VASOMEDICAL, INC.
7,724,826 Shares of Common Stock, $.001 par value
The 7,724,826 shares of Common Stock, $.001 par value per share (the
"Shares"), of Vasomedical, Inc. (the "Company") being covered by this Prospectus
represent 4,561,172 shares issuable upon the conversion of Series C Convertible
Preferred Stock, and 588,712 issuable upon the exercise of Common Stock Purchase
Warrants. They are being offered by two (2) selling security Holders and any
pledgees, transferees, donees or other successors in interest thereof (the
"Selling Security Holders"). This Prospectus also covers 2,574,942 shares of
Common Stock associated with the Company's Share Purchase Rights, which are
reserved for issuance upon the exercise of the foregoing securities. The Shares
may be offered by the Selling Security Holders from time to time in transactions
on the Nasdaq, in privately negotiated transactions, or by a combination of such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Security Holders, who may be deemed
to be "underwriters", as defined in the Securities Act of 1933, as amended (the
"Securities Act"), may effect such transactions by selling the Shares to or
through broker-dealers and such broker-dealers may receive compensation in the
form of discounts, concessions or commissions from the Selling Security Holders
or the purchaser of the Shares for whom such broker-dealers may act as agent or
to whom they sell as principal or both (which compensation to a particular
broker-dealer might be in excess of customary commissions). See "Selling
Security Holders" and "Plan of Distribution."
None of the proceeds from the sale of the Shares by the Selling Security
Holders will be received by the Company, except to the extent that the Common
Stock Purchase Warrants are exercised. If all the Common Stock Purchase Warrants
are exercised at current exercise prices, the net proceeds to the Company from
this offering would be $1,225,000. The Company will bear the expenses in
connection with the offering, including filing fees and the Company's legal and
accounting fees, estimated at $39,000.
The Company's Common Stock is traded on the Nasdaq SmallCap Issues market
(Symbol: VASO). On December 4, 1998, the last reported sale price of the
Company's Common Stock as reported by NASDAQ was $1.00 per share.
---------------
AN INVESTMENT IN THE SECURITIES OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS", PAGE 4.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus is December 28, 1998
<PAGE>
No person has been authorized to give any information or to make any
representations not contained in this Prospectus in connection with the offer
contained herein, and, if given or made, such information or representations
must not be relied upon as having been authorized by the Company or by any
agent, dealer or underwriter. This Prospectus does not constitute an offer of
any securities other than those to which it relates or an offer to sell, or a
solicitation of an offer to buy, those to which it relates in any state to any
person to whom it is not lawful to make such offer in such state.
TABLE OF CONTENTS
Page
- --------------------------------------------------------------------------------
Available Information ..................................................... 3
Incorporation of Certain Documents by Reference ........................... 3
The Company ............................................................... 4
Risk Factors .............................................................. 4
Use of Proceeds ........................................................... 6
Description of Capital Stock .............................................. 7
Selling Security Holders .................................................. 8
Plan of Distribution ...................................................... 10
Indemnification of Directors and Officers ................................. 11
Legal Matters ............................................................. 12
Experts ................................................................... 12
<PAGE>
AVAILABLE INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, DC, a Registration Statement under the Securities
Act, with respect to the Common Stock offered hereby. This Prospectus does not
contain all the information set forth in the Registration Statement and the
exhibits relating thereto. For further information with respect to the Company
and the shares of Common stock offered by this Prospectus, reference is made to
such Registration Statement and the exhibits thereto. Statements contained in
this Prospectus as to the contents of any contract or other document are not
necessarily complete and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement for
a full statement of the provisions thereof; each such statement contained herein
is qualified in its entirety by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained at the office
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, DC 20549 and
at the Commission's Regional Offices at Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and 7 World Trade
Center, New York, New York 10048. Copies of such material can be obtained from
the Public Reference Section of the Commission, Washington, DC 20549, at
prescribed rates, and from the Securities and Exchange Commission's web site at
the address http://www.sec.gov. Copies of such material can also be obtained at
the offices of the National Association of Securities Dealers, Inc. at 1735 K
Street, Washington, DC 20006.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed by the Company with the
Commission (File No. 0-18105) pursuant to the Exchange Act, are incorporated by
reference in this Prospectus and shall be deemed to be a part hereof:
(1) The Company's Annual Report on Form 10-K for the fiscal year
ended May 31, 1998.
