<PAGE>
As filed with the Securities and Exchange Commission on April ___, 2000
Registration No. 333-69207
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________________
POST-EFFECTIVE AMENDMENT NO. 1 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
____________________
CARESIDE, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 3841 23-2863507
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
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.
Julia D. Corelli, Esq.
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103
(215) 981-4000
____________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement become 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. [_]
____________
<PAGE>
200,000 Redeemable Common Stock Purchase Warrants
2,4000,000 Shares Of Common Stock
[LOGO OF CARESIDE]
In our initial public offering on June 16, 1999, we sold 2,000,000 shares
of common stock. Each share of common stock was issued together with a
redeemable common stock purchase warrant. The unit price was $7.50. We also
issued warrants for an additional 200,000 units comprised of a share of common
stock and a redeemable common stock purchase warrant to the representatives of
our undewriters exercisable at $9.00 each. All redeemable common stock purchase
warrants have a $9.00 exercise price. None of the warrants or representatives'
warrants has been exercised as of the date of this prospectus.
This prospectus relates to the 200,000 redeemable common stock purchase
warrants which the representatives of our underwriters will receive if the
representatives' warrants are exercised, and to the 2,400,000 shares of common
stock which we will issue in the future if the representatives' warrants and all
the redeemable common stock purchase warrants are exercised. If all warrants are
exercised, Careside will receive $21,600,000.
The common stock and the redeemable common stock purchase warrants are
listed on the American Stock Exchange under the symbols "CSA" and "CSA.WS",
respectively. Prior to our initial public offering, there was no public market
for the common stock, warrants or units.
Investing in our common stock involves significant risks. See "Risk
Factors" beginning on page 6.
<TABLE>
<CAPTION>
Per Unit/Warrant Total
---------------- -----
<S> <C> <C>
Exercise price of Representatives' Warrants.............................. $ 9.00 $ 1,800,000
Exercise price of Redeemable Common Stock Purchase Warrants.............. $ 9.00 $19,800,000
Proceeds to Careside from the exercise of all Warrants................... $ 9.00 $21,600,000
</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.
April __, 2000
<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 Securities in any jurisdiction where it is unlawful. The information in
this prospectus is current as of April ___, 2000.
_________________
TABLE OF CONTENTS
Page
----
Prospectus Summary ............................... 1
Risk Factors ..................................... 6
Special Note Regarding Forward-Looking
Statements ..................................... 12
Use of Proceeds .................................. 13
Dividend Policy .................................. 13
Capitalization ................................... 14
Dilution ......................................... 15
Selected Financial Data .......................... 16
Management's Discussion and Analysis of Financial
Condition and Results of Operations ............. 17
Business ......................................... 21
Management ....................................... 45
Principal Stockholders ........................... 54
Certain Transactions ............................. 55
Description of Capital Stock ..................... 58
Shares Eligible for Future Sale .................. 65
Plan of Distribution ............................. 67
Legal Matters .................................... 68
Experts .......................................... 68
Where You Can Get More Information ............... 69
Index to Financial Statements .................... F-1
_________________
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<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 our common stock. 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 is selling 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, and the Careside Connect, a computer
link designed to facilitate data interchange. It also consists of a proprietary
hematology testing device called the H-2000, which we recently acquired.
The Careside system 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 cleared or exempted the Careside Analyzer for 37 blood tests
for professional laboratory use and the H-2000 is cleared or exempted for 16
blood tests. Thus, as of early April 2000, the FDA had cleared or exempted the
Careside system for 53 different blood tests, which represents most of the
routine blood tests ordered by physicians. In addition, the FDA has cleared the
Careside Analyzer as a "point-of-care" device. This clearance means that
properly trained non-technical personnel can operate the Careside Analyzer,
eliminating the need for a lab specialist to oversee each test. We will seek the
same designation for the H-2000 in 2000.
<PAGE>
In December 1999, we initiated the first of a number of product
installations in pilot sites. These pilots involve assessing both the economic
opportunity provided to the customer from the use of the Careside system and
refining an instruction manual which is intended to provide customers with the
information they need to operate a lab using the Careside system. By year end
1999, two of four planned pilots were initiated. The first was started at a
small group practice that had never run a lab. The second was with a larger
group currently operating a lab. We plan additional pilot site marketing studies
in 2000. These studies will demonstrate our system's cost-effectiveness and how
potential customers will use it. We launched the sale of the Careside system in
December 1999 and as of April 2000 have begun installations in California,
Kentucky, Arizona, Texas, with other states scheduled to follow.
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 53 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 marketing efforts are targeted towards
converting U.S. and Canadian blood testing to point-of-care testing.
We define the potential market for our products as being virtually wherever
blood is drawn from patients for standardized blood tests. Based on industry
data and estimates, we believe the addressable worldwide market for our blood
tests is expected to be $7.6 billion in 2000. The key U.S. markets we have
targeted are as follows:
. Hospitals: There are over 6,500 acute care and specialty hospitals in
the United States that require laboratory-testing services. These
services are usually provided by a central hospital laboratory that has
to be maintained on a 24-hour basis and staffed by specially trained lab
personnel.
. Physician Groups: The American Medical Association states that there are
27,100 physician groups in the United States. We estimate that 21,000 of
these groups have three or more doctors. We believe that for groups of
three or more physicians the Careside system will offer cost-effective
improvements in daily office routine, greater convenience, enhanced
patient satisfaction and new revenue opportunities.
. Nursing Homes: According to the American Healthcare Association, in 1999
there were 15,574 nursing homes in the United States comprised of more
than 1.6 million licensed beds. The average occupancy rate was over 92%,
with each nursing home averaging nearly 100 patients. Nursing homes
currently pay a premium to laboratories to receive timely results. The
Careside system would benefit nursing homes by helping them earn revenue
from Medicare and other payers, and reduce costs by decreasing the
Nursing Home's reliance on central laboratories.
. Home Care: 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. There are
currently over 20,000 home care agencies in the United States, and 9,600
of them are Medicare certified. Currently, all home care agencies rely
on commercial labs for blood testing. Home care agencies would benefit
from increased revenue opportunities by using the Careside system to
conduct blood testing in their base offices.
. Other: Field military hospitals, ships, employee health clinics, drop-in
clinics, surgi-centers, dialysis units and other alternate sites all
represent potential customer opportunities for Careside.
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. In June 1999, Careside
completed its initial public offering. Our publicly-traded
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<PAGE>
common stock is listed on the American Stock Exchange under the ticker symbol
"CSA," and our publicly-traded warrants under the symbol "CSA.WS". In December
1999, we acquired Texas International Laboratories, Inc. ("TIL"). TIL owned and
marketed a proprietary hematology testing device, renamed the H-2000, which is
now part of the Careside system.
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.
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<PAGE>
The Offering
American Stock Exchange Symbol for Common Stock......................... CSA
American Stock Exchange Symbol for Warrants............................. CSA.WS
This prospectus relates to securities not yet issued by us which are issuable
upon exercise of securites sold in our initial public offering:
200,000 Common Stock Purchase Warrants
issuable at $9.00 each upon exercise of
warrants issued to the representatives of
our underwriters
2,400,000 Shares of Common Stock issuable
by us if all of our Representatives'
Warrants and Common Stock Purchase Warrants
are exercised.
-4-
<PAGE>
Summary Financial Data
The following table presents summary financial information for Careside
and the predecessor business at Smithkline Beecham Clinical Laboratories, Inc.
You should read this data together with the financial statements and related
notes included in this prospectus (amounts in thousands except share data). The
adjusted balance sheet data reflects the effects of the sale of 1,184,091 shares
of common stock at $8.77 per share in a private placement and the exercise of
1,154 options and the purchase of 2,839 shares under our Employee Stock Purchase
Plan.
<TABLE>
<CAPTION>
Predecessor Business Careside, Inc.
--------------------------- --------------
Period from Period from
Inception Inception
Ten months (July 10, 1996) July 10, 1996)
ended to Years ended to
Year ended October 31, December 31, December 31, December 31,
December 31, ----------- --------------- -------------------------------------- ------------
1995 1996 1996 1997 1998 1999 1999
------------ ----------- --------------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenue $ - $ - $ - $ 61 $ 61
Cost of Sales - - - 31 31
-------------- ----------- ----------- --------- ------------
Gross Profit - - - 30 30
Operating expenses
Research and development $ 2,110 $ 3,055 1,562 5,896 8,298 8,252 24,008
Sales and marketing - 85 249 1,205 1,539
General and
administration 585 224 55 555 601 1,448 2,659
------------ ------------ -------------- ----------- ----------- --------- ------------
Operating loss $ (2,695) $ (3,279) (1,617) (6,536) (9,148) (10,875) (28,176)
============ ============
Goodwill amortization - - - (37) (37)
Net interest income/
(expense) (21) 205 212 (679) (283)
-------------- ----------- ----------- --------- ------------
Net loss (1,638) (6,331) (8,936) (11,591) (28,496)
Dividend on Series A
Preferred - - - (55) (55)
-------------- ----------- ----------- --------- ------------
Net loss to common
shareholders $ (1,638) $ (6,331) $ (8,936) $ (11,646) $ (28,551)
============== =========== =========== ========= ============
Net loss per share $ (2.25) $ (2.04) $ (1.93) $ (1.88)
============== =========== =========== =========
Shares used in computing
net loss per share 728,465 3,098,980 4,629,916 6,210,496
</TABLE>
<TABLE>
<CAPTION>
Careside, Inc.
--------------
December 31, 1999
-----------------
As Adjusted
Actual (unaudited)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents..................................................... $ 4,905 $ 14,449
Total assets.................................................................. 14,389 23,933
Long-term liabilities......................................................... 1,096 1,096
Deficit accumulated during development stage.................................. (28,496) (28,496)
Total stockholders' equity.................................................... 9,079 18,655
</TABLE>
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<PAGE>
RISK FACTORS
An investment in our common stock purchase warrants or our common stock
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 warrants or common stock.
If any of the following risks actually occur, our business and prospects
could be materially adversely affected, the trading price of our common stock or
warrants could decline, and you might lose all or part of your investment.
We Have a Limited Operating History and Have only Recently Begun to Generate
Revenues
We have incurred net losses of approximately $28.5 million from inception
through December 31, 1999. We have generated only a small amount of revenue from
product sales and will continue to incur significant additional operating losses
until we have sold a sufficient number of Careside systems.
Additional Funding May Not Be Available
Additional funding for our activities may come from the exercise of
our outstanding warrants. 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 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 reduce our planned marketing and
sales activities, 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 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.
The Medical Community May Not Accept the Careside System
The Careside Analyzer and our patented test cartridges, the H-2000 and the
Careside Connect 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:
We May Fail to Develop the Comprehensive Test Menu Needed to Sell Our Product
If we are not able to fully develop the remaining components of 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.
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<PAGE>
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.
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.
We May Not Be Able to Further 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. 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
Current reimbursement amounts for diagnostic tests from government
authorities, private health insurers and other third-party payers, such as
health maintenance organizations, 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.
We Have Limited Sales, Marketing and Distribution Experience
We may not be able to recruit or retain direct sales and marketing
personnel who will successfully implement our marketing strategy. 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 Quest Diagnostics Incorporated for the commercial
laboratory market in the United States and certain foreign countries. We have
also granted Fuji Photo Film Co. Ltd. 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 36 and "Certain
Transactions--SmithKline Beecham" on page 55.
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<PAGE>
The Quest Diagnostics Relationship is Still in Formative Stages, Adding
Uncertainty to Our Commercial Laboratory Market
Quest Diagnostics acquired all of the stock of SmithKline Beecham Clinical
Laboratories, Inc. in July 1999 and has thus succeeded to our distribution
agreement with SBCL. We have had no prior business relationship with Quest
Diagnostics and continue to discuss with Quest Diagnostics their intentions with
respect to distribution of our products under this agreement. Just as SBCL
could, Quest Diagnostics may choose to distribute our products, terminate the
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. We have converted from manual production of cartridge
components and assembly to an automated system to produce cartridge components.
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
Our contract manufacturers and suppliers may not be able to meet our
demand. We will purchase the materials used in the test cartridges from outside
suppliers. Each of our supply agreements has termination rights. Any
interruption in supply would adversely affect our schedule. See "Business--
Manufacturing and Supply" on page 39.
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--Chief Technology
Officer. 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 51.
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
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<PAGE>
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 currently have three U.S. patents granted on our cartridge technology.
Six other patents have been filed to date and we expect to file additional
patents in the future. International patents have also been filed. The six
patents filed to date include one that was filed jointly with International
Technidyne Inc. and covers a reagent that was co-discovered. The other five
patents include one more cartridge patent and four device patents. We cannot be
certain that these additional patents will be granted or that our patents will
withstand any challenges by third parties.
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 40.
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, and in certain cases licensed on a non-exclusive basis to
us. We believe alternative technology does exist, but we cannot be sure that we
would be able to achieve access to any such technology. If our access to our
current technology terminated, our development efforts
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<PAGE>
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 the 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 41. The
following are the greatest regulatory risks we face:
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
of any of our products.
We Need Additional FDA Pre-Market Clearances if We Significantly Modify Our
Products or Add to Our Test Menu
FDA regulations require rigorous laboratory and clinical testing to
establish product performance before commercial marketing. Significant
modifications to the Careside Analyzer will require new applications for
pre-market clearance. We cannot be certain that we will 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.
Significant Number of Shares Eligible for Future Sale Could Lower Market Price
As of the date of this prospectus, we have 8,797,665 shares of common
stock outstanding. Of these shares, 2,006,341 shares of common stock have been
registered and are freely tradable without restrictions or further registration
under the Securities Act. Absent registration, of the remaining 6,790,170
shares, 141,613 shares may be sold into the public market under Rule 144
currently, 4,942,727 may be so sold on or after June 16, 2000, and 521,739 may
be so sold or on or after December 7, 2000. In addition, absent registration,
956,039 shares may be sold into the public market under Rule 144 without
restriction on or after March 8, 2002 and 228,052 shares may be sold into the
public market under Rule 144 without restriction on or after March 30, 2002. We
have also granted and have outstanding options to purchase 585,316 shares of
Common Stock. In addition, our current stock option plans and employee stock
purchase plan permit us to grant options for, or issue, an additional 741,397
shares of common stock in the future.
The resale of our outstanding non-traded common shares or of common
shares issuable upon exercise of our outstanding warrants and options into the
public market, subject to compliance with the Securities Act, could have a
depressive effect on the market price of our Common Stock.
-10-
<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.
As of the date of this prospectus, our directors and executive officers,
together with the principal stockholders of Careside, will own or control
approximately 18.3% of our outstanding common stock (excluding the effect of
options and warrants). 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 54.
Future Issuances of Preferred Stock May Dilute Rights of Common Stockholders
Our Board of Directors has the authority to issue up to 4,837,086 shares of
preferred stock 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. In addition, 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 59.
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 63.
The Market Prices of Shares of Common Stock and Warrants May Be Volatile
The market prices of shares of common stock and warrants 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 our publicly traded 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 $14.00 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. This kind of redemption may occur immediately. See "Description of
Capital Stock--Publicly Traded Warrants" on page 56.
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 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.
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<PAGE>
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. These statements include, but are
not limited to, information about our cash available to fund our future
operations, future enhancements to our products, growth of the in vitro testing
and point-of-care testing markets, completion of the immunochemistry test
cartridge, and the planned addition of further tests to our menu. 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 6.
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.
-12-
<PAGE>
USE OF PROCEEDS
If all outstanding warrants were exercised, the total proceeds to us from
the exercise of the representatives' Warrants and publicly-traded warrants would
be $21,600,000. We would expect to use any proceeds of warrant exercises to
repay debt and for further product development, such as the future enhancements
described on page 33, and related expenses, to purchase manufacturing equipment,
expand our facilities, to build inventory, for development of our sales and
marketing force, and to provide working capital.
Pending use of the net proceeds, we would invest any such funds in
short-term bank deposits and investment grade securities, United States
government securities, and other short-term, income-producing securities.
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.
-13-
<PAGE>
CAPITALIZATION
The following table sets forth as of December 31, 1999 for Careside:
. the actual capitalization of Careside at December 31, 1999; and
. the pro forma as adjusted capitalization which shows the effect of:
. the sale of 1,184,091 shares of common stock in the March 2000
private placement at the offering price of $8.77 per share and
the net proceeds of the offering,
. the exercise of 1,154 options in February 2000 at $.052 each, and
. the purchase of 2,839 shares under our Employee Stock Purchase
Plan in March 2000 for total proceeds of $22,000.
This table should be read in conjunction with our Financial Statements
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
December 31, 1999
-----------------
(000 omitted)
Pro Forma
Actual As Adjusted
------ -----------
<S> <C> <C>
Current portion of long-term debt:
Equipment loan due finance company $ 316 $ 316
Note payable under bridge financing(1) 2,000 2,000
Capital lease 11 11
-------- --------
Total current portion of long-term debt 2,327 2,327
Long-term debt:
Equipment loan due finance company 1,060 1,060
Obligation under capital lease 36 36
Stockholders' equity:
Preferred Stock, $.01 par value-- 5,000,000 shares 2 2
Authorized; 162,914 shares Series A Convertible Preferred
Stock issued and outstanding (actual)
Common Stock, $.01 par value-- 50,000,000 shares 76 88
Authorized; 7,609,581 shares issued and Outstanding (actual) and
8,797,665 shares issued and outstanding (pro forma as adjusted)/(2)/
Additional paid-in capital 37,497 47,052/(3)/
Deficit accumulated during development stage (28,496) (28,496)
-------- --------
Total stockholders' equity 9,079 18,646
-------- --------
Total capitalization $ 12,502 $ 22,069
======== ========
</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" and
"Certain Transactions--Financing Activities".
(2) Excludes 4,168,417 shares of common stock issuable upon exercise of options
and warrants. Also excludes an aggregate of 325,828 shares of common stock
issuable upon conversion of the Series A Convertible Preferred Stock and
exercise of warrants received on conversion. Also excludes 154,247 shares
issuable upon exercise of contingent warrants issued in our March 2000
private placement.
(3) Gross proceeds of our March 2000 private placement were $10.4 million.
Expenses were approximately $840,000.
-14-
<PAGE>
DILUTION
As of December 31, 1999, our net tangible book value was $6,280,662, or
$0.83 per share of common stock. Net tangible book value per share represents
our total tangible assets less total liabilities, divided by the total number of
shares of common stock outstanding. Without taking into effect any changes in
the net tangible book value after December 31, 1999, other than to give effect
to:
. the exercise of representatives' Warrants to purchase 200,000 shares
of common stock and warrants to purchase an additional 200,000 shares
of common stock at $9.00 per share;
. the exercise of the 200,000 warrants issued upon exercise of the
representatives' Warrants;
. the exercise of warrants to purchase an additional 2,200,000 shares of
our common stock offered hereby, all at an exercise price of $9.00 per
share; and
. the application of the net proceeds therefrom,
our as adjusted net tangible book value as of December 31, 1999 would have been
$29,680,662 or $2.91 per share. This represents an immediate increase of $2.08
per share of common stock to existing stockholders and an immediate dilution in
as adjusted net tangible book value of $6.09 per share of common stock to the
warrantholders who exercised their warrants. The following table illustrates
this per share dilution:
<TABLE>
<S> <C>
Warrant exercise price........................................................ $9.00
Net tangible book value per share before exercise of warrants................. $0.83
Increase in net tangible book value per share attributable to exercise of
warrants...................................................................... $2.08
As adjusted net tangible book value per share after exercise
of warrants................................................................... $2.91
Dilution in tangible book value per share to warrantholders who exercised
their warrants................................................................ $6.09
=====
</TABLE>
The following table summarizes on an as adjusted basis as of December 31,
1999, the differences between the existing stockholders and the warrantholders
who exercise their warrants, with respect to the number of shares of common
stock received upon exercise of warrants, the total consideration paid, and the
average price per share paid:
<TABLE>
<CAPTION>
Shares and Warrants
-------------------
Purchased Total Consideration
--------- -------------------
Average
-------
Number Percent Amount Percent Price Per Share
------ ------- ------ ------- ---------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............. 7,609,581 74.5% $38,334,867 62.1% $5.04
Warrantholders who exercise their
warrants.......................... 2,600,000 25.5% $23,400,000 37.9% $9.00
Total.......................... 10,209,581 100% $61,734,867 100%
========== ==== =========== ====
</TABLE>
The above computations assume the exercise of all outstanding publicly
traded warrants to purchase our common stock. All of these outstanding warrants
are described in "Description of Capital Stock" on page 58.
-15-
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of Careside and the predecessor
business at Smithkline Beecham Clinical Laboratories, Inc. should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Financial Statements and notes thereto (in
thousands, except share data).
<TABLE>
<CAPTION>
- -----------------------------
Statement of Operations Data Predecessor Business Careside, Inc.
- ----------------------------- -------------------- --------------
Period from Period from
Inception Inception
Ten months (July 10, 1996) (July 10, 1996)
Ended to Years ended to
Year ended October 31, December 31, December 31, December 31,
December 31, ----------- --------------- ------------------------------------ --------------
1995 1996 1996 1997 1998 1999 1999
------------ ----------- --------------- ------------ ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue - - - 61 61
Cost of Sales - - - 31 31
--------------- ------------ ----------- ----------- --------------
Gross Profit - - - 30 30
Operating expenses
Research and development $ 2,110 $ 3,055 1,562 5,896 8,298 8,252 24,008
Sales and marketing - 85 249 1,205 1,539
General and administration 585 224 55 555 601 1,448 2,659
----------- ---------- --------------- ------------ ----------- ----------- --------------
Operating loss $(2,695) $(3,279) (1,617) (6,536) (9,148) (10,875) (28,176)
Goodwill Amortization - - - (37) (37)
Net interest income/(expense) (21) 205 212 (679) (283)
--------------- ------------ ----------- ----------- --------------
Net loss (1,638) (6,331) (8,936) (11,591) (28,496)
Dividend on Series A Preferred - - - (55) (55)
--------------- ------------ ----------- ----------- --------------
Net loss to common shareholders $ (1,638) $ (6,331) $ (8,936) $ (11,646) $(28,551)
=============== ============ =========== =========== ==============
Net loss per share (2.25) (2.04) (1.93) (1.88)
=============== ============ =========== ===========
Shares used in computing
net loss per share 728,465 3,098,980 4,629,916 6,210,496
</TABLE>
<TABLE>
<CAPTION>
- -------------------
Balance Sheet Data Careside, Inc.
- ------------------- Predecessor --------------
Business December 31,
-------- ----------------------------------------------
1995 1996 1997 1998 1999
-------- ------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ - $ 31 $ 1,237 $ 3,927 $ 4,905
Total assets 307 1,193 3,140 7,911 14,389
Long-term liabilities - - - 2,045 1,096
Deficit accumulated during the
development stage (3,670) (1,638) (7,969) (16,905) (28,496)
Total stockholders' equity (deficit) - (1,067) 2,438 4,149 9,079
</TABLE>
-16-
<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 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.
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, 1999, the aggregate loss incurred was approximately $28.5
million. We expect to incur significant additional losses over at least the next
12 months as we continue product development activities, complete a pilot
marketing program and expand marketing efforts.
Results of Operations
Years Ended December 31, 1999 and 1998
Research and Development Expenses. Research and development expenses
remained basically unchanged for the year ended December 31, 1999 as compared to
the year ended December 31, 1998. Total expense for 1999 remained at
approximately $8.3 million. This reflects the Company's efforts to complete the
production design of the Careside Analyzer and to support additional test
submissions to the FDA.
Selling and Marketing Expenses. Selling and marketing expenses increased to
$1.2 million for 1999 compared to $249,000 in the same period in 1998. This
increase reflects the preparations for the launch of the Careside system in
1999, including the partial year effect of hiring sales force staff.
General and Administrative Expenses. General and administrative expenses
increased to $1.4 million for 1999 compared to $601,000 in the same period in
1998. This increase reflects the increase in efforts related to computer systems
and software consulting, salaries for additional administrative staff, and
increased legal expense and investor relations efforts after the initial public
offering in 1999.
Net Interest Income (Expense). Interest income was $291,000 for the year
ended December 31, 1999 as compared to $234,000 for the same period in 1998.
This reflects comparable levels of cash and cash equivalents available for
investment. Interest expense was $971,000 for 1999 compared to $22,000 in 1998.
This increase 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 charges associated with the cost of warrants granted to S.R.
One in connection with the bridge loan facility and its partial conversion to
preferred stock in 1999.
Goodwill. Goodwill amortization of $36,000 associated with the December
1999 acquisition of Texas International Laboratories was recorded for part of
one month in 1999. No such expense occurred in prior periods.
Net Loss. The net loss increased to approximately $11.6 million for the
twelve months ended December 31, 1999 compared to $8.9 million in the same
period in 1998. This increase reflects the increase in selling and marketing,
administrative 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.
-17-
<PAGE>
Selling and Marketing Expenses. Selling and marketing expenses increased to
$249,000 for the year ended December 31, 1998 compared to $85,000 in the same
period in 1997, an increase of 192%. This increase reflects the increase in the
preliminary sales and marketing efforts and the full year effect of marketing
staff salaries.
General and Administrative Expenses. General and administrative expenses
increased to $601,000 for the year ended December 31, 1998 compared to $555,000
in the same period in 1997, an increase of 8%.
Net Interest Income (Expense). Net 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.
Liquidity and Capital Resources
We have financed our operations since inception primarily through the net
proceeds generated from the issuance of common stock and preferred stock,
warrants, long-term debt and certain short-term borrowings that were
subsequently converted into equity securities. As of December 31, 1999, we have
received net proceeds aggregating approximately $36.8 million from these
transactions.
Net cash used in operating activities for the twelve months ended December
31, 1999 was approximately $9.4 million. For the twelve months ended December
31, 1999, cash used in operating activities represents the net loss for the
period offset by an increase in depreciation, accrued expenses and the non-cash
amortization of imputed interest in the S.R. One bridge loan and warrants. 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. Cash used for operations was primarily
related to funding expansion of research and development activities as well as
the establishment of marketing, sales and administrative infrastructure.
Cash used in investing activities for the purchase of property and
equipment was approximately $3.8 million for the twelve months ended December
31, 1999 and $2.0 million and $0.9 million for the years ended December 31, 1998
and 1997, respectively. The cash was used primarily for the acquisition of
manufacturing equipment and laboratory equipment used in research and
development.
At December 31, 1999, our principal source of liquidity was approximately
$4.9 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
$1.4 million of this facility was drawn by December 1999 and was secured by our
existing equipment. We anticipate drawing the remaining amount by mid-2000
which will be secured by manufacturing equipment for cartridge assembly which we
have purchased previously. Each equipment loan has 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 bridge financing with S.R.
One, Limited in December 1998. Under this agreement, $1.5 million was funded in
December 1998 and $1.5 million was funded in January 1999. In June 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, into shares of Series A
Convertible Preferred Stock. The conversion price was $6.375, which was 85% of
the initial public offering price per unit. S.R. One received 162,914 shares of
Series A Convertible Preferred Stock. Each share of Series A Convertible
Preferred Stock may in turn be converted, at the option of the holder, 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 share and warrant units at $7.50 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 our initial public offering. The annual
interest rate on the remaining $2 million
-18-
<PAGE>
increased to 10% on July 1, 1999. S.R. One has 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 previous $1
million conversion discussed above.
We issued a bridge warrant to S.R. One, Limited in connection with the
bridge financing. The bridge warrant was initially 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. 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 was 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 $6.375.
Upon completion of our initial public offering, the bridge warrant became
exercisable for 235,294 shares of common stock. The bridge warrant also has an
exercise price of $6.375 and became exercisable on December 31, 1999. It will
expire on June 16, 2003.
In March 2000, the Company completed the sale of an additional 1,184,091
shares of common stock in a private placement to 9 institutional investors at a
price of $8.77 per share, raising a gross amount of $10.4 million. Expenses of
this transaction were approximately $840,000. Based on the net proceeds from
this transaction, plus existing sources of liquidity, which contemplates that $2
million of bridge equity will be converted to equity, we project adequate cash
to fund planned operations into 2001. However, until the $2 million of bridge
financing has been converted and the company has successfully entered its
targeted markets, there are uncertainities that may impact the Company's ability
to fund its planned operations and meet its operational objectives.
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 lower than past spending for test
development. Sales and marketing activities will require hiring and training of
additional staff in 2000. 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.
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 gain
market acceptance, the exercise of outstanding warrants to purchase common
stock, 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, 1999, we had approximately $17.8 million and $759,000 of
net operating loss and research and development credit carryforwards,
respectively, for federal income tax purposes, which expire on various dates
between 2011 and 2014. These amounts reflect different treatment of expenses for
tax reporting than are used for financial reporting. 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 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
-19-
<PAGE>
We previously 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. We did
not experience Year 2000 issues in any of the three catagories. As a result no
additional costs were realized.
-20-
<PAGE>
BUSINESS
General
We have developed and 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 hematology tests. We plan to offer
immunochemistry tests for the Careside system later in 2000. Tests in these five
different test categories 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 five 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, the H-2000 and the Careside Connect. The H-2000 is a separate
hematology testing device. The Careside Connect, which is currently under
development, is a data interface which will link the testing devices and
facilitate electronic data interchange to customer information systems. It will
enable the electronic transmission of blood test results. We expect to release
the Careside Connect for sale in the summer 2000. 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 the
H-2000, and pre-market clearance or exemption for 37 blood tests performed by
the Analyzer and a 16-parameter hematology test for the H-2000, as well as tests
for professional laboratory use. As part of our market strategy, we have
received FDA approval for point-of-care testing for the Careside Analyzer,
thereby enabling its use by non-technical personnel with appropriate training.
Similar approvals will be sought for the H-2000 this year.
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. Much 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 system then performs the test by analyzing
the reaction between the reagent and the patient's blood. Currently, we have
agreements with:
. Fuji Photo Film Co., Ltd. for the supply of its dry film based chemistry
reagents (exclusive);
. International Technidyne Corporation for the joint development of
coagulation reagents;
. UMM Electronics, Inc. to design and manufacture the Careside Analyzer;
In addition, we have design and manufacturing agreements for the H-2000,
clearing and reagent solutions with:
. Ysebaert to design and manufacture the H- 2000; and
. Aqua Solutions to manufacture certain hematology solutions.
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. Hauser designed
the outer appearance of the Careside Analyzer and has been contracted to modify
the outside appearance of the H-2000 with the goal of achieving an appearance
similar to the Careside Analyzer.
In 1993, SmithKline Beecham Clinical Laboratories, Inc. ("SBCL")
conducted extensive surveys of the point-of-care market. As a result, in 1994,
SBCL started our predecessor business to develop the technology we use today. 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
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create a commercial product. This acquisition has resulted in the development
and commercial launch of the Careside Analyzer.
Several senior members of our management team worked on this point-of-care
project at SBCL, including Vickery Stoughton, our Chief Executive Officer, and
Thomas Grove, Executive Vice President--Chief Technology Officer. SBCL has since
been acquired by Quest Diagnostics Inc. We continue to have a business
relationship with Quest Diagnostics through a distribution and supply agreement
described in greater detail below. This agreement gives Quest Diagnostics
distribution rights in the United States and certain foreign countries,
including the right to use the Careside system in its commercial laboratory
business. Discussions with Quest Diagnostics concerning the implementation of
the contract were put aside because of consolidation priorities within Quest
Diagnostics and SBCL. Contract discussions between Quest Diagnostics and
Careside have recently been resumed; however, it is too early to make any
comments on the possible outcome of these ongoing discussions.
