<PAGE> 1
<TABLE>
<S> <C>
----------------------------
OMB APPROVAL
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UNITED STATES OMB Number: 3235-0145
SECURITIES AND EXCHANGE COMMISSION Expires: October 31, 1997
WASHINGTON, D.C. 20549 Estimated average burden
hours per response . . 14.90
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</TABLE>
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. 2 )*
------
SUBSTANCE ABUSE TECHNOLOGIES, INC. (FKA U.S. Alcohol Testing of America, Inc.)
- --------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, $0.01 Par Value Per Share
- --------------------------------------------------------------------------------
(Title of Class of Securities)
91154J101
--------------------------------------------------
(CUSIP Number)
Scott J. Lederman, Esq. 777 Long Ridge Road, Stamford, Connecticut 06902
(203) 614-2000
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
November 8, 1996
-------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [ ]. (A fee
is not required only if the reporting person: has a previous statement on file
reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the
Act but shall be subject to all other provisions of the Act (however, see the
Notes).
SEC 1746 (12-91)
<PAGE> 2
<TABLE>
<CAPTION>
SCHEDULE 13D
CUSIP No. 91154J101 Page 2 of 8 Pages
------------------ -------- --------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
S.A.C. Capital Advisors, LLC
- ------------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
- ------------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
OO
- ------------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / /
- ------------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION6
Delaware
- ------------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
None
-----------------------------------------------------------------------------------------------------------------
8 SHARED VOTING POWER
NUMBER OF
SHARES 599,100
BENEFICIALLY
OWNED BY -----------------------------------------------------------------------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON None
WITH
-----------------------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
599,100
- -----------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
599,100
- ------------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* /x/
- ------------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.68% based upon 35,603,092 Shares outstanding as of September 4, 1996 as reported in the Company's Proxy Statement
dated September 12, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
OO
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 3
<TABLE>
<CAPTION>
SCHEDULE 13D
CUSIP No. 91154J101 Page 3 of 8 Pages
------------------ -------- --------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
1 NAME OF REPORTING PERSON
S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
Steven A. Cohen
- ------------------------------------------------------------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) / /
(b) / /
- ------------------------------------------------------------------------------------------------------------------------------------
3 SEC USE ONLY
- ------------------------------------------------------------------------------------------------------------------------------------
4 SOURCE OF FUNDS*
PF
- ------------------------------------------------------------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) / /
- ------------------------------------------------------------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION
U.S.A.
- ------------------------------------------------------------------------------------------------------------------------------------
7 SOLE VOTING POWER
1,743,100
NUMBER OF -----------------------------------------------------------------------------------------------------------------
SHARES 8 SHARED VOTING POWER
BENEFICIALLY
OWNED BY 599,100
EACH
REPORTING -----------------------------------------------------------------------------------------------------------------
PERSON 9 SOLE DISPOSITIVE POWER
WITH
1,743,100
-----------------------------------------------------------------------------------------------------------------
10 SHARED DISPOSITIVE POWER
599,100
- ------------------------------------------------------------------------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,342,200
- ------------------------------------------------------------------------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* / /
- ------------------------------------------------------------------------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.58% based upon 35,603,092 Shares outstanding as of September 4, 1996 as reported in the Company's Proxy
Statement dated September 12, 1996.
- ------------------------------------------------------------------------------------------------------------------------------------
14 TYPE OF REPORTING PERSON*
IN
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE> 4
SCHEDULE 13D
CUSIP No. 91154J101 Page 4 of 8 Pages
------------------ -------- --------
This Amendment Number 2 to Schedule 13D is filed by Steven A. Cohen ("Cohen")
and S.A.C. Capital Advisors, LLC, a Delaware limited liability company ("SAC
Advisors" and, together with Cohen, the "Reporting Persons"), relating to the
shares of common stock, $0.01 par value per share ("Shares") of Substance Abuse
Technologies, Inc. (formerly known as U.S. Alcohol Testing of America, Inc.), a
Delaware corporation (the "Company"), held by Cohen and S.A.C. Capital
Associates, LLC, an Anguillan limited liability company ("SAC Associates"),
respectively. SAC Associates is not listed as a Reporting Person on this
Schedule 13D because all voting and investment power (as defined in Rule 13d-3)
has been vested with SAC Advisors pursuant to an Investment Management
Agreement.
This Amendment No. 2 is filed to report that on November 8, 1996 the Reporting
Persons entered into a Convertible Loan and Warrant Agreement (the "Agreement")
with the Company, pursuant to which the Reporting Persons loaned $5,000,000 to
the Company in return for Convertible Senior Promissory Notes (the "Notes") and
purchased stock purchase warrants (the "Warrants"). This Amendment No. 2
summarizes the terms of the Agreement and updates the Reporting Person's
previous disclosures.
ITEM 1. SECURITY AND ISSUER
No amendment.
ITEM 2. IDENTITY AND BACKGROUND
No amendment.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
All funds utilized by SAC Advisors to acquire the Shares that they held before
entering into the Agreement (the "Owned Shares"), to loan to the Company and to
purchase Warrants on behalf of SAC Associates were derived from SAC Associates'
working capital and all funds utilized by Cohen were derived from personal
funds. Such funds may include margin debt incurred from time to time in the
ordinary course of business pursuant to customary margin agreements with Spear,
Leeds & Kellogg.
ITEM 4. PURPOSE OF TRANSACTION
The Reporting Persons acquired the Owned Shares for the purpose of investment
because they believed the Company presented a favorable investment opportunity.
The Reporting Persons continue to believe that the Company presents a favorable
investment opportunity and continue to act for investment purposes. However,
as a result of the Reporting Person's increased investment in the Company
arising under the Agreement and the possibility of ultimately obtaining
additional Shares through the Notes and the Warrants, the Reporting Persons
intend from time to time to sell some or all of the Owned Shares. Whether the
Reporting Persons actually effect such sales will depend on their continuing
evaluation of the diversity of their investment portfolio, as well as the price
level of the Shares, available opportunities to dispose of the Shares,
conditions in the securities markets and general economic and industry
conditions. These sales may take place in the open market, through privately
negotiated transactions with third parties, or otherwise.
<PAGE> 5
SCHEDULE 13D
CUSIP No. 91154J101 Page 5 of 8 Pages
------------------ -------- --------
The Reporting Persons have, as part of the Agreement, agreed with the Company
to certain volume restrictions on Open Market Transactions (as defined below)
involving sales of the Owned Shares. There are, however, no restrictions on
sales by the Reporting Persons of the first One Million (1,000,000) of the
Owned Shares sold in Open Market Transactions. After the sale of One Million
Owned Shares in Open Market Transactions, the Reporting Persons have agreed
with the Company that, unless waived by the Company, they will not sell any of
the remaining Owned Shares in Open Market Transactions unless: (i) the sales
price for such Shares (before any fees or commissions) is equal to or greater
than the "Limit Price" (defined in the Agreement as $2.00 per share subject to
certain adjustments), (ii) the volume of Shares sold by the Reporting Persons
on any trading day at a price below the Limit Price (before any fees or
commissions) does not exceed twenty-five percent (25%) of the average daily
trading volume of the Company's common stock reported for the five trading days
immediately preceding the date of such sale, provided that any sales by the
Reporting Persons during the immediately preceding five trading days at a price
below the Limit Price shall be excluded from the calculation of the average
daily trading volume, or (iii) such shares are sold at the best offer price.
For purposes of the Agreement, the term "Open Market Transactions" means
transactions that are reported on the consolidated quotation system other than
block trades (as defined under Exchange Act Rule 10b-8). These volume sales
limitations do not extend to any other transactions in the Shares or to any
Shares that the Reporting Persons may acquire in the future.
With the exception of the execution of the Agreement as described in this Item
and in Item 6, as of the date of this Amendment No. 2, none of the Reporting
Persons or the entities and individuals described in Item 2 of the original
Schedule 13D has any plans or proposals which would result or relate to any of
the transactions described in paragraphs (a) through (j) of Item 4 of Schedule
13D.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
(a) The Reporting Persons beneficially own 2,342,200 Shares
representing 6.58% of the 35,603,092 Shares reported by the
Company as outstanding as of September 12, 1996.
(b) No amendment.
(c) Except as set forth in Annex 1 hereto, no transactions in
Shares were effected since July 30, 1996.
(d) No amendment.
(e) Not applicable.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER.
On November 8, 1996, the Reporting Persons and the Company executed the
Agreement, which provides for the Reporting Persons to lend the Company
$5,000,000. The Notes are due and payable on November 8, 1999 and bear
interest at the rate of 7% per annum, payable quarterly. The Notes are
convertible into Shares at any time after July 1, 1997. The conversion price
(the "Conversion Price") is initially set at the rate of Two Dollars ($2.00)
per share. This Conversion
<PAGE> 6
SCHEDULE 13D
CUSIP No. 91154J101 Page 6 of 8 Pages
------------------ -------- --------
Price is subject to adjustment downward (the "Market Price Adjustment") during
the period from May 1, 1997 through May 1, 1998 based on the average market
price for Shares over the preceding 65 trading days, provided that the
Conversion Price will not be reduced below $1.375 as a result of this
adjustment. In addition, the Conversion Price is subject to reduction pursuant
to certain antidilution provisions if the Company sells Shares at less than the
Conversion Price, or issues options or convertible securities which can be
exercised at a price less than the Conversion Price.