(2) The Company's Quarterly Report on Form 10-Q for the quarterly
period ended August 31, 1998.
(3) The Company's Proxy Statement dated October 7, 1998 for its 1998
Annual Meeting of Stockholders.
(4) The Registration Statement on Form 8-A dated May 11, 1995 with
respect to the Company's Share Purchase Rights.
(5) The Company's Form 8-K dated April 30, 1998.
All documents filed pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this Prospectus and prior to the termination of
this offering of Common Stock shall be deemed to be incorporated by reference in
this Prospectus and to be part hereof from the date of filing of such documents.
Any statement contained in a document incorporated or deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any subsequently filed document that also is or is deemed
to be incorporated by reference herein modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference (except for
exhibits thereto unless specifically incorporated by reference therein).
Requests for such copies should be directed to the Secretary, Vasomedical, Inc.,
180 Linden Avenue, Westbury, New York 11590 (516) 997-4600.
<PAGE>
THE COMPANY
The Company is engaged in the commercialization of the EECP(r) enhanced
external counterpulsation system ("EECP(r)"), a microprocessor-based medical
device for the non-invasive, atraumatic treatment of patients with coronary
artery disease. EECP(r) is marketed worldwide to hospitals, clinics and other
cardiac health care providers. The Company has the worldwide exclusive marketing
rights (except in China) to EECP(r), which rights it acquired in fiscal 1992.
In addition to its marketing efforts, the Company has recently
completed, at several leading university hospitals, a clinical study for the
purpose, among other things, of gathering information to apply for medical
reimbursement. EECP(r) has received marketing clearance from the Food and Drug
Administration ("FDA") under a 510(k) premarket notification.
The Company's executive offices are located at 180 Linden Avenue,
Westbury, New York 11590, and its telephone number is (516) 997-4600.
RISK FACTORS
The following information, in addition to other information in this
Prospectus and in the documents incorporated herein by reference, should be
considered carefully by potential purchasers in evaluating the Company, its
business and an investment in shares of the Common Stock offered hereby.
1. Need for Additional Funds. Management believes that its working capital
position at November 30, 1998, and the ongoing commercialization of EECP(r),
will make it possible for the Company to support its internal overhead expenses
and to implement its new development and business plans at least through May 31,
1999. While the Company anticipates financing its future cash requirements from
the sale and lease of EECP(r) systems, there is no assurance that the Company
can be successful in these efforts and, as such, may require infusions of
additional capital from equity or debt issuances.
2. Dependence on Limited Products. Currently, EECP(r) is the Company's only
product. The Company is concentrating substantially all of its efforts on
EECP(r) for which it has recently concluded a multicenter clinical study and is
incurring marketing expenses. Although the Company generated revenue from
EECP(r) in fiscal 1998, there is no assurance that the Company will continue to
generate enough revenue to fund internal working capital requirements beyond May
31, 1999.
3. Historical and Anticipated Losses. The Company was incorporated in July
1987 and, to date, has had limited revenues. The Company incurred net losses of
2,124,000 for the three-month period ended August 31, 1998 and net losses of
$5,031,000, $4,516,000, and $2,643,000 for the years ended May 31, 1998, 1997
and 1996, respectively. The Company recognized revenues of $428,000 for the
fiscal quarter ended August 31, 1998 and revenues of $5,225,000, $2,097,000 and
$2,683,000 for the years ended May 31, 1998, 1997 and 1996, respectively.
