<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________________ to ____________________
Commission File No. 0-11772
NU-TECH BIO-MED, INC.
(Exact name of registrant as specified in its charter)
Delaware 25-1411971
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation of organization)
55 Access Road, Warwick, Rhode Island 02886
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (401) 732-6520
(Former name or former address, if changed since last report.)
Check whether the Issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes X No
--- ---
As of November 1, 1996, there were issued and outstanding 2,029,531 shares
of common stock of the registrant.
<PAGE> 2
Nu-Tech Bio-Med, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Balance Sheets
(Unaudited)
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
--------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,616,195 $ 2,538,002
Accounts receivable - (net of allowance for uncollectible
claims of approximately $5,700 and $16,700 at
September 30, 1996, and at December 31, 1995, respectively) 27,673 67,480
Prepaid expenses 88,705 82,737
Other current assets 29,093 78,581
------------ ------------
Total current assets 3,761,666 2,766,800
Equipment and leasehold improvements (net of accumulated 405,347 471,517
depreciation of approximately $288,600 and $215,000 at
September 30, 1996, and December 31, 1995, respectively)
Deferred Acquisition Costs 170,878 129,846
Patents (net of accumulated amortization of approximately
$82,300 and $73,700 at September 30, 1996, and
December 31, 1995, respectively) 140,450 141,596
Goodwill (net of accumulated amortization of approximately
$497,400 and $441,200 at September 30, 1996, and
December 31, 1995, respectively) 252,566 308,816
------------ ------------
Total Assets $ 4,730,907 $ 3,818,575
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 117,838 $ 109,815
Accrued expenses 731,305 445,950
Contract payable 65,571 105,571
Current portion of long term debt 205,380 197,246
Current portion of capitalized lease obligations 14,789 13,050
------------ ------------
Total current liabilities 1,134,883 871,632
Debt 164,452 319,521
Capitalized lease obligations 22,304 33,624
Deferred income 5,540 5,540
------------ ------------
Total liabilities 1,327,179 1,230,317
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; none outstanding
Common stock, $.01 par value; 12,000,000 shares
authorized; 1,992,155 and 1,742,148 shares issued and
outstanding at September 30, 1996, and December 31, 1995 19,921 17,422
Capital in excess of par value 20,171,241 17,544,715
Deferred consulting expense (110,000) (151,250)
Unvested common stock grant (243,303) (946,107)
Deficit accumulated during the development stage (16,434,131) (13,876,522)
------------ ------------
Total stockholders' equity 3,403,728 2,588,258
------------ ------------
Total liabilities and stockholders' equity $ 4,730,907 $ 3,818,575
============ ============
</TABLE>
2
<PAGE> 3
Nu-Tech Bio-Med, Inc. and Subsidiary
(A Development Stage Enterprise)
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Cumulative
Amount from
February 1
1982
For the three months ended For the nine months ended (inception) to
September 30 September 30 September 30 September 30 September 30
1996 1995 1996 1995 1996
--------------------------------------------------- --------------------------------
<S> <C> <C> <C> <C> <C>
Revenues:
Assay sales $ 26,455 $ 26,490 $ 74,508 $ 117,824 $ 1,246,615
Contract revenues -- -- -- 2,100 730,511
Investment and interest income 49,774 44,948 129,347 120,019 2,543,533
Fee income -- -- -- -- 100,000
Other -- -- -- -- 473,517
------------ ------------ ------------ ------------ ------------
Total revenues 76,229 71,438 203,855 239,943 5,094,176
Expenses:
Sales, general and administrative 470,397 321,785 1,366,283 925,349 11,446,580
Deferred acquisition costs charged off 218,914 -- 218,914 -- 218,914
Laboratory expenses 46,946 42,092 126,365 150,743 1,249,622
Research and development 19,673 21,625 66,377 55,532 4,715,616
Loss on sale of investments -- -- -- -- 577,423
Interest 7,091 8,094 22,571 26,094 224,906
Rent 19,488 6,396 60,584 18,576 506,789
Depreciation and amortization 286,448 35,364 900,370 108,878 2,416,161
Loss (gain) on disposal of equipment,
furniture and fixtures -- -- -- -- 34,100
------------ ------------ ------------ ------------ ------------
Total expenses 1,068,957 435,356 2,761,464 1,285,172 21,390,111
------------ ------------ ------------ ------------ ------------
Loss from continuing operations (992,728) (363,918) (2,557,609) (1,045,229) (16,295,935)
Discontinued operations:
Loss on disposition -- -- -- -- (112,010)
Loss from discontinued operations -- -- -- -- (172,530)
------------ ------------ ------------ ------------ ------------
Loss from discontinued operations -- -- -- -- (284,540)
------------ ------------ ------------ ------------ ------------
Loss before extraordinary item (992,728) (363,918) (2,557,609) (1,045,229) (16,580,475)
Extraordinary item:
Gain on forgiveness of debt -- -- -- -- 146,344
------------ ------------ ------------ ------------ ------------
Net loss $ (992,728) $ (363,918) $ (2,557,609) $ (1,045,229) $(16,434,131)
------------ ------------ ------------ ------------ ------------
Net loss per common share $ (0.50) $ (0.21) $ (1.37) $ (0.66)
------------ ------------ ------------ ------------
Weighted average common
shares outstanding 1,982,174 1,748,043 1,868,247 1,578,234
</TABLE>
3
<PAGE> 4
Nu-Tech Bio-Med, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNT FROM
FOR THE NINE MONTHS ENDED FEBRUARY 1, 1982
SEPTEMBER 30 SEPTEMBER 30 (INCEPTION) TO
1996 1995 SEPTEMBER 30, 1996
------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (2,557,609) $ (1,045,229) $(16,434,131)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 900,370 108,878 2,707,316
Deferred acquisition costs charged off 218,914 -- 218,914
Loss (gain) on disposal of equipment -- -- 34,100
Loss on investments -- -- 349,224
Loss on sale of subsidiary -- -- 112,010
Losses of affiliated company -- -- 365,614
Changes in assets and liabilities:
Accounts receivable, prepaids and
other current assets 83,327 (112,470) (125,860)
Investment in and advances to affiliate -- -- (431,802)
Accounts payable and accrued expenses (100,606) (309,620) (27,509)
Accrued compensation 393,984 (102,862) 604,257
Other liabilities -- -- (76,840)
Deferred income -- (2,100) 5,540
------------ ------------ ------------
Net cash used in operating activities (1,061,620) (1,463,403) (12,699,167)
INVESTING ACTIVITIES
Proceeds from sale of equipment -- -- 10,407
Capital expenditures (14,890) (387,301) (776,955)
Organization Costs -- -- (19,778)
Purchase of long-term investments and
other assets -- -- (95,974)
Proceeds from loan receivable from officer -- -- (20,000)
Cash acquired in purchase of company, net -- -- (820,390)
Sale of company, net of cash sold -- -- 413,000
------------ ------------ ------------
Net cash used in investing activities (14,890) (387,301) (1,309,690)
FINANCING ACTIVITIES
Proceeds from issuance of notes payable -- -- 1,116,000
Repayment of contract payable (40,000) -- (40,000)
Repayment of notes payable (146,935) (144,476) (529,824)
Repayment of capitalized lease obligations (9,581) -- (9,581)
Proceeds from 7% promissory notes -- -- 400,000
Repayment of 7% promissory notes -- -- (400,000)
Advances from officer -- -- 100,000
Repayment of advances from officer -- -- (100,000)
Proceeds from sale of common stock 2,611,165 1,177,496 17,726,702
Repayment of note payable to stockholder -- -- (266,601)
Capitalization of interest on note
payable to stockholder -- -- 18,148
Other assets -- -- --
Acquisition Costs (259,946) -- (389,792)
------------ ------------ ------------
Net cash provided by
financing activities 2,154,703 1,033,020 17,625,052
------------ ------------ ------------
</TABLE>
See accompanying notes.