Under the Agreement, as long as any portion of the Notes are outstanding and
thereafter as long as certain conditions are met, the holders of the Notes may
name one person to the Company's Board of Directors or may exercise observer
rights at meetings of the Board of Directors. The Agreement also imposes
certain negative and affirmative covenants on the Company as long as any
balance remains outstanding under the Notes. Among other things, these
covenants restrict the Company's ability to engage in acquisitions (other than
the proposed acquisition of the Company's two majority owned subsidiaries, Good
Ideas Enterprises, Inc. and U.S. Drug Testing, Inc.) of companies that are not
engaged exclusively in, or engaged in a business directly related to, the
business of substance abuse testing, to pay dividends, to incur indebtedness
(as defined in the Agreement) senior to the Notes, to engage in certain related
party transactions, to assign the rights in certain intellectual property, to
terminate the employment of the Company's chief executive officer, to incur
other indebtedness (as defined in the Agreement) in excess of $1 million, to
sell or otherwise dispose of any subsidiary or division of the corporation
(with the exception of Good Ideas Enterprises, Inc.), to engage in other
transactions with a value in excess of $1 million, and to amend the Company's
Certificate of Incorporation or Bylaws or file resolutions of the Board of
Directors or enter into any agreement that would adversely affect the rights
and priorities of the Reporting Persons. The Reporting Persons also have the
right to purchase additional Shares in any public or private sale of Shares
effected by the Company and to acquire additional Shares under certain other
circumstances.
In addition, pursuant to the Agreement, the Reporting Persons purchased for
$1,000 Warrants to purchase 2,500,000 Shares at an exercise price of $2.00 per
share. The Warrants are not exercisable to any extent before July 1, 1997,
and thereafter are exercisable only to the extent that, when added together
with any other Shares beneficially owned by the Reporting Persons, would not
result in the Reporting Persons being deemed to be greater than ten percent
stockholders subject to Section 16 of the Securities Exchange Act of 1934.
Notwithstanding the foregoing, the Warrants become fully exercisable on April
30, 2000 and expire on June 30, 2000. The number of Shares which may be
purchased pursuant to the Warrants is subject to a downward adjustment, but not
to less than 2,000,000 Shares, in the event that the Conversion Price of the
Note is reduced, such that the number of Shares purchasable pursuant to the
Warrants will be reduced at a rate of one Share for each 2.2727 additional
Shares which may be obtained upon conversion of the Notes as a result of any
Market Price Adjustment. In addition, the Exercise Price is subject to
reduction and the number of Shares that may be purchased under the Warrants is
subject to increase pursuant to certain antidilution provisions if the Company
sells Shares at less than the Exercise Price. The Warrants are transferable,
subject to the conditions in the legend thereon.
The Conversion Price, Exercise Price, Limit Price and other price provisions of
the Notes and the Warrants may be adjusted upward or downward to reflect
reverse stock splits, stock splits, stock dividends, and other similar
transactions.
<PAGE> 7
SCHEDULE 13D
CUSIP No. 91154J101 Page 7 of 8 Pages
------------------ -------- --------
Under the Agreement, the Company agreed promptly to register under the
Securities Act of 1933 the Shares issuable under the Notes and the Warrants.
In the event the registration statement is not filed and the Company does not
use its best efforts to have the registration statement declared effective
within 90 days, the Company must pay the Reporting Persons a cash penalty equal
to 10% of the outstanding principal under the Notes. In addition, during times
(if any) when the Company has not maintained the registration statement in
effect for a specified period or has failed to keep current any prospectus
forming a part of such registration statement, the Exercise Price of the
Warrants may be paid by netting out Shares otherwise issuable thereunder.
Finally, the Company and the Reporting Persons entered into a Registration
Rights Agreement, pursuant to which the Reporting Persons have "piggyback"
rights to include Shares in any registration statement filed by the Company,
and on one occasion to demand registration of Shares if the Shares issued upon
conversion of the Notes or exercise of the Warrants are not freely tradable.
The right to demand registration may be assigned to a transferee of the
securities.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Copies of the following documents are filed as exhibits:
Exhibit: Convertible Loan and Warrant Agreement dated November 8, 1996
Exhibit A: Registration Rights Agreement dated November 8, 1996
Exhibit B: Form of Convertible Senior Promissory Note
Exhibit C: Form of Warrant
After reasonable inquiry and to the best knowledge and belief of each, the
undersigned hereby certify that the information set forth in this statement is
true, complete, and correct.
Dated this 8th day of November, 1996.
S.A.C. CAPITAL ADVISORS, LLC
By: /s/ SCOTT J. LEDERMAN /s/ STEVEN A. COHEN
--------------------------- ----------------------------
Scott J. Lederman, Esq. Steven A. Cohen
<PAGE> 8
SCHEDULE 13D
CUSIP No. 91154J101 Page 8 of 8 Pages
------------------ -------- --------
ANNEX 1
Transactions by Reporting Persons in Common Stock of
Substance Abuse Technologies, Inc. since July 30, 1996
<TABLE>
<CAPTION>
Number of Shares Average Price
Trade Date Bought/Sold (2) per Share (3)
- ---------- --------------- -------------
Steven Cohen (1)
<S> <C> <C>
8/8/96 10,000 $1.9375
8/13/96 30,000 $1.8125
8/13/96 4,000 $1.8125
8/19/96 6,000 $1.8125
8/19/96 123,400 $1.75
8/21/96 40,000 $1.75
9/26/96 45,000 $2.1875
</TABLE>
(1) All purchases by Steven Cohen.
(2) Unless otherwise indicated, all transactions were effected by the
Reporting Persons directly on the American Stock Exchange, or through
broker-transactions on the American Stock Exchange or otherwise.
(3) Prices exclude commission.
<PAGE> 9
EXHIBIT
CONVERTIBLE LOAN AND WARRANT AGREEMENT
This Convertible Loan and Warrant Agreement (this "Agreement") is
entered into as of November 8, 1996 (the "Effective Date") by and between
Substance Abuse Technologies, Inc., a Delaware corporation (the "Company"), on
the one hand, and on the other hand, S.A.C. Capital Associates, LLC, an
Anguilla limited liability company, and Steven A. Cohen (together and with
permitted transferees, the "Noteholders").
WHEREAS, the Noteholders are willing, pursuant to the terms and
conditions of this Agreement, to loan the Company an aggregate amount of Five
Million Dollars ($5,000,000) (the "Loan Amount") which loan (the "Loan") shall
be convertible into securities of the Company on the terms and subject to the
conditions set forth herein and to purchase a warrant to purchase capital stock
of the Company on the terms and conditions of the form of warrant referenced
herein; and
WHEREAS, the Company wishes to obtain such Loan and to sell and issue
the Noteholders a warrant to purchase capital stock of the Company on the terms
and conditions of the form of warrant referenced herein.
NOW, THEREFORE, the parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, the
following terms shall have the following respective meanings:
"Affiliate" of any particular Person means any executive
officer, director (regardless of whether an officer), general partner, trustee
and any other Person that controls, is controlled by or is under common control
with such particular Person, where "control" means the possession, directly or
indirectly, of the power to direct the management and policies of the
particular Person whether through the ownership of voting securities, contract
or otherwise.
"Common Stock" shall mean the Company's common stock, $.01 par
value.
"Convertible Securities" shall mean any stock or securities
(directly or indirectly) convertible into or exchangeable for Common Stock.
"day" shall mean any calendar day; "business day" shall mean
any day other than Saturdays, Sundays and days that are a banking holiday in
New York City; and "trading day" shall mean any day other than Saturdays,
Sundays and days that are a scheduled holiday for the principal securities
market in which Common Stock is quoted or traded.
"Indebtedness" of any Person at a particular time means any
liability or indebtedness, short-term or long-term, secured or unsecured,
contingent or otherwise, (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or only to
a portion thereof), (b) constituting or representing the balance deferred and
unpaid of the purchase price of any property, assets or services, including
securities (except any such balance that constitutes a trade payable incurred
in the ordinary course of
1
<PAGE> 10
business), (c) evidenced by bonds, debentures, notes or other similar
instruments (including purchase money obligations as evidenced by such
instruments), (d) constituting or representing indebtedness arising under
acceptance facilities and the face amount of all letters of credit, and all
reimbursement obligations thereunder, issued for the account of such Person and
all drafts drawn thereunder, (e) all liabilities secured by any Lien on the
property or assets owned or held by such Person (whether or not the obligations
secured thereby shall have been assumed by such Person), (f) constituting or
representing obligations with respect to any conditional sale agreement or
title retention agreement, (g) constituting or representing obligations with
respect to interest rate exchange or swap agreements, (h) constituting or
representing obligations of such Person upon which interest charges are
customarily paid or accrued whether through discount or otherwise (except any
such obligation that constitutes a trade payable incurred in the ordinary
course of business) or (i) constituting or representing obligations under any
capitalized lease with respect to which a Person is liable.
"Lien" means any mortgage, deed of trust, or pledge, security
interest, hypothecation, assignment, assigned deposit, arrangement,
encumbrance, encroachment, lien (statutory or otherwise), claim, option,
reservation, right of way, easement, or defect of any kind, or preference, or
priority, or other security agreement or preferential arrangement of any kind
or nature whatsoever (including, without limitation, any conditional sale or
other title retention agreement, any financing statement under the Uniform
Commercial Code, or under the comparable law of any other jurisdiction); other
than Permitted Liens.
"Market Price" as to any security on any day shall mean the
closing sale price of such security as reported for such day pursuant to the
consolidated quotation system or any other transaction reporting plan under
Section 11A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or, if there have been no sales so reported for such day, the average of
the best bid and best offer prices quoted under the consolidated quotation
system or any other such transaction reporting plan as of 4:00 P.M., New York
time, on such day, or, if on any day such security is not so quoted, the
average of the best bid and best offered prices on such day in the domestic
over-the-counter market as reported by the National Quotation Bureau,
Incorporated, or any similar successor or comparable organization. If at any
time such security is not listed on any domestic securities exchange or quoted
under a transaction reporting plan or in the domestic over-the-counter market,
the "Market Price" shall be the fair value thereof determined jointly by the
Company and the Noteholders; provided that if such parties are unable to reach
agreement as to the Market Price, the Market Price shall be determined by
appraisal as set forth in Section 17.15 of this Agreement.