4. Uncertainty of Market Acceptance of the Company's Products. With respect
to EECP(r), management believes that it represents a new and innovative
treatment for patients suffering from coronary heart disease. Additional efforts
will be required to confirm that this procedure is effective and safe and to
acquaint potential purchasers, such as doctors, hospitals, suppliers of medical
equipment and other potential purchasers of the device. The Company cannot
guarantee acceptance by the medical community.
5. Dependence on Key Personnel. The Company is substantially dependent upon
the efforts of its executive officers, particularly Dr. John Hui. The Company
maintains limited key-man life insurance. Despite the existence of employment
agreements with Dr. Hui and others, there are no assurances that Company's key
executives will continue their employment with the Company.
<PAGE>
6. Technological Obsolescence. The Company is engaged in an area
characterized by extensive research and development activities. New developments
are expected to continue at a rapid pace and there can be no assurance that new
discoveries will not render the Company's products, processes and devices
uneconomical or obsolete. The likelihood of success for the Company's products
must be considered in light of the problems, expenses, difficulties,
complications and delays frequently encountered in connection with the
development of new medical processes, devices and products and their level of
acceptance by the medical community.
7. Competition. There are other companies engaged in development,
manufacture and/or marketing of products intended for the same uses as the
Company's products, processes and devices. These companies' products may receive
more widespread commercial acceptance than the Company's EECP(r) because of
greater financial resources and marketing capabilities.
8. Future Sales of Common Stock. Of the Company's Common Stock currently
outstanding, approximately 1,757,000 shares are "restricted securities" as that
term is defined in Rule 144 under the Securities Act and, under certain
circumstances, may be sold without registration pursuant to that Rule. An
additional 23,110,582 shares are covered by currently effective registration
statements, of which 12,468,226 shares are included in the Company's outstanding
shares at November 30, 1998. The restricted securities, the previously
registered securities, as well as the 7,724,826 shares of Common Stock
registered hereunder represent approximately 36% of the Company's outstanding
Common Stock on a fully-diluted basis. Their sale, or even potential sale,
pursuant to Rule 144, its prior registration statement, this registration
statement or otherwise, would likely have an adverse effect on the market price
of the Company's Common Stock.
9. Effect of Conversion or Additional Issuances of Serial Preferred Stock.
The Board of Directors is authorized to issue 1,000,000 shares of Serial
Preferred Stock in one or more series pursuant to its Certificate of
Incorporation. As of December 4, 1998, 33,500 shares of Series B Convertible
Preferred Stock ("Series B Preferred") were outstanding, which shares were
convertible on that date into 788,235 shares of Common Stock, and 175,000 shares
of Series C Convertible Preferred Stock ("Series C Preferred") were outstanding,
which were convertible on that date into 4,117,647 shares of Common Stock. With
respect to the Series B Preferred, the conversion price is the lower of (i)
$2.18 per share, or (ii) 85% of the average closing bid price on the Nasdaq
Small Cap Issues Market of the Common Stock for the five trading days
immediately preceding the date of conversion ("Average Closing Price"). The
conversion price of the Series C Preferred was the lower of $2.08 per share or
the Average Closing Price. Based upon negotiations between the Company and the
Holder of the Series C Preferred in December 1998 relating to the delayed
effectiveness of this Registration Statement, the conversion price with respect
to the Series C Preferred has been reduced to the lower of (i) $2.00 per share,
or (ii) 81% of the average closing bid price on the Nasdaq Small Cap Issues
Market of the Common Stock for the five trading days immediately preceding the
date of conversion. The Company has estimated the incremental value of the
deemed dividend, representing the additional discount resulting from the
allocation of proceeds to the beneficial conversion feature, to approximate
$203,000. Such additional deemed dividend will be recognized in the financial
statements of the Company in the second quarter of fiscal 1999. The Company has
the authority to issue an additional 175,000 shares of Preferred Stock and may
<PAGE>
exercise its discretion in establishing the terms of such additional Preferred
Stock. The issuance of Preferred Stock by the Board of Directors could adversely
affect the rights of holders of shares of Common Stock by, among other things,
establishing preferential dividends, liquidation rights or voting power. The
issuance of Preferred Stock could be used to discourage or prevent efforts to
acquire control of the Company through the acquisition of shares of Common
Stock. The conversion of Series B Preferred and/or Series C Preferred also could
adversely affect the rights of holders of shares of Common Stock since such
conversion may result in substantial dilution. To the extent holders of Series B
Preferred or Series C Preferred convert and sell their Common Stock, the price
of the Common Stock may further decrease due to the additional shares in the
market, thus allowing the holders to convert additional shares of Series B
Preferred and Series C Preferred into a greater number of shares of Common
Stock, thereby further depressing the Common Stock price. See "Description of
Capital Stock - Serial Preferred Stock".