4
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Nu-Tech Bio-Med, Inc.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
CUMULATIVE
AMOUNT FROM
FOR THE NINE MONTHS ENDED FEBRUARY 1, 1982
SEPTEMBER 30 SEPTEMBER 30 (INCEPTION) TO
1996 1995 SEPTEMBER 30, 1996
------------------------------------------------------
<S> <C> <C> <C>
Net increase (decrease) in cash and
cash equivalents 1,078,193 (817,684) 3,616,195
Cash and cash equivalents at beginning of period 2,538,002 3,803,189 --
----------- ----------- -----------
Cash and cash equivalents at end of period $ 3,616,195 $ 2,985,505 $ 3,616,195
=========== =========== ===========
Noncash transactions:
During 1989, the Company extinguished a
liability via the issuance of common
stock at a value of $20,000 $ -- $ -- $ 20,000
During 1990, the Company acquired the
remaining 50% interest in Analytical
Biosystems Corporation with the
issuance of 34,286 shares of common
stock -- -- 750,000
During 1991, the Company capitalized
$49,869 of accrued interest from 1990
into the note payable to stockholder -- -- 49,869
During 1991, the Company extinguished
liabilities via the issuance of common 30,400
stock at a value of $30,400 -- --
</TABLE>
5
<PAGE> 6
Nu-Tech Bio-Med, Inc. and Subsidiary
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three and Nine Months Ended September 30, 1996
(Unaudited)
A. Basis of Presentation
In the opinion of management of Nu-Tech Bio-Med, Inc. (the
"Company" or "Nu-Tech") the accompanying unaudited financial statements
contain all adjustments necessary to present fairly the financial
position of the Company at September 30, 1996, and the results of
operations and cash flows for the three and nine months ended September
30, 1996, and 1995.
The consolidated financial statements have been prepared in
accordance with the provisions of Statement of Financial Accounting
Standards No. 7, "Accounting and Reporting by Development Stage
Enterprises" since the Company's planned principal operations have
commenced, but there has been no significant revenue therefrom.
Successful completion of the Company's development program and its
transition to ultimately attaining profitable operations is dependent
upon achieving a level of sales adequate to support the Company's cost
structure.
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions
to Form 10-QSB and Article 10 of Regulation S-X. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month period
ended September 30, 1996, are not necessarily indicative of the results
that may be expected for the year ended December 31, 1996. For further
information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form
10-KSB for the year ended December 31, 1995.
6
<PAGE> 7
B. Adoption of New Accounting Pronouncements
The Company has adopted Statement of Financial Accounting
Standards No. 121 ("SFAS 121"), Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of, which
requires impairment losses to be recorded on the long-lived assets used
in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are
less than the assets' carrying amount. SFAS 121 also addresses the
accounting for long-lived assets that are expected to be disposed of.
The adoption of SFAS 121 has no impact on the financial position or
results of operations of the Company as no indicators of impairment
currently exist.
The Company has adopted the disclosure provisions of Financial
Accounting Standards No. 123 ("SFAS 123"), Accounting and Disclosure of
Stock-Based Compensation. The Company will continue to account for its
stock-based compensation arrangements under the provisions of APB 25,
Accounting for Stock Issued to Employees.
C. Acquisitions and related financing
The Company is actively seeking and evaluating several
acquisitions of companies in related businesses. Such potential
acquisitions are in various stages and there can be no assurance that
such transactions will be consummated.
In October 1996, the Company commenced an offering of up to
14,000 shares of a newly designated series of preferred stock, "Series
A Convertible Preferred Stock", for a total aggregate purchase price of
$14,000,000. On November 5, 1996, the Company completed the first
closing of the offering, from which the Company realized gross proceeds
of $10,000,000 from the sale of 10,000 shares of Series A Preferred
Stock. The terms of the Series A Preferred Stock are governed by a
Certificate of Designation approved by the Board of Directors in
accordance with the Company's Articles of Incorporation and filed with
the Secretary of State of Delaware on October 23, 1996. The Series A
Preferred Stock is convertible, by its terms, into shares of Common
Stock at the lesser of (i) $17.50 per share or (ii) the average closing
price of a shares of Common Stock on the Nasdaq SmallCap Market on the
date of the holder's notice of conversion less 25%. Up to one
third of the shares of Series A Preferred Stock may be converted into
Common Stock on each of the 45th day, 75th day and 105th day after the
Closing Date at the option of the holder. Commencing upon the 270th
day following completion of the private placement, the Company has
the right, upon 30 days prior notice, to cause the Series A Preferred
Stock to be converted into Common Stock. The holders of the Series A
Preferred Stock were granted one "demand" registration right with
respect to the Common Stock
7
<PAGE> 8
underlying the Series A Preferred Stock. Under various agreements
related to the sale of the shares, the Company is obligated to pay an
investment banker up to $1,440,000 from the proceeds and issue up to
60,000 shares of common stock and warrants to purchase 85,714 shares of
common stock exercisable at $15.00 per share, all of which is payable
at the completion of the private offering. The Company intends to
engage certain financial public relations services after the conclusion
of the offering. The Company anticipates a final closing in November
1996; however, there can be no assurance that the maximum amount of
shares of Series A Preferred Stock will be sold by the Company.
The proceeds of the first closing were used in furtherance of
the acquisition of Physicians Clinical Laboratory, Inc. ("PCL"), a
full service clinical laboratory capable of providing a comprehensive
battery of testing services. PCL has been operating since 1992 and
services approximately 9,000 accounts including physicians, hospitals
and HMOs and currently generates approximately $85,000,000 in annual
revenues. However, PCL is incurring significant ongoing losses and is
in default on approximately $80,000,000 in senior secured debt (the
"Senior Debt") and approximately $40,000,000 in subordinated debt (the
"Subordinated Debt"). The Company has reached an agreement with the
holders of the Senior Debt, Subordinated Debt and the management of
PCL to acquire a 51% interest in PCL. The terms of the agreement
provide that PCL would file a plan of reorganization under Chapter 11
of the United States Bankruptcy Code and PCL filed with the U.S.
