except as set forth in the Prospectus, no offering, sale, short
sale, issuance, transfer, assignment, pledge, hypothecation, distribution or
other disposition of any shares of Common Stock or other securities convertible
into or exchangeable or exercisable for shares of Common Stock or derivative of
Common Stock (or agreement for such) will be made by the Company for a period of
one year after the date of this Agreement, directly or indirectly, by the
17
<PAGE>
Company otherwise than hereunder or with the prior written consent of the
Representatives, which consent will not be unreasonably withheld, other than
pursuant to outstanding convertible securities, stock options and warrants or
pursuant to employee benefit plans in effect as of the date hereof, in each case
as disclosed in the Prospectus.
(i) The Company shall apply the net proceeds of its sale of the Units
as set forth in the Prospectus and shall file such reports with the Commission
with respect to the sale of the Units and the application of the proceeds
therefrom as may be required in accordance with Rule 463 of the Regulations.
(j) The Company shall not invest, or otherwise use the proceeds
received by the Company from its sale of the Units in such a manner as would
require the Company to register as an investment company under the Investment
Company Act.
(k) The Company will maintain a transfer agent and, if necessary under
the jurisdiction of incorporation of the Company, a registrar for the Common
Stock and a warrant agent for the Warrants.
5. Costs and Expenses.
------------------
(a) Paulson shall be entitled to receive from the Company, for itself
alone and not as a representative of the Underwriters, a nonaccountable expense
allowance equal to 1.5% of the aggregate public offering price of Units sold to
the Underwriters in connection with the Offering. Paulson shall be entitled to
withhold this allowance on the Closing Date with respect to Units delivered on
the Closing Date and to require the Company to make payment of this allowance on
the Option Closing Date with respect to Option Units delivered on the Option
Closing Date.
(b) In addition to the payment described in paragraph (a) of this
Section 5, the Company will pay all costs, expenses and fees incident to the
- -------
performance of the obligations of the Company under this Agreement, including,
without limiting the generality of the foregoing, the following: accounting fees
of the Company; the fees and disbursements of counsel for the Company; the cost
of printing and delivering to the Underwriters copies of the Registration
Statement, Preliminary Prospectuses, the Prospectus, this Agreement, the
Underwriters' Selling Memorandum, the Underwriters' Invitation Letter, the
American Stock Exchange Listing Application, the Blue Sky Survey and any
supplements or amendments thereto; the filing fees of the Commission; the filing
fees incident to securing any required review by the NASD of the terms of the
sale of the Units, including the NASD filing fees and the fees and disbursements
of counsel for the Underwriters with respect to such NASD review; the listing
fee of the American Stock Exchange; and the expenses, including the fees and
disbursements of counsel for the Underwriters, incurred in connection with the
qualification of the Units under state securities or Blue Sky laws. Any
transfer taxes imposed on the sale of the Units to the several Underwriters will
be paid by the Company. The Company shall not, however, be required to pay for
any of the Underwriters' expenses (other than those described above relating to
qualification under NASD regulation and state securities or Blue Sky laws)
except that, if this Agreement shall not be consummated, then the Company shall
reimburse the several Underwriters for reasonable
18
<PAGE>
accountable out-of-pocket expenses, including fees and disbursements of counsel,
reasonably incurred in connection with investigating, marketing and proposing to
market the Units or in contemplation of performing their obligations hereunder;
but the Company shall not in any event be liable to any of the several
Underwriters for damages on account of loss of anticipated profits from the sale
by them of the Units.
6. Conditions of Obligations of the Underwriters.
---------------------------------------------
The obligations of the several Underwriters to purchase the Firm Units
on the Closing Date and the Option Units, if any, on the Option Closing Date are
subject to the accuracy, as of the Closing Date or the Option Closing Date, as
the case may be, of the representations and warranties of the Company contained
herein, and to the performance by the Company of its covenants and obligations
hereunder and to the following additional conditions:
(a) The Registration Statement and all post-effective amendments
thereto shall have become effective and any and all filings required by Rule 424
and Rule 430A of the Rules and Regulations shall have been made, and any request
of the Commission for additional information (to be included in the Registration
Statement or otherwise) shall have been disclosed to the Representatives and
complied with to the Representatives' reasonable satisfaction. No stop order
suspending the effectiveness of the Registration Statement, as amended from time
to time, shall have been issued and no proceedings for that purpose shall have
been taken or, to the knowledge of the Company, shall be contemplated by the
Commission and no injunction, restraining order, or order of any nature by a
federal or state court of competent jurisdiction shall have been issued as of
the Closing Date which would prevent the issuance of the Units.
(b) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of Pepper Hamilton LLC,
counsel for the Company, dated the Closing Date or the Option Closing Date, as
the case may be, addressed to the Underwriters (and stating that it may be
relied upon by counsel to the Underwriters), substantially in the form attached
hereto as Exhibit B and incorporated herein by this reference.
---------
(c) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the favorable opinion of Covington &
Burling, special regulatory counsel to the Company, with respect to certain
regulatory matters, dated the Closing Date or the Option Closing Date, as the
case may be, addressed to the Underwriters, substantially in the form attached
hereto as Exhibit C and incorporated herein by this reference.
---------
(d) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, the favorable opinion of Oppenheimer
Wolff & Donnelley LLP, special intellectual property counsel to the Company,
with respect to certain intellectual property matters, dated the Closing Date or
the Option Closing Date, as the case may be, addressed to the Underwriters,
substantially in the form attached hereto as Exhibit D and incorporated herein
---------
by this reference.
(e) The Representatives shall have received from Mintz, Levin, Cohn,
Ferris, Glovsky and Popeo P.C. ("Mintz Levin"), counsel for the Underwriters, an
opinion dated the
19
<PAGE>
Closing Date or the Option Closing Date, as the case may be, with respect to the
organization of the Company; the validity of the Units, the Common Stock and the
Warrants underlying the Units, the Representatives' Warrants, and the Common
Stock and the Warrants underlying the Representatives Warrants; and the fact
that this Agreement, the Representatives' Warrant Agreement and the
Representatives' Warrants have been duly authorized. In rendering such opinion,
Mintz Levin may rely as to matters involving the application of laws other than
the laws of the United States and the Commonwealth of Massachusetts, to the
extent such counsel deems proper and to the extent specified in such opinion, if
at all, upon an opinion or opinions of other counsel, including Pepper Hamilton
LLC, familiar with applicable laws. In addition to the matters set forth above,
such opinion shall also include a statement to the effect that nothing has come
to the attention of such counsel that has caused it to believe that (i) the
Registration Statement, or any amendment thereto, as of the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (ii) the
Prospectus, or any supplement thereto, on the date it was filed pursuant to the
Rules and Regulations and as of the Closing Date or the Option Closing Date, as
the case may be, contained an untrue statement of a material fact or omitted to
state a material fact, necessary in order to make the statements, in the light
of the circumstances under which they are made, not misleading (except that such
counsel need express no view as to financial statements, schedules and
statistical information therein). With respect to such statement, Mintz Levin
may state that its belief is based upon the procedures' set forth therein, but
is without independent check and verification.
(f) The Representatives shall have received at or prior to the Closing
Date from Mintz Levin a memorandum or summary, in form and substance
satisfactory to the Representatives, with respect to the qualification for
offering and sale by the Underwriters of the Units under the state securities or
Blue Sky laws of such jurisdictions as the Representatives may reasonably have
designated to the Company.
(g) The Representatives, on behalf of the several Underwriters, shall
have received, on each of the date hereof, the Closing Date and the Option
Closing Date, as the case may be, a letter dated the date hereof, the Closing
Date or the Option Closing Date, as the case may be, in form and substance
satisfactory to the Representatives, from Andersen confirming that they are
independent public accountants within the meaning of the Act and the applicable
published Rules and Regulations and stating that in its opinion the financial
statements examined by them and included in the Registration Statement comply in
form in all material respects with the applicable accounting requirements of the
Act and the related published Rules and Regulations and containing such other
statements and information as are ordinarily included in accountants' "comfort
letters" to Underwriters with respect to the financial statements and certain
financial and statistical information contained in the Registration Statement
and Prospectus.
(h) The Representatives shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
Chief Executive Officer and
20
<PAGE>
the Chief Financial Officer of the Company to the effect that, as of the Closing
Date or the Option Closing Date, as the case may be, each of them severally
represents as follows:
(i) the Registration Statement has become effective under the
Act and no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
taken or are, to their knowledge, contemplated by the Commission;
(ii) the representations and warranties of the Company contained
in Section 1 hereof are true and correct as of the Closing Date or the
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Option Closing Date, as the case may be;
(iii) all filings required to have been made pursuant to Rule
424 or 430A of the Regulations have been made;
(iv) they have carefully examined the Registration Statement and
the Prospectus and, in their opinion, as of the Effective Date, the
statements contained in the Registration Statement were true and correct,
and such Registration Statement and Prospectus did not omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein not misleading, and since the Effective Date, no
event has occurred which should have been set forth in a supplement to or
an amendment of the Prospectus which has not been so set forth in such
supplement or amendment; and
(v) since the respective dates as of which information is given
in the Registration Statement and Prospectus, there has not been any
Company Material Adverse Effect or any development involving a prospective
Company Material Adverse Effect, whether or not arising in the ordinary
course of business.
(i) The Company shall have furnished to the Representatives such
further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as the
Representatives may reasonably have requested.
(j) The Units, Common Stock and Warrants have been approved for
designation upon notice of issuance on the American Stock Exchange.
(k) The Lock-up Agreements described in Section 1(x) are in full
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force and effect.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects satisfactory to the Representatives and to Mintz Levin, counsel for the
Underwriters.
If any of the conditions hereinabove provided for in this Section 6 shall
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not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representatives by notifying the Company of
21
<PAGE>
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be. In such event, the Company and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 5 and 8 hereof).
----------
7. Conditions of the Obligations of the Company.
--------------------------------------------
The obligations of the Company to sell and deliver the portion of the
Units required to be delivered as and when specified in this Agreement are
subject to the conditions that at the Closing Date or the Option Closing Date,
as the case may be, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and in effect or proceedings
therefor initiated or threatened.
8. Indemnification.
---------------
(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in the
Registration Statement, any Preliminary Prospectus, the Prospectus or any
amendment or supplement thereto, or (ii) the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading; and will reimburse each Underwriter and
each such controlling person upon demand for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage or liability,
action or proceeding or in responding to a subpoena or governmental inquiry
related to the offering of the Units, whether or not such Underwriter or
controlling person is a party to any action or proceeding; provided, however,
-------- -------
that the Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement, or omission or alleged omission made in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter will severally and not jointly indemnify and hold
harmless the Company, each of its directors, each of its officers who have
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Act, against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement, any
Preliminary Prospectus, the Prospectus or any amendment or supplement thereto,
or (ii) the omission or the alleged omission to state therein a material fact
22
<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances under which they were made; and
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer or controlling person in connection with
investigating or defending any such loss, claim, damage, liability, action or
proceeding; provided, however, that each Underwriter will be liable in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission has been made in the
Registration Statement, any Preliminary Prospectus, the Prospectus or such
amendment or supplement, in reliance upon and in conformity with written
information furnished to the Company by or through the Representatives
specifically for use in the preparation thereof. This indemnity agreement will
be in addition to any liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 8, such person (the "indemnified party") shall
-------
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
-------
8(a) or (b) shall be available to any party who shall fail to give notice as
provided in this Section 8(c) if the party to whom notice was not given was
-------
unaware of the proceeding to which such notice would have related and was
materially prejudiced by the failure to give such notice, but the failure to
give such notice shall not relieve the indemnifying party or parties from any
liability which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case any
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such proceeding shall be brought against any indemnified party and it shall
notify the indemnifying party of the commencement thereof, the indemnifying
party shall be entitled to participate therein and, to the extent that it shall
wish, jointly with any other indemnifying party similarly notified, assume the
defense thereof, with counsel satisfactory to such indemnified party and shall
pay, as incurred, the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any indemnified party shall have the right
to retain its own counsel at its own expense. Notwithstanding the foregoing,
the indemnifying party shall pay as incurred (or within 30 days of presentation)
the fees and expenses of the counsel retained by the indemnified party in the
event (i) the indemnifying party and the indemnified party shall have mutually
agreed to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying party
and the indemnified party and representation of both parties by the same counsel
would be inappropriate due to actual or potential differing interests between
them or (iii) the indemnifying party shall have failed to assume the defense and
employ counsel acceptable to the indemnified party within a reasonable period of
time after notice of commencement of the action. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by the Representatives in the case of
parties indemnified pursuant to Section 8(a) and by the Company in the case of
-------
parties indemnified pursuant to Section 8(b). The indemnifying party shall not
-------
be liable for any settlement of any proceeding effected without its written
consent, but if settled with such consent or if there be a final judgment for
the plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or judgment.
In addition, the
23
<PAGE>
indemnifying party will not, without the prior written consent of the
indemnified party, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party is
an actual or potential party to such claim, action or proceeding) unless such
settlement, compromise or consent includes an unconditional release of each
indemnified party from all liability arising out of such claim, action or
proceeding.
(d) If the indemnification provided for in this Section 8 is
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unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
- -------
liabilities (or actions or proceedings in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the Offering. If, however, the
allocation provided by the immediately preceding sentence is not permitted by
applicable law then each indemnifying party shall contribute to such amount paid
or payable by such indemnified party in such proportion as is appropriate to
reflect not only such relative benefits but also the relative fault of the
Company on the one hand and the Underwriters on the other in connection with the
statements or omissions which resulted in such losses, claims, damages or
liabilities, (or actions or proceedings in respect thereof), as well as any
other relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total net proceeds from the Offering (before
deducting expenses) received by the Company bears to the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover page of the Prospectus. The relative fault shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the one hand
or the Underwriters on the other and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement or
omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were determined by pro
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rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 8(d). The amount
-------
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 8(d) shall be deemed to include any legal or other
-------
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), (i) no Underwriter shall be required to
-------
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Units purchased by such Underwriter, and (ii) no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
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shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations in this Section
-------
8(d) to contribute are several in proportion to their respective underwriting
obligations and not joint.
24
<PAGE>
(e) In any proceeding relating to the Registration Statement, any
Preliminary Prospectus, the Prospectus or any supplement or amendment thereto,
each party against whom contribution may be sought under this Section 8 hereby
-------
consents to the jurisdiction of any court having jurisdiction over any other
contributing party, agrees that process issuing from such court may be served
upon him or it by any other contributing party and consents to the service of
such process and agrees that any other contributing party may join him or it as
an additional defendant in any such proceeding in which such other contributing
party is a party.
(f) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under this
Section 8 shall be paid by the indemnifying party to the indemnified party as
- -------
such losses, claims, damages, liabilities or expenses are incurred. The
indemnity and contribution agreements contained in this Section 8 and the
-------
representations and warranties of the Company set forth in this Agreement shall
remain operative and in full force and effect, regardless of (i) any
investigation made by or on behalf of any Underwriter or any person controlling
any Underwriter, the Company, its directors or officers or any persons
controlling the Company, (ii) acceptance of any Units and payment therefor
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
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9. Default by Underwriters.
-----------------------
If on the Closing Date or the Option Closing Date, as the case may be,
any Underwriter shall fail to purchase and pay for the portion of the Units
which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company), the
Representatives, as representatives of the Underwriters, shall use reasonable
efforts to procure within 36 hours thereafter one or more of the other
Underwriters, or any others, to purchase from the Company the Firm Units or
Option Units, as the case may be, which the defaulting Underwriter or
Underwriters failed to purchase, in such amounts as may be agreed upon and upon
the terms set forth herein. If during such 36 hours the Representatives shall
not have procured such other Underwriters, or any others, to purchase the Firm
Units or Option Units, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
Units with respect to which such default shall occur does not exceed 10% of the
Firm Units or Option Units, as the case may be, covered hereby, the other
Underwriters shall be obligated, severally, in proportion to the respective
numbers of Firm Units or Option Units, as the case may be, which they are
obligated to purchase hereunder, to purchase the Firm Units or Option Units, as
the case may be, which such defaulting Underwriter or Underwriters failed to
purchase or (b) if the aggregate number of Firm Units or Option Units, as the
case may be, with respect to which such default shall occur equals or exceeds
10% of the Firm Units or Option Units, as the case may be, covered hereby, the
Company or the Representatives will have the right, by written notice given
within the next 36-hour period to the parties to this Agreement, to terminate
this Agreement without liability on the part of the non-defaulting Underwriters
or the Company, except to the extent provided in Section 8 hereof. In the event
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of a default by any Underwriter or Underwriters, as set forth in this
25
<PAGE>
Section 9, the Closing Date or Option Closing Date, as the case may be, may be
- ---------
postponed for such period, not exceeding seven days, as the Representatives may
determine in order that the required changes in the Registration Statement or in
the Prospectus or in any other documents or arrangements may be effected. The
term "Underwriter" includes any person substituted for a defaulting Underwriter.
Any action taken under this Section 9 shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
10. Notices.
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All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or telegraphed
and confirmed as follows: if to the Underwriters, to Paulson Investment Company,
Inc., 811 S.W. Front Avenue, Suite 200, Portland, Oregon 97204, Attention:
Chester L.F. Paulson; with a copy to Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., One Financial Center, Boston, Massachusetts 02111, Attention:
Jonathan L. Kravetz, Esquire; if to the Company, to Careside, Inc., 6100 Bristol
Parkway, Culver City, California 90230, Attention: W. Vickery Stoughton; with a
copy to Pepper Hamilton LLP, 3000 Two Logan Square, Philadelphia, Pennsylvania,
19103, Attention: Barry M. Abelson, Esquire.
11. Termination.
-----------
This Agreement may be terminated by the Representatives upon notice to
the Company as follows:
(a) at any time prior to the earlier of (i) the time the Units
are released by the Representatives for sale by notice to the Underwriters, or
(ii) 11:30 a.m., Pacific time, on the first business day following the date of
this Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which information
is given in the Registration Statement and the Prospectus, any Company Material
Adverse Effect or any development involving a prospective Company Material
Adverse Effect, whether or not arising in the ordinary course of business, (ii)
any outbreak or escalation of hostilities or declaration of war or national
emergency or other national or international calamity or crisis or change in
economic or political conditions if the effect of such outbreak, escalation,
declaration, emergency, calamity, crisis or change in the financial markets of
the United States would, in the Representatives' reasonable judgment, make it
impracticable to market the Units or to enforce contracts for the sale of the
Units, (iii) the Dow Jones Industrial Average shall have fallen by 15 percent or
more from its closing price on the day immediately preceding the Effective Date,
(iv) suspension of trading in securities generally on the New York Stock
Exchange or the American Stock Exchange or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange, (v) the enactment, publication, decree or other promulgation of
any statute, regulation, rule or order of any court or other governmental
authority which in the Representatives' opinion materially and adversely affects
or may materially and adversely affect the business or operations of the
Company, (vi) declaration of a banking moratorium by United States or New York
State authorities, (vii) any downgrading in the rating of the Company's debt
26
<PAGE>
securities by any "nationally recognized statistical rating organization" (as
defined for purposes of Rule 436(g) of the Regulations), (viii) the suspension
of trading of the Units, Common Stock or Warrants by the Commission on the
American Stock Exchange or (ix) the taking of any action by any governmental
body or agency in respect of its monetary or fiscal affairs which in the
Representatives' reasonable opinion has a material adverse effect on the
securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
--------
12. Successors.
----------
This Agreement has been and is made solely for the benefit of the
Underwriters, the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and controlling
persons referred to herein, and no other person will have any right or
obligation hereunder. No purchaser of any of the Units from any Underwriter
shall be deemed a successor or assign merely because of such purchase.
13. Information Provided by Underwriters.
------------------------------------
The Company and the Underwriters acknowledge and agree that the only
information furnished or to be furnished by any Underwriter to the Company for
inclusion in any Prospectus or the Registration Statement consists of legends
required by Item 502 of Regulation S-K of the Regulations and the information
under the caption "Underwriting" in the Prospectus.
14. Miscellaneous.
-------------
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants in
this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of any
Underwriter or controlling person thereof, or by or on behalf of the Company or
its directors or officers and (c) delivery of and payment for the Units under
this Agreement.
This Agreement may be executed in two or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Oregon. All disputes relating to this Agreement shall
be adjudicated before a court located in Multnomah County, Oregon to the
exclusion of all other courts that might have jurisdiction.
27
<PAGE>
If the foregoing Agreement is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company and the several
Underwriters in accordance with its terms.
Very truly yours,
CARESIDE, INC.
By:______________________________
W. Vickery Stoughton
Chairman of the Board of Directors
and Chief Executive Officer
The foregoing Underwriting Agreement is hereby confirmed and accepted as of the
date first above written.
PAULSON INVESTMENT COMPANY, INC.
MILLENNIUM FINANCIAL GROUP, INC.
MARION BASS SECURITIES CORPORATION
As Representatives of the several
Underwriters listed on Schedule I
By:____________________________________
Chester L.F. Paulson
Chairman of the Board of Directors,
Paulson Investment Company, Inc.
28
<PAGE>
SCHEDULE I
Schedule of Underwriters
Number of Firm Units
Underwriter to be Purchased
----------- --------------------
Paulson Investment Company, Inc.
Millennium Financial Group, Inc.
marion bass securities corporation
--------------------
Total 2,500,000
====================
<PAGE>
EXHIBIT 3.1d
FORM OF
CARESIDE, INC.
CERTIFICATE OF DESIGNATIONS
SERIES A CONVERTIBLE PREFERRED STOCK
(PURSUANT TO SECTION 151 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE)
Careside, Inc., a corporation organized and existing under the laws of
the State of Delaware (hereinafter called the "Corporation"), hereby certifies
that pursuant to the authority contained in Article ___ of the Corporation's
Certificate of Incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of Delaware (the "DGCL") the following
resolution was duly adopted by the Board of Directors of the Corporation at a
meeting duly called and held on May ___, 1999, creating a series of its
Preferred Stock designated as Series A Convertible Preferred Stock (the "Series
A Preferred Stock").
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of the Corporation (hereinafter called the "Board of
Directors") in accordance with the provisions of the Corporation's Certificate
of Incorporation, as amended to date (hereinafter called the "Certificate of
Incorporation"), the Board of Directors hereby creates a series of Preferred
Stock designated Series A Convertible Preferred Stock and hereby states the
designation and number of shares, and fixes the relative rights, powers and
preferences thereof, and the limitations or restrictions thereof, as follows:
Section 1. Series A Preferred Stock. Of the Five Million (5,000,000)
------------------------
Preferred Shares that the Corporation has authority to issue, [
] are hereby designated shares of Series A Preferred Stock, with a stated value
of $[ ] per share (the "Series A Stated Value").
Section 2. Dividends.
---------
(A) The holder of each share of Series A Preferred Stock shall be
entitled to receive, when and as declared by the Board of Directors (in its sole
discretion and without any obligation so to declare dividends regardless of the
funds available for that purpose) out of funds legally available for that
purpose, cash dividends equal to ten percent (10%) of the Series A
<PAGE>
Stated Value per annum per share. Dividends shall be cumulative and shall
compound on an annual basis on each anniversary date of the Original Issuance
Date (as defined below), until declared and paid, and shall be payable pro rata
for partial year periods. Except to the extent paid in conjunction with an
Optional Redemption (as defined below), no dividends shall be paid upon, or
declared and set apart for, any share of Series A Preferred Stock unless at the
same time a like proportionate dividend shall be paid upon or declared and set
apart for all shares of Series A Preferred Stock then outstanding.
(B) No dividends or other distributions of any nature (other than
stock dividends payable in shares of the Common Stock (as defined herein)) shall
be declared and/or paid on any Common Shares, or any other shares ranking junior
to the Series A Preferred Stock unless and until all accrued and unpaid
dividends on the Series A Preferred Stock have been paid in full.
Section 3. Rights on Liquidation, Dissolution, Winding Up. In the event
----------------------------------------------
of any liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, the holders of shares of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the Corporation
available for distribution to its shareholders, whether from capital, surplus or
earnings, before any payment shall be made to the holders of any stock ranking
on liquidation junior to the Series A Preferred Stock (with respect to rights on
liquidation, dissolution or winding up, the shares of Series A Preferred Stock
shall rank senior to all other shares of capital stock of the Corporation,
including, without limitation, Common Shares) an amount equal to the Series A
Stated Value per share, plus all accrued and unpaid dividends thereon (the
"Liquidation Preference"). If upon any liquidation, dissolution or winding up
of the Corporation, the assets of the Corporation available for distribution to
its shareholders shall be insufficient to pay the holders of shares of Series A
Preferred Stock the full amounts to which they respectively shall be entitled,
the holders of shares of Series A Preferred Stock shall share ratably in any
distribution of assets. In the event of any liquidation, dissolution or winding
up of the Corporation, after payment shall have been made to the holders of
shares of Series A Preferred Stock of the full amount to which they shall be
entitled as aforesaid, the holders of any class or classes of stock ranking on
liquidation junior to the Series A Preferred Stock shall be entitled, to the
exclusion of and without participation by the holders of shares of Series A
Preferred Stock, to share, according to their respective rights and preferences,
in all remaining assets of the Corporation available for distribution to its
shareholders.
Section 4. Optional Redemption.
-------------------
(A) At any time, subject to an Optional Redemption Notice (as defined
below), the Corporation may redeem all or any portion of the then outstanding
shares of Series A Preferred Stock (the "Optional Redemption"). In the event
the Corporation redeems a portion of the then outstanding Series A Preferred
Stock, the redemption shall be made pro rata among all of the holders of shares
of Series A Preferred Stock. The redemption of the Series A Preferred
-2-
<PAGE>
Stock shall be at a per share redemption price (the "Optional Redemption Price")
equal to the sum of (x) the Corporation's initial public offering price per Unit
(as defined herein) (the "IPO Unit Price"), (y) all accrued and unpaid dividends
per share of outstanding Series A Preferred Stock, such dividends to accrue and
be computed through the date immediately preceding the Redemption Date (as
defined below) and (z) the greater of (A) $0.05 and (B) the difference between
of the average Market Price (as defined herein) per share of the Corporation's
common stock, $0.01 par value per share (the "Common Stock"), on the five (5)
consecutive trading days immediately preceding the Redemption Date and the
exercise price of the warrants issuable upon conversion of the Series A
Preferred Stock. At any time, following the Original Issuance Date, the
Corporation may deliver to the holders of the Series A Preferred Stock a notice
(the "Optional Redemption Notice") by first-class certified mail, postage
prepaid, to holders of record of the outstanding shares of Series A Preferred
Stock to be redeemed at their respective addresses as the same shall appear on
the books of the Corporation. Such notice shall specify the date on which such
Series A Preferred Stock shall be redeemed (the "Optional Redemption Date"),
which date shall not be fewer than five (5) days thereafter or longer than
ninety (90) days thereafter. The total amount payable per share of Series A
Preferred Stock on the Optional Redemption Date is hereinafter referred to as
the "Optional Redemption Price."
As used herein, "Market Price" means, with respect to shares of Common
Stock, (a) if the shares are listed or admitted for trading on any trading on
any national securities exchange or included in The Nasdaq National Market or
Nasdaq SmallCap Market, the last reported sales price as reported on such
exchange or market; (b) if the shares are not listed or admitted for trading on
any national securities exchange or included in The Nasdaq National Market or
Nasdaq SmallCap Market, the average of the last reported closing bid and asked
quotation for the shares as reported on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ") or a similar service if NASDAQ is
not reporting such information; (c) if the shares are not listed or admitted for
trading on any national securities exchange or included in The Nasdaq National
Market or Nasdaq SmallCap Market or quoted by NASDAQ or a similar service, the
average of the last reported bid and asked quotation for the shares as quoted by
a market maker in the shares (or if there is more than one market maker, the bid
and asked quotation shall be obtained from two market makers and the average of
the lowest bid and highest asked quotation). In the absence of any available
public quotations for the Common Stock, the Board shall determine in good faith
the fair value of the Common Stock, which determination shall be set forth in a
certificate of the Secretary of the Corporation.
(B) The Optional Redemption Price for any shares of Series A Preferred
Stock redeemed pursuant to Section 4(A) on any Optional Redemption Date shall be
payable as follows: on such Optional Redemption Date, the Corporation shall pay
to each holder of shares of Series A Preferred Stock being redeemed the Optional
Redemption Price being paid to such holder for such Series A Preferred Stock in
cash. Simultaneously with its receipt of such cash payment, each holder of
Series A Preferred Stock shall deliver to the Corporation or its agent the
certificates representing the shares of Series A Preferred Stock being redeemed;
provided, that,
-3-
<PAGE>
upon the payment by the Corporation of the applicable Optional Redemption Price,
all rights in respect of the shares of Series A Preferred Stock to be redeemed
shall cease and terminate, and such shares shall no longer be deemed to be
outstanding, whether or not the certificates representing such shares have been
received by the Corporation.
(C) Once redeemed pursuant to the provisions of this Section 4, shares
of Series A Preferred Stock shall be canceled and not subject to reissuance and
such redeemed shares shall, without any action on the part of the Corporation or
the shareholders of the Corporation, be eliminated from the authorized capital
of the Corporation.
(D) No shares of Series A Preferred Stock shall be entitled to the
benefit of a sinking fund or purchase fund.
Section 5. Voting.
------
(A) In addition to the rights otherwise expressly provided herein or
as provided by any applicable law, subject to the limitations set forth herein,
each share of Series A Preferred Stock shall entitle the holder thereof to one
(1) vote on all matters submitted to a vote of the holders of Common Stock of
the Corporation in the same manner and with the same effect as such holders of
Common Stock, voting together with the holders of Common Stock as one voting
group. Except as otherwise provided in the Corporation's Certificate of
Incorporation, its bylaws or by applicable law, and subject to the provisions of
Section 5(B) hereof, the holders of Series A Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all matters submitted
to a vote of holders of Common Stock of the Corporation.
(B) The holders of Series A Preferred Stock shall vote as a separate
voting group on, and the affirmative vote of a majority of the outstanding
shares of Series A Preferred Stock shall be required to authorize, any action
which would:
(1) in any manner alter or change the designation or the powers,
preferences or rights, or the qualifications, limitations or restrictions of the
Series A Preferred Stock (including by merger, consolidation or otherwise,
except in a Fundamental Transaction (as defined in Section 6(F)(2)) in which the
provisions of Section 6(F)(3) are complied with);
(2) reclassify Common Shares, or any other shares of any class or
series of capital stock hereinafter created junior to the Series A Preferred
Stock into shares of any class or series of capital stock ranking, either as to
payment of dividends, distribution of assets (upon liquidation, dissolution,
winding up or otherwise) or redemption, prior to or on a parity with the Series
A Preferred Stock; or
(3) increase the authorized number of shares of Series A
Preferred Stock.
-4-
<PAGE>
(C) If at any time any action is proposed by the Corporation which
requires the affirmative vote of the holders of the Series A Preferred Stock
pursuant to Section 5(B), the Chief Executive Officer (or any other officer) of
the Corporation shall call a special meeting of the holders of Series A
Preferred Stock for the purpose of voting on such proposed action. Such meeting
shall be held at the earliest practicable date at such place as specified in or
determined in accordance with the By-laws of the Corporation. Subject to the
provisions of Section 228 of the Delaware General Corporation Law, any action
required or permitted to be taken at any special meeting of the holders of
Series A Preferred Stock may be taken without a meeting, without prior notice
and without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of such action without a meeting by less
than unanimous written consent shall be given to those holders of Series A
Preferred Stock who have not consented in writing.
Section 6. Conversion into Units.
---------------------
The holders of shares of Series A Preferred Stock shall have the
following conversion rights:
(A) Subject to the limitations set forth below, the Series A Preferred
Stock shall be convertible at any time commencing six months after the
consummation of the Corporation's initial public offering of the Corporation's
units (the "Units"), each of which Unit consists of one share of Common Stock
and one warrant to purchase one share of Common Stock (the "Warrant"), unless
previously redeemed by the Corporation, into the number of Units as shall be
determined by dividing (i) the aggregate Liquidation Preference of the shares of
Series A Preferred Stock being converted by (ii) the Conversion Price (as
defined in Section 6(B) below) then in effect upon written notice to the
Corporation that such holder is exercising a conversion right pursuant to this
Section 6(A) (the "Conversion Notice"). The Conversion Notice shall be sent by
the holder of the Series A Preferred Stock to the Corporation by first class,
certified mail, postage prepaid. Conversion effected pursuant to this Section
6(A) shall be deemed to have been effected on the date the aforesaid delivery is
made, and such date is referred to herein as the "Conversion Date."
(B) Conversion Price; Converted Shares. The initial conversion price
----------------------------------
of the Series A Preferred Stock shall be determined by multiplying (x) 0.85 and
(y) the IPO Unit Price (the "Initial Conversion Price") (the Initial Conversion
Price, as it may be adjusted pursuant to the terms of this Section 6(B) and
Section 7, is referred to as the "Conversion Price"). The Conversion Price
shall be subject to adjustment as provided in this Section 6. If any fractional
interest in a Unit would be deliverable upon conversion of Series A Preferred
Stock, the Corporation shall pay in lieu of such fractional share an amount in
cash equal to the Conversion
-5-
<PAGE>
Price of such fractional unit (computed to the nearest one hundredth of a unit).
Any shares of Series A Preferred Stock which have been converted shall be
canceled and all dividends on converted shares shall cease to accrue and the
certificates representing shares of Series A Preferred Stock so converted shall
represent the right to receive (i) such number of Units into which such shares
of Series A Preferred Stock are convertible, plus (ii) cash payable for any
fractional Unit. The Board shall at all times, so long as any shares of Series A
Preferred Stock remain outstanding, reserve a sufficient number of authorized
but unissued shares of Common Stock to be issued in satisfaction of the
aforesaid conversion rights and privileges.
(C) Following exercise of the conversion rights pursuant to Sections
6(A) or (B), the holder of any shares of Series A Preferred Stock so converted
shall promptly deliver to the Corporation during regular business hours, at the
office of any transfer agent of the Corporation for the Series A Preferred
Stock, or at such other place as may be designated by the Corporation, the
certificate or certificates for the shares to be converted, duly endorsed or
assigned in blank or to the Corporation (if required by it), or if the holder
notifies the Corporation or its transfer agent that such certificate or
certificates have been lost, stolen or destroyed, upon the execution and
delivery of an agreement satisfactory to the Corporation to indemnify the
Corporation from any losses incurred by it in connection therewith, accompanied
by written notice stating the name or names (with address) in which the
certificate or certificates for the Common Stock and Warrants included in Units
are to be issued. As promptly as practicable thereafter, the Corporation shall
(x) issue and deliver to or upon the written order of such holder, to the place
designated by such holder, a certificate or certificates for the number of full
Common Shares and Warrants included in Units to which such holder is entitled
and a check or cash in respect of any fractional interest in a Unit as provided
in Section 6(D) hereof. Each person in whose name the certificate or
certificates for Common Shares and Warrants included in Units are to be issued
shall be deemed to have become a shareholder of record on the applicable
Conversion Date unless the transfer books of the Corporation are closed on that
date, in which event such holder shall be deemed to have become a shareholder of
record on the next succeeding date on which the transfer books are open, but the
number of Units into which each share of Series A Preferred Stock shall be
converted is that number which was in effect on the applicable Conversion Date.
Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Series A Preferred Stock surrendered for
conversion, or upon the written order of the holder of the certificate so
surrendered for conversion, the Corporation shall issue and deliver, at the
expense of the Corporation, a new certificate covering the number of shares of
Series A Preferred Stock, representing the unconverted portion of the
certificate so surrendered, which new certificate shall entitle the holder
thereof to dividends on the shares of Series A Preferred Stock, represented
thereby to the same extent as if the certificate theretofore covering such
unconverted shares had not been surrendered for conversion.
(D) No fractional Units shall be issued upon conversion of shares of
Series A Preferred Stock. If more than one share of Series A Preferred Stock
shall be surrendered for conversion at any one time by the same holder, the
number of full Units issuable upon
-6-
<PAGE>
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series A Preferred Stock so surrendered. Instead of any fractional
Units which would otherwise be issuable upon conversion of any shares of Series
A Preferred Stock, the Corporation shall pay a cash adjustment in respect of
such fractional interest in an amount equal to the Fair Market Value of the
Common Shares on the Conversion Date multiplied by such fractional interest.
Fractional interests shall not be entitled to dividends, and the holders of
fractional interests shall not be entitled to any rights as shareholders of the
Corporation in respect of such fractional interests.
(E) The conversion rights for the Series A Preferred Stock shall be
subject to adjustment from time to time as follows:
(1) If, at any time after the Original Issuance Date, the number
of Common Shares outstanding is increased by a stock dividend payable in Common
Shares or other distribution of Common Shares to holders of Common Shares or by
a subdivision or split-up of Common Shares, or the number of Common Shares
outstanding is decreased by a combination of the outstanding Common Shares, the
number of Units which the holder of Series A Preferred Stock would otherwise
have been entitled to upon exercise of the Conversion Right shall be
appropriately adjusted so that the holder of any Series A Preferred Stock
thereafter surrendered for conversion shall be entitled to receive the number
and kind of Units which such holder would have owned or have been entitled to
receive after the happening of such event had such Series A Preferred Stock been
converted immediately prior to the record date (or if no record date has been
established in connection with such event, the effective date) for such event.
An adjustment pursuant to this Section 6(E)(1) shall become effective
immediately after the record date in the case of a stock dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision or combination.
(2) In case, at any time after the Original Issuance Date of any
reorganization of the Corporation, reclassification of the stock of the
Corporation (other than a change in par value or from par value to no par value
or from no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the merger or consolidation
of the Corporation into or with another corporation, or the merger or
consolidation of any other corporation into or with the Corporation, in which
such consolidation or merger the shareholders of the Corporation receive
distributions of cash or securities as a result of such consolidation or merger
(other than a consolidation or merger in which the Corporation is the continuing
corporation and which does not result in any change in the Common Shares), or in
the case of any share exchange pursuant to which all of the outstanding Common
Shares are converted into other securities or property (any such reorganization,
reclassification, merger, consolidation or share exchange being called a
"Fundamental Transaction"), the Corporation shall make appropriate provision or
cause appropriate provision to be made so that holders of each share of Series A
Preferred Stock then outstanding shall have the right thereafter to convert such
share of Series A Preferred Stock into the kind and amount of shares of stock
and other securities and property receivable upon such Fundamental Transaction
by a holder of the number
-7-
<PAGE>
of Units into which such share of Series A Preferred Stock would have been
converted immediately prior to the effective date of such Fundamental
Transaction. If in connection with any such Fundamental Transaction, each holder
of Common Shares is entitled to elect to receive either securities, cash or
other assets upon completion of such Fundamental Transaction, the Corporation
shall provide or cause to be provided to each holder of Series A Preferred Stock
the right to elect the securities, cash or other assets into which the Series A
Preferred Stock held by such holder shall be convertible after completion of any
such Fundamental Transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made and the effect of failing to exercise the election).
The Corporation shall not effect any such Fundamental Transaction unless the
provisions of this paragraph have been complied with. The above provisions shall
similarly apply to successive Fundamental Transactions.
(3) All calculations under this Section 6(E) shall be made to the
nearest one-hundreth (1/100) of a Unit.
(4) In any case in which the provisions of this Section 6(E)
shall require that an adjustment shall become effective immediately after a
record date for an event, the Corporation may defer until the occurrence of such
event (i) issuing to the holder of any share of Series A Preferred Stock
converted after such record date and before the occurrence of such event the
additional Units issuable upon such conversion by reason of the adjustment
required by such event over and above the Units issuable upon such conversion
before giving effect to such adjustment and (ii) paying to such holder any
amount in cash in lieu of a fractional Units pursuant to Section 6(D); provided,
--------
however, that the Corporation shall deliver to such holder a due bill or other
- -------
appropriate instrument evidencing such holder's right to receive such additional
Units, and such cash, upon the occurrence of the event requiring such
adjustment.
(5) Whenever the number of Units into which the Series A
Preferred Stock is convertible shall be adjusted as provided herein, the
Corporation shall forthwith file, at the office of the transfer agent for the
Series A Preferred Stock or at such other place as may be designated by the
Corporation, a statement, signed by a senior officer and its independent
certified public accountants, showing in reasonable detail the facts requiring
such adjustment and the number of shares of Units into which the Series A
Preferred Stock can be converted after such adjustment. The Corporation shall
also cause a copy of such statement to be sent by mail, first class certified
mail, return receipt requested, postage prepaid, to each holder of shares of any
Series A Preferred Stock at his address appearing on the Corporation's records.
Notwithstanding the foregoing notice provisions, failure of the Corporation to
give such notice or a defect in such notice shall not affect the binding nature
of such corporate action of the Corporation.
(6) In the event the Corporation shall propose to take any action
of the types described in Section 6(E)(1) or (2) hereof, the Corporation shall
give notice to each holder
-8-
<PAGE>
of shares of Series A Preferred Stock in the manner set forth in this Section
6(E)(6), which notice shall specify the record date, if any, with respect to any
such action and the date on which such action is to take place. Such notice
shall also set forth such facts with respect thereto as shall be reasonably
necessary to indicate the effect of such action (to the extent such effect may
be known at the date of such notice) on the number of Units or cash or other
securities into which the Series A Preferred will be convertible. In the case of
any action which would require the fixing of a record date, such notice shall be
given at least twenty (20) days prior to the date so fixed, and in case of all
other action, such notice shall be given at least thirty (30) days prior to the
taking of such proposed action. Failure to give such notice, or any defect
therein, shall not affect the legality or validity of any such action.
(7) The Corporation shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of Units upon
conversion of shares of Series A Preferred Stock; provided, however, that the
-------- -------
Corporation shall not be required to pay any taxes which may be payable in
respect of any transfer involved in the issuance or delivery of any certificate
for such shares in a name other than that of the holder of the shares of Series
A Preferred Stock in respect of which such shares are being issued.
(8) The Corporation shall reserve and at all times from and after
the Original Issuance Date keep reserved free from preemptive rights, out of its
authorized but unissued Common Shares, solely for the purpose of effecting the
conversion of the shares of Series A Preferred Stock sufficient shares to
provide for the conversion of all outstanding shares of Series A Preferred
Stock.
(9) All Common Shares which may be issued in connection with the
conversion provisions set forth herein will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable with no personal liability
attaching to the ownership thereof and free from all taxes, liens or charges
with respect thereto.
(10) Once converted pursuant to the provisions hereof, shares of
Series A Preferred Stock so converted shall be canceled and not subject to
reissuance, and such converted shares shall, without any action on the part of
the Corporation or the shareholders of the Corporation, be eliminated from the
authorized capital of the Corporation.
(F) The term "Original Issuance Date" shall mean with respect to the
Series A Preferred Stock, June ___, 1999.
(G) The "Fair Market Value" of Common Shares on any day means: (a) if
the principal market for the Common Shares is The New York Stock Exchange,
American Stock Exchange or any other national securities exchange or The Nasdaq
National Market, the closing sales price of the Common Shares on such day as
reported by such exchange or market, or on a consolidated tape reflecting
transactions on such exchange or market, or (b) if the principal
-9-
<PAGE>
market for the Common Shares is not a national securities exchange or The Nasdaq
National Market and the Common Shares is quoted on the National Association of
Securities Dealers Automated Quotations System, the mean between the closing bid
and the closing asked prices for the Common Shares on such day as quoted on such
System, or (c) if the Common Shares is not quoted on the National Association of
Securities Dealers Automated Quotations System, the price therefor reported by
the National Quotation Bureau, Inc.; provided that if none of (a), (b) or (c)
above is applicable, or if no trades have been made or no quotes are available
for such day, the Fair Market Value of the Common Shares shall be determined, in
good faith, by the Board of Directors of the Corporation.
IN WITNESS WHEREOF, this Certificate of Designations is executed on
behalf of the Company by its Chairman of the Board of Directors and Chief
Executive Officer and attested by its Secretary this ____ day of June, 1999.
Attest:
--------------------------------------------------
Chairman of the Board of Directors and
Chief Executive Officer
- ------------------------------
Secretary
-10-
<PAGE>
Exhibit 4.2a
Exhibit A
VOID AFTER 5 P.M. EASTERN STANDARD TIME ON ______________, 2004
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
CUSIP ____________
CARESIDE, INC.
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
('Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from Careside, Inc., a corporation incorporated under the laws of the
State of Delaware ("Company"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter more fully described (the
'Warrant Agreement"), one fully paid and nonassessable share of Common Stock,
$0.01 par value per share, of the Company ("Common Stock") upon presentation and
surrender of this Warrant Certificate with the instructions for the registration
and delivery of Common Stock filled in, at any time after [INSET DATE WHICH IS
30 DAYS AFTER THE DATE OF THE FINAL PROSPECTUS] and prior to 5:00 P.M., Eastern
Standard time, on _____________, 2004 or, if such Warrant is redeemed as
provided in the Warrant Agreement, at any time prior to the effective time of
such redemption, at the stock transfer office in New York, New York, of American
Stock Transfer and Trust Company, Warrant Agent of the Company ("Warrant
Agent"), or of its successor warrant agent or, if there be no successor warrant
agent, at the corporate offices of the Company, and upon payment of the Exercise
Price (as defined in the Warrant Agreement) and any applicable taxes paid either
in cash, or by certified or official bank check, payable in lawful money of the
United States of America to the order of the Company. Each Warrant initially
entitles the holder to purchase one share of Common Stock for $[INSERT PRICE
WHICH IS 150% OF THE IPO PRICE PER UNIT]. The number and kind of securities or
other property for which the Warrants are exercisable are subject to further
adjustment in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. The Company may redeem any
or all outstanding and unexercised Warrants at any time if the Daily Price has
exceeded $[INSERT PRICE WHICH IS 200% OF THE IPO PRICE PER UNIT] for 10
consecutive trading days immediately preceding the date of notice of such
redemption, upon 30 days' notice, at a price equal to $0.05 per Warrant. For
the purpose of the foregoing sentence, the term "Daily Price" shall mean, for
any relevant day, the closing bid price on that day as reported by the principal
i
<PAGE>
exchange, national or quotation system on which prices for the Common Stock are
reported. All Warrants not theretofore exercised or redeemed will expire on
____________, 2004. The Company has agreed that it shall not redeem any
Warrants until [INSERT THE DATE WHICH IS SIX MONTHS FROM THE DATE OF THE FINAL
PROSPECTUS].
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of June ____, 1999 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is incorporated herein by
reference and made a part hereof and reference is made to the Warrant Agreement
for a full description of the rights, limitations of rights, obligations, duties
and immunities of the Warrant Agent, the Company and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are available for inspection at
the stock transfer office of the Warrant Agent or may be obtained upon written
request addressed to the Company at 6100 Bristol Parkway, Culver City,
California 90230, Attention:
Chief Executive Officer.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but may make adjustment therefor in cash on the basis
of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Warrants would violate the securities laws of the United States, certain states
thereof or other jurisdictions. The Company has agreed to use commercially
reasonable efforts to cause a registration statement to continue to be effective
during the term of the Warrants with respect to such sales under the Securities
Act of 1933, as amended, and to take such action under the laws of various
states as may be required to cause the sale of securities upon exercise to be
lawful. However, the Company will not be required to honor the exercise of
Warrants if, in the opinion of the Board of Directors, upon advice of counsel,
the sale of securities upon such exercise would be unlawful. In certain cases,
the Company may, but is not required to, purchase Warrants submitted for
exercise for a cash price equal to the difference between the market price of
the securities obtainable upon such exercise and the exercise price of such
Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
ii
<PAGE>
No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to shareholders at any meeting
thereof, or give or withhold consent to any merger, recapitalization, issuance
of stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Warrants evidenced by this Warrant Certificate shall have been
exercised and the Common Stock purchasable upon the exercise thereof shall have
become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of the Warrants evidenced by this
Warrant Certificate are closed for any purpose, the Company shall not be
required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent, and with every other holder of a
Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
iii
<PAGE>
Dated: , 1999.
CARESIDE, INC.
By:_____________________________
Chief Executive Officer
Attest:_________________________
Secretary
Countersigned
______________________________
By:___________________________
Authorized Officer
iv
<PAGE>
EXHIBIT 4.2b
FORM OF
UNIT CERTIFICATE
EACH UNIT CONSISTING OF ONE SHARE OF
COMMON STOCK, PAR VALUE $.01 PER SHARE,
AND ONE COMMON STOCK
PURCHASE WARRANT
CUSIP 141728 20 4
[CARESIDE LOGO] Organized Under the Laws of
the State of Delaware
CARESIDE, INC.
THIS CERTIFIES THAT, FOR VALUE RECEIVED
or registered assigns (the "Registered Holder") is the owner of the number of
Units specified above, each of which consists of one share of common stock, par
value $0.01 per share, of Careside, Inc. (the "Company") and one Common Stock
Purchase Warrant to purchase one share of Common Stock (the "Warrant"). On or
prior to the Separation Time (as defined herein), this Certificate may be
combined, exchanged or transferred only as Units and Common Stock and Warrants
evidenced by this Certificate may not be split up, exchanged or traded
separately. The Units shall automatically separate into shares of Common Stock
and Warrants as of the close of business on ___________, 1999 [thirty days
after the consummation of the initial public offering of Units] (the "Separation
Time"). The shares of Common Stock and Warrants comprising the Units shall be
separately tradeable commencing on the first day after the Separation Time on
which the American Stock Exchange is open for trading. The Warrants comprising
part of the Units are issued under and pursuant to a certain Warrant Agreement
dated as of _____________, 1999 (the "Warrant Agreement") between the Company
and American Stock Transfer & Trust Company, as Warrant Agent (the "Warrant
Agent"), and are subject to the terms and provisions contained therein and on
the face of the certificates covered thereby, to all of which terms and
provisions the holder of this Unit Certificate consents by acceptance hereof.
The Warrant Agreement provides for adjustment in the number of shares of Common
Stock to be delivered upon the exercise of Warrants evidenced hereby and to the
exercise price of such Warrants in certain events therein set forth. Subject to
the foregoing, the number of Warrants and the number of shares of Common Stock
comprising the Units are equal.
Copies of the Warrant Agreement are on file at the office of the
Warrant Agent at American Stock Transfer & Trust Company, New York, New York
10005, and are available to any Unit or Warrant holder upon written request
therefor and without cost to the requester.
<PAGE>
This Unit Certificate is not valid unless countersigned by the
Transfer Agent and Registrar of the Company.
IN WITNESS WHEREOF, the Company has caused this Unit Certificate to be
duly executed manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.
Dated: _______________________
Countersigned and Registered
American Securities Transfer & Trust Company
40 Wall Street
New York, New York 10005
Transfer Agent and Registrar
By: _______________________
Authorized Signature
(Corporate Seal)
CARESIDE, INC.
By: _______________________
Chairman of the Board and
Chief Executive Officer
By: _______________________
Vice President and Chief
Financial Officer
-2-
<PAGE>
CARESIDE, INC.
The Registered Holder hereby is entitled, at any time after the close of
business on __________, 1999, to exchange the Units represented by this Unit
Certificate for Common Stock Certificate(s) representing one share of Common
Stock for each Unit represented by this Unit Certificate and Warrant
Certificate(s) representing one Warrant for each Unit represented by this Unit
Certificate upon surrender of this Unit Certificate to the Unit Agent at its
Corporate Office specified in the Warrant Agreement together with any
documentation required by such Agent.
REFERENCE IS MADE TO THE WARRANT AGREEMENT REFERRED TO ON THE FRONT SIDE
HEREOF AND THE PROVISIONS OF SUCH WARRANT AGREEMENT SHALL FOR ALL PURPOSES HAVE
THE SAME EFFECT AS THOUGH FULLY SET FORTH ON THE FACE OF THIS CERTIFICATE.
COPIES OF THE WARRANT AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE
WARRANT AGENT, AMERICAN STOCK TRANSFER & TRUST COMPANY.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<CAPTION>
TEN CON - as tenants in common
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of survivorship
and not as tenants in common
COM PROP - as community property
<S> <C> <C>
UNIF GIFT MIN ACT - __________ Custodian __________
(Cust) (minor)
under Uniform Gifts to Minors Act
---------------------------------
(State)
UNIF TRF MIN ACT - __________ Custodian __________ (until age ___)
(Cust) (minor)
under Uniform Transfers to Minors Act
____________________________
(State)
</TABLE>
Additional abbreviations may also be used though not in the above list.
For Value Received, ______________________ hereby sell(s), assign(s) and
transfer(s) unto
-3-
<PAGE>
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------
| |
| |
- --------------------------------------
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING ZIP CODE OF ASSIGNEE)
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Unit(s) represented by the within Certificate, and do(es) hereby irrevocably
constitute and appoint
______________________________________________________________________________
Attorney to transfer the said Unit(s) on the books of the within named Company
with full power of substitution in the premises.
Dated _______________________
<TABLE>
<S> <C>
_____________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THIS UNIT
CERTIFICATE IN EVERY PARTICULAR
WITHOUT ALTERATION OR ENLARGEMENT OR
ANY CHANGE WHATSOEVER
SIGNATURE(S) GUARANTEED: _____________________________________
THE SIGNATURE(S) MUST BE GUARANTEED
BY AN ELIGIBLE GUARANTOR INSTITUTION
(BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS
WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION
PROGRAM), PURSUANT TO S.E.C. RULE
17Ad-15.
</TABLE>
-4-
<PAGE>
EXHIBIT 4.6
[THIS WARRANT IS NOT TRANSFERABLE
EXCEPT AS PROVIDED HEREIN]
CARESIDE, INC.
FORM OF
PURCHASE WARRANT
Issued To:
PAULSON INVESTMENT COMPANY, INC.
Exercisable To Purchase
250,000 Units
of
CARESIDE, Inc.
Void after , 2004
<PAGE>
This is to certify that, for value received and subject to the terms and
conditions set forth below, the Warrantholder (hereinafter defined) is entitled
to purchase, and the Company (hereinafter defined) promises and agrees to sell
and issue to the Warrantholder, at any time on or after the first anniversary of
the Effective Date (hereinafter defined) and on or before the fifth anniversary
of the Effective Date, up to 250,000 Units (hereinafter defined) at the Exercise
Price (hereinafter defined).
This Warrant Certificate is issued subject to the following terms and
conditions:
1. Definitions of Certain Terms. Except as may be otherwise clearly
----------------------------
required by the context, the following terms have the following meanings:
(a) "Act" means the Securities Act of 1933, as amended.
(b) "Cashless Exercise" means an exercise of Warrants in which, in lieu of
payment of the Exercise Price, the Holder elects to receive a lesser number
of Securities such that the value of such lesser number of Securities that
such Holder has agreed not to receive, as determined by the closing price
of such Securities on the date of exercise or, if such date is not a
trading day, on the prior trading day, is equal to the Exercise Price with
respect to such exercise. A Holder may only elect a Cashless Exercise if
the Securities issuable by the Company on such exercise are publicly traded
securities.
(c) "Closing Date" means the date on which the Offering is closed.
(d) "Commission" means the Securities and Exchange Commission.
(e) "Common Stock" means the common stock, $.01 par value per share,
of the Company.
(f) "Company" means Careside, Inc., a Delaware corporation.
(g) "Company's Expenses" means any and all expenses payable by the
Company or the Warrantholder in connection with an offering described in
Section 6 hereof, except Warrantholder's Expenses.
(h) "Effective Date" means the date on which the Company's
Registration Statement is declared effective by the Commission.
(i) "Exercise Price" means the price at which the Warrantholder may
purchase one Unit upon exercise of Warrants as determined from time to time
pursuant to the provisions hereof. The initial Exercise Price is $[120% of
the initial public offering price of the Units].
(j) "Offering" means the initial public offering of Units made
pursuant to the Registration Statement.
2
<PAGE>
(k) "Participating Underwriter" means any underwriter participating
in the sale of the Securities pursuant to a registration under Section 6 of
this Warrant Certificate.
(l) "Registration Statement" means the Company's registration statement on
Form S-1 (File No. 333-69207).
(m) "Rules and Regulations" means the rules and regulations of the
Commission adopted under the Act.
(n) "Securities" means the securities obtained or obtainable upon exercise
of the Warrant or securities obtained or obtainable upon exercise,
exchange, or conversion of such securities.
(o) "Unit" means one share of Common Stock and one Unit Warrant.
(p) "Unit Warrant" means a warrant to purchase one share of Common
Stock issued pursuant to the Warrant Agreement.
(q) "Warrant" means the warrant evidenced by this Warrant
Certificate, any similar certificate issued in connection with the
Offering, or any certificate obtained upon transfer or partial exercise of
the Warrant evidenced by any such certificate.
(r) "Warrant Agreement" means that certain Warrant Agreement, dated
as of ____, 1999, by and between the Company and American Stock Transfer
and Trust Company.
(s) "Warrantholder" means a record holder of the Warrant or
Securities. The initial Warrantholder is Paulson Investment Company, Inc.
(t) "Warrantholder's Expenses" means the sum of (i) the aggregate amount
of cash payments made to an underwriter, underwriting syndicate, or agent
in connection with an offering described in Section 6 hereof multiplied by
a fraction, the numerator of which is the aggregate sales price of the
Securities sold by such underwriter, underwriting syndicate, or agent in
such offering and the denominator of which is the aggregate sales price of
all of the securities sold by such underwriter, underwriting syndicate, or
agent in such offering and (ii) all out-of-pocket expenses of the
Warrantholder, except for the fees and disbursements of one firm retained
as legal counsel for the Warrantholder that will be paid by the Company.
2. Exercise of Warrants. All or any part of the Warrant may be exercised
--------------------
commencing on the first anniversary of the Effective Date and ending at 5 p.m.
Eastern Standard time on the fifth anniversary of the Effective Date by
surrendering this Warrant Certificate, together with appropriate instructions,
duly executed by the Warrantholder or by its duly authorized attorney, at the
office of the Company, 6100 Bristol Parkway, Culver City, California 90230, or
at such
3
<PAGE>
other office or agency as the Company may designate. The date on which such
instructions are received by the Company shall be the date of exercise. If the
Holder has elected a Cashless Exercise, such instructions shall so state. Upon
receipt of notice of exercise, the Company shall immediately instruct its
transfer agent to prepare certificates for the Securities to be received by the
Warrantholder upon completion of the Warrant exercise. When such certificates
are prepared, the Company shall notify the Warrantholder and deliver such
certificates to the Warrantholder or as per the Warrantholder's instructions
immediately upon payment in full by the Warrantholder, in lawful money of the
United States, of the Exercise Price payable with respect to the Securities
being purchased, if any. If the Warrantholder shall represent and warrant that
all applicable registration and prospectus delivery requirements for sale of the
Securities received upon exercise of the Warrant have been complied with, upon
sale of such Securities the certificates for the Securities shall not bear a
legend with respect to the Act.
If fewer than all the Securities purchasable under the Warrant are
purchased, the Company will, upon such partial exercise, execute and deliver to
the Warrantholder a new Warrant Certificate (dated the date hereof), in form and
tenor similar to this Warrant Certificate, evidencing that portion of the
Warrant not exercised. The Securities to be obtained on exercise of the Warrant
will be deemed to have been issued, and any person exercising the Warrants will
be deemed to have become a holder of record of those Securities, as of the date
of the payment of the Exercise Price.
3. Adjustments in Certain Events. The number, class, and price of the
-----------------------------
Securities are subject to adjustment from time to time upon the happening of
certain events as follows:
(a) If the outstanding shares of Common Stock are divided into a greater
number of shares or a dividend in stock is paid on the Common Stock, the
number of shares of Securities for which the Warrant is then exercisable
will be proportionately increased and the Exercise Price will be
proportionately reduced; and, conversely, if the outstanding shares of
Common Stock are combined into a smaller number of shares of Common Stock,
the number of Securities for which the Warrant is then exercisable will be
proportionately reduced and the Exercise Price will be proportionately
increased. The increases and reductions provided for in this subsection
3(a) will be made with the intent and, as nearly as practicable, the effect
that neither the percentage of the total equity of the Company obtainable
on exercise of the Warrants nor the price payable for such percentage upon
such exercise will be affected by any event described in this subsection
3(a).
(b) In case of any change in the Common Stock through merger,
consolidation, reclassification, reorganization, partial or complete
liquidation, purchase of substantially all the assets of the Company, or
other change in the capital structure of the Company, then, as a condition
of such change, lawful and adequate provision will be made so that the
Warrantholder will have the right thereafter to receive upon the exercise
of the Warrant the kind and amount of shares of stock or other securities
or property to which he would have been entitled if, immediately prior to
such event, he had held the number of shares of
4
<PAGE>
Common Stock obtainable upon the exercise of the Warrant. In any such case,
appropriate adjustment will be made in the application of the provisions
set forth herein with respect to the rights and interest thereafter of the
Warrantholder, to the end that the provisions set forth herein will
thereafter be applicable, as nearly as reasonably may be, in relation to
any shares of stock or other property thereafter deliverable upon the
exercise of the Warrant. The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or
other securities to be received by the holder of this Warrant Certificate,
if not the Company, agrees to be bound by and comply with the provisions of
this Warrant Certificate.
(c) When any adjustment is required to be made in the number of shares of
Common Stock, other securities, or the property purchasable upon exercise
of the Warrant, the Company will (i) promptly determine the new number of
such shares or other securities or property purchasable upon exercise of
the Warrant, (ii) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the new number of such
shares or other securities or property purchasable upon exercise of the
Warrant and (iii) cause a copy of such statement to be mailed to the
Warrantholder within thirty (30) days after the date of the event giving
rise to the adjustment.
(d) No fractional shares of Common Stock or other securities will be
issued in connection with the exercise of the Warrant, but the Company will
pay, in lieu of fractional shares, a cash payment therefor on the basis of
the mean between the bid and asked prices of the Common Stock in the over-
the-counter market or the closing price on a national securities exchange
on the day immediately prior to exercise.
(e) If securities of the Company or securities of any subsidiary of the
Company are distributed pro rata to holders of Common Stock, such number of
securities will be distributed to the Warrantholder or his assignee upon
exercise of his rights hereunder as such Warrantholder or assignee would
have been entitled to if this Warrant had been exercised prior to the
record date for such distribution. The provisions with respect to
adjustment of the Common Stock provided in this Section 3 will also apply
to the securities to which the Warrantholder or his assignee is entitled
under this subsection 3(e).
(f) Notwithstanding anything herein to the contrary, there will be no
adjustment made hereunder on account of the sale of the Common Stock or
other Securities purchasable upon exercise of the Warrant.
4. Reservation of Securities. The Company agrees that the number of
-------------------------
shares of Common Stock or other Securities sufficient to provide for the
exercise of the Warrant upon the basis set forth above will at all times during
the term of the Warrant be reserved for exercise.
5. Validity of Securities. All Securities delivered upon the exercise of
----------------------
the Warrant will be duly and validly issued in accordance with their terms, and
the Company will pay all
5
<PAGE>
documentary and transfer taxes, if any, in respect of the original issuance
thereof upon exercise of the Warrant.
6. Registration of Securities Issuable On Exercise of Warrant.
----------------------------------------------------------
(a) The Company will register the Securities with the Commission pursuant
to the Act so as to allow the unrestricted sale of the Securities to the
public from time to time commencing on the first anniversary of the
Effective Date and ending at 5:00 p.m. Eastern Standard time on the fifth
anniversary of the Effective Date (the "Registration Period"). The Company
will also file such applications and other documents necessary to permit
the sale of the Securities to the public during the Registration Period in
those states in which the Units were qualified for sale in the Offering or
such other states as the Company and the Warrantholder agree. In order to
comply with the provisions of this subsection 6(a), the Company is not
required to file more than one registration statement. No registration
right of any kind, "piggyback" or otherwise, will last longer than five
years from the Effective Date.
(b) The Company will pay all of the Company's Expenses and each
Warrantholder will pay its pro rata share of the Warrantholder's Expenses
relating to the registration, offer, and sale of the Securities.
(c) Except as specifically provided herein, the manner and conduct of the
registration, including the contents of the registration, will be entirely
in the control and at the discretion of the Company. The Company will file
such post-effective amendments and supplements as may be necessary to
maintain the currency of the registration statement during the period of
its use. In addition, if the Warrantholder participating in the
registration is advised by counsel that the registration statement, in
their opinion, is deficient in any material respect, the Company will use
its best efforts to cause the registration statement to be amended to
eliminate the concerns raised. (d) The Company will furnish to the
Warrantholder the number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Act, and such other
documents as it may reasonably request in order to facilitate the
disposition of Securities owned by it.
(e) The Company will, at the request of Warrantholders holding at least 50
percent of the then outstanding Warrants, (i) furnish an opinion of the
counsel representing the Company for the purposes of the registration
pursuant to this Section 6, addressed to the Warrantholders and any
Participating Underwriter, (ii) furnish an appropriate letter from the
independent public accountants of the Company, addressed to the
Warrantholders and any Participating Underwriter, and (iii) make
representations and warranties to the Warrantholders and any Participating
Underwriter. A request pursuant to this subsection 6(e) may be made on
three occasions. The documents required to be delivered pursuant to
6
<PAGE>
this subsection 6(e) will be dated within ten days of the request and will
be, in form and substance, equivalent to similar documents furnished to the
underwriters in connection with the Offering, with such changes as may be
appropriate in light of changed circumstances.
7. Indemnification in Connection with Registration.
-----------------------------------------------
(a) If any of the Securities are registered, the Company will indemnify
and hold harmless each selling Warrantholder, any person who controls any
selling Warrantholder within the meaning of the Act, and any Participating
Underwriter against any losses, claims, damages, or liabilities, joint or
several, to which any Warrantholder, controlling person, or Participating
Underwriter may be subject under the Act or otherwise; and it will
reimburse each Warrantholder, each controlling person, and each
Participating Underwriter for any legal or other expenses reasonably
incurred by the Warrantholder, controlling person, or Participating
Underwriter in connection with investigating or defending any such loss,
claim, damage, liability, or action, insofar as such losses, claims,
damages, or liabilities, joint or several (or actions in respect thereof),
arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained, on the effective date thereof, in
any such registration statement or any preliminary prospectus or final
prospectus, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, that the Company will not be
-------- ---------
liable in any case to the extent that any loss, claim, damage, or liability
arises out of or is based upon any untrue statement or alleged untrue
statement or omission or alleged omission made in any registration
statement, preliminary prospectus, final prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with written
information furnished by a Warrantholder for use in the preparation
thereof. The indemnity agreement contained in this subsection 7(a) will
not apply to amounts paid to any claimant in settlement of any suit or
claim unless such payment is first approved by the Company, such approval
not to be unreasonably withheld.
(b) Each selling Warrantholder, as a condition of the Company's
registration obligation, will indemnify and hold harmless the Company, each
of its directors, each of its officers who have signed any registration
statement or other filing with respect to registering the Securities as
described in Section 6 hereto or any amendment or supplement thereto, and
any person who controls the Company within the meaning of the Act in
connection therewith, against any losses, claims, damages, or liabilities
to which the Company or any such director, officer, or controlling person
may become subject under the Act or otherwise, and will reimburse any legal
or other expenses reasonably incurred by the Company or any such director,
officer, or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, or action, insofar as
such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in
7
<PAGE>
said registration statement, any preliminary or final prospectus, or
other filing, or any amendment or supplement thereto, or arise out of or
are based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or alleged untrue statement or omission or alleged omission was
made in said registration statement, preliminary or final prospectus, or
other filing, or amendment or supplement, in reliance upon and in
conformity with written information furnished by such Warrantholder for use
in the preparation thereof; provided, however, that the indemnity agreement
-------- -------
contained in this subsection 7(b) will not apply to amounts paid to any
claimant in settlement of any suit or claim unless such payment is first
approved by the Warrantholder, such approval not to be unreasonably
withheld.
(c) Promptly after receipt by an indemnified party under subsections 7(a)
or 7(b) above of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against an
indemnifying party, notify the indemnifying party of the commencement
thereof; but the omission to notify the indemnifying party will not relieve
it from any liability that it may have to any indemnified party otherwise
than under subsections 7(a) and 7(b).
(d) If any such action is brought against any indemnified party and it
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in, and assume, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, the defense thereof, with counsel satisfactory to such
indemnified party; and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation.
8. Restrictions on Transfer. This Warrant Certificate and the Warrant may
------------------------
not be sold, transferred, assigned or hypothecated for a one-year period after
the Effective Date except to underwriters of the Offering or to individuals who
are either a partner or an officer of such an underwriter or by will or by
operation of law. The Warrant may be divided or combined, upon request to the
Company by the Warrantholder, into a certificate or certificates evidencing the
same aggregate number of Warrants.
9. No Rights as a Shareholder. Except as otherwise provided herein, the
--------------------------
Warrantholder will not, by virtue of ownership of the Warrant, be entitled to
any rights of a shareholder of the Company but will, upon written request to the
Company, be entitled to receive such quarterly or annual reports as the Company
distributes to its shareholders.