"Options" means any rights, warrants or options to subscribe
for or purchase Common Stock or Convertible Securities.
"Other Transaction Documents" shall mean the Convertible
Senior Promissory Notes described in Section 2.1, the Warrant described in
Section 2.2, and the Registration Rights Agreement in the form set forth on
Exhibit A.
2
<PAGE> 11
"Person" shall mean any natural person and any corporation,
partnership, limited liability company, joint venture, association, joint-stock
partnership, trust, unincorporated organization or government or other agency
or political subdivision thereof.
"Permitted Liens" shall mean:
(i) tax liens with respect to taxes not yet due
and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with generally accepted accounting principles, consistently applied;
(ii) deposits or pledges made in connection with,
or to secure payment of, utilities or similar services, workers' compensation,
unemployment insurance, old age pensions or other social security obligations;
(iii) that certain Security Agreement, dated May
21, 1996, by and among the Company, Robert Stutman and Brian Stutman;
(iv) liens securing purchase money secured debt in
an aggregate principal amount not to exceed Seven Hundred Fifty Thousand
Dollars ($750,000);
(v) mechanics', materialmen's or contractors'
liens or encumbrances or any similar lien or restriction created by statute;
and
(vi) easements, rights-of-way, restrictions and
other similar charges and encumbrances not interfering with the ordinary
conduct of the business of the Company and its Subsidiaries or detracting from
the value of the assets of the Company and its Subsidiaries.
"Proprietary Assets" shall mean any domestic and foreign
patents, patent applications, registered and unregistered trademarks and
service marks and registered and unregistered copyrights.
"Subsidiary" shall mean, with respect to any Person, any
corporation, limited liability company, partnership, association or other
business entity of which (i) if a corporation, a majority of the total voting
power of shares of stock entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by that Person or
one or more of the other Subsidiaries of that Person or a combination thereof,
or (ii) if a limited liability company, partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
a Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a limited liability company, partnership, association or
other business entity if such Person or Persons shall be allocated a majority
of limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
3
<PAGE> 12
"Underlying Common Stock" shall mean (i) the shares of Common
Stock issued or issuable upon conversion of the Notes or upon exercise of the
Warrant and (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization.
2. PURCHASE AND SALE OF THE NOTE AND THE WARRANTS.
2.1. The Loan. The Noteholders will loan the Company the
Loan Amount subject to the terms and conditions set forth in this Agreement.
On the Effective Date, (i) the Noteholders shall transfer the Loan Amount to an
account of the Company pursuant to instructions attached hereto as Exhibit E,
and (ii) the Company shall issue to each of the Noteholders a Convertible
Senior Promissory Note each in the principal amount equal to Two Million Five
Hundred Thousand Dollars ($2,500,000), in the form attached hereto as Exhibit B
(each such Convertible Senior Promissory Note, a "Note").
2.2. The Warrant. On the Effective Date, the Company
shall issue and sell to each of the Noteholders a stock purchase warrant in the
form attached hereto as Exhibit C (the "Warrant"). On the Effective Date, each
of the Noteholders shall pay the Company Five Hundred Dollars ($500.00) in
consideration for the issuance and sale of the Warrant.
2.3. Issue Price Allocation. The parties hereto
acknowledge that the Loan and the Warrant are an "investment unit" within the
meaning of Section 1273(c)(2) of the Internal Revenue Code of 1986, as amended
(the "Code"), that the "issue price," within the meaning of Section 1273(b) of
the Code, of the Loan shall be Five Million Dollars ($5,000,000) and the "yield
to maturity," based on such issue price, of the Loan is seven percent (7%).
Except as otherwise required by law, the parties hereto agree that such issue
price and yield to maturity shall be used to determine the amount of "original
issue discount" accruing and to be reported on the Loan pursuant to Section
1272 of the Code and the regulations promulgated thereunder.
3. LOAN TERM; INTEREST; REPAYMENT; PREPAYMENT. The term of the
Loan will begin on the Effective Date and end on the third anniversary of the
Effective Date (the "Maturity Date"). Interest on the unpaid principal balance
on any Note (such unpaid principal balance is referred to as the "Outstanding
Balance") will accrue from the Effective Date at the rate of seven percent (7%)
per annum, calculated on the basis of a 360 day year and actual days elapsed
until the entire Outstanding Balance has been repaid or has been converted
pursuant to this Agreement. The Company will pay to the Noteholders all
interest accrued on the Outstanding Balance in quarterly installments with each
installment due and payable on March 15, June 15, September 15 and December 15
(or the first business day after such dates) of each year during the term of
the Loan (such that the first installment of interest shall accrue from the
Effective Date through and be due and payable on December 15, 1996), except
that all accrued but unpaid interest shall be due and payable on the earlier to
occur of the time of conversion with respect to the portion of the Outstanding
Balance being converted or on the Maturity Date. Any accrued interest that is
not paid when due shall at a Noteholder's option (A) remain due and payable and
accrue at the rate set forth in Section 13.2(ii), or (B) be converted to
principal and
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the Outstanding Balance shall be correspondingly increased. To the extent not
previously converted pursuant to Section 5 hereof, the entire Outstanding
Balance shall be due and payable on the Maturity Date. The Outstanding Balance
and all accrued interest and any and all other sums payable to the Noteholders
hereunder may not be prepaid prior to the Maturity Date without the consent of
the Noteholders in their sole and absolute discretion.
4. UNSECURED LOAN. The Loan shall not be secured by any assets
of the Company, provided, however, that upon a default of the Company under
this Agreement, the Noteholders shall be entitled to the remedies specified in
Section 13.
5. CONVERSION. The Outstanding Balance of any Note is
convertible on the following basis:
5.1. Optional Conversion. A Noteholder may at any time
and from time to time after July 1, 1997 convert all or any portion of the
Outstanding Balance under a Note into a number of shares of Common Stock
determined by dividing the Outstanding Balance to be so converted by the
"Conversion Price" as such term is determined at the time of conversion
pursuant to this Agreement. As of the Effective Date, the Conversion Price
shall be Two Dollars ($2.00) as such shall be adjusted from time to time as
provided in this Agreement. Except in the case of a conversion of the full
Outstanding Balance under a Note, the amount of the Outstanding Balance
converted at any one time shall be equal to or exceed Two Hundred Fifty
Thousand Dollars ($250,000) but shall be an amount that avoids the issuance of
fractional shares.
5.2. Reservation of Securities. Through the Maturity
Date, the Company shall reserve for issuance such number and type of securities
as the Noteholders are entitled to receive upon conversion of the Notes. Prior
to the issuance of any equity securities (or any instrument exercisable for or
convertible into equity securities) and whenever otherwise required to satisfy
this Section 5.3, the Company will amend its Articles of Incorporation to the
extent necessary to ensure that there is reserved for issuance a sufficient
quantity of such equity securities (and Common Stock into which such equity
securities may be convertible) as the Noteholders are entitled to receive upon
conversion of the Notes.
6. ADJUSTMENT OF CONVERSION PRICE. In order to prevent dilution
of the rights granted under this Agreement, the Conversion Price shall be
subject to adjustment from time to time as provided in this Section 6.
6.1. Adjustment Period Adjustments. During the period
beginning on May 1, 1997 through the earlier of (i) the date that the entire
Outstanding Balance of the Loan is converted into Common Stock and (ii) May 1,
1998 (the "Adjustment Period"), the Conversion Price shall be reduced to the
Average Market Price (as defined below) each time that the Average Market Price
is below the then-current Conversion Price. For purposes of this Section 6.1,
the Average Market Price as of any day during the Adjustment Period shall be
the average of the Market Prices for each of the sixty-five (65) trading days
preceding such day (any such trading day, a "Calculation Day"), provided that
the Market Price on any Calculation Day shall be excluded from the calculation
of Average Market Price if either (a) one of the Noteholders sold Common Stock
in Open Market Transactions (as defined in Section 12) on that Calculation Day,
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or (b) the Calculation Day is within twenty-one (21) trading days after the day
on which one of the Noteholders sold Common Stock in an Open Market
Transaction. Such adjustments will occur automatically during the Adjustment
Period to the extent that the Average Closing Price for a given date of
adjustment is less than the then-current Conversion Price. Notwithstanding the
foregoing, in no event shall the Conversion Price be reduced below the "Floor
Price" (as defined below) as a result of this Section 6.1. For purposes of
this Section 6.1, the Floor Price shall be $1.375, as such shall be adjusted
from time to time as provided in this Agreement. There shall be no upward
adjustments of the Conversion Price, regardless of any increases in the Average
Closing Price during the Adjustment Period.