Bankruptcy Court on November 8, 1996. As required by the agreement,
the Company purchased $13,300,000 of outstanding Senior Debt from
certain holders for $10,000,000 in advance of the filing with the
bankruptcy court. These holders have agreed to loan $10,000,000 in
capital to PCL, which loan, under the terms of the reorganization,
will be forgiven. The reorganization plan also provides that the
Senior Debt purchased by the Company will be converted to 34% of the
shares of Common Stock of PCL to be outstanding after the
reorganization. In addition, the Company will purchase an additional
17% of PCL Common Stock for $5,000,000. The plan is subject to the
approval of the bankruptcy court and there can be no assurance such
approval will be obtained or that the acquisition will be consummated.
In addition, the Company will require additional financing to complete
the transaction.
In October 1996, the Company submitted a proposal to acquire
Medical Science Institute ("MSI"), a clinical laboratory business
currently operating under protection of Chapter 11 of the United
States Bankruptcy Code. The proposal would require that the Company
issue common stock totaling approximately $2,250,000 in value plus
working capital for operations and the payment of certain claims,
which would be provided by existing and new financing sources. There
can be no assurance that the proposal will be accepted by the United
States Bankruptcy Court, that sufficient capital will be available to
the Company for the acquisition, or that the transaction will
otherwise be consummated.
On October 21, 1996, the Company acquired substantially all of
the operating assets of Prompt Medical Billing Services, Inc.
("Prompt"), a medical billing service business in Miami, Florida. The
Company acquired the assets for a total consideration of $675,000
consisting
8
<PAGE> 9
of $100,000 in cash and 37,404 shares of common stock (subject to
increase based upon market value). All consideration paid by the
Company has been placed in escrow for a period up to two years, to be
released upon attainment of certain performance levels; the cash
consideration to be released in eight equal quarterly installments.
Additionally, the Company has entered into a two-year employment
agreement and a two-year consulting agreement with a former principal
and executive officer of Prompt and an affiliated company.
On August 29, 1996, as a result of management's ongoing due
diligence review of the business and operations related to the pending
acquisition of American Cytogenetics, Inc., management has determined
not to pursue the transaction and has terminated the Letter of Intent
and further negotiations. Accordingly, the Company has expensed
deferred acquisition costs totaling approximately $212,000 in the
quarter ended September 30, 1996.
D. Consulting Agreements
In May 1996, the Company entered into agreements with a
consultant whereby the consultant would assist the Company in
identifying potential investors and negotiating and structuring a
transaction to provide equity financing, and, following such financing,
providing financial public relations for a period of two years. No
financing was arranged by the consultant and the agreements terminated
during the third quarter of 1996, resulting in a $40,000 charge to
operating results.
E. Clinical Trials Agreement
On August 15, 1996, the Company terminated its clinical trials
agreement with Response Oncology, Inc. and is in the process of making
alternate arrangements for clinical trials.
(This space intentionally left blank)
9
<PAGE> 10
SAFE HARBOR STATEMENT
Certain statements in this Form 10-QSB, including information
set forth under this Item 2 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" constitute
"forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the "Act"). Nu-Tech Bio-Med,
Inc. (the "Company") desires to avail itself of certain "safe harbor"
provisions of the Act and is therefore including this special note to
enable the Company to do so. Forward-looking statements included in
this Form 10-QSB or hereafter included in other publicly available
documents filed with the Securities and Exchange Commission, reports to
the Company's stockholders and other publicly available statements
issued or released by the Company involve known and unknown risks,
uncertainties, and other factors which could cause the Company's actual
results, performance (financial or operating) or achievements to differ
from the future results, performance (financial or operating)
achievements expressed or implied by such forward looking statement.
Such future results are based upon management's best estimates based
upon current conditions and the most recent results of operations.
These risks include, but are not limited to risks associated with
potential acquisitions, uncertainty of market acceptance of the
Company's FCA, dependence on reimbursement by third party payors,
uncertainty of eligibility for Medicare/Medicaid reimbursement, need
for additional capital, certain patent and technology considerations,
health care reform, competition and technological changes, limited
facilities, governmental regulations, dependence upon key personnel,
professional and product liability, uncertainty of completion of
acquisitions, and other risks detailed in the Company's Securities and
Exchange Commission filings, including its Annual Report on Form 10-KSB
for the year ended December 31, 1995, each of which could adversely
affect the Company's business and the accuracy of the forward looking
statements contained herein.
(This space intentionally left blank)
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Three months ended September 30, 1996, compared with three months ended
September 30, 1995
The Company is classified as a development stage company for financial
accounting purposes by reason of the fact that it has not generated significant
revenues from operations to date. Total revenues for the three months ended
September 30, 1996, were $76,229 compared to $71,438 for the three months ended
September 30, 1995. The increase in total revenues is primarily due to an
increase in interest income.
Assay sales, net of billing adjustments, from the processing of ABC's
assay, the Fluorescent Cytoprint Assay, were $26,455 and $26,490 for the three
months ended September 30, 1996, and 1995, respectively.
Sales, general and administrative expenses for the three months ended
September 30, 1996, increased to $470,397 compared to $321,785 for the three
months ended September 30, 1995. The increase is primarily due to the accrued
compensation for income taxes related to the grant of 100,000 restricted common
shares issued to an executive officer on June 8, 1995 as to which the Company
has agreed to reimburse the executive officer for taxes incurred in connection
with such vesting. The increase in sales, general and administrative expenses
was partially offset by a decrease in officer salaries, consultants, and sales
and marketing expenses.
The Company reported $218,914 of deferred acquisition costs charged off for
the three months ended September 30, 1996, for expenses incurred as a result of
management's due diligence review of the business and operations of potential
acquisitions which management has determined not to pursue and has terminated
further negotiations (see Note C). No deferred acquisition costs were charged
off for the three months ended September 30, 1995.
Laboratory expenses for the three months ended September 30, 1996, and 1995
were $46,946 and $42,092 respectively. The increase is primarily due to the
increase in consultants expense for a Medical Director/Technical Supervisor for
Pathology/Cytology and a Cytotechnologist associated with the expansion of
laboratory services to include cytology.
Research and development expenses for the three months ended September 30,
1996, and 1995, were $19,673 and $21,625, respectively. The decrease is
primarily due to the completion of the reconfiguration of the laboratory's
imaging system in the last quarter of 1995.
11
<PAGE> 12
Depreciation and amortization expenses for the three months ended September
30, 1996, were $286,448 as compared to $35,364 for the three months ended
September 30, 1995. This increase was primarily due to the achievement of the
conditions to the vesting of 100,000 restricted common shares granted to an
executive officer on June 8, 1995 resulting in additional amortization of
unvested common stock of $224,605.