In June 1999, we completed our initial public offering. Our publicly
traded common stock is listed on the American Stock Exchange under the ticker
symbol CSA, and our publicly traded warrants under the symbol CSA.WS. In
December 1999, we acquired Texas International Laboratories, Inc. (TIL). TIL
owned and marketed a proprietary hematology-testing device that we have renamed
the Careside H-2000. Additional information on the TIL acquisition is included
below.
The Laboratory Testing Market
General
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 53 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.
Hewlett Packard has calculated that the total U.S. market for point-of-care
testing was $1 billion in 1998 and is projected to grow at 16% per year. These
projections are based on the type of products that have been introduced into the
diagnostic blood testing market through the end of 1998. We believe that the
Careside system further expands the market opportunity because, for the first
time, it creates the ability to decentralize approximately 60% of all tests
performed in central labs by moving these tests and the lab operations to
decentralized settings. Furthermore, we believe that our product more than
doubles the U.S. market opportunity defined by Hewlett Packard, and that the
Careside system has an approximately three year head start on any competing
product. Therefore, we define the market opportunity to be virtually wherever
blood is drawn from patients for standardized blood tests. Based on industry
data and estimates, we believe the worldwide market for our blood tests is
expected to be $7.6 billion in 2000. The key targeted markets in the United
States that we identified are as follows:
. Hospitals: There are over 6,500 acute care and specialty hospitals in
the United States that require laboratory-testing services. These
services are usually provided by a central hospital laboratory that has
to be maintained on a 24-hour basis and staffed by specially trained lab
personnel.
. Physician Groups: The American Medical Association states that there are
27,100 physician groups in the United States. We estimate that 21,000 of
these groups have three or more doctors. We believe that for groups of
three or more physicians the Careside system will offer cost-effective
improvements in daily office routine, greater convenience, enhanced
patient satisfaction and new revenue opportunities.
. Nursing Homes: According to the American Healthcare Association, in 1999
there were 15,574 nursing homes in the United States comprising more
than 1.6 million licensed beds. The average occupancy rate was over 92%,
with each nursing home averaging nearly 100 patients. Nursing homes
currently pay a premium to laboratories to receive timely results. The
Careside system would benefit nursing homes by helping them earn revenue
from Medicare and other payers, and reduce costs by decreasing the
Nursing Home's reliance on central laboratories.
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<PAGE>
. Home Care: 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. There are
currently over 20,000 home care agencies in the United States, and 9,600
of them are Medicare certified. Currently, all home care agencies rely
on commercial labs for blood testing. Home care agencies would benefit
from increased revenue opportunities by using the Careside system to
conduct blood testing in their base offices.
. Other: Field military hospitals, ships, employee health clinics, drop-in
clinics, surgi-centers, dialysis units and other alternate sites all
represent potential customer opportunities for Careside.
Central Laboratory Processing
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 have been 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.
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.
Medicare and other third party insurance reimbursement for diagnostic tests
flow directly to the laboratories performing the testing, not the healthcare
professional ordering the test. Skilled lab technicians maintain nearly all
centralized laboratories, and run large batches of tests simultaneously. There
are considerable costs associated with performing diagnostic analysis in such a
centralized manner including:
. High labor costs associated with:
=> the skilled laboratory technicians required to operate large batch
testing machines;
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<PAGE>
=> other central lab employees engaged in sample identification, bar-
coding and labeling, sample splitting, centrifuging and pipetting,
and racking and sorting of patient specimens;
=> daily Quality Assurance and Quality Control processes on
each large analyzer and on the reagents used in the analyzers.
. Transportation costs attributed to transporting blood samples from the
point-of-care to the centralized laboratory location.
. Substantially higher equipment and other capital costs for large batch
testers.
Managed Care's Impact on Blood Testing
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. The Careside system is 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.
Further, even with the focus on managed care, 70% of all testing is
reimbursed on a fee for service basis. A significant number of managed care
contracts with commercial labs that capitated testing services were signed years
ago. We believe that many commercial labs have lost money on these contracts,
and as they have come up for renewal they are being converted to fee for service
contracts, or the commercial labs are seeking significant increases in the
capitation commitments or not renewing the contract. It is our belief that these
factors will contribute significantly to making the Careside system a desired
alternative to central lab testing.
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:
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. 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 and H-2000, 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 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 is designed to perform hematology, chemistry,
electrochemistry, coagulation and immunochemistry tests. At the time of
product launch, 53 tests, including sixteen hematology tests, were
launched into the market. This, we believe, substantially exceeds the
capabilities of any point-of-care system currently on the market.
. 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 or with the
reagents in the H-2000. Data transfer is easily acccomplished using the
Careside Connect product to connect data into local area networks or
through the Internet.
. 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.
Currently it is the laboratory, not the physician, that gets paid for
performing blood tests. The Careside Analyzer, with 37 tests, and the H-2000,
with a 16-parameter test, are cleared for marketing in the United States. Our
commercial product launch occurred in the fourth quarter of 1999, at which time
53 tests were placed in the market as part of the Careside system. In addition
to the product launch, we have started or are starting pilot marketing studies
in physician offices, nursing homes, and a large health care system. These pilot
studies are intended 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. The outcome of these
studies will be used to improve the market strategy and tools used in the sales
process. The Careside system is being sold in the United States through our own
sales force. This effort will be enhanced with the conclusion of the pilot
studies expected in the second quarter of 2000. In addition to the testing
devices, the Careside system includes the Careside Connect, which takes data
from each of the testing devices, transforms the data into a standard format and
then enables it to be connected to a local area network or into the web. Having
this data connection capability greatly enhances the opportunity to sell the
Careside system to customers that are large enough to have electronic record
systems that support patient records and or lab operations. We believe that this
systematic commercial rollout improves the chances of having more rapid market
acceptance.
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<PAGE>
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 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. 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 market. The Careside system and its broad menu of
tests is designed to combine the four different test categories of chemistry,
electrochemistry, coagulation and immunochemistry into a single testing
instrument and allow point-of-care testing for hematology tests with the H-2000.
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 Careside Analyzer, and Ysebaert develops and
manufactures the H-2000. 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, with 37 tests, and
the H-2000, with a 16 parameter test, are cleared for marketing in the United
States. Our commercial project launch occurred in the fourth quarter of 1999, at
which time 53 tests were placed in the market as part of the Careside system. In
addition to the product launch, we have started or are starting pilot marketing
studies in physician offices, nursing homes, and a large health care system.
These pilot studies are intended 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. The outcome of these
studies will be used to improve the market strategy and tools in the sales
process. The Careside system is being sold in the United States through our own
sales force. This effort will be enhanced with the conclusion of the pilot
studies expected in March 2000. In addition to the testing devices, the Careside
system includes the Careside Connect, which takes data from each of the testing
devices, transforms the data into a standard format
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<PAGE>
and then enables it to be connected to a local area network or to the web.
Having this data connection capability greatly enhances the opportunity to sell
the Careside sytem to customers that are large enough to have electronic record
systems that support patient records and or lab operations. We believe that this
systematic commercial rollout improves the chances of having more rapid market
acceptance.
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<PAGE>
Status of CARESIDE Product Development
<TABLE>
<CAPTION>
===================================================================================================================================
PRODUCT REGULATORY STATUS TECHNOLOGY PARTNER
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CARESIDE ANALYZER Cleared under Section 510(k) of the Food, Drug and Cosmetic Act for use in UMM Electronics, Inc.
licensed laboratories and for point-of care use (POC). Hauser, Inc.
- -----------------------------------------------------------------------------------------------------------------------------------
DISPOSABLE TEST Test cartridges are integral to approval of the tests listed below.
CARTRIDGES Chemistry, electrochemistry and coagulation cartridges have been developed. Battelle
The immunochemistry test cartridge is in development.
===================================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Test Category Cleared/Exempt for Submitted Pending Planned 2000
Laboratory and POC Use Marketing Clearance Submissions
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Chemistry Glucose Hemoglobin Fuji Photo Film Co., Ltd.
BUN (Urea Nitrogen) Lactate
Creatinine Cholinesterase
BUN/Creatinine Ratio Direct LDL-cholest.
Albumin Direct HDL-cholest.
A/G Ratio (calc.)
Globulin (calc.)
Creatine Kinase
Creatine Kinase MB
% CKMB (calc.)
Total Cholesterol
HDL-Cholesterol*
LDL-Cholesterol
(calc.) Cholesterol/HDL
Chol Ratio
GGT
ALT
Total Bilirubin
Phosphorus
Total Protein
Total Calcium
Uric Acid
Triglycerides
LDH
Bilirubin, Direct
Ammonia*
Carbon Dioxide, Total Anion
Gap (CO2+Echem)
Magnesium
Osmolality
Alkaline Phosphatase
AST
ALT/AST Ratio
Amylase
- -----------------------------------------------------------------------------------------------------------------------------------
Electrochemistry Chloride Ionized Calcium Fuji Photo Film Co., Ltd.
Potassium
Sodium
- ------------------------------------------------------------------------------------------------------------------------------------
Coagulation PT* APTT International Technidyne
Fibrinogen Corporation
Thrombin Time
- -----------------------------------------------------------------------------------------------------------------------------------
Immunochemistry Theophylline Diagnostic Reagents, Inc.
Phenytoin
Digoxin
Phenobarbital
T4
T3 Uptake
Carbamazepine
===================================================================================================================================
</TABLE>
* Requires separate clearance or exemption for point-of-care.
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<PAGE>
Status of CARESIDE Product Development
<TABLE>
<CAPTION>
===================================================================================================================================
PRODUCT STATUS OF DEVELOPMENT TECHNOLOGY PARTNER
- -----------------------------------------------------------------------------------------------------------------------------------
CARESIDE H-2000 FDA Cleared Ysebaert
16 parameter, 3 part differential
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
16 parameter, 3 part differential All hematology tests have been FDA cleared Aqua Solutions
Hematology Tests under Section 510(k)
WBC
RBC
Platelet count
Lymphocyte
% Lymphocyte
Monocyte
% Monocyte
Granulocytes
% Granulocytes
Hematocrit
Hemoglobin
MCV
MCH
MCHC
RDW
MPV
PCT**
PDW**
===================================================================================================================================
</TABLE>
** For diagnostic use outside U.S., for quality control use within U.S.
<TABLE>
<CAPTION>
===================================================================================================================================
COMMUNICATION STATUS OF DEVELOPMENT TECHNOLOGY PARTNER
PRODUCT
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CARESIDE CONNECT provides an electronic
link between the Careside Analyzer and the To be available Q3, 2000 Advanced Medical Information
Careside H-2000. Technologies, Inc.
===================================================================================================================================
</TABLE>
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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 includes 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 14 inches tall by 12 inches wide and
11 inches deep and weighs about 24 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."
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<PAGE>
[GRAPHICS APPEAR HERE]
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 as 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 are currently developing a data
interface, called the Careside Connect, which allows the electronic transmission
of blood test results in a standard data format. We expect to release the
Careside Connect for sale in the summer of 2000.
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 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
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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 (ul) 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 offers the H-2000, a hematology testing device. We are not aware
of any point-of-care blood testing system on the market that has this combined
capability.
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.
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
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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.
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.
The H-2000. Hematology testing determines various attributes of a patient's
blood, such as how many platelets, monocytes or lymphocytes it has. In December
1999, we acquired Texas International Laboratories (TIL) in an all-stock
acquisition. TIL was a privately held corporation owned by two shareholders:
Yves and Jean LeBihan. TIL was founded in 1983. Over the last three years, it
developed a new hematology analyzer, the Hematil-2000, which we have renamed the
Careside H-2000. This device was introduced to the market in April 1999 as a
high quality, low cost hematology analyzer that was designed for both human and
animal testing. We have signed a three year employment contract with Jean
LeBihan and a consulting agreement with Yves LeBihan for a similar term. Jean
has responsibility for veterinary market sales of our products and will assist
the sales force with the sale of the H-2000 into the human market. Yves LeBihan,
the original founder of TIL will continue work in developing international sales
and assist us in the development of future generations of hematology products.
The H-2000 is currently being sold into China, Mexico, Brazil, Turkey, Egypt,
Algeria, Korea and various South American countries through specific
distribution agreements.
The H-2000 weighs 37 lbs. and measures only slightly larger than a cubic
foot. It can provide 16 hematology diagnostic tests in approximately 2 minutes
from the time whole blood is drawn from a patient. The H-2000 is self-cleaning
and automatic and can provide flagging of suspected abnormalities in various
cell populations. The architecture is an open system that allows the H-2000 to
operate with a number of different reagent brands, giving it a high level of
flexibility. Closed systems typically add costs to the process. Our strategy is
to provide the low cost alternative in hematology testing.
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Although the H-2000 is an open system that allows the use of reagents
manufactured by others, we plan to sell reagents at attractive prices for H-2000
customers.
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[GRAPHICS APPEAR HERE]
The H-2000 is easy to operate. A few drops of blood are drawn into the H-2000
through an aperture from either a normal test tube or a capillary tube used in a
finger prick. The blood is automatically distributed into counting chambers.
Reagents are mixed or used in counting chambers in combination with both optical
and electronic counting methods which perform up to four cross-referenced
measurements per sample, thereby ensuring accurate counts. The reagents and
cleaning fluids are flushed into a disposal bottle for standard blood sample
disposal.
The Careside Connect
We have partnered with Advanced Medical Information Technologies, Inc.,
also known as AdMIT, to develop a link between the Careside Analyzer and the
H-2000 and between the Careside system and other medical devices and information
systems. This cabled interface will enable users of the Careside Analyzer to
connect hematology devices (including the H-2000) 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. AdMIT is
controlled by our recently hired Chief Information Officer, Dennis Reiger. We
will have exclusive rights to use the Careside Connect in the point-of-care
market for laboratory tests.
In addition to linking the Careside Analyzer and the H-2000 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.
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 included 53 tests, representing about 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.
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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.
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.
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
comprising 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.
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.
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Pilot Program
In December 1999, we initiated the first of a number of product
installations in pilot sites. These pilots involve assessing both the economic
opportunity provided to the customer from the use of the Careside system and
refining an instruction manual which is intended to provide customers with the
information they need to operate a lab using the Careside system. By year end
1999, two of four planned pilots were initiated. The first was started at a
small group practice that had never run a lab. The second was with a larger
group currently operating a lab.
We have worked with an outside consultant/programmer to develop a software
system for modeling the economic opportunity of specific point of care
operations. This system is designed to develop a customer-specific economic
model based on historical test volumes and all lab cost that would be incurred
by using the Careside system. This software product has been made available to
the Careside sales force.
We will be launching further pilots in nursing homes and in a large health
care system in 2000. In all the pilots we will be looking at the most cost
effective start up process, the impact on customer productivity, patient
reactions to immediate test results, and any other benefits that might result.
In addition to the pilots, we launched the sale of the Careside system to the
market in December 1999 and have begun installing the system in California,
Kentucky, Arizona and Texas, with other states scheduled to follow.
At our commercial product launch we had the Careside Analyzer, the H-2000
and 53 tests, including 16 hematology tests cleared by the FDA or exempt from
FDA approval. We expect to use the outcome of the pilot market studies to
further develop our marketing strategy. We believe that the Careside system's
planned menu represents virtually all routine blood tests ordered most of the
time on an outpatient basis. We are distributing the Careside system in the
United States through our own sales force.
Sales
Domestic
Careside has hired four regional sales directors in the United States.
These regions are divided into the Northeast, South, Midwest and West. As
contracts are signed, we will add to the sales force. We decided that the U.S.
market opportunity could be better addressed through our own sales force rather
than through distributors because the Careside system changes the routine blood
testing process by decentralizing lab operations. Selling decentralized lab
operations is substantially different than selling testing devices. The Clinical
Laboratory Improvement Amendments (CLIA) require all providers who provide
testing services to demonstrate quality control (QC) and quality assurance (QA)
processes that are standard to the industry. Prior to CLIA, only commercial and
hospital labs had demonstrated these standards. CLIA added both cost and
administrative difficulty to those labs that did not meet these operating
requirements. Our products are easy to use. They also address the regulatory
issues required by CLIA and greatly lower the cost of QA/QC processes by
automatically providing documentation required by CLIA. We are selling a lab
that can be operated at the point of care and our sales force has been trained
to prepare our customers to operate a lab using our products. This means
calibration of each test at the customer site, initial documentation for QA/QC
data files, and other preparation work that is related to lab operations. These
functions are not ones that distribution companies readily know how to perform.
Members of our senior management team originated with SmithKline Beecham, where
over 100 million tests a year, in over 150 testing sites were conducted. We are
familiar with lab operations, and based on this knowledge, developed a product
that currently has no equivalent. We have trained our sales force with the
knowledge needed to sell and install cost-effective lab systems in our customer
sites. These sites include hospitals, 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 over time.
We entered into a distribution agreement with SBCL which gave SBCL an
exclusive right, as a commercial laboratory, to use and domestically 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 obligated SBCL, upon FDA clearance or exemption of 25
specified tests, to purchase a minimum number of Careside Analyzers and test
cartridges from us for the first five years following such FDA
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action. This contract went through an amendment in early 1999 and we were in
discussions about contract initiation at the time SBCL was sold to Quest
Diagnostics. During the remainder of 1999, discussions with Quest Diagnostics
were deferred as the Quest/SBCL merger and consolidation planning took
precedence over our contract negotiations. Furthermore, Quest Diagnostics had
not put into place the organization and authority to deal with our contract
until late December 1999. In January 2000, we reopened contract discussions with
Quest Diagnostics management. The discussions are continuing. It is too early to
determine whether Quest Diagnostics will see the same opportunity that SBCL
envisioned, and we expect these discussions to continue for a number of months
before a final decision is made.
International
International markets are not affected by the same regulatory requirements
as in the U.S. market. Because we have received FDA clearance and UL
certification for the Careside Analyzer, the Careside system is ready to be sold
in almost all international markets once the appropriate documentation has been
made available to country authorities. In these territories, we will be selling
the product as opposed to a decentralized lab concept. Therefore we are in
discussions with potential distributors for a number of foreign territories. Our
strategy is to pick distributors that are selling products into the health care
market, but not competitive products. Further, we are in discussions with
country specific distributors as opposed to distributors that are more
international. 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 or
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. Discussions are currently underway for
distribution agreements in certain European countries and in the Middle East and
South Africa. In addition, the acquisition of TIL has brought distribution
opportunities with companies in China, Mexico, Turkey, and certain South America
countries. We are analyzing the possibility of adding the entire Careside system
to these distribution agreements.
Research and Development
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, we have issued three U.S. patents.
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,
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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 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 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 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 have purchased the equipment necessary for this process. 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 has assisted 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 is 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 utilizes proprietary process technology,
designed by Battelle and owned by us, that is scalable to meet increasing
demand.
We outsource the manufacturing of the plastic components of our cartridges.
We use a third party to manufacture these components using injection molding
processes.
We have entered into an agreement with UMM Electronics, Inc. for the
manufacture of the Careside Analyzer at UMM Electronics' facility in
Indianapolis.
We source our chemistry, electrochemistry, coagulation and immunochemistry
reagents from Fuji, International Technidyne Corporation and Diagnostic
Reagents, Inc. See "--The Careside System--Test Menu."
Our hematology testing device, the H-2000, is manufactured by Ysebaert.
Competition
We 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 is not designed to provide the
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same range of tests, we believe that our products 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 offers 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 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 products. To date, we
have filed nine patent applications on various components of our technology with
the U.S. Patent and Trademark Office. We have also sought international patent
protection with respect to certain of these U.S. patents and patent
applications. One patent was filed with International Technidyne Corp. and
covers a coagulation reagent that was discovered jointly. The other eight
patents cover the technology that is built into the Careside Analyzer and the
test cartridges. To date we have been issued three U.S. patents. These patents
as well as those still pending form a very strong portfolio that protects our
development investment. One patent issued covers our invention of the
spectrophotometric analytical cartridge, which allows our product to perform
light transmission based tests, such as coagulation and immunochemistry in the
Careside Analyzer. Another patent covers the fundamental analytical reagent
cartridge invention that underlies all of our cartridge technology. A third
patent covers our electrochemistry cartridge. Four of the patent applications
cover inventions that are components of the Careside Analyzer, and one covers an
additional discovery in another type of cartridge.
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.
In addition to patent protection, if any, we will rely upon trade secrets,
know-how and continuing technological innovation. All of our employees have
signed confidentiality/non-disclosure agreements. Careside has also protected
its name by trademarking "Careside" and the name Analyzer.
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
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currently capable of conducting eight tests in a single 10 to 15 minute test
cycle. The Careside system is 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 70% 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 enables 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 from use
of our system. This is 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. FDA clearance must be obtained before making certain types of product
changes. The Careside Analyzer and tests have received marketing clearance for
point-of-care and physician office laboratory use.
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
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advisory panel of outside experts for a recommendation on whether to approve the
application or to request additional testing. The Careside Analyzer and all 37
tests, along with the 16-parameter hematology test performed by the Careside H-
2000, already cleared or exempt by the FDA have been classified in Class II.
Certain future tests, such as prostate specific antigen, are expected to require
pre-market approval.
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.
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 and is 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 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.
The H-2000 is being manufactured for Careside by Ysebaert in France though
Careside is the designated manufacturer under FDA regulations. The Ysebaert
facility is ISO 9002 certified.
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 have obtained an Underwriters Laboratories, or UL,
listing for the instrument Careside Analyzer. UL has reviewed 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). The H-2000 is in the process of
UL review. We expect to receive UL certification for the H-2000 during 2000.
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 1988. 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. All of the tests for the Careside Analyzer were
categorized as moderate or less complexity. 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.
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State Regulation
We and our products are 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 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 results 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 have purchased product liability insurance in
reasonable and customary amounts. 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 believe that our insurance
coverage is 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
Since our initial public offering in June 1999, we doubled the number of
employees to 74 as of March 31, 2000. A number of senior managers have been
added with expertise in marketing and sales, information resources, materials
management and product development. In addition, the acquisition of TIL has
enabled us to move into the veterinary market with experienced management. With
our current employee base we are positioned to move from a research and
development company into a company that is engaged in sales, marketing, and
manufacturing.
Properties
We lease approximately 16,000 square feet of space in Culver City,
California as our executive offices, for the research and development,
validation, manufacture and assembly of test cartridges and for product
development. We believe that the Culver City facility is suitable to expand to
$50 million in cartridge revenues and will adequately serve our needs for the
immediate future.
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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
- ---- --- --------
<S> <C> <C>
Directors and Executive Officers:
W. Vickery Stoughton............... 54 Chairman of the Board of Directors and Chief Executive Officer
Thomas H. Grove.................... 50 Executive Vice President--Chief Technology Officer, Secretary and Director
James R. Koch...................... 45 Chief Financial Officer, Treasurer, Executive Vice President and Director
Anthony P. Brenner (1)............. 42 Director
William F. Flatley (2)(3).......... 58 Director
Kenneth N. Kermes (2).............. 64 Director
C. Alan MacDonald (2)(3)........... 66 Director
Diana Mackie (1)................... 52 Director
Philip B. Smith (1)(3)............. 64 Director
Key Employees:
Kenneth Asarch..................... 41 Vice President--Quality Systems and Regulatory Affairs
Grant Frazier...................... 38 Vice President--Marketing
Dennis E. Rieger................... 54 Senior Vice President, Information Technology and Chief Information Officer
Sandra P. Twyon.................... 61 Vice President Operations
Marija N. Valentekovich............ 68 Vice President--Manufacturing
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
(3) Member of Nominating 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. (SBDS), a diagnostic services and product company, from October 1995 to July
1996, and was President of SmithKline Beecham Clinical Laboratories, Inc.
(SBCL), 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--Chief Technology Officer,
Secretary and Director. Dr. Grove has served as our Executive Vice President--
Chief Technology Officer, 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
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the American 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 Crosslink Capital, 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 an 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 and as Senior Vice President and
Group Directoe of Corporate Development from July 1989 to 1991. 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. In addition to Careside, Mr. Kermes serves as
director of four private, closely held manufacturing companies in the Northeast.
C. Alan MacDonald, Director. Since 1999, Mr. MacDonald has served as
President of the Club Management Co., LLC. Prior to that he 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., Lord Abbot, J.B. Williams
and Fountainhead Water Co.
Diana Mackie, Director. Ms. Mackie has served as one of our directors since
February 1997. As of January 24, 2000, Ms. Mackie has accepted the position to
co-lead the merger integration process for Glaxo SmithKline. From June 1999 to
January 21, 2000, she held the position of Vice President and Director, Category
Management, Dermatologicals, Phytomedicines and Vitamins, SmithKline Beecham
Consumer Healthcare (SBCH). From October 1997 to May 1999, she held the position
of Vice President for Strategy and Business Development at SmithKline Beecham
Healthcare Services, the
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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.
Grant Frazier, Vice President-Marketing. Mr. Frazier has served as our Vice
President-Marketing since November 1999. Prior to joining us, Mr. Frazier served
as Vice President-Marketing & Business Development at Mobile Technology Inc., a
provider of magnetic resonance imaging, lithotripsy and cancer therapy services.
Mr. Frazier joined MTI in December 1991 and was responsible for developing the
first mobile radiation therapy cancer care service deployed within the United
States. He led this strategic business unit until August 1998 before assuming
his corporate marketing and business development responsibilities. Mr. Frazier
holds a B.S. in Industrial Engineering from Stanford University and an M.B.A.
from UCLA's Anderson School of Management.
Dennis E. Rieger, Senior Vice President Information Technology and Chief
Information Officer. Mr. Rieger joined us in December 1999. Mr. Rieger's
professional experience includes over 28 years in the high technology products
industry. Mr. Rieger is also serving as President and CEO of Advanced Medical
Information Technologies (AdMIT), a company he founded in 1992 that developed a
mobile, bedside clinical information system, and a new universal medical and
laboratory device data acquisition system. Prior to AdMIT, Mr. Rieger served as
President and Chief Operating Officer of Compare Data Systems, an insurance and
telecommunications software company, from 1987 to 1992; President of TRG, Inc.,
a technology based consulting and venture funding firm, from 1981 to 1987; and
held several management positions in research and development, strategic
planning and marketing at Apple Computer, Hewlett Packard and Procter and Gamble
from 1971 to 1981. Mr. Rieger has a B.Sc. in Computer Information Science, with
honors, from California State University at Sacramento, and served with the U.S.
NAVY. Mr. Rieger is also serving on the board of directors of two companies, an
embedded software products company and a publishing company, and is one of the
Industry Advisory Board members for the new Biomedical Engineering
Interdepartmental program at the UCLA School of Engineering and Applied Science.
Sandra P. Twyon - Vice President Operations. Ms. Twyon joined us in January
2000. Prior to that she held positions as Vice President for Patient Services
with the Mercy Health System in Pittsburgh, PA (1994-1999); Vice President for
Nursing at the Toronto Hospital in Toronto, Canada (1989-1993) and Chairman of
Nursing at Tufts New
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England Medical Center in Boston, MA (1977-1989). In addition she was President
and founder of the Center for Case Management (1989-1992), an original developer
of critical pathways which consulted widely throughout the U.S. and Canada. Ms.
Twyon received a B.S. Degree from the College of Saint Rose and holds an M.S.
from Boston College.
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. Ms. Mackie
was nominated as SmithKline's representative and Mr. Smith as Spencer Trask's
representative. Mr. Stoughton and Dr. Grove were also nominated and elected to
our Board of Directors pursuant to this stockholders' agreement. In addition,
the stockholders' agreement required 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 as called for
in the stockholders' agreement. This stockholders' agreement expired by its
terms June 16, 1999.
Classified Board of Directors
The Board of Directors is divided into three classes. Each class contains
three directors. Directors within each class are elected to serve three-year
terms and one-third of the directors sit for election at each annual meeting of
our stockholders. Mr. Koch, Mr. Kermes and Mr. Smith serve in the class whose
term expires in 2000. Dr. Grove, Mr. Flatley and Ms. Mackie serve in the class
whose term expires in 2001. Mr. Stoughton, Mr. Brenner and Mr. MacDonald serve
in the class whose term expires in 2002. 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 prior to our initial public offering 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. The options granted after the end of 1998 were
issued at $7.50 per share. Options granted to non-employee directors for 1999
and beyond will 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. Brenner, Ms. Mackie and Mr. Smith. The Compensation Committee makes
recommendations to the Board of Directors concerning salaries and incentive
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<PAGE>
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 Compensation Committee. The Audit Committee of the Board
of Directors presently consists of 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. The Nominating Committee of the
Board of Directors presently consists of Mr. Flatley, Mr. MacDonald and Mr.
Smith.
Compensation Committee Interlocks and Insider Participation
Mr. Brenner, Ms. Mackie and Mr. Smith, the 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 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 is currently co-leading the merger integration process for Glaxo
SmithKline, was originally 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, 1998 and 1999. 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, 1998 and 1999 has resigned or
otherwise terminated employment during such years.
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<PAGE>
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Long-Term
Compensation Compensation
Awards;
Securities
Underlying All Other
Name and Principal Position Year Salary Bonus(1) Options Compensation(2)
--------------------------- ---- ------ -------- ---------- ---------------
<S> <C> <C> <C> <C> <C>
W. Vickery Stoughton 1999 $ 211,788 -- -- $20,797
Chairman of the Board of Directors and Chief 1998 $ 203,481 -- 9,135 $20,797
Executive Officer 1997 $ 195,281 $ 27,000 158,655 $20,547
Thomas H. Grove 1999 $ 168,345 -- -- $ 8,603
Executive Vice President--Research 1998 $ 163,880 -- 5,529 $ 8,603
and Development 1997 $ 154,013 $ 25,000 79,327 $ 8,353
James R.Koch 1999 $ 162,000 -- 1,202 $ 5,000
Chief Financial Officer, Treasurer 1998 $ 64,242 -- 40,384 $15,000
Executive Vice President
</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 and 1999. 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 1999
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, 1999:
Option Grants in 1999
<TABLE>
<CAPTION>
Number of Percent of Potential Realizable
Shares Total Value at Assumed
Underlying Options Exercise or Annual Rates of Stock
Options Granted Base Price Price Appreciation for
Granted to Employees Per Share Expiration Option Term (4)
------------------------
Name (1) in 1999 (2) (3) Date 5% 10%
---- --------- ------------ ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
James R. Koch................. 1,202 1.4% $ 8.01 01/10/09 $ 6,055 $ 15,345
</TABLE>
- ---------------
(1) All options were granted before our initial public offering and were under
our 1996 Incentive and Non-Qualified Stock Option Plan. The listed grant
vested or will vest 20% on December 31, 1999, 2000, 2001, 2002 and 2003.
(2) Based on an aggregate of 84,202 shares of common stock underlying options
granted to employees in 1999.
(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 at the time
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.