6.2. Effect on Conversion Price of Certain Events. If and
whenever on or after the Effective Date, the Company issues or sells any share
of Common Stock (other than upon the exercise of an Option or the conversion of
Convertible Securities outstanding immediately before the Effective Date), or
in accordance with this Section 6.2 is deemed to have issued or sold any share
of Common Stock, for a consideration per share less than the Conversion Price
in effect immediately prior to such time, then immediately upon such issuance
or sale, independent of Section 6.1 hereof, the Conversion Price shall be
reduced to the price per share at which such share of Common Stock has been
issued or sold or is deemed pursuant to this Section 6 to have been issued or
sold. For purposes of determining the adjusted Conversion Price under this
Section 6.2, the following shall be applicable:
(i) Issuance of Rights or Options. If on or
after the Effective Date the Company in any manner issues, grants or sells any
Options and the price per share for which a share of Common Stock is issuable
upon the exercise of any such Option, or upon conversion or exchange of any
Convertible Security issuable upon exercise of such Option, is less than the
Conversion Price in effect immediately prior to the time of the granting or
sale of such Option, then such share of Common Stock shall be deemed to have
been issued and sold by the Company at such time for such price per share. For
purposes of this Section 6.2(i), the "price per share for which a share of
Common Stock is issuable" shall be equal to the sum of the amount of
consideration (if any) received or receivable by the Company with respect to
the issuance, grant or sale of the Option, plus the amount of consideration (if
any) that would be received by the Company with respect to exercise of the
Option in full plus the amount of consideration (if any) that would be received
by the Company with respect to conversion or exchange in full of any
Convertible Security issuable upon exercise of such Option, all divided by the
total number of shares of Common Stock issuable upon exercise of the Option and
conversion or exchange of the Convertible Security. No further adjustment of
the Conversion Price shall be made upon the actual issue of such Common Stock
or of such Convertible Security upon the exercise of such Options or upon the
actual issue of such Common Stock upon conversion or exchange of such
Convertible Security.
(ii) Issuance of Convertible Securities. If on or
after the Effective Date the Company in any manner issues, grants or sells any
Convertible Security and the price per share for which a share of Common Stock
is issuable upon conversion or exchange thereof is less than the Conversion
Price in effect immediately prior to the time of such issue or sale, then such
share or shares of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For the purposes of this
Section 6.2(ii), the "price per share
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for which a share of Common Stock is issuable" shall be equal to the sum of the
amount of consideration (if any) received or receivable by the Company with
respect to the issuance, grant or sale of the Convertible Security plus the
amount of consideration (if any) that would be received by the Company with
respect to the conversion or exchange of such Convertible Security in full, all
divided by the total number of shares of Common Stock issuable upon conversion
or exchange of the Convertible Security. No further adjustment of the
Conversion Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for
which adjustments of the Conversion Price has been or is to be made pursuant to
other provisions of this Section 6, no further adjustment of the Conversion
Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate.
If the amount to be received by the Company upon the exercise of any Options
outstanding as of the Effective Date, the additional consideration, if any,
payable upon the issuance, conversion or exchange of any Convertible Securities
outstanding as of the Effective Date, or the rate at which any Convertible
Securities outstanding as of the Effective Date are convertible into or
exchangeable for Common Stock changes at any time after the Effective Date,
then such Option or Convertible Security and the Common Stock deemed issuable
upon exercise, conversion or exchange thereof shall be deemed for purposes of
this Section 6.2 to have been issued as of the date of such change; provided
that no such change shall at any time cause the Conversion Price hereunder to
be increased.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option described in Section
6.2(i) or the termination of any right to convert or exchange any Convertible
Securities described in Section 6.2(ii) without the exercise or conversion in
whole or in part of such Option or Convertible Security, the Conversion Price
then in effect shall be adjusted immediately to the Conversion Price which
would have been in effect at the time of such expiration or termination had
such Option or Convertible Securities, never been issued, granted or sold;
provided that if such expiration or termination would result in an increase in
the Conversion Price then in effect, such increase shall not be effective until
the later of (A) the date of such expiration or termination or (B) thirty (30)
days after the Company has delivered notice of such expiration or termination
to the Noteholders. For purposes of this Section 6.2, the expiration or
termination of any Option or Convertible Security which was outstanding as of
the Effective Date shall not cause the Conversion Price hereunder to be
adjusted unless, and only to the extent that, a change in the term of such
Option or Convertible Security caused it to be deemed to have been issued after
the Effective Date pursuant to Section 6.2(iii).
(v) Calculation of Consideration Received. If
any Common Stock, Options or Convertible Securities are issued or sold or
deemed to have been issued or sold for cash, the consideration received
therefor shall be deemed to be the net amount received by the Company therefor.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration other than cash, the amount of the consideration other than
cash received by the Company shall be the fair value of such consideration,
except where such consideration consists of securities, in which case the
amount of consideration received by the Company shall be
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the Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued to the owners of the non-surviving
entity in connection with any merger in which the Company is the surviving
corporation, the amount of consideration therefor shall be deemed to be the
fair value of such portion of the net assets and business of the non-surviving
entity as is attributable to such Common Stock, Options or Convertible
Securities, as the case may be. The fair value of any consideration other than
cash or securities shall be determined jointly by the Company and the
Noteholders. If such parties are unable to reach agreement, such fair value
shall be determined by appraisal pursuant to Section 17.15.
(vi) Integrated Transactions. In case any Option
is issued in connection with the issue or sale of other securities of the
Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
shall be deemed to have been issued without consideration.
(vii) Each Series a Separate Security. In case an
agreement relating to Options or Convertible Securities provides that more than
one exercise price, conversion or exchange provisions are applicable to the
securities issuable thereunder, then the securities subject to each different
exercise price, conversion or exchange provisions shall be deemed to be subject
to separate Options or Convertible Securities for purposes of applying this
Section 6.2.
(viii) Treasury Shares. The Common Stock
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(ix) Record Date. If the Company takes a record
of the holders of Common Stock for the purpose of entitling them (A) to receive
a dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
6.3. Certain Sales of Common Stock. If and whenever on or
after the Effective Date the Company issues or sells, or in accordance with
Section 6.2 is deemed to have issued or sold, any share of Common Stock for a
consideration per share that is equal to or greater than the Conversion Price
in effect immediately prior to such issuance or sale, but that does not exceed
the lower of the Market Price per share of Common Stock on the day of such
issuance or sale and one hundred and fifteen percent (115%) of the Conversion
Price in effect immediately prior to such issuance or sale, then immediately
upon such issuance or sale, independent of Section 6.1 hereof, the Conversion
Price shall be reduced to the price determined by multiplying the Conversion
Price in effect immediately prior to such issuance or sale by a fraction, the
numerator of which shall be the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issuance or sale multiplied by the Market
Price per share of Common Stock on the day of such issuance or sale, plus (ii)
the number of shares issued or sold, or in accordance with Section 6.2 deemed
to have been issued or sold, multiplied by the price per share at which such
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Common Stock was issued or sold, or in accordance with Section 6.2 is deemed to
be issued or sold, and the denominator of which shall be the product of (A) the
total number of shares of Common Stock outstanding immediately after such
issuance or sale, multiplied by (B) the Market Price per share of Common Stock
on the day of such issuance or sale.
6.4. Subdivision or Combination of Common Stock. If the
Company at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Conversion Price, the Floor
Price and the Limit Price (as defined under Section 12) in effect immediately
prior to such subdivision, and the Market Price valuations for trading days
preceding such event that are utilized under Section 6.1 with respect to
periods straddling the date of such subdivision, shall be proportionately
reduced. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Conversion Price, the Floor Price and the Limit
Price in effect immediately prior to such combination, and the Market Price
valuations for trading days preceding such event that are utilized under
Section 6.1 with respect to periods straddling the date of such combination,
shall be proportionately increased.
6.5. Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or the majority of the Company's assets or
other transaction, in each case which is effected in such a way that the
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the Noteholders) to insure
that the Noteholders shall thereafter have the right to acquire and receive, in
lieu of or in addition to (as the case may be) the shares of Common Stock
immediately theretofore acquirable and receivable upon the conversion of the
Notes, such shares of stock, securities or assets as may be issued or payable
in connection with such Organic Change with respect to or in exchange for the
number of shares of Common Stock acquirable and receivable had the Notes been
fully converted immediately prior to such Organic Change. In any such case,
the Company shall make appropriate provision (in form and substance
satisfactory to the Noteholders) with respect to such holders' rights and
interests to insure that the provisions of this Section 6 and Section 15 hereof
shall thereafter be applicable to the Notes (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate reduction in the Conversion
Price to the value of the Common Stock reflected by the terms of such
consolidation, merger or sale, if the value so reflected is less than the
Conversion Price in effect immediately prior to such consolidation, merger or
sale). The Company shall not effect any such consolidation, merger or sale,
unless prior to the consummation thereof, the successor entity (if other than
the Company) resulting from consolidation or merger or the entity purchasing
such assets assumes by written instrument (in form and substance satisfactory
to the Noteholders), the obligation to deliver to each such holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
6.6. Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 6 but not expressly provided for
by such provisions (including, without
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limitation, the granting of stock appreciation rights, phantom stock rights or
other rights with equity features or any dividend or distribution of the
capital stock issued by any Person other than the Company), then the Company's
Board of Directors shall make an appropriate adjustment in the Conversion
Price, the Floor Price and the Limit Price in effect immediately prior to such
event, and the Market Price valuations for trading days preceding such event
that are utilized under Section 6.1 with respect to periods straddling the date
of such event, so as to protect the rights of the Noteholders; provided that no
such adjustment shall increase the Conversion Price as otherwise determined
pursuant to this Section 6.
6.7. Calculation of Conversion Price; Notices.
(i) All calculations of the Conversion Price
under this Section 6 shall be computed to the nearest One-Thousandth (1/1000th)
of a cent.
(ii) Immediately upon any adjustment of the
Conversion Price, the Company shall give written notice thereof to the
Noteholders, setting forth in reasonable detail and certifying the calculation
of such adjustment, provided however, that such notice shall not be deemed to
be conclusive as to the Conversion Price calculation.
(iii) The Company shall give written notice to the
Noteholders at least thirty (30) days prior to the date on which the Company
closes its books or takes a record (A) with respect to any subdivision or
combination of the Common Stock that is subject to Section 6.4, or any other
dividend or distribution upon the Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(iv) The Company shall also give written notice to
the Noteholders at least thirty (30) days prior to the date on which any
Organic Change, dissolution or liquidation shall take place.