10. Government Regulation. The development, testing, production and
marketing of the Company's products are subject to regulation by the FDA as
devices under 1976 Medical Device Amendments to the Federal Food, Drug and
Cosmetic Act. Additionally, the Company's products may be subject to regulation
by similar agencies in other states and foreign countries. While the Company
believes that it has complied with all applicable laws and regulations, no
assurance can be given that continued compliance with such laws or regulations,
including any new laws or regulations, will not impose additional costs on the
Company which could adversely affect its financial performance and results of
operations.
11. Discretion in Application of Net Proceeds. To the extent that the
Common Stock Purchase Warrants are fully exercised, the Company will receive net
proceeds from this offering of approximately $1,225,000. Management of the
Company has certain discretion over the use and expenditure of these proceeds.
As a result, the success of the Company may be substantially dependent upon the
discretion and judgment of the management of the Company with respect to the
application and allocation of such net proceeds.
USE OF PROCEEDS
The Company will not receive any proceeds from this offering, except to the
extent that the Common Stock Purchase Warrants are exercised. If all the Common
Stock Purchase Warrants are exercised at current exercise prices of $2.08 per
share, the net proceeds to the Company from this offering would be $1,225,000.
If such proceeds are received, the Company intends to use all such proceeds to
support further expansion of its marketing activities for EECP(r), conduct new
clinical studies designed to confirm additional therapeutic claims and general
working capital. On December 4, 1998, the last reported sale price of the
Company's Common Stock as reported by Nasdaq was $1.00 per share.
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Capital Stock
The Company's authorized capital stock consists of 110,000,000 shares of
common stock, $.001 par value per share ("Common Stock") and 1,000,000 shares of
Serial Preferred Stock, $.01 par value per share, of which 500,000 shares have
been designated as Series A and issued on December 5, 1994, 150,000 shares have
been designated as Series B Convertible Preferred Stock and issued on June 25,
1997, and 175,000 shares have been designated as Series C Convertible Preferred
Stock (the "Series C Preferred Stock") and issued on April 30, 1998.
Common Stock
General. The Company has 110,000,000 authorized shares of common stock,
$.001 par value.
Voting Rights. Each share of Common Stock entitles the holder thereof to
one vote, either in person or by proxy, at meetings of shareholders. The
Company's Board consists of three classes, each of which serves for a term of
three years. At each annual meeting of the stockholders, the directors in only
one class will be elected. The holders are not permitted to vote their shares
cumulatively. Accordingly, the holders of more than fifty percent (50%) of the
issued and outstanding shares of Common Stock can elect all of the directors of
the Company.
Dividend Policy. All shares of Common Stock are entitled to participate
ratably in dividends when and as declared by the Company's Board of Directors
out of the funds legally available therefor. Any such dividends may be paid in
cash, property or additional shares of Common Stock. The Company has not paid
any cash dividends since its inception and presently anticipates that all
earnings, if any, will be retained for development of the Company's business and
that no dividends on the shares of Common Stock will be declared in the
foreseeable future. Any future dividends will be subject to the discretion of
the Company's Board of Directors and will depend upon, among other things,
future earnings, the operating and financial condition of the Company, its
capital requirements, general business conditions and other pertinent facts.