Interest expense for the three months ended September 30, 1996, and 1995,
were $7,091 and $8,094, respectively. This decrease was due to the reduction of
principal outstanding for loans from the State of Rhode Island's Small Business
Loan Fund Corporation.
Rent expense for the three months ended September 30, 1996, was $19,488 as
compared to $6,396 for the three months ended September 30, 1995. This increase
was primarily due to the commencement of rent in January 1995 for administrative
offices located in New York.
For the three months ended September 30, 1996, the Company incurred a net
loss of $992,728 ($0.50 per share) compared to a net loss of $363,918 ($0.21 per
share) for the three months ended September 30, 1995. The increase in net loss
of $628,810 and net loss per share is primarily due to increases in depreciation
and amortization expense of approximately $251,000, general and administrative
expenses of approximately $149,000 as well as deferred acquisition costs charged
off of approximately $219,000. Weighted average shares were 1,982,174 and
1,748,043 for the three months ended September 30, 1996, and 1995, respectively.
This increase is primarily due to the issuance of shares associated with the
Company's April 1996 sale of securities in a private placement pursuant to
Regulation D under the Securities Act of 1933.
Nine months ended September 30, 1996, compared with nine months ended
September 30, 1995
Total revenues for the nine months ended September 30, 1996, were $203,855
compared to $239,943 for the nine months ended September 30, 1995. The decrease
in total revenues is primarily due to a reduced number of assays received for
processing.
Assay sales, net of billing adjustments, from the processing of ABC's
assay, the Fluorescent Cytoprint Assay, were $74,508 and $117,824 for the nine
months ended September 30, 1996, and 1995, respectively.
The Company reported no contract revenues for the nine months ended
September 30, 1996, as compared to $2,100 for the nine months ended September
30, 1995. Contract revenues represent revenues from various pharmaceutical and
drug development organizations to test new chemotherapy compounds using the FCA.
Payments received are recorded as deferred income and are recognized as other
revenue according to the percent or work completed.
12
<PAGE> 13
Sales, general and administrative expenses for the nine months ended
September 30, 1996, increased to $1,366,283 compared to $925,349 for the nine
months ended September 30, 1995. The increase is primarily due to accrued
compensation for income taxes related to the achievement of the conditions to
the vesting of 100,000 restricted common shares issued to an executive officer
on June 8, 1995 as to which the Company has agreed to reimburse the executive
officer for taxes incurred in connection with such vesting. Additionally, a
reduction in sales and marketing costs of approximately $100,000 has occurred,
partially offset by a one time non-recurring charge of approximately $50,000
associated with the severance package of a former officer of the Company.
The Company reported $218,914 of deferred acquisition costs charged off for
the nine months ended September 30, 1996, for expenses incurred as a result of
management's due diligence review of the business and operations of potential
acquisitions which management has determined not to pursue and has terminated
further negotiations. No deferred acquisition costs were charged off for the
nine months ended September 30, 1995.
Laboratory expenses for the nine months ended September 30, 1996, and 1995
were $126,365 and $150,743, respectively. The decrease is primarily due to
reduced requirements of laboratory supplies as well as a decrease in costs
associated with permanent, full-time laboratory personnel, but was offset by an
increase in consultants expense for a Medical Director/Technical Supervisor for
Pathology/Cytology and a Cytotechnologist associated with the expansion of
laboratory services to include cytology.
Research and development expenses for the nine months ended September 30,
1996, and 1995, were $66,377 and $55,532, respectively. The increase is
primarily due to costs associated with seeking alternate arrangements to conduct
clinical trials.
Depreciation and amortization expenses for the nine months ended September
30, 1996, were $900,370 as compared to $108,878 for the nine months ended
September 30, 1995. This increase was primarily due to the achievement of the
conditions to the vesting of 100,000 restricted common shares granted to an
executive officer on June 8, 1995 resulting in additional amortization of
unvested common stock of $224,605.
Interest expense for the nine months ended September 30, 1996, and 1995,
were $22,571 and $26,094 respectively. This decrease was due to the reduction of
principal outstanding for loans from the State of Rhode Island's Small Business
Loan Fund Corporation.
Rent expense for the nine months ended September 30, 1996, was $60,584 as
compared to $18,576 for the nine months ended September 30, 1995. This increase
was primarily due to the commencement of rent for administrative offices located
in New York.
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<PAGE> 14
For the nine months ended September 30, 1996, the Company incurred a net
loss of $2,557,609 ($1.37 per share) compared to a net loss of $1,045,299 ($0.66
per share) for the nine months ended September 30, 1995. The increase in net
loss of $1,512,380 and net loss per share is primarily due to increases in
depreciation and amortization expense of approximately $791,500, general and
administrative expenses of approximately $440,900, as well as deferred
acquisition costs charged off of approximately $219,000. Weighted average shares
were 1,868,247 and 1,578,234 for the nine months ended September 30, 1996, and
1995, respectively. This increase is primarily due to the issuance of shares
associated with the Company's April and July 1995 and April 1996 sales of
securities in private placements pursuant to Regulation D under the Securities
Act of 1933.
Balance Sheet
Total assets were $4,730,907 at September 30, 1996, versus $3,818,575 at
December 31, 1995. The period to period increase of $912,332 was principally due
to an increase in cash and cash equivalents of $1,078,193.
Total current liabilities, inclusive of the current portion of long term
debt, were $1,134,883 at September 30, 1996, versus $871,632 at December 31,
1995. The period to period increase of $263,251 was primarily due to an increase
in accrued compensation relating to the reimbursement of income taxes
attributable to the grant of 100,000 restricted common shares granted to an
executive officer on June 8, 1995.
Liquidity and Capital Resources
At September 30, 1996, the Company's working capital was $2,626,783
compared to $1,895,168 at December 31, 1995. The increase in working capital of
$731,615 was primarily due to the receipt of cash from the Company's April 1996
private sale of securities, but was partially offset by the utilization of cash
during the period to support operating activities and the payment and reduction
of current liabilities and debt.
Weighted average shares were 1,868,247 and 1,578,234 for the nine months
ended September 30, 1996, and 1995, respectively. This increase is primarily due
to the issuance of shares associated with the Company's April and July 1995 and
April 1996 sales of securities in private placements pursuant to Regulation D
under the Securities Act of 1933.
The primary source of the Company's liquidity is its cash and cash
equivalents on hand provided by the proceeds received from its December 20,
1994, public offering and its April 1995, July 1995 and April 1996 private sales
of its securities.
14
<PAGE> 15
Plan of Operations
The Company is classified as a development stage company for financial
reporting purposes and its financial statements are prepared in accordance with
the provision of Statement of Financial Accounting Standards No. 7, "Accounting
and Reporting by Development Stage Enterprises", since the Company's planned
principal operations have commenced, but there has been no significant revenues
therefrom.