6.8. Excluded Transaction. The provisions of this Section
6 shall not apply to the following transactions: (i) the conversion of the
Notes and exercise of the Warrant, (ii) the issuance of shares of Common Stock
in the acquisition of the minority ownership interests in U.S. Drug Testing,
Inc. and Good Ideas Enterprises, Inc. as previously disclosed to the public,
(iii) the acquisition of any Person engaged exclusively in, or engaged in a
business directly related to, the business of substance abuse testing, (iv)
conversion of shares of the Series A Preferred Stock of the Company (the
"Preferred Stock") outstanding as of the Effective Date, in accordance with the
terms of the Preferred Stock, (v) transactions that are subject to Section 15.2
or Section 15.3, (vi) Options granted or to be granted to officers of the
Company, not previously employed by the Company, as an inducement essential to
entering into a contract of employment with the Company provided that the total
number of shares of Common Stock subject to all such excluded Options that may
be outstanding at any one time shall not exceed Two Hundred Fifty Thousand
(250,000) shares of Common Stock, and (vii) the issuance of 200,000 shares of
Common Stock to John Sloan described in Section 8.2(c).
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7. ADDITIONAL TRANSACTION DOCUMENTS.
7.1. Warrant. On the Effective Date, the Company will
issue to the Noteholders the Warrant.
7.2. Registration Rights Agreement. On the Effective
Date, the Company and the Noteholders shall enter into a Registration Rights
Agreement in the form attached hereto as Exhibit A.
8. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to the Noteholders that, except as set forth in
the schedule ("Disclosure Schedule") attached to this Agreement as Schedule 8
(which Disclosure Schedule shall be deemed to constitute part of these
representations and warranties), the statements in the following subsections of
this Section 8 are all true and correct as of the Effective Date:
8.1. Organization, Good Standing and Qualification. The
Company is a corporation duly organized, validly existing and in good standing
under, and by virtue of, the laws of the State of Delaware and has all
requisite corporate power and authority to own its properties and assets and to
carry on its business as now conducted and as presently proposed to be
conducted. The Company is qualified to do business as a foreign corporation in
each jurisdiction where failure to be so qualified would have a material
adverse effect on its financial condition, business, prospects or operations,
except that the Company is in the process of becoming qualified to do business
in the State of Florida.
8.2. Capitalization. The authorized capital stock of the
Company consists of the following:
(a) Common Stock. A total of 50,000,000 authorized
shares of Common Stock ($0.01 par value) of which
35,623,092 shares are issued and outstanding.
(b) Preferred Stock. A total of 500,000 authorized
shares of Class A Preferred Stock ($0.01 par value)
of which 41,157 shares are issued and outstanding. A
total of 1,500,000 authorized shares of Class B
Preferred Stock ($0.01 par value), none of which are
issued and outstanding.
(c) Options, Warrants, Reserved Shares. As of the
Effective Date, the Company has issued and
outstanding (i) no incentive stock options, (ii) no
non-qualified stock options and (iii) stock purchase
warrants (not including the Warrant) to purchase
6,459,245 shares of Common Stock at a price per share
ranging from $1.0625 to $4.00. Section 8.2(c) of the
Disclosure Schedule sets forth the exercise price and
number of shares of Common Stock issuable under each
Option or Convertible Security issued, granted or
sold since March 31, 1996 (other than the Notes and
the Warrant). The Company has no obligation,
contingent or otherwise, to repurchase any shares of
Common Stock, whether or not currently outstanding.
The
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Company is under an obligation to issue 200,000
shares of Common Stock pursuant to a consulting
agreement dated June 14, 1996 between the Company and
John Sloan.
8.3. Subsidiaries. Except as set forth in Section 8.3 of
the Disclosure Schedule, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation, partnership,
trust, joint venture, association, or other entity.
8.4. Due Authorization; Consents. All corporate actions
on the part of the Company, its officers, directors and stockholders necessary
for (a) the authorization, execution and delivery of, and the performance of
all obligations of the Company under this Agreement, (b) the authorization,
execution and delivery of the Other Transaction Documents, (c) the
authorization, issuance, reservation for issuance and delivery of all of the
Common Stock issuable upon conversion of the Notes, and (d) the authorization,
issuance, reservation for issuance and delivery of all of the Common Stock
issuable upon exercise of the Warrant have been duly taken. This Agreement and
the Other Transaction Documents each constitute a valid and binding obligation
of the Company enforceable in accordance with its and their terms, subject, as
to enforcement of remedies, to applicable bankruptcy, insolvency, moratorium,
reorganization and similar laws affecting creditors' rights generally and to
general equitable principles. All consents, approvals and authorizations of,
and registrations, qualifications and filings with, any federal or state
governmental agency, authority or body, or any third party, required in
connection with the execution, delivery and, other than with respect to the
registration of the Underlying Common Stock, performance of this Agreement and
the Other Transaction Documents and the consummation of the transactions
contemplated hereby and thereby have been obtained.
8.5. Valid Issuance of Stock. The outstanding shares of
the capital stock of Company are duly and validly issued, fully paid and non
assessable, and such shares of such capital stock, and all outstanding Options
and Convertible Securities of the Company have been issued in full compliance
with the registration and prospectus delivery requirements of the Securities
Act of 1933, as amended (the "Securities Act"), and the registration and
qualification requirements of all applicable state securities laws, or in
compliance with applicable exemptions therefrom, and all other provisions of
applicable federal and state securities laws, including, without limitation,
anti-fraud provisions.
8.6. Liabilities. The Company has no Indebtedness, which
ranks senior or pari pasu in right of payment to the Notes, that the Company
has directly or indirectly created, incurred, assumed, or guaranteed, or with
respect to which the Company has otherwise become directly or indirectly
liable, other than (i) the obligations of the Company under the capital leases
set forth on Section 8.6 of the Disclosure Schedule, which in the aggregate do
not exceed Two Hundred Twenty-Five Thousand Dollars ($225,000) and which, to
the extent provided for under the terms and conditions of such capital leases,
may be senior to the Notes, (ii) that certain Secured Promissory Note, dated
May 21, 1996, issued by the Company in favor of Robert Stutman in the principal
amount of $239,760 and that certain Secured Promissory Note, dated May 21,
1996, issued by the Company in favor of Brian Stutman in the principal amount
of $160,240 (collectively, the "RSA Notes"), which may be pari pasu to the
Notes, (iii) that certain Promissory Note, dated October 22, 1996, issued by
the Company in favor of Compass Bank-
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<PAGE> 21
Houston in the principal amount of Two Hundred Fifty Thousand Dollars
($250,000), and (iv) certain obligations in the aggregate principal amount of
Two Hundred Thousand Dollars ($200,000) Promissory Notes which are set forth on
Section 8.6 of the Disclosure Schedule and which the Company shall repay from
the proceeds of the Notes.
8.7. Title to Properties and Assets. The Company has good
and marketable title to its properties and assets held in each case subject to
no Lien of any kind. With respect to the property and assets it leases, the
Company is in compliance with such leases and, to the best of the Company's
knowledge, the Company holds valid leasehold interests in such assets free of
any Liens, encumbrances, security interests or claims of any party other than
the lessors of such property and assets.
8.8. Status of Proprietary Assets.
(a) Ownership. The Company and its Subsidiaries
have full title and ownership of, or have license to, all Proprietary Assets
set forth on Section 8.8(a) of the Disclosure Schedule. Such Proprietary
Assets constitute all Proprietary Assets necessary to enable each of them to
carry on its business as now conducted and as presently proposed to be
conducted without any conflict with or infringement of the rights of others.
Except as specifically noted on Section 8.8(a) of the Disclosure Schedule, to
the best of the Company's knowledge, no third party has any ownership right,
title, interest, claim in or lien on any of the Company's or any of the
Company's Subsidiaries' Proprietary Assets and the Company has taken, and in
the future the Company will use its best efforts to take, and shall cause its
Subsidiaries to take, all steps reasonably necessary to preserve its and their
legal rights in, and the secrecy of, all its and their Proprietary Assets,
except those for which disclosure is required for legitimate business or legal
reasons.
(b) Licenses; Other Agreements. Except as
specifically noted on Section 8.8(b) of the Disclosure Schedule, neither the
Company nor any of its Subsidiaries have granted, and, to the best of the
Company's knowledge, there are not outstanding, any options, licenses or
agreements of any kind relating to any Proprietary Asset of the Company or any
of its Subsidiaries, nor is the Company or any of its Subsidiaries bound by or
a party to any option, license or agreement of any kind with respect to any of
its or their Proprietary Assets, as the case may be. Except as specifically
noted on Section 8.8(b) of the Disclosure Schedule and except for the Company's
sublicenses and assignments to U.S. Drug Testing, Inc., neither the Company nor
any of its Subsidiaries is obligated to pay any royalties or other payments to
third parties with respect to the marketing, sale, distribution, manufacture,
license or use of any Proprietary Asset or any other property or rights.
(c) No Infringement. To the best of the
Company's knowledge, neither the Company nor any of its Subsidiaries has
violated or infringed, and is not currently violating or infringing, and
neither the Company nor any of its Subsidiaries has received any communications
alleging that the Company or any of its Subsidiaries (or any of its or their
employees or consultants) has violated or infringed or, by conducting its or
their business as proposed, would violate or infringe, any Proprietary Asset,
proprietary computer programs, software, databases, trade secrets and
proprietary information of any other Person.