Therefore, there can be no assurance that any dividends on the Common Stock will
be paid in the future.
Share Purchase Rights. In March 1995, the Company's Board of Directors
approved a Shareholder Rights Plan, under which a dividend distribution of one
Right for each outstanding share of the Company's Common Stock is authorized.
Each Right entitles shareholders to purchase one-half share of Common Stock at a
50% discount to market price if a person or group acquires 20% or more of the
Company's outstanding stock. At present, the Company is not aware of any such
person or group seeking to acquire 20% or more of the Company's outstanding
Common Stock.
Miscellaneous Rights and Provisions. Holders of Common Stock have no
preemptive or other subscription rights, conversion rights, redemption or
sinking fund provisions. In the event of the liquidation of dissolution, whether
voluntary or involuntary, of the Company, each share of Common Stock is entitled
to share ratably in any assets available for distribution to holders of the
equity of the Company after satisfaction of all liabilities; subject to the
rights of holders of Preferred Stock.
<PAGE>
Serial Preferred Stock
The Board of Directors is authorized by the Company's Certificate of
Incorporation to authorize and issue one or more series of Serial Preferred
Stock, $.01 par value. To date, 500,000 shares of Series A Preferred Stock have
been issued by the Company, which shares have been converted to 1,000,000 shares
of Common Stock, 150,000 shares have been designated and issued as Series B
Convertible Preferred Stock, of which 116,500 shares have been converted to
1,524,092 shares of Common Stock, and 175,000 shares have been designated and
issued as Series C Convertible Preferred Stock. No additional shares of
Preferred Stock have been authorized for issuance by the Board and the Company
has no present plans to issue any such shares. In the event that the Board of
Directors does issue additional Preferred Stock, it may exercise its discretion
in establishing the terms of the Preferred Stock. In the exercise of such
discretion, the Board of Directors may determine the voting rights, if any, of
the series of Preferred Stock being issued, which could include the right to
vote separately or as a single class with the Common Stock and/or other series
of Preferred Stock; to have more or less voting power per share than that
possessed by the Common Stock or other series of Preferred Stock; and to vote on
certain specified matters presented to the stockholders or on all of such
matters or upon the occurrence of any specified event or condition. On
liquidation, dissolution or winding up of the Company, the holders of Preferred
Stock may be entitled to receive preferential cash distributions fixed by the
Board of Directors when creating the particular series thereof before the
holders of the Common Stock are entitled to receive anything. Preferred Stock
authorized by the Board of Directors could be redeemable or convertible into
shares of any other class or series of stock of the Company.
The issuance of Preferred Stock by the Board of Directors could
adversely affect the rights of holders of shares of Common Stock by, among other
things, establishing preferential dividends, liquidation rights or voting power.
The issuance of Preferred Stock could be used to discourage or prevent efforts
to acquire control of the Company through the acquisition of shares of Common
Stock.
SELLING SECURITY HOLDERS
The Selling Security Holders are (i) JNC Opportunity Fund Ltd. ("JNC"), the
purchaser of the Series C Preferred Stock and 413,712 Common Stock Purchase
Warrants ("Warrants") (which are exercisable at $2.08 per share) in connection
with the placement of the Series C Preferred Stock, and (ii) Wharton Capital
Partners, Ltd., who received 175,000 Warrants in connection with the placement
of the Series C Preferred Stock. Except as otherwise disclosed herein, none of
the Selling Security Holders has had any position, office or other material
relationship with the Company or its predecessors or affiliates within the past
three years.
The following table sets forth the names of the Selling Security Holders,
the number of shares of Common Stock beneficially owned by each of the Selling
Security Holders prior to and subsequent to the offering hereunder, and the
number of shares which may be offered for resale pursuant to this Prospectus.