The Company believes that its current cash position is adequate and
sufficient for the Company's anticipated needs for its existing operations for a
period of at least 12 months. However, the Company will require additional funds
to accomplish planned acquisitions and there can be no assurance that such
additional capital, if required, will be available to the Company in the future
and, if not available, may have an adverse effect on the ability to accomplish
any acquisitions.
Effects of Inflation and Increasing Costs of Health Care
Management does not believe that inflationary effects will have a material
impact on the Company. Management does believe, however, that current
governmental proposals for comprehensive health care reform, including mandated
basic health care benefits, controls on health care spending, price controls,
and proposed fundamental changes in the health care delivery system may have an
impact upon the Company. Although the Company believes its FCA to be cost
effective in overall chemotherapy treatment, changes in the level of support by
federal and state governments of health care services, the methods by which such
services may be delivered and the prices for such services may all have a
materially adverse impact on the Company's ability to achieve and sustain a
profit. Health care reform could also reduce the profitability of certain
medical institutions and, in turn, adversely impact the fees the Company is able
to charge for its FCA. The Company cannot predict which, if any, health care
reform plan may be adopted or, if adopted, the effect on its business.
(This space intentionally left blank)
15
<PAGE> 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
ANNUAL MEETING OF STOCKHOLDERS
On August 27, 1996, the Company held its Annual Meeting of Stockholders in
New York, New York. Holders of the Company's Common Stock of record on July 11,
1996, (the "Record Date") were entitled to receive notice of, and attend, the
Annual Meeting. At the Record Date, there were 1,992,155 shares of Common Stock
issued and outstanding and entitled to vote at the Annual Meeting. Of the total
outstanding shares, 1,240,803 shares (62.2%) were represented at the Annual
Meeting either in person or by proxy.
At the Annual Meeting, stockholders were asked to (I) elect 2 Class 2
directors to the Board of Directors for a term of three years to expire in 1999
and (ii) an amendment to the Company's Non-Employee Director Stock Option Plan
to increase the number of shares reserved under the Director Plan from 75,000 to
200,000 and to increase the number of options granted to each Director per year
from 3,000 options to up to 8,000 options.
The results of the voting at the Annual meeting were as follows:
Election of Directors
The names of the two (2) persons elected to the Board of Directors for a
term of three (3) years, and the votes cast for and against each nominee are set
forth below:
Nominee Votes For Votes Against
------- --------- -------------
Leonard Green 1,228,390 12,413
David Sterling 1,228,390 12,413
Amendment to the Non-Employee Director Stock Option Plan
For Against Abstain
--- ------- -------
491,183 18,897 16,353
16
<PAGE> 17
Item 5. Other Information
In October 1996, the Company commenced an offering of up to 14,000
shares of a newly designated series of preferred stock, "Series A Convertible
Preferred Stock", for a total aggregate purchase price of $14,000,000. On
November 5, 1996, the Company completed the first closing of the offering, from
which the Company realized gross proceeds of $10,000,000 from the sale of 10,000
shares of Series A Preferred Stock. The terms of the Series A Preferred Stock
are governed by a Certificate of Designation approved by the Board of Directors
in accordance with the Company's Articles of Incorporation and filed with the
Secretary of State of Delaware on October 23, 1996. The Series A Preferred Stock
is convertible, by its terms, into shares of Common Stock at the lesser of (i)
$17.50 per share or (ii) the average closing price of a shares of Common Stock
on the Nasdaq SmallCap Market on the date of the holder's notice of conversion
less 25%. Up to one third of the shares of Series A Preferred Stock may be
converted into Common Stock on each of the 45th day, 75th day and 105th day
after the Closing Date at the option of the holder Commencing upon the 270th
day following completion of the private placement, the Company has the right,
upon 30 days prior notice, to cause the Series A Preferred Stock to be
converted into Common Stock. The holders of the Series A Preferred Stock were
granted one "demand" registration right with respect to the Common Stock
underlying the Series A Preferred Stock. Under various agreements related to
the sale of the shares, the Company is obligated to pay an investment banker up
to $1,440,000 from the proceeds and issue up to 60,000 shares of common stock
and warrants to purchase 85,714 shares of common stock exercisable at $15.00
per share, all of which is payable at the completion of the private offering.
The Company intends to engage certain financial public relations services after
the conclusion of the offering. The Company anticipates a final closing in
November 1996; however, there can be no assurance that the maximum amount of
shares of Series A Preferred Stock will be sold by the Company.
The proceeds of the first closing were used in furtherance of the
acquisition of Physicians Clinical Laboratory, Inc. ("PCL"), a full service
clinical laboratory capable of providing a comprehensive battery of testing
services. PCL has been operating since 1992 and services approximately 9,000
accounts including physicians, hospitals and HMOs and currently generates
approximately $85,000,000 in annual revenues. However, PCL is incurring
significant ongoing losses and is in default on approximately $80,000,000 in
senior secured debt (the "Senior Debt") and approximately $40,000,000 in
subordinated debt (the "Subordinated Debt"). The Company has reached an
agreement with the holders of the Senior Debt, Subordinated Debt and the
management of PCL to acquire a 51% interest in PCL. The terms of the agreement
provide that PCL would file a plan of reorganization under Chapter 11 of the
United States Bankruptcy Code and PCL filed with the U.S. Bankruptcy Court on
November 8, 1996. As required by the agreement, the Company purchased
$13,300,000 of outstanding Senior Debt from certain holders for $10,000,000 in
advance of the filing with the bankruptcy court. These holders of Senior Debt
have agreed to loan
17
<PAGE> 18
$10,000,000 in capital to PCL, which loan, under the terms of the
reorganization, will be forgiven. The reorganization plan also provides that
the Senior Debt purchased by the Company will be converted into 34% of the
shares of Common Stock of PCL to be outstanding after the reorganization. In
addition, the Company will purchase an additional 17% of PCL common stock for
$5,000,000. The plan is subject to the approval of the bankruptcy court and
there can be no assurance such approval will be obtained or that the
acquisition will be consummated. In addition, the Company will require
additional financing to complete the transaction. Effective November 7, 1996,
J. Marvin Feigenbaum, the President of the Company, assumed the
responsibilities of Chief Operating Officer of PCL.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
----------- -----------
3.3 Amended Certificate of
Designations,
Preferences and Rights
and Number of Shares
of Series A Preferred
Stock as filed with
the Secretary of State
of Delaware on October
23, 1996.
27 Financial Data Schedule
(b) Reports on Form 8-K
During the quarter ended September 30, 1996, the following reports
on Form 8-K were filed by the Registrant:
<TABLE>
<CAPTION>
Date of the Report Item Reported Description of Item
- ------------------ ------------- -------------------
<S> <C> <C>
August 29, 1996 Item 5. Other Events Termination of American
Cytogenetics Negotiations
September 13, 1996 Item 2. Acquisition of Assets Prompt Medical Billing
Services, Inc.
Item 7. Financial Statements,
Pro Forma Financial Prompt Medical Billing
Information and Exhibits Services, Inc.
