SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES ACT OF 1934
Date of Report (Date of earliest event reported): October 22, 1998
HEMACARE CORPORATION
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(Exact name of registrant as specified in its chapter)
California
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(State or other jurisdiction of incorporations)
0-15223 95-3280412
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Commission File Number (IRS Employer
Identification No.)
4954 Van Nuys Boulevard, Sherman Oaks, California 91403
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (818)986-3883
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<PAGE>
Item 2. Acquisition or Disposition of Assets.
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On October 22, 1998, HemaCare Corporation ("HemaCare" or the
"Company") through its wholly owned subsidiary Coral Blood Services,
Inc. ("CBS"), acquired substantially all the assets of Coral
Therapeutics, Inc. ("Coral") from Coral's secured lender. Prior
to the acquisition, Coral provided blood services to major
university, teaching and community hospitals in Maine, New
Hampshire, Massachusetts, Connecticut, New York, North Carolina and
other states. The acquired assets include (i) approximately $1.7
million in accounts receivable, $555,000 of which are over 90
days old, (ii) fixed assets and (iii) Coral's rights under its
hospital contracts. HemaCare is currently in the process of
negotiating separate agreements with the hospitals previously
served by Coral and is providing services to most of these
hospitals under interim arrangements. CBS also acquired certain
equipment formerly used by Coral in providing blood services and
products, which the Company intends to continue using for the
same purposes. Concurrently with the closing of the asset purchase,
HemaCare extended offers of employment to most of Coral's employees.
The acquisition price of the assets was $950,000 in cash and
450,000 shares of HemaCare's Series B senior convertible preferred stock.
The Company financed the acquisition by (i) utilizing existing cash
balances, (ii) borrowing $600,000 on its line of credit and (iii) issuing
450,000 shares of HemaCare Series B senior convertible preferred stock.
The Series B preferred stock is convertible into 500,000 shares of HemaCare
common stock, at the option of the holder, one year after issuance. In
addition, HemaCare has entered into or expects to enter into non-competition
agreements with certain former managers of Coral pursuant to which HemaCare
expects to make cash payments and issue shares of HemaCare common stock and
warrants to purchase HemaCare common stock. HemaCare also expects to satisfy
certain liabilities of Coral to its ex-employees and to make payments
necessary to maintain essential business relationships.
This Form 8-K contains "forward-looking statements" within the
meaning of that term in the Private Securities Litigation Reform
Act of 1995 (Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934,
as amended). Additional written or oral forward-looking
statements may be made by the Registrant from time to time in
filings with the Securities and Exchange Commission or otherwise.
Statements contained herein that are not historical facts are
forward-looking statements made pursuant to the safe harbor
provisions referenced above. Forward-looking statements are
inherently subject to risks and uncertainties some of which
cannot be predicted or quantified based on current expectations.
Although the Registrant believes that the expectations reflected
in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to have been correct.
Consequently, future events and actual results could differ
materially from those set forth in, contemplated by, or
underlying the forward-looking statements contained herein
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Item 7. Financial Statements, Pro Forma Financial Information
and Exhibits.
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(a) Financial Statements of Business Acquired. The
financial statements are not available and,
accordingly, are not included herein. The Registrant
plans to submit the financial statements of the
Business required to be filed under this item by
amendment not later than 60 days after the date on
which this report on Form 8-K must be filed.
(b) Pro Forma Financial Information. The Registrant plans
to submit the pro forma financial information required
to be filed under this item by amendment not later than
60 days after the date on which this report on Form 8-K
must be filed.
(c) Exhibits
2.1 Foreclosure Sale Agreement dated as of October 22,
1998 (the "Foreclosure Sale Agreement"), by and
among HemaCare Corporation, a California
corporation (the "Registrant"), Coral Blood
Services, Inc., a California corporation and a
wholly-owned of the Registrant ("CBS"),
Comdisco, Inc., ("Comdisco"), and Comdisco Health
Care Group, Inc., as supplemented. (Schedules
and Exhibits have been omitted pursuant to Item
601(b)(2) of Regulation S-K. Such schedules and
exhibits are listed in the Foreclosure Sale
Agreement. The Registrant hereby agrees to
furnish supplementary to the Securities and
Exchange Commission, upon its request, any or all
such omitted schedules and exhibits.)
4.1 Certificate of Determination of the Registrant's
Series B Senior Convertible Preferred Stock.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
HEMACARE CORPORATION
Date: November 5, 1998 By: /s/ Sharon C. Kaiser
----------------------
Sharon C. Kaiser, Chief
Financial Officer
and Sr. Vice President,
Finance
3
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description Sequential Page No.
- ------ ------------------------------------------------------- ---------------------------
<C> <S> <S>
2.1 Foreclosure Sale Agreement dated as of October 22, 1998 Filed herwith electroncally
(the "Foreclosure Sale Agreement"), by and among
HemaCare Corporation, a California corporation (the
"Registrant"), Coral Blood Services, Inc., a California
corporation and a wholly-owned of the Registrant
("CBS"), Comdisco, Inc., ("Comdisco"), and Comdisco
Health Care Group, Inc., as supplemented. (Schedules
and Exhibits have been omitted pursuant to Rule
601(b)(2) of Regulation S-K. Such schedules
and exhibits are listed in the Foreclosure Sale
Agreement. The Registrant hereby agrees to furnish
supplementary to the Securities and Exchange Commission,
upon its request, any or all such omitted schedules
and exhibits.)
4.1 Certificate of Determination of the Registrant's Filed herewith electronically
Series B Senior Convertible Preferred Stock.