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(d) No Breach by Employee. The Company is not
aware that any employee or agent of, or consultant to, the Company or any of
its Subsidiaries is obligated under any agreement (including licenses,
covenants or commitments of any nature) or subject to any judgment, decree or
order of any court or administrative agency, or any other restriction that
would interfere with the use of his or her best efforts to carry out his or her
duties for the Company or such Subsidiary, as the case may be, or to promote
the interests of the Company or such Subsidiary, or that would conflict with
the Company's or any of the Company's Subsidiaries' business as proposed to be
conducted. The carrying on of the Company's or any of the Company's
Subsidiaries' business by the employees and agents of or and consultants to the
Company or such Subsidiary, as the case may be, and the conduct of the
Company's or any of the Company's Subsidiaries' business as presently proposed,
will not, to the best of the Company's knowledge, conflict with or result in a
breach of the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such employees
or agents of or consultants to the Company or any Subsidiary of the Company is
now obligated. The Company does not believe it is or will be necessary to
utilize any inventions of any employees or agents of or consultants to the
Company or any of its Subsidiaries (or persons the Company or any of its
Subsidiaries currently intends to hire) made prior to their employment by the
Company or such Subsidiary, as the case may be. Except as specifically noted
on Section 8.8(d) of the Disclosure Statement, to the best of the Company's
knowledge, at no time during the conception of or reduction of any of the
Company's or any of the Company's Subsidiaries' Proprietary Assets to practice
was any developer, inventor or other contributor to such patents operating
under any grants from any governmental entity or agency or private source,
performing research sponsored by any governmental entity or agency or private
source or subject to any employment agreement or invention assignment or
nondisclosure agreement or other obligation with any third party that could
adversely affect the Company's or such Subsidiary's rights in such Proprietary
Assets.
8.9. Material Contracts and Obligations. All agreements,
contracts, leases, licenses, instruments, commitments (oral or written),
indebtedness, liabilities and other obligations to which the Company is a party
or by which it is bound that are (a) material to the conduct or operations of
its business and properties; (b) involve any of the officers, consultants,
directors, employees or stockholders of the Company; (c) obligate the Company
to share, license or develop any product or technology; or (d) otherwise
required to be filed as exhibits to the Company's filings with the Securities
and Exchange Commission ("SEC") (any such agreement, contract, lease, license,
instrument, commitment (oral or written), indebtedness, liability and other
obligation, a "Material Contract") have been filed as exhibits to the Company's
filings with the SEC or are listed in Section 8.9 of the Disclosure Schedule
and have been made available for inspection by the Noteholders and its counsel.
8.10. Litigation. Except as set forth in Section 8.10 of
the Disclosure Schedule, there is no action, suit, proceeding, claim,
arbitration or investigation ("Action") pending and, to the best of the
Company's knowledge, no material Action currently threatened against the
Company, its activities, properties or assets. To the best of the Company's
knowledge, there is no Action pending or currently threatened against any
officer, director or employee of the Company in connection with such officer's,
director's or employee's relationship with, or actions taken on behalf of, the
Company. To the best of the Company's knowledge, there is no factual or
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<PAGE> 23
legal basis for any such Action that might result, individually or in the
aggregate, in any material adverse change in the business, properties, assets,
financial condition, affairs or prospects of the Company. By way of example
but not by way of limitation, there are no Actions pending or, to the best of
the Company's knowledge, threatened (or any basis therefor known to the
Company) relating to the prior employment of any of the Company's employees or
consultants, their use in connection with the Company's business of any
information, technology or techniques allegedly proprietary to any of their
former employers, clients or other parties, or their obligations under any
agreements with prior employers, clients or other parties. The Company is not
a party to or subject to the provisions of any order, writ, injunction,
judgment or decree of any court or government agency or instrumentality and
there is no Action by the Company currently pending or which the Company
intends to initiate.
8.11. Governmental Consents. Other than in connection with
the registration of the Underlying Common Stock, all consents, approvals,
orders, authorizations or registrations, qualifications, designations,
declarations or filings with any federal or state governmental authority on the
part of Company required in connection with the consummation of the
transactions contemplated herein shall have been obtained prior to and be
effective as of the Effective Date.
8.12. Compliance with Other Instruments. The Company is
not in, nor will the conduct of its business as proposed to be conducted result
in, any violation, breach or default of any term of the Company's Certificate
of Incorporation, as amended ("Certificate of Incorporation"), or the Company's
Bylaws (the "Bylaws") or in any term or provision of any Material Contract, or
of any provision of any foreign or domestic state or federal judgment, decree,
order, statute, rule or regulation applicable to or binding upon the Company.
The execution, delivery and performance of and compliance with this Agreement
and the consummation of the transactions contemplated hereby will not result in
any such violation or default, or be in conflict with or constitute, with or
without the passage of time or the giving of notice or both, either a default
under the Certificate of Incorporation or Bylaws, or any agreement or contract
of the Company, or a violation of any statutes, laws, regulations or orders, or
an event which results in the creation of any lien, charge or encumbrance upon
any asset of the Company.
8.13. Disclosure. No representation or warranty by the
Company in this Agreement or in any statement or certificate signed by any
officer of the Company furnished or to be furnished to the Noteholders pursuant
to this Agreement contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they are made, not misleading. The Company's Form 10-K
for the period ending March 31, 1996, as amended, filed on September 23, 1996,
Form 10-Q for the period ending June 30, 1996, as amended, filed on September
23, 1996, Form 8-K, filed on June 5, 1996, as amended on August 5, August 27
and September 23, 1996 (such Form 10-K, Form 10-Q and Form 8-K, the "Periodic
Reports"), Prospectus dated October 4, 1996 (the "Prospectus") and Proxy
Statement dated October 22, 1996 each contained all information required to be
stated therein under the Exchange Act and the Securities Act and the rules and
regulations thereunder, as applicable, and did not contain any untrue statement
of a material fact.
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<PAGE> 24
8.14. Registration Rights. Except as set forth on Section
8.14 of the Disclosure Schedule, the Company has not granted or agreed to grant
any person or entity any rights (including piggyback registration rights) to
have any securities of the Company registered on or after the Effective Date
with the SEC or any other governmental authority.
8.15. Insurance. The Company has obtained and will
maintain, fire and casualty insurance policies with extended coverage,
sufficient in amount (subject to reasonable deductibles) to allow it to replace
any of its material properties or assets in the event they are damaged or
destroyed.
8.16. Financial Statements. The financial statements
contained in the Periodic Reports (all such financial statements being
collectively referred to herein as the "Financial Statements") (a) were
prepared in accordance with the books and records of the Company, (b) are true,
correct and complete and present fairly the financial condition of the Company
at the date or dates therein indicated and the results of operations for the
period or periods therein specified, and (c) have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis,
except, as to the financial statements that are not audited, for the omission
of notes thereto and normal year-end audit adjustments. Specifically, but not
by way of limitation, the respective balance sheets of the Financial Statements
disclose all of the Company's material debts, liabilities and obligations of
any nature, whether due or to become due, as of their respective dates
(including, without limitation, absolute liabilities, accrued liabilities, and
contingent liabilities) to the extent such debts, liabilities and obligations
are required to be disclosed in accordance with generally accepted accounting
principles. The Company has good and marketable title to all assets set forth
on the balance sheets of the Financial Statements, except for such assets as
have been spent, sold or transferred in the ordinary course of business since
their respective dates.
8.17. Certain Actions or Developments. Since June 30,
1996, the Company has not: (a) declared or paid any dividends, or authorized
or made any distribution upon or with respect to any class or series of its
capital stock; (b) incurred any indebtedness for money borrowed or incurred any
other liabilities individually in excess of $250,000 or in excess of $450,000
in the aggregate; (c) made any loans or advances to any person, other than
ordinary advances for travel expenses; (d) sold, exchanged or otherwise
disposed of any material assets or rights other than the sale of inventory in
the ordinary course of its business; or (e) engaged in a transaction or series
of transactions with any of its officers, directors or affiliates that would be
required to be disclosed under Item 402(j) or Item 404 of the SEC's Regulation
S-K. As of the Effective Date, no event has occurred that requires the
Prospectus to be supplemented or amended other than with respect to (i) the
transactions contemplated under this Agreement and (ii) amendments to disclose
options and warrants that have expired by their terms.
8.18. Activities Since Year-End. Except as disclosed in
the Periodic Reports or the Prospectus, since March 31, 1996, there has not
been:
(a) any damage, destruction or loss, whether or not
covered by insurance, materially and adversely
affecting the assets, properties, financial
condition,
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<PAGE> 25
operating results, prospects or business of the
Company (as presently conducted and as presently
proposed to be conducted);
(b) any waiver by the Company of a valuable right or of a
material debt owed to it;
(c) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the
Company, except such a satisfaction, discharge or
payment made in the ordinary course of business that
is not material to the assets, properties, financial
condition, operating results or business of the
Company;
(d) any change or amendment to a Material Contract;
(e) any change in any compensation arrangement or
agreement with any present or prospective executive
officer, director, consultant or agent that would be
required to be disclosed if a Form 10-K were to be
filed as of the Effective Date; or
(f) to the Company's knowledge, any other event or
condition of any character which would materially and
adversely affect the assets, properties, financial
condition, operating results or business of the
Company.
8.19. Tax Matters. The provisions for taxes in the
Financial Statements are sufficient for the payment of all accrued and unpaid
federal, state, county and local taxes of the Company, whether or not assessed
or disputed as of the date of each such balance sheet. There have been no
examinations or audits of any tax returns or reports by any applicable federal,
state or local governmental agency. The Company has duly filed all federal,
state, county and local tax returns required to have been filed by it and paid
all taxes shown to be due on such returns. There are in effect no waivers of
applicable statutes of limitations with respect to taxes for any year.