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<PAGE>
The following table sets forth certain information regarding options held
as of December 31, 1999 by certain executive officers. None of such executive
officers exercised options during the year ended December 31, 1999.
Fiscal Year-End Option Values
<TABLE>
<CAPTION>
Number of Shares Value of Unexercised
Underlying Unexercised In-The-Money Options at
Options at Fiscal Year-End Fiscal Year-End (1)
----------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Vickery Stoughton...................... 157,403 10,387 $678,692 $30,596
Dr. Thomas H. Grove....................... 79,085 5,771 $353,463 $18,382
James R. Koch............................. 36,265 5,321 $108,133 $14,709
</TABLE>
- ----------------
(1) The value of the underlying securities is based on the $9.75 per share
closing price of the Company's common stock on December 31,1999 (the last
trading day in 1999), 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, each of 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. 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 $260,000, Dr. Grove serves as Executive Vice
President--Research and Development, and currently earns an annual base salary
of $200,000, and Mr. Koch serves as our Chief Financial Officer, Treasurer and
Executive Vice President, and currently earns an annual base salary of $200,000.
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 four stock option plans in place: the 1996 Incentive and
Non-Qualified Stock Option Plan, the 1996 Key Executive Stock Option Plan, the
1998 Incentive and Non-Qualified Stock Option Plan and the 1998 Director Stock
Option Plan. These plans provide for the grant of stock options to purchase up
to 1,201,923 shares of common stock. As of April 11, 2000 we have granted
options to purchase 604,185 shares of common stock under these plans. Of these,
options to purchase 585,316 shares are outstanding. The weighted average
exercise price of options outstanding under the plans is $6.46. As of April 7,
2000 we have granted Mr. Stoughton, Dr. Grove, Mr. Koch, Dr. Asarch, and Dr.
Valentekovich options to purchase 187,790, 94,856, 51,586, 26,875 and 13,269
shares of common stock, respectively, at a weighted average exercise price of
$5.69. We have also granted options to purchase an aggregate of 30,282 shares of
common stock to non-employee directors
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<PAGE>
for their service as directors. We may grant options to purchase 597,738 shares
of common stock in the future under the Plans.
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. The
1996 Key Executive and Incentive and Non-Qualified Stock Option Plans have been
exhausted. All future grants will be under the 1998 Incentive and Non-Qualified
Stock Option Plan and 1998 Director Plan. Options may be awarded under the 1998
Incentive and Non-Qualified Stock Option Plan to our executive officers,
employees and consultants. Only non-employee directors are 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. Each year, we
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.
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 became effective upon completion of our initial
public offering. It allows employees to purchase, in the aggregate, up to
150,000 shares of our common stock at a discount through payroll deductions. To
date, 6,341 of such shares have been purchased. The purchase price per share
offered under the Employee Stock Purchase Plan is 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,
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<PAGE>
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.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of common stock as of April 11, 2000, 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.
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 April 11, 2000. 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 maximum potential percentage ownership is in Column
D. 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)
(A) (B) Total (D)
Shares of Shares Beneficial Ownership Total
Common Underlying (Column A plus Percentage
Name of Beneficial Owner Stock Options/Warrants Column B) Owned
------------------------ ---------- ---------------- ------------------- ----------
<S> <C> <C> <C> <C>
Kevin Kimberlin................................... 765,891(1) 336,349(2) 1,102,240 12.1%
c/o Spencer Trask Securities Incorporated
535 Madison Avenue, 18th Floor
New York, New York 10022
SmithKline Beecham Corporation.................... 229,808 561,122(3) 790,930 8.5%
One Franklin Plaza
Philadelphia, Pennsylvania 19101
W. Vickery Stoughton.............................. 285,005 161,405 446,410 5.0%
c/o Careside, Inc.
6100 Bristol Parkway
Culver City, California 90230
Dr. Thomas H. Grove............................... 205,294 81,087 286,380 3.2%
c/o Careside, Inc.
6100 Bristol Parkway
Culver City, California 90230
Philip B. Smith................................... 94,314(4) 115,260(5) 209,574 2.4%
James R. Koch..................................... 338 38,506 38,844 *
William F. Flatley................................ 15,470 6,490 21,962 *
Anthony P. Brenner................................ 10,769 6,490 17,260 *
Kenneth Kermes.................................... 2,959 4,326 7,285 *
Diana Mackie...................................... 4,438 -- 4,438 *
C. Alan MacDonald................................. -- 6,490 6,490 *
All executive officers and directors (9 persons).. 617,434 421,204 1,038,638 11.3%
</TABLE>
- --------------
* Represents less than 1% of our outstanding shares of common stock.
(1) Includes 371,090 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, and 55,760 shares of common stock held by Spencer Trask
Securities Incorporated of which Mr. Kimberlin is Chairman and exercises
voting control.
(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 325,828 shares of common stock underlying shares of Series A
Convertible Preferred Stock, and underlying warrants which will be received
if the Series A Convertible Preferred Stock is converted, owned by S.R.
One, Limited, an affiliate of SmithKline Beecham Corporation. Also includes
235,294 shares of common stock issuable upon exercise of bridge loan
warrants owned by S.R. One, Limited upon completion of the offering. S.R.
One has agreed not to exercise the bridge loan warrants until the earlier
of six months after the offering or December 17, 1999.
(4) Includes 50,952 shares of common stock owned by Private Equity Partnership,
of which Mr. Smith is the general partner.
(5) Includes 108,771 shares of common stock issuable upon exercise of warrants
held by Private Equity Partnership.
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<PAGE>
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,
currently co-leader of the merger integration process for Glaxo SmithKline, 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. which gave SBCL, an exclusive right, as a commercial laboratory, to use and
domestically 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 obligated SBCL, upon FDA clearance or exemption
of 25 specified tests, to purchase a minimum number of Careside Analyzers and
test cartridges from us for the first five years following such FDA action. This
contract went through an amendment in early 1999 and we were in discussions
about contract initiation at the time SBCL was sold to Quest Diagnostics. During
the summer of 1999, discussions with Quest Diagnostics were deferred as the
Quest/SBCL merger and consolidation planning took precedence over our contract
negotiations. Furthermore, Quest Diagnostics had not put into place the
organization and authority to deal with our contract until late December 1999.
In January 2000, we reopened contract discussions with Quest Diagnostics
management. Those discussions are continuing. It is too early to determine
whether Quest Diagnostics will see the same opportunity that SBCL envisioned,
and we expect these discussions to continue for a number of months before a
final decision is made.
Under the distribution and supply agreement, SBCL, until December 31, 2000
or any earlier termination of the agreement, is to supply us with clinical
samples to enable us to validate tests for our research and development of
point-of-care products. We are to bear the cost of retrieving and transporting
the samples and conducting our comparative validation tests.
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 are to 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
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<PAGE>
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 in June of 2002.
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.
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. The stockholders' agreement terminated by its terms upon completion of
our initial public 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 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 were exercised in the first quarter of 2000.
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 our initial public offering, into shares of Series
A Convertible Preferred Stock. 162,914 shares of Series A Convertible Preferred
Stock were issued to S.R. One upon the conversion of the loan on June 16, 1999.
The conversion price was $6.375, which is 85% of the initial public offering
price per unit. Each share of
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Series A Convertible Preferred Stock is in turn immediately convertible, at the
option of the holder, 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 shares of common stock and
warrants at $7.50 per share. 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 sold in our initial public offering. The remaining $2
million of the loan will mature in April 2000. The annual interest rate on the
remaining $2 million increased to 10% on July 1, 1999. Since the remainder of
the bridge loan was not repaid by December 1, 1999, S.R. One has the option to
convert all or any portion of the remaining loan, plus accrued interest thereon,
into shares of Series A Convertible Preferred Stock. This Series A Convertible
Preferred Stock will be issued to S.R. One on the same basis as the Series A
Convertible Preferred Stock that was issued to S.R. One as part of the $1
million conversion. As of March 31, 2000, principal and interest owed to S.R.
One, Limited was $2,226,520. Conversion of that amount would result in
additional Series A Preferred shares representing 349,258 shares of common
stock, assuming exercise of all warrants issuable on conversion of such Series A
Preferred Stock.
In connection with the bridge financing, we issued a warrant to S.R., One.
The bridge warrant is exercisable for 235,294 shares of common stock. The
warrant has an exercise price of $6.375. The warrant is currently exercisable
and will expire June 16, 2003.
In June 1999, we completed our initial public offering of 2,000,000 units,
comprised of one share of our common stock and one warrant to purchase an
additional share of our common stock. Our publicly traded common stock is listed
on the American Stock Exchange under the ticker symbol "CSA", and our publicly
traded warrants under the symbol "CSA.WS".
In December 1999, we acquired Texas International Laboratories, Inc. (TIL).
TIL owned and marketed a proprietary hematology - testing device that we have
renamed the Careside H-2000. In connection with this acquisition, we issued
521,739 shares of our common stock. For additional information on the TIL
acqusition, see "Business - General."
In March 2000 we completed a private placement of 1,184,091 shares of our
common stock at $8.77 per share, raising a gross amount of $10.4 million.
Expenses of this transaction were approximately $840,000. Purchasers of those
privately placed shares also received contingent warrants to purchase 142,091
shares of our common stock at an exercise price of $.01 per share if the closing
price of our common stock on the American Stock Exchange falls below $7.50 per
share for 15 consecutive days during the period from August 15, 2000 to November
15, 2000. Such warrants will expire on December 15, 2000. The Company intends to
use the proceeds of the private placement to further support its sales and
marketing programs, to build inventory and provide working capital, and to
support further product development. The Company may also use a portion of the
proceeds to repay the remaining $2 million balance on the convertible loan from
S.R. One, Limited, if the loan is not converted to equity.
We consider the terms of all of the above-referenced transactions to be at
arm's length and reasonably equivalent to terms we 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
Our authorized capital stock consists 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 are 8,797,665 shares of common stock
and 162,914 shares of Series A Convertible Preferred Stock outstanding. 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 sold in our initial public offering consisted of one share of
common stock and one warrant to purchase an additional share of common stock.
The units automatically separated on July 16, 1999, 30 days from the date of our
initial public offering. After that date, the common stock and warrants in the
units began trading separately.
Common Stock
The issued and outstanding shares of common stock are validly issued, fully
paid and non-assessable. Each holder of shares of common stock is entitled to
one vote for each share held of record and may not cumulate votes for election
of directors. The shares are not 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.
Series A Convertible Preferred Stock
The Series A Convertible Preferred Stock has a stated value equal to $7.50
per share. There are 162,914 shares of Series A Convertible Preferred Stock
outstanding. The Series A Convertible Preferred Stock will be preferred over
common stock in dividends and has 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 has 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 bears a cumulative dividend, which shall
accrue if not declared by the Board of Directors, at an annual rate of 10% of
stated value.
Each share of Series A Convertible Preferred Stock is convertible at the
option of the holder into 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 Stock that are converted
will be converted into units at $7.50 per share. 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 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 (a) $7.50, (b) any accrued and
unpaid dividends and (c) the greater of (i) $0.05 or (ii) the excess of the
average five day closing price of a share of common stock over $9.00.
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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 4,837,086 shares of preferred stock. 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.
Publicly Traded Warrants
Each warrant comprising part of the units sold in our initial public
offering entitles the holder to purchase one share of common stock at an
exercise price of $9.00. We may reduce the exercise price of the warrants for a
period of at least 20 days. We must give holders of warrants at least 15 days'
notice of such decrease, which notice may be in the form of a press release. The
warrants will generally be exercisable at any time until June 16, 2004, 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 $14.00. 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.
The public warrants were 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 all of the capital stock or
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.
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. If the common stock underlying the warrants are not registered under a
current effective registration statement or qualified under applicable state
securities laws and securities of the same class are listed on a securities
exchange or there are at least two independent market makers for the securities
of the same class, we may elect to redeem warrants submitted for exercise
instead of obtaining registration and qualification. If we elect to redeem the
warrants instead of obtaining registration, the redemption price of the warrants
would be equal to the difference between the aggregate low asked price or
closing price of the common stock underlying the warrants and the exercise price
of the warrants.
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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.
Representatives' Warrants
Upon the completion of our initial public offering, 200,000 warrants were
issued to the representatives of our underwriters entitling them to receive,
upon due exercise on a cashless basis or for the payment of $9.00 per warrant as
the exercise price, 200,000 shares of common stock and warrants to purchase an
additional 200,000 shares of common stock for $9.00 per share. The underlying
warrants have the same terms as the warrants sold as part of our initial public
offering. The representatives' warrants will expire June 16, 2004 and will be
exercisable commencing June 16, 2000. All numbers in this prospectus related to
proceeds from the exercise of representatives' warrants assumes the exercise
price for these warrants is paid in cash.
Prior Warrants
As of April 11, 2000, 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 June 16, 2002. In
addition, as of April 11, 2000, 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 also expire June
16, 2002. Further, we issued a warrant to S.R. One, Limited in connection with
the bridge financing. The bridge warrant is exercisable for 235,294 shares of
common stock, which is equal to $1,500,000 divided by 85% of the initial public
offering price per unit. The bridge warrant has an exercise price of $6.375,
which is 85% of the initial public offering price per unit of $7.50. The bridge
warrant will expire June 16, 2003.
March 2000 Private Placement
In March 2000, we completed a private placement of 1,184,091 shares of our
common stock at $8.77 per share, raising a gross amount of $10.4 million.
Expenses of this transaction were approximately $840,000. Purchasers of those
privately placed shares received contingent warrants to purchase 142,091
shares of our common stock at an exercise price of $.01 per share if the closing
price of our common stock on the American Stock Exchange falls below $7.50 per
share for 15 consecutive days during the period from August 15, 2000 to November
15, 2000. Such warrants will expire on December 15, 2000. In addition, our
placement agent in this transaction, received warrants to purchase 101,305
shares of our common stock. These warrants expire in March 2005 and the exercise
price is $8.77 per share. Upon exercise of its warrants, the placement agent
also is entitled to exercise a contingent warrant for 12,156 shares. These
contingent warrants have the same terms and conditions as the contingent
warrants issued to the purchasers in the private placement.
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 private placement
automatically by December 16, 2000. We also agreed to effect a registration for
the resale of the common stock purchased by investors in the 1998 private
placement automatically by June 16, 2000. This
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automatic registration may be delayed by Spencer Trask together with the
underwriters of our initial public 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 June 16, 2000.
In connection with our acquisition of Texas International Laboratories,
Inc. ("TIL") in December 1999, we granted to Yves LeBihan and Jean-Yves LeBihan
demand and incidental registration rights for the registration under the
Securities Act of the resale of any or all of the common stock received by them
in the acquisition. The TIL shareholders have exercised their demand
registration right, requiring the Company to use best efforts to register their
521,739 shares by June 16, 2000.
We have also agreed to file a resale registration statement registering for
resale under the Securities Act our common stock issued or issuable in
connection with our March 2000 private placement.
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. SmithKline has agreed
not to make a demand until at least June 16, 2000. 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 until June 16,
2002. S.R. One has the same incidental registration rights as SmithKline,
described above.
Granted to Representative
Pursuant to a warrant agreement that we entered into with Paulson
Investment Company, Inc., on behalf of each of the representatives of the
underwriters in our initial public offering, we agreed to maintain an effective
registration statement with respect to the issuance of the common stock and
warrants 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 June 16, 2000. The
representatives' warrants, as well as the shares of common stock and warrants
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 June 16, 2004. 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 April 11, 2000, there were 6,791,324 shares of common stock
outstanding and 1,541,526 shares of common stock underlying warrants and Series
A Convertible Preferred Stock, subject to registration rights. In connection
with our initial public offering, certain of the holders of securities with
registration rights signed either a Lock-Up Agreement or a letter agreement and
waiver, whereby each such signatory agreed, among other things, not to exercise
any demand or piggyback registration rights prior to June 16, 2000. 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
sold in our initial public offering 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 sold in our initial public offering as a whole had 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 allocated the purchase price between
the warrant and the common stock so that the tax basis for the warrant is $0.05
and the tax basis for the common stock is equal to $7.45. 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-term or short-term capital gain or
loss, depending on whether
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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
deduction 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.
We are 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.
Our Board of Directors is divided into three classes of directors each
containing three directors. Directors within each class 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 4,837,086 shares of undesignated 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 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
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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 matter 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 common stock and
warrants is American Stock Transfer & Trust Company, New York, New York.
-64-
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
As of April 11, 2000, we had 8,797,665 shares of common stock outstanding.
Of these shares, 2,006,341 shares of common stock have been registered and are
freely tradable without restrictions or further registration under the
Securities Act. The remaining 6,791,324 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. As discussed in greater detail below, 4,942,727 of the 6,791,324
shares mentioned above are subject to various lock-up agreements that expire on
June 16, 2000. The balance consists of 141,613 shares of common stock that are
currently Rule 144 eligible, 521,739 shares issued in connection with our
purchase of TIL that will be Rule 144 eligible in December 2002, 1,184,091
shares of our March 2000 privately placed common stock that will be Rule 144
eligble in March 2002 and 1,154 shares issued upon exercise of options in the
first quarter of 2000. The holders of the TIL shares have exercised their demand
registration rights requiring the Company to use best efforts to register their
521,739 shares by June 16, 2000.
Holders of approximately 56% of our shares of common stock have agreed not
to sell or otherwise dispose of any of their shares of common stock until after
June 16, 2000, without the prior written consent of the representatives of the
underwriters in our initial public offering subject to certain limited
exceptions (the "Lock-Up Agreements"). After the expiration of these lock-up
periods, or earlier with the requisite consent, 4,942,727 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, 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 1% of then outstanding
shares of our common stock or 1% of the average weekly trading volume in our
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.
Certain shares issued (or issuable upon the exercise of options granted) by
us under our stock option plans, or our employee stock purchase plan will also
be eligible for resale in the public market, subject to vesting restrictions and
Lock-Up Agreements, and Rule 144 requirements, pursuant to a registration
statement on Form S-8 which we filed in December 1999 under the Securities Act.
As of April 11, 2000, we had options outstanding under our stock option plans to
purchase 585,316 shares of common stock which have not been exercised and which
become vested and exercisable at various times in the future. Any shares issued
upon the exercise of these options will be eligible for resale in the public
market pursuant to our Form S-8 registration statement. We have issued 6,341
shares under our employee stock purchase plan. Our Form S-8 registration
statement under the Securities Act also registered up to an aggregate of 741,397
shares of common stock which may be issued in the future under our stock option
plans and our employee stock purchase plan.
We issued a combination of 2,000,000 shares of common stock and 2,000,000
warrants to purchase common stock in our initial public offering. Each of the
2,000,000 warrants represents, upon exercise, a share of our common stock that
will be freely tradable without restrictions or further registration under the
Securities Act. The exercise price of these warrants is $9.00. Both the common
stock and the warrants issued in our initial public offering are publicly
tradable now.
We also issued 200,000 warrants, which represent 400,000 shares of common
stock, to the representatives of the underwriters in our initial public
offering. Each of these 200,000 warrants entitles the holder to acquire both a
share of common stock and a warrant to acquire an additional share of common
stock at any time after June 16, 2000 and until June 16, 2004. The exercise
price of these 200,000 warrants is $9.00 and the exercise price of the
underlying warrants is $9.00 per share.
We issued warrants prior to our initial public offering 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 June 16, 2002. A warrant issued to S.R. One, Limited is
exercisable to purchase 235,294 shares of common stock. The S.R. One, Limited
warrant has an exercise price of $6.375 per share and will expire June 16, 2003.
Both Spencer Trask Securities Incorporated and S.R. One, Limited are entitled to
certain registration rights with respect to the shares
-65-
<PAGE>
issuable upon exercise of their warrants. Approximately one-half of the shares
of common stock underlying these warrants are subject to Lock-up Agreements that
expire on June 16, 2000.
We will be required to issue up to 325,828 shares of our common stock upon
conversion of our outstanding shares of Series A Preferred Stock and the
exercise of warrants issued upon that conversion. These shares will be eligible
for resale into the public market on June 21, 2000, subject to the volume
limitations, manner of sale provisions, notice and other requirements of Rule
144.
We may be required to issue additional shares of common stock if the loan
owed to S.R. One, Limited is converted to shares of Series A Preferred Stock.
S.R. One, Limited has the right to convert the loan, currently $2,000,000 plus
accrued interest, into shares of Series A Preferred Stock at $6.375 per share.
Each share of Series A Preferred Stock is itself convertible into one share of
common stock and a warrant to purchase an additional share of common stock for
$9.00 per share.
In March 2000, we privately placed a total of 1,184,091 shares of our
common stock at $8.77 per share, raising a gross amount of $10.4 million.
Expenses of this transaction were approximately $840,000. Purchasers of those
privately placed shares also received contingent warrants to purchase 142,091
shares of our common stock at an exercise price of $.01 per share if the closing
price of our common stock on the American Stock Exchange falls below $7.50 per
share for 15 consecutive days during the period from August 15, 2000 to November
15, 2000. Such warrants will expire on December 15, 2000. In addition, our
placement agent in this transaction received warrants to purchase 101,305 shares
of our common stock. These warrants expire in March 2005 and the exercise price
is $8.77 per share. Upon exercise of its warrants, the placement agent is
entitled to exercise a contingent warrant for 12,156 shares. These contingent
warrants have the same terms and conditions as the contingent warrants issued to
the purchasers in the private placement.
-66-
<PAGE>
PLAN OF DISTRIBUTION
The shares of common stock and the common stock purchase warrants offered
hereby will be issued by us upon the exercise of the publicly-traded warrants
and the Representatives' Warrants. See "Description of Capital Stock" for a
description for the terms and manner of exercise of the warrants. Warrants to
acquire 2,000,000 shares of common stock were issued in June 1999 as part of the
initial public offering of our common stock. The common stock and warrants were
sold by underwriters for whom Paulson Investment Company, Inc., Millennium
Financial Group, Inc. and marion bass securities corporation acted as
representative. In connection with the offering, we granted to Paulson
Investment Company, Inc., Millennium Financial Group, Inc. and marion bass
securities corporation a warrant to purchase up to an aggregate of 200,000
shares of common stock and an aggregate of 200,000 common stock purchase
warrants.
Prior to completion of that public offering, there was no established
market for the warrants. The exercise price and other terms of the warrants were
arbitrarily determined by negotiation between the company and the
representatives. In determining the exercise price consideration was given to
our then proposed operations, financial condition, estimates of our business
potential and the general condition of the securities market. The exercise price
and other terms of the warrants, however, should not be considered as any
indication of the actual value of our company or of our common stock, and bear
no relationship to the assets or book value of our company or any generally
accepted criteria of economic valuation.
-67-
<PAGE>
LEGAL MATTERS
The validity of the common stock and warrants offered hereby will be passed
upon for us by Pepper Hamilton LLP.
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 said report, which
includes an explanatory paragraph with respect to the uncertainty regarding the
Company's ability to continue as a going concern as discussed in Note 1 to the
financial statements.
-68-
<PAGE>
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 post-effective amendment to our registration statement on
Form S-1 with the SEC. This prospectus, which forms a part of the post-effective
amendment to our registration statement, does not contain all of the information
included in the post-effective amendment to our registration statement. Certain
information is omitted. You should refer to the post-effective amendment to our
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.
-69-
<PAGE>
CARESIDE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
CARESIDE, INC.: ----
<S> <C>
Report of Independent Public Accountants................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit).................. F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Careside, Inc.:
We have audited the accompanying consolidated balance sheets of Careside,
Inc. (a Delaware corporation) as of December 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity (deficit)
and cash flows for each of the three years in the period ended December 31,
1999. 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 auditing standards generally
accepted in the United States. 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Careside,
Inc. as of December 31, 1998 and 1999, and the results of its operations and
its cash flows for the each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States.
The accompanying consolidated financial statements have been prepared
assuming that Careside, Inc. will continue as a going concern. As discussed in
Note 1 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has accumulated a deficit during the
development stage that 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 consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Arthur Andersen LLP
Los Angeles
March 13, 2000
F-2
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999
<TABLE>
<CAPTION>
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
------
Current Assets:
Cash and cash equivalents........................ $ 3,926,603 $ 4,905,440
Accounts receivable, net of allowance of $0...... -- 78,046
Inventory........................................ -- 548,623
Prepaid expenses and other....................... 82,173 102,615
------------ ------------
Total current assets........................... 4,008,776 5,634,724
------------ ------------
Property and Equipment, net........................ 3,386,484 5,939,186
Deferred Offering Costs............................ 498,443 2,318
Deposits and Other................................. 17,700 15,000
Goodwill, net...................................... -- 2,798,170
------------ ------------
$ 7,911,403 $ 14,389,398
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current portion of long-term debt................ $ 186,998 $ 2,316,192
Current portion of obligation under capital
lease........................................... -- 11,006
Accounts payable................................. 1,369,889 844,904
Accrued expenses................................. 160,439 886,260
Accrued interest................................. -- 156,493
------------ ------------
Total current liabilities...................... 1,717,326 4,214,855
------------ ------------
Long-Term Debt, net of current portion............. 2,044,932 1,059,876
------------ ------------
Obligation Under Capital Lease, net of current
portion........................................... -- 35,835
------------ ------------
Commitments
Stockholders' Equity:
Preferred stock, $.01 par value: 5,000,000 shares
authorized--none and 162,914 shares issued and
outstanding at December 31, 1998 and 1999,
respectively.................................... -- 1,629
Common stock, $.01 par value: 50,000,000 shares
authorized--5,084,340 and 7,609,581 shares
issued and outstanding at December 31, 1998 and
1999, respectively.............................. 50,843 76,095
Additional paid-in capital....................... 21,003,545 37,496,984
Deficit accumulated during development stage..... (16,905,243) (28,495,876)
------------ ------------
Total stockholders' equity..................... 4,149,145 9,078,832
------------ ------------
$ 7,911,403 $ 14,389,398
============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the Period
from Inception
(July 10, 1996)
For the Year Ended December 31, through
-------------------------------------- December 31,
1997 1998 1999 1999
----------- ----------- ------------ ---------------
<S> <C> <C> <C> <C>
Sales, net.............. $ -- $ -- $ 60,956 $ 60,956
Cost of Sales........... -- -- 30,566 30,566
----------- ----------- ------------ ------------
Gross Profit............ -- -- 30,390 30,390
Operating Expenses:
Research and
development.......... 5,895,465 8,297,974 8,252,081 24,007,367
Selling and
marketing............ 85,402 249,000 1,204,548 1,538,950
General and
administrative....... 555,172 601,129 1,448,300 2,660,116
----------- ----------- ------------ ------------
Operating Loss...... (6,536,039) (9,148,103) (10,874,539) (28,176,043)
Interest Income......... 213,585 234,089 291,008 738,682
Interest Expense........ (8,329) (22,275) (970,525) (1,021,938)
Goodwill amortization... -- -- (36,577) (36,577)
----------- ----------- ------------ ------------
Net Loss................ (6,330,783) (8,936,289) (11,590,633) (28,495,876)
Preferred stock
dividends.............. -- -- (55,201) (55,201)
----------- ----------- ------------ ------------
Net loss available to
common stockholders.... (6,330,783) (8,936,289) (11,645,834) (28,551,077)
----------- ----------- ------------ ------------
Basic and Diluted Net
Loss per Common Share.. $ (2.04) $ (1.93) $ (1.88)
----------- ----------- ------------
Shares used in Computing
Basic and Diluted Net
Loss per Common Share.. 3,098,980 4,629,916 6,210,496
----------- ----------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Series A Deficit
Preferred Accumulated Total
Stock Common Stock Additional Stock During Stockholders'
-------------- ----------------- Paid-In Subscription Development Equity
Shares Amount Shares Amount Capital Receivable Stage (Deficit)
------- ------ --------- ------- ----------- ------------ ------------ -------------
<S> <C> <C> <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
Sales 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
offering costs 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
offering costs 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
Shares issued in
connection with initial
public offering, net of
offering costs
$2,639,212 ............. -- -- 2,000,000 20,000 12,340,788 -- -- 12,360,788
Issuance of Series A
Preferred Stock in
exchange for bridge
financing............... 162,914 1,629 -- -- 1,036,946 -- -- 1,038,575
Issuance of warrant in
connection with exchange
of bridge financing for
Series A Preferred
Stock................... -- -- -- -- 289,801 -- -- 289,801
Accrued dividend on
Series A Preferred
Stock................... -- -- -- -- (55,201) -- -- (55,201)
Shares issued in
connection with the
acquisition of Texas
International
Laboratories, Inc....... -- -- 521,739 5,217 2,864,348 -- -- 2,869,565
Shares issued in
connection with employee
stock purchase plan..... -- -- 3,502 35 16,757 -- -- 16,792
Net loss................ -- -- -- -- -- -- (11,590,633) (11,590,633)
------- ------ --------- ------- ----------- -------- ------------ ------------
Balance, December 31,
1999.................... 162,914 $1,629 7,609,581 $76,095 $37,496,984 $ -- $(28,495,876) $ 9,078,832
======= ====== ========= ======= =========== ======== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the
Period from
Inception
(July 10,
1996)
For the Year Ended December 31, through
-------------------------------------- December 31,
1997 1998 1999 1999
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Operating Activities:
Net loss.............. $(6,330,783) $(8,936,289) $(11,590,633) $(28,495,876)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization....... 145,858 367,231 1,357,488 1,882,852
Imputed interest on
note payable....... 8,329 -- -- 8,329
Amortization of debt
discount........... -- 20,960 309,154 330,114
Noncash interest
expense............ -- -- 289,801 289,801
Changes in operating
assets and
liabilties, net of
acquisition:
Accounts
receivable......... -- -- (73,446) (73,446)
Inventory........... -- -- (472,123) (472,123)
Prepaid expenses and
other.............. (210,740) (25,118) (20,442) (102,618)
Deposits and other.. 19,933 80,067 2,700 --
Accounts payable.... 208,906 876,904 (72,942) 1,296,950
Accrued expenses.... (346,014) (49,192) 670,621 850,716
Accrued interest.... -- -- 195,068 195,068
----------- ----------- ------------ ------------
Net cash used in
operating
activities....... (6,504,511) (7,665,437) (9,404,754) (24,290,233)
----------- ----------- ------------ ------------
Investing Activities:
Purchases of property
and equipment........ (888,510) (2,005,463) (3,820,634) (7,228,865)
Cash acquired in
purchase of Texas
International
Laboratories, Inc. .. -- -- 118 118
----------- ----------- ------------ ------------
Net cash used in
investing
activities....... (888,510) (2,005,463) (3,820,516) (7,228,747)
----------- ----------- ------------ ------------
Financing Activities:
Net borrowings
(repayments) on line
of credit............ (400,000) -- --
Proceeds from
borrowings under
long-term debt....... -- 2,541,084 2,058,831 5,599,915
Payments on long-term
debt................. -- -- (223,847) (223,847)
Payments on capital
lease obligation..... -- -- (6,139) (6,139)
Deferred offering
costs................ -- (498,443) (2,318) (692,667)
Proceeds from the
issuance of common
stock................ 8,900,134 10,317,713 12,377,580 31,595,427
Payment of stock
subscription......... 98,995 -- -- 98,995
Cash received from
SmithKline Beecham
Corporation in
connection with asset
purchase............. -- -- -- 52,736
----------- ----------- ------------ ------------
Net cash provided
by financing
activities....... 8,599,129 12,360,354 14,204,107 36,424,420
Net Increase in Cash and
Cash Equivalents....... 1,206,108 2,689,454 978,837 4,905,440
Cash and Cash
Equivalents, beginning
of period.............. 31,041 1,237,149 3,926,603 --
----------- ----------- ------------ ------------
Cash and Cash
Equivalents, end of
period................. $ 1,237,149 $ 3,926,603 $ 4,905,440 $ 4,905,440
=========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Careside
Background
Careside, Inc. ("Careside") 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.