</TABLE>
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EXHIBIT 2.1
FORECLOSURE SALE AGREEMENT
This FORECLOSURE SALE AGREEMENT ("Agreement") is
entered into as of October 22, 1998 by and among
COMDISCO, INC., a Delaware corporation, COMDISCO HEALTH
CARE GROUP, INC. ("Comdisco"), on the one hand, and
HEMACARE CORPORATION, a California corporation ("HC"),
and CORAL BLOOD SERVICES, INC., a California corporation
and a wholly-owned subsidiary of HC ("CBS" and together
with HC, "HemaCare").
RECITALS:
---------
1. This sale ("Sale") is made to HemaCare by Comdisco
pursuant to Illinois Commercial Code 9504 after default by
Coral Therapeutics, Inc. ("Debtor") under the terms of that
certain Subordinated Loan and Security Agreement, dated as of
September 30, 1997, between Comdisco and Debtor (the "Term Loan
Agreement").
2. The Debtor also has defaulted under equipment leases
between Comdisco and the Debtor identified as a Master Lease
Agreement dated September 26, 1997 between Comdisco Health Care
Group and the Debtor and a Master Lease Agreement dated as of
May 28, 1997 between Comdisco and the Debtor (collectively, the
"Equipment Leases"), which lease equipment is referred to
below.
3. The Debtor also is obligated to Comdisco pursuant to
that certain Receivables Loan and Security Agreement dated as
of May 29, 1997 between the Debtor and Comdisco (the
"Receivables Agreement"), which obligations are past due.
4. Comdisco has not released the Debtor from any of the
operative documents nor has it released any of the indebtedness
thereunder.
5. The Sale referenced herein is evidenced by a certain
Bill of Sale of even date herewith executed by Comdisco in
favor of HemaCare in the form of Exhibit A hereto.
6. The Debtor is familiar with the terms of the Sale.
7. HemaCare desires to purchase and Comdisco agrees,
upon payment to Comdisco of the purchase price as defined below
and the additional consideration recited herein, to sell the
personal property referenced herein to HemaCare.
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AGREEMENT
NOW, THEREFORE, in consideration of the foregoing,
and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto
agree as follows:
1. Assets.
A. The assets which are the subject of this Agreement
are all the personal property of the Debtor to the extent that
such property constitutes collateral under the Term Loan
Agreement pursuant to which the Debtor granted Comdisco a
security interest in substantially all of the Debtor's personal
property, accounts, chattel paper, general intangibles,
inventory, equipment, fixtures, and goods, all as more
specifically described Exhibit B hereto (the "Personal
Property").
B. Comdisco will release its security interest in the
accounts to the extent that the security interests pursuant to
the Receivables Agreement may be prior to the security
interests of the Term Loan Agreement. Also, Comdisco will
abandon and release any interests that it may have in the
equipment identified in the Equipment Leases.
C. The Personal Property to be transferred specifically
includes: all Debtor's customers lists, software, accounts,
and trade names and trademarks and other intellectual property
rights to which the Debtor has any right, title or interest to
the extent such property constitutes collateral under the Term
Loan Agreement.
2. Nonassumption of Liability. HemaCare is not
assuming any liabilities, debts or obligations of the Debtor
whatsoever, including, but not limited to, the Debtor's
liability with respect to leases, or to any of the Debtor's
creditors or employees or any contracts or agreements to which
the Debtor is a party unless otherwise expressly assumed by
HemaCare in writing. HemaCare is not obligated to hire any of
the Debtors employees; however, it may do so.
3. Purchase Price. The Purchase Price for the
assets shall be:
A. $950,000 in cash or its equivalent paid by check or
wire transfer to the account designated by Comdisco in writing;
B. 450,000 shares of Preferred Stock ("Preferred
Shares") of HC as described pursuant to the Certificate of
Determination of Series A Convertible Preferred Stock, a copy
of which is attached hereto as Exhibit C and is referred to
more specifically in Paragraph 6 below).
C. Seventy-five percent (75%) of the amount, if any,
that actual costs and expenses related to the acquisition of
Debtor's assets and integration of the Debtor's business with
that of HemaCare are less than the amount currently anticipated
and budgeted (as more
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specifically described in Paragraph 8
below and referred to hereinafter as the "Cost Savings").
4. Terms of Payment. Concurrent with the execution
of this Agreement and the consummation of the transactions
contemplated hereby, HemaCare shall deliver to
"Bank of America
231 S. Lasalle Street
Chicago, IL 60697
ABA # - 071000039
For the Account of - Comdisco, Inc.
Reference: Coral Therapeutics, Inc.
Attention: Dave Reynolds"
cash in the amount of $950,000 and a stock certificate
representing the Preferred Shares. In addition, at the time
when it is determined that the Debtor's business is fully
integrated with that of HemaCare which will not be later than 6
months from the date hereof, HemaCare shall deliver to Comdisco
a final accounting and, if applicable, payment of the Cost
Savings.
5. Delivery of Possession of Assets to HemaCare.
A. Comdisco shall deliver to HemaCare a Bill of Sale in
the form attached hereto Exhibit A upon the delivery of
Item 3(A) and (B) of the Purchase Price and this executed
Agreement.
B. Comdisco hereby acknowledges that at the time that
the Bill of Sale is delivered in exchange for Purchase Price as
recited above, it hereby releases any claim it has under the
Receivables Loan Agreement to accounts or other collateral
identified therein and any claim it has to any of the equipment
subject to either Equipment Lease identified in the recitals
above which equipment is identified in Exhibit D attached
hereto. Comdisco's claims against the Debtor are not
extinguished. Comdisco does not know nor represent the
location nor existence of any of the equipment. The transfer
is on a "where is, as," basis without representation or
warranty whatsoever.
C. It shall be HemaCare's responsibility to take
possession of the Personal Property from the Debtor as the Sale
is on a "where is/as is" basis.
D. It is HemaCare's responsibility to arrange for any
appropriate sublease or possession agreement with either the
Debtor or the owner of any site where the Personal Property is
located. Comdisco makes no representation or warranty in
relation to the availability of any such site.