8.20. Tax Elections. The Company has not elected pursuant
to the Internal Revenue Code of 1986, as amended (the "Code"), to be treated as
an "S" corporation or a collapsible corporation pursuant to Section 341(f) or
Section 1362(a) of the Code, nor has it made any other elections pursuant to
the Code (other than elections which relate solely to matters of accounting,
depreciation or amortization) which would have a material affect on the
Company, its financial condition, its business as presently conducted or
presently proposed to be conducted or any of its properties or material assets.
8.21. Environmental Matters. During the period that the
Company has owned or leased its properties and facilities, (a) there have been
no disposals, releases or threatened releases of Hazardous Materials (as
defined below) on, from or under such properties or facilities, (b) neither the
Company nor, to the Company's knowledge, any third party, has used, generated,
manufactured or stored on, under or about such properties or facilities or
transported to or from such properties or facilities any Hazardous Materials.
The Company has no knowledge of any presence, disposals, releases or threatened
releases of Hazardous Materials on, from or under any
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<PAGE> 26
of such properties or facilities, which may have occurred prior to the Company
having taken possession of any of such properties or facilities. For purposes
of this Agreement, the terms "disposal", "release", and "threatened release"
shall have the definitions assigned thereto by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. Section 9601 et
seq., as amended ("CERCLA"). For the purposes of this Section, "Hazardous
Materials" shall mean any hazardous or toxic substance, material or waste which
is regulated under, or defined as a "hazardous substance", "pollutant",
"contaminant", "toxic chemical", "hazardous material", "toxic substance", or
"hazardous chemical" under (1) CERCLA; (2) the Emergency Planning and Community
Right-to-Know Act, 42 U.S.C. Section 11001 et seq.; (3) the Hazardous Materials
Transportation Act, 49 U.S.C. Section 1801, et seq.; (4) the Toxic Substances
Control Act, 15 U.S.C. Section 2601 et seq.; (5) the Occupational Safety and
Health Act of 1970, 29 U.S.C. Section 651 et seq.; (6) regulations promulgated
under any of the above statutes; or (7) any applicable state or local statute,
ordinance, rule, or regulation that has a scope or purpose similar to those
statutes identified above.
9. REPRESENTATIONS AND WARRANTIES OF THE NOTEHOLDERS. Each of
the Noteholders represents and warrants to the Company as follows:
9.1. Purchase for Own Account; Investment Intent. The
Warrant and the Notes have been acquired for the Noteholders' own account, not
as a nominee or agent, and not with a view to or in connection with the sale or
distribution of any part thereof, other than pursuant to a transaction, or
series of transactions, registered or exempt from registration under the
Securities Act.
9.2 Current Ownership. As of the Effective Date, the
Noteholders own approximately Two Million Three Hundred Thousand (2,300,000)
shares of Common Stock (the "Owned Shares").
10. REGISTRATION.
10.1 Company's Obligations. Promptly after the Effective
Date, the Company shall file a registration statement with the SEC under the
Securities Act registering the Company's offer and sale of the Underlying
Common Stock and the Company shall use its best efforts to have the SEC declare
effective such registration statement within three (3) months after the
Effective Date. The Company shall similarly register the Company's offer and
sale of the Underlying Common Stock under any applicable state securities laws.
So long as any portion of the Outstanding Balance remains outstanding or the
Warrant remains outstanding, the Company shall file such amendments and/or
supplements to any registration statement under the Securities Act or under any
state securities laws covering the Company's offer and sale of such Underlying
Common Stock and supplement and keep current any prospectus forming a part of
such registration statement as may be necessary to permit the Company to
deliver to a Noteholder upon any sale by the Company of the Underlying Common
Stock a prospectus meeting the requirements of the Securities Act and the
regulations of the SEC thereunder, and as may be necessary to comply with any
applicable state securities laws. The shares of Common Stock issuable under
this Agreement are subject to a Registration Rights Agreement dated November 8,
1996 with the Company.
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10.2 Remedies. In the event that, within three (3) months
after the Effective Date, the Company has not file a registration statement for
the Underlying Common Stock and has not used its best efforts to have the SEC
declare effective such registration statement, or if at any time after such
registration statement is declared effective a period of more than thirty (30)
days passes during which such registration statement (or a successor
registration statement) is not effective, or during which the prospectus under
any such registration statement does not meet the requirements of the
Securities Act, the Company shall pay the Noteholders a cash penalty in an
amount equal to ten percent (10%) of the Outstanding Amount; provided that the
Noteholders shall have cooperated in providing information regarding their
intended plan of distribution if and to the extent that such information is
requested by the SEC.
11. COVENANTS OF THE COMPANY.
The Company covenants to the Noteholders as follows:
11.1 Use of Loan Proceeds. The Company will use the
proceeds from the Loan in substantially the amounts indicated for the purposes
set forth on Exhibit D.
11.2 Seniority. The Company shall not, directly or
indirectly, create, incur, issue, assume or become liable with respect to or
become responsible for, contingently or otherwise, any Indebtedness which ranks
senior or pari pasu in right of payment to the Notes; provided that
notwithstanding the foregoing the Company may create, incur, issue, assume,
become liable or suffer to exist Indebtedness under capitalized leases not
exceeding $750,000 in the aggregate, which capitalized leases may rank pari
pasu, but not senior, to the Notes.
11.3 Note Restrictive Covenants. So long as any portion
of the Outstanding Balance under the Notes remains outstanding, the Company
shall not, without the prior written consent of the Noteholders:
(i) directly or indirectly declare or pay any
cash dividends or make any cash distributions upon any of its capital
stock or other equity securities, other than cash dividends on any
shares of any class of Preferred Stock of the Company outstanding as
of and at the rate in effect as of the Effective Date;
(ii) directly or indirectly redeem, purchase or
otherwise acquire, or permit any Subsidiary to redeem, purchase or
otherwise acquire, any of the Company's or any Subsidiary's capital
stock or other equity securities (including, without limitation,
Options and other rights to acquire such capital stock or other equity
securities) or directly or indirectly redeem, purchase or make any
payments with respect to any stock appreciation rights, phantom stock
plans or similar rights or plans, except for (1) the cancellation of
the Preferred Stock upon any conversion thereof and (2) the
acquisitions of the remaining minority interests in U.S. Drug Testing,
Inc. and Good Ideas Enterprises, Inc.;
(iii) make, or permit any Subsidiary to make, any
loans or advances to, guarantees for the benefit of, or investments
in, any Person in an aggregate amount in
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excess of One Million Dollars ($1,000,000), at any time, except for
(a) reasonable advances to employees in the ordinary course of
business, (b) acquisitions permitted pursuant to subsection (vi) below
, (c) loans between the Company and its Subsidiaries or between
Subsidiaries of the Company for normal business operating purposes and
(d) investments having a stated maturity no greater than one year from
the date the Company makes such investment in (1) obligations of the
United States government or any agency thereof or obligations
guaranteed by the United States government, (2) certificates of
deposit of commercial banks having combined capital and surplus of at
least $50 million or (3) commercial paper with a rating of at least
"Prime-1" by Moody's Investors Service, Inc.;
(iv) sell or otherwise dispose of, or permit any
Subsidiary to sell or otherwise dispose of any Subsidiary or any
division of the Company or of any Subsidiary, other than Good Ideas
Enterprises, Inc.;
(v) liquidate, dissolve or effect a
recapitalization or reorganization of the Company in any form of
transaction (including, without limitation, any reorganization into a
limited liability company, a partnership or any other non-corporate
entity which is treated as a partnership for federal income tax
purposes), other than (1) a transaction between or among wholly owned
Subsidiaries and divisions of the Company and (2) any form of stock
split or reverse stock split that has been approved by the Company's
stockholders;
(vi) acquire, or permit any Subsidiary to acquire,
any interest in any company or business (whether by a purchase of
assets, purchase of stock, merger or otherwise), or acquire or permit
any Subsidiary to acquire, any assets, or enter into any joint
venture, except for (1) the acquisition of any Person engaged
exclusively in, or engaged in a business directly related to, the
business of substance abuse testing; and (2) the acquisitions of the
remaining minority interest in U.S. Drug Testing, Inc. and Good Ideas
Enterprises, Inc.;
(vii) enter into, or permit any Subsidiary to enter
into, the ownership, active management or operation of any business,
except for (1) the acquisition of any Person engaged exclusively in,
or engaged in a business directly related to, the business of
substance abuse testing; and (2) the acquisitions of the remaining
minority interest in U.S. Drug Testing, Inc. and Good Ideas
Enterprises, Inc.;
(viii) become subject to, or permit any of its
Subsidiaries to become subject to, (including, without limitation, by
way of amendment to or modification of) any agreement or instrument
which by its terms would (under any circumstances) restrict (a) the
right of any Subsidiary to make loans or advances or pay dividends to,
transfer property to, or repay any Indebtedness owed to, the Company
or another Subsidiary or (b) the Company's right to perform the
provisions of this Agreement or the Other Transaction Documents;
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(ix) enter into, amend, modify or supplement, or
permit any Subsidiary to enter into, amend, modify or supplement (1)
any material agreement, transaction, commitment or arrangement with
any of its or any Subsidiary's employees, stockholders or Affiliates
or with any individual related by blood, marriage or adoption to any
such individual or with any entity in which any such Person or
individual owns a beneficial interest, or (2) any agreement,
commitment, arrangement, transaction or series of transactions with
any of its officers, directors or affiliates that would be required to
be disclosed under Item 402(j) or Item 404 of the SEC's Regulation
S-K; except in either case for arms' length transactions with U.S.
Drug Testing, Inc. and Good Ideas Enterprises, Inc.