10. Notice. Any notices required or permitted to be given hereunder will
------
be in writing and may be served personally or by mail; and if served will be
addressed as follows:
8
<PAGE>
If to the Company:
Careside, Inc.
6100 Bristol Parkway
Culver City, California 90230
Attn: Chief Executive Officer
If to the Warrantholder:
at the address furnished by the Warrantholder to the Company for the
purpose of notice.
Any notice so given by mail will be deemed effectively given 48 hours after
mailing when deposited in the United States mail, registered or certified mail,
return receipt requested, postage prepaid and addressed as specified above. Any
party may, by written notice to the other, specify a different address for
notice purposes.
11. Applicable Law. This Warrant Certificate will be governed by and
--------------
construed in accordance with the laws of the State of Oregon, without reference
to conflict of laws principles thereunder. All disputes relating to this
Warrant Certificate shall be tried before the courts of Oregon located in
Multnomah County, Oregon to the exclusion of all other courts that might have
jurisdiction.
9
<PAGE>
Dated as of , 1999
CARESIDE, INC.
By: W. Vickery Stoughton
Chief Executive Officer
Agreed and Accepted as of , 1999
PAULSON INVESTMENT COMPANY, INC.
By: Lorraine Maxfield
Senior Vice President -- Research
10
<PAGE>
EXHIBIT 4.7
FORM OF
WARRANT AGREEMENT
between
CARESIDE, INC.
and
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
Dated as of June ____, 1999
<PAGE>
This Agreement, dated as of June ___, 1999, is between Careside, Inc., a
Delaware corporation (the "Company'), and American Stock Transfer and Trust
Company, a [Delaware corporation] (the "Warrant Agent").
WHEREAS, the Company, at or about the time that it is entering into this
Agreement, proposes to issue and sell up to 2,875,000 Units ("Units") to public
investors (the "Offering"), such amount includes Units issuable upon the
exercise of the option granted to the representatives of the several
underwriters of the Offering (the "Representatives") to purchase up to an
additional 375,000 Units (solely to cover over-allotments in the sale of the
Units). Each Unit consists of one share of the Company's common stock, $0.01
par value per share, ("Common Stock") and one Warrant (a "Warrant" and
collectively, the "Warrants"), with each Warrant being exercisable to purchase
one share of Common Stock for $[INSERT PRICE WHICH IS 150% OF THE IPO PRICE PER
UNIT], upon the terms and conditions and subject to adjustment in certain
circumstances, all as set forth in this Agreement;
WHEREAS, the Company proposes to issue to the Representatives, in
connection with the public offering of Units referred to above, warrants to
purchase up to 250,000 additional Units, with the terms of such warrants set
forth in a separate agreement between the Company and Paulson Investment
Company, Inc. entered into on the date hereof;
WHEREAS, the Company wishes to retain the Warrant Agent to act on behalf of
the Company, and the Warrant Agent is willing to so act, in connection with the
issuance, transfer, exchange and replacement of the certificates evidencing the
Warrants to be issued under this Agreement (the "Warrant Certificates") and the
exercise of the Warrants; and
WHEREAS, the Company and the Warrant Agent wish to enter into this
Agreement to set forth the terms and conditions of the Warrants and the rights
of the holders thereof ("Warrantholders") and to set forth the respective rights
and obligations of the Company and the Warrant Agent, and whereas, each
Warrantholder is an intended beneficiary of this Agreement with respect to the
rights of Warrantholders herein.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
herein set forth, the parties hereto agree as follows:
Section 1. Appointment of Warrant Agent
----------------------------
The Company appoints the Warrant Agent to act as agent for the Company in
accordance with the instructions in this Agreement, and the Warrant Agent
accepts such appointment.
Section 2. Date, Denomination and Execution of Warrant Certificates
--------------------------------------------------------
The Warrant Certificates (and the Form of Election to Purchase and the Form
of Assignment to be printed on the reverse thereof) shall be in registered form
only and shall be
2
<PAGE>
substantially of the tenor and purport recited in Exhibit A hereto, and may have
---------
such letters, numbers or other marks of identification or designation and such
legends, summaries or endorsements printed, lithographed or engraved thereon as
the Company may deem appropriate and as are not inconsistent with the provisions
of this Agreement, or as may be required to comply with any law, or with any
rule or regulation made pursuant thereto, or with any rule or regulation of any
stock exchange on which the Common Stock or the Warrants may be listed or any
automated quotation system, or to conform to usage. After [INSERT THE DATE WHICH
IS 30 DAYS AFTER THE DATE OF THE FINAL PROSPECTUS], each Warrant Certificate
shall entitle the registered holder thereof, subject to the provisions of this
Agreement and of the Warrant Certificate, to purchase, on or before the close of
business on [June ____, 2004 (THE FIFTH ANNIVERSARY OF THE DATE OF THE FINAL
PROSPECTUS)] (the "Expiration Date"), one fully paid and nonassessable share of
Common Stock for each Warrant evidenced by such Warrant Certificate, subject to
adjustments as provided in Section 6 hereof, for [INSERT PRICE WHICH IS $150% OF
THE IPO PRICE PER UNIT] (the "Exercise Price"). Each Warrant Certificate issued
as a part of a Unit offered to the public as described in the recitals, above,
shall be dated June ____, 1999; each other Warrant Certificate shall be dated
the date on which the Warrant Agent receives valid issuance instructions from
the Company or a transferring holder of a Warrant Certificate or, if such
instructions specify another date, such other date.
For purposes of this Agreement, the term "close of business" on any given
date shall mean 5:00 p.m., Eastern Standard time, on such date; provided,
however, that if such date is not a business day, it shall mean 5:00 p.m.,
Eastern Standard time, on the next succeeding business day. For purposes of
this Agreement, the term "business day" shall mean any day other than a
Saturday, Sunday, or a day on which banking institutions in New York are
authorized or obligated by law to be closed.
Each Warrant Certificate shall be executed on behalf of the Company by the
Chairman of the Board or its President or a Vice President, either manually or
by facsimile signature printed thereon, and have affixed thereto the Company's
seal or a facsimile thereof which shall be attested by the Secretary or an
Assistant Secretary of the Company, either manually or by facsimile signature.
Each Warrant Certificate shall be manually countersigned by the Warrant Agent
and shall not be valid for any purpose unless so countersigned. In case any
officer of the Company who shall have signed any Warrant Certificate shall cease
to be such officer of the Company before countersignature by the Warrant Agent
and issue and delivery thereof by the Company, such Warrant Certificate,
nevertheless, may be countersigned by the Warrant Agent, issued and delivered
with the same force and effect as though the person who signed such Warrant
Certificate had not ceased to be such officer of the Company.
Section 3. Subsequent Issue of Warrant Certificates
----------------------------------------
Subsequent to their original issuance, no Warrant Certificates shall be
reissued except (i) Warrant Certificates issued upon transfer thereof in
accordance with Section 4 hereof, (ii) Warrant Certificates issued upon any
combination, split-up or exchange of Warrant
3
<PAGE>
Certificates pursuant to Section 4 hereof, (iii) Warrant Certificates issued in
replacement of mutilated, destroyed, lost or stolen Warrant Certificates
pursuant to Section 5 hereof, (iv) Warrant Certificates issued upon the partial
exercise of Warrant Certificates pursuant to Section 7 hereof, and (v) Warrant
Certificates issued to reflect any adjustment or change in the Exercise Price or
the number or kind of shares purchasable thereunder pursuant to Section 22
hereof. The Warrant Agent is hereby irrevocably authorized to countersign and
deliver, in accordance with the provisions of said Sections 4, 5, 7 and 22, the
new Warrant Certificates required for purposes thereof, and the Company,
whenever required by the Warrant Agent, will supply the Warrant Agent with
Warrant Certificates duly executed on behalf of the Company for such purposes.
Section 4. Transfers and Exchanges of Warrant Certificates
-----------------------------------------------
The Warrant Agent will keep or cause to be kept books for registration of
ownership and transfer of the Warrant Certificates issued hereunder. Such
registers shall show the names and addresses of the respective holders of the
Warrant Certificates and the number of Warrants evidenced by each such Warrant
Certificate.
The Warrant Agent shall, from time to time, register the transfer of any
outstanding Warrants upon the books to be maintained by the Warrant Agent for
that purpose, upon surrender of the Warrant Certificate evidencing such
Warrants, with the Form of Assignment duly filled in and executed with such
signature guaranteed by a banking institution or NASD member and such supporting
documentation as the Warrant Agent or the Company may reasonably require, to the
Warrant Agent at its stock transfer office in New York, New York at any time on
or before the Expiration Date, and upon payment to the Warrant Agent for the
account of the Company of an amount equal to any applicable transfer tax.
Payment of the amount of such tax may be made in cash, or by certified or
official bank check, payable in lawful money of the United States of America to
the order of the Company.
Upon receipt of a Warrant Certificate, with the Form of Assignment duly
filled in and executed, accompanied by payment of an amount equal to any
applicable transfer tax, the Warrant Agent shall promptly cancel the surrendered
Warrant Certificate and countersign and deliver to the transferee a new Warrant
Certificate for the number of full Warrants transferred to such transferee;
provided, however, that in case the registered holder of any Warrant Certificate
- --------- -------
shall elect to transfer fewer than all of the Warrants evidenced by such Warrant
Certificate, the Warrant Agent in addition, shall promptly countersign and
deliver to such registered holder a new Warrant Certificate or Certificates for
the number of full Warrants not so transferred.
Any Warrant Certificate or Certificates may be exchanged at the option of
the holder thereof for another Warrant Certificate or Certificates of different
denominations, of like tenor and representing in the aggregate the same number
of Warrants, upon surrender of such Warrant Certificate or Certificates, with
the Form of Assignment duly filled in and executed, to the Warrant Agent, at any
time or from time to time after the close of business on the date
4
<PAGE>
hereof and prior to the close of business on the Expiration Date. The Warrant
Agent shall promptly cancel the surrendered Warrant Certificate and deliver the
new Warrant Certificate pursuant to the provisions of this Section.
Section 5. Mutilated, Destroyed, Lost or Stolen Warrant Certificates
---------------------------------------------------------
Upon receipt by the Company and the Warrant Agent of evidence reasonably
satisfactory to them of the loss, theft, destruction or mutilation of any
Warrant Certificate, and in the case of loss, theft or destruction, of indemnity
or security reasonably satisfactory to them, and reimbursement to them of all
reasonable expenses incidental thereto, and, in the case of mutilation, upon
surrender and cancellation of the Warrant Certificate, the Warrant Agent shall
countersign and deliver a new Warrant Certificate of like tenor for the same
number of Warrants.
Section 6. Adjustments of Number and Kind of Shares Purchasable and Exercise
-----------------------------------------------------------------
Price
- -----
The number and kind of securities or other property purchasable upon
exercise of a Warrant shall be subject to adjustment from time to time upon the
occurrence, after the date hereof, of any of the following events:
A. In case the Company shall (i) pay a dividend in, or make a
distribution of, shares of capital stock on its outstanding Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of such
shares or (iii) combine its outstanding shares of Common Stock into a smaller
number of such shares, the total number of shares of Common Stock purchasable
upon the exercise of each Warrant outstanding immediately prior thereto shall be
adjusted so that the holder of any Warrant Certificate thereafter surrendered
for exercise shall be entitled to receive at the same aggregate Exercise Price
the number of shares of capital stock (of one or more classes) which such holder
would have owned or have been entitled to receive immediately following the
happening of any of the events described above had such Warrant been exercised
in full immediately prior to the record date with respect to such event. Any
adjustment made pursuant to this Subsection shall, in the case of a stock
dividend or distribution, become effective as of the record date therefor and,
in the case of a subdivision or combination, be made as of the effective date
thereof. If, as a result of an adjustment made pursuant to this Subsection, the
holder of any Warrant Certificate thereafter surrendered for exercise shall
become entitled to receive shares of two or more classes of capital stock of the
Company, the Board of Directors of the Company (whose determination shall be
conclusive and shall be evidenced by a Board resolution filed with the Warrant
Agent) shall determine the allocation of the adjusted Exercise Price between or
among shares of such classes of capital stock.
B. In the event of a capital reorganization or a reclassification of the
Common Stock (except as provided in Subsection A. above or Subsection E. below),
any Warrantholder, upon exercise of Warrants, shall be entitled to receive, in
substitution for the Common Stock to which he would have become entitled upon
exercise immediately prior to
5
<PAGE>
such reorganization or reclassification, the shares (of any class or classes) or
other securities or property of the Company (or cash) that he would have been
entitled to receive at the same aggregate Exercise Price upon such
reorganization or reclassification if such Warrants had been exercised
immediately prior to the record date with respect to such event; and in any such
case, appropriate provision (as determined by the Board of Directors of the
Company, whose determination shall be conclusive and shall be evidenced by a
certified Board resolution filed with the Warrant Agent) shall be made for the
application of this Section 6 with respect to the rights and interests
thereafter of the Warrantholders (including but not limited to the allocation of
the Exercise Price between or among shares of classes of capital stock), to the
end that this Section 6 (including the adjustments of the number of shares of
Common Stock or other securities purchasable and the Exercise Price thereof)
shall thereafter be reflected, as nearly as reasonably practicable, in all
subsequent exercises of the Warrants for any shares or securities or other
property (or cash) thereafter deliverable upon the exercise of the Warrants.
C. Whenever the number of shares of Common Stock or other securities
purchasable upon exercise of a Warrant is adjusted as provided in this Section
6, the Company will promptly file with the Warrant Agent a certificate signed by
the Chairman or Co-Chairman of the Board or the President or a Vice President of
the Company and by the Treasurer or an Assistant Treasurer or the Secretary or
an Assistant Secretary of the Company setting forth the number and kind of
securities or other property purchasable upon exercise of a Warrant, as so
adjusted, stating that such adjustments in the number or kind of shares or other
securities or property conform to the requirements of this Section 6, and
setting forth a brief statement of the facts accounting for such adjustments.
Promptly after receipt of such certificate, the Company, or the Warrant Agent at
the Company's request, will deliver, by first-class, postage prepaid mail, a
brief summary thereof (to be supplied by the Company) to the registered holders
of the outstanding Warrant Certificates; provided, however, that failure to file
--------- -------
or to give any notice required under this Subsection, or any defect therein,
shall not affect the legality or validity of any such adjustments under this
Section 6; and provided, further, that, where appropriate, such notice may be
--------- -------
given in advance and included as part of the notice required to be given
pursuant to Section 12 hereof.
D. In case of any consolidation of the Company with, or merger of the
Company into, another corporation (other than a consolidation or merger which
does not result in any reclassification or change of the outstanding Common
Stock), or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, the
corporation formed by such consolidation or merger or the corporation which
shall have acquired such assets, as the case may be, shall execute and deliver
to the Warrant Agent a supplemental warrant agreement providing that the holder
of each Warrant then outstanding shall have the right thereafter (until the
expiration of such Warrant) to receive, upon exercise of such Warrant, solely
the kind and amount of shares of stock and other securities and property (or
cash) receivable upon such consolidation, merger, sale or transfer by a holder
of the number of shares of Common Stock of the Company for which such Warrant
might have been exercised immediately prior to such consolidation, merger, sale
or transfer. Such supplemental warrant agreement shall provide for adjustments
6
<PAGE>
which shall be as nearly equivalent as may be practicable to the adjustments
provided in this Section. The above provision of this Subsection shall similarly
apply to successive consolidations, mergers, sales or transfers.
The Warrant Agent shall not be under any responsibility to determine the
correctness of any provision contained in any such supplemental warrant
agreement relating to either the kind or amount of shares of stock or securities
or property (or cash) purchasable by holders of Warrant Certificates upon the
exercise of their Warrants after any such consolidation, merger, sale or
transfer or of any adjustment to be made with respect thereto, but subject to
the provisions of Section 20 hereof, may accept as conclusive evidence of the
correctness of any such provisions, and shall be protected in relying upon, a
certificate of a firm of independent certified public accountants (who may be
the accountants regularly employed by the Company) with respect thereto.
E. Irrespective of any adjustments in the number or kind of shares
issuable upon exercise of Warrants, Warrant Certificates theretofore or
thereafter issued may continue to express the same price and number and kind of
shares as are stated in the similar Warrant Certificates initially issuable
pursuant to this Warrant Agreement.
F. The Company may retain a firm of independent public accountants of
recognized standing, which may be the firm regularly retained by the Company,
selected by the Board of Directors of the Company or the Executive Committee of
said Board, and not disapproved by the Warrant Agent, to make any computation
required under this Section, and a certificate signed by such firm shall, in the
absence of fraud or gross negligence, be conclusive evidence of the correctness
of any computation made under this Section.
G. For the purpose of this Section, the term "Common Stock" shall mean
(i) the class of stock designated as Common Stock in the Amended and Restated
Articles of Incorporation of the Company, or (ii) any other class of stock
resulting from successive changes or reclassification of such Common Stock
consisting solely of changes in par value, or from par value to no par value, or
from no par value to par value. In the event that at any time as a result of an
adjustment made pursuant to this Section, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of capital
stock of the Company other than shares of Common Stock, thereafter the number of
such other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Common Stock contained in this
Section, and all other provisions of this Agreement, with respect to the Common
Stock, shall apply on like terms to any such other shares.
H. The Company may, from time to time and to the extent permitted by law,
reduce the exercise price of the Warrants by any amount for a period of not less
than 20 days. If the Company so reduces the exercise price of the Warrants, it
will give not less than 15 days' notice of such decrease, which notice may be in
the form of a press release, and shall
7
<PAGE>
take such other steps as may be required under applicable law in connection with
any offers or sales of securities at the reduced price.
Section 7. Exercise and Redemption of Warrants
-----------------------------------
Unless the Warrants have been redeemed as provided in this Section 7, the
registered holder of any Warrant Certificate may exercise the Warrants evidenced
thereby, in whole at any time or in part from time to time after [INSERT THE
DATE WHICH IS 30 DAYS AFTER THE DATE OF THE FINAL PROSPECTUS] and at or prior to
the close of business on the Expiration Date, subject to the provisions of
Section 9, at which time the Warrant Certificates shall be and become wholly
void and of no value. Warrants may be exercised by their holders or redeemed by
the Company as follows:
A. Exercise of Warrants shall be accomplished upon surrender of the
Warrant Certificate evidencing such Warrants, with the Form of Election to
Purchase on the reverse side thereof duly filled in and executed, to the Warrant
Agent at its stock transfer office in New York, New York, together with payment
to the Company of the Exercise Price (as of the date of such surrender) of the
Warrants then being exercised. Payment of the Exercise Price may be made by
wire transfer of good funds, or by certified or bank cashier's check, payable in
lawful money of the United States of America to the order of the Company. No
adjustment shall be made for any cash dividends, whether paid or declared, on
any securities issuable upon exercise of a Warrant. Subject to the terms and
condition of Section 11, the Company shall pay any and all transfer tax incurred
as a result of any exercise of the Warrants.
B. Upon receipt of a Warrant Certificate, with the Form of Election to
Purchase duly filled in and executed, accompanied by payment of the Exercise
Price of the Warrants being exercised, the Warrant Agent shall promptly request
from the Transfer Agent with respect to the securities to be issued and deliver
to or upon the order of the registered holder of such Warrant Certificate, in
such name or names as such registered holder may designate, a certificate or
certificates for the number of full shares of the securities to be purchased,
together with cash made available by the Company pursuant to Section 8 hereof in
respect of any fraction of a share of such securities otherwise issuable upon
such exercise. If the Warrant is then exercisable to purchase property other
than securities, the Warrant Agent shall take appropriate steps to cause such
property to be delivered to or upon the order of the registered holder of such
Warrant Certificate. In addition, if it is required by law and upon instruction
by the Company, the Warrant Agent will deliver to each Warrantholder a
prospectus which complies with the provisions of Section 10 of the Securities
Act of 1933, as amended, and the Company agrees to supply the Warrant Agent with
sufficient number of prospectuses to effectuate that purpose.
C. In case the registered holder of any Warrant Certificate shall
exercise fewer than all of the Warrants evidenced by such Warrant Certificate,
the Warrant Agent shall promptly countersign and deliver to the registered
holder of such Warrant Certificate, or to his duly authorized assigns, a new
Warrant Certificate or Certificates evidencing the number of
8
<PAGE>
Warrants that were not so exercised.
D. Each person in whose name any certificate for securities is issued
upon the exercise of Warrants shall for all purposes be deemed to have become
the holder of record of the securities represented thereby as of, and such
certificate shall be dated, the date upon which the Warrant Certificate was duly
surrendered in proper form and payment of the Exercise Price was made; provided,
---------
however, that if the date of such surrender and payment is a date on which the
- -------
stock transfer books of the Company are closed, such person shall be deemed to
have become the record holder of such shares as of, and the certificate for such
shares shall be dated, the next succeeding business day on which the stock
transfer books of the Company are open (whether before, on or after the
Expiration Date) and the Warrant Agent shall be under no duty to deliver the
certificate for such shares until such date. The Company covenants and agrees
that it shall not cause its stock transfer books to be closed for a period of
more than 20 consecutive business days except upon consolidation, merger, sale
of all or substantially all of its assets, dissolution or liquidation or as
otherwise provided by law.
E. The Warrants outstanding at the time of a redemption may be redeemed
at the option of the Company, in whole or in part on a pro rata basis, at any
time if, at the time notice of such redemption is given by the Company as
provided in Paragraph F, below, the Daily Price has exceeded $[(INSERT PRICE
WHICH IS 200% OF THE INITIAL PUBLIC OFFERING PRICE PER UNIT)] for the 10
consecutive trading days immediately preceding the date of such notice, at a
price equal to $0.05 per Warrant (the "Redemption Price"). For the purpose of
the foregoing sentence, the term "Daily Price" shall mean, for any relevant day,
the closing bid price or closing price, as the case may be, on that day as
reported by the principal exchange, national market or quotation system on which
prices for the Common Stock are reported. On the redemption date the holders of
record of redeemed Warrants shall be entitled to payment of the Redemption Price
upon surrender of such redeemed Warrants to the Company at the principal office
of the Warrant Agent in New York, New York. Notwithstanding anything to the
contrary, the Company agrees that it shall not redeem any Warrants prior to
[INSERT DATE WHICH IS THE DATE WHICH IS SIX MONTHS FROM THE DATE OF THE FINAL
PROSPECTUS]. Holders of record may exercise the Warrants at any time prior to
the close of business on the date of redemption.
F. Notice of redemption of Warrants shall be given at least 30 days prior
to the redemption date by mailing, by registered or certified mail, return
receipt requested, a copy of such notice to the Warrant Agent and to all of the
holders of record of Warrants at their respective addresses appearing on the
books or transfer records of the Company or such other address designated in
writing by the holder of record to the Warrant Agent not less than 40 days prior
to the redemption date.
G. From and after the redemption date, all rights of the Warrantholders
(except the right to receive the Redemption Price) shall terminate, but only if
(a) no later than one day prior to the redemption date the Company shall have
irrevocably deposited with the Warrant Agent as paying agent a sufficient amount
to pay on the redemption date the Redemption Price
9
<PAGE>
for all Warrants called for redemption and (b) the notice of redemption shall
have stated the name and address of the Warrant Agent and the intention of the
Company to deposit such amount with the Warrant Agent no later than one day
prior to the redemption date.
H. The Warrant Agent shall pay to the holders of record of redeemed
Warrants all monies received by the Warrant Agent for the redemption of Warrants
to which the holders of record of such redeemed Warrants who shall have
surrendered their Warrants are entitled.
I. Any amounts deposited with the Warrant Agent that are not required for
redemption of Warrants may be withdrawn by the Company. Any amounts deposited
with the Warrant Agent that shall be unclaimed after six months after the
redemption date may be withdrawn by the Company, and thereafter the holders of
the Warrants called for redemption for which such funds were deposited shall
look solely to the Company for payment. The Company shall be entitled to the
interest, if any, on funds deposited with the Warrant Agent and the holders of
redeemed Warrants shall have no right to any such interest.
J. If the Company fails to make a sufficient deposit with the Warrant
Agent as provided above, the holder of any Warrants called for redemption may at
the option of the holder (a) by notice to the Company declare the notice of
redemption a nullity as to such holder, or (b) maintain an action against the
Company for the Redemption Price. If the holder brings such an action, the
Company will pay reasonable attorneys' fees of the holder. If the holder fails
to bring an action against the Company for the Redemption Price within 60 days
after the redemption date, the holder shall be deemed to have elected to declare
the notice of redemption to be a nullity as to such holder and such notice shall
be without any force or effect as to such holder. Except as otherwise
specifically provided in this Paragraph J, a notice of redemption, once mailed
by the Company as provided in Paragraph F shall be irrevocable.
Section 8. Fractional Interests
--------------------
The Company shall not be required to issue any Warrant Certificate
evidencing a fraction of a Warrant or to issue fractions of shares of securities
on the exercise of the Warrants. If any fraction (calculated to the nearest
one-hundredth) of a Warrant or a share of securities would, except for the
provisions of this Section, be issuable upon the exercise of any Warrant, the
Company shall, at its option, either purchase such fraction for an amount in
cash equal to the current value of such fraction computed on the basis of the
closing market price (closing bid or closing price, as the case may be), as
quoted by The American Stock Exchange, on the trading day immediately preceding
the day upon which such Warrant Certificate was surrendered for exercise in
accordance with Section 7 hereof or issue the required fractional Warrant or
share. By accepting a Warrant Certificate, the holder thereof expressly waives
any right to receive a Warrant Certificate evidencing any fraction of a Warrant
or to receive any fractional share of securities upon exercise of a Warrant,
except as expressly provided in this Section 8.
Section 9. Reservation of Equity Securities
--------------------------------
10
<PAGE>
The Company covenants that it will at all times reserve and keep available,
free from any preemptive rights, out of its authorized and unissued equity
securities, solely for the purpose of issue upon exercise of the Warrants, such
number of shares of equity securities of the Company as shall then be issuable
upon the exercise of all outstanding Warrants ("Equity Securities"). The
Company covenants that all Equity Securities which shall be so issuable shall,
upon such issue, be duly authorized, validly issued, fully paid and
nonassessable.
The Company covenants that if any Equity Securities, required to be
reserved for the purpose of issue upon exercise of the Warrants hereunder,
require registration with or approval of any governmental authority under any
federal or state law before such shares may be issued upon exercise of Warrants,
the Company will use all commercially reasonable efforts to cause such
securities to be duly registered, or approved, as the case may be, and, to the
extent practicable, take all such action in anticipation of and prior to the
exercise of the Warrants, including, without limitation, filing any and all
post-effective amendments to the Company's Registration Statement on Form S-1
(Registration No. 333-69207) necessary to permit a public offering of the
securities underlying the Warrants at any and all times during the term of this
Agreement; provided, further, that in no event shall such securities be issued,
-------- -------
and the Company is authorized to refuse to honor the exercise of any Warrant, if
such exercise would result in the opinion of the Company's Board of Directors,
upon advice of counsel, in the violation of any law; and provided further that,
-------- -------
in the case of a Warrant exercisable solely for securities listed on a
securities exchange or for which there are at least two independent market
makers, in lieu of obtaining such registration or approval, the Company may
elect to redeem Warrants submitted to the Warrant Agent for exercise for a price
equal to the difference between the aggregate low asked price, or closing price,
as the case may be, of the securities for which such Warrant is exercisable on
the date of such submission and the Exercise Price of such Warrants; in the
event of such redemption, the Company will pay to the holder of such Warrants
the above-described redemption price in cash within 10 business days after
receipt of notice from the Warrant Agent that such Warrants have been submitted
for exercise.
Section 10. Reduction of Exercise Price Below Par Value
-------------------------------------------
Before taking any action that would cause an adjustment pursuant to Section
6 hereof reducing the portion of the Exercise Price required to purchase one
share of capital stock below the then par value (if any) of a share of such
capital stock, the Company will use its best efforts to take any corporate
action which, in the opinion of its counsel, may be necessary in order that the
Company may validly and legally issue fully paid and non-assessable shares of
such capital stock.
Section 11. Payment of Taxes
----------------
The Company covenants and agrees that it will pay when due and payable any
and all federal and state documentary stamp and other original issue taxes which
may be payable in
11
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respect of the original issuance of the Warrant Certificates, or any shares of
Common Stock or other securities upon the exercise of Warrants. The Company
shall not, however, be required (i) to pay any tax which may be payable in
respect of any transfer involved in the transfer and delivery of Warrant
Certificates or the issuance or delivery of certificates for Common Stock or
other securities in a name other than that of the registered holder of the
Warrant Certificate surrendered for purchase or (ii) to issue or deliver any
certificate for shares of Common Stock or other securities upon the exercise of
any Warrant Certificate until any such tax shall have been paid, all such tax
being payable by the holder of such Warrant Certificate at the time of
surrender.
Section 12. Notice of Certain Corporate Action
----------------------------------
In case the Company, after the date hereof, shall propose (i) to offer to
the holders of Common Stock, generally, rights to subscribe to or purchase any
additional shares of any class of its capital stock, any evidences of its
indebtedness or assets, or any other rights or options or (ii) to effect any
reclassification of Common Stock (other than a reclassification involving merely
the subdivision or combination of outstanding shares of Common Stock) or any
capital reorganization, or any consolidation or merger to which the Company is a
party and for which approval of any shareholders of the Company is required, or
any sale, transfer or other disposition of its property and assets substantially
as an entirety, or the liquidation, voluntary or involuntary dissolution or
winding-up of the Company, then, in each such case, the Company shall file with
the Warrant Agent and the Company, or the Warrant Agent on its behalf, shall
mail (by first-class, postage prepaid mail) to all registered holders of the
Warrant Certificates notice of such proposed action, which notice shall specify
the date on which the books of the Company shall close or a record be taken for
such offer of rights or options, or the date on which such reclassification,
reorganization, consolidation, merger, sale, transfer, other disposition,
liquidation, voluntary or involuntary dissolution or winding-up shall take place
or commence, as the case may be, and which shall also specify any record date
for determination of holders of Common Stock entitled to vote thereon or
participate therein and shall set forth such facts with respect thereto as shall
be reasonably necessary to indicate any adjustments in the Exercise Price and
the number or kind of shares or other securities purchasable upon exercise of
Warrants which will be required as a result of such action. Such notice shall
be filed and mailed in the case of any action covered by clause (i) above, at
least ten days prior to the record date for determining holders of the Common
Stock for purposes of such action or, if a record is not to be taken, the date
as of which the holders of shares of Common Stock of record are to be entitled
to such offering; and, in the case of any action covered by clause (ii) above,
at least 20 days prior to the earlier of the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, voluntary or involuntary dissolution or winding-up is
expected to become effective and the date on which it is expected that holders
of shares of Common Stock of record on such date shall be entitled to exchange
their shares for securities or other property deliverable upon such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, voluntary or involuntary dissolution or winding-up.
12
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Failure to give any such notice or any defect therein shall not affect the
legality or validity of any transaction listed in this Section 12.
Section 13. Disposition of Proceeds on Exercise of Warrant Certificates. etc.
----------------------------------------------------------------
The Warrant Agent shall account promptly to the Company with respect to
Warrants exercised and concurrently pay to the Company all moneys received by
the Warrant Agent for the purchase of securities or other property through the
exercise of such Warrants.
The Warrant Agent shall keep copies of this Agreement available for
inspection by Warrantholders during normal business hours at its stock transfer
office. Copies of this Agreement may be obtained upon written request addressed
to the Warrant Agent at its stock transfer office in New York, New York.
Section 14. Warrantholder Not Deemed a Shareholder
--------------------------------------
No Warrantholder, as such, shall be entitled to vote, receive dividends or
be deemed the holder of Common Stock or any other securities of the Company
which may at any time be issuable on the exercise of the Warrants represented
thereby for any purpose whatever, nor shall anything contained herein or in any
Warrant Certificate be construed to confer upon any Warrantholder, as such, any
of the rights of a stockholder of the Company or any right to vote for the
election of directors or upon any matter submitted to shareholders at any
meeting thereof, or to give or withhold consent to any corporate action (whether
upon any recapitalization, issuance of stock, reclassification of stock, change
of par value or change of stock to no par value, consolidation, merger,
conveyance or otherwise), or to receive notice of meetings or other actions
affecting shareholders (except as provided in Section 12 hereof), or to receive
dividend or subscription rights, or otherwise, until such Warrant Certificate
shall have been exercised in accordance with the provisions hereof and the
receipt of the Exercise Price and any other amounts payable upon such exercise
by the Warrant Agent.
Section 15. Right of Action
---------------
All rights of action in respect to this Agreement are vested in the
respective registered holders of the Warrant Certificates; and any registered
holder of any Warrant Certificate, without the consent of the Warrant Agent or
of any other holder of a Warrant Certificate, may, in his own behalf for his own
benefit, enforce, and may institute and maintain any suit, action or proceeding
against the Company suitable to enforce, or otherwise in respect of, his right
to exercise the Warrants evidenced by such Warrant Certificate, for the purchase
of shares of the Common Stock in the manner provided in the Warrant Certificate
and in this Agreement.
Section 16. Agreement of Holders of Warrant Certificates
--------------------------------------------
Every holder of a Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent and with every other holder of a
Warrant Certificate that:
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A. the Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement;
and
B. the Company and the Warrant Agent may deem and treat the person in
whose name the Warrant Certificate is registered as the absolute owner of the
Warrant (notwithstanding any notation of ownership or other writing thereon made
by anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
Section 17. Cancellation of Warrant Certificates
------------------------------------
In the event that the Company shall purchase or otherwise acquire any
Warrant Certificate or Certificates after the issuance thereof, such Warrant
Certificate or Certificates shall thereupon be delivered to the Warrant Agent
and be canceled by it and retired. The Warrant Agent shall also cancel any
Warrant Certificate delivered to it for exercise, in whole or in part, or
delivered to it for transfer, split-up, combination or exchange. Warrant
Certificates so canceled shall be delivered by the Warrant Agent to the Company
from time to time, or disposed of in accordance with the instructions of the
Company.
Section 18. Concerning the Warrant Agent
----------------------------
The Company agrees to pay to the Warrant Agent from time to time, on
written demand of the Warrant Agent, reasonable compensation for all services
rendered by it hereunder and also its reasonable expenses, including counsel
fees, and other disbursements incurred in the administration and execution of
this Agreement and the exercise and performance of its duties hereunder. The
Warrant Agent agrees to use its best efforts to submit in advance a written
estimate of any costs in excess of $2,500 which it expects to incur in its
exercise and performance of its duties hereunder. The Company also agrees to
indemnify the Warrant Agent for, and to hold it harmless against, any loss,
liability or expense, incurred without gross negligence, bad faith or willful
misconduct on the part of the Warrant Agent, arising out of or in connection
with the acceptance and administration of this Agreement.