For the purpose of calculating the number of shares of Common Stock beneficially
owned by the holder of the Series C Preferred Stock, the number of shares of
Common Stock calculated to be issuable upon conversion is based on a stated
value of $20 per Preferred Share and on a conversion price of $.81 per share (25
shares of Common Stock for each Preferred Share) (without taking into account
shares issuable as dividends or under Share Purchase Rights). The conversion
price for the Series C Preferred Stock, as revised in December 1998, is the
lower of (i) $2.00 per share, or (ii) 81% of the average closing bid price on
the Nasdaq SmallCap Issues Market of the Common Stock for the five (5) trading
days immediately preceding the date of conversion. Also, the holder was granted
one Warrant for every six (6) shares issuable upon conversion (determined at
closing) to purchase one (1) share of Common Stock at $2.08 per share. Holders
of the Series C Preferred Stock are entitled to receive quarterly dividends at a
rate of 5% per annum, payable in cash or, subject to certain conditions, shares
of Common Stock. The actual number of shares issuable upon conversion of the
<PAGE>
Series C Preferred Stock, shares underlying the associated Warrants and shares
available for resale under this Prospectus could be materially greater based
upon the market price of the Common Stock at the time or times of conversion.
The number of shares shown as being offered hereunder by the holder of the
Series C Preferred Stock is the number of shares registered by the Registration
Statement of which this Prospectus is a part with respect to shares issuable
upon conversion of, and as payment of dividends on, the Series C Preferred
Stock, as well as shares underlying associated Warrants and Share Purchase
Rights, pursuant to the terms of the Registration Agreement.
The information included below is based upon information provided by the
Selling Security Holders as of December 4, 1998. Because the Selling Security
Holders may offer all, some or none of their shares, no definitive estimate as
to the number of shares that will be held by the Selling Security Holders after
such offering can be provided.
<TABLE>
<CAPTION>
Number of Shares and Number of Shares and
Percentage of Common Stock Number of Shares of Percentage of Common Stock
Beneficially Owned Common Stock Beneficially Owned
Prior to the Offering Offered Hereby After the Offering
-------------------------- ------------------- ---------------------------
Selling Security Holder Shares % Shares Shares %
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
JNC Opportunity Fund Ltd. 2,564,397 4.999% (1) (2) 7,462,326 (3)(4) 0 * (7)
Wharton Capital Partners, Ltd. 287,500 *% (5) 262,500 (6) 0 * (7)
----------
2,851,897
----------
<FN>
* Represents less than one percent of the Company's outstanding Common Stock.
(1) Represents shares issuable upon a hypothetical conversion of 175,000 shares
of Series C Preferred Stock, with a stated value of $3,500,000, acquired on
April 30, 1998 and 413,712 shares issuable upon the exercise of warrants. Also
represents shares issuable upon a hypothetical conversion of 33,500 shares of
Series B Preferred Stock, with a stated value of $670,000, previously acquired
on June 25, 1997 and 340,000 shares issuable upon the exercise of warrants.
Encore Capital Management, L.L.C. is the investment advisor to JNC and, as such,
has the authority to vote and dispose of the shares being offered by JNC
hereunder. James Q. Chau and Neil T. Chau are the controlling persons of Encore.
(2) The Certificate of Designation governing the Series C Preferred Stock
prohibits JNC from converting shares of Series C Preferred Stock (and receiving
shares of Common Stock as payment of dividends thereunder) to the extent such
conversion would result in JNC beneficially owning in excess of 4.999% of the
outstanding shares of Common Stock following such conversion. This restriction
may be waived by JNC upon not less than 75 days notice to the Company.
(3) The number of shares of Common Stock registered pursuant to the registration
statement of which this Prospectus is a part and the number of shares of Common
Stock offered hereby have been determined by agreement between the Company and
JNC. Because the number of shares of Common Stock that will ultimately be issued
to JNC upon conversion of the Series C Preferred Stock is dependent upon the
conversion formula described above, such number of shares (and therefore, the
number of shares of Common Stock offered hereby) cannot be determined at this
time.