6. Preferred Stock. The Preferred Shares will
contain the terms set forth in the Certificate of Determination
of the Series A Convertible Preferred Stock attached hereto as
Exhibit C, which represents 450,000 shares of Preferred Stock
which may be convertible into 500,000 shares Common Stock of HC
upon the terms set forth therein. The Preferred
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Shares shall
be convertible two years after issuance. The Preferred Shares
will have a liquidation preference of ninety cents ($0.90) per
share. The Preferred Shares also will be entitled to receive
dividends equal to those on Common Stock (on an "as if
converted basis"). The Preferred Shares and the Common Stock
to which it is convertible will be subject to adjustment for
stock splits, stock dividends, reclassifications, capital
reorganizations and similar transactions. The Common Stock
issuable upon conversion of the Preferred Shares will have
registration rights as set forth in the Certificate of
Determination.
7. Investment Representations. Comdisco represents
and warrants to HemaCare that (A) Comdisco understands that the
offering and sale of the Preferred Shares and the shares of
Common Stock issuable upon conversion thereof (collectively,
the "Securities") have not been, and will not be, registered
under the Securities Act of 1933, as amended (the "Securities
Act"), or under any state securities laws, and are being
offered and sold in reliance upon federal and state exemptions
for transactions not involving any public offering,
(B) Comdisco is acquiring the Securities solely for his own
account for investment purposes, and not with a view to the
distribution thereof, (C) Comdisco is a sophisticated investor
with knowledge and experience in business and financial
matters, (D) Comdisco has received certain information
concerning HemaCare and has had the opportunity to obtain
additional information as desired in order to evaluate the
merits and the risks inherent in holding the Securities,
(E) Comdisco is able to bear the economic risk and lack of
liquidity inherent in holding the Securities, and (F) Comdisco
is an accredited investor (within the meaning of Regulation D
promulgated under the Securities Act). Comdisco acknowledges
that the Securities will not be freely transferable, that
certificates representing the Securities will bear restrictive
legends under applicable federal and state securities laws and
shall be subject to stops on transfer.
8. Transaction Costs/Sharing Savings. Attached
hereto as Exhibit E is a schedule of anticipated transaction
costs to be incurred by HemaCare as part of the acquisition of
the Debtor's assets and integration of the Debtor's business
with that of HemaCare. To the extent that HemaCare's costs are
less than the currently anticipated expenses as set forth in
Exhibit E, HemaCare will pay as deferred Purchase Price
seventy-five percent (75%) of the amount by which the actual
costs are less than the scheduled transaction costs and
expenses.
The transaction costs and expenses will include, but
are not limited to, the legal, accounting and consulting fees
relating to HemaCare and the Debtor's advisors, travel expenses
associated with the acquisition transaction and the integration
activities, obligations to the Debtor's creditors (other than
Comdisco) for transactions or services prior to closing, costs
of noncompetition agreements with Peter Logue, David Barrone,
Dan Reale, Stuart Dinney and Lori Terra-Vassalo and other costs
associated with closing the Debtor's Atlanta administrative
headquarters and the transfer of management functions to
HemaCare's office in Los Angeles, employee severance and other
costs associated with the closing of any operations of the
Debtor that will not be continued by HemaCare.
As part of the transaction costs and in reaching noncompetition agreements
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HemaCare anticipates that it will pay
cash, issue Common Stock and warrants to purchase its Common
Stock as settlement of various costs and expenses associated
with the acquisition of the Debtor's assets and integration of
its business.
For purposes of computing transaction costs, to the
extent that securities are used to settle obligations of the
Debtor, securities will be valued at the amount of the
obligation for which the securities were issued in settlement.
To the extent that HC's securities are so utilized to settle
on the liabilities of the Debtor they will be valued at not
more than ninety cents ($.90) per common share. The
anticipated stock and equivalents that will be outstanding
after the contemplated transactions are reflected on Exhibit D
attached hereto.
9. Legal Restraints. Should legal restraint of any
type prohibit Comdisco from conducting the Sale as noticed
pursuant to the terms hereof on or before October 22, 1998,
this Agreement shall terminate. The parties would be free to
renegotiate a new transaction.
10. Miscellaneous.
A. Each party shall bear its own costs and expenses in
relation to this Agreement and the transaction contemplated
hereby.
B. This Agreement shall be governed by the laws of
California. The sale as provided in the loan documents between
Comdisco and Debtor is governed by the law of Illinois.
C. Any notice or other communication required or
permitted hereunder shall be in writing and shall be delivered
by personal delivery, mail, overnight courier or telecopier.
Such communications shall be deemed given, if by personal
delivery, when received if by mail, when mailed by certified or
registered mail (postage prepaid and return receipt requested);
or if by overnight courier or telecopier, when delivered to
such courier or sent by telecopier (provided that the party
giving the notice has confirmation of such delivery or
sending), and in each case, addressed to the party to whom
notice is to be given as set forth below:
If to Comdisco: Comdisco, Inc.
6111 North River Road
Rosemont, IL 60018
Attention: Ron Rapp
Telephone: (847) 518-5071
Telecopier: (847) 518-5088
with a copy to: Murphy Sheneman Julian and Rogers
101 California Street, Suite 3900
San Francisco, California 94111
Attn.: John D. Fredericks, Esquire
Telephone: (415) 398-4700
Telecopier: (415) 421-7879
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if to: HemaCare Corporation
4954 Van Nuys Blvd.
Van Nuys, California 91403
Attention: Chief Executive Officer
Telephone: (818) 986-3883
Telecopier: (818) 986-1417
copy to: Sheppard, Mullin, Richter & Hampton
333 South Hope Street, 48th Floor
Los Angeles, California 90071
Attention: James M. Rene, Esquire
Telephone: (213) 620-1780
Telecopier: (213) 620-1398
C. Comdisco and HemaCare agree to cooperate in the
completion of the transaction including the providing of such
further documents as may be necessary to effect the transfer
such an assignment of trademarks, tradenames, or other
intellectual property which may be necessary to be recorded in
various offices. HemaCare will prepare any such documents at
its expense.