Section 19. Merger or Consolidation or Change of Name of Warrant Agent
----------------------------------------------------------
Any corporation into which the Warrant Agent may be merged or with which it
may be consolidated, or any corporation resulting from any merger or
consolidation to which the Warrant Agent shall be a party, or any corporation
succeeding to the corporate trust business of the Warrant Agent, shall be the
successor to the Warrant Agent hereunder without the execution or filing of any
paper or any further act on the part of any of the parties hereto, provided that
such corporation would be eligible for appointment as a successor warrant agent
under the provisions of Section 21 hereof. In case at the time such successor
to the Warrant Agent shall succeed to the agency created by this Agreement, any
of the Warrant Certificates
14
<PAGE>
shall have been countersigned but not delivered, any such successor to the
Warrant Agent may adopt the countersignature of the original Warrant Agent and
deliver such Warrant Certificates so countersigned; and in case at that time any
of the Warrant Certificates shall not have been countersigned, any successor to
the Warrant Agent may countersign such Warrant Certificates either in the name
of the predecessor Warrant Agent or in the name of the successor Warrant Agent;
and in all such cases such Warrant Certificates shall have the full force
provided in the Warrant Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and at
such time any of the Warrant Certificates shall have been countersigned but not
delivered, the Warrant Agent may adopt the countersignature under its prior name
and deliver Warrant Certificates so countersigned; and in case at that time any
of the Warrant Certificates shall not have been countersigned, the Warrant Agent
may countersign such Warrant Certificates either in its prior name or in its
changed name; and in all such cases such Warrant Certificates shall have the
full force provided in the Warrant Certificates and in this Agreement.
Section 20. Duties of Warrant Agent
-----------------------
The Warrant Agent undertakes the duties and obligations imposed by this
Agreement upon the following terms and conditions, by all of which the Company
and the holders of Warrant Certificates, by their acceptance thereof, shall be
bound:
A. The Warrant Agent may consult with counsel satisfactory to it (who may
be counsel for the Company or the Warrant Agent's in-house counsel), and the
opinion of such counsel shall be full and complete authorization and protection
to the Warrant Agent as to any action taken, suffered or omitted by it good
faith and in accordance with such opinion; provided, however, that the Warrant
--------- -------
Agent shall have exercised reasonable care in the selection of such counsel.
Fees and expenses of such counsel, to the extent reasonable, shall be paid by
the Company, subject to the provisions of Section 18 hereof.
B. Whenever in the performance of its duties under this Agreement, the
Warrant Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the Chairman or Co-Chairman of the Board
or the President or a Vice President or the Secretary of the Company and
delivered to the Warrant Agent; and such certificate shall be full authorization
to the Warrant Agent for any action taken or suffered in good faith by it under
the provisions of this Agreement in reliance upon such certificate.
C. The Warrant Agent shall be liable hereunder only for its own gross
negligence, bad faith or willful misconduct.
D. The Warrant Agent shall not be liable for or by reason of any of the
statements
15
<PAGE>
of fact or recitals contained in this Agreement or in the Warrant Certificates
(except its countersignature on the Warrant Certificates and such statements or
recitals as describe the Warrant Agent or action taken or to be taken by it) or
be required to verify the same, but all such statements and recitals are and
shall be deemed to have been made by the Company only.
E. The Warrant Agent shall not be under any responsibility in respect of
the validity of this Agreement or the execution and delivery hereof (except the
due execution hereof by the Warrant Agent) or in respect of the validity or
execution of any Warrant Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Warrant Certificate; nor shall
it be responsible for the making of any change in the number of shares of Common
Stock for which a Warrant is exercisable required under the provisions of
Section 6 or responsible for the manner, method or amount of any such change or
the ascertaining of the existence of facts that would require any such
adjustment or change (except with respect to the exercise of Warrant
Certificates after actual notice of any adjustment of the Exercise Price); nor
shall it by any act hereunder be deemed to make any representation or warranty
as to the authorization or reservation of any shares of Common Stock to be
issued pursuant to this Agreement or any Warrant Certificate or as to whether
any shares of Common Stock will, when issued, be validly issued, fully paid and
nonassessable.
F. The Warrant Agent shall be under no obligation to institute any
action, suit or legal proceeding or take any other action likely to involve
expense unless the Company or one or more registered holders of Warrant
Certificates shall furnish the Warrant Agent with reasonable security and
indemnity for any costs and expenses which may be incurred. All rights of action
under this Agreement or under any of the Warrants may be enforced by the Warrant
Agent without the possession of any of the Warrants or the production thereof at
any trial or other proceeding relative thereto, and any such action, suit or
proceeding instituted by the Warrant Agent shall be brought in its name as
Warrant Agent, and any recovery of judgment shall be for the ratable benefit of
the registered holders of the Warrant Certificates, as their respective rights
or interests may appear.
G. The Warrant Agent and any stockholder, director, officer or employee
of the Warrant Agent may buy, sell or deal in any of the Warrants or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to or
otherwise act as fully and freely as though it were not Warrant Agent under this
Agreement. Nothing herein shall preclude the Warrant Agent from acting in any
other capacity for the Company or for any other legal entity.
H. The Warrant Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from the
Chairman or Co-Chairman of the Board or President or a Vice President or the
Secretary or the Controller of the Company, and to apply to such officers for
advice or instructions in connection with the Warrant Agent's duties, and it
shall not be liable for any action taken or suffered or omitted by it in good
faith in accordance with instructions of any such officer.
16
<PAGE>
I. The Warrant Agent will not be responsible for any failure of the
Company to comply with any of the covenants contained in this Agreement or in
the Warrant Certificates to be complied with by the Company.
J. The Warrant Agent may execute and exercise any of the rights or powers
hereby vested in it or perform any duty hereunder either itself or by or through
its attorneys, agents or employees and the Warrant Agent shall not be answerable
or accountable for any act, default, neglect or misconduct of any such
attorneys, agents or employees or for any loss to the Company resulting from
such neglect or misconduct; provided, however, that reasonable care shall have
--------- -------
been exercised in the selection and continued employment of such attorneys,
agents and employees.
K. The Warrant Agent will not incur any liability or responsibility to
the Company or to any holder of any Warrant Certificate for any action taken, or
any failure to take action, in reliance on any notice, resolution, waiver,
consent, order, certificate, or other paper, document or instrument reasonably
believed by the Warrant Agent to be genuine and to have been signed, sent or
presented by the proper party or parties.
L. The Warrant Agent will act hereunder solely as agent of the Company in
a ministerial capacity, and its duties will be determined solely by the
provisions hereof. The Warrant Agent will not be liable for anything which it
may do or refrain from doing in connection with this Agreement except for its
own negligence, bad faith or willful conduct.
Section 21. Change of Warrant Agent
-----------------------
The Warrant Agent may resign and be discharged from its duties under this
Agreement upon 30 days' prior notice in writing mailed, by registered or
certified mail, to the Company. The Company may remove the Warrant Agent or any
successor warrant agent upon 30 days' prior notice in writing, mailed to the
Warrant Agent or successor warrant agent, as the case may be, by registered or
certified mail. If the Warrant Agent shall resign or be removed or shall
otherwise become incapable of acting, the Company shall appoint a successor to
the Warrant Agent and shall, within 15 days following such appointment, give
notice thereof in writing to each registered holder of the Warrant Certificates.
If the Company shall fail to make such appointment within a period of 15 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Warrant Agent,
then the Company agrees to perform the duties of the Warrant Agent hereunder
until a successor Warrant Agent is appointed. After appointment and execution
of a copy of this Agreement in effect at that time, the successor Warrant Agent
shall be vested with the same powers, rights, duties and responsibilities as if
it had been originally named as Warrant Agent without further act or deed; but
the former Warrant Agent shall deliver and transfer to the successor Warrant
Agent, within a reasonable time, any property at the time held by it hereunder,
and execute and deliver any further assurance, conveyance, act or deed necessary
for the purpose. Failure to give any notice provided for in this Section,
17
<PAGE>
however, or any defect therein shall not affect the legality or validity of the
resignation or removal of the Warrant Agent or the appointment of the successor
warrant agent, as the case may be.
Section 22. Issuance of New Warrant Certificates
------------------------------------
Notwithstanding any of the provisions of this Agreement or the several
Warrant Certificates to the contrary, the Company may, at its option, issue new
Warrant Certificates in such form as may be approved by its Board of Directors
to reflect any adjustment or change in the Exercise Price or the number or kind
of shares purchasable under the several Warrant Certificates made in accordance
with the provisions of this Agreement.
Section 23. Notices
-------
Notice or demand pursuant to this Agreement to be given or made on the
Company by the Warrant Agent or by the registered holder of any Warrant
Certificate shall be sufficiently given or made if sent by first-class or
registered mail, postage prepaid, addressed (until another address is filed in
writing by the Company with the Warrant Agent) as follows:
Careside, Inc.
6100 Bristol Parkway
Culver City, California 90230
Attn: Chief Executive Officer
Subject to the provisions of Section 21, any notice pursuant to this
Agreement to be given or made by the Company or by the holder of any Warrant
Certificate to or on the Warrant Agent shall be sufficiently given or made if
sent by first-class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Warrant Agent with the Company) as
follows:
American Stock Transfer and Trust Company
40 Wall Street
New York, New York 10005
Any notice or demand authorized to be given or made to the registered
holder of any Warrant Certificate under this Agreement shall be sufficiently
given or made if sent by first-class or registered mail, postage prepaid, to the
last address of such holder as it shall appear on the registers maintained by
the Warrant Agent.
Section 24. Modification of Agreement
-------------------------
The Warrant Agent may, without the consent or concurrence of the
Warrantholders, by supplemental agreement or otherwise, concur with the Company
in making any changes or corrections in this Agreement that the Warrant Agent
shall have been advised by counsel (who
18
<PAGE>
may be counsel for the Company) are necessary or desirable to cure any ambiguity
or to correct any defective or inconsistent provision or clerical omission or
mistake or manifest error herein contained, or to make any other provisions in
regard to matters or questions arising hereunder and which shall not be
inconsistent with the provisions of the Warrant Certificates and which shall not
adversely affect the interests of the Warrantholders. As of the date hereof,
this Agreement contains the entire and only agreement, understanding,
representation, condition, warranty or covenant between the parties hereto with
respect to the matters herein, supersedes any and all other agreements between
the parties hereto relating to such matters, and may be modified or amended only
by a written agreement signed by both parties hereto pursuant to the authority
granted by the first sentence of this Section.
Section 25. Successors
----------
All the covenants and provisions of this Agreement by or for the benefit of
the Company or the Warrant Agent shall bind and inure to the benefit of their
respective successors and assigns hereunder.
Section 26. California Contract
-------------------
This Agreement and each Warrant Certificate issued hereunder shall be
deemed to be a contract made under the laws of the State of California and for
all purposes shall be construed in accordance with the laws of said State.
Section 27. Termination
-----------
This Agreement shall terminate as of the close of business on the
Expiration Date, or such earlier date upon which all Warrants shall have been
exercised or redeemed, except that the Warrant Agent shall account to the
Company as to all Warrants outstanding and all cash held by it as of the close
of business on the Expiration Date.
Section 28. Benefits of this Agreement
--------------------------
Nothing in this Agreement or in the Warrant Certificates shall be construed
to give to any person or corporation other than the Company, the Warrant Agent,
and their respective successors and assigns hereunder and the registered holders
of the Warrant Certificates any legal or equitable right, remedy or claim under
this Agreement; but this Agreement shall be for the sole and exclusive benefit
of the Company, the Warrant Agent, their respective successors and assigns
hereunder and the registered holders of the Warrant Certificates.
Section 29: Descriptive Headings
--------------------
The descriptive headings of the several Sections of this Agreement are
inserted for convenience only and shall not control or affect the meaning or
construction of any of the provisions hereof.
19
<PAGE>
Section 30. Counterparts
------------
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but such counterparts shall together constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, all as of the day and year first above written.
CARESIDE, INC.
By:______________________________
W. Vickery Stoughton
Chief Executive Officer
AMERICAN STOCK TRANSFER
AND TRUST COMPANY
By:__________________________________
President
20
<PAGE>
Exhibit A
VOID AFTER 5 P.M. EASTERN STANDARD TIME ON ______________, 2004
WARRANTS TO PURCHASE COMMON STOCK
W_____ _________ Warrants
CUSIP ____________
CARESIDE, INC.
THIS CERTIFIES THAT
or registered assigns, is the registered holder of the number of Warrants
('Warrants") set forth above. Each Warrant entitles the holder thereof to
purchase from Careside, Inc., a corporation incorporated under the laws of the
State of Delaware ("Company"), subject to the terms and conditions set forth
hereinafter and in the Warrant Agreement hereinafter more fully described (the
'Warrant Agreement"), one fully paid and nonassessable share of Common Stock,
$0.01 par value per share, of the Company ("Common Stock") upon presentation and
surrender of this Warrant Certificate with the instructions for the registration
and delivery of Common Stock filled in, at any time after [INSET DATE WHICH IS
30 DAYS AFTER THE DATE OF THE FINAL PROSPECTUS] and prior to 5:00 P.M., Eastern
Standard time, on _____________, 2004 or, if such Warrant is redeemed as
provided in the Warrant Agreement, at any time prior to the effective time of
such redemption, at the stock transfer office in New York, New York, of American
Stock Transfer and Trust Company, Warrant Agent of the Company ("Warrant
Agent"), or of its successor warrant agent or, if there be no successor warrant
agent, at the corporate offices of the Company, and upon payment of the Exercise
Price (as defined in the Warrant Agreement) and any applicable taxes paid either
in cash, or by certified or official bank check, payable in lawful money of the
United States of America to the order of the Company. Each Warrant initially
entitles the holder to purchase one share of Common Stock for $[INSERT PRICE
WHICH IS 150% OF THE IPO PRICE PER UNIT]. The number and kind of securities or
other property for which the Warrants are exercisable are subject to further
adjustment in certain events, such as mergers, splits, stock dividends,
recapitalizations and the like, to prevent dilution. The Company may redeem any
or all outstanding and unexercised Warrants at any time if the Daily Price has
exceeded $[INSERT PRICE WHICH IS 200% OF THE IPO PRICE PER UNIT] for 10
consecutive trading days immediately preceding the date of notice of such
redemption, upon 30 days' notice, at a price equal to $0.05 per Warrant. For
the purpose of the foregoing sentence, the term "Daily Price" shall mean, for
any relevant day, the closing bid price on that day as reported by the principal
i
<PAGE>
exchange, national or quotation system on which prices for the Common Stock are
reported. All Warrants not theretofore exercised or redeemed will expire on
____________, 2004. The Company has agreed that it shall not redeem any
Warrants until [INSERT THE DATE WHICH IS SIX MONTHS FROM THE DATE OF THE FINAL
PROSPECTUS].
This Warrant Certificate is subject to all of the terms, provisions and
conditions of the Warrant Agreement, dated as of June ____, 1999 ("Warrant
Agreement"), between the Company and the Warrant Agent, to all of which terms,
provisions and conditions the registered holder of this Warrant Certificate
consents by acceptance hereof. The Warrant Agreement is incorporated herein by
reference and made a part hereof and reference is made to the Warrant Agreement
for a full description of the rights, limitations of rights, obligations, duties
and immunities of the Warrant Agent, the Company and the holders of the Warrant
Certificates. Copies of the Warrant Agreement are available for inspection at
the stock transfer office of the Warrant Agent or may be obtained upon written
request addressed to the Company at 6100 Bristol Parkway, Culver City,
California 90230, Attention:
Chief Executive Officer.
The Company shall not be required upon the exercise of the Warrants
evidenced by this Warrant Certificate to issue fractions of Warrants, Common
Stock or other securities, but may make adjustment therefor in cash on the basis
of the current market value of any fractional interest as provided in the
Warrant Agreement.
In certain cases, the sale of securities by the Company upon exercise of
Warrants would violate the securities laws of the United States, certain states
thereof or other jurisdictions. The Company has agreed to use commercially
reasonable efforts to cause a registration statement to continue to be effective
during the term of the Warrants with respect to such sales under the Securities
Act of 1933, as amended, and to take such action under the laws of various
states as may be required to cause the sale of securities upon exercise to be
lawful. However, the Company will not be required to honor the exercise of
Warrants if, in the opinion of the Board of Directors, upon advice of counsel,
the sale of securities upon such exercise would be unlawful. In certain cases,
the Company may, but is not required to, purchase Warrants submitted for
exercise for a cash price equal to the difference between the market price of
the securities obtainable upon such exercise and the exercise price of such
Warrants.
This Warrant Certificate, with or without other Certificates, upon
surrender to the Warrant Agent, any successor warrant agent or, in the absence
of any successor warrant agent, at the corporate offices of the Company, may be
exchanged for another Warrant Certificate or Certificates evidencing in the
aggregate the same number of Warrants as the Warrant Certificate or Certificates
so surrendered. If the Warrants evidenced by this Warrant Certificate shall be
exercised in part, the holder hereof shall be entitled to receive upon surrender
hereof another Warrant Certificate or Certificates evidencing the number of
Warrants not so exercised.
ii
<PAGE>
No holder of this Warrant Certificate, as such, shall be entitled to vote,
receive dividends or be deemed the holder of Common Stock or any other
securities of the Company which may at any time be issuable on the exercise
hereof for any purpose whatever, nor shall anything contained in the Warrant
Agreement or herein be construed to confer upon the holder of this Warrant
Certificate, as such, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof or give or withhold consent to any corporate
action (whether upon any matter submitted to shareholders at any meeting
thereof, or give or withhold consent to any merger, recapitalization, issuance
of stock, reclassification of stock, change of par value or change of stock to
no par value, consolidation, conveyance or otherwise) or to receive notice of
meetings or other actions affecting shareholders (except as provided in the
Warrant Agreement) or to receive dividends or subscription rights or otherwise
until the Warrants evidenced by this Warrant Certificate shall have been
exercised and the Common Stock purchasable upon the exercise thereof shall have
become deliverable as provided in the Warrant Agreement.
If this Warrant Certificate shall be surrendered for exercise within any
period during which the transfer books for the Company's Common Stock or other
class of stock purchasable upon the exercise of the Warrants evidenced by this
Warrant Certificate are closed for any purpose, the Company shall not be
required to make delivery of certificates for shares purchasable upon such
transfer until the date of the reopening of said transfer books.
Every holder of this Warrant Certificate by accepting the same consents and
agrees with the Company, the Warrant Agent, and with every other holder of a
Warrant Certificate that:
(a) this Warrant Certificate is transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in the Warrant
Agreement, and
(b) the Company and the Warrant Agent may deem and treat the person in
whose name this Warrant Certificate is registered as the absolute owner hereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone other than the Company or the Warrant Agent) for all purposes whatever
and neither the Company nor the Warrant Agent shall be affected by any notice to
the contrary.
The Company shall not be required to issue or deliver any certificate for
shares of Common Stock or other securities upon the exercise of Warrants
evidenced by this Warrant Certificate until any tax which may be payable in
respect thereof by the holder of this Warrant Certificate pursuant to the
Warrant Agreement shall have been paid, such tax being payable by the holder of
this Warrant Certificate at the time of surrender.
This Warrant Certificate shall not be valid or obligatory for any purpose
until it shall have been countersigned by the Warrant Agent.
iii
<PAGE>
Dated: , 1999.
CARESIDE, INC.
By:_____________________________
Chief Executive Officer
Attest:_________________________
Secretary
Countersigned
______________________________
By:___________________________
Authorized Officer
iv
<PAGE>
EXHIBIT 4.8
FORM OF
WARRANT CERTIFICATE
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE HEREOF HAVE NOT
BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR
UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT AND SUCH SHARES AND
ANY INTEREST OR PARTICIPATION HEREIN OR THEREIN MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM EXCEPT UPON THE
CONDITIONS SPECIFIED IN THIS WARRANT, AND NO TRANSFER OF THIS WARRANT OR SUCH
SHARES SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE
BEEN COMPLIED WITH.
THIS WARRANT AND ANY SHARES ACQUIRED UPON THE EXERCISE HEREOF ARE
SUBJECT TO ALL THE TERMS AND CONDITIONS OF A CERTAIN STOCKHOLDERS AGREEMENT,
DATED AS OF DECEMBER 4,1996, AMONG CARESIDE, INC. AND ITS STOCKHOLDERS, A COPY
OF WHICH THE COMPANY WILL FURNISH TO THE HOLDER OF THIS WARRANT UPON REQUEST AND
WITHOUT CHARGE.
WARRANT CERTIFICATE NO. SR-2
to Purchase Shares of Common Stock of
CARESIDE, INC.
_______ , 1999
THIS CERTIFIES THAT, for good and valuable consideration comprised of,
inter alia, the surrender of Warrant Certificate SR-1 which is hereby cancelled,
- ----------
the receipt and sufficiency of which is hereby acknowledged, S.R.One, Limited, a
Pennsylvania Business Trust, or its permitted assigns (the "Holder"), is the
registered owner of this Warrant Certificate (the "Warrant"), subject to the
terms and conditions hereinafter set forth.
This Warrant is issued pursuant to the Securities Purchase Agreement
dated as of December 17, 1998, between the Holder and the Company (the
"Securities Purchase Agreement"), pursuant to which the Company agreed to issue
and sell to the Holder, and the Holder agreed to purchase promissory notes, each
with a detachable warrant to purchase shares of the Company's Common Stock, and
as modified by the Securities Conversion Agreement dated as of _____ __, 1999
between the Holder and the Company (the "Securities Conversion Agreement")
pursuant to which one-third of the promissory notes were converted into shares
of
<PAGE>
Series A Convertible Preferred Stock of the Company. Capitalized terms used
and not defined herein have the meanings set forth in the Securities Conversion
Agreement.
1 Grant. This Warrant grants to the Holder the right to purchase,
-----
on or after the earlier of (i) December 17, 1999 or (ii) six months after the
completion of the Initial Public Offering of the Units and until 5:30 p.m., New
York time, on the earlier of (a) the seventh anniversary of the date of issuance
of this Warrant or (b) four years from the closing of an Initial Public
Offering, an aggregate number of shares of Common Stock ("Warrant Shares")
determined by dividing One Million Five Hundred Thousand Dollars ($1,500,000) by
either (i) $ 1.40, or (ii) if an Initial Public Offering of the Units has
occurred, eighty-five percent (85%) of the price per Unit at which the Unit is
first sold to the public in the Initial Public Offering (before discounts and
commissions) (the "Unit Price").
2 Exercise of Warrant.
-------------------
2.1 Exercise. This Warrant shall be exercisable at any time in
--------
whole and not in part. The aggregate exercise price for the purchase of the
Warrant Shares ("Exercise Price") shall be equal to eighty-five percent (85%) of
the Unit Price multiplied by the number of Warrant Shares. This Warrant may be
exercised by surrender of this Warrant with the annexed Form of Election to
Purchase duly executed, together with payment of the Exercise Price multiplied
by the number of Warrant Shares, at the Company's principal offices located at
6100 Bristol Parkway, Culver City, CA 90230. The Exercise Price shall be
payable by certified or official bank check or wire transfer of immediately
available funds. For purposes hereof, "Exercise Date" shall mean the date on
which all deliveries required to be made to the Company upon exercise of this
Warrant pursuant to this Section 2.1 shall have been made.
2.2 Issuance of Certificates for Warrant Shares. Upon the
-------------------------------------------
exercise of the Warrants, the issuance of certificates for Warrant Shares shall
be made forthwith (and in any event such issuance shall be made within ten (10)
business days after the Exercise Date) without charge to the Holder including,
without limitation, any tax which may be payable in respect of the issuance
thereof, and such certificates shall (subject to the provisions of Section 3
hereof) be issued in the name of, or in such names as may be directed by, the
Holder thereof; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the issuance
and delivery of any such certificates in a name other than that of the Holder,
and the Company shall not be required to issue or deliver such certificates
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
3 Transfer of Securities. The Holder, by acceptance of this
----------------------
Warrant Certificate, covenants and agrees that it is acquiring this Warrant and,
upon exercise hereof, the Warrant Shares, for its own account, as an investment
and not with a view to distribution thereof. The Warrant Shares have not been
registered under the Securities Act of 1933, as amended (the
-2-
<PAGE>
"Act") or any state securities laws and no transfer of any Warrant Shares shall
be permitted unless the Company has received notice of such transfer, at the
address of its principal office, in the form of the Assignment attached hereto,
accompanied by an opinion of counsel reasonably satisfactory to the Company that
an exemption from registration of such Warrants Shares under the Act is
available for such transfer. Upon any exercise of this Warrant, certificates
representing the Warrant Shares and any of the other securities issuable upon
exercise of this Warrant shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933 ("Act") or any state
securities laws for public resale, and may not be offered or sold
except pursuant to (i) an effective registration statement under
the Act and such laws or (ii) an opinion of counsel satisfactory
to the issuer that an exemption from such registration is
available.
Any purported transfer of this Warrant or any Warrant Shares not in compliance
with the provisions of this Section 3 shall be null and void.
4 Adjustments to Unit Price and Number of Securities.
--------------------------------------------------
4.1 Computation of Adjusted Unit Price. Except as hereinafter
----------------------------------
provided, in case the Company shall at any time after the date hereof issue or
sell any shares of Common Stock, including, without limitation, shares held in
the Company's treasury and shares of Common Stock issued upon the exercise of
any options, rights or warrants to subscribe for shares of Common Stock and
shares of Common Stock issued upon the direct or indirect conversion or exchange
of securities for shares of Common Stock, for a consideration per share less
than the Unit Price, then forthwith upon such issuance or sale, the Unit Price
shall (until another such issuance or sale) be reduced to an amount equal to (i)
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such issuance or sale multiplied by the then existing Unit Price, and
(B) the aggregate amount of the consideration, if any, received by the Company
upon such issuance or sale, divided by (ii) the total number of shares of Common
Stock outstanding immediately after such issuance or sale; provided, however,
that in no event shall the Unit Price be adjusted pursuant to the computations
in this Section 4.1 to an amount in excess of the Unit Price in effect
immediately prior to such computation, except in the case of a combination of
outstanding shares of Common Stock, as provided by Section 4.3 hereof.
For the purposes of any computation to be made in accordance with this
Section 4.1, the following provisions shall be applicable:
-3-
<PAGE>
(i) In case of the issuance or sale of shares of Common Stock for a
consideration part or all of which shall be cash, the amount of the cash
consideration therefor shall be deemed to be the amount of cash received by the
Company for such shares (or, if shares of Common Stock are offered by the
Company for subscription, the subscription price, or, if shares of Common Stock
are sold to underwriters or dealers for public offering without a subscription
offering, the public offering price, before deducting therefrom any compensation
paid or discount allowed in the sale, underwriting or purchase thereof by
underwriters or dealers or others performing similar services, or any expenses
incurred in connection therewith) plus any amounts payable to security holders
or any affiliate thereof, including without limitation employment agreement,
royalty, consulting agreement, covenant not to compete agreement pursuant to any
or contingent payment right or similar arrangement, agreement or understanding,
whether oral or written; all such amounts shall be valued at the aggregate
amount payable thereunder whether such payments are absolute or contingent and
irrespective of the period or uncertainty of payment, the rate of interest, if
any, or the contingent nature thereof except if the payment of such amounts has
been approved by the Holder.
(ii) In case of the issuance or sale (otherwise than as a dividend or
other distribution on any stock of the Company) of shares of Common Stock for a
consideration part or all of which shall be other than cash, the amount of the
consideration therefor other than cash shall be deemed to be the value of such
consideration as determined in good faith by the Board of Directors of the
Company.
(iii) Shares of Common Stock issuable by way of dividend or other
distribution on any stock of the Company shall be deemed to have been issued
immediately after the opening of business on the day following the record date
for the determination of stockholders entitled to receive such dividend or other
distribution and shall be deemed to have been issued without consideration.
(iv) The reclassification of securities of the Company other than
shares of Common Stock into securities including shares of Common Stock shall be
deemed to involve the issuance of such shares of Common Stock for a
consideration other than cash immediately after the opening of business on the
day following the record date for the determination of security holders entitled
to receive such shares, and the value of the consideration allocable to such
shares of Common Stock shall be determined as provided in subsection (ii) of
this Section 4. 1.
(v) The number of shares of Common Stock at any one time outstanding
shall include the aggregate number of shares issued or issuable (subject to
readjustment upon the actual issuance thereof) upon the exercise of then
outstanding options, rights, warrants and upon the conversion or exchange of
then outstanding convertible or exchangeable securities.
-4-
<PAGE>
(vi) No adjustment shall be made to the Unit Price
then in effect upon the exercise of any warrant or conversion of any Series A
Convertible Preferred Stock ("Preferred Stock") issued pursuant to the
Securities Purchase Agreement or Securities Conversion Agreement or the
conversion or exchange of convertible or exchangeable securities outstanding as
of the date of execution of the Securities Conversion Agreement.
4.2. Options, Rights, Warrants and Convertible and Exchangeable
----------------------------------------------------------
Securities. In case the Company shall at any time after the date hereof grant
- ----------
or issue options, rights or warrants to subscribe for shares of Common Stock, or
issue any securities convertible into or exchangeable for shares of Common
Stock, where the aggregate consideration per share is less than the Unit Price
in effect immediately prior to the issuance of such options, rights or warrants,
or such convertible or exchangeable securities, the Unit Price in effect
immediately prior to the issuance of such options, rights or warrants, or such
convertible or exchangeable securities, as the case may be, shall be reduced to
a price determined by making a computation in accordance with the provisions of
Section 4.1 hereof, provided that:
(a) The aggregate maximum number of shares of Common Stock,
as the case may be, issuable under such options, rights or warrants shall be
deemed to be issued and outstanding at the time such options, rights or warrants
were issued.
(b) The aggregate consideration for any such options,
rights or warrants shall be equal to the minimum purchase price per share
provided for in such options, rights or warrants at the time of issuance, plus
the consideration, if any, received by the Company for such options, rights or
warrants.
(c) The aggregate maximum number of shares of Common Stock
issuable upon conversion or exchange of any convertible or exchangeable
securities shall be deemed to be issued and outstanding at the time of issuance
of such securities.
(d) The aggregate consideration for any such convertible or
exchangeable securities shall be equal to the consideration received by the
Company for such securities, plus the total consideration, if any, receivable by
the Company upon the conversion or exchange thereof.
(e) If any change shall occur in the exercise price per
share provided for in any of such options, rights or warrants or in the price
per share at which such convertible or exchangeable securities are convertible
or exchangeable, such options, rights or warrants or convertible or exchangeable
securities, as the case may be, shall be deemed to have expired or terminated on
the date when such price change became effective in respect of shares not
theretofore issued pursuant to the exercise or conversion or exchange thereof,
and the Company shall be deemed to have issued upon such date new options,
rights or warrants or convertible or exchangeable securities at the new price in
respect of the number of shares
-5-
<PAGE>
issuable upon the exercise of such options, rights or warrants or the conversion
or exchange of such convertible or exchangeable securities.
(f) In case there has been any adjustment hereunder in the Unit Price
by reason of the offer, issue or sale of any subscription or purchase rights or
options or any convertible or exchangeable securities or obligations and the
purchase, conversion or exchange privilege so created thereafter terminates
unexercised or changes, such Unit Price shall as of the date of such termination
or change be adjusted to reflect such termination or change.
4.3 Subdivision and Combination. In case the Company shall at
---------------------------
any time subdivide or combine the outstanding shares of Common Stock, the Unit
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
4.4 Adjustment in Number of Securities. Upon each adjustment of
----------------------------------
the Unit Price pursuant to the provisions of this Section 4, the number of
Warrant Shares issuable on exercise of this Warrant shall be adjusted to the
nearest full amount by multiplying a number equal to the Unit Price in effect
immediately prior to such adjustment by the number of Warrant Shares issuable
upon exercise of this Warrant immediately prior to such adjustment and dividing
the product so obtained by the adjusted Unit Price.
4.5 Definition of Common Stock. For the purpose of this
--------------------------
Agreement, the term "Common Stock" shall mean (i) the class of stock designated
as Common Stock in the Certificate of Incorporation of the Company as may be
amended after the date hereof, or (ii) any other class of stock resulting from
successive changes or modifications of such Common Stock consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value.
4.6 Merger or Consolidation. In the event there is proposed any
-----------------------
consolidation of the Company with, or merger of the Company with or into,
another corporation, other than a merger or consolidation in which the Company
is the surviving corporation and after which at least fifty percent (50%) of the
outstanding voting securities of the Company are owned by the stockholders of
the Company immediately prior to such merger or consolidation, subject to its
obligations of confidentiality, the Company shall provide the Holder with not
less than 30 days' prior written notice of the proposed effective date of such
merger or consolidation (the "Effective Date"). The Holder shall be entitled to
exercise its Warrants at any time up to the third business day prior to the
Effective Date, and this Warrant shall, if not so exercised, terminate and be of
no further force and effect on the Effective Date (or such later date on which
the merger or consolidation becomes effective). Any such exercise by the Holder
may be conditioned upon and made subject to the consummation of the merger or
consolidation.
4.7 No Adjustment of Exercise Price in Certain Cases. No
------------------------------------------------
adjustment of the Exercise Price shall be made:
-6-
<PAGE>
(a) Upon the issuance or sale of this Warrant or the other warrants
pursuant to the Securities Purchase Agreement and the Securities Conversion
Agreement or the shares of Common Stock issuable upon the exercise of this
Warrant or such other warrants.
(b) Upon the issuance or conversion, sale of shares of Preferred Stock
or the issuance of warrants upon conversion of shares of Preferred stock or upon
the issuance of shares of Common Stock pursuant to exercise of such warrants.
(c) If the amount of said adjustment shall be less than two cents (2c)
per Warrant Share; provided, however, that in such case any adjustment that
would otherwise be required then to be made shall be carried forward and shall
be made at the time of and together with the next subsequent adjustment which,
together with any adjustment so carried forward, shall amount to at least two
cents (2c) per security issuable upon exercise of the Warrants.
4.8 Dividends and Other Distributions. In the event that the
---------------------------------
Company shall at any time prior to the exercise of this Warrant declare a
dividend (other than a dividend consisting solely of shares of Common Stock) or
otherwise distribute to its stockholders any assets, property, rights, evidence
of indebtedness, securities (other than shares of Common Stock), whether issued
by the Company or by another, or any other thing of value, the Holder of this
Warrant shall thereafter be entitled, in addition to the shares of Common Stock
or other securities and property receivable upon the exercise thereof, to
receive, upon the exercise of this Warrant, the same property, assets, rights,
evidences of indebtedness, securities or any other thing of value that they
would have been entitled to receive at the time of such dividend or distribution
if this Warrant had been exercised immediately prior to such dividend or
distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Section 4.8.