In December 1999, Careside completed its acquisition of Texas Instrument
Laboratories, Inc. ("TIL") and merged TIL into a newly formed, wholly-owned
subsidiary, Careside Hematology. TIL manufactures hematology products used
primarily in veterinary applications. Careside and Careside Hematology are
collectively referred to as the Company.
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 minimal revenues and incurred significant
losses. Careside anticipates incurring additional losses over at least the
next year, and such losses are expected to increase as Careside expands its
marketing 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 future product enhancements will receive regulatory clearance
or be profitable in the marketplace.
The accompanying consolidated 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
consolidated financial statements for the year ended December 31, 1999, the
Company incurred a net loss of $11,590,633, has used cash for operating
activities of $9,404,754 and has accumulated a deficit of $28,495,876 since
inception. Management believes that the Company's existing sources of
liquidity, which contemplates that $2,000,000 of bridge financing (see Note 9)
will be converted to equity, together with the proceeds received in March 2000
from its private placement of common stock (see Note 15) will be sufficient to
fund its planned operations into 2001. However, until the $2 million of bridge
financing has been converted and the Company has successfully entered its
targeted markets, there are uncertainties that may impact the Company's
ability to fund its planned operations and meet its operational objectives.
2. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Careside and
Careside Hematology. Intercompany accounts and transactions are eliminated in
consolidation.
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.
F-7
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
All highly liquid investments with an original maturity of three months or
less are presented as cash equivalents in the accompanying consolidated
financial statements. At December 31, 1999, a $453,255 bank overdraft was
included in accrued expenses.
Inventory
Inventories are stated at the lower of cost or market with cost determined
on a first-in, first-out basis, and are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1999
-------- --------
<S> <C> <C>
Raw materials............................................ $ -- $369,937
Work in process.......................................... -- 48,620
Finished goods........................................... -- 130,066
-------- --------
$ -- $548,623
======== ========
</TABLE>
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. The Company uses
lives of two to five years for research and manufacturing equipment and three
to seven years for office equipment. Leasehold improvements generally are
amortized over the life of the lease.
Long-Lived Assets
The Company reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset or a
group of assets may not be recoverable. If an asset is determined to be
impaired, the loss is measured as the amount by which the carrying amount of
the asset exceeds fair value. If an evaluation is required, the estimated
future undiscounted cash flows associated with the asset would be compared to
the asset's carrying amount to determine if a write-down to market value or
discounted cash flow value is required. The Company is still in the
development stage and has not recorded an impairment loss in any period
presented.
Fair Value of Financial Instruments
Cash equivalents are reflected in the accompanying consolidated 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 based on borrowing rates currently available to the Company for
loans with similar terms and maturities.
Revenue Recognition
The Company recognizes revenue upon shipment, except that revenue from
analyzers is not recognized until customer acceptance.
F-8
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Research and Development
Research and development costs are charged to expense as incurred.
Income Taxes
The Company 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
The Company applies Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," in accounting for its stock
options. The Company 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 10).
Net Loss Per Common Share
The Company has presented net loss per common share pursuant to SFAS No.
128, "Earnings per Share." Basic loss per common 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 common share has not been presented since the impact on loss per share
using the treasury stock method is anti-dilutive due to the Company'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
initial public offering which took place in June 1999. All references in the
accompanying consolidated financial statements to the number of shares and per
share amounts have been retroactively restated to reflect the reverse stock
split.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
Recently Issued Pronouncements
In June 1999, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. SFAS No.
133, as amended by SFAS No. 137, is effective for all fiscal quarters of
fiscal years beginning after June 15, 2000. The Company is currently
evaluating the potential impact of SFAS No. 133 and SFAS No. 137.
F-9
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
3. Property and Equipment
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Laboratory equipment.... $3,433,811 $ 7,098,808
Computer and office
equipment.............. 106,798 315,414
Leasehold improvements.. 371,239 371,239
---------- -----------
3,911,848 7,785,461
Less--Accumulated
depreciation and
amortization........... (525,364) (1,846,275)
---------- -----------
$3,386,484 $ 5,939,186
========== ===========
</TABLE>
At December 31, 1999, there was approximately $1,600,000 of production
equipment that was in the process of being assembled. Depreciation and
amortization expense for the years ended December 31, 1997, 1998 and 1999, and
the period from inception (July 10, 1996) through December 31, 1999 was,
$145,858, $367,231, $1,320,911 and $1,846,275, respectively.
4. Income Taxes
Deferred income tax assets or liabilities are computed based on the
temporary differences between the financial statement and income tax bases of
assets and liabilities using the enacted marginal income tax rate in effect
for the year in which the differences are expected to reverse. Realization of
the net deferred tax assets is dependent on generating sufficient taxable
income during the periods in which temporary differences will reverse. The
amount of the net deferred tax assets considered realizable, however, could be
adjusted in the near term if estimates of future taxable income during the
reversal periods are revised. Deferred income tax expenses or credits are
based on the changes in the deferred income tax assets or liabilities from
period to period.
At December 31, 1999, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $17,769,156. In addition, the
Company has federal research and development credit carryforwards of
approximately $759,464. 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 interests.
The components of the deferred income tax assets are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1998 1999
----------- ------------
<S> <C> <C> <C>
Net operating loss carryforwards.......... $ 730,438 $ 7,612,306
Research and development credit
carryforwards............................ 224,775 1,115,120
Capitalized research and development...... 1,955,893 2,152,254
Start-up costs............................ 419,936 1,570,460
Accruals.................................. 6,663 18,569
Depreciation and amortization............. 178,623 783,964
Deferred rent............................. -- 31,365
State tax benefit......................... -- (319,686)
Valuation allowance....................... (3,516,328) (12,964,352)
----------- ------------
$ -- $ --
=========== ============
</TABLE>
F-10
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Due to the uncertainty surrounding the realization of the deferred tax
asset, the Company has provided a valuation allowance against the entire
asset.
5. Common Stock 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 $8.7 million, 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 seven years from the date of
issuance.
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 $10.2 million. 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 seven years from
the date of issuance. 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.
In June 1999, Careside completed an initial public offering of its common
stock. The offering totaled 2,000,000 shares of common stock and 2,000,000
tradable warrants exercisable into one share of common stock each. The
combined share and warrant were sold at a price of $7.50 per unit. The
warrants are currently exercisable at a price of $9.00 per share and expire on
the earlier of five years from the date of issuance or if they are called.
They are callable at $0.05 per warrant upon 30 days written notice if the
common stock trades for ten consecutive days at a price equal to or exceeding
$14.00 per share.
6. Preferred Stock
In June 1999, the Company exchanged $1,038,575 of bridge financing and
unpaid interest (see Note 9) for 162,914 shares of Series A Convertible
Preferred Stock.
The Series A Convertible Preferred Stock has a stated value equal to $7.50
per share. The Series A Convertible Preferred Stock has preference over common
stock in dividends and has a liquidation preference over common stock of
$7.50, plus all accrued and unpaid dividends. Each share of Series A
Convertible Preferred Stock has one vote on all matters to be voted on by the
holders of the common stock and votes 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 bears a cumulative dividend,
which accrues if not declared by the Board of Directors, at an annual rate of
10% of stated value. In 1999, the Company accrued dividends payable in the
amount of $55,201.
Each share of Series A Convertible Preferred Stock is convertible at the
option of the holder into one 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
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, will be identical to the terms and conditions of the warrants included
in the units sold in the Offering.
F-11
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The Company has the right to redeem the Series A Convertible Preferred Stock
at any time for a per share amount equal to the sum of $7.50, plus 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.
7. Purchase of Texas Instrument Laboratories, Inc.
In December 1999, the Careside acquired all of the outstanding common stock
of TIL in exchange for 521,739 shares of Careside's common stock. TIL was then
merged into Careside's newly formed, wholly-owned subsidiary, Careside
Hematology. The transaction was accounted for using the purchase method of
accounting. Careside acquired substantially all assets of TIL for $2,869,565,
which represented the market value of the 521,739 shares of common stock on
the date of acquisition. The excess of the purchase price over the book value
of TIL was recorded as goodwill in the amount of $2,834,747. Goodwill will be
amortized over a five-year period. Amortization expense was $36,577 in 1999.
The following unaudited proforma results of operations for the years ended
December 31, 1998 and 1999 have been prepared as if the acquisition of TIL
occurred on January 1, 1998:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------
1998 1999
----------- ------------
(unaudited)
<S> <C> <C>
Revenue......................................... $ 285,856 $ 321,823
Net loss........................................ (9,532,870) (12,103,215)
Net loss available to common stockholders....... (9,532,870) (12,158,416)
Basic and diluted loss per common share......... (1.85) (1.81)
</TABLE>
8. Related Party Transactions
During 1997, SmithKline loaned Careside $1,000,000, which along with accrued
expenses of $27,985 was converted into an additional 2% equity interest
(129,555 common shares) in Careside upon the closing of the 1997 Private
Placement. SmithKline currently owns 229,808 shares, representing 3.0% of the
current outstanding common stock.
In December 1998, Careside entered into an agreement with an affiliate of
SmithKline for up to $3,000,000 of bridge financing. In 1999, $1,000,000 of
this debt, plus $38,575 of accrued interest of unpaid interest was converted
to Series A Preferred Stock (see Note 9).
F-12
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
9. Debt
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1999
---------- -----------
<S> <C> <C>
Note payable, interest at 8%, due on January 31,
2000, net of unamortized discount of $309,154.... $1,190,846 $ --
Note payable, interest at 10%, due on April 30,
2000............................................. -- 2,000,000
Equipment loan due to finance company, interest at
14%, due in monthly installments of principal and
interest of $26,837, with a final payment of
$133,490 in December 2002........................ 1,041,084 854,286
Equipment loan due to finance company, interest at
15%, due in monthly installments of principal and
interest of $14,347, with a final payment of
$69,854 in September 2003........................ -- 521,782
---------- -----------
2,231,930 3,376,068
Less--Current Portion............................. (186,998) (2,316,192)
---------- -----------
$2,044,932 $ 1,059,876
========== ===========
</TABLE>
In December 1998, Careside entered into a $2,500,000 facility with an
equipment financing company. Borrowings under the facility are evidenced as
separate loans and are secured by specific equipment assets. Each equipment
loan has a 48-month term and bears interest at approximately 14% and 15% per
year, adjusted for an index rate based on 48-month U.S. Treasury Notes at the
time of borrowing (6.44% at December 31, 1999). Careside borrowed $1,041,084
in 1998 and $558,831 in 1999 under this facility to finance equipment
purchases. Careside recorded interest expense of $0 and $155,369 in 1998 and
1999, respectively related to these borrowings.
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 and the remaining $1,500,000 was drawn on January
31, 1999. The outstanding principal under the bridge financing originally
matured upon the earliest of the completion of Careside's initial public
offering (the "Offering"), a private equity financing of at least $8,000,000
or January 31, 2000. The maturity date has been extended to April 30, 2000.
Careside issued a warrant (the "Bridge Warrant") in connection with the bridge
financing. The Bridge Warrant was originally 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. The Bridge Warrant became exercisable in December
1999 and expires on June 16, 2003. Using the Black-Scholes pricing 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 was amortized over the estimated term of the note as additional interest
expense. In June 1999, $1,000,000 of the bridge financing plus $38,575 of
unpaid interest was converted to Series A Convertible Preferred Stock (see
Note 6). In connection with the conversion, the Bridge Warrant was modified
such that it will be exercisable into that number of shares of common stock
which is equal to $1,500,000 divided by 85% of the Offering price per share.
Using the Black-Scholes pricing model, the estimated fair value of the
increase in shares under the Bridge Warrant modification was calculated at
$289,801 and was recorded as interest expense in 1999, with a corresponding
increase in stockholders' equity.
F-13
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Future maturities of debt at December 31, 1999 are as follows:
<TABLE>
<S> <C>
2000.......................................................... $2,316,192
2001.......................................................... 363,598
2002.......................................................... 525,366
2003 ......................................................... 170,912
----------
$3,376,068
==========
</TABLE>
10. Stock Options and Warrants
Stock Options
Careside has adopted the 1996 Incentive and Non-Qualified Stock Option Plan,
1996 Key Executive Stock Option Plan, 1998 Incentive and Non-Qualified Stock
Option Plan and the 1998 Director Stock Option Plan (together, the "Plans"),
which provide for the granting of options to purchase up to 1,201,923 shares
of common stock to directors, officers, consultants and employees of the
Company. At December 31, 1999 684,238 shares were available for future grant
under the Plans. 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. Generally, options are not granted at prices below the fair market
value at the date of grant. Each option expires on such date as the Board of
Directors may determine. Generally options vest from 3 to 5 years.
The table below summarizes the option activity for 1997, 1998, and 1999:
<TABLE>
<CAPTION>
Weighted Exercisable
Weighted Average Fair Weighted
Average Value of Average
Number of Exercise Options Granted Number Exercise
Shares Price During the Year Exercisable Price
--------- -------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Outstanding at December
31, 1996............... --
Granted............... 317,163 $5.49 $2.14
------- ----- =====
Outstanding at December
31, 1997............... 317,163 5.49 23,051 $5.28
======= =====
Granted............... 111,950 6.76 $1.83
=====
Exercised............. (17,715) 6.76
Cancelled............. (673) 5.20
------- -----
Outstanding at December
31, 1998............... 410,725 5.78 198,343 $5.08
======= =====
Granted............... 95,017 6.17 $2.82
=====
Exercised............. -- --
Cancelled............. (5,772) 6.07
------- -----
Outstanding at December
31, 1999............... 499,970 $5.85 390,278 $5.76
======= ===== ======= =====
</TABLE>
F-14
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The table below summarizes information about options outstanding at December
31, 1999:
<TABLE>
<CAPTION>
Weighted Average
Range of Number Weighted Average Exercise Price Number
Exercise Outstanding at Remaining of Options Exercisable at
Prices December 31, 1999 Contractual Life Outstanding December 31, 1999
-------- ----------------- ---------------- ---------------- -----------------
<S> <C> <C> <C> <C>
$0.05-
0.05.. 1,154 7.4 years $0.05 1,154
$5.00-
7.50.. 497,614 7.9 years $5.86 388,884
$8.01.. 1,202 9.0 years $8.01 240
------- --------- ----- -------
$0.05-
8.01.. 499,970 7.9 years $5.85 390,278
======= ========= ===== =======
</TABLE>
As permitted by SFAS No. 123 "Accounting for Stock-Based Compensation," the
Company continues to apply the accounting rules of APB No. 25 governing the
recognition of compensation expense for employee stock options. Such
accounting rules measure compensation expense on the first date at which both
the exercise price and the number of shares are known. Expense is only
recognized in circumstances where the exercise price is less than the fair
market value at the measurement date. No such expense has been recorded in the
accompanying consolidated statements of operations. In 1998 Careside issued
1,154 options to a consultant. Compensation expense recorded for these options
was immaterial.
Under the requirements of SFAS No. 123 pro forma disclosure of compensation
expense using the fair value method is required to be disclosed if the Company
applies APB No. 25. Pro forma compensation has been computed by estimating the
fair value of options at the date of grant using the Black-Scholes option
pricing model.
The following assumptions were used in estimating the fair value of options:
<TABLE>
<CAPTION>
1997 1998 1999
--------- --------- ----------
<S> <C> <C> <C>
Weighted average risk-
free interest rate..... 6.41% 5.56% 5.92%
Weighted average
expected life.......... 6.7 years 7.0 years 4.17 years
Weighted average
volatility............. 0% 0% 60%
Dividend yield.......... 0% 0% 0%
</TABLE>
Had the compensation cost of these options been recorded for the years ended
December 31, 1997, 1998 and 1999, the Company's net loss would have increased
by approximately $28,000, $316,000 and 442,256, respectively.
Stock Warrants
The following table summarizes outstanding warrants at December 31, 1999
issued in connection with private placements of Careside's common stock prior
to the Offering:
<TABLE>
<CAPTION>
Outstanding Exercise Expiration
Type of Warrants Warrants Price Issuance Date Date
---------------- ----------- -------- ------------- -------------
<S> <C> <C> <C> <C>
Common stock.............. 384,615 $5.20 February 1997 February 2004
Common stock.............. 340,237 $6.76 April 1998 April 2005
-------
724,852
=======
</TABLE>
In addition to the above warrants, the Company issued a Bridge Warrant in
connection with the issuance of debt (see Note 9). The Bridge Warrant became
exercisable in December 1999 and expires in June 2003. Warrants to purchase
200,000 units were granted to the underwriters of the Offering. Each warrant
carries an exercise price
F-15
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of $9.00 and allows the purchase of one share of common stock and a tradable
warrant identical to those sold in the Offering. The warrants are exercisable
for a four year period beginning on the first anniversary of the Offering.
11. Statements of Cash Flows
The Company prepares its statements of cash flows using the indirect method
as defined under SFAS No. 95. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. Supplemental cash flows disclosures are as follows:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- --------
<S> <C> <C> <C>
Cash paid for interest................................. $ -- $ -- $157,653
Cash paid for income taxes............................. -- -- --
</TABLE>
Non-cash Investing and Financing Activities:
<TABLE>
<CAPTION>
1997 1998 1999
---- ---- ----------
<S> <C> <C> <C>
Conversion of bridge financing to Series A
Preferred Stock................................... $ -- $ -- $1,038,575
Acquisition of equipment under capital lease....... -- -- 52,980
Accrued dividends on Series A Preferred stock...... -- -- 55,201
</TABLE>
In connection with the Company's initial public offering, $498,433 of
previously unpaid deferred offering costs were offset against accounts
payable.
In connection with the acquisition of TIL in December 1999, the Company
recorded the following non-cash amounts which have been excluded from the
consolidated statement of cash flows:
<TABLE>
<S> <C>
Additional paid-in capital..................................... $2,869,565
Goodwill....................................................... 2,834,747
Net assets acquired............................................ 34,818
</TABLE>
12. Commitments
Leases
The Company leases office and laboratory facilities under noncancelable
operating leases expiring from August 2000 to July 2006. Rent expense for the
years ended 1997, 1998 and 1999 and the period from inception (July 10, 1996)
through December 31, 1999 was $156,756, $156,756, $174,497 and $514,135,
respectively.
Included in property and equipment is approximately $52,980 of equipment, at
acquisition cost, which is leased under a noncancellable lease accounted for
as a capital lease expiring in June 2003.
F-16
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 1999, the future minimum annual rental payments under lease
agreements are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases Total
-------- ---------- ----------
<S> <C> <C> <C>
December 31:
2000................................... $ 16,875 $ 189,065 $ 205,940
2001................................... 16,875 219,515 236,390
2002................................... 16,875 238,746 255,621
2003................................... 9,019 253,965 262,984
2004................................... -- 263,577 263,577
Thereafter............................. -- 435,820 435,820
-------- ---------- ----------
59,644 $1,600,688 $1,660,332
========== ==========
Less--Amount representing interest at
approximately 14 percent................ (12,803)
--------
Present value of minimum lease payments.. 46,841
--------
Less--Current portion.................... (11,006)
--------
$ 35,835
========
</TABLE>
Collaborative Arrangements
Careside has utilized strategic partners with specific design and technology
expertise 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. TIL has agreements with Ysebaert, Inc., the manufacturer
of the Hematology Analyzer. The Company's agreements with its strategic
partners do not obligate it to any minimum purchase commitments.
The Company purchases its dry film based chemistry reagents solely from Fuji
Photo Film Co., Ltd. In addition, UMM Electronics, Inc. is the sole designer
and manufacturer of the Careside Analyzer. The loss of these suppliers could
impact the Company's ability to obtain and produce these items in the short-
term. However, the Company believes that acceptable alternative suppliers are
available.
Employment Agreements
The Company has entered into three-year renewable employment agreements with
three of its executive officers that provide for aggregate annual compensation
of approximately $543,325.
13. Retirement Plan
The Company 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. The
Company matches 50% of the employee's contribution up to 4% of an employee's
compensation. Contributions
F-17
<PAGE>
CARESIDE, INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
under the Plan were, $32,315, $34,657, 47,195 and $114,167 for the years ended
1997, 1998 and 1999 and the period from inception (July 10, 1996) through
December 31, 1999, respectively.
14. Employee Stock Purchase Plan
In 1999, the Company's shareholders approved the Employee Stock Purchase
Plan ("ESPP"), under which 150,000 shares of the Company's common stock could
be sold to employees. Each quarter, an eligible U.S. employee may elect to
withhold up to 15 percent of his or her salary to purchase shares of the
Company's stock at a price equal to 85 percent of the fair value of the stock
as of the first day of the quarter, or the last day of the quarter. The ESPP
will terminate at the earlier of the date that all 150,000 shares have been
sold or the date as of which the Board of Directors chooses to terminate the
plan as provided in the plan provision. In 1999, 3,502 shares of the Company's
stock were sold under the ESPP for $16,792, and at December 31, 1999,
146,498 shares remained available for sale.
15. Subsequent Events
In January 2000, the Company financed the purchase price of certain
equipment totaling $795,465 and pledged the equipment as collateral. The loan
is paid in monthly installments and is due over 48 months.
In January 2000, the Company granted 86,500 options under the 1996 and 1998
stock option Plans with a weighted average exercise price of $10.00.
16. Events Subsequent to the Auditors' Report (Unaudited)
In March 2000, the Company sold 1,184,011 shares of common stock in a private
placement for $8.77 per common share. Proceeds, net of approximately $840,000
offering costs, amounted to $9.5 million. The Company has agreed to file a
registration statement with the Securities and Exchange Commission to register
these shares within 30 days after the closing. In connection with the sale, the
Company issued a warrant for nominal value exercisable into 142,091 shares of
the Company's common stock at an exercise price of $0.01 per share. The warrant
is exercisable upon certain conditions and expires on December 15, 2000. In
addition, the Company issued warrants to purchase 101,305 Shares of Common Stock
to the placement agent with an exercise price of $8.77 each. Upon exercise of
its warrants, the placement agent is entitled to exercise a contingent warrant
for 12,156 Shares of Common Stock. These contingent warrants have the same terms
and conditions as the contingent warrants issued to the purchasers in the
private placement.
F-18
<PAGE>
================================================================================
LOGO
200,000 Redeemable Common Stock Purchase Warrants
2,400,000 Shares of Common Stock
______________
PROSPECTUS
______________
April __, 2000
================================================================================
<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 in
connection with the issuance and distribution of the securities being
registered:
<TABLE>
<CAPTION>
Nature of Expense Amount
----------------- ----------
<S> <C>
Printing and engraving fees..................................... $ 4,500
Registrant's counsel fees and expenses.......................... 25,000
Accounting fees and expenses.................................... 23,000
Transfer agent and registrar fees............................... 7,500
Miscellaneous................................................... 5,000
----------
TOTAL......................................................... $ 65,000
==========
</TABLE>
_________________
* Estimated for the 12 month period commencing January 1, 2000
A total of $1,600,000 of expenses were previously incurred prior to January
1, 2000
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 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 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.
As permitted by the DGCL, the Charter 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 agreed to indemnify the underwriters in our initial public offering
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,
having given retroactive effect to a 1-for-5.2 reverse stock split to be
effected in connection with our initial public offering, 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 matured in December 1999. The annual interest rate on the
remaining $2 million increased to 10% on July 1, 1999. Since the
remainder of the bridge loan was not repaid by December 1, 1999, S.R.
One has 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 our initial public
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 $[6.38]
20. In June 1999, we granted stock options to purchase an aggregate of
10,815 shares of common stock under our 1996 Incentive and Non-
Qualified Stock Option Plan to five non-employee directors. The per
share exercise price of these stock options is $7.50.
21. In June 1999, we completed our initial public offering of 2,000,000
units, comprised of one share of common stock and one warrant to
purchase an additional share of our common stock. The net proceeds
from our initial public offering were $12.5 million, after deducting
the underwriting fees and estimated expenses of what offering. Of the
net proceeds received, (i) $ million was used to complete product
development, (ii) $ million was used to prepare for the marketing,
sale and launch of our product and (iii) the balance has and will
continue to be used for working capital and other general corporate
purposes.
22. On December 7, 1999, we acquired all of the outstanding stock of Texas
International Laboratories, Inc. (TIL). The acquisition was effected
by the merger of TIL with and into Careside Hematology, Inc., our
wholly-owned subsidiary. The stockholders of TIL received 521,739
unregistered shares of our Common Stock.
23. On December 31, 1999, we issued 3,502 shares of common stock to one
employee who purchased them pursuant to our Employee Stock Purchase
Plan.
24. In January 2000, we granted stock options to purchase 86,500 shares of
common stock under our 1996 and 1998 Incentive and Non-Qualified Stock
Option Plans to 23 employees. The per share exercise price is $10.00.
25. In March 2000, we issued 1,154 shares to Mr. Anthony Brenner upon
exercise of options at $.052 per share originally granted to Cedar
Capital Investors.
26. In March 2000 we completed a private placement of 1,184,091 shares of
our common stock at $8.77 per share, raising a gross amount of $10.4
million. Our expenses in that transaction were approximately $840,000.
Purchasers of those privately placed shares also received contingent
warrants to purchase 142,091 shares of our common stock at an exercise
price of $.01 per share if the closing price of our common stock on
the American Stock Exchange falls below $7.50 per share for 15
consecutive days during the period from August 15, 2000 to November
15, 2000. Such warrants will expire on December 15, 2000. In addition,
our placement agent in this transaction received warrants to purchase
101,305 shares of our common stock. The agent's warrants expire in
March 2005 and the exercise price is $8.77 per share. Upon exercise of
its warrants, the placement agent is entitled to exercise a contingent
warrant for an additional 12,156 shares of our common stock at $.01
per share. The agent's contingent warrant has the same terms and
conditions as the contingent warrant issued to the purchasers in the
transaction.
27. On March 31, 2000 we issued 2,839 shares of common stock to one
employee who purchased them pursuant to our Employee Stock Purchase
Plan.
We believe that the transactions described in paragraphs 1 through 27 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, unless the shares were registered, 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
- ----------- -----------
<S> <C>
1.1** Underwriting Agreement dated as of June 15, 1999 by and among
Paulson Investment Company, Inc., Millenium Financial Group, Inc.
and marion bass securities corporation, as representatives of our
underwriters, and Careside, Inc.
2.1 Agreement and Plan of Merger dated as of December 7, 1999 by and
among Careside, Inc., Careside Hematology, Inc., Texas
International Laboratories, Inc., Yves LeBihan and Jean-Yves
LeBihan. (incorporated herein by reference to Exhibit 2.1 to
Careside's current report on Form 8-K dated December 7, 1999)
3.1 Amended and Restated Certificate of Incorporation of Careside,
Inc. (incorporated herein by reference to Exhibit 3.1 to the
Company's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1999 (the "10-Q"))
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
3.2 Certificate of Designations of Series A Convertible Preferred
Stock (incorporated herein by reference to Exhibit 3.2 to the
10-Q)
3.3 Amended and Restated Bylaws of Careside, Inc. (incorporated
herein by reference to Exhibit 3.3 to the 10-Q)
4.1* Specimen Stock Certificate
4.1a Specimen Warrant Certificate (incorporated herein by reference to
Exhibit 4.1a to the 10-Q)
4.1b Specimen Unit Certificate (incorporated herein by reference to
Exhibit 4.1b to the 10-Q)
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 Warrant Agreement dated June 21, 2000, by and between Careside,
Inc. and Paulson Investment Company, Inc. (incorporated herein by
reference to Exhibit 4.6 to the 10-Q)
4.7 Form of Warrant Agreement dated June 21, 2000, by and between
Careside, Inc. and American Stock Transfer & Trust Company, as
Warrant Agent (incorporated herein by reference to Exhibit 4.7
to the 10-Q)
4.8 Warrant issued to S.R. One, Limited dated June 21, 1999.
(incorporated herein by reference to Exhibit 4.8 to the 10-Q)
4.9 New Note issued to S.R. One, Limited dated as of June 21, 1999.
(incorporated herein by reference to Exhibit 4.9 to the 10-Q)
4.10 Registration Rights Agreement dated as of December 7, 1999 by and
between Careside, Inc. and Yves LeBihan and Jean-Yves LeBihan.
(incorporated herein by reference to Exhibit 4.10 to Careside's
Annual Report on Form 10-K/A filed on March 31, 2000.)
4.11** Securities Purchase and Subscription Agreement dated as
of March 8, 2000 by and between Careside, Inc. and Purchasers
4.12** Warrant Agreement dated as of March 8, 2000 by and between
Careside, Inc. and H. C. Wainwright & Co., Inc. (including Form
of Warrant)
4.13** Contingent Warrant Agreement dated as of March 8, 2000 by and
between Careside, Inc. and Purchasers (including Form of Warrant)
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 August 23, 1996, 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
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
10.18* Product Development and Supply Agreement dated as of July 18,
1997, by and between Careside, Inc. and UMM Electronics, Inc.
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 Securities Conversion Agreement dated as of June 14, 1999
between S.R. One, Limited and Careside, Inc. (incorporated herein
by reference to Exhibit 10.37 to the 10-Q)
10.38 Form of Amended and Restated Registration Rights Agreement dated
as of June 21, 1999 between S.R. One, Limited and Careside, Inc.
(incorporated herein by reference to Exhibit 10.38 to the 10-Q)
10.39* Agreement dated as of April 13, 1999 by and between Fuji Photo
Film Co., Ltd. and Careside, Inc.+
23.1** Consent of Arthur Andersen LLP
23.2* Consent of Pepper Hamilton LLP (included in Exhibit 5.1)
</TABLE>
_____________
* Previously filed with the Securities and Exchange Commission.
** Filed herewith.
+ 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 Post-Effective
Amendment No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Culver City, California, on the 11th
day of April, 2000.
CARESIDE, INC.
By: /s/ James R. Koch
---------------------------------
James R. Koch
Chief Financial Officer and
Executive Vice President
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 1 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>
* Chairman of the Board of April 11, 2000
______________________________________ Directors, Chief
W. Vickery Stoughton Executive Officer and
Director (principal
executive officer)
* Executive Vice President-- April 11, 2000
______________________________________ Research and Development
Thomas H. Grove and Director
Chief Financial Officer, April 11, 2000
______________________________________ Treasurer, Executive Vice
James R. Koch President and Director
(principal financial and
accounting officer)
* Director April 11, 2000
- --------------------------------------
Anthony P. Brenner
* Director April 11, 2000
- --------------------------------------
William F. Flatley
* Director April 11, 2000
- --------------------------------------
Kenneth N. Kermes
* Director April 11, 2000
- --------------------------------------
C. Alan MacDonald
* Director April 11, 2000
- --------------------------------------
Diana Mackie
* Director April 11, 2000
- --------------------------------------
Philip B. Smith
</TABLE>
/s/ James R. Koch
*By: ________________________________
James R. Koch Attorney-in-Fact
<PAGE>
Exhibit 1.1
2,000,000 UNITS
CARESIDE, INC.