D. Together with the Bill of Sale and the Certificate of
Determination of the Series A Convertible Preferred Stock and
the certificates issued thereunder, this is the sole agreement
between the parties with reference to the subject matter hereof
and may only be amended in writing. This Agreement replaces
any prior agreement oral or written relating to the subject
matter hereof.
F. Delivery of an executed counterpart of the signature
page to this Agreement by facsimile shall be as effective as
delivery of a manually executed counterpart of this Agreement;
provided, that any party so delivering an executed counterpart
by facsimile shall thereafter promptly deliver a manually
executed counterpart of this Agreement to the other party, but
failure to deliver such manually executed counterpart shall not
affect the validity, enforceability and binding effect of this
Agreement, and (vi) shall be governed by and construed in
accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereby execute this
Agreement to be effective as of October 22, 1998.
COMDISCO, INC.
By: /s/ James P. Labe, President
-------------------------------
Comdisco Ventures Division
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COMDISCO HEALTH CARE GROUP, INC.
By: /s/ Doug Berman
------------------------------
Its: Credit Manager
HEMACARE CORPORATION
By: Alan C. Darlington
-------------------------------
Its: Chairman
CORAL BLOOD SERVICES, INC.
By: William D. Nicely
------------------------------
Its: Chief Executive Officer
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LIST OF EXHIBITS
Exhibit A - Bill of Sale
Exhibit B - Description of Assets
Exhibit C - Certificate of Determination of Series B
Senior Convertible Preferred Stock
Exhibit D - List of Leased Equipment
Exhibit E - Description of Transaction Costs
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SUPPLEMENT NO. 1 TO
FORECLOSURE SALE AGREEMENT
THIS SUPPLEMENT NO. 1 TO FORECLOSURE SALE
AGREEMENT (the "Amendment"), is made and entered into as
of October 22, 1998, by and among COMDISCO, INC., a
Delaware corporation, and COMDISCO HEALTH CARE GROUP,
INC. (collectively, "Comdisco"), on the one hand, and
HEMACARE CORPORATION, a California corporation ("HC"),
and CORAL BLOOD SERVICES, INC., a California corporation
and a wholly-owned subsidiary of HC ("CBS" and together
with HC, "HemaCare"), on the other hand. Comdisco and
HemaCare are referred to collectively below as the
"Parties."
Recitals
1. The Parties are parties to a Foreclosure Sale Agreement
dated as of October 22, 1998 (the "Foreclosure Sale Agreement").
2. The Parties desire to supplement and amend the Foreclosure
Sale Agreement as set forth below.
NOW THEREFORE, in consideration of the premises and the
mutual agreements herein set forth, the parties hereby agree as
follows:
1. References to Series A Preferred Stock. The Parties
agree that all references in the Foreclosure Sale Agreement
(and all agreements and documents related thereto) to HC's
"Series A Convertible Preferred Stock," "Series A Preferred
Stock" or "Preferred Shares" shall be deemed to refer to shares
of HC's Series B Senior Convertible Preferred Stock containing
the terms and conditions set forth in a Certificate of
Determination filed by HC with the California Secretary of
State on October 22, 1998.
2. Amendment of Section 6. The reference in the fifth
line of Section 6 to "two years" is hereby amended to read "one
year."
3. Effectiveness. This Amendment shall be deemed
effective as of October 22, 1998 as if executed on such date.
Except as supplemented and amended hereby, the Foreclosure Sale
Agreement shall remain in full force and effect and shall be
otherwise unaffected hereby.
4. Miscellaneous. This Amendment shall be deemed to be
a contract made under
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the laws of the State of California and
for all purposes shall be governed by and construed in
accordance with the laws of such state applicable to contracts
to be made and performed entirely within such state. This
Amendment may be executed in any number of counterparts, each
of such counterparts shall for all purposes be deemed an
original and all such counterparts shall together constitute
but one and the same instrument. Delivery of an executed
counterpart of the signature page to this Amendment by
facsimile shall be as effective as delivery of a manually
executed counterpart of this Amendment; provided, that any
party so delivering an executed counterpart by facsimile shall
thereafter promptly deliver a manually executed counterpart of
this Amendment to the other party, but failure to deliver such
manually executed counterpart shall not affect the validity,
enforceability and binding effect of this Amendment.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties hereby execute this
Amendment as of the date first above written.
COMDISCO, INC.
By: /s/
-----------------------------
Its:
COMDISCO HEALTH CARE GROUP, INC.
By: /s/ Doug Berman
------------------------------
Its: Credit Manager
HEMACARE CORPORATION
By:/s/ JoAnn R. Stover
----------------------------------
Its: Secretary
CORAL BLOOD SERVICES, INC.
By: /s/ JoAnn R. Stover
--------------------------------
Its: Secretary
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EXHIBIT 4.1
CERTIFICATE OF DETERMINATION
of the
SERIES B SENIOR CONVERTIBLE PREFERRED STOCK
(WITHOUT PAR VALUE)
of
HEMACARE CORPORATION
(Pursuant to Section 401 of the
General Corporation Law of the State of California)
_____________________________________
The undersigned, William D. Nicely and JoAnn R. Stover, DO HEREBY
CERTIFY that:
1. They are the Chief Executive Officer and Secretary, respectively,
of HemaCare Corporation, a corporation organized and existing
under the General Corporation Law of the State of California (the
"Company").