5 Exchange and Replacement of Warrant. Upon receipt by the Company
-----------------------------------
of evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Warrant, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu thereof.
6 Elimination of Fractional Interests. The Company shall not be
-----------------------------------
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of this Warrant, but instead shall pay cash in lieu of such
fractional interests to the Holder based on the Fair Market Value of the Common
Stock as determined in good faith by the Board of Directors of the Company. For
this purpose, the "Fair Market Value" of a share of Common Stock on any day
means: (a) if the principal market for the Common Stock is The New York Stock
Exchange,
-7-
<PAGE>
American Stock Exchange or any other national securities exchange or The Nasdaq
National Market, the closing sales price of the Common Stock on such day as
reported by such exchange or market, or on a consolidated tape reflecting
transactions on such exchange or market, or (b) if the principal market for the
Common Stock is not a national securities exchange or The Nasdaq National Market
and the Common Stock is quoted on the National Association of Securities Dealers
Automated Quotations System, the mean between the closing bid and the closing
asked prices for the Common Stock on such day as quoted on such System, or (c)
if the Common Stock is not quoted on the National Association of Securities
Dealers Automated Quotations System, the price therefor reported by the National
Quotation Bureau, Inc.; provided that if none of (a), (b) or (c) above is
applicable, or if no trades have been made or no quotes are available for such
day, the Fair Market Value of the Common Stock shall be determined, in good
faith, by the Board of Directors of the Company.
7 Reservation and Listing of Securities. 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 the exercise of this Warrant, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of this Warrant and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, nonassessable and not subject to
the preemptive rights of any stockholder.
8 Notices to Warrant Holder. Nothing contained in this Agreement
-------------------------
shall be construed as conferring upon the Holder the right to vote or to consent
or to receive notice as a stockholder in respect of any meetings of stockholders
for the election of directors or any other matter, or as having any rights
whatsoever as a stockholder of the Company. If, however, at any time prior to
the expiration of this Warrant and its exercise, any of the following events
shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock any
additional shares of capital stock of the Company or securities convertible into
or exchangeable for shares of capital stock of the Company or any option right
or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale, of all or
substantially all of its property, assets and business as an entirety shall be
proposed;
-8-
<PAGE>
then, in any one or more of said events, the Company shall give written notice
of such event at least fifteen (15) days prior to the date fixed as a record
date, or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
9 Notices. All notices, requests, consents and other
-------
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested in accordance with Section 5.8 of the Securities Conversion
Agreement.
10 Supplements and Amendments. The Company and the Holder may from
--------------------------
time to time supplement or amend this Warrant in writing in order to cure any
ambiguity, to correct or supplement any provision contained herein which may be
defective or inconsistent with any provision herein or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Holder may deem necessary or desirable.
11 Successors. All the covenants and provisions of this Warrant
----------
shall be binding upon and inure to the benefit of the Company, the Holder and
their respective successors and assigns hereunder.
12 Governing Law: Submission to Jurisdiction. This Warrant shall be
-----------------------------------------
governed by, and construed in accordance with, the laws of the State of
Delaware.
13 Entire Agreement. The Securities Purchase Agreement, the
----------------
Securities Conversion Agreement, this Warrant and the promissory note issued
contemporaneously with this Warrant pursuant to the Securities Conversion
Agreement, contain the entire understanding between the parties hereto and
supersede all prior agreements and understandings, written or oral, with respect
to the subject matter hereof and thereof.
14 Severability. If any provision of this Warrant shall be held to
------------
be invalid and unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Warrant.
15 Captions. The caption headings of the Sections of this Warrant
--------
are for convenience of reference only and are not intended, nor should they be
construed, as a part of this Warrant and shall be given no substantive effect.
-9-
<PAGE>
16 Benefits of this Agreement. Nothing in this Warrant shall be
--------------------------
construed to give to any person or corporation other than the Company and the
Holder of the Warrant or Warrant Shares any legal or equitable right, remedy or
claim under this Warrant; and this Warrant shall be for the sole and exclusive
benefit of the Company and the Holder.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
CARESIDE, INC.
By:_______________________________
Name: James Koch
Title:Chief Financial Officer
-10-
<PAGE>
FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant, to purchase shares of Common Stock.
In accordance with the terms of Section 2 of Warrant No. S.R.-2 dated
as of
______ __, 1999 issued by Careside, Inc. to S.R.One, Limited, the undersigned
requests that a certificate for such securities be registered in the name of
_____________________ whose address is ___________________________ and that such
Certificate be delivered to ____________________ whose address is
_____________________________________.
Dated:
Signature:____________________________
Print Name:___________________________
(Signature must conform in all respects to name of
Holder as specified on the face of the Warrant.)
(Insert Social Security or Other Identifying
Number of Holder)
-11-
<PAGE>
FORM OF ASSIGNMENT
(To be executed by the Holder if such Holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED __________________ here sells, assigns and
transfers unto _____________________________________________________________
(Please print name and address of transferee)
this Warrant, together with all right, title and interest therein, and does
hereby irrevocably constitute and appoint _______________ Attorney, to transfer
this Warrant on the books of Careside, Inc. with full power of substitution.
Dated:
Signature:________________________
Print Name:______________________
(Signature must conform in all respects
to name of holder as specified on the face
of the Warrant Certificate.)
_________________________________
(Insert Social Security or Other Identifying
Number of Holder)
-12-
<PAGE>
EXHIBIT 4.9
FORM OF
NEW NOTE
--------
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE. THIS NOTE MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM.
PROMISSORY NOTE
$2,000,000 Philadelphia, PA
as of December 17, 1999
FOR VALUE RECEIVED, CARESIDE, INC., a Delaware corporation with
offices at 6100 Bristol Parkway, Culver City, California 90230 ("Maker")
promises to pay to the order of S.R. One, Limited, a Pennsylvania Business
Trust, ("Payee"), or to such other person or at such other place as Payee may
designate from time to time in writing, the principal amount of Two Million
Dollars ($2,000,000) in lawful money of the United States of America, together
with such interest as may be payable as hereinafter provided. This Note is
issued pursuant to the Securities Purchase Agreement dated December 17, 1998
between Maker and Payee (the "Securities Purchase Agreement") and as modified by
the Securities Conversion Agreement, dated as of May ___, 1999, between Maker
and Payee (the "Securities Conversion Agreement"). This note represents the
remaining balance under those certain notes dated December 28, 1998 and January
__, 1999 each in the original principal amount of $1,500,000 (the "Original
Notes"). Simultaneously with the issuance of this Note, $1,000,000 of the
principal amount under the Original Notes, together with accrued interest
thereon, was converted into preferred stock of Maker (the "Conversion"). In
connection with the Conversion, Maker and Payee agreed to certain changes to the
terms of the Original Notes. The Original Notes having been surrendered and
canceled, this Note is being issued as an amendment and restatement of the
Original Notes insofar as they represent the portion of the principal and
interest thereunder not converted to preferred stock (the "Remaining Balance").
Interest on the Remaining Balance accrued but not paid prior to the date hereof
shall be due and owing pursuant to this Note.
1. Maturity. The principal amount outstanding under the Note will
--------
be due and payable at the earliest to occur of (i) the closing of a private
equity financing of at least $8,000,000, or (ii) December 17, 1999 ("Maturity").
<PAGE>
2. Interest Payments. Interest payable on the outstanding principal
-----------------
will be calculated at the rate of eight percent (8%) per annum from the date
hereof through and including June 30, 1999. Commencing July 1, 1999 interest
shall be calculated at the rate of ten percent (10%) per annum. In either case,
interest shall be payable in cash on a quarterly basis on the last business day
of each calendar quarter, or on Maturity if other than the last day of a
calendar quarter, commencing with the last business day of the calendar quarter
which includes the date hereof.
3. Optional Prepayment.
-------------------
(a) From and after the date hereof, provided demand for repayment has
not been made, Maker shall have the privilege at any time and from time to time
of prepaying this Note in whole or in part (each, a "Prepayment"), provided that
Maker sends a notice (each, a "Prepayment Notice") to Payee at least 15 days
prior to the date of such prepayment (each, a "Prepayment Date"). There shall
be no premium or penalty in connection with any Prepayment. Each Prepayment
shall be applied first against accrued interest, if any, and then against
principal outstanding in the inverse order of the maturity of the installments
thereof. Each Prepayment Notice shall set forth the Prepayment Date and the
amount of the Prepayment, specifying the amount thereof being applied against
accrued interest and the amount thereof being applied against principal.
4. Conversion. All of any portion of the remaining principal, plus
----------
accrued interest thereon, shall be convertible at the option of Payee,
exercisable after December 1, 1999, into shares of Series A Convertible
Preferred Stock determined on the same basis as the terms set forth in the
Securities Conversion Agreement.
5. Security. The indebtedness outstanding under this Note will
--------
be unsecured. Maker covenants that it will not create, incur, assume or permit
any mortgage, pledge, lien, security interest or other preferential arrangement,
charge or encumbrance of any nature upon or with respect to the assets of the
Maker except for mortgages, pledges, liens, security interests or other
preferential arrangements, charges or encumbrances on the assets of the Maker
incurred, assumed or permitted pursuant to any lease financing for up to
$3,000,000 undertaken by the Maker.
6. Seniority. The indebtedness outstanding under this Note will be
---------
considered senior debt and will not be subordinated to any other indebtedness of
the Maker except insofar as Maker has granted security to Finova Technology
Finance, Inc. in connection with equipment lease financing obtained from such
lender.
7. Events of Default. The occurrence of one or more of the
-----------------
following events (after the expiration of any stated notice or cure period)
shall constitute an event of default ("Event of Default") hereunder:
-2-
<PAGE>
(a) Maker shall fail to make any payment due to Payee under this Note
within ten (10) days after the same shall become due and payable, whether at
Maturity, by acceleration or otherwise;
(b) If Maker becomes insolvent, bankrupt or generally fails to pay its
debts as such debts become due; is adjudicated insolvent or bankrupt; admits in
writing its inability to pay its debts; or shall suffer a custodian, receiver or
trustee for it or substantially all of its property to be appointed and if
appointed without its consent, not be discharged within ninety (90) days; makes
an assignment for the benefit of creditors; or suffers proceedings under any law
related to bankruptcy, insolvency, liquidation or the reorganization,
readjustment or the release of debtors to be instituted against it, and if
contested by it, not dismissed or stayed within ninety (90) days; if proceedings
under any law related to bankruptcy, insolvency, liquidation, or the
reorganization, readjustment or the release of debtors is instituted or
commenced by Maker; if any order for relief is entered relating to any of the
foregoing proceedings; if Maker shall call a meeting of its creditors with a
view to arranging a composition or adjustment of its debts; or if Maker shall by
any act or failure to act indicate its consent to, approval of or acquiescence
in any of the foregoing;
(c) Maker fails to perform in accordance with any other terms or
conditions in this Note, Securities Purchase Agreement or the Securities
Conversion Agreement between Maker and Payee and Maker has failed to cure the
same within thirty (30) days following its receipt of written notice of said
Event of Default hereunder or of a default thereunder;
(d) Maker sells or otherwise transfers substantially all of its
assets, discontinues its business, voluntarily or involuntarily dissolves, or
more than fifty percent (50%) of the voting power of the equity of Maker is
transferred to a single acquirer or group of acquirers acting in concert in a
single transaction or series of related transactions.
8. Remedies. Upon the occurrence of any Event of Default, at the
--------
option of Payee:
(a) the entire unpaid principal sum outstanding hereunder plus any and
all interest accrued thereon plus all other sums due and payable to Payee
hereunder shall become immediately due and payable; and
(b) Payee may exercise any and all other rights and remedies at
law or in equity.
9. Remedies Cumulative, etc.
-------------------------
(a) No right or remedy conferred upon or reserved to Payee hereunder
or now or hereafter existing at law or in equity is intended to be exclusive of
any other right or
-3-
<PAGE>
remedy, and each and every such right or remedy shall be cumulative and
concurrent, and in addition to every other such right or remedy, and may be
pursued singly, concurrently, successively or otherwise, at the sole discretion
of Payee, and shall not be exhausted by any one exercise thereof but may be
exercised as often as occasion therefor shall occur.
(b) Maker agrees that any action or proceeding against it to enforce
this Note may be commenced in state or federal court in any county in the State
of Delaware.
10. No Setoff. Maker shall not be permitted to set off any
---------
obligation owed to Payee hereunder against any obligations owed by Payee to
Maker, if any, unless such obligation setting off payments hereunder has been
finally determined to be owed to Maker and such determination is not appealable
by Payee.
11. Costs and Expenses. Following the occurrence of any Event of
------------------
Default, Maker shall pay upon demand all costs and expenses (including all
attorneys' fees and expenses) incurred by Payee in the exercise of any of its
rights, remedies or powers to enforce this Note and any amount thereof not paid
promptly following demand therefor shall be added to the principal sum hereunder
and shall bear interest as set forth in Section 2 hereof, from the date of such
demand until paid in full.
12. Notices. All notices required to be given to any of the parties
-------
hereunder shall be in writing and shall be deemed to have been sufficiently
given for all purposes when presented personally to such party or sent by
certified or registered mail, return receipt requested, to such party at its
address set forth below:
If to Maker: CARESIDE, INC.
----------- 6100 Bristol Parkway
Culver City, CA 90230
Attn: President and
Chief Executive Officer
Facsimile No.: 310-338-6789
With a copy to: Pepper Hamilton LLP
-------------- 3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103
Attn: Julia D. Corelli, Esq.
-4-
<PAGE>
If to Payee: S.R. One, Limited
----------- 4 Towers Bridge
200 Barr Harbor Drive
Suite 250
West Conshohocken, PA 19428
Attn: Ms. Brenda Gavin
Facsimile No.: ____________
Such notice shall be deemed to be given when received if delivered
personally or three (3) business days after the date mailed to a recipient in
the same country as the sender, or seven (7) business days to any other
recipient. Any notice mailed shall be sent by certified or registered mail.
Any notice of any change in such address shall also be given in the manner set
forth above. Whenever the giving of notice is required, the giving of such
notice may be waived in writing by the party entitled to receive such notice.
13. Severability. In the event that any provision of this Note is
------------
held to be invalid, illegal or unenforceable in any respect or to any extent,
such provision shall nevertheless remain valid, legal and enforceable in all
such other respects and to such extent as may be permissible. Any such
invalidity, illegality or unenforceability shall not affect any other provisions
of this Note, but this Note shall be construed as if such invalid, illegal or
unenforceable provision had never been contained herein.
14. Successors and Assigns. This Note inures to the benefit of Payee
----------------------
and binds Maker, and its respective successors and assigns, and the words
"Payee" and "Maker" whenever occurring herein shall be deemed and construed to
include such respective successors and assigns.
15. Entire Agreement. This Note embodies the entire understanding and
----------------
agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersedes all prior agreements, understandings
and inducements, whether express or implied, oral and written.
16. Modification of Agreement. This Note may not be modified, altered
-------------------------
or amended, except by an agreement in writing signed by both Maker and Payee.
17. No Presentment, Etc. Maker hereby waives presentment, demand,
-------------------
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance, Event of Default or enforcement of this Note.
18. No Waiver. Payee shall not, by any act, delay, omission or
---------
otherwise, be deemed to have waived any of its rights or remedies hereunder,
unless such waiver shall be in writing and signed by Payee. A waiver on any one
occasion shall not be construed as a bar to or waiver of any such right or
remedy on any future occasion.
-5-
<PAGE>
19. Governing Law. This Note shall be governed by and construed in
-------------
accordance with the laws of the State of Delaware.
IN WITNESS WHEREOF, Maker has duly executed this Promissory Note the
day and year first above written.
CARESIDE, INC.
By:_________________________________
Name:
Title:
-6-
<PAGE>
EXHIBIT 5.1
[Letterhead of Pepper Hamilton]
May 26, 1999
Careside, Inc.
6100 Bristol Boulevard
Culver City, CA 90230
Re: Registration Statement on Form S-1 (Registration No. 333-69207)
---------------------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Careside, Inc., a Delaware corporation
(the "Company"), in connection with the registration under the Securities Act of
1933, as amended (the "Act"), of a public offering (the "Offering") of up to (i)
2,500,000 shares (the "Primary Shares") of the Company's common stock, $.01 par
value per share (the "Common Stock"), included in units (the "Primary Units"),
each unit consisting of one share of Common Stock and one redeemable warrant to
purchase one share of Common Stock, (ii) 375,000 shares (the "Over-Allotment
Shares") of Common Stock included in units (the "Over-Allotment Units") subject
to an option which may be exercised by the underwriters of the Offering to cover
over-allotments, (iii) 250,000 shares (the "Representatives' Shares") of Common
Stock included in units (the "Representatives' Units") issuable upon exercise of
a warrant to be granted to representatives of the underwriters in connection
with the Offering and (iv) 3,125,000 shares of Common Stock issuable upon
exercise of warrants included in the Primary Units, the Over-Allotment Units and
the Representatives' Units (collectively with the Primary Shares, the Over-
Allotment Shares and the Representatives' Shares, the "Shares").
The opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Act.
<PAGE>
Careside, Inc.
Page 2
May 26, 1999
We have examined originals or copies, certified or otherwise
identified to our satisfaction, of the following documents:
(i) the Registration Statement on Form S-1 originally filed under
the Act with the Securities and Exchange Commission (the
"Commission") on December 18, 1998, together with the following
Amendments thereto:
. No. 1 (filed with the Commission on February 1, 1999),
. No. 2 (filed with the Commission on February 10, 1999),
. No. 3 (filed with the Commission on February 18, 1999),
. No. 4 (filed with the Commission on March 5, 1999),
. No. 5 (filed with the Commission on March 16, 1999),
. No. 6 (filed with the Commission on March 19, 1999),
. No. 7 (filed with the Commission on May 5, 1999), and
. No. 8 (filed with the Commission on May 26, 1999)
(as so amended, the "Registration Statement");
(ii) the form of Underwriting Agreement, filed as Exhibit 1.1 to the
Registration Statement (the "Underwriting Agreement"), to be
entered into among the Company, Paulson Investment Company, Inc.
("Paulson"), Millennium Financial Group, Inc. and marion bass
securities corporation (the "Underwriters");
(iii) the form of Warrant Agreement, filed as Exhibit 4.6 to the
Registration Statement, to be entered into between Paulson, on
behalf of the representatives of the underwriters, and the
Company (the "Representatives' Warrant");
(iv) the form of Warrant Agreement, filed as Exhibit 4.7 of the
Registration Statement, to be entered into between the Company
and American Stock Transfer & Trust Company, as Warrant Agent
(the "Warrant Agreement");
(v) the Company's Amended and Restated Certificate of Incorporation
and Amended and Restated By-Laws, as in effect on the date
hereof;
(vi) the forms of the Company's Certificate of Amendment of the
Certificate of Incorporation, the Company's Amended and Restated
Certificate of Incorporation, the Company's Certificate of
Designations with respect to
<PAGE>
Careside, Inc.
Page 3
May 26, 1999
the Company's Series A Convertible Preferred Stock (the
"Certificate of Designations") filed as Exhibits 3.1b, 3.1c, and
3.1d, respectively, to the Registration Statement, each to
become effective prior to the completion of the Offering;
(vii) the Company's Amended and Restated By-Laws filed as Exhibit 3.2b
to the Registration Statement;
(viii) certain resolutions of the Board of Directors of the Company
(the "Board") relating to, among other things, the issuance of
the Units; and
(ix) such other documents as we have deemed necessary or appropriate
as a basis for the opinions set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such latter documents. As to any facts material to the opinions
expressed herein which were not independently established or verified, we have
relied upon statements and representations of officers and other representatives
of the Company and others. In addition, we have assumed (a) that prior to the
completion of the Offering, the Certificate of Amendment of the Certificate of
Incorporation in the form filed as Exhibit 3.1b to the Registration Statement,
the Amended and Restated Certificate of Incorporation in the form filed as
Exhibit 3.1c to the Registration Statement and Certificate of Designations in
the form filed as Exhibit 3.1d to the Registration Statement, are filed with the
Secretary of State of the State of Delaware and (b) the due execution and
delivery of the certificates representing the Units.
We express no opinion as to the laws of any jurisdiction other than the
General Corporation Law of the State of Delaware, including the General
Corporation Law of the State of Delaware and all other relevant Delaware
statutes, and their underlying rules and regulations, and judicial and
regulatory determinations and interpretations thereof.
Based upon and subject to the foregoing, we are of the opinion that when
(i) the Board or the Pricing Committee of the Board authorizes the price per
Unit, (ii) the duly appointed officers of the Company execute and deliver the
Underwriting Agreement, the Representatives' Warrant and the Warrant Agreement,
and (iii) the Shares are issued and delivered against payment therefor in
accordance with the terms of the Underwriting Agreement, the Representatives'
Warrant or the Warrant, as the case may be, the Shares will be duly authorized,
legally issued, fully paid and nonassessable.
<PAGE>
Careside, Inc.
Page 4
May 26, 1999
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to this firm under the caption
"Legal Experts" in the prospectus filed as part of the Registration Statement.
In giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the Rules and
Regulations promulgated thereunder.
This opinion is furnished by us, as your counsel, in connection with the
filing of the Registration Statement.
Very truly yours,
/s/ Pepper Hamilton LLP
Pepper Hamilton LLP
<PAGE>
EXHIBIT 10.16
SUPPLY AGREEMENT
THIS AGREEMENT made and entered into this 13th day of April, 1999 by
and between Fuji Photo Film Co., Ltd., a corporation organized and existing
under the laws of Japan and having its principal office at 26-30, Nishiazabu 2-
chome, Minato-ku, Tokyo, Japan (hereinafter referred to as "FUJI") and CARESIDE,
Inc., a corporation organized and existing under the laws of the State of
Delaware and having its principal office at 6100 Bristol Parking, Culver City,
90230 California, the United States of America (hereinafter referred to as
"CARESIDE"),
WITNESSETH THAT:
WHEREAS, FUJI has been engaged in, among other business, the
manufacturing and marketing of DRI-CHEM films, and owns proprietary technology
and know-how relating thereto;
WHEREAS, CARESIDE has been engaged in developing for commercial sale a
human diagnostic testing so-called Point of Care Testing system and owns
proprietary technology and know-how relating thereto;
WHEREAS, FUJI and Exigent Diagnostics, Inc., the predecessor of
CARESIDE, entered into the Agreement on August 23, 1996 concerning the supply of
FUJI's DRI-CHEM films, film-based chemistry tests and immunodiagnostic tests and
exchange of various technology for the development of CARESIDE POCT System (as
defined below) (hereinafter referred to as "Development Agreement"), and
CARESIDE has been developing test cartridge of CARESIDE POCT System
incorporating the DRI-CHEM films; and
WHEREAS, CARESIDE is desirous of purchasing from FUJI the DRI-CHEM
films for the commercial manufacturing and marketing of such test cartridge, and
FUJI is willing
<PAGE>
to supply CARESIDE with the DRI-CHEM films for such purpose subject to the terms
and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, both parties agree as follows:
ARTICLE 1
DEFINITION
----------
For the purpose of this Agreement, the following terms have the
following meanings respectively:
1.1 The term "POCT" (Point of Care Testing) shall mean a human or
animal diagnostic testing performed anywhere, excluding any diagnostics testing
performed at a central fixed laboratory within hospitals, other health care
facilities or commercial laboratories.
1.2 The term "FDC Film" shall mean films used in FUJI's DRI-CHEM
system applicable to the tests listed in Schedule A.
1.3 The term "CARESIDE POCT System" shall mean collectively a system
and products thereof developed by or for CARESIDE for POCT, including but not
limited to chemistry, immunochemistry and coagulation, and optionally,
hematology tests (initially in a separate device), test cartridge for, among
other things, separating blood and metering samples, analyzer(s) for the said
tests including data management components and software in the analyzer.
1.4 The term "CARESIDE POCT Cartridge" shall mean a test cartridge
used in CARESIDE POCT System incorporating FDC Film supplied by FUJI.
-2-
<PAGE>
1.5 The term "CARESIDE Materials" shall mean the immunodiagnostic and
coagulation testing reagents, which utilize any of the technology CARESIDE has
developed, or develops or acquires in the future, including but not limited to
technology as to tests in Hemoglobin Alc, Digoxin and HCG.
1.6 The term "Competing Instruments" shall mean diagnostic
instruments and the disposables they use, which instruments and disposables are
designed for use in POCT and which directly compete with CARESIDE POCT System.
1.7 The term "FUJI Technology" shall mean FUJI's technology relating
to FDC Film which is limited to the specifications of FDC Film, its quality
assurance and other information listed in Schedule B attached hereto as amended
from time to time by agreement between the parties.
1.8 The term "FUJI's Affiliates" shall mean any and all companies,
corporations or other entities in which FUJI owns or controls directly or
indirectly a substantial portion of the nominal value or number of units of the
outstanding stocks with the right to vote at general meeting, to elect a
majority of the board of directors thereof, or to appoint or remove the
management thereof.
ARTICLE 2
SUPPLY OF FDC FILM
------------------
2.1 FUJI shall supply CARESIDE with and CARESIDE shall purchase from
FUJI FDC Film for use in the manufacturing and marketing of CARESIDE POCT
Cartridge.
-3-
<PAGE>
2.2 FUJI shall supply FUJI Technology to CARESIDE, and CARESIDE may
use FUJI Technology only for the purpose of the manufacturing and marketing of
CARESIDE POCT Cartridge, and shall not use it for any other purpose.
2.3 During the term of this Agreement, including the term extended
according to Article 13.2 hereof, FUJI shall supply CARESIDE exclusively with
FDC Film for the purpose of use for CARESIDE POCT system; provided that such
exclusive supply shall be changed to non-exclusive supply if CARESIDE fails to
obtain approvals from the Food and Drug Administration ("FDA") which should be
necessary for the marketing of CARESIDE POCT System using FDC Film in the United
States of America to professional market in accordance with the following
requirements:
The tests itemized in Schedule A-1, 2 and 3 ((1) to (10)):
Thirty-one (31) or more of the tests approved by December 31, 1999
The tests itemized in Schedule A-3 ((1) to (15)):
Ten (10) or more of the tests approved by December 31, 2000
2.4 In case of a non-exclusive supply as stipulated in Article 2.3,
FUJI and CARESIDE shall discuss and agree upon the terms and conditions that
shall apply to such non-exclusive supply.
2.5 During the period of the exclusive supply of FDC Film as provided
in Article 2.3, FUJI shall not supply FDC Film to any third party which the both
parties hereto agree may develop and sell Competing Instruments; provided that
FUJI may supply FDC Film to any third party:
-4-
<PAGE>
(i) in the form of slide for use on an instrument manufactured by
FUJI; and
(ii) in the form of slide for use on an instrument manufactured
by any other party than FUJI which can measure up to ten (10) FDC test menu.
2.6 CARESIDE shall use FDC Film supplied by FUJI hereunder only for
the manufacturing and marketing of CARESIDE POCT System and shall not supply FDC
Film to or for use by any third party for any purpose.
2.7 CARESIDE agrees that it shall use only FDC Film in CARESIDE POCT
System for those tests listed in Schedule A. CARESIDE shall not be supplied by
any third party with any chemistry reagents for the manufacturing of CARESIDE
POCT System or performance of the tests listed in Schedule A, so long as FUJI
continues to supply CARESIDE exclusively with FDC Film in accordance with the
terms and conditions set forth in this Agreement. For CARESIDE POCT System's
tests other than those listed in Schedule A, CARESIDE may manufacture or
purchase from others its needs for reagents or technologies for carrying out
those tests.
2.8 Nothing in this Article shall be construed to prohibit or
otherwise affect:
(i) FUJI's development for or distribution to any third party of
FDC Film for use with any products other than Competing Instruments, or
(ii) the development, manufacture or distribution by or for FUJI
or FUJI's Affiliates of any product or service which competes with CARESIDE POCT
System, whether or not such product or service uses FDC Film. FUJI and CARESIDE
further confirms that FUJI DRI-CHEM systems and their disposables shall in no
event be construed as Competing
-5-
<PAGE>
Instruments and that FUJI shall in no way be restricted to market FUJI DRI-CHEM
Systems and their disposables.
ARTICLE 3
PURCHASE PROCEDURE
------------------
3.1 CARESIDE shall submit to FUJI annual purchase plan, semi-annual
revised purchase plan and quarterly revised purchase plan in accordance with the
procedure detailed in Schedule C attached hereto.
3.2 CARESIDE shall submit to FUJI a firm purchase order of FDC Film
in an agreed form by 1st day of the month two month preceding the desired date
of shipment, and FUJI, so long as such purchase order has been made in
accordance with the procedure detailed in Schedule C, shall issue its acceptance
in writing to CARESIDE within ten (10) days of the receipt of the purchase
order. If the purchase order is not acceptable to FUJI, then both parties shall
discuss a solution in good faith to reach an agreement by the twentieth (20th)
day after the receipt of the purchase order by FUJI.
3.3 Each individual purchase contract for FDC Film hereunder
(hereinafter referred to as "Individual Contract") shall become effective and
binding only when CARESIDE's firm purchase order is accepted by FUJI in writing.
ARTICLE 4
PURCHASE PRICE
--------------
The purchase prices of FDC Film shall be as listed in Schedule D,
which are indicated on the basis of CIF Los Angeles Airport.
-6-
<PAGE>
ARTICLE 5
SHIPMENT
--------
It is expressly agreed that no estimate of delivery time made by FUJI
will constitute a guaranty of delivery or deliveries by such dates, that all
shipping and delivery dates will be approximate, and the FUJI will not be liable
for any damages, consequential or otherwise, for delays in delivery, except to
the extent of FUJI's own gross negligence or willful misconduct.
ARTICLE 6
SPECIFICATIONS
--------------
The specifications of FDC Films shall be as detailed in Schedule E.
ARTICLE 7
INSPECTION
----------
7.1 FUJI shall, prior to the shipment, inspect FDC Film in accordance
with the Inspection Manual attached hereto at Schedule F.
7.2 Upon the receipt of FDC Film supplied by FUJI, CARESIDE shall
complete the inspection of FDC Film within ten (10) days of the receipt thereof,
in accordance with the Inspection Manual attached hereto as Schedule F. Such
inspection by CARESIDE shall be considered as final.
7.3 In the event that during CARESIDE's inspection stipulated in
Article 7.2 above any FDC Film supplied by FUJI to CARESIDE hereunder is found
to have a defect which CARESIDE believes is attributable to FUJI and caused
before shipment thereof, CARESIDE shall, within ten (10) days of the receipt
thereof, so notify FUJI and return to FUJI, with a written statement explaining
the nature of the defect, the defective FDC Film, and FUJI shall inspect the
-7-
<PAGE>
same to determine the cause of the defect. If FUJI determines that the defect
should be attributed to it, FUJI shall replace such defective FDC Film with non-
defective FDC Film without cost to CARESIDE. It is agreed that in such case
CARESIDE shall bear the cost of returning to FUJI the defective FDC Film, and
that FUJI shall reimburse CARESIDE for such cost by means of crediting the
amount against the next FUJI's invoice if the defect is determined by FUJI to be
attributed to it. It is expressly agreed and understood that for such defective
FDC Film FUJI shall assume no other or further liability of any kind whatsoever
other than that expressly undertaken by it in this Article 7.3.
ARTICLE 8
PAYMENT
-------
Except as otherwise agreed upon by and between the parties hereto, all
payments for FDC Film supplied to CARESIDE by FUJI hereunder shall be made in
Japanese Yen, and shall be remitted, within forty-five (45) days of the custom
clearance of FDC Film, by bank-to-bank telegraphic transfer to FUJI's account
with such bank in Tokyo as designated by FUJI.
ARTICLE 9
CONFIDENTIALITY
---------------
9.1 Each party shall hold in confidence this Agreement and any and
all proprietary technical and business information furnished or disclosed by the
other party hereunder, and shall not use such information for any other purpose
than that provided herein.
9.2 The confidentiality obligation provided in Article 9.1 shall not
apply to any information that:
-8-
<PAGE>
(i) is known to the public or generally available to the public
prior to the receipt thereof;
(ii) is known to the receiving party prior to the receipt
thereof;
(iii) becomes known to the public or generally available to the
public after the receipt thereof through no fault of the receiving party;
(iv) the receiving party obtains without restriction on
disclosure from a third party having a bona fide right to disclose such
information; or
(v) must be disclosed by law or regulation in order to obtain
approval to sell CARESIDE POCT System, or otherwise required to be disclosed by
law, regulation or court order.
9.3 Notwithstanding the foregoing provisions of this Article 9, the
existence of this Agreement and a summary of its terms may be disclosed by
CARESIDE to its investors, in connection with the public offering of CARESIDE's
common stock, or to federal and state regulators regulating the public or
private offer or sale of securities, in each case to the extent required by law
(which shall be determined by CARESIDE in consultation with its legal advisors)
or such regulators; provided CARESIDE shall consult with FUJI and obtain FUJI's
prior approval upon such disclosure, which approval FUJI shall not unreasonably
withhold.
ARTICLE 10
REGULATORY APPROVALS
--------------------
10.1 FUJI shall comply with FDA's Good Manufacturing Practice in
manufacturing and supplying FDC Film to CARESIDE hereunder.
-9-
<PAGE>
10.2 If FUJI is granted an exclusive right to distribute CARESIDE
POCT System in certain countries, FUJI shall obtain all regulatory approvals
required for marketing CARESIDE POCT System in such countries.
10.3 CARESIDE shall obtain all regulatory approvals required for
marketing CARESIDE POCT System in any country that it will market, excluding the
countries for which FUJI has been granted an exclusive right to distribute
CARESIDE POCT System.
ARTICLE 11
INDEMNIFICATION
---------------
11.1 FUJI shall indemnify and hold CARESIDE harmless from and against
any damages and costs incurred by CARESIDE which arises out of any claim or
legal action threatened or taken by any third party alleging that CARESIDE's use
and/or sales of FDC Film supplied by FUJI under this Agreement constitutes an
infringement of any intellectual property right of such third party, provided
that CARESIDE shall promptly notify FUJI of such claim or legal action in
writing, give FUJI sole control and authority with respect to the defense or
settlement of any such claim or legal action, and give FUJI reasonable
assistance with respect to the defense or settlement of any such claim or legal
action. FUJI shall have the right, with respect to any FDC Film supplied to
CARESIDE under this Agreement which becomes or is likely to become the subject
of such claim or legal action, to replace or modify such FDC Film, or in case
injunction is granted by court or FTC to withhold further shipment of such FDC
Film.