FORM OF
UNDERWRITING AGREEMENT
----------------------
June 15, 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 2,000,000 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 the date hereof, among the
Company and Paulson (the "Representatives' Warrant Agreement"), for the purchase
of an additional 200,000 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.
7
<PAGE>
(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
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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,
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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 at least ninety-five percent
(95%) 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
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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,
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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
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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 $7.04 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
-------
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
-------
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.
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<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.
- -------
(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
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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
-------
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
-------
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
-------
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
-------
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
-------
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
-------
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)
-------
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.
-------
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
-------
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.
-------
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: /s/ W. Vickery Stoughton
------------------------------------
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: /s/ Chester L.F. Paulson
-----------------------------------
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. 1,595,000
Millennium Financial Group, Inc. 10,000
marion bass securities corporation 300,000
Kashner Davidson Securities Corporation 40,000
Redwine & Co., Inc. 30,000
American Frontier Financial Corporation 25,000
--------------------
Total 2,000,000
====================
<PAGE>
4.11
NAME OF SUBSCRIBER:_____________________________________
To: CARESIDE, INC.
6100 BRISTOL PARKWAY
CULVER CITY, CA 90230
SECURITIES PURCHASE AND SUBSCRIPTION AGREEMENT
SECTION 1.
----------
1.1 Subscription. The undersigned (the "Purchaser"), intending to be
------------
legally bound, hereby subscribes for and agrees to purchase the following
securities of Careside, Inc., a Delaware corporation (the "Company"),
immediately upon the acceptance of such subscription by the Company together
with other similar subscriptions which aggregate at least five million dollars
($5,000,000) (the "Minimum Offering"):
(a) _____________________ (___________) shares of common stock,
$.01 par value per share (the "Common Stock"), and
(b) a contingent warrant (the "Contingent Warrant") to purchase
an additional __________ (_________) shares of Common Stock
for a purchase price of $.01 per share of Common Stock, such
warrant to be in the form of Exhibit A hereto,
for an aggregate purchase price of ______________ dollars ($___________) (the
"Aggregate Purchase Price") in accordance with the terms and conditions of this
Securities Purchase and Subscription Agreement (the "Subscription Agreement")
and pursuant to the Company's Confidential Private Offering Memorandum dated
February 2, 2000 (the "Confidential Memorandum").
1.2 Purchase of Securities; Delivery of Documents. The Purchaser
---------------------------------------------
understands and acknowledges that the Aggregate Purchase Price shall be remitted
to H.C. Wainwright & Co., Inc. (the "Placement Agent"), as agent for the
Company, in exchange for the Common Stock and Contingent Warrant (the "Purchased
Securities"). Payment for the Purchased Securities shall be made by certified
check or wire transfer in accordance with the instructions of the Placement
Agent, together with an executed copy of this Subscription Agreement. Also,
contemporaneously with the execution and delivery of this Subscription Agreement
by the Purchaser, the Purchaser is delivering to the Company a completed
Accredited Investor Questionnaire (the "Questionnaire") in the form attached to
the Confidential Memorandum as Exhibit C.
---------
<PAGE>
1.3 Pricing of Purchased Securities. The Aggregate Purchase Price is
-------------------------------
equal to the number of shares of Common Stock which are the subject of this
Subscription Agreement multiplied by $8.77, which is eighty percent (80%) of the
average closing trading price, as quoted by the American Stock Exchange
("AMEX"), for Common Stock for the twenty (20) trading days immediately
preceding the date of this Agreement.
SECTION 2.
----------
2.1 Acceptance or Rejection. The Company's acceptance of the
-----------------------
Purchaser's subscription shall be evidenced by the Company's execution and
delivery of a duplicate original or a copy of this Subscription Agreement to the
Purchaser.
(a) The Purchaser understands and agrees that the Company reserves
the right to reject this subscription for the Common Stock in whole or in part,
at any time prior to the applicable Closing (as defined in Section 2.2 hereof),
notwithstanding prior receipt by the Purchaser of notice of acceptance of the
Purchaser's subscription.
(b) In the event a subscription is accepted in part, the applicable
portion of the Aggregate Purchase Price shall be retained by the Company in
payment of the shares of Common Stock to be sold to the Purchaser and the
balance shall be returned promptly to the Purchaser, without interest thereon.
(c) The Purchaser understands and agrees that this offer to purchase
is and shall be irrevocable, but its obligations hereunder will terminate if
this offer is rejected by the Company, pursuant to the terms herein.
(d) In the event of rejection of this subscription, or in the event
the sale of the Common Stock subscribed for by the Purchaser is not consummated
by the Company for any reason (in which event this Subscription Agreement shall
be deemed to be rejected), this Subscription Agreement and any other agreement
entered into between the Purchaser and the Company relating to this subscription
shall thereafter have no force or effect and the Company shall promptly return
or cause to be returned to the Purchaser the Aggregate Purchase Price remitted
to the Company by the Purchaser, without interest thereon or deduction
therefrom.
(e) Pending acceptance or rejection of this subscription at a
Closing, the Aggregate Purchase Price shall be held in escrow by American Stock
Transfer & Trust Company (the "Escrow Agent") pursuant to an escrow agreement
among the Company, the Placement Agent and the Escrow Agent.
2.2 Closing; Closing Date.
---------------------
The closing of the purchase and sale of the Minimum Offering (the
"Initial Closing") shall take place at the offices of Pepper Hamilton LLP, 3000
Two Logan Square, Philadelphia, PA 19103, or such other place as may be
mutually agreed by the Company and the
-2-
<PAGE>
Placement Agent, no later than March 8, 2000 (the "Termination Date") or upon
the Company's acceptance of subscriptions equal to the Minimum Offering.
Subsequent closings of part or all of the sale of securities contemplated by the
Confidential Memorandum, if any, will be held at such times after the Initial
Closing as shall be determined by the Company (each, a "Closing") prior to the
Termination Date. At the Initial Closing, the Company shall deliver to the
Purchaser (i) certificates for the Common Stock and Contingent Warrants issued
and sold to the Purchaser, duly registered in the Purchaser's name (or their
nominee) against payment in full by the Purchaser of the Aggregate Purchase
Price, and (ii) an opinion of Pepper Hamilton LLP, counsel to the Company,
addressed to the Purchaser with respect to the valid existence and good standing
of the Company, the due authorization, execution and delivery of this Agreement
and the issuance and sale of the Common Stock and Contingent Warrants , and that
the Common Stock and Contingent Warrants, upon issuance and sale to the
Purchaser, are duly authorized, validly issued, fully paid and nonassessable.
SECTION 3.
----------
3.1 Representations and Warranties of the Company.
---------------------------------------------
The Company represents and warrants that:
(a) The Company is a corporation duly organized and validly existing
and in good standing under the laws of the State of Delaware, and duly qualified
to do business and in good standing as a foreign corporation in each state in
which the nature of its business or properties requires such qualification
(except where failure to qualify would not have a material adverse effect on the
Company taken as a whole), with full power and authority, corporate and
otherwise, to enter into and perform this Subscription Agreement, and to execute
and deliver the various instruments and documents provided for herein.
(b) The execution, delivery and performance by the Company of this
Subscription Agreement and the issuance and delivery by the Company of the
Common Stock and Contingent Warrant as contemplated hereby have been duly
authorized by all necessary corporate action and will not violate any provision
of law, court order or decree, or any provision of the Company's Certificate of
Incorporation or Bylaws, or result in the breach of, constitute a default under
or result in the creation of any lien, charge or encumbrance upon any property
or assets of the Company pursuant to any agreement or instrument to which the
Company is a party, or by which it or any of its property may be bound or
affected. This Subscription Agreement is a valid and binding obligation of the
Company, enforceable in accordance with its terms subject to general principles
of equity and bankruptcy and other laws affecting creditors' rights generally.
(c) There are no material lawsuits or proceedings pending, or, to the
Company's knowledge, threatened, against or affecting the Company and there are
no proceedings before any governmental commission, bureau or other
administrative agency pending, or, to the Company's knowledge, threatened,
against or affecting the Company.
-3-
<PAGE>
(d) As of January 31, 2000, the authorized capital stock of the
Company consisted of 50,000,000 shares of common stock, $.01 par value per share
(the Company "Common Stock") and 5,000,000 shares of preferred stock, $.01 par
value per share (the "Preferred Stock"). As of January 31, 2000, there were
7,609,581 shares of Company Common Stock and 162,914 shares of Series A
Preferred Stock (the "Series A Preferred Stock") outstanding. As of January 31,
2000, 4,272,444 shares of Company Common Stock are issuable upon the exercise of
currently exercisable warrants and options and upon the conversion of the
outstanding shares of Series A Preferred Stock.
(e) The Common Stock issuable under this Subscription Agreement or
upon exercise of the Contingent Warrant has been duly authorized and, when
issued against payment therefor, will be validly issued, fully paid and
nonassessable and will be issued in reliance upon applicable exemptions from the
registration and qualification provisions of all applicable securities laws of
the United States and each state whose securities laws may be applicable
thereto. All Common Stock purchased hereunder or upon exercise of the
Contingent Warrant will be issued free and clear of any preemptive or similar
right and free and clear of any claim, lien, security interest or other
encumbrance. The Company has reserved for issuance upon exercise of the
Contingent Warrant the full number of shares of Common Stock issuable upon
exercise thereof.
(f) No governmental permit, consent, approval or authorization is
required in connection with (i) the execution, delivery and performance of this
Subscription Agreement by the Company or (ii) the offer, sale, issuance and
delivery by the Company of the Common Stock and Contingent Warrant contemplated
hereby; provided that, all representations made to the Company by the Purchaser
-------------
in this Subscription Agreement and in any other document or instrument delivered
in connection herewith are assumed for purposes of this representation and
warranty to be accurate and complete.
(g) Each of the Company's reports or filings with the Securities and
Exchange Commission ("SEC") that have been incorporated by reference into the
Confidential Memorandum complied as to form, at the time of filing of such
reports or filings, in all material respects with the requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
and regulations promulgated under such Act.
(h) The Confidential Memorandum and any amendment or supplement
thereto provided by the Company to the Purchaser does not, at the date hereof,
contain any 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.
(i) As of the date hereof, the Company's Common Stock and its
publicly traded warrants are traded on the AMEX. Within thirty (30) days after
the Initial Closing, the Company shall file a registration statement to register
such number of shares of Common Stock issued or issuable in connection with the
offering contemplated by the Confidential Memorandum (the "Offering") in the
manner set forth in Section 5.1 below.
-4-
<PAGE>
(j) No sale of Common Stock or other securities by the Company within
the last six (6) months require integration under the Act and Regulation D
promulgated thereunder or would materially adversely affect the sale of the
Common Stock and Contingent Warrants or the timely effectiveness of the
Registration Statement referred to in Appendix II.
SECTION 4.
----------
4.1 Purchaser Representations and Warranties.
----------------------------------------
The Purchaser hereby acknowledges, represents and warrants to, and
agrees with, the Company and its affiliates as follows:
(a) The Purchaser has received, read carefully and understands the
Confidential Memorandum and has had an adequate opportunity to consult his own
attorney, accountant or investment advisor (his "Advisors") with respect to the
suitability of the investment contemplated hereby for the Purchaser. The
Purchaser further acknowledges that the Purchaser and his Advisors have also
made such other investigation, review, examination and inquiry concerning the
Company and its business and affairs as they have deemed appropriate so as to
understand the nature of the investment in the Purchased Securities, including
without limitation, the merits and risks thereof.
(b) The Purchaser is acquiring the Purchased Securities for the
Purchaser's own account as principal, not as a nominee or agent, for investment
purposes only, and not with a view to, or for, resale, distribution or
fractionalization thereof in whole or in part, which resale, distribution or
fractionalization would violate the Securities Act of 1933, as amended (the
"Securities Act"). Further, the Purchaser does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person, with respect to the
Purchased Securities, for which the Purchaser is subscribing.
(c) The Purchaser has full power and authority to enter into this
Subscription Agreement. The execution and delivery of this Subscription
Agreement has been duly authorized, if applicable, by the Purchaser and this
Subscription Agreement constitutes a valid and legally binding obligation of the
Purchaser.
(d) The Purchaser acknowledges the Purchaser's understanding that the
offering and sale of the Purchased Securities is intended to be exempt from
registration under the Securities Act by virtue of Section 4(2) thereof and the
provisions of Regulation D promulgated thereunder ("Regulation D"). In
furtherance thereof, the Purchaser represents and warrants to and agrees with
the Company and its affiliates as follows:
(i) The Purchaser understands that the basis for the exemption
from registration may not be present if, notwithstanding such
representations, the Purchaser's intention is merely to acquire the
Common Stock for a fixed or determinable period in the future, or for
a market rise, or for sale if the market does not rise. Accordingly,
the Purchaser does not have any such intention;
-5-
<PAGE>
(ii) The Purchaser has the financial ability to bear the
economic risk of the Purchaser's investment, has adequate means for
providing for the Purchaser's current needs and personal contingencies
and has no need for liquidity with respect to the Purchaser's
investment in the Company; and
(iii) The Purchaser has such knowledge and experience in
financial and business matters as to be capable of evaluating the
merits and risks of the prospective investment in the Common Stock.
If other than an individual, the Purchaser also represents that it has
not been organized for the purpose of acquiring the Common Stock.
(e) The information in the Questionnaire completed and executed by
the Purchaser is accurate and true in all respects and the Purchaser is an
"accredited investor," as that term is defined in Rule 501 of Regulation D as
described in Appendix I hereto.
----------
(f) The Purchaser:
(i) Has been furnished with copies of the Confidential
Memorandum, a List of FDA Approved Tests, the Company's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1999, certain
audited and unaudited financial statements and any documents which may
have been made available upon request for a reasonable period of time
prior to the date hereof (collectively, the "Documents"). The
Purchaser acknowledges and agrees that the Documents supercede all
written information regarding the Company that the Purchaser may have
received prior to the date of the Documents. The Purchaser has
carefully read the Documents and has relied solely (except as
indicated in subsections (ii) and (iii) below) on the information
contained in the Documents (including all exhibits thereto);
(ii) Has been provided an opportunity for a reasonable period of
time prior to the date hereof to obtain additional information
concerning the Purchased Securities, the Company and all other
information to the extent the Company possesses such information or
can acquire it without unreasonable effort or expense;
(iii) Has been given the opportunity for a reasonable period of
time prior to the date hereof to ask questions of, and receive answers
from, the Company or its representatives concerning the terms and
conditions of the Offering and other matters pertaining to this
investment, and has been given the opportunity for a reasonable period
of time prior to the date hereof to obtain such additional information
necessary to verify the accuracy of the information contained in the
Documents or that which was otherwise provided in order for the
Purchaser to evaluate the merits and risks of purchase of the
Purchased Securities
-6-
<PAGE>
to the extent the Company possesses such information or can acquire it
without unreasonable effort or expense;
(iv) Has not been furnished with any oral representation or oral
information in connection with the Offering which is not contained
herein or in the Documents; and
(v) Has determined that the Purchased Securities are a suitable
investment for the Purchaser and that at this time the Purchaser could
bear a complete loss of such investment.
(g) This offer is not transferable or assignable by the Purchaser
unless the Purchaser complies with the terms of transfer hereof. The Purchaser
further represents, warrants and agrees that the Purchaser will not sell or
otherwise transfer the Purchased Securities, without registration under the
Securities Act or an exemption therefrom, and that the Purchaser fully
understands and agrees that the Purchaser must bear the economic risk of the
Purchaser's purchase because, among other reasons, none of the Purchased
Securities has been registered under the Securities Act or under the securities
laws of any state and, therefore, none can be resold, pledged, assigned or
otherwise disposed of unless they are subsequently registered under the
Securities Act and under the applicable securities laws of such states or an
exemption from such registration is available. In particular, the Purchaser is
aware that the Common Stock is a "restricted security," as such term is defined
in Rule 144 promulgated under the Securities Act ("Rule 144"), and may not be
sold pursuant to Rule 144 unless all of the conditions of Rule 144 are met. The
Purchaser also understands that, except as expressly otherwise provided herein,
the Company is under no obligation to register the Common Stock on the
Purchaser's behalf or to assist the Purchaser in complying with any exemption
from registration under the Securities Act or applicable state securities laws.
The Purchaser further understands that sales or transfers of the Purchased
Securities are further restricted by state securities laws and the provisions of
this Subscription Agreement.
(h) No representations or warranties have been made to the Purchaser
by the Company, or any officer, employee, agent or affiliate of the Company,
other than the representations and warranties of the Company contained herein,
and in subscribing for the Purchased Securities, the Purchaser is not relying
upon any representations other than those contained herein.
(i) Any information which the Purchaser has heretofore furnished to
the Company with respect to the Purchaser's financial position and business
experience is correct and complete as of the date of this Subscription Agreement
and if there should be any material change in such information the Purchaser
will immediately furnish such revised or corrected information to the Company.
(j) The Purchaser understands and agrees that, at issuance, the
Common Stock shall bear the following legend, or a similar legend to the same
effect, until (i) such Common Stock shall have been registered under the
Securities Act and effectively been disposed
-7-
<PAGE>
of in accordance with a registration statement that has been declared effective;
or (ii) in the opinion of counsel for the Company such Common Stock be may sold
without registration under the Securities Act or any applicable "Blue Sky" or
state securities laws:
"THE COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND IS SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AS SET
FORTH IN THIS CERTIFICATE. THE COMMON STOCK REPRESENTED HEREBY
MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR
AN OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO COUNSEL FOR THE
COMPANY, TO THE EFFECT THAT THE PROPOSED SALE, TRANSFER, OR
DISPOSITION MAY BE EFFECTUATED WITHOUT REGISTRATION UNDER THE
ACT."
(k) The Purchaser is not (i) a director, officer, or substantial
security holder of the Company (a "Related Party"), (ii) a subsidiary, affiliate
or other closely-related person of a Related Party, or (iii) any person, company
or entity in which a Related Party has a substantial direct or indirect
interest.
(l) No Federal or state agency has made any findings or determination
as to the fairness of the Offering or the Purchased Securities (or any part
thereof) for investment, or any recommendation or endorsement of any of the
Purchased Securities (or any part thereof).
(m) The Purchaser covenants that it will not, directly or indirectly
through its affiliates or agents, at any time prior to December 15, 2000, effect
shorts sales of the Common Stock or hedge transactions in the Common Stock that
customarily result in a counter party engaging in short sales.
(n) The foregoing representations, warranties and agreements shall
survive the Closing.
-8-
<PAGE>
SECTION 5.
----------
5.1 Registration of the Common Stock. Within thirty (30) days after
--------------------------------
the Initial Closing, the Company shall file a registration statement on Form S-1
registering for resale the Common Stock included in the Purchased Securities and
the shares of Common Stock issuable upon exercise of the Contingent Warrant in
accordance with the provisions set forth in Appendix II, which is attached
-----------
hereto and incorporated by reference as if set forth herein in its entirety. The
Company shall use its reasonable best efforts to have such registration
statement declared effective and to cause the listing of the Common Stock on the
AMEX as soon as practicable. The Company does not hereby undertake to register
the Contingent Warrant included in the Purchased Securities.
SECTION 6.
----------
6.1 Indemnification of the Company.
-------------------------------
(a) The Purchaser agrees to indemnify and hold harmless the Company,
its officers and directors, employees, agents and affiliates and each other
person, if any, who controls any thereof within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act, against any loss,
liability, claim, damage and expense whatsoever (including, but not limited to,
any and all expenses whatsoever reasonably incurred in investigating, preparing
or defending against any litigation commenced or threatened or any claim
whatsoever) arising out of or based upon any false representation or warranty or
breach or failure by the Purchaser to comply with any covenant or agreement made
by the Purchaser herein or in any other document furnished by the Purchaser to
any of the foregoing in connection with this transaction. The Purchaser also
agrees to indemnify the Company as set forth in Appendix II with respect to the
-----------
resale registration of Common Stock included or underlying the Purchased
Securities.
6.2 Indemnification of Purchaser. The Company agrees to indemnify and
----------------------------
hold harmless the Purchaser against any loss, liability, claim, damage and
expense whatsoever (including, but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any litigation commenced or threatened or any claim whatsoever) arising out of
or based upon any false representation or warranty or breach or failure by the
Company to comply with any covenant or agreement made by the Company herein or
in any other Document furnished by the Company to any of the foregoing in
connection with the transaction contemplated by this Subscription Agreement. The
Company also agrees to indemnify the Purchaser as set forth in Appendix II with
-----------
respect to the resale registration of the Common Stock included in or underlying
the Purchased Securities.
6.3 Modification. Neither this Subscription Agreement nor any
------------
provisions hereof shall be modified, discharged or terminated except by an
instrument in writing signed by the party against whom any waiver, change,
discharge or termination is sought.
-9-
<PAGE>
6.4 Notices. All notices, authorizations, demands or requests
-------
required or permitted to be delivered to any party in connection with this
Subscription Agreement shall be in writing and shall be deemed to have been duly
given if personally delivered, if sent by facsimile transmission (with receipt
confirmed by automatic transmission report), if sent by a nationally-recognized
overnight courier with charges prepaid, if sent by registered or certified mail,
return receipt requested and postage prepaid (or by the most nearly comparable
method if mailed from or to a location outside the United States), or addressed
as follows:
If to the Company, to:
6100 Bristol Parkway
Culver City, CA 90230
Attn: James R. Koch
Fax: 310-338-6789
With copies (which copies shall not constitute notice) to:
Pepper Hamilton LLP
3000 Two Logan Square
Philadelphia, PA 19103-2799
Attn: Julia D. Corelli, Esquire
Fax: 215-981-4750
If to the Purchaser, to the address shown on such Purchaser's
signature page hereto.
or to such other address as the party to whom the notice is to be given may have
furnished to the other party hereto in writing in accordance with the provisions
of this Section 6.4. Any such notice or communication shall be deemed to have
been received (i) in the case of personal delivery, on the date of such
delivery, (ii) in the case of facsimile transmission (with receipt confirmed by
automatic transmission report), on the date of such transmission, (iii) in the
case of a nationally-recognized overnight courier, on the next business day
after the date when delivered to such courier, and (iv) in the case of mailing
(or by the most nearly comparable method if mailed from or to a location outside
the United States), on the third business day following that on which the piece
of mail containing such communication is posted; provided, however, that three
-------- -------
additional business days shall be added to the time any notice or communication
sent from or to a location outside the United States shall be deemed to have
been received in (iii) or (iv) above.
6.5 Counterparts. This Subscription Agreement may be executed through
------------
the use of separate signature pages or in any number of counterparts (and by
facsimile signature), and each of such counterparts shall, for all purposes,
constitute one agreement binding on all parties, notwithstanding that all
parties are not signatories to the same counterpart.
-10-
<PAGE>
6.6 Binding Effect. Except as otherwise provided herein, this
--------------
Subscription Agreement shall be binding upon and inure to the benefit of the
parties and their heirs, executors, administrators, successors, legal
representatives and assigns. If the Purchaser is more than one person, the
obligation of the Purchaser shall be joint and several and the agreements,
representations, warranties and acknowledgments herein contained shall be deemed
to be made by and be binding upon each such person and his heirs, executors,
administrators and successors.
6.7 Severability. In the event that any provision of this
------------
Subscription Agreement shall be deemed to be invalid, illegal or unenforceable,
the validity, legality or enforceability of the remaining provisions shall not
in any way be affected or impaired thereby.
6.8 Entire Agreement. This Subscription Agreement and the documents
----------------
referenced herein contain the entire agreement of the parties and there are no
representations, covenants or other agreements except as stated or referred to
herein and therein.
6.9 Assignability. This Subscription Agreement is not transferable
-------------
or assignable by the Purchaser.
6.10 Applicable Law. This Subscription Agreement shall be governed by
--------------
and construed in accordance with the laws of the State of Delaware, without
giving effect to conflicts of law principles.
6.11 Jurisdiction. The Purchaser and the Company each hereby submit
------------
to the exclusive jurisdiction of the courts of the State of Delaware and to the
United States District Court for the District of Delaware with respect to any
action or legal proceeding commenced by either of them with respect to this
Subscription Agreement, the Offering or the Common Stock. Each of them
irrevocably waives any objection they now have or hereafter may have respecting
the venue of any such action or proceeding brought in such a court or respecting
the fact that such court is an inconvenient forum and consents to the service of
process in any such action or proceeding by means of registered or certified
mail, return receipt requested, in care of the address set forth above or below
or at such other address as either of them shall furnish in writing to the
other.
6.12 Waiver. The Purchaser and the Company each hereby waive trial by
------
jury in any action or proceeding involving any matter (whether sounding in tort,
contract, fraud or otherwise) in any way arising out of or relating to this
Subscription Agreement, the Offering or the Common Stock.
6.13 Pronouns. The use herein of the masculine pronouns "he," "him"
--------
or "his" or similar terms shall be deemed to include the feminine and neuter
genders as well and the use herein of the singular pronoun shall be deemed to
include the plural as well.
6.14 Survival. The respective indemnities, representations,
--------
warranties and agreements of the Company and the Purchasers contained in this
Subscription Agreement or made by or on behalf on them, respectively, pursuant
to this Subscription Agreement, shall survive the delivery of and payment for
the Common Stock and shall remain in full force and
-11-
<PAGE>
effect regardless of any investigation made by or on behalf of any of them or
any person controlling any of them for a period of one year from the date
hereof.
-12-
<PAGE>
EXECUTION PAGE FOR INDIVIDUAL
IN WITNESS WHEREOF, subject to acceptance by the Company, the undersigned
has completed this Subscription Agreement to evidence its offer to purchase the
Purchased Securities, comprised of Common Stock and the Contingent Warrant, on
this _________ day of ______________,2000.
Number of Shares of Common Stock subscribed for: ______________.
Amount of check enclosed: $_____________.
______________________________________ ______________________________________
Signature of Purchaser (Name of Purchaser - Please Print)
______________________________________ ______________________________________
Social Security Number of Purchaser Address of Purchaser
Accepted:
Dated: _________________, 2000 CARESIDE, INC.
By:___________________________________
Name:
Title:
14
<PAGE>
EXECUTION PAGE FOR OFFER TO PURCHASE BY AN ENTITY
(Not applicable to offers by individuals)
IN WITNESS WHEREOF, subject to acceptance by the Company, the undersigned
has completed this Subscription Agreement to evidence its offer to purchase the
Purchased Securities, comprised of Common Stock and the Contingent Warrant, this
___ day of ______________, 2000.
Number of Shares of Common Stock subscribed for: _____________.
Amount of check enclosed: $__________.
__ TRUST - (Please include copy of trust agreement)
__ CORPORATION - (Attach certified corporate resolution authorizing signature
and a copy of the articles of incorporation)
__ PARTNERSHIP - (Attached copy of the partnership agreement)
(Please print the following information exactly as you wish it to appear on the
Company records.)
_____________________________ ______________________________________
(Name of Subscriber) (Address)
_____________________________ ______________________________________
(Tax Identification Number)
_____________________________ ______________________________________
(Telephone)
The undersigned trustee, partner or corporate officer certifies that he has
full power and authority from the beneficiaries, partners or directors of the
entity named below to execute this Subscription Agreement on behalf of the
entity and to make the representations and warranties made herein on their
behalf and that investment in the Company has been affirmatively authorized by
the governing board of such entity and is not prohibited by the governing
documents of the entity.
Date: ______________, 2000 ________________________________________
(Print Name of Entity)
_____________________________ By:_____________________________________
(Print Name and Capacity) (Signature of authorized trustee,
partner, or corporate officer)
ACCEPTED:
Date: ______________, 2000 CARESIDE, INC.
By:_____________________________________
Name:
Title:
15
<PAGE>
CORPORATE ACKNOWLEDGMENT
STATE OF )
)ss.:
COUNTY OF )
On this ___ day of ____________, 2000, before me personally came
_________________ to be known, being by me duly sworn, did depose and say that
he resides at ___________________________________, that he is the
________________________ of ________________________________, the corporation
described in and which executed the foregoing instrument; that he knows the seal
of said corporation; that the seal affixed to said instrument is such corporate
seal; that it was so affixed by order of the board of directors of said
corporation, and that he signed his name thereto by like order.
____________________________
Notary Public
PARTNERSHIP ACKNOWLEDGMENT
STATE OF )
)ss.:
COUNTY OF )
On this ___ day of ____________, 2000, before me personally came
_________________ to be known, to be a partner in
___________________________________, a partnership, and known to be the person
described in and who executed the foregoing instrument in the partnership name,
and said ____________ duly acknowledged that he executed the foregoing
instrument on behalf of said partnership.
____________________________
Notary Public
16
<PAGE>
Appendix I
----------
Pursuant to Rule 501 of Regulation D promulgated under the Securities Act,
an accredited investor means:
(a) A bank as defined in Section 3(a)(2) of the Securities Act, or any
savings and loan association or other institution as defined in
Section 3(a)(5)(A) of the Securities Act whether acting in its
individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; any
insurance company as defined in Section 2(13) of the Securities Act,
any investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48)
of that act; any Small Business Investment Company licensed by the
U.S. Small Business Administration under Section 301(c) or (d) of the
Small Business Investment Act of 1958; any plan established and
maintained by a state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees if such plan has total assets in excess of
$5,000,000; any employee benefit plan within the meaning of the
Employee Retirement Income Security Act of 1974 if the investment
decision is made by a plan fiduciary, as defined in Section 3(21) of
such act, which is either a bank, savings and loan association,
insurance company, or registered investment advisor, or if the
employee benefit plan has total assets in excess of $5,000,000 or, if
a self-directed plan, with investment decision made solely by persons
that are accredited investors;
(b) Any private business development company as defined in Section 202
(a)(22) of the Investment Advisers Act of 1940;
(c) Any organization described in Section 501(c)(3) of the Internal
Revenue Code (the "Code"), corporation, Massachusetts or similar
business trust, or partnership, not formed for the specific purpose of
acquiring the securities offered, with total assets in excess of
$5,000,000;
(d) Any director or executive officer of the Company;
(e) Any natural person whose individual net worth, or joint net worth with
that person's spouse, at the time of such person's purchase exceeds
$1,000,000;
(f) Any natural person who had an individual income in excess of $200,000
in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and who
reasonably expects to reach the same income level in the current year;
(g) Any trust, with assets in excess of $5,000,000, not formed for the
specific purpose of acquiring the securities offered, whose purchase
is directed by a person having such knowledge and experience in
financial and business matters so such person is capable
17
<PAGE>
of evaluating the merits and risks of the investment to be made; or
(h) Any entity in which all of the equity owners are accredited investors.
In addition, a participant in a defined contribution or profit sharing plan
qualified under Section 401 of the Code may be deemed the purchaser of the
Common Stock for the purpose of determining whether the plan is an accredited
investor if the following conditions are satisfied: (x) the plan trust must
provide for segregated accounts for each plan participant, (y) the plan document
must provide the participant with the power to direct the trustee to make each
particular investment to the extent of the participant's voluntary contributions
plus that portion of employer contributions that have vested to the
participant's benefit and (z) the investment in the Common Stock must have been
made pursuant to an exercise by the participant of the power to direct the
investment of his or her account in the plan trust.