(4) Represents shares of Common Stock issuable to JNC upon (i) conversion of the
Series C Preferred Stock and as payment of dividends thereunder, (ii) exercise
of the warrant issued in connection with the sale of the Series C Preferred
Stock and (iii) exercise of the Share Purchase Rights. If the conversion price
for the shares of each of the Series B Preferred Stock and Series C Preferred
Stock were $.765, JNC would have the right to receive 5,450,980 shares of Common
Stock, from time to time, upon the eventual conversion of all of its shares of
Series B Preferred Stock and Series C Preferred Stock. If the exercise price of
the warrants owned by JNC were at or below the market price of the Common Stock,
JNC would have the right to receive 753,712 shares of Common Stock, from time to
time, upon the eventual exercise of such warrants.
(5) Represents shares of Common Stock issuable upon the exercise of warrants.
Michael Arnouse and Barry R. Minsky are the controlling persons of Wharton
Capital Partners, Ltd.
<PAGE>
(6) Represents shares of Common Stock issuable upon the exercise of warrants and
Share Purchase Rights.
(7) Assumes all remaining shares of Series B Preferred Stock and all shares of
Series C Preferred Stock are converted and underlying shares of Common Stock are
sold and assumes all warrants are exercised and underlying shares are sold.
</FN>
</TABLE>
PLAN OF DISTRIBUTION
The shares of Common Stock offered hereby may be offered for resale by
the Selling Security Holders (or their donees, transferees or successors in
interest) from time to time in transactions for their own account (which may
include block transactions) on any national securities exchange or quotation
service on which the Common Stock may be listed or quoted at the time of sale,
in the over-the-counter market, in transactions otherwise than on such exchanges
(including privately negotiated transactions) or in the over-the-counter market,
through the writing of options, or a combination of such methods of sale, at
fixed prices (which may be changed), at market prices prevailing at the time of
sale, at prices related to such prevailing market prices or at negotiated
prices. The Selling Security Holders may effect such transactions by selling the
shares of Common Stock to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Selling Security Holders and/or the purchasers of shares for whom such
broker-dealers may act as agent or to whom they sell as principal, or both
(which compensation as to a particular broker-dealer might be in excess of
customary commissions). From time to time the Selling Security Holder may engage
in short sales, including short sales against the box, puts and calls and other
transactions in securities of the Company or derivatives thereof, and may sell
and deliver the Common Stock in connection therewith. Further, except as set
forth herein, the Selling Security Holders are not restricted as to the number
of shares which may be sold at any one time, and it is possible that a
significant number of shares could be sold at the same time, which may have a
depressive effect on the market price of the Company's Common Stock. The Selling
Security Holders may also pledge shares of Common Stock as collateral for margin
accounts, and such shares could be resold pursuant to the terms of such
accounts. The Selling Security Holders and any dealers or agents participating
in the distribution of the Common Stock may be deemed to be "underwriters" as
defined in the Securities Act and any profit on the sale of the Common Stock by
them and any discounts, commissions or concessions received by any such dealers
or agents might be deemed to be underwriting discounts and commissions under the
Securities Act. The Company will not receive any proceeds of the sales of the
Common Stock by the Selling Security Holders.
To comply with the securities laws of certain jurisdictions, if
applicable, the Common Stock will be offered or sold in such jurisdictions only
through registered or licensed brokers or dealers. In addition, in certain
jurisdictions the Common Stock may not be offered or sold unless they have been
registered or qualified for sale in such jurisdictions or an exemption from
registration or qualification is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any
person engaged in a distribution of the Common Stock may not simultaneously
engage in market-making activities with respect to such securities for a period
of two to nine business days prior to the commencement of such distribution. In
addition to and without limiting the foregoing, each Selling Security Holder and
any other person participating in a distribution will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder,
including without limitation Regulation M under the Exchange Act, which
provisions may limit the timing of purchases and sales of any of the securities
by the Selling Security Holders or any such other person. All of the foregoing
may affect the marketability of the Common Stock and the brokers' and dealers'
ability to engage in market-making activities with respect to these securities.