11.2 The provision of Article 11.1 shall not apply in case where the
infringement exists as a result of:
-10-
<PAGE>
(i) any combination of FDC Film with other material(s), part(s)
or product(s) which is not supplied by FUJI;
(ii) any use of FDC Film which is not intended by FUJI;
(iii) any modification of FDC Film made by any third party other
than FUJI; or
(iv) CARESIDE's breach of this Agreement, or negligence of
CARESIDE, its employee or agent.
11.3 Notwithstanding the provision of Article 11.1, FUJI shall in no
event be liable to CARESIDE hereunder for:
(i) consequential or incidental damages; or
(ii) labor costs or lost profits.
11.4 CARESIDE shall indemnify and hold FUJI harmless from and against
any damages and costs incurred by FUJI which arises out of any claim or legal
action threatened or taken by any third party alleging that any use and/or sales
of CARESIDE Materials manufactured by CARESIDE constitutes an infringement of
any intellectual property right of such third party, provided that FUJI shall
promptly notify CARESIDE of such claim or legal action in writing, give CARESIDE
sole control and authority with respect to the defense or settlement of any such
claim or legal action, and give CARESIDE reasonable assistance with respect to
the defense or settlement of any such claim or legal action. CARESIDE shall
have the right, with respect to any CARESIDE Materials supplied by CARESIDE
which becomes or is likely to become the subject of such claim or legal action,
to replace or modify such CARESIDE Materials, or in case
-11-
<PAGE>
injunction is granted by court or FTC to withhold further shipment of such
CARESIDE Materials.
11.5 The provision of Article 11.4 shall not apply in case where the
infringement exists as a result of:
(i) any combination of CARESIDE Materials with other material(s),
part(s) or product(s) which is not supplied by CARESIDE;
(ii) any use of CARESIDE Materials which is not intended by
CARESIDE ;
(iii) any modification of CARESIDE Materials made by any third
party other than CARESIDE; or
(iv) FUJI's breach of this Agreement, or negligence of FUJI, its
employee or agent.
11.6 Notwithstanding the provision of Article 11.4, CARESIDE shall in
no event be liable to FUJI hereunder for:
(i) consequential or incidental damages; or
(ii) labor costs or lost profits.
ARTICLE 12
LIMITATION OF LIABILITY
-----------------------
Except as provided for in Article 7.3 and limited by Article 11, FUJI
makes NO REPRESENTATION OR WARRANTY OF ANY KIND, WHETHER EXPRESS, STATUTORY, OR
IMPLIED REGARDING FDC FILM INCLUDING, BUT NOT LIMITED
-12-
<PAGE>
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
ARTICLE 13
TERM
----
13.1. This Agreement shall come into effect on the date first above
set forth and continue in full force and effect until December 31, 2003.
13.2. Notwithstanding the provision of Article 13.1 hereof, the term
of this Agreement may be extended for additional term(s) of one (1) year each if
the parties hereto reach the agreement upon such extension through the
discussion in good faith, which discussion shall occur in the last six (6)
months of the then current term, and in which discussion the parties shall
consider primarily the actual purchase volume of FDC Film by CARESIDE during the
current year.
ARTICLE 14
TERMINATION
-----------
14.1. In the event the FUJI decides to discontinue manufacturing FDC
Film, FUJI may terminate this Agreement by giving a written one (1) year notice
to CARESIDE, provided that to protect the welfare of the customers of CARESIDE
POCT Systems sold by CARESIDE before such termination, FUJI shall consult with
CARESIDE and establish the necessary measures to be taken, to ensure that
CARESIDE has continued access to FDC Film and FUJI Technology before such
termination.
14.2. In the event that either party is adjudicated bankrupt or
insolvent, or enters into an agreement for the benefit of creditors, or in the
event that a petition in bankruptcy or for
-13-
<PAGE>
corporate reorganization or for any similar relief shall be filled by or against
either party hereto or receiver is appointed with respect to any of the assets
of either party, or if all or a significant part of the assets or either party
are transferred to a third party, then the other party hereto may immediately
terminate this Agreement by giving such party a written notice to that effect.
14.3 In the event that there arises a material change in
directorship, control or ownership of either party or material change in or
discontinuation of production of FDC Film which would adversely affect the
transaction hereunder between the parties hereto, including as regards an
acquisition of a party by either (i) a competitor of the other party whose
resulting access to the trade secrets, confidential information, know-how or
intellectual property rights of the acquired party would result in a loss of
competitive advantage, or (ii) a competitor that sells competing dry film
technology for chemistry tests, the other party may, at its sole discretion,
immediately terminate this Agreement by giving such party a written notice to
such party.
14.4 In the event that either party breaches or fails to perform any
of the material obligations, terms or conditions of this Agreement or an
Individual Contract and fails to cure such breach or default within thirty (30)
days after its receipt from the other party of written notice specifying the
nature of such breach or default, the other party may, without prejudice to any
other remedies available to it hereunder or under law or otherwise, terminate
this Agreement effective immediately by giving the defaulting party written
notice to that effect.
14.5 Termination of this Agreement shall not affect or diminish in
any way either party's rights, duties or obligations under any other agreements
between the parties, nor shall the breach or cancellation of any other
agreements between the parties affect or diminish in any way either party's
rights, duties or obligations under this Agreement.
-14-
<PAGE>
ARTICLE 15
FORCE MAJEURE
-------------
Neither party hereto shall in any way be held liable to the other
party for any loss or damage sustained by the other party due to any failure or
delay on its part in performance of this Agreement caused by force majeure, such
as but not limited to strikes, lock-outs, sabotage, fires, explosions, floods,
elements, acts of God, wars, hostilities, civil commotions, riots, acts,
regulations or orders of any governmental agency or authority, epidemics, and
any other circumstances, whether similar or dissimilar to any of the foregoing,
beyond the reasonable control of the first party.
ARTICLE 16
GENERAL PROVISIONS
------------------
16.1 If any provision of this Agreement is held to be ineffective,
unenforceable or illegal for any reason by court or any other governmental
authority, such decision shall not affect the validity or enforceability or any
or all of the remaining portions hereof.
16.2 This Agreement constitutes the entire agreement between the
parties as to the subject matter hereof, and supersedes and replaces all prior
or contemporaneous agreement, written or oral, regarding the subject matter.
16.3 No amendment or modification of this Agreement shall be valid
unless set forth in a writing stating that it is such an amendment or
modification and signed by an authorized representative of each of the parties
hereto.
16.4 This Agreement shall inure to the benefit of and be binding upon
any successors or assigns of either party hereto; however either party may
transfer or assign this
-15-
<PAGE>
Agreement or any of its rights or obligations hereunder without the prior
written consent of the other party.
16.5 Any and all disputes, controversies or differences arising
between the parties hereto out of or in relation to this Agreement or for any
breach thereof which cannot be amicably settled between the parties hereto shall
be finally settled by arbitration to be conducted in Tokyo, Japan in accordance
with the Rules of Conciliation and Arbitration of the International Chamber of
Commerce. Any award of the arbitration shall be final and conclusive and
binding upon the parties hereto.
16.6 This Agreement and its validity, performance and interpretation
shall be governed by the laws of Japan.
16.7 Any notice required or permitted by either party hereunder shall
be made in writing and shall be delivered in person, sent by registered mail or
sent by facsimile with confirmation by registered mail within ten (10) days to
the respective party as follows:
If to FUJI:
Fuji Photo Film Co., Ltd.
Asaka Research Laboratory
11-46, Senzui 3-chome
Asaka-shi, Saitama 351-0024, Japan
Attention: Motohiko Tsubota (General Manager of Asaka
Research Laboratory)
Fax number: 81-468-468-2307
-16-
<PAGE>
If to CARESIDE:
CARESIDE, Inc.
6100 Bristol Parking
Culver City, 90230 California,
USA
Attention: W.V. Stoughton
Fax number: 310-338-6989
ARTICLE 17
SURVIVING PROVISIONS
--------------------
The provisions of Articles 7.3, 9, 10, 11, 12, 14.4, 14.5, 16.4, 16.5,
16.6, and 16.7 shall survive expiration or any termination of this Agreement.
Also, rights of credit or obligations of debt between the parties hereto shall
not be affected by expiration or any termination of this Agreement and shall
remain in full force until such accounts are settled.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
Fuji Photo Film, Co., Ltd. CARESIDE, Inc.
/s/ Motohiko Tsubota /s/ W.Vickery Stoughton
- --------------------- -----------------------
Motohiko Tsubota W. Vickery Stoughton
General Manager of Asaka Research Chairman & CEO
Laboratory
-17-
<PAGE>
Schedule A The tests to which FDC Film is applicable
1. The tests to which FDC Colorimetric Film is applicable
a. Total Bilirubin
b. Hemoglobin
c. Uric Acid
d. Ammonia
e. AST
f. GGT
g. LDH
h. ALT
i. LAP
j. Amylase
k. Alkaline Phosphatase
l. Creatine Kinase
m. Total Calcium
n. Triglycerides
o. Cholesterol
p. HDL Cholesterol
q. Glucose
r. Total Protein
s. Albumin
t. Creatinine
u. Urea Nitrogen
v. Inorganic Phosphorus
w. Magnesium
x. DBIL
y. CKMB
2. The tests to which FDC Electrolyte Slide is applicable
a. Sodium
b. Potassium
c. Chloride
3. CARESIDE POCT System tests other than the above
a. Theophylline
b. Digoxin
c. Phenytoin
d. Phenobarbital
e. T4
f. Thyroid Uptake
g. PT
-1-
<PAGE>
h. APTT
i. Valpronic acid
j. Carbamazepyn
k. HCG
l. Troponin
m. Myoglobin
n. PSA
o. Hemoglobin Alc
-2-
<PAGE>
Schedule B FUJI Technology
1. Quality control system
a. Quality control standards of FDC Film (slide)
b. Pre-calibration QC system
2. Handling and assembling conditions of FDC Film
a. Archival properties in reel and slide form
b. Room conditions of handling FDC Film
c. Mechanical handling conditions
3. Specific comments on each test and measuring instrument
-3-
<PAGE>
Schedule C Procedure for purchase plan and order
. A fiscal year begins on April 1 and ends on March 31, unless otherwise
indicated herein.
1. Annual purchase plan
Submitted by November 10 of the preceding year Purchase volume
indicated by items and by months, which does not exceed 40,000,000
pieces per annum
2. Semi-annual revised purchase plan
Applicable only to an annual purchase plan for the period of October 1
to March 31
Submitted by May 10
Purchase volume by items and by months
Allowance of revision: Not 30% more or less in total of each
Colorimetric film and Electrolyte slide than
the volume indicated in the applicable annual
purchase plan
3. Quarterly revised purchase plan
Applicable only to an annual purchase plan of Colorimetric film for
the period of July 1 to September 30 and to a semi-annual revised
purchase plan of Colorimetric film for the period of January 1 to
March 31
Submitted by April 10 and October 10
Purchase volume by items and by months
Allowance of revision: Not 30% more or less in each item of
Colorimetric film than the volume indicated
in the applicable annual purchase plan or
semi-annual revised purchase plan
Restriction: Total volume of Colorimetric film may not be revised.
4. Firm purchase order
Submitted by 1st day of the month two month preceding the desired date
of shipment
Purchase volume by items
Allowance of revision to purchase plan: Not 10% more or less in each
item of Colorimetric film
than the volume indicated in
the applicable purchase pla n
Restriction: Total volume of Colorimetric film may not be revised.
-4-
<PAGE>
5. Acceptance by FUJI
FUJI may refuse to accept CARESIDE's firm purchase order only for
Colorimetric film to the extent not 10% more or less in each item of
Colorimetric film than the volume indicated in the applicable purchase
plan; provided that the total volume of Colorimetric film may not be
revised.
Notwithstanding the foregoing, FUJI shall use reasonable efforts
to accept CARESIDE's firm purchase order which is made beyond the above
allowance during the first year of release of CARESIDE POCT System.
-5-
<PAGE>
Schedule D Prices of FDC Film
1. Colorimetric film
-----------------
[Omitted pursuant to a request for confidential treatment. The material
has been filed separately with the Securities and Exchange Commission.]
2. Electrolyte slide
-----------------
[Omitted pursuant to a request for confidential treatment. The material
has been filed separately with the Securities and Exchange Commission.]
3. The prices applied
------------------
The prices applied shall be tentatively determined based on the volume
indicated in a half-year estimate (annual purchase volume is estimated by
doubling the half-year estimate). The adjustment shall be made based on
the actual purchase volume, and be credited or debited to the payment
amount for the month of November and May.
-6-
<PAGE>
Schedule E Specifications
Specifications of FDC colorimetric film is reel form and FDC electrolyte slides
FDC colorimetric film
1. The length of the slit film
1.1 The length of the slit film will be longer than 40m.
1.2 When required volume from CARESIDE is shorter than 40m or coated film is
shorter than 40m, the film length will be determined after negotiation with
two parties
2. Shipping form and description
2.1 One reel of the film is packed in the bag individually to prevent humidity.
2.2 Test name, lot number and sealed date are described on each bag.
2.3 Several bags are packed in one large box. In some cases different film
will be packed in one box.
3. Splicing
3.1 Both the beginning and the end of the FDC film are spliced with the
transparent PET film. This transparent film is called guide base.
The length of the guide base is longer than 1m. The final film is wound
around the plastic core. The terminal of the outer guide base is adhered
by plastic tape.
3.2 The number of the junction is smaller than one per 10m in average.
The splicing is done by using aluminum laminated or plastic adhesive tape.
This junction is black marked by specific ink.
4. Core of the film reel
4.1 The core is the same one as domestic use.
4.2 The shape and diameter of the outer part and material may be changed.
4.3 The width of the core is 13mm. But this will be changed to 12mm.
5. Stains (not defects, no Fuji's liability under Article 7.3)
Black marking
5.1 In rare cases some slit film has stains. The stains are marked by specific
markers. Black ink is used for this marking.
5.2 The cut film with black marking has to be taken off from the assembly line.
The principle of detection and pick-out system will be suggested by Fuji.
5.3 The shape of the stains are mixture of dots, line and others. The number
of the stains in unite length is not predictable. The length of the line-
shaped stains should be shorter than 1m/10m.
-7-
<PAGE>
Blue spots;
5.4 In rare cases blue spots are observed in FDC ammonia and creatinine film.
5.5 Blue spots larger than the criteria should be detected and discarded from
assembly line like black markings.
5.6 The number of the spots are not predictable.
5.7 The blue spots and black marked portion is included in this length.
5.8 It will be determined about the price of the stained portion.
FDC electrolyte slides
6.1 900 slides are packed in the tray. The slides are covered with cushion
sheet and upper cover to prevent free moving during delivery.
6.2 The periphery of the tray is sealed with adhesive tape.
6.3 The tray is put into the bag to protect humidity.
6.4 The bags are stacked and put into the carton. The number of bags are
agreed between two parties.
(6.1, 6.2 and 6.3 will be changed in the near future;
6.1 500 slides will be packed in the tray.
6.2 This tray will be covered with the lid.
6.3 Two trays (500 x 2 = 1000 slides) are put into the bag to protect
humidity.)
Both FDC colorimetric film and FDC electrolyte slides
7. Shelf life of the FDC slides
The shelf life of the FDC slides is listed in the table 1.
The delivery time is about 2 months.
It is recommended the cartridge assembly should be done within 2 months.
-8-
<PAGE>
Shelf life of the FDC slides
<TABLE>
<CAPTION>
<S> <C>
Delivery; Shelf life of the FDC slides is 9-18
months from the predetermined date
2 months prior to the of slide assembly, depending on tests
recommended date of (See the table 1)
cartridge assembly
Shipment of the Predetermined date of slide assembly
FDC film and
electrolyte slides
</TABLE>
The shelf life (expiring time) of FDC slides is guaranteed under the condition
that these are stored at 2-8 degree C. The shelf life of individual FDC test is
listed in the table 1.
-9-
<PAGE>
Table 1
Shelf life of FDC slide after the
predetermined date of assembly
Test name Shelf life (months)
- -------------------------------
GLU-P 18 These slides must be stored at
- ------------------------------- 2 to 8 degrees C.
BUN-PII 18
- -------------------------------
Hb-W 24
- -------------------------------
UA-P 18
- -------------------------------
TCHO-PII 18
- -------------------------------
NH3-PII 18
- -------------------------------
TG-P 18
- -------------------------------
CRE-PII 18
- -------------------------------
TP-P 18
- -------------------------------
ALB-P 18
- -------------------------------
TBIL-P 18
- -------------------------------
HDLC-P 18
- -------------------------------
Ca-PII 18
- -------------------------------
IP-P 18
- -------------------------------
GGT-P 18
- -------------------------------
GOT-P 18
- -------------------------------
GPT-P 18
- -------------------------------
CPK-P 18
- -------------------------------
LDH-P 18
- -------------------------------
ALP-P 18
- -------------------------------
AMYL-P 18
- -------------------------------
LAP-P 18
- -------------------------------
CKMB-P 12
- -------------------------------
CHE-P 12
- -------------------------------
Mg-P 10
- -------------------------------
DBIL-P 9
- -------------------------------
- -------------------------------
Na 16
- -------------------------------
K 16
- -------------------------------
Cl 16
- -------------------------------
-10-
<PAGE>
Schedule F Inspection Manual
Material sampling and inspection
1. Colorimetric slides
1.1 Sampling the beginning (outer part) part of each reel for shipment.
1.2 Assembling slides using the sample above.
(20 slides for Fuji, 20 slides for CARESIDE)
1.3 Inspection by Fuji
Measuring sample slides using controls.
Control Low :n=5
Control High :n=5
Evaluating accuracy (using average) and precision.
1.4 Inspection by CARESIDE
Measuring sample slides which is sent with reels of film
using controls.
Control Low :n=5
Control High :n=5
Evaluating accuracy (using average) and precision.
2. Electrolyde slides
2.1 Sampling representative part of assembled slides of each lot for shipment.
(10 slides for Fuji, 10 slides for CARESIDE)
2.2 Inspection by Fuji
Measuring sample slides using a control.
Control (QE) :n=5
Evaluating accuracy (using average) and precision.
2.3 Inspection by CARESIDE
Measuring sample slides using a control
Control (QE) :n=5
Evaluating accuracy (using average) and precision
(Criteria is summarized in table2)
-11-
<PAGE>
Inspection Manual for Colorimetric Films (in detail)
- ----------------------------------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
1. Scheme of Inspection
1.1 Inspection by Fuji prior to Shipment
(1) Sample :The representative part of the lot in slide form
(2) Specimen :QP-L, H (control serum for FDC slides)
(3) Analyzer :FDC5500 or FDC3000
1.2 Inspection by CARESIDE after delivery
(1) Sample :The representative part of the lot in slide form provided by Fuji
(2) Specimen :QP-L, H (control serum for FDC slides)
(3) Analyzer :FDC3000
(4) Method of inspection :According to the operation manual provided by Fuji.
2. Operation Manual
2.1 Preparation
(1) FDC3000
(2) FUJI Clean Tips
(3) QP-L, H (store at 20/0/C)
Reconstitute them according to the instruction below.
a) Remove aluminum cap and rubber stopper.
b) Fill each vial with 3ml of either distilled or deionized water.
The water must be kept at 25.0+0.3/0/C
-
c) Put the stopper on the vial.
d) Allow the vial to stand at 25/0/C for 15 minutes.
e) Swirl gently to mix contents for 15 minutes.
f) Use within 3 hours.
(4) FDC slides for inspection
Take out the slides from the refrigerator and allow them to stand for
at least five minutes so that they can reach room temperature.
2.2 Turning on FDC3000
(1) Switch on.
When power is turning on, the analyzer emits a short beep and the
printer prints out the indication "FUJI DRI-CHEM FDC3000 V2.1-P02E."
Analyzer begins initialization to check operation.
(2) Empty out the disposal box.
2.3 Measurement method
(1) Confirm that the LCD reads "READY."
(2) Press keys in the following sequence.
a) "Mode," "00," "enter"
b) Input passwords. "7536," "Enter"
c) "1"
d) "Mode," "109," "Enter"
e) "1"
</TABLE>
-12-
<PAGE>
f) "1"
g) Input the slide code of the sample slide (e.g. "1050," "Enter"
for GLU slides)
(3) Insert the slides to be measured into the cartridge. Then make sure to
put the slide weight on top.
(4) Orient the cartridge properly and set it at the set position.
(5) Insert the sample tube and Clean Tip into the rack and set it at the
set position.
(6) Press the START key.
(7) After measurement is finished, the results are printed out.
3. Evaluation
Evaluate accuracy (using average) and precision.
-13-
<PAGE>
Inspection Manual for Electrolyte Slides (in detail)
- ----------------------------------------------------
<TABLE>
<CAPTION>
<C> <S> <C>
1. Scheme of Inspection
1.1 Inspection by Fuji prior to Shipment
(1) Sample :The representative part of the lot in slide form
(2) Specimen :QE (control liquid for FDC electrolyte slides)
(3) Analyzer :FDC800
(4) Method of inspection :According to the operation manual provided by Fuji
1.2 Inspection by CARESIDE after delivery
(1) Sample :The representative part of the lot in slide form provided by Fuji
(2) Specimen :QE (control liquid for FDC electrolyte slides)
(3) Analyzer :FDC800
2. Operation Manual
2.1 Preparation
(1) FDC800
(2) FUJI Clean Tips
(3) QE (control liquid for FDC electrolyte slides :store at 2 to 8/0/C)
(4) RE (reference liquid for FDC electrolyte slides :store at 2 to 8/0/C)
(5) FDC slides for inspection
Take out the slides, QE and RE from the refrigerator and allow them to
stand for at least five minutes so that they can reach room
temperature.
2.2 Turning on FDC800
(1) Switch on.
When the display on the panel changes from "WAIT" to "READY," the
instrument is ready for measurement.
(2) Press the sample key until the indication lamp on the panel indicates
SERUM.
2.3 Measurement method
(1) Set a slides into the pipetting area. The arrow mark on the slide must
be directed to forward direction.
(2) Set the FUJI Clean Tip properly to the FDC800 pipette.
(3) Lower the open/close lever of the FDC800 pipette to the bottom to widen
the space between two nozzles.
(4) Suck the RE liquid with pipette marked "reference" (blue).
The RE liquid can be sucked by pressing and then releasing the blue
lever. If the remaining reference is allowed to stand with the bottle
uncovered for extended periods, it will evaporate, resulting in a
change in concentration.
(5) Suck the QE liquid with the pipette marked "sample" (pink).
Use a new ample of control in each series of measurement.
(6) Set the open/close lever to the uppermost position to minimize the
space between the two nozzles.
</TABLE>
-14-
<PAGE>
(7) Apply the tips to the pipetting guide of the analyzer, and adjust the
ends of the tips to meet two spotting holes of the slides.
(8) Press the blue lever and pink lever simultaneously to drop the liquid
into the spotting holes of the slide.
(9) After complete spotting, press the START key promptly. The slides is
automatically transferred to the incubator and one minutes later, the
values of Na, K and Cl are displayed in mEq/l units and printed out.
After measurement, the slides is automatically discharged into the
slides receiver box.
*To measure the next slides, repeat step (1) to (9).
3. Evaluation
Evaluate accuracy (using average) and precision.
-15-
<PAGE>
Table 2
Criteria of accuracy and
precision
<TABLE>
<CAPTION>
unit control L control H
- ---------------------------------------------------------------------------------------------------------------
std. val. accuracy precision std. val. accuracy precision
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
GLU mg/dl 107.0 + 15% CV less than 3.0% 315.0 + 15% CV less than /= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
BUN mg/dl 16.1 + 15% CV less than /= 3.5% 51.7 + 15% CV less than /= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
Hb g/dl 10.0* + 15% CV less than/= 3.0%
-
- ---------------------------------------------------------------------------------------------------------------
UA mg/dl 3.40 + 0.9 CV less than/= 3.5% 10.4 + 12% CV less than/= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
TCHO mg/dl 120.3 + 18% CV less than/= 3.5%
-
- ---------------------------------------------------------------------------------------------------------------
NH3 /u/g/dl 90.1 + 60 SD less than/= 7.0 /u/g/dl
-
- ---------------------------------------------------------------------------------------------------------------
TG mg/dl 107.7 + 30 CV less than/= 3.0% 168.0 + 30 CV less than/= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
CRE mg/dl 1.29 + 0.7 SD less than/= 0.15mg/dl 5.5 + 30% CV less than/= 3.0%
- -
- ---------------------------------------------------------------------------------------------------------------
TP g/dl 5.53 + 0.9 CV less than/= 3.0% 7.10 + 0.9 CV less than/= 3.0%
- -
- -----------------------------------------------------------------------------------------------------------------
ALB g/dl 3.14 + 0.9 SD less than/= 0.15g/dl 4.00 + 0.9 SD less than/= 0.15g/dl
- -
- ------------------------------------------------------------------------------------------------------------------
TBIL mg/dl 1.00 + 0.3 R less than/= 0.3mg/dl 4.50 + 1.2 SD less than/= 0.25mg/dl
- -
- ------------------------------------------------------------------------------------------------------------------
HDLC mg/dl 26.4 + 9.0 SD less than/= 1.5mg/dl
-
- ------------------------------------------------------------------------------------------------------------------
Ca mg/dl 9.71 + 1.2 CV less than/= 2.5% 12.6 + 1.5 CV less than/= 2.5%
- -
- ------------------------------------------------------------------------------------------------------------------
IP mg/dl 3.32 + 0.6 SD less than/= 0.15mg/dl 4.90 + 18% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
Mg mg/dl 1.54 + 40% CV less than/= 4.5% 4.35 + 30% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
DBIL mg/dl 0.31 + 0.6 SD less than/= 0.1mg/dl 2.74 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
GGT U/1 48.8 + 12.6 SD less than/= 2.5U/1 457.0 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
GOT/AST U/1 25.2 + 7.2 SD less than/= 2.5U/1 84.0 + 15% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
GPT/ALT U/1 25.6 + 7.2 SD less than/= 2.5U/1 82.0 + 15% CV less than/= 3.5%
- -
- ------------------------------------------------------------------------------------------------------------------
CPK U/1 74.9 + 21 SD less than/= 4.0U/1 262.0 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
LDH U/1 154.5 + 21% SD less than/= 4.0U/1 389.0 + 21% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
ALP U/1 114.1 + 48 SD less than/= 8.5U/1 353.0 + 21.6% CV less than/= 4.0%
- -
- ------------------------------------------------------------------------------------------------------------------
AMYL U/1 92.6 + 15% SD less than/= 3.0U/1 348.0 + 15% CV less than/= 3.0%
- -
- ------------------------------------------------------------------------------------------------------------------
LAP U/1 44.2 + 21.6 SD less than/= 4.0U/1 73.0 + 21.6% SD less than/= 4.0U/1
- -
- ------------------------------------------------------------------------------------------------------------------
CKMB U/1 10.0 + 21.6 SD less than/= 2.5U/1 24.0 + 21.6% SD less than/= 2.5U/1
- -
- ------------------------------------------------------------------------------------------------------------------
CHE U/1 236.6 + 15% CV less than/= 3.5%
-
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
unit std. val. accuracy precision
- -----------------------------------------------------
<S> <C> <C> <C> <C>
Na mEq/1 139.7 + 2.5 CV less than/= 1.5%
-
- -----------------------------------------------------
K mEq/1 4.20 + 0.25 CV less than/= 2.5%
-
- -----------------------------------------------------
Cl mEq/1 96.7 + 3.5 CV less than/= 2.0%
-
- -----------------------------------------------------
</TABLE>
*Standard value of Hb is changed at each inspection because Hb is tested with
whole blood.
Accuracy is evaluated with mean value.
When either the lot number of the standard solution and type of the slide is
changed, the value in the table 2 should be replaced.
When new test menu is added, this table will be revised.
New list will be provided by Fuji.
<PAGE>
EXHIBIT 10.22
CARESIDE, INC.
6100 BRISTOL PARKWAY
CULVER CITY, CA 90230
April 30, 1999
VIA TELECOPIER
- --------------
S.R. One, Limited
4 Tower Bridge
200 Bar Harbor Drive
Suite 200
West Conshohocken, Pennsylvania 19428
Attn: Ms. Brenda Gavin
Dear Brenda:
This letter sets forth our mutual binding commitment to undertake,
upon consummation of Careside, Inc.'s initial public offering of units comprised
of one share of common stock and one common stock purchase warrant, the exchange
of Series A Convertible Preferred Stock for one-third of the promissory note
issued to S.R. One, Limited in connection with Careside's bridge financing
pursuant to the Securities Purchase Agreement dated December 17, 1998 between
Careside and S.R. One.
The terms of this arrangement are summarized below and shall be set
forth, together with customary representations, warranties and covenants, in a
mutually agreeable Securities Conversion Agreement consistent with the
following:
Issuer Careside, Inc. ("the Company"), a Delaware
corporation.
Closing Date: Upon consummation of the Company's initial public
offering (the "IPO")
Issue Conversion of $1 million, plus interest thereon, of
the existing $3.0 million note issued in conjunction
with the Securities Purchase Agreement dated December
17, 1999 into shares of Series A Convertible
Preferred Stock. The number of shares of Series A
Convertible Preferred Stock received on conversion of
the loan
<PAGE>
shall be equal to the principal and interest so
converted divided by 85% of the IPO price per unit.
The stated value of each share of Series A
Convertible Preferred Stock shall be equal to the IPO
price per unit.
I. Preferred Stock
---------------
Right of Conversion Each share of Series A Convertible Preferred Stock is
convertible at any time (at the option of the holder)
after 6 months following the closing of the IPO into
a unit comprised of one share of the Company's common
stock and one warrant to purchase one share of common
stock. The exercise price of each warrant received on
the conversion will be 150% of the IPO unit price.
Such warrants will be immediately exercisable after
their issuance.
Dividend Provisions The holders of the Series A Preferred Stock shall be
entitled to receive cumulative dividends at the rate
of 10% per annum when and if declared by the Board of
Directors. Accrued and unpaid dividends will convert
into units at the IPO unit price upon conversion of
the Series A Convertible Preferred Stock into units.
Voting Rights The holders of the Series A Convertible Preferred
Stock shall be entitled to one vote per share of
Preferred Stock. Warrants will not have voting
rights.
Ranking Senior in right of payment and liquidation to the
common stock of the Company. Liquidation preference
equal to the stated value plus accumulated preferred
dividends.
Registration Rights Common Stock issuable upon conversion of Series A
Convertible Preferred Stock or exercise of warrants
shall have registration rights (one demand and
piggyback) after 6 months following the IPO.
Anti-dilution Anti-dilution protection for capitalization, stock
Provisions dividends, splits, etc.
Redemption The Series A Convertible Preferred Stock will be
redeemable in whole and not in part, at the option of
the Company for an amount equal to the sum of (i) the
IPO unit price, (ii) any accrued and unpaid
dividends, and (iii) the greater of (a) $0.05 or (b)
the average 5-day trading price of a share of common
stock less the exercise price, for each warrant
redeemed.
<PAGE>
II. The Bridge Loan The original terms governing the loan warrants
Warrants continue to apply to these warrants and will differ
-------------------- from the terms associated with the warrants received
on conversion of the Series A Convertible Preferred
Stock.
Amount In consideration of conversion of the loan, the
number of warrants to purchase common stock
associated with the original loan shall be determined
by dividing $1,500,000 by 85% of the IPO price per
unit.
Term Four years from the closing of the IPO.
Exercise Price As it currently is, i.e., a discount of 15% from
----
the IPO price per unit.
Registration Rights The existing loan warrant registration rights
agreement would be extended to all of these loan
warrants.
III. The Bridge Loan The original terms of the bridge loan shall remain as
- -------------------- they currently are except as follows:
Maturity All unpaid principal and interest shall become due on
December 17, 1999
Interest Rate The interest rate shall increase to 10% at July 1,
1999 on all principal then outstanding.
Conversion All or any portion of the remaining principal, plus
accrued interest thereon, shall be convertible at the
option of S. R. One, Limited, exercisable after
December 1, 1999, into additional shares of Series A
Convertible Preferred Stock determined on the same
basis as the terms set forth herein.
Prepayment The Company shall be entitled to prepay all or any
portion of the outstanding balance of the loan at any
time without premium or penalty. Prepayments shall be
applied first to accrued and unpaid interest.
<PAGE>
Please indicate your acknowledgment that the above reflects our
agreement by signing in the space provided below.
Sincerely,
/s/ W. Vickery Stoughton
W. Vickery Stoughton
Acknowledged and Agreed
this 30th day of April, 1999.
S.R. ONE, LIMITED
By: /s/ Brenda Gavin
____________________
<PAGE>
EXHIBIT 10.35
CARESIDE, INC.
6100 BRISTOL PARKWAY
CULVER CITY, CA 90230
May 25, 1999
Spencer Trask Securities Incorporated
535 Madison Avenue
18th Floor
New York, New York 10022
Ladies and Gentlemen:
Reference is made to that certain Placement Agency Agreement (the
"1996 Placement Agreement"), dated December 10, 1996, by and between Careside,
Inc. (formerly known as Exigent Diagnostics, Inc.) (the "Company") and Spencer
Trask Securities Incorporated ("Spencer Trask"), that certain letter agreement
(the "Investment Banking Agreement"), dated January 31, 1997, by and between the
Company and Spencer Trask, that certain Lock-Up and Right of First Offer
Agreement (the "Lock-Up Agreement"), dated January 31, 1997, by and among the
Company, W. Vickery Stoughton, Thomas H. Grove, Exigent Partners, L.P. and
Spencer Trask and that certain Placement Agency Agreement (the "1998 Placement
Agreement"), dated January 29, 1998, by and between the Company and Spencer
Trask entered into in connection with the 1998 private placement of common stock
by the Company (the "1998 Private Placement"). As set forth in the Investment
Banking Agreement, the Company agreed for a period of five years from the date
thereof to use the investment banking services of Spencer Trask in connection
with any sale or exchange of the Company's stock or assets, merger,
consolidation, acquisition, financing, joint venture or other arrangement with
certain parties and to pay Spencer Trask certain fees, as set forth in the
Investment Banking Agreement, at the closing of any such transaction.
Reference is also made to that certain letter agreement (the "Waiver Letter")
dated as of December 8, 1998 between the Company and Spencer Trask pursuant to
which Spencer Trask waived the right to require an employment agreement between
the Company and Kenneth Asarch and acknowledged the status of S.R. One, Limited
as an affiliate of SmithKline Beecham Corporation.