18
<PAGE>
Appendix II
-----------
1. Registration of the Common Stock.
--------------------------------
(a) Subject to paragraph 1(b) below, within thirty (30) days after the
Initial Closing, the Company agrees to file a registration statement (the
"Registration Statement") on Form S-1 with the Securities Exchange Commission
("Commission") registering the Common Stock (which term, for all purposes of
this Appendix II, shall be deemed to include the shares of Common Stock issuable
upon exercise of the Contingent Warrant) for sale under the Securities Act. The
Company reserves the right to convert such registration to a registration with
like effect on any other form that may be or may become available to the
Company. The Company further reserves the right to include in such registration
statement for registration any shares of its Common Stock which the Company, in
its sole discretion, determines to include therein.
(b) If the Company shall furnish to the holders of Common Stock
included in the Registration Statement (each a "Holder", and collectively the
"Holders") a certificate signed by its Chief Executive Officer stating that, in
the good faith judgment of the Company's Board of Directors, it would be
detrimental to the Company and its shareholders for the Registration Statement
to be filed by reason of a material activity or pending event or transaction
(such as a material acquisition, joint venture, merger, consolidation or
financing transaction) and it is therefore advisable to defer the filing of such
registration statement, the Company shall have a one-time right to defer such
filing of the Registration Statement for a period of not more than ninety (90)
days after the date upon which the Company would otherwise have been required to
file the Registration Statement pursuant to Section 1(a). The Company hereby
confirms that it is not aware of any event, development, fact or state of
affairs that exists as of the date hereof that constitutes, or that would
reasonably be expected to lead to, a material activity or pending event or
transaction within the meaning of the preceding sentence.
(c) The Company's obligation to register is limited to one Registration
Statement which becomes effective under the Securities Act, and, provided that
the Company complies with its obligations under this Agreement, no further
registration statements (other than required amendments or supplements to the
original Registration Statement) will be filed for the benefit of the Holders.
(d) The Company shall use its best efforts to obtain effectiveness of
the Registration Statement as soon as practicable and shall continue to use its
best efforts to maintain such effectiveness for the registration until the
earlier of (i) the second (2nd) anniversary of the Initial Closing or (ii) the
date on which the Holder or his permitted transferee or assignee no longer holds
any Common Stock. The Registration Statement filed in connection herewith shall
not be deemed to have been effected unless it has become effective with the
Commission. Notwithstanding the foregoing, the Registration Statement will not
be deemed to have been effected if after it has become effective under the
Securities Act, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
19
<PAGE>
governmental agency or any court proceeding for any reason. The Company shall
use its best efforts to prevent the issuance of any stop order or other
suspension of effectiveness of the Registration Statement, and, if such an order
is issued, to obtain the withdrawal of such order at the earliest possible
moment and to notify the Purchaser of the issuance of such order and the
resolution thereof.
2. Registration Expenses. The Company shall pay all expenses incurred in
---------------------
connection with the registration of the Common Stock on the Registration
Statement.
3. Registration Procedures.
-----------------------
a. In connection with the Company's obligation to register the
Common Stock under the Securities Act as provided in Section 1, the Company, as
expeditiously as possible and subject to the terms and conditions herein, will
use its best efforts to:
(i) cause the Registration Statement to be prepared and filed
with the Commission pursuant to Section 1(a) above to become effective
as soon as practicable;
(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 the provisions of the
Securities Act with respect to the disposition of all securities
covered by such Registration Statement until such time as no Holder or
his permitted transferee or assignee holds any Common Stock or, if
earlier, the second (2/nd/) anniversary of the Initial Closing;
(iii) furnish to the Holders 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 the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, in each
case, as the Holders may reasonably request;
(iv) register or qualify all Common Stock covered by such
Registration Statement under such other United States state securities
or blue sky laws of such jurisdictions as any of the Holders shall
reasonably request, to keep such registration or qualification in
effect for so long as such registration remains in effect, and take
any other action which may be reasonably necessary or advisable to
enable the Holders to consummate the disposition of the Common Stock
owned by the Holders in such jurisdictions, 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
20
<PAGE>
this Section 3(a)(iv) be obligated to be so qualified, subject itself
to taxation in any such jurisdiction, or consent to general service of
process in any such jurisdiction;
(v) immediately notify the Holders at any time when a
prospectus relating to the Common Stock is required to be delivered
under the Securities Act, of 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 promptly prepare and
furnish to the Holders a reasonable 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 Common Stock, 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;
(vi) comply with all applicable rules and regulations of the
Commission, and not file (or withdraw or correct) any amendment or
supplement to such Registration Statement or prospectus to which the
Holders shall have reasonably objected in writing on the grounds that
such amendment or supplement does not comply in all material respects
with the requirements of the Securities Act or of the rules or
regulations thereunder;
(vii) provide a transfer agent and registrar for all Common
Stock covered by such Registration Statement not later than the
effective date of such Registration Statement; and
(viii) promptly list all Common Stock covered by such
Registration Statement on the AMEX or any securities exchange or
automated inter-dealer quotation system on which any of the Company
Common Stock is then listed or traded.
(b) The Holders agree that upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(a)(v),
the Holders will forthwith discontinue their disposition of Common Stock
pursuant to the Registration Statement until the Holders receive copies of the
supplemented or amended prospectus contemplated by Section 3(a)(v) and, if so
directed by the Company, will deliver to the Company all copies, other than
permanent file copies, then in the possession of the Holders of the prospectus
relating to such Common Stock current at the time of receipt of such notice and
that they will immediately notify the Company, at any time when a prospectus
relating to the registration of such Common Stock is required to be delivered
under the Securities Act, of the happening of any event as a result of which
information previously furnished by the Holders to the Company for inclusion in
such
21
<PAGE>
prospectus contains 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.
c. As a condition of the fulfillment of its obligations under this
Agreement, the Company may require the Holders, at their own expense, to furnish
the Company with such information and undertakings regarding such Holders and
the distribution of such securities as the Company may from time to time
reasonably request in writing to the extent necessary in order to cause the
registration statement to comply with the Securities Act, and the Holders shall
provide such information and make such undertakings as are requested.
d. In connection with the preparation and filing of each
registration statement under the Securities Act, the Company will give the
Holders and their respective counsel and accountants, the reasonable opportunity
to participate in the preparation of such Registration Statement, each
prospectus included therein or filed with the Commission and each amendment
thereof or supplement thereto, and will give each of them such reasonable access
to its books and records and such reasonable opportunities to discuss the
business of the Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary to conduct a
reasonable investigation within the meaning of the Securities Act.
e. Promptly after a sale of Common Stock pursuant to the
Registration Statement (assuming that no stop order is in effect with respect to
the registration statement at the time of such sale), the Company shall
cooperate with the Holders and provide the transfer agent for the Common Stock
with such instructions and legal opinions as may be required in order to
facilitate the issuance to the purchaser (or the Holder's broker) of new
unlegended certificates for such Common Stock.
4. Indemnification; Contribution.
-----------------------------
a. To the extent permitted by applicable law, the Company shall
indemnify and hold harmless each Holder, each person, if any, who controls such
Holders within the meaning of the Securities Act, and each officer, director,
partner, and employee of such Holders and such controlling person, against any
and all losses, claims, damages, liabilities and expenses (joint or several),
including reasonable attorneys' fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
persons may become subject under the Securities Act, the Exchange Act or any
other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation"):
(i) Any untrue statement or alleged untrue statement of a
material fact contained in such Registration Statement, including any
preliminary prospectus or final prospectus contained therein, or any
amendments or supplements thereto;
22
<PAGE>
(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; or
(iii) Any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any applicable state securities law
or any rule or regulation promulgated under the Securities Act, the
Exchange Act or any applicable state securities law; provided,
however, that the indemnification required by this Section 4(a) shall
not apply to amounts paid in settlement of any such loss, claim,
damage, liability or expense if such settlement is effected without
the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any
such loss, claim, damage, liability or expense to the extent (and only
to the extent) that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written
information furnished to the Company by the indemnified party
expressly for use in connection with such registration.
b. To the extent permitted by applicable law, each Holder shall
indemnify and hold harmless the Company, each of its directors, each of its
officers who shall have signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any other
Holder, any controlling Person of any such other Holder and each officer,
director, partner and employee of such other Holder and such controlling Person,
against any and all losses, claims, damages, liabilities and expenses (joint and
several), including reasonable attorneys' fees and disbursements and expenses of
investigation, incurred by such party pursuant to any actual or threatened
action, suit, proceeding or investigation, or to which any of the foregoing
Persons may otherwise become subject under the Securities Act, the Exchange Act
or any other federal or state laws, insofar as such losses, claims, damages,
liabilities and expenses arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; provided,
--------
however, that the indemnification required by this Section 4(b) shall not apply
- -------
to amounts paid in settlement of any such loss, claim, damage, liability or
expense if settlement is effected without the consent of the relevant Holder
(which consent shall not be unreasonably withheld); and, provided further that
-------- -------
in no event shall the amount of any indemnity under this Section 4(b) exceed the
gross proceeds from the applicable offering received by such Holder.
c. Promptly after receipt by an indemnified party under this Section
4 of notice of the commencement of any action, suit, proceeding, investigation
or threat thereof made in writing for which such indemnified party may make a
claim under this Section 4, such indemnified party shall deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel reasonably
satisfactory to the indemnified party;
23
<PAGE>
provided, however, that an indemnified party shall have the right to retain its
own counsel at its own expense (except as specifically provided below). The
failure to deliver written notice to the indemnifying party within a reasonable
time following the commencement of any such action shall not relieve such
indemnifying party of any liability to the indemnified party under this Section
4 except, if and to the extent that the indemnifying party is actually
prejudiced thereby, but in no event shall it relieve the indemnifying party of
any liability that it may have to any indemnified party otherwise than pursuant
to this Section 4. Any fees and expenses incurred by the indemnified party
(including any fees and expenses incurred in connection with investigating or
preparing to defend such action or proceeding) shall be paid to the indemnified
party, as incurred, within sixty (60) days of written notice thereof to the
indemnifying party (regardless of whether it is ultimately determined that an
indemnified party is not entitled to indemnification hereunder, but in such
event such amounts shall be immediately refunded). Any such indemnified party
shall have the right to employ separate counsel in any such action, claim or
proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be the expenses of such indemnified party unless (i) the
indemnifying party has agreed to pay such fees and expenses or (ii) the
indemnifying party shall have failed to promptly assume the defense of such
action, claim or proceeding or (iii) the named parties to any such action, claim
or proceeding (including any impleaded parties) include both such indemnified
party and the indemnifying party, and such indemnified party shall have been
advised by counsel that there may be one or more legal defenses available to it
which are different from or in addition to those available to the indemnifying
party and that the assertion of such defenses would create a conflict of
interest such that counsel employed by the indemnifying party could not
faithfully represent the indemnified party, it being understood, however, that
the indemnifying party shall not, in connection with any one such action, claim
or proceeding or separate but substantially similar or related actions, claims
or proceedings in the same jurisdiction arising out of the same general
allegations or circumstances, be liable for the reasonable fees and expenses of
more than one separate firm of attorneys (together with appropriate local
counsel) at any time for all such indemnified parties. No indemnifying party
shall be liable to an indemnified party for any settlement of any action,
proceeding or claim without the written consent of the indemnifying party, which
consent shall not be unreasonably withheld.
d. If the indemnification required by this Section 4 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to in this
Section 4:
(i) The indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages,
liabilities or expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified
parties in connection with the actions which resulted in such losses,
claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and indemnified parties shall be determined by
reference to, among other things, whether any violation has been
committed by, or relates to information supplied by, such
24
<PAGE>
indemnifying party or indemnified parties, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such Violation; provided however, that in no event shall the
obligation of any indemnifying party to contribute under this clause
(i) exceed the amount that such indemnifying party would have been
obligated to pay by way of indemnification if the indemnification
provided for in Section 4(a) had been available under the
circumstances. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to
above shall be deemed to include, subject to the limitations set forth
in Section 4(a) and (b), any legal or other fees or expenses
reasonably incurred by such party in connection with any investigation
or proceeding.
(ii) The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 4(d) were
determined by pro rata allocation or by any other method of allocation
that does not take into account the equitable considerations referred
to in Section 4(d)(i). No person guilty of fraudulent
misrepresentation within the meaning of Section 11(f) of the
Securities Act shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation.
e. The obligations of the Company and the Holders under this Section
4 shall survive the completion of any offering of Common Stock pursuant to a
registration statement.
5. Rule144; Exchange Act Filings. The Company shall file as and when
-----------------------------
applicable, on a timely basis, all reports required to be filed by it under the
Exchange Act. If, for any reason the Company is not required to file reports
pursuant to the Exchange Act, upon the request of any Holder, the Company shall
make publicly available the information specified in subparagraph (c)(2) of Rule
144 of the Securities Act, and take such further action as may be reasonably
required from time to time and as may be within the reasonable control of the
Company, to enable the Holders to transfer the Common Stock to a transferee
without registration under the Securities Act within the limitation of the
exemptions provided by Rule 144 under the Securities Act or any similar rule or
regulation hereafter adopted by the Commission. The Company further covenants
and agrees that it will furnish to each Holder so long as such Holder owns
Common Stock promptly upon request, (i) a written statement by the Company as to
the status of its compliance with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Holders to sell such securities pursuant to Rule 144 without
registration.
6. Transfer or Assignment of Registration Rights. The rights of a
---------------------------------------------
Holder provided herein to cause the Company to register the Common Stock may be
transferred or assigned only with respect to Common Stock transferred to an
affiliate of such Holder.
25
<PAGE>
COUNTERPART
-----------
THIS INSTRUMENT forms part of the Stockholders Agreement (the "Agreement")
made as of the 4th day of December, 1996 among Exigent Diagnostics, Inc.,
SmithKline Beecham Diagnostics 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 the Investors, and any additional Stockholders (as such terms are
defined in the Agreement) of the Corporation, from time to time as such
Agreement has been or shall hereafter be amended in accordance with the terms
thereof, which Agreement permits execution by counterpart. The undersigned
hereby acknowledges having received a copy of the said Agreement (which is
annexed hereto as Schedule I) and having read the said Agreement in its
entirety, and for good and valuable consideration, receipt and sufficiency of
which is hereby acknowledged, hereby agrees that the terms and conditions of the
said Agreement shall be binding upon the undersigned as a Stockholder and such
terms and conditions shall inure to the benefit of the binding upon the
undersigned and its successors and permitted assigns.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
_____ day of March, 2000.
__________________________________
Felix Hernandez
<PAGE>
Exhibit 4.12
================================================================================
WARRANT AGREEMENT
BY AND BETWEEN
CARESIDE, INC.
AND
H.C. WAINWRIGHT & CO., INC.
DATED AS OF MARCH 8, 2000
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
WARRANT CERTIFICATES..................................................................................... 1
Section 1.1 Forms of Warrant Certificates.......................................................... 1
-----------------------------
Section 1.2 Execution of Warrant Certificates...................................................... 1
---------------------------------
Section 1.3 Registration of Warrant Certificates................................................... 2
------------------------------------
Section 1.4 Exchange and Transfer of Warrant Certificates.......................................... 2
---------------------------------------------
Section 1.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates.............................. 2
---------------------------------------------------------
Section 1.6 Cancellation of Warrant Certificates................................................... 2
------------------------------------
ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS.......................................................... 3
Section 2.1 Exercise Price......................................................................... 3
--------------
Section 2.2 Registration of Warrants and Warrant Shares............................................ 3
-------------------------------------------
Section 2.3 Procedure for Exercise of Warrants..................................................... 3
----------------------------------
Section 2.4 Issuance of Common Stock............................................................... 4
------------------------
Section 2.5 Certificates for Unexercised Warrants.................................................. 4
-------------------------------------
Section 2.6 Reservation of Shares.................................................................. 5
---------------------
Section 2.7 No Impairment.......................................................................... 5
-------------
ARTICLE III
ADJUSTMENTS AND NOTICE PROVISIONS........................................................................ 5
Section 3.1 Adjustment of Exercise Price........................................................... 5
----------------------------
Section 3.2 Sales of Certain Securities............................................................ 6
---------------------------
Section 3.3 No Adjustments to Exercise Price....................................................... 8
--------------------------------
Section 3.4 Adjustment of Number of Shares......................................................... 8
------------------------------
Section 3.5 Reorganizations........................................................................ 8
---------------
Section 3.6 Verification of Computations........................................................... 9
----------------------------
Section 3.7 Notice of Certain Actions.............................................................. 9
-------------------------
Section 3.8 Certificate of Adjustments............................................................. 10
--------------------------
Section 3.9 Warrant Certificate Amendments......................................................... 10
------------------------------
Section 3.10 Fractional Shares...................................................................... 10
-----------------
ARTICLE IV
MISCELLANEOUS............................................................................................ 10
Section 4.1 Payment of Taxes and Charges........................................................... 10
----------------------------
Section 4.2 Changes to Agreement................................................................... 11
--------------------
Section 4.3 Assignment............................................................................. 11
----------
Section 4.4 Successor to Company................................................................... 11
--------------------
Section 4.5 Notices................................................................................ 11
-------
Section 4.6 Defects in Notice...................................................................... 12
-----------------
Section 4.7 Governing Law.......................................................................... 12
-------------
Section 4.8 Standing............................................................................... 12
--------
</TABLE>
(i)
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 4.9 Headings............................................................................... 12
--------
Section 4.10 Counterparts........................................................................... 13
------------
Section 4.11 Availability of the Agreement.......................................................... 13
-----------------------------
Section 4.12 Entire Agreement....................................................................... 13
----------------
WARRANT AGREEMENT
COMPANY SIGNATURE PAGE.................................................................................... 14
WARRANT AGREEMENT
PURCHASER SIGNATURE PAGE.................................................................................. 15
EXHIBIT A - FORM OF WARRANT CERTIFICATE....................................................................... A-1
</TABLE>
(ii)
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT (the "Agreement"), dated as of March 8, 2000, is
entered into by and between Careside, Inc., a Delaware corporation (the
"Company"), and H.C. Wainwright & Co., Inc. (the "Purchaser").
WITNESSETH:
WHEREAS, the Company proposes to sell pursuant to several Securities
Purchase and Subscription Agreements, each dated as of a date in March, 2000
(collectively the "Securities Purchase Agreement"), by and between the Company
and the purchasers named therein, 956,039 shares of common stock, par value
$0.01 per share, of the Company for a purchase of $8.77 per share (the "Common
Stock") in the aggregate principal amount of $8,384,462.03 and contingent
warrants to purchase up to an aggregate of 114,725 shares (subject to
adjustment) of the Common Stock (the "Contingent Warrant"); and
WHEREAS, the Purchaser has acted as the exclusive placement agent for the
Company in connection with the transactions contemplated by the Securities
Purchase Agreement, and as partial consideration for such services the Company
has issued to Purchaser a warrant (the "Warrant") to acquire 95,604 shares of
Common Stock at an exercise price of $8.77 per share (the Common Stock issuable
upon exercise of the Warrant being referred to herein as the "Warrant Shares")
and contingent warrants to acquire 11,472 additional shares of Common Stock on
the same terms and conditions as the Contingent Warrants;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
WARRANT CERTIFICATES
Section 1.1 Forms of Warrant Certificates. The warrant certificates (the
-----------------------------
"Warrant Certificates") shall be issued substantially in the form of Exhibit A
---------
attached hereto, together with the form of the election to purchase (the
"Election to Purchase") and assignment (the "Assignment") to be attached
thereto, and, in addition, may have such letters, numbers or other marks of
identification or designation and such legends, summaries, or endorsements
stamped, printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as, in any particular case, may be required in the opinion of counsel for the
Company, to comply with any law or with any rule or regulation of any regulatory
authority or agency, or to conform to customary usage.
Section 1.2 Execution of Warrant Certificates. The Warrant Certificates
---------------------------------
shall be executed on behalf of the Company by its Chairman or President or any
Vice President and attested to by its Secretary or Assistant Secretary, either
manually or by facsimile signature printed thereon. In case any authorized
officer of the Company who shall have signed any of the Warrant Certificates
shall cease to be an officer of the Company either before or after delivery
thereof by the Company to any Purchaser, the signature of such person on such
Warrant Certificates shall be valid nevertheless and
<PAGE>
such Warrant Certificates may be issued and delivered to those persons entitled
to receive the Warrants represented thereby with the same force and effect as
though the person who signed such Warrant Certificates had not ceased to be an
officer of the Company.
Section 1.3 Registration of Warrant Certificates. The Company shall number
------------------------------------
and keep a registry for the Warrant Certificates in a register as they are
needed. The Company may deem and treat the registered holder(s) of the Warrant
Certificates (the "Holders") as the absolute owner(s) thereof for all purposes.
Section 1.4 Exchange and Transfer of Warrant Certificates. The Warrants
---------------------------------------------
(and any Warrant Shares issued upon exercise of the Warrants) shall bear such
restrictive legend or legends as may be required by the Securities Purchase
Agreement and as may be required by law and shall be transferable only in
accordance with the terms of this Agreement and the Securities Purchase
Agreement.
The Company may from time to time note the transfer of any outstanding
Warrant Certificates in a warrant register to be maintained by the Company upon
surrender thereof accompanied by a written instrument or instruments of transfer
in form satisfactory to the Company duly executed by the Holder or Holders
thereof or by the duly appointed legal representative thereof or by a duly
authorized attorney. Upon any such registration of transfer, a new Warrant
Certificate shall be issued to the transferee(s).
Warrant Certificates may be exchanged at the option of the Holder(s)
thereof, when surrendered to the Company at the address set forth in Section 4.5
hereof for another Warrant Certificate or Warrant Certificates of like tenor and
representing in the aggregate a like number of Warrant Shares: provided that the
--------
Company shall not be required to issue any Warrant Certificate representing any
fractional Warrant Shares.
Section 1.5 Lost, Stolen, Mutilated or Destroyed Warrant Certificates.
---------------------------------------------------------
If any Warrant Certificate shall be mutilated, lost, stolen or destroyed, the
Company shall issue, execute and deliver, in exchange and substitution for and
upon cancellation of a mutilated Warrant Certificate, or in lieu of or in
substitution for a lost, stolen or destroyed Warrant Certificate, a new Warrant
Certificate representing an equivalent number of Warrants or Warrant Shares. If
required by the Company, the Holder of the mutilated, lost, stolen or destroyed
Warrant Certificate must provide indemnity sufficient to protect the Company
from any loss which it may suffer if the Warrant Certificate is replaced. Any
such new Warrant Certificate shall constitute an original contractual obligation
of the Company, whether or not the allegedly lost, stolen, mutilated or
destroyed Warrant Certificate shall be at any time enforceable by anyone.
Section 1.6 Cancellation of Warrant Certificates. Any Warrant Certificate
------------------------------------
surrendered upon the exercise of Warrants or for exchange or transfer, or
purchased or otherwise acquired by the Company, shall be canceled and shall not
be reissued by the Company; and, except as provided in Section 2.5 hereof in
case of the exercise of less than all of the Warrants evidenced by a Warrant
Certificate or in Section 1.4 in an exchange or transfer, no Warrant Certificate
shall be issued hereunder in lieu of such canceled Warrant Certificate. Any
Warrant Certificate so canceled shall be destroyed by the Company.
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ARTICLE II
WARRANT EXERCISE PRICE AND EXERCISE OF WARRANTS
Section 2.1 Exercise Price. Each Warrant Certificate shall, when signed by
--------------
the Chairman or President or any Vice President and attested to by the Secretary
or Assistant Secretary of the Company, entitle the Holder thereof to purchase
from the Company, subject to the terms and conditions of this Agreement, the
number of fully paid and nonassessable Warrant Shares evidenced thereby at a
purchase price of $8.77 per share (the "Initial Exercise Price") or such
adjusted number of Warrant Shares at such adjusted purchase price as may be
established from time to time pursuant to the provisions of Article III hereof,
payable in full in accordance with Section 2.3 hereof, at the time of exercise
of the Warrant. Except as the context otherwise requires, the term "Exercise
Price" as used in this Agreement shall mean the purchase price of one share of
Common Stock, reflecting all appropriate adjustments made in accordance with the
provisions of Article III hereof.
Section 2.2 Registration of Warrants and Warrant Shares. The Company shall
-------------------------------------------
secure the effective registration of the Warrant Shares for resale under the
Securities Act of 1933, as amended (the "Securities Act") upon the terms and
subject to the conditions set forth in Appendix II to the Securities Purchase
Agreement. Promptly after a registration statement under the Securities Act
covering the Warrant Shares has become effective, the Company shall cause notice
thereof together with a copy of the prospectus covering the Warrant Shares to be
mailed to each registered Holder.
Section 2.3 Procedure for Exercise of Warrants. The Warrants may be
----------------------------------
exercised prior to the Expiration Date (as hereinafter defined) at the Exercise
Price at any time after the date hereof. The Warrants shall expire at 5:00 p.m.,
Boston time, on March 8, 2005 (the "Expiration Date"). The Warrants may be
exercised by surrendering the Warrant Certificates representing such Warrants to
the Company at its address set forth in Section 4.5 hereof, together with the
Election to Purchase duly completed and executed, accompanied by payment in
full, as set forth below, to the Company of the Exercise Price for each Warrant
Share in respect of which such Warrants are being exercised. Such Exercise Price
shall be paid in full by (i) cash or a certified check or a wire transfer in
same day funds in an amount equal to the Exercise Price multiplied by the number
of Warrant Shares then being purchased or (ii) delivery to the Company of that
number of shares of Common Stock having a Fair Market Value (as hereinafter
defined) equal to the Exercise Price multiplied by the number of Warrant Shares
then being purchased. In the alternative, the Holder of a Warrant Certificate
may exercise its right to purchase some or all of the Warrant Shares subject to
such Warrant Certificate, on a net basis, such that, without the exchange of any
funds, such Holder receives that number of Warrant Shares subscribed to pursuant
to such Warrant Certificate less that number of shares of Common Stock having an
aggregate Fair Market Value at the time of exercise equal to the aggregate
Exercise Price that would otherwise have been paid by such Holder for the number
of Warrant Shares subscribed to pursuant to such Warrant Certificate
(hereinafter, a "Net Cashless Exercise"). In any event, the Warrants shall
automatically convert into the Warrant Shares on the Expiration Date pursuant to
a Net Cashless Exercise if on the Expiration Date the Fair Market Value of the
Warrant Shares is greater than the Exercise Price, notwithstanding that the
Holder may not have provided to the Company its Election to Purchase by the
Expiration Date.
As used herein: (a) the term "Fair Market Value," on a per share basis,
means the average of the daily Closing Prices (as hereinafter defined) of the
Common Stock for the five (5) consecutive
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Trading Days (as hereinafter defined) ending the Trading Day immediately
preceding the Date of Exercise; (b) the term "Date of Exercise" with respect to
any Warrant means the date on which such Warrant is exercised as provided
herein; (c) the term "Closing Price" for any date shall mean the last sale price
reported in The Wall Street Journal regular way or, in case no such reported
-----------------------
sale takes place on such date, the average of the last reported bid and asked
prices regular way, in either case on the principal national securities exchange
on which the Common Stock is admitted to trading or listed if that is the
principal market for the Common Stock or, if not listed or admitted to trading
on any national securities exchange or if such national securities exchange is
not the principal market for the Common Stock, the last sale price as reported
on The Nasdaq Stock Market, Inc.'s National Market ("Nasdaq") or its successor,
if any, or if the Common Stock is not so reported, the average of the reported
bid and asked prices in the over-the-counter market, as furnished by the
National Quotation Bureau, Inc., or if such firm is not then engaged in the
business of reporting such prices, as furnished by any similar firm then engaged
in such business and selected by the Company or, if there is no such firm, as
furnished by any member of the National Association of Securities Dealers, Inc.
("NASD") selected by the Company or, if the Common Stock is not quoted in the
over-the-counter market, the fair value thereof determined in good faith by the
Company's Board of Directors as of a date which is within 15 days of the date as
of which the determination is to be made; and (d) the term "Trading Days" with
respect to the Common Stock means (i) if the Common Stock is quoted on Nasdaq or
any similar system of automated dissemination of quotations of securities
prices, days on which trades may be made on such system or (ii) if the Common
Stock is listed or admitted for trading on any national securities exchange,
days on which such national securities exchange is open for business.
Section 2.4 Issuance of Common Stock. As soon as practicable after the
------------------------
Date of Exercise of any Warrants, the Company shall issue, or cause its transfer
agent to issue, a certificate or certificates for the number of full Warrant
Shares, registered in accordance with the instructions set forth in the Election
to Purchase, together with cash for fractional shares as provided in Section
3.10. All Warrant Shares issued upon the exercise of any Warrants shall be
validly authorized and issued, fully paid, non-assessable, free of preemptive
rights and (subject to Section 4.1 hereof) free from all taxes, liens, charges
and security interests in respect of the issuance thereof. Each person in whose
name any such certificate for Warrant Shares is issued shall be deemed for all
purposes to have become the holder of record of the Common Stock represented
thereby on the Date of Exercise of the Warrants resulting in the issuance of
such shares, irrespective of the date of issuance or delivery of such
certificate for Warrant Shares.
Section 2.5 Certificates for Unexercised Warrants. In the event that,
-------------------------------------
prior to the Expiration Date, a Warrant Certificate is exercised in respect of
fewer than all of the Warrant Shares issuable on such exercise, a new Warrant
Certificate representing the remaining Warrant Shares shall be issued and
delivered pursuant to the provisions hereof; provided that the Company shall not
--------
be required to issue any Warrant Certificate representing any fractional Warrant
Shares.
Section 2.6 Reservation of Shares. The Company shall at all times reserve
---------------------
and keep available, free from preemptive rights, for issuance upon the exercise
of Warrants, the maximum number of its authorized but unissued shares of Common
Stock which may then be issuable upon the exercise in full of all outstanding
Warrants. The Company shall from time to time take all action which may be
necessary or appropriate so that the Warrant Shares, immediately upon their
issuance
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following an exercise of Warrants, will be listed or quoted, as the case may be,
on the principal securities exchanges or markets within the United States of
America, if any, on which other shares of the Common Stock are then listed.
Without limitation of Section 2.2 hereof, nothing in this Section 2.6 shall
require the Company to maintain a current registration statement or prospectus
for the Warrant Shares.
Section 2.7 No Impairment. The Company shall not by any action, including,
-------------
without limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of the Warrants, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of the Holders against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any Warrant Shares
receivable upon the exercise of the Warrants above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and non-assessable Warrant Shares upon the
exercise of any Warrant, and (c) use its best efforts to obtain all such
authorizations, exemptions or consents from any public regulatory body having
jurisdiction thereof as may be necessary to enable the Company to perform its
obligations under the Warrants. Notwithstanding the foregoing paragraph, the
Company shall not be required to issue Warrant Shares upon the exercise of any
Warrant if such issuance would result in a violation by the Company of any
applicable law.