2. The resolution attached hereto as Exhibit A was duly adopted by
the Board of Directors of the Company as required by Section 401
of the California General Corporation Law.
3. The number of shares of Series B Senior Convertible Preferred
Stock of the Company is 450,000, of which none have been
issued.
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IN WITNESS WHEREOF, on the date set forth below, in the City of
Los Angeles in the State of California, each of the undersigned does
hereby declare under the penalty of perjury under the laws of the State of
California that he/she signed the foregoing certificate in the official
capacity set forth beneath his/her signature, and
that the statements set forth in said certificate are true and of
his/her own knowledge.
Signed on October 21, 1998
/s/ William D. Nicely
----------------------------
Name: William D. Nicely
Title: Chief Executive Officer
/s/ JoAnn R. Stover
----------------------------
Name: JoAnn R. Stover
Title: Secretary
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EXHIBIT A
RESOLVED, that pursuant to the authority expressly granted to and
vested in the Board of Directors of this Company in accordance with the
provisions of the Company's Articles of Incorporation, as amended (the
"Articles of Incorporation"), this Board of Directors hereby authorizes
the issuance to Comdisco,Inc. ("Holder") of a series of the serial Preferred
Stock of the Company (the "Preferred Stock") which shall consist of 450,000
shares of the Company's Preferred Stock, and hereby fixes the powers,
designations, preferences, and relative, participating, optional, or other
special rights, and the qualifications, limitations, or restrictions thereof,
of the shares of such series (in addition to the powers, designations,
preferences, and relative, participating, optional or other special rights,
and the qualifications, limitations, or restrictions thereof, set forth in
the Articles of Incorporation of the Company which are applicable to the
Preferred Stock) as follows:
Series B Senior Convertible Preferred Stock:
Section 1. Designation and Amount. The shares of such series shall
be designated as "Series B Senior Convertible Preferred Stock" (the "Series B
Preferred Stock") and the number of shares constituting the Series B Preferred
Stock shall be 450,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; provided, however, that no decrease
shall reduce the number of shares of Series B Preferred Stock to a number less
than the number of shares then outstanding plus the number of shares reserved
for issuance upon the exercise of outstanding options, rights, or warrants or
upon the conversion of any outstanding securities issued by the Company
convertible into Series B Preferred Stock.
Section 2. Optional Conversion. Each nine-tenths (9/10) of a share of
Series B Preferred Stock shall be convertible, at the option of the Holder, at
any time after the first anniversary of the date of issuance of such share, into
one share of Common Stock (the "Series B Conversion Ratio") of the Company
("Common Stock"). The Series B Conversion Ratio shall be adjusted as
hereinafter provided. The Holder may exercise such conversion right by
delivering to the Company during regular business hours, at the office of the
Company or any transfer agent for the Series B Preferred Stock as may be
designated by the Company, the certificate or certificates for the shares to
be converted, duly endorsed or assigned in blank to the Company, accompanied
by written notice stating that the Holder elects to convert such shares.
Conversion shall be deemed to have been effected on the date when the
aforesaid delivery is made (the "Conversion Date"). As promptly as
practicable after the Conversion Date, the Company shall issue and deliver
to or upon the written order of the Holder, to the place designated by the
Holder, a certificate to which the Holder is entitled and a check or cash in
respect of any fractional interest in a share of Common Stock as hereinafter
provided. Upon such conversion, the Holder shall be deemed to have become a
Common Stock holder of record on the applicable Conversion Date unless
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the transfer books of the Company are closed on that date, in which event the
Holder shall be deemed to have become a Common Stock holder of record on the
next succeeding date on which the transfer books are open, but the Series B
Conversion Ratio shall be as in effect on the Conversion Date. Upon conversion
of only a portion of the number of shares covered by a certificate representing
shares of Series B Preferred Stock surrendered for conversion, the Company shall
issue and deliver to or upon the written order of the Holder, at the expense of
the Company, a new certificate covering the number of shares of Series B
Preferred Stock representing the unconverted portion of the certificate so
surrendered.
(1) Adjustment of Series B Conversion Ratio. The
Series B Conversion Ratio shall be subject to adjustment as follows.
(1) If, at any time after the issuance of
Series B Preferred Stock, the number of shares of Common Stock
outstanding is increased by a stock dividend payable in shares
of Common Stock (other than a stock dividend payable in respect
of both Common Stock and Series B Preferred Stock in proportion
to the Conversion Ratio) or by a subdivision or split-up of
shares of Common Stock, then, following the record date fixed
for the determination of holders of Common Stock entitled to
receive such stock dividend, subdivision or split-up, the
Series B Conversion Ratio shall be appropriately increased and
the number of shares of Common Stock issuable upon conversion
of each share of Series B Preferred Stock shall be
appropriately increased, in each case, in proportion to such
increase in outstanding shares.
(2) If, at any time after the issuance of
Series B Preferred Stock, the number of shares of Common Stock
outstanding is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date for
such combination, the Series B Conversion Ratio shall be
appropriately decreased and the number of shares of Common
Stock issuable upon conversion of each share of Series B
Preferred Stock shall be appropriately decreased, in each case,
in proportion to such decrease in outstanding shares.