At present, the Company intends to undertake an initial public
offering of the Company's units consisting of common stock and common stock
purchase warrants utilizing the investment banking services of Paulson
Investment Company, Inc. ("Paulson"), Millennium Financial Group, Inc., marion
bass securities corporation (collectively, the "Underwriters") and the other
underwriters named in the Company's registration statement filed with the
Securities Exchange Commission in and after the IPO (the "IPO").
To induce the Company to proceed with the IPO, and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, and intending to be legally bound, the Company and Spencer Trask
hereby confirm their agreements in the Waiver Letter and in addition agree as
follows:
<PAGE>
1. Right to provide the Company with investment banking services in
or after the IPO, including in connection with any other public or private
offering of the Company's securities following the IPO. Further, Spencer Trask
hereby consents to the Company utilizing the investment banking services of the
Underwriters.
2. Spencer Trask hereby waives any right to receive the Placement
Agent's Fee and the Agent's Warrants (as each such term is defined in the 1996
and the 1998 Placement Agreements) pursuant to Section 3(f) of the 1996 and the
1998 Placement Agreements with respect to any person or entity which may invest
in the Company pursuant to the IPO.
3. This letter represents our entire agreement with respect to the
subject matter hereof, superseding all prior agreements and understandings,
written or oral. It may not be modified or amended except in a writing signed
by both parties. This letter agreement may be
signed in counterparts (including by facsimile signature) and shall be governed
by and construed in accordance with the laws of the State of New York without
reference to the choice of law doctrine thereof.
Very truly yours,
CARESIDE, INC.
By: /s/ W. Vickery Stoughton
________________________________
Name: W. Vickery Stoughton
Title: Chairman of the Board of Directors and
Chief Executive Officer
Acknowledged and Agreed:
SPENCER TRASK SECURITIES INCORPORATED
By: /s/ William Dioguardi
________________________________
Name:
Title:
/s/ W. Vickery Stoughton
___________________________________
W. Vickery Stoughton
/s/ Thomas H. Grove
___________________________________
Thomas H. Grove
-2-
<PAGE>
EXHIBIT 10.36
AdMIT, Inc.
(Advanced Medical Information Technologies, Inc.)
1891 N. Gaffey Street, Suite 230, San Pedro, CA 90731
(310) 521-0520, Fax (310) 521-0522
310-374-1184
MEMORANDUM
Feb 19, 1999
Agreed /s/ V. Stoughton
TO: Vick Stoughton, Careside
FROM: Dennis Rieger, AdMIT
DATE: 2/19/99
RE: Revised Tasks for Consulting Agreement
The tasks currently scheduled to be completed for our Consulting Agreement is as
follows:
1. OEM Marketing Agreement.
2. Review and evaluation of the Careside information systems hardware and
software products and components.
3. Review and recommend the best way for efficient interfacing the Careside
system with clinical and billing systems.
4. Re-engineer the AdMIT system to provide Careside with a "Black Box"
Interface Hub at *% or less cost then the current system. That includes
contract, pricing and technical modifications to the hardware and software
products that make up the AdMIT Sentinel system.
5. Co-design and manage the * development work required to modify the Careside
system to provide a common two way communications, storage, printing and
control capability for interfacing to external devices.
6. Design and build the required interface between the Careside Analyzer and
the Black Box for two way communication and control.
7. Design and build the required interfaces between the Black Box and the *
Hematology devices for two-way communication and control.
8. Provide the necessary AdMIT hardware and software to accomplish the above
tasks as outlined in the Tasks memo of 1/25/99.
These tasks are also subject to change as we move forward.
- -------------------
* [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
<PAGE>
AdMIT, Inc.
(Advanced Medical Information Technologies, Inc.)
1891 N. Gaffey Street, Suite 230, San Pedro, CA 90731
(310) 521-0520, Fax (310) 521-0522
FAX MEMORANDUM
<TABLE>
<CAPTION>
<S> <C> <C> <C>
RECEIVING FAX# (310) 338-6789 SENDING FAX# (310)521-0522
-------------- -------------
TO: Vick Stoughton FROM: Dennis Rieger
-------------- -------------
CARESIDE AdMIT
DATE: 01/25/99 TOTAL # OF PAGES 2
-------------
RE: Tasks and costs for information systems services and
products
</TABLE>
- --------------------------------------------------------------------------------
Dear Vick:
I have attempted to provide an estimate of the cost for the information systems
products and services that will be required to meet your needs as outlined in
your last letter, dated Jan. 11, 1999 (modified Jan. 18, 1999) to AdMIT.
Although I am just starting to gain an understanding of the details of the
system and technical requirements, along with the problems and issues that need
to be resolved, the costs outlined below (approximately *) should provide
Careside with a basic solution to those needs, and adequately support a *
consulting contract between Careside and AdMIT.
Tasks:
- -----
1. OEM Marketing Agreement. AdMIT to provide basic product training to
Careside personnel, and marketing support for key account sales at Careside's LA
location. Careside would handle all sales and marketing tasks and receive *% of
the AdMIT product gross sales it generates. Cost Allocation: *
2. Review and evaluation of the information systems hardware components and
subassemblies, and software operating systems and applications in the Careside
Analyzer. Recommendations about enhancements and/or changes that could increase
performance or functionality, while lowering costs. Cost Allocation: *
3. Design and build an interface between the Careside Analyzer and the *
Hematology system, within the functional limits of both devices. This interface
depends upon the completion of: a.) a standard data interface between the * and
the AdMIT universal data acquisition system; b.) a standard data interface
between the Careside
- --------------------------
* [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
<PAGE>
Analyzer and the AdMIT system (see #5), and c.) the addition of a control
interface that allows the Careside device to control the Becton Dickison device
through the AdMIT system. The objective will be to design the interface so that
it could be extended to allow the Careside Analyzer to interface to a second
Hematology device from a different manufacturer. Cost Allocation: *
4. Review and recommend the best way to position the Careside System for
efficient interfacing with customer clinical and billing systems. Cost
Allocation: *
5. Design and build an interface between the Careside analyzer and AdMit's
universal data acquisition system. The project includes the development of a
standard device interface, with the ability for the AdMIT system to accept and
issue commands to control and acquire data back from the Hematology device that
may also be corrected to AdMIT's system. The interface will be developed in a
generic way to allow extensions into other devices that may also be connected to
the AdMIT system. Cost Allocation: *
6. Develop a PC-based user interface for printing barcode labels from the
Zebra printer. The assumption is that the application will be running under
Windows on AdMIT's system or another standard PC system. Cost Allocation: *
7. Provide the necessary AdMIT hardware and software to accomplish the above
tasks and provide Careside with three (3) Universal Data Acquisitions Systems
for system support, testing and demonstrations. The product costs are as
follows:
(a) Three (3) Universal Data Acquisition Computers (UDAC), with 8 isolated
communications ports on each system, a Pentium 166 MHz CPU (or better), 64 MB
RAM, 3 GB (minimum) HD, Internal Floppy Drive, and external CD ROM drive with
power supply and cable interface. Cost Allocation: * each, Total = *
(b) Windows NT workstation software installed on each system. Cost
Allocation: * each, Total *
(c) Nine (9) of AdMIT's Intelligent Device Connectors (1 configured for
each device connected). These are needed to implement the "plug & play"
connections from the medical devices to the UDAC, including the required custom
cables. Cost Allocation: * each, Total = *
(d) License fee for the Data Acquisition Run-Time Monitor software, which
can be used on each system within Careside or for "loaner" evaluation systems
that are to be returned to Careside. Cost Allocation: *
- --------------------------
* [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
<PAGE>
(e) License fee for each device driver to be used with the software in #d
above, with a total of 3 device drivers scheduled for development. Cost
Allocation: * each, Total = *
(f) License fee for each Relation Data Base Management System (server and
client access) for each system. This RDBMS is an outside purchased system to
provide a complete set of generic data base capabilities. Cost Allocation: *
each, Total = *
(g) One (1) year warranty on hardware, shipped to AdMIT for 5-day
turnaround. Estimated Cost: Included
(h) One (1) year OEM service contract for software, including telephone/e-
mail support, bug fixes, enhancements and upgrades. Estimated Cost: 15% of
software cost (* + *), Total = *
The total of the above is * with the exception of travel costs outside the Los
Angeles area. Additional payments on the consulting engagement of * will be due
February 15, 1999 and * on March 15, 1999. The estimated time to complete the
primary tasks, without extensive modifications or additions by Careside, is four
(4) months, starting Jan. 4, 1999. Status reports and recommendations will be
delivered on an on-going basis. Version 1 of the software outlined above is
scheduled to be delivered by May 1, 1999.
If you have any questions, please call me.
Sincerely,
Dennis Rieger
President
Advanced Medical Information Technologies, Inc.
- --------------------------
* [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
<PAGE>
CARESIDE
W. Vickery Stoughton
Chairman and CEO
Jan 11, 1999
Dennis Rieger
ADMIT
Dear Dennis:
After due consideration over the last few days Careside has decided
that * .
However, there are a number of areas where we believe mutual
collaboration would be helpful and toward this end we are willing to pay up to *
for the following agreement and assistance:
1. An agreement that provides Careside an exclusive relationship
with ADMIT as an OEM partner in the clinical trial/contract research
organization (CRO)/ Pharmaceutical company market for the purpose of diagnostic
testing and data management for clinical trial work. Careside would handle all
sales and marketing and present ADMIT hardware and software as part of a
comprehensive opportunity, along with its own products, to reduce clinical trial
costs and potentially decrease the time it takes to conduct a clinical trial.
In addition to exclusivity Careside would receive *% of gross sales of ADMIT
products.
2. Careside would receive a report critiquing the hardware and
software in the Careside Analyzer and making recommendations about enhancements
and/or changes that might lower cost or improve the design.
3. An interface would be completed between the Careside Analyzer and
the * Hematology system based on Careside specifications.
4. Design a generic interface for the most effective and efficient
connection between the Careside Analyzer and user clinical and billing
information systems.
5. Design an interface between the Careside analyzer and ADMIT
products as part of the clinical trial package opportunity.
6100 Bristol Parkway . Culver City, CA 90230
Telephone (310) 338-6767 Fax (310) 338-6789
- --------------------------
* [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
<PAGE>
6. Develop a PC-based user interface for printing barcode labels
from the Zebra printer.
Careside would expect that the * would cover software development
costs as well as all other costs other than travel expenses to locations outside
the immediate area.
You would be invited to all Careside management meetings and become a
key member of the executive group during the period that you are working with
us.
Please confirm that you are in agreement with the terms of this
letter. I have enclosed a schedule of staff meetings that are subject to
change.
Sincerely,
/s/ Vick Stoughton
Vick Stoughton
- --------------------------
* [Omitted pursuant to a request for confidential treatment. The material has
been filed separately with the Securities and Exchange Commission.]
<PAGE>
EXHIBIT 10.37
FORM OF
S. R. ONE, LIMITED
AND
CARESIDE, INC.
================================================================================
SECURITIES CONVERSION AGREEMENT
================================================================================
Dated May , 1999
<PAGE>
THIS SECURITIES CONVERSION AGREEMENT (the "Agreement") is made this
---------
th day of May, 1999, by and between S.R. One, Limited, a Pennsylvania business
trust with its principal office located at 4 Towers Bridge, 200 Bar Harbor
Drive, West Conshohocken, PA 19428 ( "Investor"), and CARESIDE, INC., a Delaware
--------
corporation with its principal offices located at 6100 Bristol Parkway, Culver
City, California 90230 (the "Company").
-------
W I T N E S S E T H:
-------------------
WHEREAS, in connection with the Company's bridge financing pursuant to a
certain Securities Purchase Agreement, dated December 17, 1998 by and between
Investor and the Company (the "Securities Purchase Agreement"), Investor
purchased promissory notes of the Company in the aggregate principal amount of
$3,000,000 (the "Existing Notes"). As partial consideration for its
--------------
obligations under the Securities Purchase Agreement, S.R. One received a
detachable warrant to purchase shares of Common Stock of the Company (the
"Warrant Certificate SR-1"). In connection therewith, Investor was granted
- -------------------------
certain rights regarding the registration of the Common Stock under a
Registration Rights Agreement, dated December 17, 1998 by and between the
Company and Investor (the "Registration Rights Agreement").
-----------------------------
WHEREAS, the Company and Investor desire, simultaneously with the Closing
to exchange one-third of principal and interest under the Existing Notes for
shares of Series A Convertible Preferred Stock of the Company.
WHEREAS, in connection with the conversion of a portion of the Existing
Notes to Series A Convertible Preferred Stock, the Company and Investor desire
to exchange the Warrant Certificate SR-1 for an amended warrant (the "Warrant
-------
Certificate SR-2") and to amend and restate the Registration Rights Agreement.
- ----------------
NOW THEREFORE, in consideration of the premises and the mutual covenants
and agreements herein contained, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties hereto,
intending to be legally bound hereby, do hereby agree as follows:
ARTICLE 1.
Definitions
-----------
Section 1.1 Definitions. Capitalized terms used but not defined herein
-----------
shall have the meaning set forth in this Section 1.1.
1.1.1. "Closing" shall mean the date of consummation of the
-------
Company's Initial Public Offering.
1.1.2. "Common Stock" shall mean the common capital stock of the
------------
Company, $0.1 par value per share.
1.1.3. "Existing Notes" means the promissory notes originally
--------------
issued to Investor referenced in the recitals hereto.
1.1.4. "Governmental Entity" means any federal, state, local or
-------------------
foreign government or governmental body, or any political subdivision thereof,
including any Person exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
<PAGE>
1.1.5. "Initial Public Offering" means the first offering of the
-----------------------
Company's securities registered with the SEC under the Securities Act.
1.1.6. "Law" or "Regulation" means any applicable law, statute,
--- ----------
rule, ordinance, regulation, order, decree, edict or other requirement of any
Governmental Entity.
1.1.7. "Lien" means any mortgage, lien, security interest, pledge,
----
negative pledge, encumbrance, assessment, title retention agreement, restriction
or restraint on transfer, defect of title, charge in the nature of a lien or
security interest, or option (whether consensual, statutory or otherwise).
1.1.8. "New Note" means the promissory note delivered to Investor
--------
pursuant to Section 2.1.2 hereof and in the form of Exhibit B hereof.
---------
1.1.9. "Person" means an individual, a sole proprietorship, a
------
corporation, a partnership, a limited liability company or partnership, a joint
venture, an association, a trust, or any other entity or organization, including
a Governmental Entity.
1.1.10. "Registration Statement" means the Company's registration
----------------------
statement on Form S-1 which the Company has filed with the SEC, as amended, the
most recent draft copy of which is attached hereto as Exhibit E.
---------
1.1.11. "Regulation D" means Regulation D promulgated by the SEC
------------
under the Securities Act, as amended from time to time.
1.1.12. "SEC" means the United States Securities and Exchange
---
Commission or any successor Governmental Entity.
1.1.13. "Series A Convertible Preferred Stock" means the series of
------------------------------------
preferred stock of the Company, the terms and conditions of which are set forth
in the Certificate of Designations attached hereto as Exhibit A.
---------
1.1.14. "Securities Act" means the Securities Act of 1933, as
--------------
amended, and the Regulations promulgated thereunder or with respect thereto, or
any successor or substitute Laws.
1.1.15. "Shares" means shares of Common Stock of the Company
------
issued by the Company upon exercise of Warrant Certificate SR-2.
1.1.16. "Transaction" means the conversion of a portion of the
-----------
Existing Notes pursuant to Article 2 hereof, and the matters related thereto, as
---------
set forth herein.
1.1.17. "Unit" means a unit comprised of one share of Common Stock
----
of the Company and a warrant to purchase one share of Common Stock of the
Company.
1.1.18. "Warrant Certificate SR-1" means the detachable warrant
------------------------
originally issued with the SR-1 Notes to Investor referenced in the recitals
hereto.
-2-
<PAGE>
1.1.19. "Warrant Certificate SR-2" means the detachable warrant
------------------------
delivered to Investor pursuant to Section 2.2 hereof and in the form of Exhibit
-------
C hereto.
- -
ARTICLE 2.
Conversion of the SR-1 Note
---------------------------
Section 2.1.
2.1.1. Conversion. Simultaneously with the Closing, the Company
----------
shall convert one-third of the outstanding principal and accrued interest under
the Existing Notes into shares of Series A Convertible Preferred Stock. The
number of shares of Series A Convertible Preferred Stock received on conversion
shall be equal to the aggregate dollar amount of principal and interest being
converted, divided by 85% of the Initial Public Offering price per Unit. The
stated value of each share of Series A Convertible Preferred Stock shall be
equal to the Initial Public Offer price per Unit.
2.1.2. Issuance of New Note. Upon conversion, Investor shall
--------------------
deliver to the Company on or before Closing, one or more of the Existing Notes
and the Company shall deliver to Investor a new promissory note in the principal
amount equal to the remaining outstanding portion of the Existing Notes not
converted hereunder which shall be in the form of Exhibit B attached hereto.
---------
Section 2.2. Issuance of Warrant Certificate SR-2. In consideration of
------------------------------------
the conversion of a portion of the Existing Notes, Investor shall deliver to the
Company at the Closing the Warrant Certificate SR-1 in exchange for the Warrant
Certificate SR-2, which shall be is substantially in the form attached hereto as
Exhibit C.
- ---------
Section 2.3. Amended and Restated Registration Rights Agreement.
--------------------------------------------------
Simultaneously with the conversion of the aforementioned portion of the Existing
Notes, the Registration Rights Agreement shall be amended and restated,
substantially on the form attached hereto as Exhibit D (as modified by any
---------
amendment thereto herein after made).
ARTICLE 3.
Representations and Warranties
------------------------------
Section 3.1. Representations and Warranties of the Company. As a
---------------------------------------------
material inducement to the Investor to enter into this Agreement and to
consummate the Transaction, the Company hereby represents and warrants to the
Investor as follows, which representations and warranties shall survive the
Closing and the issuance and delivery of the New Note:
3.1.1. Organization and Standing. The Company is a corporation
-------------------------
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
3.1.2. Corporate Power and Authority; Enforceability. The Company
---------------------------------------------
has the requisite power and authority (corporate and otherwise) to execute,
deliver and perform this Agreement and to consummate the Transaction. The
execution, delivery and performance by the Company of this Agreement and the
consummation by the Company of the Transaction, have been duly authorized by all
necessary action (corporate or otherwise) on its part. This Agreement
constitutes a legal, valid and binding obligation of the Company, enforceable in
accordance with its terms, except insofar as enforceability is limited by
bankruptcy,
-3-
<PAGE>
insolvency, moratorium and similar laws affecting creditors' rights generally,
and by general principles of equity.
3.1.3. Validity of Contemplated Transactions. The execution,
-------------------------------------
delivery and performance by the Company of this Agreement, and the consummation
by it of the Transaction, do not violate or contravene any provision of the
Company's charter or bylaws, or of any material contract to which the Company is
a party.
3.1.4. Issuance of Shares. The shares of Series A Convertible
------------------
Preferred Stock issued upon conversion of Existing Notes, and any Shares issued
and delivered to, and paid for by the Investor pursuant to and in accordance
with exercise of Warrant Certificate SR-2 or conversion of Series A Convertible
Preferred Stock, (a) will have been validly issued, fully paid and non-
assessable, (b) will be free and clear of any Liens (other than Liens imposed by
the Securities Act), and (c) will have been issued without violation of any
preemptive or other right to purchase or restrict the transfer of Common Stock.
3.1.5. Accuracy and Completeness of the Financial Information. The
------------------------------------------------------
Company's financial information that has been provided to the Investor is
accurate and complete in all materials respects, except that the Company makes
no representations or warranties with respect to any projections of the
Company's future results of operations, financial condition or otherwise.
3.1.6. Compliance with all Laws. To the best of its knowledge, the
------------------------
Company is in compliance in all material respects with all Laws.
3.1.7. Registration Statement. The Registration Statement is true
----------------------
and correct in all material respects and does not contain any statement that is
misleading or omit any statement necessary to make the statements made therein
not misleading.
Section 3.2. Representations, Warranties and Covenants of the Investor.
---------------------------------------------------------
As a material inducement to the Company to enter into this Agreement and to
consummate the Transaction, the Investor hereby represents and warrants to the
Company as follows, which representations and warranties shall survive the
Closing and the issuance and delivery of the New Note:
3.2.1. Corporate Power and Authority; Enforceability. The Investor
---------------------------------------------
has the requisite power and authority (corporate and otherwise) to execute,
deliver and perform this Agreement and to consummate the Transaction. The
execution, delivery and performance by the Investor of this Agreement and the
consummation by the Investor of the Transaction, have been duly authorized by
all necessary action (corporate or otherwise) on its part. This Agreement
constitutes a legal, valid and binding obligation of the Investor, enforceable
in accordance with its terms, except insofar as enforceability is limited by
bankruptcy, insolvency, moratorium and similar laws affecting creditors' rights
generally and by general principles of equity.
3.2.2. Securities Act Representations. The Investor hereby
------------------------------
represents and warrants to the Company that:
(a) the Investor is an "accredited investor" within the
meaning of Regulation D;
-4-
<PAGE>
(b) the Investor (i) has such experience in financial
and business matters such that it is capable of evaluating the merits and risks
of purchasing the securities acquired hereunder, (ii) has been furnished any and
all materials which it has requested relating to the Company or the offering of
these securities and the Investor has been afforded the opportunity to ask
questions of the senior management and directors of the Company concerning the
terms and conditions of the offering and to obtain any additional information
necessary to verify the accuracy of the information provided to the Investor,
and (iii) is satisfied that the Investor has received adequate information with
respect to all matters that the Investor considers material to the Investor's
decision to make this investment;
(c) the Investor has purchased the securities to be
acquired hereunder for its own account and has not transferred, distributed or
resold such securities, or any part thereof;
(d) the Investor understands that the securities to be
acquired under this Agreement have not been registered under the Securities Act
or under the Laws of any jurisdiction, and that the Company does not contemplate
and, except as set forth herein, is under no obligation to so register such
securities;
(e) the Investor is aware that: (i) investment in the
Company involves a high degree of risk, lack of liquidity and substantial
restrictions on transferability of interest; (ii) no Governmental Entity has
made any finding or determination as to the fairness for investment by the
public, nor has it made any recommendation or endorsement of the securities to
be acquired hereunder; and (iii) such securities must be held indefinitely
unless they are subsequently registered under the Securities Act or an exemption
from registration under the Securities Act covering the sale of the Shares is
available;
(f) the Investor has sufficient financial resources
available to support the loss of all or a portion of the Investor's investment
in the Company, has no need for liquidity in the investment in the Company and
is able to bear the economic risk of the investment; and
(g) the Investor has received, reviewed and understands
the section entitled "Risk Factors" contained in the Registration Statement, and
the Investor further acknowledges that (i) prior to the execution of a
definitive underwriting agreement neither the Company nor any other Person has
made any commitment or agreement that said Registration Statement will become
effective or that the initial public offering described therein will occur at a
particular price or within a particular range of prices or occur at all; (ii)
there can be no assurance that the initial public offering described therein
will occur at a particular price or within a particular range of prices or occur
at all; and (iii) the securities to be acquired hereunder are not being offered
pursuant to such Registration Statement.
ARTICLE 4.
Related Matters
---------------
Section 4.1. Board Visitation Rights. Prior to consummation of the
------------------------
Initial Public Offering, but only for so long as the New Note remains
outstanding or Investor owns Warrant Certificate SR-2 or any Shares (i) the
Company shall provide the same advance written notice to Investor as it supplies
to its directors in accordance with its bylaws, of all meetings of the Company's
Board of Directors and provide copies to Investor of any materials distributed
to directors in advance of or at such meeting, at the same time and by the same
means as they are provided to the Company's directors, and (ii) Investor shall
be entitled to have one representative attend all meetings of the Company's
Board of Directors.
-5-
<PAGE>
ARTICLE 5.
Miscellaneous
-------------
Section 5.1. Entire Agreement. The Securities Purchase Agreement, the
----------------
Securities Conversion Agreement, the Amended and Restated Registration Rights
Agreement, and Warrant Certificate SR-2 and the New Note issued pursuant hereto
contain the entire understanding between the parties hereto and supersede all
prior agreements and understandings, written or oral, with respect to the
subject matter hereof.
Section 5.2. Expenses. All costs and expenses incurred in connection
--------
with this Agreement shall be paid by the Person incurring such expenses.
Section 5.3. Jurisdiction. The Company and the Investor hereby agree
------------
that any action, proceeding or claim against it arising out of, or relating in
any way to, this Agreement, the New Note or Warrant Certificate SR-2 shall be
brought and enforced in the courts of the State of California, and any Federal
court located in any county in the State of California in which the Company has
an office and irrevocably submits to such jurisdiction, which jurisdiction shall
be exclusive. The Company and the Investor hereby irrevocably waive any
objection to such exclusivity based on the doctrine of inconvenient forum or
otherwise. Any such process or summons to be served upon either the Company or
the Investor (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
as set forth in Section 5.8 hereof. Such mailing shall be deemed personal
service and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company and the Investor, by its execution of this
Agreement and acceptance of the New Note and Warrant Certificate SR-2, agree
that the prevailing party(ies) in any such action or proceeding shall be
entitled to recover from the other party(ies) all of its/their reasonable legal
costs and expenses relating to such action or proceeding and/or incurred in
connection with the preparation therefor.
Section 5.4. Binding Effect; Assignment; Benefit. This Agreement shall
-----------------------------------
inure to the benefit of and be binding upon the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by either of
the parties hereto without the prior written consent of the other party.
Nothing in this Agreement, expressed or implied, is intended to confer on any
person, other than the parties hereto or their respective successors and
permitted assigns, any rights, remedies, obligations or liabilities under or by
reason of this Agreement.
Section 5.5. Amendment and Modification. Subject to applicable law, this
--------------------------
Agreement may be amended, modified and supplemented only by a writing duly
authorized and executed by the parties hereto.
Section 5.6. Headings. The descriptive headings of the several Articles
--------
and Sections of this Agreement are inserted for convenience only, do not
constitute a part of this Agreement and shall not affect in any way the meaning
or interpretation of this Agreement.
Section 5.7. Exhibits. All exhibits attached hereto are a material part
--------
of this Agreement and are hereby incorporated into this Agreement.
Section 5.8. Notices. All notices and other communications hereunder
-------
shall be in writing and shall be given to a Person either personally or by
sending a copy thereof by first class United States express
-6-
<PAGE>
mail, postage prepaid and return-receipt requested, or by a nationally-
recognized courier service guaranteeing next-day delivery, charges prepaid, or
by telecopier (with the original sent by either of the foregoing manners), to
such Person's address (or to such Person's telecopier number). All notices shall
be deemed to have been given to the Person entitled thereto when received.
If to the Investor, to:
S.R. One, Limited
4 Towers Bridge
200 Barr Harbor Drive
Suite 250
West Conshohocken, Pennsylvania 19428
Attention: Ms. Brenda Gavin
Facsimile No.: __________________
If to the Company, to:
CARESIDE, Inc.
6100 Bristol Parkway
Culver City, CA 90230
Attention: President and Chief Executive Officer
Facsimile No.: 310.338.6789
with a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
18th & Arch Streets
Philadelphia, PA 19103-2799
Attention: Julia D. Corelli, Esq.
Facsimile No.: 215.981.4750
Notice of any change in any such address shall also be given in the manner
set forth above. Whenever the giving of notice is required, the giving of such
notice may be waived by the party entitled to receive such notice.
Section 5.9. Waiver. No provision of this Agreement may be waived except
------
by a written instrument signed by the party hereto sought to be bound. No
failure or delay by any party hereto in exercising any right or remedy hereunder
or under applicable Law will operate as a waiver thereof, and a waiver of a
particular right or remedy on one occasion will not be deemed a waiver of any
other right or remedy, or a waiver on any subsequent occasion (it being
understood that specific time frames for notice or actions to be taken shall be
binding on the parties).
Section 5.10. Severability. If any term, provision, covenant or
------------
restriction contained in this Agreement is held by a court of competent
jurisdiction or other authority to be invalid, void, unenforceable or against
its regulatory policy, the remainder of the terms, provisions, covenants and
restrictions contained
-7-
<PAGE>
in this Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated.
Section 5.11. Governing Law. This Agreement shall be construed and
-------------
enforced in accordance with the Laws of the State of Delaware without regard to
principles of conflicts of law applicable in such jurisdiction.
Section 5.12. Continuing Obligation. Except as otherwise specifically
---------------------
provided herein, neither termination nor expiration of this Agreement shall
relieve any party hereto from any obligation under this Agreement which accrued,
or arose from facts and circumstances in existence, prior thereto.
Section 5.13. Counterparts. This Agreement and any amendment or
------------
supplement hereto may be executed by the parties in separate counterparts,
whether originally or by facsimile, each of which when so executed and
delivered, shall be an original, but all such counterparts shall together
constitute one and the same agreement. The execution of this Agreement and any
such amendment or supplement by any party hereto will not become effective until
counterparts hereof have been executed by all the parties hereto.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written by their duly
authorized representative.
S.R. ONE, LIMITED
By: ___________________________
Name: Peter Sears
Title:
CARESIDE, INC.
By: ___________________________
James Koch
Chief Financial Officer
-8-
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1. - Definitions .......................................................................... 1
Section 1.1. Definitions........................................................... 1
ARTICLE 2. - Conversion of the SR-1 Note........................................................... 3
Section 2.1. 2.1.1. Conversion................................................... 3
2.1.2. Issuance of New Note......................................... 3
Section 2.2. Issuance of Warrant Certificate SR-2.................................. 3
Section 2.3. Amended and Restated Registration Rights Agreement.................... 3
ARTICLE 3. - Representations and Warranties........................................................ 3
Section 3.1. Representations and Warranties of the Company......................... 3
3.1.1. Organization and Standing................................... 3
3.1.2. Corporate Power and Authority; Enforceability............... 3
3.1.3. Validity of Contemplated Transactions....................... 4
3.1.4. Issuance of Shares.......................................... 4
3.1.5. Accuracy and Completeness of the Financial Information...... 4
3.1.6. Compliance with all Laws.................................... 4
3.1.7. Registration Statement...................................... 4
Section 3.2. Representations, Warranties and Covenants of the Investor............. 4
3.2.1. Corporate Power and Authority; Enforceability............... 4
3.2.2. Securities Act Representations.............................. 4
ARTICLE 4. - Related Matters....................................................................... 5
Section 4.1. Board Visitation Rights. ............................................. 5
ARTICLE 5. - Miscellaneous......................................................................... 6
Section 5.1. Entire Agreement...................................................... 6
Section 5.2. Expenses.............................................................. 6
Section 5.3. Jurisdiction.......................................................... 6
Section 5.4. Binding Effect; Assignment;........................................... 6
Section 5.5. Amendment and Modification............................................ 6
Section 5.6. Headings.............................................................. 6
Section 5.7. Exhibits.............................................................. 6
Section 5.8. Notices............................................................... 6
Section 5.9. Waiver................................................................ 7
Section 5.10. Severability.......................................................... 7
Section 5.11. Governing Law......................................................... 8
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
Section 5.12. Continuing Obligation................................................. 8
Section 5.13. Counterparts.......................................................... 8
</TABLE>
-ii-
<PAGE>
Exhibits
- --------
A. Form of Certificate of Designations - filed as Exhibit 3.1d to Amendment
No. 8 to the Registration Statement on Form S-1
B. Form of New Note - filed as Exhibit 4.9 to Amendment No. 8 to the
Registration Statement on Form S-1
C. Form of Warrant Certificate SR-2 - filed as Exhibit 4.8 to Amendment No. 8
to the Registration Statement on Form S-1
D. Amended and Restated Registration Rights Agreement - filed as Exhibit 10.38
to Amendment No. 8 to the Registration Statement on Form S-1
E. Draft of Registration Statement on Form S-1 (dated May 5, 1999)
-iii-
<PAGE>
EXHIBIT 10.38
FORM OF
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
--------------------------------------------------
This AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT is made this
_____th day of May, 1999 (the "Effective Date") between Careside, Inc., a
Delaware corporation (the "Company") and S.R. One, Limited, a Pennsylvania
Business Trust ("S.R. One").
W I T N E S S E T H:
-------------------
WHEREAS, the Company and S.R. One entered into a Securities Purchase
Agreement (the "Securities Purchase Agreement") dated December 17, 1998,
pursuant to which the Company agreed that it would borrow from S.R. One, and
S.R. One agreed to lend to the Company, the aggregate principal amount of
$3,000,000 (the "Existing Notes"); and, in connection thereof, the Company
issued to S.R. One Warrant Certificate SR-1 to acquire shares of Common Stock of
the Company, $.01 par value per share ("Common Stock") and granted to S.R. One
certain registration rights pursuant to a Registration Rights Agreement, dated
December 17, 1998 between the Company and S.R. One (the "Registration Rights
Agreement");
WHEREAS, pursuant to a Securities Conversion Agreement dated as of the
Effective Date, between the Company and S.R. One (the "Securities Conversion
Agreement"), one-third of the Existing Notes will be exchanged for shares of
Series A Convertible Preferred Stock and Warrant Certificate SR-1 will be
exchanged for Warrant Certificate SR-2; and
WHEREAS, in connection with the conversion, the Company and S.R. One
desire to amend and restate the Registration Rights Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements made herein, and other good valuable consideration, the receipt and
sufficiency of which are hereby acknowledged and accepted, the parties hereto
agree that the Registration Rights Agreement is hereby amended and restated to
be as follows:
<PAGE>
-2-
1. Definitions. As used herein, unless the context otherwise requires,
-----------
the following terms have the following respective meanings:
"Affiliate" has the meaning set forth in Rule 12b-2 under the Exchange
Act.
"Commission" means the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
"Common Stock" has the meaning set forth in the first WHEREAS clause
of the Recitals.
"Conversion Shares" means the shares of Common Stock usable upon
conversion of shares of Series A Convertible Preferred Stock and upon exercise
of warrants received upon conversion of shares of Series A Convertible Preferred
Stock.
"Demand" has the meaning set forth in Section 2.1.1.
"Demand Registration Period" means the period (i) commencing on the
earlier of one six (6) months after the effective date of the initial Public
Offering of the Units of the Company and the fifth (5th) anniversary of the
Effective Date, and (ii) ending on the date which is the earlier of three (3)
years after the effective date of the initial Public Offering or the seventh
(7th) anniversary of the Effective Date.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
promulgated thereunder, as the same shall be in effect at the time. Reference
to a particular section of the Securities Exchange Act of 1934, as amended,
shall include reference to the comparable section, if any, of any such
subsequent similar federal statute.