ARTICLE III
ADJUSTMENTS AND NOTICE PROVISIONS
Section 3.1 Adjustment of Exercise Price. Subject to the provisions of
----------------------------
this Article III, the Exercise Price in effect from time to time shall, subject
to Section 3.3 hereof, be subject to adjustment in the following manner. In case
the Company shall (i) declare a dividend or make a distribution on the
outstanding shares of its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of its Common Stock into a
greater number of shares, or (iii) combine or reclassify the outstanding shares
of its Common Stock into a smaller number of shares, the Exercise Price in
effect immediately after the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such dividend, distribution, subdivision, combination or reclassification, and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event specified above shall occur.
Section 3.2 Sales of Certain Securities.
---------------------------
(a) In case the Company shall on or after the date hereof issue
or sell any shares of Common Stock or any rights, options, warrants or
convertible or exchangeable securities containing the right to subscribe for or
purchase shares of Common Stock (excluding Excluded
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<PAGE>
Securities, as defined in Subsection 3.2(b) below) at a price per share less
than seventy-five percent (75%) of the Current Market Price (as defined in
Subsection 3.2(f) below) (such amount being the "Threshold Value"), then the
Exercise Price shall be adjusted immediately thereafter so that it shall equal
the price determined by multiplying the Exercise Price in effect immediately
prior to such issuance or sale by a fraction, of which the numerator shall be
the number of shares of Fully Diluted Common Stock outstanding immediately prior
to such issuance or sale plus the number of additional shares of Common Stock
the Aggregate Consideration Receivable (as defined in Subsection 3.2(d) below)
would purchase at the Threshold Value per share on the date of such issuance or
sale, and of which the denominator shall be the number of shares of Fully
Diluted Common Stock outstanding immediately prior to such issuance or sale plus
the number of additional shares of Common Stock offered for subscription or
purchase. Such adjustment shall be made successively whenever such issuance or
sale shall occur. To the extent that any such rights, options, warrants or
convertible or exchangeable securities expire unexercised, the Exercise Price
then in effect shall be readjusted to the Exercise Price which would then be in
effect if such unexercised rights, options, warrants or convertible or
exchangeable securities had not been issued or sold.
(b) For the purposes of this Section 3.2,
(i) "Fully Diluted Common Stock" shall mean the number of
shares of outstanding Common Stock plus any shares of Common Stock issuable
upon conversion of the Company's Series A Preferred Stock or any other
outstanding debt or equity securities convertible into or exercisable for
Common Stock or into securities convertible or exchangeable for Common
Stock, including without limitation all options and warrants then
outstanding.
(ii) "Excluded Securities" means the following:
(A) rights, options, warrants, or convertible or
exchangeable securities issued in any of the transactions described in
Section 3.5 hereof;
(B) shares of Common Stock issuable upon exercise of the
Warrants or any other warrants outstanding as of the date hereof;
(C) shares of Common Stock issued or that may become
issuable upon exercise of rights, options or warrants or conversion or
exchange of convertible or exchangeable securities issued or sold
under circumstances causing an adjustment that has already been made
pursuant to this Section 3.2 or which would cause an adjustment but
for Section 3.3 hereof;
(D) shares of Common Stock issuable upon conversion, in
accordance with their terms, of any shares of Series A Preferred Stock
outstanding as of the date hereof or issuable in the future upon
conversion, in accordance with their terms, of any debt securities
outstanding as of the date hereof;
(E) shares of Common Stock issued upon exercise of
options granted under the Company's current stock option plans or
other stock option plans adopted
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<PAGE>
in the future by a majority of the Board of Directors of the Company,
so long as such majority includes a majority of the outside directors
of the Company (a "Majority Board Approval");
(F) shares of Common Stock issued pursuant to the
Company's Employee Stock Purchase Plan or any comparable plan adopted
by Majority Board Approval in the future; and
(G) shares of Common Stock issued in an acquisition of
the business, stock or assets of another entity in a strategic
transaction, or in a transaction involving a strategic partner of the
Company, including with respect to the joint development or use of
technology or distribution of product, which acquisition or
transaction received Majority Board Approval.
(c) The price per share of Common Stock referred to in Subsection
3.2(a) above shall be determined by dividing (i) the Aggregate Consideration
Receivable in respect of such rights, options, warrants or convertible or
exchangeable securities, by (ii) the total number of shares of Common Stock
covered by such rights, options, warrants or convertible or exchangeable
securities.
(d) "Aggregate Consideration Receivable" means the aggregate amount
paid to the Company for such rights, options, warrants or convertible or
exchangeable securities, plus the aggregate consideration or premiums stated in
such rights, options, warrants or convertible or exchangeable securities to be
payable for the shares of Common Stock covered thereby.
(e) In case the Company shall sell and issue rights, options, warrants
or convertible or exchangeable securities containing the right to subscribe for
or purchase shares of Common Stock, for a consideration consisting, in whole or
in part, of property other than cash or its equivalent, then in determining the
"price per share of Common Stock" referred to in Subsections 3.2(a) and (c)
above and the "Aggregate Consideration Receivable" referred to in Subsections
3.2(a), (c) and (d) above, the Board of Directors of the Company shall
determine, in good faith and on a reasonable basis, the fair value of said
property.
(f) For the purpose of any computation under Subsection 3.2(a) hereof,
the "Current Market Price" per share at any date (the "Computation Date") shall
be deemed to be the average of the daily Closing Prices of the Common Stock for
the twenty (20) consecutive Trading Days ending the Trading Day immediately
preceding the Computation Date; provided, however, that if there shall have
occurred prior to the Computation Date any event described in Subsection 3.2(a)
which shall have become effective with respect to market transactions at any
time (the "Market-Effect Date") on or within such 20-day period, the Closing
Price for each Trading Day preceding the Market-Effect Date shall be adjusted,
for purposes of calculating such average, by multiplying such Closing Price by a
fraction, of which the numerator shall be the Exercise Price as in effect
immediately prior to the Computation Date and the denominator of which shall be
the Exercise Price as in effect immediately prior to the Market-Effect Date, it
being understood that the purpose of this proviso is to ensure that the effect
of such event on the market price of the Common Stock shall, as nearly as
possible, be eliminated in order that the distortion in the calculation of the
Current Market Price may be minimized. If, at the Computation Date, the Common
Stock has not
7
<PAGE>
then been quoted on Nasdaq or listed or admitted for trading on any national
securities exchange for a period of twenty (20) Trading Days, the Current Market
Value shall be determined by the Board of Directors in good faith, on a
reasonable basis, as the case may be (which amount shall be subject to
adjustment in the event of a stock dividend, stock split or subdivision,
combination or reclassification of the Common Stock).
Section 3.3 No Adjustments to Exercise Price. No adjustment in the
--------------------------------
Exercise Price in accordance with the provisions of Section 3.1 or Subsection
3.2(a) hereof need be made unless such adjustment would amount to a change of at
least 0.5% in such Exercise Price, provided, however, that the amount by which
-------- -------
any adjustment is not made by reason of the provisions of this Section 3.3 shall
be carried forward and taken into account at the time of any subsequent
adjustment in the Exercise Price. The Exercise Price shall not be adjusted below
the par value per share of the Common Stock for the purpose of making any
adjustment as may be required pursuant to this Article III.
Section 3.4 Adjustment of Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to Section 3.1 or Subsection 3.2(a) hereof, each Warrant
shall thereupon evidence the right to purchase that number of Warrant Shares
(calculated to the nearest hundredth of a share) obtained by multiplying the
number of Warrant Shares purchasable immediately prior to such adjustment upon
exercise of the Warrant by the Exercise Price in effect immediately prior to
such adjustment and dividing the product so obtained by the Exercise Price in
effect immediately after such adjustment. In the event that the Exercise Price
may not be adjusted due to the provisions of Section 3.3 hereof, the number of
Warrant Shares purchasable upon the exercise of the Warrants shall be adjusted
hereunder as if the Exercise Price had been so adjusted.
Section 3.5 Reorganizations. In case of any capital reorganization, other
---------------
than in the cases referred to in Section 3.1 hereof, or the consolidation or
merger of the Company with or into another corporation (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any reclassification of the outstanding shares of Common Stock or
the conversion of such outstanding shares of Common Stock into shares of other
stock or other securities or property), or the sale or conveyance of the
property of the Company as an entirety or substantially as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
there shall thereafter be deliverable upon exercise of any Warrant (in lieu of
the number of Warrant Shares theretofore deliverable) the number of shares of
stock or other securities or property to which a holder of the number of Warrant
Shares which would otherwise have been deliverable upon the exercise of such
Warrant would have been entitled upon such Reorganization if such Warrant had
been exercised in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of Holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of Warrants. Any such adjustment shall be made by and set forth in
a supplemental agreement prepared by the Company or any successor thereto,
between the Company and any successor thereto, and shall for all purposes hereof
conclusively be deemed to be an appropriate adjustment. The Company shall not
effect any such Reorganization, unless upon or prior to the consummation thereof
the successor corporation, or if the Company shall be the surviving corporation
in any such Reorganization and
8
<PAGE>
is not the issuer of the shares of stock or other securities or property to be
delivered to holders of shares of the Common Stock outstanding at the effective
time thereof, then such issuer shall assume by written instrument the obligation
to deliver to the Holder of any Warrant Certificate such shares of stock,
securities, cash or other property as such holder shall be entitled to purchase
in accordance with the foregoing provisions.
Section 3.6 Verification of Computations. The Company shall select a firm
----------------------------
of independent public accountants (which may be its outside auditors), which
selection may be changed from time to time, to verify each computation and/or
adjustment made in accordance with this Article III. The certificate, report or
other written statement of any such firm shall be conclusive evidence of the
correctness of any computation made under this Article III. Promptly upon its
receipt of such certificate, report or statement from such firm of independent
public accountants, the Company shall deliver a copy thereof to each Holder.
Section 3.7 Notice of Certain Actions. In the event the Company shall (a)
-------------------------
declare any dividend payable in stock to the holders of its Common Stock or make
any other distribution in property other than cash to the holders of its Common
Stock, (b) offer to the holders of its Common Stock rights to subscribe for or
purchase any shares of any class of stock or any other rights or options, or (c)
effect any reclassification of its 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 (other than
a merger in which no distribution of securities or other property is made to
holders of Common Stock) or any sale, transfer or other disposition of its
property, assets and business substantially as an entirety, or the liquidation,
dissolution or winding up of the Company; then, in each such case, the Company
shall cause notice of such proposed action to be mailed to each Holder at least
thirty (30) days prior to such action; provided, however, that in the event that
-------- -------
the Company provides public notice of such action specifying the information set
forth below at least fifteen (15) days prior to such action, the Company shall
be deemed to have satisfied its obligation to provide notice pursuant to this
Section 3.7. Such notice shall specify the date on which the books of the
Company shall close, or a record be taken, for determining holders of Common
Stock entitled to receive such stock dividend or other distribution or such
rights or options, or the date on which such reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution, winding up or exchange shall take place or commence, as the case
may be, and the date as of which it is expected that holders of record of Common
Stock shall be entitled to receive securities or other property deliverable upon
such action, if any such date has been fixed. Such notice shall be mailed in the
case of any action covered by paragraph (a) or (b) of this Section 3.7, at least
ten (10) days prior to the record date for determining holders of the Common
Stock for purposes of receiving such payment or offer, and in the case of any
action covered by this paragraph (c), at least ten (10) days prior to the
earlier of the date upon which such action is to take place or any record date
to determine holders of Common Stock entitled to receive such securities or
other property.
Section 3.8 Certificate of Adjustments. Whenever any adjustment is to be
--------------------------
made pursuant to this Article III, the Company shall prepare a certificate
executed by the Chief Financial Officer of the Company, setting forth such
adjustments to be mailed to each Holder at least fifteen (15) days prior
thereto, such notice to include in reasonable detail (a) the events
precipitating the adjustment, (b) the computation of any adjustments, and (c)
the Exercise Price and the number of shares or the
9
<PAGE>
securities or other property purchasable upon exercise of each Warrant after
giving effect to such adjustment. Such Certificate shall be accompanied by the
accountant's verification required by Section 3.6 hereof.
Section 3.9 Warrant Certificate Amendments. Irrespective of any
------------------------------
adjustments pursuant to this Article III, Warrant Certificates theretofore or
thereafter issued need not be amended or replaced, but certificates thereafter
issued shall bear an appropriate legend or other notice of any adjustments;
provided the Company may, at its option, issue new Warrant Certificates
- --------
evidencing Warrants in such form as may be approved by its Board of Directors to
reflect any adjustment in the Exercise Price and number of Warrant Shares
purchasable under the Warrants.
Section 3.10 Fractional Shares. The Company shall not be required upon the
-----------------
exercise of any Warrant to issue fractional Warrant Shares which may result from
adjustments in accordance with this Article III to the Exercise Price or number
of Warrant Shares purchasable under each Warrant. If more than one Warrant is
exercised at one time by the same Holder, the number of full Warrant Shares
which shall be issuable upon the exercise thereof shall be computed based on the
aggregate number of Warrant Shares purchasable upon exercise of such Warrants.
With respect to any final fraction of a share called for upon the exercise of
any Warrant or Warrants, the Company shall pay an amount in cash to the Holder
of the Warrants in respect of such final fraction in an amount equal to the Fair
Market Value of a share of Common Stock as of the Date of Exercise of such
Warrants, multiplied by such fraction. All calculations under this Section 3.10
shall be made to the nearest hundredth of a share.
ARTICLE IV
MISCELLANEOUS
Section 4.1 Payment of Taxes and Charges. The Company will pay all taxes
----------------------------
(other than income taxes) and other government charges in connection with the
issuance or delivery of the Warrants and the initial issuance or delivery of
Warrant Shares upon the exercise of any Warrants and payment of the Exercise
Price. The Company shall not, however, be required to pay any additional
transfer taxes in connection with the subsequent transfer of Warrants or any
transfer involved in the issuance and delivery of Warrant Shares in a name other
than the name in which the Warrants to which such issuance relates were
registered, and, if any such tax would otherwise be payable by the Company, no
such issuance or delivery shall be made unless and until the person requesting
such issuance has paid to the Company the amount of any such tax, or it is
established to the reasonable satisfaction of the Company that any such tax has
been paid.
Section 4.2 Changes to Agreement. The Company, when authorized by its
--------------------
Board of Directors, with the written consent of Holders of at least a majority
of the outstanding Warrants may amend or supplement this Agreement. The Company
may, without the consent or concurrence of any Holder, by supplemental agreement
or otherwise, make any changes or corrections in this Agreement that the Company
shall have been advised by counsel (a) are required to cure any ambiguity or to
correct any defective or inconsistent provision or clerical omission or mistake
or manifest error herein contained, (b) add to the covenants and agreements of
the Company in this Agreement such further covenants and agreements thereafter
to be observed, or (c) result in the surrender of any right or power reserved to
or conferred upon the Company in this Agreement, in
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each case which changes or corrections do not and will not adversely affect,
alter or change the rights, privileges or immunities of the Holders.
Section 4.3 Assignment. All the covenants and provisions of this Agreement
----------
by or for the benefit of the Company or the Holders shall bind and inure to the
benefit of their respective successors and assigns.
Section 4.4 Successor to Company. In the event that the Company merges or
--------------------
consolidates with or into any other corporation or sell or otherwise transfers
its property, assets and business substantially as an entirety to a successor
corporation, the Company shall use reasonable commercial efforts to have such
successor corporation assume each and every covenant and condition of this
Agreement to be performed and observed by the Company.
Section 4.5 Notices. Any notice or demand required by this Agreement to be
-------
given or made by any Holder to or on the Company shall be sufficiently given or
made if sent by first-class or registered mail, postage prepaid, addressed as
follows:
Careside, Inc.
6100 Bristol Parkway
Culver City, CA 90230
Attn: W. Vickery Stoughton
With a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103
Attn: Julia D. Corelli, Esq.
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made if sent by
first-class or registered mail, postage prepaid, addressed to such Holder and
sent to the following address:
H.C. Wainwright & Co., Inc.
One Boston Place, 40th Floor
Boston, MA 02108
Attn: Edward P. Crouch
With a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109-2881
Attn: David F. Dietz, P.C.
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<PAGE>
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made, whether or not
such holder receives the notice, five (5) days after mailing, if sent by first-
class or registered mail, postage prepaid, addressed to such Holder at its last
address as shown on the books of the Company. Otherwise, such notice or demand
shall be deemed given when received by the party entitled thereto.
Section 4.6 Defects in Notice. Failure to file any certificate or notice
-----------------
or to mail any notice, or any defect in any certificate or notice pursuant to
this Agreement shall not affect in any way the rights of any Holder or the
legality or validity of any adjustment made pursuant to Section 3.1 or Section
3.2 hereof, or any transaction giving rise to any such adjustment, or the
legality or validity of any action taken or to be taken by the Company.
Section 4.7 Governing Law. This Agreement and each Warrant Certificate
-------------
issued hereunder shall be governed by the laws of the Commonwealth of
Massachusetts without regard to principles of conflicts of laws thereof.
Section 4.8 Standing. Nothing in this Agreement expressed and nothing
--------
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company and the Holders of any right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
contained herein; and all covenants, conditions, stipulations, promises and
agreements contained in this Agreement shall be for the sole and exclusive
benefit of the Company and its successors, and the Holders.
Section 4.9 Headings. The descriptive headings of the articles and
--------
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.
Section 4.10 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which so executed shall be deemed to be an original, and
all of which together shall constitute one and the same instrument.
Section 4.11 Availability of the Agreement. The Company shall keep copies
-----------------------------
of this Agreement available for inspection by Holders during normal business
hours. Copies of this Agreement may be obtained upon written request addressed
to the Company at the address set forth in Section 4.5 hereof.
Section 4.12 Entire Agreement. This Agreement, including the Exhibits
----------------
referred to herein and the other writings specifically identified herein or
contemplated hereby, is complete, reflects the entire agreement of the parties
with respect to its subject matter, and supersedes all previous written or oral
negotiations, commitments and writings.
12
<PAGE>
WARRANT AGREEMENT
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the
parties as of the day and year first above written.
CARESIDE, INC.,
a Delaware corporation
By:___________________________
Name:
Title:
<PAGE>
WARRANT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and Agreed as of the date first written above.
H.C. Wainwright & Co., Inc.
By:___________________________
Name:
Title:
<PAGE>
EXHIBIT A - FORM OF WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN A SECURITIES PURCHASE AGREEMENT
DATED AS OF MARCH 8, 2000, AS AMENDED FROM TIME TO TIME, A COMPLETE AND CORRECT
COPY OF THE FORM OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE. SUCH AGREEMENT, AMONG OTHER THINGS,
RESTRICTS THE DETACHMENT OF THE COMMON STOCK PURCHASE WARRANTS FROM THE SENIOR
DISCOUNT NOTE ATTACHED HERETO.
No. HCW W-1
Certificate for [ ] Warrants
NOT EXERCISABLE AFTER 5:00 P.M.,
BOSTON TIME, ON MARCH 8, 2005
CARESIDE, INC.
COMMON STOCK PURCHASE WARRANT CERTIFICATE
THIS CERTIFIES that H.C. Wainwright & Co., Inc. or its registered assigns
is the registered holder (the "Registered Holder") of Warrants set forth above,
each of which represents the right to purchase one fully paid and non-assessable
share of common stock, par value $.01 per share (the "Common Stock"), of
Careside, Inc., a Delaware corporation (the "Company"), at the Exercise Price
(as defined in the Warrant Agreement) at the times specified in the Warrant
Agreement, by surrendering this Warrant Certificate, with the form of Election
to Purchase attached hereto duly executed and by paying in full the Exercise
Price. Payment of the Exercise Price shall be made as set forth in the Warrant
Agreement (as hereinafter defined). No Warrant may be exercised after 5:00 P.M.,
Boston time, on March 8, 2005 (the "Expiration Date"). All Warrants evidenced
hereby shall thereafter become void, subject to the terms of the Warrant
Agreement hereinafter referred to.
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Warrant Certificate and in accordance
with the terms of the Warrant Agreement hereinafter referred to, the Registered
Holder shall be entitled to transfer this Warrant Certificate, in whole or in
part, upon surrender of this Warrant Certificate at the principal office of the
Company with the form of assignment set forth hereon duly executed. Upon any
such transfer, a new Warrant Certificate or Warrant Certificates
A-1
<PAGE>
representing the same aggregate number of Warrants to purchase the shares of the
Common Stock will be issued in accordance with instructions in the form of
assignment.
Upon the exercise of less than all of the Warrants to purchase the shares
of the Common Stock evidenced by this Warrant Certificate, there shall be issued
to the Registered Holder a new Warrant Certificate in respect of the Warrants
not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Warrant Certificate, with or without other Warrant Certificates,
for another Warrant Certificate or Warrant Certificates for the same aggregate
number of Warrants to purchase the shares of the Common Stock, upon surrender of
this Warrant Certificate at the principal office of the Company.
Upon certain events provided for in the Warrant Agreement, the Exercise
Price and the number of shares of Common Stock issuable upon the exercise of
each Warrant are required to be adjusted.
No fractional shares will be issued upon the exercise of Warrants. As to
any final fraction of a share of Common Stock which the Registered Holder of one
or more Warrant Certificates, the rights under which are exercised in the same
transaction, would otherwise be entitled to purchase upon such exercise, the
Company shall pay the cash value thereof determined as provided in the Warrant
Agreement. No Warrant Certificate representing any fractional Warrant Shares
will be issued.
This Warrant Certificate is issued under and in accordance with the Warrant
Agreement dated as of March 8, 2000 (the "Warrant Agreement") by and among the
Company and the Purchaser (as defined in the Warrant Agreement) and is subject
to the term and provisions contained in the Warrant Agreement. All capitalized
terms not defined herein shall have the meanings given such terms as set forth
in the Warrant Agreement.
This Warrant Certificate shall not entitle the Registered Holder to any of the
rights of a stockholder of the Company, including, without limitation, the right
to vote, to receive dividends and other distributions, or to attend or receive
any notice of meetings of stockholders or any other proceedings of the Company.
A-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed under its facsimile corporate seal.
CARESIDE, INC.
By: ____________________________
Name:
Title:
[Seal] Attest:
By:_____________________________
Name:
Title: Secretary
A-3
<PAGE>
[Form of Assignment]
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Warrant Certificate, with respect to the number of
Warrants to purchase the shares of the Common Stock set forth below:
Name of Assignee Address No. of Warrants
---------------- ------- ---------------
and does hereby irrevocably constitute and appoint _____________________ true
and lawful Attorney, to make such transfer on the books of Careside, Inc.,
maintained for that purpose, with full power of substitution in the premises.
Dated: ______________, _____ __________________________________________
Signature
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
A-4
<PAGE>
[Form of Election To Purchase]
The undersigned hereby irrevocably elects to exercise ____________ of the
Warrants represented by this Warrant Certificate and to purchase the shares of
Common Stock issuable upon the exercise of said Warrants, and requests that
certificates for such shares be issued and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at______________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
In full payment of the purchase price with respect to the exercise of
Warrants to purchase shares of the Common Stock, the undersigned:
[_] hereby tenders payment of $________ by cash, certified check,
cashier's check or money order payable in United States currency to
the order of the Company; or
[_] hereby delivers to the Company that number of shares of Common Stock
having a Fair Market Value (as defined in the Warrant Agreement) equal
to the Exercise Price multiplied by the number of Warrant Shares being
purchased; or
[_] hereby makes a Net Cashless Exercise (as defined in the Warrant
Agreement).
If the number of Warrants to purchase the shares of the Common Stock hereby
exercised is less than all the Warrants represented by this Warrant Certificate,
the undersigned requests that a new Warrant Certificate representing the number
of such full Warrants not exercised be issued and delivered as follows:
A-5
<PAGE>
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at______________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Date: ______________, ______ ________________________________________
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of the Warrant Certificate.)
PLEASE INSERT SOCIAL SECURITY OR TAX
I.D. NUMBER OF HOLDER
________________________________________
A-6
<PAGE>
Exhibit 4.13
================================================================================
CONTINGENT WARRANT AGREEMENT
BY AND BETWEEN
CARESIDE, INC.
AND
THE PURCHASERS NAMED HEREIN
DATED AS OF MARCH 8, 2000
================================================================================
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I CONTINGENT WARRANT CERTIFICATES................................................ 1
Section 1.1 Forms of Contingent Warrant Certificates............................... 1
Section 1.2 Execution of Contingent Warrant Certificates........................... 1
Section 1.3 Registration of Contingent Warrant Certificates........................ 2
Section 1.4 Exchange and Transfer of Contingent Warrant Certificates............... 2
Section 1.5 Lost, Stolen, Mutilated or Destroyed Contingent Warrant Certificates... 2
Section 1.6 Cancellation of Contingent Warrant Certificates........................ 2
ARTICLE II CONTINGENT WARRANT EXERCISE PRICE AND EXERCISE OF CONTINGENT WARRANTS......... 3
Section 2.1 Exercise Price......................................................... 3
Section 2.2 Registration of Contingent Warrants and Contingent Warrant Shares...... 3
Section 2.3 Procedure for Exercise of Contingent Warrants.......................... 3
Section 2.4 Issuance of Common Stock............................................... 4
Section 2.5 Certificates for Unexercised Contingent Warrants....................... 4
Section 2.6 Reservation of Shares.................................................. 4
Section 2.7 No Impairment.......................................................... 5
ARTICLE III ADJUSTMENTS AND NOTICE PROVISIONS............................................ 5
Section 3.1 Adjustment of Exercise Price........................................... 5
Section 3.2 No Adjustments to Exercise Price....................................... 8
Section 3.3 Adjustment of Number of Shares......................................... 8
Section 3.4 Reorganizations........................................................ 8
Section 3.5 Verification of Computations........................................... 9
Section 3.6 Notice of Certain Actions.............................................. 9
Section 3.7 Certificate of Adjustments............................................. 10
Section 3.8 Contingent Warrant Certificate Amendments.............................. 10
Section 3.9 Fractional Shares...................................................... 10
ARTICLE IV MISCELLANEOUS................................................................. 10
Section 4.1 Payment of Taxes and Charges........................................... 10
Section 4.2 Changes to Agreement................................................... 11
Section 4.3 Assignment............................................................. 11
Section 4.4 Successor to Company................................................... 11
Section 4.5 Notices................................................................ 11
Section 4.6 Defects in Notice...................................................... 12
Section 4.7 Governing Law.......................................................... 12
Section 4.8 Standing............................................................... 12
Section 4.9 Headings............................................................... 13
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
<S> <C>
Section 4.10 Counterparts....................................................... 13
Section 4.11 Availability of the Agreement...................................... 13
Section 4.12 Entire Agreement................................................... 13
CONTINGENT WARRANT AGREEMENT COMPANY SIGNATURE PAGE 14
CONTINGENT WARRANT AGREEMENT PURCHASER SIGNATURE PAGE 15
EXHIBIT A - FORM OF CONTINGENT WARRANT CERTIFICATE A-1
</TABLE>
ii
<PAGE>
CONTINGENT WARRANT AGREEMENT
THIS CONTINGENT WARRANT AGREEMENT (the "Agreement"), dated as of March 8,
2000, is entered into by and between Careside, Inc., a Delaware corporation (the
"Company"), and the undersigned purchasers (the "Purchasers").
WITNESSETH:
WHEREAS, the Company proposes to sell pursuant to a Securities Purchase and
Subscription Agreement, each dated as of a date in March, 2000 (collectively,
the "Securities Purchase Agreement"), by and between the Company and the
purchasers named therein, shares of common stock, par value $0.01 per share, of
the Company (the "Common Stock") in the aggregate principal amount of $8,384,462
and warrants (each, a "Contingent Warrant", and collectively, the "Contingent
Warrants") to purchase up to an aggregate of 114,725 shares (subject to
adjustment) of the Common Stock (the "Common Stock") (the Common Stock issuable
upon exercise of the Contingent Warrants being referred to herein as the
"Contingent Warrant Shares");
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
CONTINGENT WARRANT CERTIFICATES
Section I.1 Forms of Contingent Warrant Certificates. The warrant
----------------------------------------
certificates (the "Contingent Warrant Certificates") shall be issued in the form
of Exhibit A attached hereto, together with the form of the election to purchase
---------
(the "Election to Purchase") and assignment (the "Assignment") to be attached
thereto, and, in addition, may have such letters, numbers or other marks of
identification or designation and such legends, summaries, or endorsements
stamped, printed, lithographed or engraved thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as, in any particular case, may be required in the opinion of counsel for the
Company, to comply with any law or with any rule or regulation of any regulatory
authority or agency, or to conform to customary usage.
Section I.2 Execution of Contingent Warrant Certificates. The Contingent
--------------------------------------------
Warrant Certificates shall be executed on behalf of the Company by its Chairman
or President or any Vice President and attested to by its Secretary or Assistant
Secretary, either manually or by facsimile signature printed thereon. In case
any authorized officer of the Company who shall have signed any of the
Contingent Warrant Certificates shall cease to be an officer of the Company
either before or after delivery thereof by the Company
1
<PAGE>
to any Purchaser, the signature of such person on such Contingent Warrant
Certificates shall be valid nevertheless and such Contingent Warrant
Certificates may be issued and delivered to those persons entitled to receive
the Contingent Warrants represented thereby with the same force and effect as
though the person who signed such Contingent Warrant Certificates had not ceased
to be an officer of the Company.
Section I.3 Registration of Contingent Warrant Certificates. The
-----------------------------------------------
Company shall number and keep a registry of the Contingent Warrant Certificates
in a register as they are needed. The Company may deem and treat the registered
holder(s) of the Contingent Warrant Certificates (the "Holders") as the absolute
owner(s) thereof for all purposes.
Section I.4 Exchange and Transfer of Contingent Warrant Certificates.
--------------------------------------------------------
The Contingent Warrants (and any Contingent Warrant Shares issued upon exercise
of the Contingent Warrants) shall bear such restrictive legend or legends as may
be required by the Securities Purchase Agreement and as may be required by law
and shall be transferable only in accordance with the terms of this Agreement
and the Securities Purchase Agreement.
The Company may from time to time note the transfer of any outstanding
Contingent Warrant Certificates in a warrant register to be maintained by the
Company upon surrender thereof accompanied by a written instrument or
instruments of transfer in form satisfactory to the Company duly executed by the
Holder or Holders thereof or by the duly appointed legal representative thereof
or by a duly authorized attorney. Upon any such registration of transfer, a new
Contingent Warrant Certificate shall be issued to the transferee(s).
Contingent Warrant Certificates may be exchanged at the option of the
Holder(s) thereof, when surrendered to the Company at the address set forth in
Section 4.5 hereof for another Contingent Warrant Certificate or Contingent
Warrant Certificates of like tenor and representing in the aggregate a like
number of Contingent Warrant Shares: provided that the Company shall not be
--------
required to issue any Contingent Warrant Certificate representing any fractional
Contingent Warrant Shares.