(3) In case, at any time after the issuance of
Series B Preferred Stock, of any capital reorganization, or any
reclassification of the stock of the Company (other than a
change in par value or from par value to no par value or from
no par value to par value or as a result of a stock dividend or
subdivision, split-up or combination of shares), or the
consolidation or merger of the Company with or into another
person (other than a consolidation or merger in which the
Company is the continuing corporation and which does not result
in any change in the Common Stock) or of the sale or other
disposition of all or substantially
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all the properties and assets of the Company as an entirety to any
other person, or the sale or exchange of all of the outstanding capital
stock of the Company, each share of Series B Preferred Stock shall after
such reorganization, reclassification, consolidation, merger, exchange
or sale or other disposition be convertible into the kind and number of
shares of stock or other securities or property of the corporation
resulting from such consolidation or surviving such merger or to which
such properties and assets or stock shall have been sold or otherwise
disposed to which the holder of the number of shares of Common Stock
deliverable upon conversion of such shares of Series B Preferred Stock
would have been entitled upon such reorganization,
reclassification, consolidation, merger, exchange or sale or
other disposition had they been converted into Common Stock
immediately prior to the time of such reorganization,
reclassification, consolidation, merger, exchange or sale or
other disposition. The provisions of this Section 2 (a)(iii)
shall similarly apply to successive reorganizations,
reclassifications, consolidations, mergers, exchanges or sales
or other dispositions.
(4) All calculations under this Section 2 shall
be made to the nearest one-thousandth (1/1000) of a share.
(2) No fractional shares. No fractional shares of
Common Stock or scrip shall be issued upon conversion of shares of
Series B Preferred Stock. If more than one share of Series B
Preferred Stock shall be surrendered for conversion at any one time,
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 such Series B Preferred Stock so surrendered. Instead of
any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series B Preferred Stock, the Company
shall pay a cash adjustment in respect of such fractional interest in
an amount equal to the current fair market value of a share of Common
Stock (as determined in good faith by the Board of Directors of the
Company) multiplied by such fractional interest. Fractional
interests shall not be entitled to dividends, and the holders of
fractional interests shall not be entitled to any rights as
shareholders of the Company in respect of such fractional interest.
Section 3. Reservation of Shares. The Company shall at all times
when the Series B Preferred Stock shall be outstanding reserve and keep
available out of its authorized but unissued stock, for the purposes of
effecting the conversion of the Series B Preferred Stock, such number
of its duly authorized shares of Common Stock as shall from time to time
be sufficient to effect the conversion of all outstanding Series B
Preferred Stock.
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Section 4. Status After Conversion. All shares of Series B
Preferred Stock which shall have been surrendered upon optional
conversion as herein provided shall no longer be deemed to be outstanding,
and all rights with respect to such shares shall forthwith cease and
terminate except only the right of the Holder to receive shares of Common
Stock in exchange therefor.
Section 5. Notices to Holder. Any notice required or permitted to
be given by the Company to the Holder shall be deemed given upon the
earlier of actual receipt or seventy-two (72) hours after the same has
been deposited in the United States mail, by certified or registered mail,
return receipt requested, postage prepaid, and addressed to the Holder
at the Holder's address appearing on the books of the Company.
Section 6 Dividends. The Holder shall be entitled, from the date
of issuance, to receive dividends when and as declared by the Board of
Directors and out of any funds legally available therefor. In
addition, if the Board of Directors shall declare any dividends on the Common
Stock, then the Board of Directors shall also, at the same time and as of
the same record date as the dividends declared on the Common Stock, declare
dividends on the Series B Preferred Stock, payable in the same form as the
dividends so declared on the Common Stock, in an amount per share of Series
B Preferred Stock equal to the amount of the dividends so declared per share
of Common Stock multiplied by the Series B Conversion Ratio as of the time
of declaration of the dividend. No dividend shall be declared or payable
on Common Stock unless dividends are so declared and payable on the Series B
Preferred Stock.
Section 7. Liquidation Rights of Preferred Stock.
(3) Preference. In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or
involuntary, the Holder of Series B Preferred Stock then outstanding
shall be entitled to be paid out of the assets of the Company
available for distribution to its shareholders, whether such assets
are capital, surplus or earnings, before any payment or declaration
and setting apart for payment of any amount shall be made in respect
of the Common Stock or any stock ranking junior to the Series B
Preferred Stock upon liquidation, dissolution or winding up, an
amount equal to $0.90 per share (which amount shall be adjusted
appropriately to reflect any adjustment in the Series B Conversion
Ratio), plus previously declared but unpaid dividends to the date of
distribution. If upon any liquidation, dissolution, or winding up of
the Company, whether voluntary or involuntary, the assets to be
distributed to the Holder of the Series B Preferred Stock and all
other outstanding capital stock of the Company ranking on a parity
with the Series B Preferred Stock shall be insufficient to permit the
payment to the Holder the full preferential amounts to be distributed
to the Holder as aforesaid, then the Holder of Series B Preferred
Stock and such other outstanding capital stock of the Company ranking
on a parity with the Series B Preferred Stock shall share ratably, in
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proportion to the full respective preferential amounts to which they
are entitled, in the maximum distribution permitted by the assets of
the Company. A consolidation or merger of the Company with or into
another corporation, or in which the capital stock of the Company is
converted solely into capital stock of such other corporation or of a
direct or indirect parent corporation of such other corporation
(except for cash in lieu of fractional shares), shall not be
considered to be a liquidation, dissolution or winding up for this
purpose.
(4) Remaining Assets. After the payment or
distribution of the full preferential amounts aforesaid, all
remaining assets of the Company shall be distributed ratably among
the holders of the Common Stock.
Section 8. Redemption. The Series B Preferred Stock is not
redeemable or subject to call by the Company.
Section 9. Voting Rights. Except as provided by law or pursuant to
Section 14 hereof, the Series B Preferred Stock is not entitled to any
voting rights.
Section 10. Preemptive Rights. The Series B Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any
securities of the Company.
Section 11. Registration Rights.
(5) Certain Definitions. For purposes of this Section
11, the following terms shall have the respective meanings set forth
below:
"Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
"Registrable Securities" shall mean those shares of
Common Stock acquired or acquirable upon conversion of the Series B
Preferred Stock in accordance with the terms hereof, but excluding
any shares which, as of the date of any demand registration pursuant
to Section 11(b) below, may be resold to the public without
registration pursuant to Rule 144 or another comparable rule under
the Securities Act.