</TABLE>
18
<PAGE> 19
SIGNATURES
In accordance with requirements of the Securities Exchange Act, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NU-TECH BIO-MED, INC.
(Registrant)
Dated: November 12, 1996 By: /s/ J. Marvin Feigenbaum
------------------------
J. Marvin Feigenbaum
President, Chief Executive
and Chief Financial Officer
19
<PAGE> 1
EX. 3.3
NU-TECH BIO-MED, INC.
AMENDED
CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
RIGHTS AND NUMBER
OF SHARES OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 151 of the
Delaware General Corporation Law
The undersigned President, respectively, of NU-TECH BIO-MED, INC., a
Delaware corporation (the "Corporation") certifies that pursuant to
authority granted to and vested in the Board of Directors of the Corporation by
the provisions of the Certificate of Incorporation and in accordance with the
provisions of Section 151 of the General Corporation Law of the State of
Delaware, its Board of Directors has duly adopted the following resolutions
amending the Certificate of Designation, Preferences and Rights and Number of
Shares of Series A Convertible Preferred Stock filed with the office of the
Secretary of State of Delaware on October 1, 1996 (the "Certificate of
Designation of Series A Preferred Stock"). The undersigned further certifies
that no shares of Series A Preferred Stock have been issued prior to the date
of this Amended Certificate of Designations. The Certificate of Designations of
Series A Preferred Stock is hereby amended in its entirety to read as follows:
RESOLVED, that pursuant to the authority vested in the Board of Directors
of the corporation of the Corporation's Certificate of Incorporation, a series
of preferred stock of the corporation be, and it hereby is, created out of the
authorized but unissued shares of the capital stock of the corporation, such
series to be designated Series A Convertible Preferred Stock (the "Series A
Convertible Preferred Stock"), to consist of 14,000 shares, par value $.01 per
share, of which the preferences and relative and other rights, and the
qualifications, limitations or restrictions thereof, shall be (in addition to
those set forth in the Corporation's Certificate of Incorporation) as follows:
(1) Certain Definitions.
Unless the context otherwise requires, the terms defined in this paragraph
1 shall have, for all purposes of this resolution, the meanings herein
specified.
Common Stock. The term "Common Stock" shall mean all shares now or
hereafter authorized of any class of Common Stock, par value $.001 per share of
the Corporation, and any other stock of the Corporation, howsoever designated,
authorized after the Issue Date, which has the right (subject always to prior
rights of any class or series of preferred stock) to participate in the
distribution of the assets and earnings of the Corporation without limit as to
per share amount.
Conversion Date. The term "Conversion Date" shall have the meaning set
forth in subparagraph 4(d) below.
Conversion Price. The term "Conversion Price" shall mean the price per
share of Common Stock used to determine the number of shares of Common Stock
deliverable upon conversion of a share of the Series A Convertible Preferred
Stock, which price shall initially be
<PAGE> 2
the Purchase Price divided by the lessor of (i) the average of the closing bid
price of a share of Common Stock on the Nasdaq SmallCap Market ("NASDAQ") for
the five trading days ending one day prior to the Conversion Date less 25% or
(ii) $17.50 per share of Common Stock as reported on NASDAQ, subject to
adjustment in accordance with the provisions of paragraph 4 below.
Conversion Shares. The shares of Common Stock issued or issuable to the
holders of the Series A Preferred Stock upon conversion thereof in accordance
with the terms hereof.
Current Market Price. The term "Current Market Price" shall have the
meaning set forth in subparagraph 4(g) below.
Issue Date. The term "Issue Date" shall mean the date that shares of Series
A Convertible Preferred Stock are first issued by the Corporation.
Purchase Price. The term "Purchase Price" shall mean $1,000 per share.
Senior Stock. The term "Senior Stock" shall mean any class or series of
stock of the Corporation issued after the Issue Date ranking senior to the
Series A Convertible Preferred Stock in respect of the right to receive
dividends, and, for the purposes of paragraph 3 below, any class or series of
stock of the Corporation issued after the Issue Date ranking senior to the
Series A Convertible Preferred Stock in respect of the right to receive assets
upon the liquidation, dissolution or winding up of the affairs of the
Corporation.
Subsidiary. The term "Subsidiary" shall mean any Corporation of which
shares of stock possessing at least a majority of the general voting power in
electing the board of directors are, at the time as of which any determination
is being made, owned by the Corporation, whether directly or indirectly through
one or more Subsidiaries.
(2) Dividends.
Shares of Series A Convertible Preferred Stock shall not be entitled to
receive or earn any fixed dividends thereon.
(3) Distributions Upon Liquidation,
Dissolution or Winding Up.
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation, subject to the prior preferences
and other rights of any Senior Stock, but before any distribution or payment
shall be made to the holders of Junior Stock, the holders of the Series A
Convertible Preferred Stock shall be entitled to be paid $1,000 per share, and
no more, in cash or in property taken at its fair value as determined by the
Board of Directors, or both, at the election of the Board of Directors. If such
payment shall have been made in full to
2
<PAGE> 3
the holders of the Series A Convertible Preferred Stock, and if payment shall
have been made in full to the holders of any Senior Stock of all amounts to
which such holders shall be entitled, the remaining assets and funds of the
Corporation shall be distributed among the holders of Junior Stock, according to
their respective shares and priorities. If, upon any such liquidation,
dissolution or other winding up of the affairs of the Corporation, the net
assets of the Corporation distributable among the holders of all outstanding
shares of the Series A Convertible Preferred Stock shall be insufficient to
permit the payment in full to such holders of the preferential amounts to which
they are entitled, then the entire net assets of the Corporation remaining after
the distributions to holders of any Senior Stock of the full amounts to which
they may be entitled shall be distributed among the holders of the Series A
Convertible Preferred Stock ratably in proportion to the full amounts to which
they would otherwise be respectively entitled. Neither the consolidation or
merger of the Corporation into or with another Corporation, Corporations, entity
or other entities, nor the sale of all or substantially all of the assets of the
Corporation shall be deemed a 1iquidation, dissolution or winding up of the
affairs of the Corporation within the meaning of this paragraph 3.
Notwithstanding anything herein to the contrary, while any shares of Series A
Convertible Preferred Stock are outstanding, the Corporation shall not establish
any Senior Stock without the prior affirmative vote of a majority of the shares
of Series A Convertible Preferred Stockholders.
(4) Conversion Rights.
The Series A Convertible Preferred Stock shall be convertible into Common
Stock as follows:
(a) Optional Conversion. Subject to and upon compliance with the provisions
of this paragraph 4, on each of the 45th day following the Issue Date, the 75th
day following the Issue Date and the 105th day following the Issue Date, up to
one-third (1/3) of the outstanding shares of Series A Convertible Preferred
Stock shall be convertible into fully paid and nonassessable shares of Common
Stock, at the applicable Conversion Price, at the option of the holder of any
shares of Series A Convertible Preferred Stock upon the terms hereinafter set
forth.