"Investors" means the purchasers of Common Stock in the private
placements of Common Stock undertaken by the Company in 1997 and 1998.
"Participating Holder" has the meaning set forth in Section 2.1.4.
"Person" means any individual, partnership, joint venture,
corporation, trust, unincorporated organization, government or department or
agency of a government.
"Public Offering" has the meaning set forth in Section 2.1.7.
"Registrable Securities" means collectively the Conversion Shares and
Warrant Shares and any other securities issuable in connection therewith or in
replacement thereof by way of a dividend, distribution, recapitalization,
exchange, merger, consolidation
<PAGE>
-3-
or other reorganization. As to any particular Registrable Securities, once
issued such securities shall cease to be Registrable Securities when (a) a
registration statement with respect to the sale of such securities shall have
become effective under the Securities Act and such securities shall have been
disposed of in accordance with such registration statement, (b) they shall have
been sold as permitted by, and in compliance with, Rule 144 (or any successor
provision) promulgated under the Securities Act or (c) they shall have ceased to
be outstanding.
"Registration Expenses" means all expenses incident to the Company's
performance of or compliance with Section 2, including, without limitation, all
registration, filing and National Association of Securities Dealers, Inc. fees,
all listing fees, all fees and expenses of complying with securities or blue sky
laws (including, without limitation, reasonable fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities), all word processing, duplicating and printing expenses,
messenger and delivery expenses, the fees and disbursements of counsel for the
Company and counsel for S.R. One (comprised of not more than one outside law
firm) and of the Company's independent public accountants, including the
expenses of "comfort" letters required by or incident to such performance and
compliance, and any fees and disbursements of underwriters customarily paid by
issuers or sellers of securities.
"Securities Act" means the Securities Act of 1933, as amended, or any
subsequent similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
References to a particular section of the Securities Act of 1933, as amended,
shall include a reference to the comparable section, if any, of any such
subsequent similar federal statute.
"Series A Convertible Preferred Stock" means a series of preferred
stock of the Company, the terms and conditions of which are set forth in the
Securities Conversion Agreement.
"Units" means a unit comprised of one share of Common Stock and a
warrant to purchase one share of Common Stock.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of Warrant Certificate SR-2.
<PAGE>
-4-
2. Registration Rights.
-------------------
2.1 Registration on Demand.
----------------------
2.1.1 Demand. At any time during the Demand Registration Period,
------
subject to Section 2.1.7, upon the written request (the "Demand") of S.R. One
that the Company effect the registration under the Securities Act of all or part
of the Registrable Securities, the Company shall cause to be filed, and shall
take all commercially reasonable actions to effect, as soon as practicable and
in any event, subject to the reasonable cooperation of S.R. One within 120 days
after the Demand is received from S.R. One, the registration under the
Securities Act, of the Registrable Securities which the Company has been so
requested to register by S.R. One.
2.1.2 Registration of Other Securities. Whenever the Company
--------------------------------
shall effect a registration pursuant to this Section 2.1 in connection with an
underwritten offering by S.R. One of Registrable Securities, holders of
securities of the Company who have "piggyback" registration rights may include
all or a portion of such securities in such registration, offering or sale. If
the managing underwriter of any such offering shall inform the Company by letter
of its belief that the number or type of securities of the Company requested by
holders of the securities of the Company other than S.R. One to be included in
such registration would materially and adversely affect the underwritten
offering, then the Company shall include in such registration, to the extent of
the number and type of securities which the Company is so advised can be sold in
(or during the time of) such offering, first, all of the Registrable Securities
-----
specified by S.R. One in the Demand and second, for each holder of the Company's
------
securities other than S.R. One, the fraction of such holder's securities
proposed to be registered which is obtained by dividing (i) the number of the
securities of the Company that such holder proposes to include in such
registration by (ii) the total number of securities proposed to be included in
such registration by all holders other than S.R. One.
2.1.3 Registration Statement Form. Registrations under this
---------------------------
Section 2.1 shall be on such appropriate registration form of the Commission as
shall be selected by the Company. The Company shall include in any such
registration statement all information which, in the opinion of counsel to the
Company, is required to be included.
2.1.4 Expenses. The Company shall pay the Registration Expenses
--------
in connection with the Demand registration effected pursuant to this Section
2.1, other than underwriting discounts and selling commissions relating to the
sale or disposition of Registrable Securities. If a registration requested
pursuant to this Section 2.1 is withdrawn or otherwise not effected, other than
at the request of S.R. One (whether such request is for pricing or other
reasons), the Company shall pay the Registration Expenses in connection
therewith. If the registration pursuant to a Demand is withdrawn at the request
of S.R. One
<PAGE>
-5-
and if S.R. One elects not to have such registration count as its Demand
registration under this Section 2.1, S.R. One shall pay all the Registration
Expenses of such registration, other than the fees and expenses of counsel to
Company or of any other holder of Common Stock participating in the registration
(a "Participating Holder"). At no time shall S.R. One be required to pay the
underwriting discounts or selling commissions relating to the sale or
disposition of shares of Common Stock by other Persons, or the fees and expenses
of any Participating Holder's or the Company's counsel, except as required by
Section 2.6.2 below.
2.1.5 Effective Registration Statement. A registration requested
--------------------------------
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective, (ii)
if after it has become effective, such registration is interfered with by any
stop order, injunction or other order or requirement of the Commission or other
governmental agency or court for any reason and has not thereafter become
effective, or (iii) in the case of an underwritten offering, if the conditions
to closing specified in the underwriting agreement, if any, entered into in
connection with such registration are not satisfied or waived.
2.1.6 Selection of Underwriters. In connection with each
-------------------------
underwritten offering, (a) the Company shall promptly select the managing
underwriter subject to the approval of S.R. One (which approval shall not be
unreasonably withheld, delayed or conditioned by S.R. One) and (b) S.R. One
shall promptly select the co-managing underwriter subject to the approval of the
Company (which approval shall not be unreasonably withheld, delayed or
conditioned by the Company).
2.1.7 Limitations on Registration on Demand.
-------------------------------------
(i) The Company shall not be required to file a registration statement
pursuant to this Section 2.1 which would become effective within (a) 180 days,
or such shorter period as agreed to by the managing underwriter for the
Company's initial Public Offering, following the effective date (the "IPO
Effective Date") of a registration statement filed by the Company with the
Commission pertaining to an initial underwritten public offering of convertible
debt securities or equity securities for cash (a "Public Offering") for the
account of the Company, provided that no other holder of the Company's
securities shall have been permitted to participate in such initial Public
Offering, or (b) 120 days following the effective date of a registration
statement (other than a registration statement filed on Form S-8) filed by the
Company with the Commission pertaining to any subsequent Public Offering for the
account of the Company or another holder of securities of the Company if S.R.
One was afforded the opportunity to include all of its Registrable Securities in
such subsequent registration pursuant to Section 2.2.
(ii) In no event shall the Company be required to effect more
than one registration pursuant to this Section 2.1.
<PAGE>
-6-
(iii) Notwithstanding the foregoing, if, in the good faith
determination of the Company's Board of Directors, a registration would
adversely affect certain activities of the Company to the material detriment of
the Company, then the Company may at its option direct that the effective date
of such registration be delayed for a period not in excess of 90 days in the
aggregate from the date of the Company's receipt of the Demand (the "Delay
Period"); provided, however, any action by a Person under a registration or
other agreement with the Company in connection with or triggered by a
registration under this Agreement shall not be considered an adverse effect for
purposes of this sentence; and provided further that if there shall occur any
such delay in a registration hereunder, then S.R. One shall be entitled to (a)
effect such registration no later than any other holder of registration rights,
or (b), if the Company shall effect a Public Offering during any such Delay
Period, sell, together with the Investors, all of their respective Registrable
Securities in connection with such Public Offering, whichever occurs first;
provided, however, that if the managing underwriter of such Public Offering does
not agree to include all (or such lesser amount as S.R. One shall, in its sole
discretion, agree to) of the number of S.R. One's Registrable Securities in such
registration, then the Company shall include in such registration, to the extent
of the number and type which the Company is so advised can be sold in (or during
the time of) such Public Offering first, all securities proposed by the Company
-----
to be sold for its own account, and second, for each of S.R. One and the
------
Investors, the fraction of such holder's securities proposed to be registered
which is obtained by dividing (i) the number of the securities of the Company
that such holder proposes to include in such registration by (ii) the total
number of securities proposed to be sold in such offering by such holders.
2.2 Piggyback Registration.
----------------------
2.2.1 Right to Include Registrable Securities. If the Company at
---------------------------------------
any time proposes to register any of its securities under the Securities Act by
registration on Forms S-1, S-2, S-3 or any successor or similar form(s) (except
registrations on such Forms or similar forms solely for registration of
securities in connection with (i) an employee benefit plan or dividend
reinvestment plan or a merger or consolidation or (ii) debt securities which are
not convertible into Common Stock), whether or not for sale for its own account,
it shall each such time give written notice to S.R. One of its intention to do
so at least 30 days prior to the anticipated filing date of a registration
statement with respect to such registration with the Commission; provided
however, that no such notice shall be required if the managing underwriters for
such registration shall have, in a writing delivered to the Company, provided
that no Common Stock held by the Company's stockholders may be sold pursuant to
the registration. Upon the written request of S.R. One made as promptly as
practicable and in any event within 10 business days after the receipt of any
such notice, which request shall specify the Registrable Securities intended to
be disposed of by S.R. One, the Company shall use commercially reasonable
efforts to effect the registration under the Securities Act of all Registrable
Securities which the Company has been so requested to register by S.R.
<PAGE>
-7-
One; provided, however, that if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to S.R. One and (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from any obligation of
the Company to pay the Registration Expenses in connection therewith), without
prejudice, (provided, however, that S.R. One may request that such registration
be effected as a registration under Section 2.1 hereof) and (ii) in the case of
a determination to delay registering, shall be permitted to delay registering
any Registrable Securities for the same period as the delay in registering such
other securities; and provided further that S.R. One shall have the right to
have its Registrable Securities included in any Public Offering after the
Company's initial Public Offering (in accordance with Section 2.2.2) if, and
only if, any other holder of the Company's convertible debt securities or equity
securities shall have the right to have its securities included in such Public
Offering. No registration effected under this Section 2.2 shall relieve the
Company of its obligation to effect any registration upon demand under Section
2.1. The Company shall pay all Registration Expenses in connection with
registration of Registrable Securities requested pursuant to Section 2.2, other
than underwriting discounts and selling commissions relating to the sale or
disposition of Registrable Securities.
2.2.2 Priority in Piggyback Registrations. Notwithstanding
-----------------------------------
anything in Section 2.2.1 above to the contrary and except as provided in
Section 2.1.7, if the managing underwriter of any underwritten offering shall
inform the Company by letter of its belief that the number or type of
Registrable Securities requested to be included in such registration would
materially and adversely affect such offering, then the Company shall promptly
notify S.R. One of such fact. If the managing underwriter does not agree to
include all (or such lesser amount as S.R. One shall, in its sole discretion,
agree to) of the number of the Registrable Securities initially requested by
S.R. One to be included in such registration, then the Company shall include in
such registration, to the extent of the number and type which the Company is so
advised can be sold in (or during the time of) such offering first, all
-----
securities proposed by the Company to be sold for its own account, if the
Company initiated such registration, or by the holder of securities who
initiated such demand registration, if any, second, for each of S.R. One,
------
Spencer Trask Securities, Incorporated and the Investors, other than the
holder(s) of the securities who initiated such demand registration, if any, the
fraction of such holder's securities proposed to be registered which is obtained
by dividing (i) the number of the securities of the Company that such holder
proposes to include in such registration by (ii) the total number of securities
proposed to be sold in such offering by such holders, and third, for each
-----
remaining holder of the Company's securities, other than the holder of the
securities who initiated such demand registration and the holders listed above,
if any, the fraction of such holder's securities proposed to be registered which
is obtained by dividing (i) the number of the securities of the Company that
<PAGE>
-8-
such holder proposes to include in such registration by (ii) the total number of
securities proposed to be sold in such offering by such holders.
2.3 Registration Procedures.
-----------------------
2.3.1 In connection with the registration of any Registrable
Securities under the Securities Act as provided in Sections 2.1 and 2.2, the
Company shall as promptly as practicable:
(i) prepare and file with the Commission the requisite registration
statement to effect such registration and thereafter use commercially reasonable
efforts to cause such registration statement to become and remain effective;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by such registration statement for 180
days or such shorter period as may be required for the disposition of all of
such Registrable Securities by the underwriters;
(iii) furnish to S.R. One such number of conformed copies of such
registration statement and of each such amendment and supplement thereto (in
each case including all exhibits), such number of copies of the prospectus
contained in such registration statement (including each preliminary prospectus
and any summary prospectus) and any other prospectus filed under Rule 424 under
the Securities Act, in conformity with the requirements of the Securities Act,
and such number of copies of such other documents as S.R. One may reasonably
request;
(iv) use commercially reasonable efforts (x) to register or qualify
all Registrable Securities and other securities covered by such registration
statement under such other securities or Blue Sky laws of such States of the
United States of America where an exemption is not available and as S.R. One
shall reasonably request, (y) to keep such registration or qualification in
effect for so long as such registration statement remains in effect, and (z) to
take any other action which may reasonably be necessary or advisable to enable
S.R. One to consummate the disposition in such jurisdictions of the Registrable
Securities to be sold by S.R. One, except that the Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not, but for the requirements
of this paragraph (iv), be obligated to be so qualified or to consent to general
service of process in any such jurisdiction;
(v) use commercially reasonable efforts to cause all Registrable
Securities covered by such registration statement to be registered with or
approved by such
<PAGE>
-9-
other federal or state governmental agencies or authorities as may be necessary
in the opinion of counsel to the Company and counsel to S.R. One to consummate
the disposition of such Registrable Securities in accordance with their intended
method of disposition;
(vi) furnish to S.R. One, (x) an opinion of outside counsel for the
Company, and (y) a copy of a "comfort" letter addressed to the Company and/or
any managing underwriter signed by the certified independent public accountants
who have certified the Company's financial statements included or incorporated
by reference in such registration statement, each covering substantially the
same matters with respect to such registration statement (and the prospectus
included therein) and, in the case of the accountant's comfort letter, with
respect to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in accountant's comfort
letters delivered to the underwriters in underwritten public offerings of
securities (and dated the dates such opinions and comfort letters are
customarily dated);
(vii) notify S.R. One when a prospectus relating thereto is required
to be delivered under the Securities Act, upon discovery that, or upon the
happening of any event as a result of which, the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, in the light of the
circumstances under which they were made, and at the request of S.R. One to use
its best efforts to promptly prepare and furnish to S.R. One such number of
copies of a supplement to or an amendment of such prospectus as may be necessary
so that, as thereafter delivered to the purchasers of such securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances under which
they were made;
(viii) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security-
holders, as soon as reasonably practicable, an earnings statement meeting the
requirements of Section 11(a) of the Securities Act, which the Company shall be
entitled to satisfy by complying with the requirements of Rule 158 promulgated
thereunder, and promptly furnish a copy of the same to S.R. One;
(ix) provide and cause to be maintained a transfer agent and
registrar for all Registrable Securities covered by such registration statement
from and after a date not later than the effective date of such registration
statement; and
(x) use commercially reasonable efforts to list all Registrable
Securities covered by such registration statement on any national securities
exchange or
<PAGE>
-10-
over-the-counter market, if any, on which Registrable Securities of the same
class, and if applicable, series, covered by such registration statement are
then listed.
S.R. One agrees that upon receipt of any notice from the Company of
the happening of an event of the kind described in Section 2.3.1(vii), S.R. One
shall forthwith discontinue its disposition of Registrable Securities pursuant
to the registration statement relating to such Registrable Securities until S.R.
One's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 2.3.1(vii).
2.4 Underwritten Offerings.
----------------------
2.4.1 Requested Underwritten Offerings. If requested by the
--------------------------------
underwriters for any underwritten offering by S.R. One pursuant to a
registration requested under Section 2.1, the Company shall enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company, S.R. One and
the underwriters, and to contain such representations and warranties by the
Company and S.R. One and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnities to the
effect and to the extent provided in Section 2.6 or as are generally prevailing
in agreements of that type. S.R. One shall cooperate with the Company in the
negotiation of the underwriting agreement and shall give consideration to the
reasonable suggestions of the Company regarding the form and substance thereof.
S.R. One shall be a party to such underwriting agreement. S.R. One shall not be
required to make any representations or warranties to or agreements with the
Company or the underwriters other than representations, warranties or agreements
regarding S.R. One, S.R. One's Registrable Securities, S.R. One's intended
method of distribution and any other representations or warranties required by
law or customarily given by selling shareholders in an underwritten public
offering or as reasonably required by the managing underwriter of the offering
of Registrable Securities.
2.4.2 Piggyback Underwritten Offerings. If the Company proposes
--------------------------------
to register any of its securities under the Securities Act as contemplated by
Section 2.2 and such securities are to be distributed by or through one or more
underwriters, subject to the priority and other provisions of Section 2.2.2, the
Company shall, if requested by S.R. One, arrange for such underwriters to
include all the Registrable Securities to be offered and sold by S.R. One among
the securities of the Company to be distributed by such underwriters. S.R. One
shall become a party to the underwriting agreement negotiated between the
Company and such underwriters. S.R. One shall not be required to make any
representations or warranties to or agreements with the Company or the
underwriters other than representations, warranties or agreements regarding S.R.
One, S.R. One's Registrable Securities and S.R. One's intended method of
distribution or any other representations or warranties required by law or
customarily given by selling shareholders in an underwritten
<PAGE>
-11-
public offering or as reasonably required by the managing underwriter of the
offering of Registrable Securities.
2.4.3 Holdback Agreements.
-------------------
(i) In connection with the initial Public Offering or any registration
of Registrable Securities in connection with an underwritten public offering,
S.R. One agrees if required by the underwriter or underwriters not to effect any
public or private sale or distribution, including any sale pursuant to Rule 144
under the Securities Act, of any Registrable Securities, and not to effect any
such public or private sale or distribution of any other equity security of the
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (in each case, other than as part of such
underwritten public offering) during the 365-day period, or such shorter period
set forth in the underwriting agreement with respect to such offering as the
managing underwriter of such offering shall reasonably require, beginning on,
the effective date of such registration statement, provided that (a) S.R. One
has received written notice of such registration at least 15 days prior to such
effective date and (b), with respect to any offering other than pursuant to a
firm commitment underwriting, the underwriters continue to actively market the
Registrable Securities until the earlier of the end of such lock-up period and
the closing with respect to the sale of all, or the final portion of, the
Registrable Securities offered by S.R. One; provided, however, that the
restrictions imposed on S.R. One by this Section 2.4.3(i) shall terminate on the
earlier of the end of such lock-up period and thirty (30) days after such
closing.
(ii) If any registration of Registrable Securities shall be in
connection with an underwritten public offering, the Company agrees (x) if
required by the underwriter or underwriters, not to effect any public sale or
distribution of any of its equity securities or of any security convertible into
or exchangeable or exercisable for any equity security of the Company (other
than in connection with any employee stock option or other benefit plan which
has been duly adopted by the Company and which provides for the distribution to
participants in the plan of equity securities of the Company or securities
convertible or exchangeable or exercisable for equity securities of the Company,
or in connection with a merger or acquisition approved by the Board of Directors
of the Company) during the 365-day period, or such shorter period as the
managing underwriter of such offering shall reasonably require, beginning on the
effective date of such registration statement (except as part of such
registration) and (y) that any agreement entered into after the date of this
Agreement pursuant to which the Company issues or agrees to issue any privately
placed equity securities shall contain a provision under which holders of such
securities agree that, if required by the underwriter or underwriters, they will
not effect any public sale or distribution of any such securities during the
period referred to in the foregoing clause (x), including any sale pursuant to
Rule 144 under the Securities Act
<PAGE>
-12-
(except as part of such registration, if permitted), if such holder is
participating in the offering pursuant to such registration.
2.5 Preparation; Reasonable Investigation. In connection with the
-------------------------------------
preparation and filing of any registration statement under the Securities Act in
which S.R. One is a selling shareholder, the Company shall give S.R. One not
less than 30 days prior written notice of the preparation of such registration
statement and give S.R. One and its counsel and accountants the opportunity to
participate, at S.R. One's expense, in the preparation of such registration
statement, each prospectus included therein or filed with the Commission, and
each amendment thereof or supplement thereto (provided that S.R. One shall
furnish the Company with comments on any such amendment or supplement as
promptly as the Company shall reasonably require), and give each of them such
access to its books and records, such opportunities to discuss the business of
the Company with officers and the independent public accountants who have
certified its financial statements as shall be necessary, in the opinion of S.R.
One's counsel, to conduct a reasonable investigation within the meaning of the
Securities Act. Any expenses incurred by S.R. One in connection with any such
investigation shall be borne by S.R. One, other than the reasonable fees and
disbursements of S.R. One's outside counsel.
2.6 Indemnification.
---------------
2.6.1 Indemnification by the Company. In the event of any
------------------------------
registration of any securities of the Company under the Securities Act in which
S.R. One is or may be a selling shareholder, the Company shall, and hereby does,
indemnify and hold harmless, S.R. One, its directors, officers, employees,
agents and affiliates and, to the extent required by any underwriting agreement
entered into by the Company, each other Person who participates as an
underwriter in the offering or sale of such securities and each other Person who
controls S.R. One or any such underwriter within the meaning of the Securities
Act, insofar as losses, claims, damages, or liabilities (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon (a) any untrue statement or alleged untrue statement of any
fact contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus, final
prospectus, or summary prospectus contained therein, or any amendment or
supplement thereto, or any omission or alleged omission to state therein a fact
required to be stated therein or necessary to make the statements therein in
light of the circumstances in which they were made not misleading, or (b) any
violation by the Company, its directors, officers, employees or agents of this
Agreement or any law applicable to and in connection with such registration, and
the Company shall reimburse S.R. One and each such director, officer, agent or
affiliate, and, to the extent required by any underwriting agreement entered
into by the Company, underwriter and controlling Person for any legal or any
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, liability, action or proceeding described in
clauses (a) or (b); provided, however, that the Company shall not be
<PAGE>
-13-
liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by S.R. One, specifically stating
that it is for use in the preparation thereof. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
S.R. One or any such director, officer, agent or affiliate or controlling Person
and shall survive the transfer of such securities by S.R. One.
2.6.2 Indemnification by S.R. One. If any Registrable Securities
---------------------------
are included in any registration statement, S.R. One shall indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
2.6.1 above) the Company, each director of the Company, each officer of the
Company and each employee of the Company and, to the extent required by any
underwriting agreement entered into by S.R. One, each other Person who
participates as an underwriter in the offering or sale of such securities and
each other Person who controls any such underwriter within the meaning of the
Securities Act, with respect to any statement or alleged statement in or
omission or alleged omission from such registration statement, any preliminary
prospectus, final prospectus or summary prospectus contained therein, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company through an instrument duly executed
by S.R. One specifically stating that it is for use in the preparation of such
registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement; provided, however, that in no event shall
the liability of S.R. One under this Section 2.6.2 exceed the amount of the
proceeds to S.R. One from the sale of the Registrable Securities in any such
registration.
2.6.3 Notice of Claims, Etc. Promptly after receipt by an
----------------------
indemnified party of notice of the commencement of any action or proceeding
involving a claim referred to in the preceding paragraphs of this Section 2.6,
such indemnified party shall, if a claim in respect thereof is to be made
against an indemnifying party, immediately give written notice to the latter of
the commencement of such action; provided, however, that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding paragraphs of this
Section 2.6, except to the extent that the indemnifying party is materially
prejudiced by such failure. The indemnified party shall be entitled to receive
the indemnification payments described in Section 2.6.6 after providing such
written notice to the indemnifying party. In case any such action is brought
against an indemnified party, unless in such indemnified party's reasonable
judgment a conflict of interest between such indemnified and indemnifying
parties may exist in respect of such claim, the indemnifying party shall be
entitled to participate in and to assume the
<PAGE>
-14-
defense thereof, jointly with any other indemnifying party similarly notified to
the extent that the indemnifying parties may agree, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable out of pocket costs
related to the indemnified party's cooperation with the indemnifying party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties arises in respect of such
claim after the assumption of the defense thereof. No indemnifying party shall
be liable for any settlement of any action or proceeding effected without its
written consent, which consent shall not be unreasonably withheld, delayed or
conditioned. Consent of the indemnified party shall be required for the entry of
any judgment or to enter into a settlement only when such judgment or settlement
does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
such claim or litigation.
2.6.4 Contribution. If the indemnification provided for in this
------------
Section 2.6 shall for any reason be held by a court to be unavailable to an
indemnified party under Section 2.6.1 or 2.6.2 hereof in respect of any loss,
claim, damage or liability, or any action in respect thereof, then, in lieu of
the amount paid or payable under Sections 2.6.1 or 2.6.2 hereof, the indemnified
party and the indemnifying party under Sections 2.6.1 or 2.6.2 hereof shall
contribute to the aggregate losses, claims, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating the
same), (i) in such proportion as shall be appropriate to reflect the relative
benefits received by the Company on one hand and S.R. One on the other or (ii)
if the allocation provided by clause (i) above is not permitted by applicable
law, in such proportion as is appropriate to reflect the relative fault of the
Company on one hand and S.R. One on the other that resulted in such loss, claim,
damage or liability, or action in respect thereof, as well as any other relevant
equitable considerations. No Person guilty of fraudulent misrepresentation
(within the meaning of the Securities Act) shall be entitled to contribution
from any Person who was not guilty of such fraudulent misrepresentation. In
addition, no Person shall be obligated to contribute hereunder any amounts in
payment for any settlement of any action or claim, effected without such
Person's written consent, which consent shall not be unreasonably withheld. In
no event shall the liability of S.R. One under this Section 2.6.4 exceed the
amount of the proceeds to S.R. One from the sale of the Registrable Securities
in the related registration.
2.6.5 Other Indemnification. Indemnification and contribution
---------------------
similar to that specified in the preceding paragraphs of this Section 2.6 (with
appropriate modifications) shall be given by the Company and S.R. One with
respect to any required registration or other qualification of securities under
any federal or state law or regulation of any governmental authority other than
the Securities Act.
<PAGE>
-15-
3. Rule 144. With a view to making available the benefits of certain
--------
rules and regulations of the Commission that may permit the sale of the
Registrable Securities to the public without registration after an initial
Public Offering, the Company agrees to:
(a) provide information and such other assistance requested by S.R.
One as is customarily provided by issuers in connection with sales of their
common stock by directors or affiliates under Rule 144, promulgated under the
Securities Act;
(b) make and keep public information available, as those terms are
understood and defined in Rule 144 promulgated under the Securities Act at all
times;
(c) use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act; and
(d) deliver a written statement as to whether it has complied with
such requirements of this Section, to S.R. One
upon S.R. One's request.
4. Modification; Waivers. This Agreement may be modified or amended only
---------------------
with the written consent of each party hereto. No party shall be released from
its obligations hereunder without the written consent of the other party. The
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively) by the party
entitled to enforce such term, but any such waiver shall be effective only if in
a writing signed by the party against which such waiver is to be asserted.
Except as otherwise specifically provided herein, no delay on the part of any
party hereto in exercising any right, power or privilege hereunder shall operate
as a waiver thereof, nor shall any waiver on the part of any party hereto of any
right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder nor shall any single or partial exercise of any
right, power or privilege hereunder preclude any other or further exercise
thereof or the exercise of any right, power or privilege hereunder.
5. Entire Agreement. This Agreement represents the entire understanding
----------------
and agreement between the parties hereto with respect to the subject matter
hereof and supersedes all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
6. Severability. If any provision of this Agreement, or the application
------------
of such provision to any Person or circumstance, shall be held invalid, the
remainder of this Agreement or the application of such provision to other
Persons or circumstances, to the extent permitted by law, shall not be affected
thereby; provided, that the parties shall
<PAGE>
-16-
negotiate in good faith with respect to an equitable modification of the
provision or application thereof held to be invalid.
7. Notices.
-------
(i) Any notice or communication to any party hereto shall be duly
given if in writing and delivered in person, receipt requested, or courier
guaranteeing next day delivery, or facsimile (with written confirmation of
receipt) to such other party's address or facsimile number set forth below.
If to Careside, Inc.:
6100 Bristol Parkway
Culver City, CA 90320
Attention: W. Vickery Stoughton
Facsimile: (310)338-6789
with a copy to:
Julia D. Corelli, Esq.
Pepper Hamilton, LLP
3000 Two Logan Square
Philadelphia, Pennsylvania 19103-2799
If to S.R. One:
S.R. One, Limited
Four Tower Bridge
200 Barr Harbor Drive
Suite 250
Conshohocken, Pennsylvania 19428
Attention: Mr. Peter Sears
Facsimile:
with a copy to:
(ii) All notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered or facsimiled
(with written confirmation of receipt); and the next business day after timely
delivery to the courier, if sent by courier guaranteeing next day delivery.
<PAGE>
-17-
8. Successors and Assigns. This Agreement shall inure to the benefit of
----------------------
and shall be binding upon the Company and S.R. One and their respective
successors and permitted assigns. S.R. One may assign its rights under this
Agreement to any Person to whom S.R. One transfers any of the Registrable
Securities or any interest therein without the necessity of obtaining any
consent to such assignment, provided that such Person becomes a party to that
certain stockholders agreement, by and among the Company, S.R. One and certain
other holders of the Common Stock. In the event that S.R. One assigns its
rights to a holder or holders of only a portion of the Registrable Securities,
then all references to S.R. One herein shall also be deemed to refer to such
other holder or holders, but in such event S.R. One shall have the sole right to
make all decisions by and give notices for such holder or holders under this
Agreement; provided, that if S.R. One no longer owns any Registrable Securities,
then all decisions and notices hereunder shall be made by the holders of not
less than a majority of the Registrable Securities outstanding and all other
holders of Registrable Securities shall be bound by any such decision.
9. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which for all purposes shall be deemed to be an original
and all of which together shall constitute the same agreement.
10. Headings. The Section headings in this Agreement are for convenience
--------
of reference only, and shall not be deemed to alter or affect the meaning or
interpretation of any provisions hereof.
11. Construction. This Agreement shall be governed, construed and
------------
enforced in accordance with the laws of the Commonwealth of Pennsylvania without
regard to its principles of conflict of laws.
12. No Inconsistent Agreements. The Company has not previously, and shall
--------------------------
not hereafter, enter into any agreement with respect to its securities which is
inconsistent with the rights granted to S.R. One in this Agreement.
13. Recapitalizations, etc. In the event that any capital stock or other
----------------------
securities are issued in respect of, in exchange for, or in substitution of, any
Registrable Securities by reason of any reorganization, recapitalization,
reclassification, merger, consolidation, spin-off, partial or complete
liquidation, stock dividend, split-up, sale of assets, distribution to
stockholders or combination of the shares of Registrable Securities or any other
similar change in the Company's capital structure, appropriate adjustments shall
be made in this Agreement so as to fairly and equitably preserve, as far as
practicable, the original rights and obligations of the parties hereto under
this Agreement.
14. Arbitration. Any controversy or claim arising out of or relating to
-----------
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the Rules
<PAGE>
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of the American Arbitration Association in effect at the time such arbitration
is instituted. The arbitration panel shall be composed of three arbitrators, one
of whom shall be chosen by the Company, one of whom shall be chosen by S.R. One,
and one of whom shall be chosen by the two arbitrators previously designated. If
both or either of the Company and/or S.R. One fails to choose an arbitrator
within fourteen (14) calendar days after receiving notice of commencement of
arbitration or if the two arbitrators fail to choose a third arbitrator within
fourteen (14) calendar days of their appointment, such arbitrators shall be
chosen by the American Arbitration Association. Unless the parties to the
arbitration shall otherwise agree to a different place of arbitration, the place
of arbitration shall be Philadelphia, PA. The arbitration award shall be final
and binding upon the parties thereto and may be entered in any court having
jurisdiction. Each party shall bear (i) its own expenses in connection with such
arbitration and (ii) one-half of the fees and expenses of the American
Arbitration Association and all arbitrators. No arbitration award shall contain
any provision which is inconsistent with the preceding sentence.
15. Specific Performance. The parties hereto agree that the Registrable
--------------------
Securities of the Company cannot be purchased or sold in the open market and
that, for these reasons, among others, the holder or holders of the Registrable
Securities will be irreparably damaged in the event that this Agreement is not
specifically enforceable. Accordingly, in the event of any controversy
concerning the Registrable Securities which are the subject of this Agreement,
or any right or obligation to register such securities, such right or obligation
determined as part of an arbitration award described in Section 14 shall be
enforceable in a court of equity by specific performance. The rights granted in
this Section 15 shall be cumulative and not exclusive, and shall be in addition
to any and all other rights which the parties hereto may have hereunder, at law
or in equity. S.R. One consents to the jurisdiction of the federal courts of
the Commonwealth of Pennsylvania in any suit, action or proceeding brought
pursuant to this Section 15, waives any objection it may have to the laying of
venue in any such suit, action or proceeding in any of such court, and agrees
that service of any court paper may be made in such manner as may be provided
under applicable laws or court rules governing service of process.
16. Term. This Agreement shall continue in full force and effect until
----
the earlier of (i) ten (10) years after the last issuance of any Antidilution
Shares or Conversion Shares and (ii) the first date on which S.R. One and its
permitted assigns may sell all of the Registrable Securities held by them in a
ninety (90) day period pursuant to Rule 144 under the Securities Act.
<PAGE>
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IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed on the date first above written and delivered by their
respective duly authorized officers.
CARESIDE, INC.
By: ________________________________
Name: James Koch
Title: Chief Financial Officer
S.R. One, Limited
By: ________________________________
Name: Peter Sears
Title:
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this S-
1 Registration Statement.
Arthur Andersen llp
Philadelphia, Pa.,
May 26, 1999
<PAGE>
Exhibit 23.3
[LETTERHEAD OF OPPENHEIMER WOLFF & DONNELLY LLP]
CONSENT OF PATENT COUNSEL
We hereby consent to the reference of our firm under the caption "Experts"
regarding patent matters, as set forth in this Amendment No. 8 to Form S-1
Registration Statement of Careside, Inc., and the prospectus which forms a part
thereof.
/s/ Oppenheimer Wolff & Donnelly LLP
Oppenheimer Wolff & Donnelly LLP
Los Angeles, California
May 25, 1999