"Registration Statement" shall mean any registration
statement or comparable document under the Securities Act through
which a public sale or disposition of the shares of Common Stock may
be registered or exempted from registration.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as
amended.
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<PAGE> 23
(b) Demand Registration. If the Company shall receive
at any time after the first anniversary of the date of issuance of
the Preferred Stock a written request from the Holder that the
Company register Registrable Securities under the Securities Act,
then the Company shall effect as soon as practicable the registration
under the Securities Act of the Registrable Securities specified in
such request (a "Demand Registration"). If the Holder intends to
distribute the Registrable Securities covered by its request as part
of an underwritten offering, it shall so advise the Company as a part
of its request referred to above. The underwriter will be selected
by the Company and shall be reasonably acceptable to the Holder. As
part of such underwritten offering, the Holder shall enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for such underwriting by the Company as
described above. The Company may at its option include in such
underwritten offering securities to be sold for its own account. In
such event, notwithstanding any other provision hereof, if the
underwriter shall advise the Company in writing that, in its
judgment, marketing factors require a limitation of the number of
shares to be underwritten, the shares so offered shall be allocated
between the Company and the Holder in the following order of
priority: (A) first, the maximum number of securities to be sold for
the Holder's own account, and (B) the maximum number of Registrable
Securities which the Company proposes to register. The Company shall
not be obligated to effect more than one (1) Demand Registration
pursuant hereto.
(c) Incidental Registration. If, following the first
anniversary of the date of issuance of any share of Series B
Preferred Stock, the Company proposes to file a Registration
Statement for an offering of securities for its own account, the
Company shall take the following steps with respect to such
Registration Statement:
(1) Mail a written notice to the Holder at the
address shown on the books and records of the Company at least
thirty (30) days prior to the proposed filing date of any such
Registration Statement; and
(2) Include in such Registration Statement any
and all Registrable Securities specified in a notice by the
Holder which is received by the Company not less than twenty
(20) days following the mailing of the notice specified in
Section 11(c)(i).
Notwithstanding any other provision hereof, if the Company
intends to effect such registration by means of an underwriting and
the underwriter shall advise the Company in writing that, in its
judgment, marketing factors require a limitation of the number of
shares to be underwritten, the Company shall so advise the Holder,
and the number of Registrable Securities to be included in such
registration shall be allocated in the following order of priority:
(A) first,
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<PAGE> 24
the maximum number of securities to be sold for the
Company's own account, and (B) the maximum number of Registrable
Securities which the Holder has requested be registered.
(d) Postponement. The Company may postpone the filing
or the effectiveness of a registration requested pursuant hereto if
the Company reasonably determines that (i) such registration may have
an adverse effect on any plan or proposal by the Company or any of
its subsidiaries with respect to any financing, acquisition,
recapitalization, reorganization or other material transaction
involving the Company or any of its subsidiaries; (ii) the Company is
in possession of material non-public information and disclosure of
such information is not in the best interests of the Company or any
of its subsidiaries; provided, however, that as soon as the
conditions permitting such delay no longer exist, the Company shall
give notice of that fact to the Holder, and shall proceed with the
registration unless the Holder shall have elected, at any time prior
to the close of business on the tenth (10th) business day after the
Company has so notified the Holder, to withdraw its request for
registration, in which case such withdrawn request shall not
constitute a request for registration hereunder; or (iii) such
registration would contravene any law, rule or regulation applicable
to the Company or any of its subsidiaries.
(e) Registration Procedures. Whenever the Company
shall register any securities as provided herein, the following
actions shall be taken:
(i) The Holder shall provide the Company with such
information about the Holder and its intended manner of
distributing the Registrable Securities, and shall otherwise
cooperate with the Company and any underwriter(s) as may be
needed or helpful in the reasonable opinion of the Company to
satisfy any obligation of the Company hereunder.
(ii) The Company shall notify the Holder promptly (i) of
any request by the SEC for the amending or supplementing of
such registration statement or prospectus or for additional
information, and (ii) after it shall receive notice thereof, of
the date and time when such registration statement and each
post-effective amendment thereto has become effective or a
supplement to any prospectus forming a part of such
registration statement has been filed.
(iii) The Company shall furnish to the Holder such number
of copies of a summary prospectus or other prospectus
(including any amendments and supplements thereto and a
preliminary prospectus in conformity with the requirements of
the Securities Act) and
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<PAGE> 25
such other documents as the Holder may reasonably request in
order to facilitate the public sale or other disposition of such
securities.
(iv) The Company shall use its best efforts to register
or qualify the securities covered by such Registration
Statement under the securities or "blue sky" laws of such
jurisdictions as the Holder shall reasonably request (provided,
however, that the Company shall not be required (i) to consent
to, or take any action which would subject it to, general
service of process for all purposes or (ii) to qualify to do
business in any jurisdiction where it is not then subject or
qualified) and do any and all other acts or things which may be
reasonably necessary or advisable to enable the Holder to
consummate the public sale or other disposition of such
securities in such jurisdictions.
(v) At any time when a sale or other public disposition
pursuant to a Registration Statement is subject to a prospectus
delivery requirement, the Company shall promptly notify the
Holder of the occurrence 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 a material fact required to be stated therein or
necessary to make the statements therein not misleading in the
light of the circumstances then existing. Upon receipt of such
a notice, the Holder shall immediately discontinue sales or
other dispositions of Registrable Securities pursuant to the
Registration Statement. The Holder may resume sales only upon
receipt of amended prospectuses or after the Holder has been
advised by the Company that the use of the previous prospectus
may be legally resumed.