Section I.5 Lost, Stolen, Mutilated or Destroyed Contingent Warrant
-------------------------------------------------------
Certificates. If any Contingent Warrant Certificate shall be mutilated, lost,
- ------------
stolen or destroyed, the Company shall issue, execute and deliver, in exchange
and substitution for and upon cancellation of a mutilated Contingent Warrant
Certificate, or in lieu of or in substitution for a lost, stolen or destroyed
Contingent Warrant Certificate, a new Contingent Warrant Certificate
representing an equivalent number of Contingent Warrants or Contingent Warrant
Shares. If required by the Company, the Holder of the mutilated, lost, stolen
or destroyed Contingent Warrant Certificate must provide indemnity sufficient to
protect the Company from any loss which it may suffer if the Contingent Warrant
Certificate is replaced. Any such new Contingent Warrant Certificate shall
constitute an original contractual obligation of
2
<PAGE>
the Company, whether or not the allegedly lost, stolen, mutilated or destroyed
Contingent Warrant Certificate shall be at any time enforceable by anyone.
Section I.6 Cancellation of Contingent Warrant Certificates. Any
-----------------------------------------------
Contingent Warrant Certificate surrendered upon the exercise of Contingent
Warrants or for exchange or transfer, or purchased or otherwise acquired by the
Company, shall be canceled and shall not be reissued by the Company; and, except
as provided in Section 2.5 hereof in case of the exercise of less than all of
the Contingent Warrants evidenced by a Contingent Warrant Certificate or in
Section 1.4 in an exchange or transfer, no Contingent Warrant Certificate shall
be issued hereunder in lieu of such canceled Contingent Warrant Certificate.
Any Contingent Warrant Certificate so canceled shall be destroyed by the
Company.
ARTICLE II
CONTINGENT WARRANT EXERCISE PRICE AND EXERCISE OF CONTINGENT WARRANTS
Section II.1 Exercise Price. Each Contingent Warrant Certificate shall,
--------------
when signed by the Chairman or President or any Vice President and attested to
by the Secretary or Assistant Secretary of the Company, entitle the Holder
thereof to purchase from the Company, subject to the terms and conditions of
this Agreement, the number of fully paid and nonassessable Contingent Warrant
Shares evidenced thereby at a purchase price of $0.01 per share (the "Initial
Exercise Price") or such adjusted number of Contingent Warrant Shares at such
adjusted purchase price as may be established from time to time pursuant to the
provisions of Article III hereof, payable in full in accordance with Section 2.3
hereof, at the time of exercise of the Contingent Warrant. Except as the
context otherwise requires, the term "Exercise Price" as used in this Agreement
shall mean the purchase price of one share of Common Stock, reflecting all
appropriate adjustments made in accordance with the provisions of Article III
hereof.
Section II.2 Registration of Contingent Warrants and Contingent Warrant
----------------------------------------------------------
Shares. The Company shall secure the effective registration of the Contingent
- ------
Warrant Shares for resale under the Securities Act of 1933, as amended (the
"Securities Act") upon the terms and subject to the conditions set forth in
Appendix II to the Securities Purchase Agreement. Promptly after a registration
statement under the Securities Act covering the Contingent Warrant Shares has
become effective, the Company shall cause notice thereof together with a copy of
the prospectus covering the Contingent Warrant Shares to be mailed to each
registered Holder.
Section II.3 Procedure for Exercise of Contingent Warrants. The
---------------------------------------------
Contingent Warrants may be exercised prior to the Expiration Date (as
hereinafter defined) at the Exercise Price at any time after August 15, 2000 if,
but only if,
3
<PAGE>
during the period beginning August 15, 2000 and ending November 15, 2000, the
average Closing Price (as hereinafter defined) of the Common Stock for any
fifteen (15) consecutive Trading Days (as hereinafter defined) is equal to or
less than $7.50. In the event the Contingent Warrants become exercisable, the
Company shall promptly provide written notice to each Holder of the
exercisability of the Contingent Warrants at the addresses set forth on the
signature pages hereto. The Contingent Warrants shall expire at 5:00 p.m.,
Boston time, on December 15, 2000 (the "Expiration Date"). The Contingent
Warrants may be exercised by surrendering the Contingent Warrant Certificates
representing such Contingent Warrants to the Company at its address set forth in
Section 4.5 hereof, together with the Election to Purchase duly completed and
executed, accompanied by payment in full, as set forth below, to the Company of
the Exercise Price for each Contingent Warrant Share in respect of which such
Contingent Warrants are being exercised. Such Exercise Price shall be paid in
full by (i) cash or a certified check or a wire transfer in same day funds in an
amount equal to the Exercise Price multiplied by the number of Contingent
Warrant Shares then being purchased or (ii) delivery to the Company of that
number of shares of Common Stock having a Fair Market Value (as hereinafter
defined) equal to the Exercise Price multiplied by the number of Contingent
Warrant Shares then being purchased.
As used herein: (a) the term "Fair Market Value," on a per share basis,
means the average of the daily Closing Prices (as hereinafter defined) of the
Common Stock for the five (5) consecutive Trading Days ending the Trading Day
immediately preceding the Date of Exercise; (b) the term "Date of Exercise" with
respect to any Contingent Warrant means the date on which such Contingent
Warrant is exercised as provided herein; (c) the term "Closing Price" for any
date shall mean the last sale price reported in The Wall Street Journal regular
-----------------------
way or, in case no such reported sale takes place on such date, the average of
the last reported bid and asked prices regular way, in either case on the
principal national securities exchange on which the Common Stock is admitted to
trading or listed if that is the principal market for the Common Stock or, if
not listed or admitted to trading on any national securities exchange or if such
national securities exchange is not the principal market for the Common Stock,
the last sale price as reported on The Nasdaq Stock Market, Inc.'s National
Market ("Nasdaq") or its successor, if any, or if the Common Stock is not so
reported, the average of the reported bid and asked prices in the over-the-
counter market, as furnished by the National Quotation Bureau, Inc., or if such
firm is not then engaged in the business of reporting such prices, as furnished
by any similar firm then engaged in such business and selected by the Company
or, if there is no such firm, as furnished by any member of the National
Association of Securities Dealers, Inc. ("NASD") selected by the Company or, if
the Common Stock is not quoted in the over-the-counter market, the fair value
thereof determined in good faith by the Company's Board of Directors as of a
date which is within 15 days of the date as of which the determination is to be
made; and (d) the term "Trading Days" with respect to the Common Stock means (i)
if the Common Stock is quoted on Nasdaq or any similar system of automated
dissemination of quotations of securities prices, days on which trades may be
made on such system or (ii) if the Common Stock is
4
<PAGE>
listed or admitted for trading on any national securities exchange, days on
which such national securities exchange is open for business.
Section II.4 Issuance of Common Stock. As soon as practicable after the
------------------------
Date of Exercise of any Contingent Warrants, the Company shall issue, or cause
its transfer agent to issue, a certificate or certificates for the number of
full Contingent Warrant Shares, registered in accordance with the instructions
set forth in the Election to Purchase, together with cash for fractional shares
as provided in Section 3.9. All Contingent Warrant Shares issued upon the
exercise of any Contingent Warrants shall be validly authorized and issued,
fully paid, non-assessable, free of preemptive rights and (subject to Section
4.1 hereof) free from all taxes, liens, charges and security interests in
respect of the issuance thereof. Each person in whose name any such certificate
for Contingent Warrant Shares is issued shall be deemed for all purposes to have
become the holder of record of the Common Stock represented thereby on the Date
of Exercise of the Contingent Warrants resulting in the issuance of such shares,
irrespective of the date of issuance or delivery of such certificate for
Contingent Warrant Shares.
Section II.5 Certificates for Unexercised Contingent Warrants. In the
------------------------------------------------
event that, prior to the Expiration Date, a Contingent Warrant Certificate is
exercised in respect of fewer than all of the Contingent Warrant Shares issuable
on such exercise, a new Contingent Warrant Certificate representing the
remaining Contingent Warrant Shares shall be issued and delivered pursuant to
the provisions hereof; provided that the Company shall not be required to issue
--------
any Contingent Warrant Certificate representing any fractional Contingent
Warrant Shares.
Section II.6 Reservation of Shares. The Company shall at all times
---------------------
reserve and keep available, free from preemptive rights, for issuance upon the
exercise of Contingent Warrants, the maximum number of its authorized but
unissued shares of Common Stock which may then be issuable upon the exercise in
full of all outstanding Contingent Warrants. The Company shall from time to
time take all action which may be necessary or appropriate so that the
Contingent Warrant Shares, immediately upon their issuance following an exercise
of Contingent Warrants, will be listed or quoted, as the case may be, on the
principal securities exchanges or markets within the United States of America,
if any, on which other shares of the Common Stock are then listed.
Section II.7 No Impairment. The Company shall not by any action,
-------------
including, without limitation, amending its certificate of incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of the
Contingent Warrants, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such actions as may be necessary
or appropriate to protect the rights of the
5
<PAGE>
Holders against impairment. Without limiting the generality of the foregoing,
the Company will (a) not increase the par value of any Contingent Warrant Shares
receivable upon the exercise of the Contingent Warrants above the amount payable
therefor upon such exercise immediately prior to such increase in par value, (b)
take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and non-assessable Contingent
Warrant Shares upon the exercise of any Contingent Warrant, and (c) use its best
efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under the Contingent Warrants.
Notwithstanding the foregoing paragraph, the Company shall not be required to
issue Contingent Warrant Shares upon the exercise of any Contingent Warrant if
such issuance would result in a violation by the Company of any applicable law.
ARTICLE III
ADJUSTMENTS AND NOTICE PROVISIONS
Section III.1 Adjustment of Exercise Price. Subject to the provisions
----------------------------
of this Article III, the Exercise Price in effect from time to time shall,
subject to Section 3.2 hereof, be subject to adjustment in the following manner.
In case the Company shall (i) declare a dividend or make a distribution on the
outstanding shares of its Common Stock in shares of its Common Stock, (ii)
subdivide or reclassify the outstanding shares of its Common Stock into a
greater number of shares, or (iii) combine or reclassify the outstanding shares
of its Common Stock into a smaller number of shares, the Exercise Price in
effect immediately after the record date for such dividend or distribution or
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal the price determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding immediately before
such dividend, distribution, subdivision, combination or reclassification, and
of which the denominator shall be the number of shares of Common Stock
outstanding immediately after such dividend, distribution, subdivision,
combination or reclassification. Such adjustment shall be made successively
whenever any event specified above shall occur.
Section III.2 No Adjustments to Exercise Price. No adjustment in the
--------------------------------
Exercise Price in accordance with the provisions of Section 3.1 hereof need be
made unless such adjustment would amount to a change of at least 0.5% in such
Exercise Price, provided, however, that the amount by which any adjustment is
-------- -------
not made by reason of the provisions of this Section 3.2 shall be carried
forward and taken into account at the time of any subsequent adjustment in the
Exercise Price. The Exercise Price shall not be adjusted below the par value
per share of the Common Stock for the purpose of making any adjustment as may be
required pursuant to this Article III.
6
<PAGE>
Section III.3 Adjustment of Number of Shares. Upon each adjustment of
------------------------------
the Exercise Price pursuant to Section 3.l hereof, each Contingent Warrant shall
thereupon evidence the right to purchase that number of Contingent Warrant
Shares (calculated to the nearest hundredth of a share) obtained by multiplying
the number of Contingent Warrant Shares purchasable immediately prior to such
adjustment upon exercise of the Contingent Warrant by the Exercise Price in
effect immediately prior to such adjustment and dividing the product so obtained
by the Exercise Price in effect immediately after such adjustment. In the event
that the Exercise Price may not be adjusted due to the provisions of Section 3.2
hereof, the number of Contingent Warrant Shares purchasable upon the exercise of
each Contingent Warrant shall be adjusted hereunder as if the Exercise Price had
been so adjusted.
Section III.4 Reorganizations. In case of any capital reorganization,
---------------
other than in the cases referred to in Section 3.1 hereof, or the consolidation
or merger of the Company with or into another corporation (other than a merger
or consolidation in which the Company is the continuing corporation and which
does not result in any reclassification of the outstanding shares of Common
Stock or the conversion of such outstanding shares of Common Stock into shares
of other stock or other securities or property), or the sale or conveyance of
the property of the Company as an entirety or substantially as an entirety
(collectively such actions being hereinafter referred to as "Reorganizations"),
there shall thereafter be deliverable upon exercise of any Contingent Warrant
(in lieu of the number of Contingent Warrant Shares theretofore deliverable) the
number of shares of stock or other securities or property to which a holder of
the number of Contingent Warrant Shares which would otherwise have been
deliverable upon the exercise of such Contingent Warrant would have been
entitled upon such Reorganization if such Contingent Warrant had been exercised
in full immediately prior to such Reorganization. In case of any
Reorganization, appropriate adjustment, as determined in good faith by the Board
of Directors of the Company, shall be made in the application of the provisions
herein set forth with respect to the rights and interests of Holders so that the
provisions set forth herein shall thereafter be applicable, as nearly as
possible, in relation to any shares or other property thereafter deliverable
upon exercise of Contingent Warrants. Any such adjustment shall be made by and
set forth in a supplemental agreement prepared by the Company or any successor
thereto, between the Company and any successor thereto, and shall for all
purposes hereof conclusively be deemed to be an appropriate adjustment. The
Company shall not effect any such Reorganization, unless upon or prior to the
consummation thereof the successor corporation, or if the Company shall be the
surviving corporation in any such Reorganization and is not the issuer of the
shares of stock or other securities or property to be delivered to holders of
shares of the Common Stock outstanding at the effective time thereof, then such
issuer shall assume by written instrument the obligation to deliver to the
Holder of any Contingent Warrant Certificate such shares of stock, securities,
cash or other property as such holder shall be entitled to purchase in
accordance with the foregoing provisions.
7
<PAGE>
Section III.5 Verification of Computations. The Company shall select a
----------------------------
firm of independent public accountants (which may be its outside auditors),
which selection may be changed from time to time, to verify each computation
and/or adjustment made in accordance with this Article III. The certificate,
report or other written statement of any such firm shall be conclusive evidence
of the correctness of any computation made under this Article III. Promptly
upon its receipt of such certificate, report or statement from such firm of
independent public accountants, the Company shall deliver a copy thereof to each
Holder.
Section III.6 Notice of Certain Actions. In the event the Company shall
-------------------------
(a) declare any dividend payable in stock to the holders of its Common Stock or
make any other distribution in property other than cash to the holders of its
Common Stock, (b) offer to the holders of its Common Stock rights to subscribe
for or purchase any shares of any class of stock or any other rights or options,
or (c) effect any reclassification of its 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 (other than a merger in which no distribution of securities or other
property is made to holders of Common Stock) or any sale, transfer or other
disposition of its property, assets and business substantially as an entirety,
or the liquidation, dissolution or winding up of the Company; then, in each such
case, the Company shall cause notice of such proposed action to be mailed to
each Holder at least thirty (30) days prior to such action; provided, however,
-------- -------
that in the event that the Company provides public notice of such action
specifying the information set forth below at least fifteen (15) days prior to
such action, the Company shall be deemed to have satisfied its obligation to
provide notice pursuant to this Section 3.6. Such notice shall specify the date
on which the books of the Company shall close, or a record be taken, for
determining holders of Common Stock entitled to receive such stock dividend or
other distribution or such rights or options, or the date on which such
reclassification, reorganization, consolidation, merger, sale, transfer, other
disposition, liquidation, dissolution, winding up or exchange shall take place
or commence, as the case may be, and the date as of which it is expected that
holders of record of Common Stock shall be entitled to receive securities or
other property deliverable upon such action, if any such date has been fixed.
Such notice shall be mailed in the case of any action covered by paragraph (a)
or (b) of this Section 3.6, at least ten (10) days prior to the record date for
determining holders of the Common Stock for purposes of receiving such payment
or offer, and in the case of any action covered by this paragraph (c), at least
ten (10) days prior to the earlier of the date upon which such action is to take
place or any record date to determine holders of Common Stock entitled to
receive such securities or other property.
Section III.7 Certificate of Adjustments. Whenever any adjustment is to
--------------------------
be made pursuant to this Article III, the Company shall prepare a certificate
executed by the Chief Financial Officer of the Company, setting forth such
adjustments to be mailed to each Holder at least fifteen (15) days prior
thereto, such notice to include in reasonable detail (a) the events
precipitating the adjustment, (b) the computation of any adjustments,
8
<PAGE>
and (c) the Exercise Price and the number of shares or the securities or other
property purchasable upon exercise of each Contingent Warrant after giving
effect to such adjustment. Such Certificate shall be accompanied by the
accountant's verification required by Section 3.5 hereof.
Section III.8 Contingent Warrant Certificate Amendments. Irrespective
-----------------------------------------
of any adjustments pursuant to this Article III, Contingent Warrant Certificates
theretofore or thereafter issued need not be amended or replaced, but
certificates thereafter issued shall bear an appropriate legend or other notice
of any adjustments; provided the Company may, at its option, issue new
--------
Contingent Warrant Certificates evidencing Contingent Warrants in such form as
may be approved by its Board of Directors to reflect any adjustment in the
Exercise Price and number of Contingent Warrant Shares purchasable under the
Contingent Warrants.
Section III.9 Fractional Shares. The Company shall not be required upon
-----------------
the exercise of any Contingent Warrant to issue fractional Contingent Warrant
Shares which may result from adjustments in accordance with this Article III to
the Exercise Price or number of Contingent Warrant Shares purchasable under each
Contingent Warrant. If more than one Contingent Warrant is exercised at one
time by the same Holder, the number of full Contingent Warrant Shares which
shall be issuable upon the exercise thereof shall be computed based on the
aggregate number of Contingent Warrant Shares purchasable upon exercise of such
Contingent Warrants. With respect to any final fraction of a share called for
upon the exercise of any Contingent Warrant or Contingent Warrants, the Company
shall pay an amount in cash to the Holder of the Contingent Warrants in respect
of such final fraction in an amount equal to the Fair Market Value of a share of
Common Stock as of the Date of Exercise of such Contingent Warrants, multiplied
by such fraction. All calculations under this Section 3.9 shall be made to the
nearest hundredth of a share.
9
<PAGE>
ARTICLE IV
MISCELLANEOUS
Section IV.1 Payment of Taxes and Charges. The Company will pay all
----------------------------
taxes (other than income taxes) and other government charges in connection with
the issuance or delivery of the Contingent Warrants and the initial issuance or
delivery of Contingent Warrant Shares upon the exercise of any Contingent
Warrants and payment of the Exercise Price. The Company shall not, however, be
required to pay any additional transfer taxes in connection with the subsequent
transfer of Contingent Warrants or any transfer involved in the issuance and
delivery of Contingent Warrant Shares in a name other than the name in which the
Contingent Warrants to which such issuance relates were registered, and, if any
such tax would otherwise be payable by the Company, no such issuance or delivery
shall be made unless and until the person requesting such issuance has paid to
the Company the amount of any such tax, or it is established to the reasonable
satisfaction of the Company that any such tax has been paid.
Section IV.2 Changes to Agreement. The Company, when authorized by its
--------------------
Board of Directors, with the written consent of at least a majority of the
outstanding Contingent Warrants, may amend or supplement this Agreement. The
Company may, without the consent or concurrence of any Holder, by supplemental
agreement or otherwise, make any changes or corrections in this Agreement that
the Company shall have been advised by counsel (a) are required to cure any
ambiguity or to correct any defective or inconsistent provision or clerical
omission or mistake or manifest error herein contained, (b) add to the covenants
and agreements of the Company in this Agreement such further covenants and
agreements thereafter to be observed, or (c) result in the surrender of any
right or power reserved to or conferred upon the Company in this Agreement, in
each case which changes or corrections do not and will not adversely affect,
alter or change the rights, privileges or immunities of the Holders.
Section IV.3 Assignment. All the covenants and provisions of this
----------
Agreement by or for the benefit of the Company or the Holders shall bind and
inure to the benefit of their respective successors and assigns.
Section IV.4 Successor to Company. In the event that the Company merges
--------------------
or consolidates with or into any other corporation or sell or otherwise
transfers its property, assets and business substantially as an entirety to a
successor corporation, the Company shall use reasonable commercial efforts to
have such successor corporation assume each and every covenant and condition of
this Agreement to be performed and observed by the Company.
Section IV.5 Notices. Any notice or demand required by this Agreement
-------
to be given or made by any Holder to or on the Company shall be sufficiently
given or made if sent by first-class or registered mail, postage prepaid,
addressed as follows:
10
<PAGE>
Careside, Inc.
6100 Bristol Parkway
Culver City, CA 90230
Attn: W. Vickery Stoughton
With a copy to:
Pepper Hamilton LLP
3000 Two Logan Square
Eighteenth and Arch Streets
Philadelphia, PA 19103
Attn: Julia D. Corelli, Esq.
Any notice or demand required by this Agreement to be given or made by the
Company to or on any Holder shall be sufficiently given or made, whether or not
such holder receives the notice, five (5) days after mailing, if sent by first-
class or registered mail, postage prepaid, addressed to such Holder at its last
address as shown on the books of the Company. Otherwise, such notice or demand
shall be deemed given when received by the party entitled thereto.
Section IV.6 Defects in Notice. Failure to file any certificate or
-----------------
notice or to mail any notice, or any defect in any certificate or notice
pursuant to this Agreement shall not affect in any way the rights of any Holder
or the legality or validity of any adjustment made pursuant to Section 3.1
hereof, or any transaction giving rise to any such adjustment, or the legality
or validity of any action taken or to be taken by the Company.
Section IV.7 Governing Law. This Agreement and each Contingent Warrant
-------------
Certificate issued hereunder shall be governed by the laws of the Commonwealth
of Massachusetts without regard to principles of conflicts of laws thereof.
Section IV.8 Standing. Nothing in this Agreement expressed and nothing
--------
that may be implied from any of the provisions hereof is intended, or shall be
construed, to confer upon, or give to, any person or corporation other than the
Company and the Holders of any right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
contained herein; and all covenants, conditions, stipulations, promises and
agreements contained in this Agreement shall be for the sole and exclusive
benefit of the Company and its successors, and the Holders.
Section IV.9 Headings. The descriptive headings of the articles and
--------
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.
11
<PAGE>
Section IV.10 Counterparts. This Agreement may be executed in any
------------
number of counterparts, each of which so executed shall be deemed to be an
original, and all of which together shall constitute one and the same
instrument.
Section IV.11 Availability of the Agreement. The Company shall keep
-----------------------------
copies of this Agreement available for inspection by Holders during normal
business hours. Copies of this Agreement may be obtained upon written request
addressed to the Company at the address set forth in Section 4.5 hereof.
Section IV.12 Entire Agreement. This Agreement, including the Exhibits
----------------
referred to herein and the other writings specifically identified herein or
contemplated hereby, is complete, reflects the entire agreement of the parties
with respect to its subject matter, and supersedes all previous written or oral
negotiations, commitments and writings.
12
<PAGE>
CONTINGENT WARRANT AGREEMENT
COMPANY SIGNATURE PAGE
IN WITNESS WHEREOF, this Contingent Warrant Agreement has been duly
executed by the parties as of the day and year first above written.
CARESIDE, INC.,
a Delaware corporation
By:_______________________________________-
Name:
Title:
13
<PAGE>
CONTINGENT WARRANT AGREEMENT
PURCHASER SIGNATURE PAGE
Accepted and Agreed as of the date first written above.
IF AN INDIVIDUAL: __________________________________
Signature of Investor
__________________________________
Name of Investor
__________________________________
Social Security Number of Investor
__________________________________
Address of Investor
IF AN ENTITY: __________________________________
Name of Investor
__________________________________
Tax Identification Number of Investor
__________________________________
__________________________________
__________________________________
Address and Telephone of Investor
__________________________________
Signature of Trustee, Partner or Corporate Officer
__________________________________
Name of Trustee, Partner or Corporate Officer
14
<PAGE>
EXHIBIT A - FORM OF CONTINGENT WARRANT CERTIFICATE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, NOR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED, EXCEPT PURSUANT TO (i) A
REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH IS EFFECTIVE UNDER
SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii) ANY OTHER
EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES. ANY TRANSFER OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE IS
SUBJECT TO THE TERMS AND CONDITIONS CONTAINED IN A SECURITIES PURCHASE AGREEMENT
DATED AS OF MARCH __, 2000, AS AMENDED FROM TIME TO TIME, A COMPLETE AND CORRECT
COPY OF THE FORM OF WHICH WILL BE FURNISHED BY THE ISSUER TO THE HOLDER HEREOF
UPON WRITTEN REQUEST AND WITHOUT CHARGE. SUCH AGREEMENT, AMONG OTHER THINGS,
RESTRICTS THE DETACHMENT OF THE COMMON STOCK PURCHASE CONTINGENT WARRANTS FROM
THE SENIOR DISCOUNT NOTE ATTACHED HERETO.
No. C CW-1
Certificate for [ ] Warrants
NOT EXERCISABLE AFTER 5:00 P.M.,
BOSTON TIME, ON DECEMBER 15, 2000
CARESIDE, INC.
COMMON STOCK PURCHASE CONTINGENT WARRANT CERTIFICATE
THIS CERTIFIES that [Investor] or its registered assigns is the registered
holder (the "Registered Holder") of Contingent Warrants set forth above, each of
which represents the right to purchase one fully paid and non-assessable share
of common stock, par value $.01 per share (the "Common Stock"), of Careside,
Inc., a Delaware corporation (the "Company"), at the Exercise Price (as defined
in the Contingent Warrant Agreement) at the times specified in the Contingent
Warrant Agreement, by surrendering this Contingent Warrant Certificate, with the
form of Election to Purchase attached hereto duly executed and by paying in full
the Exercise Price. Payment of the Exercise Price shall be made as set forth in
the Contingent Warrant Agreement (as hereinafter defined). No Contingent
Warrant may be exercised after 5:00 P.M., Boston time, on December 15, 2000 (the
"Expiration Date"). All Contingent Warrants evidenced hereby shall thereafter
become void, subject to the terms of the Contingent Warrant Agreement
hereinafter referred to.
1
<PAGE>
Prior to the Expiration Date, subject to any applicable laws, rules or
regulations restricting transferability and to any restriction on
transferability that may appear on this Contingent Warrant Certificate and in
accordance with the terms of the Contingent Warrant Agreement hereinafter
referred to, the Registered Holder shall be entitled to transfer this Contingent
Warrant Certificate, in whole or in part, upon surrender of this Contingent
Warrant Certificate at the principal office of the Company with the form of
assignment set forth hereon duly executed. Upon any such transfer, a new
Contingent Warrant Certificate or Contingent Warrant Certificates representing
the same aggregate number of Contingent Warrants to purchase the shares of the
Common Stock will be issued in accordance with instructions in the form of
assignment.
Upon the exercise of less than all of the Contingent Warrants to purchase
the shares of the Common Stock evidenced by this Contingent Warrant Certificate,
there shall be issued to the Registered Holder a new Contingent Warrant
Certificate in respect of the Contingent Warrants not exercised.
Prior to the Expiration Date, the Registered Holder shall be entitled to
exchange this Contingent Warrant Certificate, with or without other Contingent
Warrant Certificates, for another Contingent Warrant Certificate or Contingent
Warrant Certificates for the same aggregate number of Contingent Warrants to
purchase the shares of the Common Stock, upon surrender of this Contingent
Warrant Certificate at the principal office of the Company.
Upon certain events provided for in the Contingent Warrant Agreement, the
Exercise Price and the number of shares of Common Stock issuable upon the
exercise of each Contingent Warrant are required to be adjusted.
No fractional shares will be issued upon the exercise of Contingent
Warrants. As to any final fraction of a share of Common Stock which the
Registered Holder of one or more Contingent Warrant Certificates, the rights
under which are exercised in the same transaction, would otherwise be entitled
to purchase upon such exercise, the Company shall pay the cash value thereof
determined as provided in the Contingent Warrant Agreement. No Contingent
Warrant Certificate representing any fractional Contingent Warrant Shares will
be issued.
This Contingent Warrant Certificate is issued under and in accordance with
the Contingent Warrant Agreement dated as of March __, 2000 (the "Contingent
Warrant Agreement") by and among the Company and the Purchaser (as defined in
the Contingent Warrant Agreement) and is subject to the term and provisions
contained in the Contingent Warrant Agreement. All capitalized terms not
defined herein shall have the meanings given such terms as set forth in the
Contingent Warrant Agreement.
A-2
<PAGE>
This Contingent Warrant Certificate shall not entitle the Registered Holder to
any of the rights of a stockholder of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions, or
to attend or receive any notice of meetings of stockholders or any other
proceedings of the Company.
A-3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Contingent Warrant
Certificate to be duly executed under its facsimile corporate seal.
CARESIDE, INC.
By: ____________________________________
Name:
Title:
[Seal] Attest:
By:____________________________________
Name:
Title: Secretary
A-4
<PAGE>
[Form of Assignment]
FOR VALUE RECEIVED, the undersigned hereby irrevocably sells, assigns and
transfers unto the Assignee named below all of the rights of the undersigned
represented by the within Contingent Warrant Certificate, with respect to the
number of Contingent Warrants to purchase the shares of the Common Stock set
forth below:
Name of Assignee Address No. of Contingent
---------------- ------- ------------------
Warrants
--------
and does hereby irrevocably constitute and appoint _____________________ true
and lawful Attorney, to make such transfer on the books of Careside, Inc.,
maintained for that purpose, with full power of substitution in the premises.
Dated: __________ ___, _____ ___________________________________
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of the Contingent Warrant
Certificate.)
A-5
<PAGE>
[Form of Election To Purchase]
The undersigned hereby irrevocably elects to exercise ____________ of the
Contingent Warrants represented by this Contingent Warrant Certificate and to
purchase the shares of Common Stock issuable upon the exercise of said
Contingent Warrants, and requests that certificates for such shares be issued
and delivered as follows:
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at _____________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
In full payment of the purchase price with respect to the exercise of
Contingent Warrants to purchase shares of the Common Stock, the undersigned:
[_] hereby tenders payment of $________ by cash, certified check,
cashier's check or money order payable in United States currency to
the order of the Company; or
[_] hereby delivers to the Company that number of shares of Common Stock
having a Fair Market Value (as defined in the Contingent Warrant
Agreement) equal to the Exercise Price multiplied by the number of
Contingent Warrant Shares being purchased.
If the number of Contingent Warrants to purchase the shares of the Common
Stock hereby exercised is less than all the Contingent Warrants represented by
this Contingent Warrant Certificate, the undersigned requests that a new
Contingent Warrant Certificate representing the number of such full Contingent
Warrants not exercised be issued and delivered as follows:
A-6
<PAGE>
ISSUE TO:_______________________________________________________________________
(NAME)
________________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
________________________________________________________________________________
(SOCIAL SECURITY OR OTHER IDENTIFICATION NUMBER)
DELIVER TO:_____________________________________________________________________
(NAME)
at _____________________________________________________________________________
(ADDRESS, INCLUDING ZIP CODE)
Date: __________ ___, ______ ________________________________________
Signature
(Signature must conform in all respects
to name of holder as specified on the
face of the Contingent Warrant
Certificate.)
PLEASE INSERT SOCIAL SECURITY OR TAX
I.D. NUMBER OF HOLDER
________________________________________
A-7
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated March 13, 2000 (and to all references to our Firm) included in this
Form S-1 Registration Statement.
Arthur Andersen LLP
Los Angeles
April 12, 2000