All expenses of the registration of the Common Stock will be paid by the
Company, including, without limitation, Commission filing fees and expenses of
compliance with state securities or "blue sky" laws; provided, however, that the
Selling Security Holders will pay all underwriting discounts and selling
commissions, if any. The Selling Security Holders will be indemnified by the
Company against certain civil liabilities, including certain liabilities under
<PAGE>
the Securities Act, or will be entitled to contribution in connection therewith.
The Company will be indemnified by the Selling Security Holders against certain
civil liabilities, including certain liabilities under the Securities Act, or
will be entitled to contribution in connection therewith.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under provisions of the by-laws of the Company, each person who is or
was a director or officer of the Company shall be indemnified by the Company as
of right to the full extent permitted or authorized by the General Corporation
Law of Delaware, including against liabilities under the Securities Act.
Under such law, to the extent that such person is successful on the
merits of defense of a suit or proceeding brought against him by reason of the
fact that he is a director or officer of the Company, he shall be indemnified
against expenses (including attorneys' fees) reasonably incurred in connection
with such action. If unsuccessful in defense of a third-party civil suit or a
criminal suit is settled, such a person shall be indemnified under such law
against both (1) expenses (including attorneys' fees) and (2) judgments, fines
and amounts paid in settlement if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company, and with respect to any criminal action, had no reasonable cause to
believe his conduct was unlawful.
If unsuccessful in defense of a suit brought by or in the right of the
Company, or if such suit is settled, such a person shall be indemnified under
such law only against expenses (including attorneys' fees) incurred in the
defense or settlement of such suit if he acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Company except that if such a person is adjudged to be liable in such suit for
negligence or misconduct in the performance of his duty to the Company, he
cannot be made whole even for expenses unless the court determines that he is
fairly and reasonably entitled to indemnity for such expenses.
The officers and directors of the Company are covered by officers and
directors liability insurance. The policy coverage is $5,000,000, which includes
reimbursement for costs and fees. There is a maximum deductible for officers and
directors under the policy of $75,000 for each claim. The Company has entered
into Indemnification Agreements with each of its officers and directors. The
Agreements provide for reimbursement for all direct and indirect costs of any
type or nature whatsoever (including attorneys' fees and related disbursements)
actually and reasonably incurred in connection with either the investigation,
defense or appeal of a Proceeding, as defined, including amounts paid in
settlement by or on behalf of an Indemnitee.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
LEGAL MATTERS
Certain legal matters in connection with this offering will be passed upon
for the Company by Blau, Kramer, Wactlar & Lieberman, P.C., Jericho, New York
11753. David H. Lieberman owns warrants to purchase 37,500 shares of Common
Stock at $2.18 per share.
EXPERTS
The consolidated financial statements incorporated by reference in this
Prospectus and elsewhere in the Registration Statement, to the extent and for
the periods indicated in their reports, have been audited by Grant Thornton LLP,
independent certified public accountants, and are included herein in reliance
upon the authority of said firm as experts in accounting and auditing in giving
said Reports.
<PAGE>
No dealer, salesperson, or other person has been authorized by the Company
to give any information or to make any representations other than those
contained in this Prospectus and, if given or made, such other information or
representations must not be relied upon as having been so authorized by the
Company. This Prospectus does not constitute an offer to sell, or a solicitation
of an offer to buy, any securities other than the securities to which it
relates, or an offer to or solicitation of any person in any jurisdiction in
which such offer or solicitation would be unlawful. Neither delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that the information herein is correct as of any time subsequent
to the date hereof.
VASOMEDICAL, INC.
7,724,826 Common Shares
PROSPECTUS
Dated: December 28, 1998