(vi) The Company agrees to promptly notify the Holder
(i) of the issuance by the SEC of any stop order or order
suspending the effectiveness of any Registration Statement or
the initiation of any proceedings for that purpose, or (ii) of
the receipt by the Company of any notification with respect to
the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction, or the initiation of
any proceedings for such purpose. The Company, with the
reasonable cooperation of the Holder, shall make reasonable
effort to contest any such proceedings and to obtain the
withdrawal of any such order at the earliest possible moment.
(vii) The Company agrees that it will indemnify the
Holder (and any of its officers, directors and persons who
control the Holder within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act) against all
claims, losses, damages, liabilities and expenses (including
those relating to settlements approved by the Company)
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<PAGE> 26
resulting from any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement (or
in any other document incident to that registration) or from
any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading; provided, however, that the
Company shall not be liable in any such case to any such
indemnified person to the extent that any such loss, claim,
damage, liability or action (including any legal or other
expenses incurred) arises out of or is based upon an untrue
statement or allegedly untrue statement or omission or alleged
omission made in such Registration Statement in reliance upon
and in conformity with written information furnished to the
Company by or on behalf of such indemnified person or
underwriter specifically for use in the preparation thereof.
(viii) The Holder will indemnify the Company, any
underwriter, and any other person selling under the applicable
Registration Statement (and any of the officers and directors
and persons who control any of the foregoing within the meaning
of Section 15 of the Securities Act or Section 20 of the
Exchange Act) against all claims, losses, damages, liabilities
and expenses (including those relating to settlements approved
by the Holder) resulting from any untrue statement or alleged
untrue statement of a material fact contained in any
registration statement (or in any other document incident to
that registration) or from any omission or alleged omission to
state a material fact required to be stated or necessary to
make the information therein not misleading, but only to the
extent based upon or arising from any information furnished in
writing to the Company by the Holder expressly for inclusion in
that Registration Statement (or such other document incidental
to that registration).
(ix) Promptly after receipt by an indemnified party of
notice of the commencement of any action involving a claim
referred to in clauses (vii) and (viii) above, such indemnified
party will, if a claim in respect thereof is made against an
indemnified party, give written notice to the indemnifying
party of the commencement of such action; provided, however,
that the indemnified party's failure to give such notice shall
not release, relieve or in any, way affect the indemnifying
party's obligation hereunder to indemnify the indemnified party
unless and then only to the extent that the rights of the
indemnifying party are prejudiced thereby. In case any such
action is brought against an indemnified party, the
indemnifying party will be entitled to participate in and to
assume the defense thereo, jointly with any other indemnifying
party similarly notified to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and
after notice
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<PAGE> 27
from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party shall not be responsible for any legal or
other expenses subsequently incurred by the indemnified party
in connection with the defense thereof; provided, however, that
if any indemnified party shall have reasonably concluded (based
on the written advice of counsel) that there may be one or more
legal or equitable defenses available to such indemnified party
which are additional to or conflict with those available to the
indemnifying party, or that such claim or litigation involves
or could have an effect upon matters beyond the scope of the
indemnity agreement provided herein, the indemnifying party
shall not have the right to assume the defense of such action
on behalf of such indemnified party and such indemnifying party
shall reimburse such indemnified party and any person
controlling such indemnified party for that portion of the fees
and expenses of any counsel retained by the indemnified party
which is reasonably related to the matters covered by the
indemnity agreement provided herein.
(x) If the indemnification provided for herein is held
by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, claim, damage,
liability or action referred to herein, then the indemnifying
party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amounts paid or payable by
such indemnified party as a result of such loss, claim, damage,
liability or action in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection
with the statements or omissions which resulted in such loss,
claim, damage, liability or action as well as any other
relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party 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 indemnifying party or by the
indemnified party and the parties, relative intent, knowledge,
access to information and opportunity to correct or prevent
such statement or omission.
(xi) The Company shall bear all expenses (other than the
Holder's share of any brokerage or underwriting fees, expenses
or commissions) incurred in connection with any Registration
Statement, including, without limitation, all registration and
filing fees (including all expenses incident to filing with the
NASD, fees and expenses of complying with securities and blue
sky laws, printing expenses and fees and disbursements of the
independent certified public accountants and of the Company's
counsel).
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<PAGE> 28
(xii) With a view to making available to the Holder the
benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the SEC that may at any time
permit the Holder to sell securities of the Company to the
public without registration generally or pursuant to a
registration on Form S-3, the Company agrees to (a) make and
keep adequate public information available, as those terms are
understood and defined in SEC Rule 144, at all times; (b) use
all reasonable commercial efforts to qualify, and maintain
qualification, for registration on Form S-3; and (c) file with
the SEC in a timely manner all reports and other documents
required of the Company under the Securities Act and the
Exchange Act.
Section 12. Effect. The Holder, by acceptance of the issuance of
the Preferred Stock, hereby agrees to be bound by and subject to all the
terms, conditions and obligations set forth herein. Such terms, conditions
and obligations shall be binding upon and inure to the benefit of the
Company and the Holder and their respective legal successors, representatives
and assigns.
Section 13. Reacquired Shares. Any shares of Series B Preferred
Stock purchased or otherwise acquired by the Company in any manner
whatsoever shall be retired and canceled promptly after the acquisition
thereof. All such shares upon their cancellation become authorized but
unissued shares of Preferred Stock and may be reissued as part of a new
series of Preferred Stock subject to the conditions and restrictions on
issuance set forth herein, in the Articles of Incorporation, or in any
other Certificate of Determination creating a series of Preferred Stock
or any similar stock or as otherwise required by law.
Section 14. Amendment. The Articles of Incorporation and any
Certificates of Determination issued under the authority of the
Articles of Incorporation shall not be amended in any manner which would
materially alter or change the powers, preferences or special rights of
the Series B Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least a majority of the outstanding
shares of Series B Preferred Stock, voting together as a single class.
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