(b) Mandatory Conversion. Each share of Series A Convertible Preferred
Stock shall be deemed automatically converted into Common Stock at the
Conversion Price on a date which is 270 days from the Issue Date following 30
days prior written notice from the Corporation; provided, however, for each day
after a date which is 60 days from the Issue Date that the Company does not
have an order from the Securities and Exchange Commission declaring effective a
registration statement covering the Conversion Shares, then a day shall be
added to the aforementioned 270 day period.
(c) Number of Shares. Each share of Series A Convertible Preferred Stock
shall be converted into a number of shares of Common Stock determined by
dividing (i) the Purchase Price by (ii) the Conversion Price in effect on the
Conversion Date. The Conversion Price shall be subject to adjustment as set
forth in subparagraph 4(f).
3
<PAGE> 4
(d) Mechanics of Conversion. The holder of any shares of Series A
Convertible Preferred Stock may exercise the conversion right specified in
subparagraph 4(a) by surrendering to the Corporation or any transfer agent of
the Corporation the certificate or certificates for the shares to be converted,
accompanied by written notice specifying the number of shares to be converted;
provided that the Corporation shall not be obligated to issue to any such holder
certificates evidencing the shares of Common Stock issuable upon such conversion
unless certificates evidencing the shares of Series A Convertible Preferred
Stock are either delivered to the Corporation or any transfer agent of the
Corporation. Conversion of the Shares may be exercised in whole or in part by
the holder by telecopying an executed and completed notice of conversion to the
Corporation and delivering the original notice of conversion and the certificate
representing the shares of Series A Preferred Stock being converted to the
Corporation by express courrier within three (3) business days of exercise.
Conversion shall be deemed to have been effected on the date when delivery of
notice of an election to convert and certificates for shares to be converted are
delivered to the Corporation and such date is referred to herein as the
"Conversion Date". Subject to the provisions of subparagraph 4(f)(vii), as
promptly as practicable thereafter, the Corporation shall issue and deliver to
or upon the written order of such holder a certificate or certificates for the
number of full shares of Common Stock to which such holder is entitled and a
check or cash with respect to any fractional interest in a share of Common Stock
as provided in subparagraph 4(f). Subject to the provisions of subparagraph
4(f)(vii), the person in whose name the certificate or certificates for Common
Stock are to be issued shall be deemed to have become a holder of record of such
Common Stock on the applicable Conversion Date. Upon conversion of only a
portion of the number of shares covered by a certificate representing shares of
Series A Convertible Preferred Stock surrendered for conversion (in the case of
conversion pursuant to subparagraph 4(a), the Corporation shall issue and
deliver to or upon the written order of the holder of the certificate so
surrendered for conversion, at the expense of the Corporation, a new certificate
covering the number of shares of Series A Convertible Preferred Stock
representing the unconverted portion of the certificate so surrendered.
(e) Fractional Shares. No fractional shares of Common Stock or scrip shall
be issued upon conversion of shares of Series A Convertible Preferred Stock. If
more than one share of Series A Convertible Preferred Stock shall be surrendered
for conversion at any one time by the same holder, the number of full shares of
Common stock issuable upon conversion thereof shall be computed on the basis of
the aggregate number of shares of Series A Convertible Preferred Stock so
surrendered. Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion of any shares of Series A Convertible
Preferred Stock, the Corporation shall pay a cash adjustment in respect of such
fractional interest in an amount equal to that fractional interest of the
Conversion Rate .
(f) Conversion Price Adjustments. The Conversion Price shall be subject to
adjustment from time to time as follows:
(i) Stock Dividends, Subdivisions, Reclassifications or Combinations.
If the Corporation shall (A) declare a dividend or make a distribution on
its Common Stock in shares
4
<PAGE> 5
of its Common Stock, (B) subdivide or reclassify the outstanding shares of
Common Stock into a greater number of shares, or (C) combine or reclassify
the outstanding Common Stock into a smaller number of shares, the
Conversion Price in effect at the time of the record date for such dividend
or distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted so that the holder of
any shares of Series A Convertible Preferred Stock surrendered for
conversion after such date shall be entitled to receive the number of
shares of Common Stock which he would have owned or been entitled to
receive had such Series A Convertible Preferred Stock been converted
immediately prior to such date. Successive adjustments in the Conversion
Price shall be made whenever any event specified above shall occur.
(ii) Other Distributions. In case the Corporation shall fix a record
date for the making of a distribution to all holders of shares of its
Common Stock (A) of shares of any class other than its Common Stock or (B)
of evidence of indebtedness of the Corporation or any Subsidiary or (C) of
assets (excluding cash dividends or distributions, and dividends or
distributions referred to in subparagraph 4(f)(i) above), or (D) of rights
or warrants (excluding those referred to in subparagraph 4(f)(i) above),
each holder of a share of Series A Convertible Preferred Stock shall, upon
the exercise of his right to convert after such record date, receive, in
addition to the shares of Common Stock to which he is entitled, the amount
of such shares, indebtedness or assets (or, at the option of the
Corporation, the sum equal to the value thereof at the time of distribution
as determined by the Board of Directors in its sole discretion) that would
have been distributed to such holder if he had exercised his right to
convert immediately prior to the record date for such determination.
(iii) Consolidation, Merger, Sale, Lease or Conveyance. In case of any
consolidation with or merger of the Corporation with or into another
Corporation, or in case of any sale, lease or conveyance to another
Corporation of the assets of the Corporation as an entirety or
substantially as an entirety, each share of Series A Convertible Preferred
Stock shall after the date of such consolidation, merger, sale, lease or
conveyance be convertible into the number of shares of stock or other
securities or property (including cash) to which the Common Stock issuable
(at the time of such consolidation, merger, sale, lease or conveyance) upon
conversion of such share of Series A Convertible Preferred Stock would have
been entitled upon such consolidation, merger, sale, lease or conveyance;
and in any such case, if necessary, the provisions set forth herein with
respect to the rights and interests thereafter of the holders of the shares
of Series A Convertible Preferred Stock shall be appropriately adjusted so
as to be applicable, as nearly as may reasonably be, to any shares of stock
or other securities or property thereafter deliverable on the conversion of
the shares of Series A Convertible Preferred Stock.
(iv) Adjustment for Lack of Timely Registration. The holders of the
Series A Convertible Preferred Stock are entitled to the registration
rights as set forth in that certain Registration rights Agreement to be
entered into between the Corporation and the holders of the Series A
Convertible Preferred Stock on the Issue Date. In the event that the
Corporation fails to obtain an order from the Securities and Exchange
Commission declaring effective the
5
<PAGE> 6
registration statement filed by the Corporation in order to register for
sale by the holders the Conversion Shares under the Securities Act of 1933
within 120 days of receipt by the Corporation of the holder's Demand
Registration Request (as defined in the Registration Rights Agreement), the
applicable Conversion Price shall be adjusted as follows: (i) if the
applicable Conversion Price prior to adjustment herein is as set forth in
clause (i) of the defined term "Conversion Price" above, then the
percentage discount from the NASDAQ closing price shall be deemed 35%
instead of 25% or (ii) if the applicable Conversion Price prior to
adjustment herein is as set forth in clause (ii) of the defined term
"Conversion Price" above, then the Conversion Price shall be deemed to be
90% of the NASDAQ closing price.
(v) Rounding of Calculations: Minimum Adjustment. All calculations
under the provisions of subparagraph (e) shall be made to the nearest cent
or to the nearest one hundredth (1/100th) of a share, as the case may be.
Any provision of this paragraph 4 to the contrary notwithstanding, no
adjustment in the Conversion Price shall be made if the amount of such
adjustment would be less than $0.01 until the end of three years after such
adjustment would otherwise have been required, but any such amount shall be
carried forward and an adjustment with respect thereto shall be made at the
time of and together with any subsequent adjustment which, together with
such amount any other amount or amounts so carried forward, shall aggregate
$0.01 or more.
(vi) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this subparagraph (f)
shall require that any adjustment shall become effective immediately after
a record date for an event, the Corporation may defer until the occurrence
of such event (A) issuing to the holder of any share of Series A
Convertible Preferred Stock converted after such record date and before the
occurrence of such event the additional shares of Common Stock issuable
upon such conversion by reason of the adjustment required by such event
over and above the shares of Common Stock issuable upon such conversion
before giving effect to such adjustment and (B) paying to such holder any
amount of cash in lieu of a fractional share of Common Stock pursuant to
subparagraph (e) of this paragraph 4, provided that the Corporation upon
request shall deliver to such holder a due bill or other appropriate
instrument evidencing such holder's right to receive such additional
shares, and such cash, upon the occurrence of the event requiring such
adjustment.
(g) Statement Regarding Adjustments. Whenever the Conversion Price shall be
adjusted as provided in subparagraph 4(e), the Corporation shall forthwith file,
at the office of any transfer agent for the Series A Convertible Preferred Stock
and at the principal office of the Corporation, a statement showing in detail
the facts requiring such adjustment and the Conversion Price that shall be in
effect after such adjustment, and the Corporation shall also cause a copy of
such statement to be sent by registered or certified mail, return receipt
requested, postage prepaid, to each holder of shares of Series A Convertible
Preferred Stock at its address appearing on the Corporation's records. Each such
statement shall be signed by the Corporation's independent public accountants,
if applicable. Where appropriate, such copy may be given in advance and
6
<PAGE> 7
may be included as part of a notice required to be mailed under the provisions
of subparagraph 4(g).
(h) Notice to Holders. In the event the Corporation shall propose to take
any action of the type described in clause (i) (but only if the action of the
type described in clause (i) would result in an adjustment in the Conversion
Price), (iii), (iv) or (v) of subparagraph 4(e), the Corporation shall give
notice to each holder of shares of Series A Convertible Preferred Stock, in the
manner set forth in subparagraph 4(f), which notice shall specify the record
date, if any, with respect to any such action and the approximate date on which
such action is to take place. Such notice shall also set forth such facts with
respect thereto as shall be reasonably necessary to indicate the effect of such
action (to the extent such effect may be known at the date of such notice) on
the Conversion Price and the number, kind or class of shares or other securities
or property which shall be deliverable upon conversion of shares of Series A
Convertible Preferred Stock. In the case of any action which would require the
fixing of a record date, such notice shall be given at least 10 days prior to
the date so fixed, and in case of all other action, such notice shall be given
at least 15 days prior to the taking of such proposed action. Failure to give
such notice, or any defect therein, shall not affect the legality or validity of
any such action.
(i) Costs. The Corporation shall pay all documentary, stamp, transfer or
other transactional taxes attributable to the issuance or delivery of shares of
Common Stock upon conversion of any shares of Series A Convertible Preferred
Stock; provided that the Corporation shall not be required to pay any taxes
which may be payable in respect of any transfer involved In the issuance or
delivery of any certificate for such shares in a name other than that of the
holder of the shares of Series A Convertible Preferred Stock in respect of which
such shares are being issued.
(j) Reservation of Shares. The Corporation shall reserve at all times so
long as any shares of Series A Convertible Preferred Stock remain outstanding,
free from preemptive rights, out of its treasury stock (if applicable) or its
authorized but unissued shares of Common Stock, or both, solely for the purpose
of effecting the conversion of the shares of Series A Convertible Preferred
Stock, sufficient shares of Common Stock to provide for the conversion of all
outstanding shares of Series A Convertible Preferred Stock.
(k) Valid Issuance. All shares of Common Stock which may be issued upon
conversion of the shares of Series A Convertible Preferred Stock will upon
issuance by the Corporation be duly and validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issuance thereof, and the Corporation shall take no action which will cause a
contrary result (including, without limitation, any action which would cause the
Conversion Price to be less than the par value, if any, of the Common Stock).
7
<PAGE> 8
(5) Voting Rights.
The holders of record of shares of Series A Convertible Preferred Stock
shall not be entitled to any voting rights except as otherwise provided by law
or as set forth herein with respect to the establishment of Senior Stock.
(6) Redemption.
Shares of Series A Convertible Preferred Stock shall not be redeemable by
the Corporation.
(7) Exclusion of Other Rights.
Except as may otherwise be required by law, the shares of Series A
Convertible Preferred Stock shall not have any preferences or relative,
participating, optional or other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended from time to
time) and in the Corporation's Certificate of Incorporation.
(8) Headings of Subdivisions.
The headings of the various subdivisions hereof are for convenience of
reference only and shall not affect the interpretation of any of the provisions
hereof.
(9) Severability of Provisions.
If any right, preference or limitation of the Series A Convertible
Preferred Stock set forth in this resolution (as such resolution may be amended
from time to time) is invalid, unlawful or incapable of being enforced by reason
of any rule of law or public policy, all other rights, preferences and
limitations set forth in this resolution (as so amended) which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall, nevertheless, remain in full force and effect, and no right,
preference or limitation herein set forth shall be deemed dependent upon any
other such right, preference or limitation unless so expressed herein.
8
<PAGE> 9
(10) Status of Reacquired Shares.
Shares of Series A Convertible Preferred Stock which have been issued and
reacquired in any manner or converted shall (upon compliance with any applicable
provisions of the laws of the State of Delaware) not be reissued as Series A
Convertible Preferred Stock, but shall have the status of authorized and
unissued shares of Preferred Stock issuable in series undesignated as to series
and may be redesignated and reissued.
IN WITNESS WHEREOF, this Certificate has been made under the seal of the
Corporation and the hands of the undersigned on September 27, 1996 .
/s/ J. Marvin Feigenbaum
---------------------------
Name: J. Marvin Feigenbaum
Title: President
Attest:
/s/ David Sterling
- ---------------------
Name: David Sterling
Title: Secretary
9
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