(x) create, incur, assume or suffer to exist, or
permit any Subsidiary to create, incur, assume or suffer to exist, (1)
any Indebtedness other than capitalized leases exceeding an aggregate
principal amount of One Million Dollars ($1,000,000) outstanding at
any time on a consolidated basis or (2) any capitalized leases or
purchase money secured debt exceeding an aggregate principal amount of
Seven Hundred Fifty Thousand Dollars ($750,000);
(xi) create, incur, assume or suffer to exist, or
permit any Subsidiary to create, incur, assume or suffer to exist, any
Liens;
(xii) make any capital expenditures or series
related capital expenditures (including, without limitation, payments
with respect to capitalized leases, as determined in accordance with
generally accepted accounting principles consistently applied)
exceeding One Million Dollars ($1,000,000) in the aggregate on a
consolidated basis during any twelve-month period;
(xiii) change its fiscal year;
(xiv) prepay any interest on any Indebtedness or
prepay any principal on any Indebtedness;
(xv) prepay any amounts under a lease prior to the
time such payments are due, except for payments made upon termination
of a lease in connection with the relocation of facilities;
(xvi) make, or permit any Subsidiary to make, any
material change in its nature of its business;
(xvii) dismiss and replace its Chief Executive
Officer;
(xviii) assign, transfer, breach, default under or
terminate its patent licenses with the United States Navy;
(xix) use the proceeds from the sale of the Notes
other than in substantially the amounts indicated for the purposes set
forth in Exhibit D hereof;
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(xx) make any amendment to the Company's
Certificate of Incorporation or Bylaws (including, without limitation,
any anti-takeover provisions thereof), or file any resolution of the
Board of Directors with the Delaware Secretary of State containing any
provisions, or enter into any agreement, arrangement or understanding,
which would adversely affect or otherwise impair the rights or
relative priority of the Noteholders under this Agreement, the
Articles of Incorporation or the Bylaws; or
(xxi) enter into any transaction or series of
related transactions not otherwise permitted under this Section 11.3,
the aggregate value of the consideration for which exceeds One Million
Dollars ($1,000,000).
11.4 Note Affirmative Covenants. So long as any portion
of the Outstanding Balance under the Notes remains outstanding, the Company
shall, and shall cause each Subsidiary to, unless it has received the prior
written consent of the Noteholders:
(i) at all times cause to be done all things
necessary to maintain, preserve and renew its corporate existence and
all material licenses, authorizations and permits (or obtain
comparable and sufficient replacements) necessary to the conduct of
its businesses;
(ii) maintain and keep its material properties in
good repair, working order and condition, and from time to time make
all necessary or desirable repairs, renewals and replacements, so that
its businesses may be properly and advantageously conducted in all
material respects at all times;
(iii) pay and discharge when payable all taxes,
assessments and governmental charges imposed upon its properties or
upon the income or profits therefrom (in each case before the same
becomes delinquent and before penalties accrue thereon) and all claims
for labor, materials or supplies which if unpaid would by law become a
Lien upon any of its property, unless and to the extent that the same
are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with generally accepted
accounting principles, consistently applied) have been established on
its books with respect thereto;
(iv) comply with all other obligations which it
incurs pursuant to any contract or agreement, whether oral or written,
express or implied, as such obligations become due, unless and to the
extent that the same are being contested in good faith and by
appropriate proceedings and adequate reserves (as determined in
accordance with generally accepted accounting principles, consistently
applied) have been established on its books with respect thereto;
(v) comply with all applicable laws, rules and
regulations of all governmental authorities;
(vi) apply for and continue in force with good and
responsible insurance companies adequate insurance covering risks of
such types and in such amounts as are
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customary for well-insured corporations of similar size engaged in
similar lines of business; and
(vii) maintain proper books of record and account
which present fairly in all material respects its financial condition
and results of operations and make provisions on its financial
statements for all such proper reserves as in each case are required
in accordance with generally accepted accounting principles,
consistently applied.
11.5 Nothing in this Section 11, express or implied, is
intended to confer any rights or remedies under or by reason of this Section 11
upon any Person other than a holder of a Note under which any portion of the
Outstanding Balance remains outstanding.
12. RESTRICTIONS ON OPEN MARKET SALES OF THE OWNED SHARES. After
the Effective Date, the Noteholders may sell One Million (1,000,000) of the
Owned Shares in Open Market Transactions without regard to any of the
limitations set forth in this Section 12. After the Noteholders have sold One
Million (1,000,000) of the Owned Shares in Open Market Transactions pursuant to
the immediately preceding sentence, the Noteholders shall not sell any of the
remaining Owned Shares on Open Market Transactions unless: (i) the sales price
for such shares (before any fees or commissions) is equal to or greater than
the Limit Price (as defined below), (ii) the volume of shares sold by the
Noteholders on any trading day at a price below the Limit Price (before any
fees or commissions) does not exceed twenty-five percent (25%) of the average
daily trading volume of Common Stock reported for the five trading days
immediately preceding the date of such sale, provided that any sales by the
Noteholders during the immediately preceding five trading days at a price below
the Limit Price shall be excluded from the calculation of the average daily
trading volume, or (iii) such shares are sold at the best offer price. For
purposes of this Section 12, the term "Open Market Transactions" shall mean any
transaction that is reported under a transaction reporting plan other than (A)
a block trade (as that term is defined under Exchange Act Rule 10b-18) or (B) a
transaction that is not reported on the consolidated quotation system. For
purposes of this Section 12, the term "Limit Price" shall mean Two Dollars
($2.00) unless and until adjusted pursuant to Section 6.4 and 6.6. This
Section 12 shall not limit in any way the ability of the Noteholders to sell
the Owned Shares in transactions that are not Open Market Transactions.
13. DEFAULT.
13.1 Event of Default. For purposes of this Agreement,
the term "default" shall include any of the following:
(a) The Company's failure to pay any interest
under the Notes when due or to pay the Outstanding Balance on the Maturity
Date;
(b) In excess of Fifty Thousand Dollars ($50,000)
of the Company's Indebtedness is accelerated as a result of a default under or
breach of any agreement for Indebtedness, including but not limited to loan
agreements, or material breach under any real property lease agreements and
capital equipment lease agreements, by which Company is bound or obligated;
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(c) The filing of a petition in bankruptcy or
under any similar insolvency law by the Company, the making of an assignment
for the benefit of creditors, or if any voluntary petition in bankruptcy or
under any similar insolvency law is filed against the Company and such petition
is not dismissed within sixty (60) days after the filing thereof.
(d) The Company breaches any of its obligations
and covenants set forth in this Agreement other than as described in Section
13(a) above, or breaches any Other Transaction Documents with the Noteholders
or their Affiliates;
(e) The shares of Common Stock cease to be traded
on any national securities exchange or cease to be quoted on the Nasdaq
National Market or the Nasdaq "small cap" market by at least two (2) market
makers; and
(f) Any trade payable that is not being contested
in good faith remains delinquent for more than sixty (60) days.
13.2 Financial Defaults. Upon any defaults of the Company
under Sections 13(a), (b) and (c), the Noteholders shall at their sole and
exclusive option be entitled to any or all of the following remedies:
(i) in the event such default has not been cured
within 30-days after notice of such default
has been delivered by the Noteholders to the
Company, acceleration of repayment of the
Outstanding Balance in which case the
Outstanding Balance and all interest accrued
thereon shall be due and payable immediately;
and/or
(ii) the rate of interest applicable hereunder and
under the Notes shall be increased as of the
date of notice of such default to twelve
percent (12%) per annum until such default
has been cured or waived.
13.3 Other Defaults. Upon any defaults of the Company
under Sections 13(d) and (e), the Noteholders shall at their sole and exclusive
option be entitled to any or all of the following remedies:
(i) in the event such default has not been cured
within 30-days after notice of such default
has been delivered by the Noteholders to the
Company, acceleration of repayment of the
Outstanding Balance in which case the
Outstanding Balance and all interest accrued
thereon shall be due and payable immediately;
and/or
(ii) the rate of interest applicable hereunder and
under the Notes immediately shall be
increased as of the date of notice of such
default to ten percent (10%) per annum until
such default has been cured or waived.
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13.4 Additional Remedies. In addition, upon any default
of the Company hereunder:
(i) The Noteholders shall have full recourse
against any tangible or intangible assets of
the Company and may pursue any legal or
equitable remedies that it has available to
it; and
(ii) shall have a full right of offset for any
amounts due upon such a default against any
amounts payable by the Noteholders to the
Company.
13.5 Notice of Defaults. The Company shall promptly
notify the Noteholders of any defaults under this Agreement that the Company
has knowledge of or after reasonable investigation should have had knowledge
of.
14. INFORMATION, INSPECTION & BOARD REPRESENTATION AND BOARD
OBSERVER RIGHTS.
14.1. Information Rights. So long as any portion of the
Outstanding Balance under the Notes remains outstanding, the Company shall
deliver to the Noteholders or the holder of any securities issued (directly or
indirectly) upon conversion thereof copies of the Company's Forms 10-K, 10-Q
and 8-K and the Company's Annual Reports to Stockholders and definitive proxy
statement promptly after such documents are filed with the SEC.
14.2 Inspection Rights. So long as any portion of the
Outstanding Balance under the Notes remains outstanding, any of the Noteholders
and any Person any of the Noteholders may designate as agent shall have the
right to review all books and records, reports, accounts and other financial
documents of the Company and to copy the same and to make excerpts therefrom,
all at such reasonable times and as often as any of the Noteholders may
reasonably request, upon prior written notice to the Company, so long as such
review and copying does not unreasonably interfere with the business of the
Company and such Noteholder and agent agrees to keep confidential, and not
disclose, except as may be required by law or court order, all information
obtained during such review of a confidential or proprietary nature (and not
otherwise known to the Noteholders through other sources or publicly known).
14.3. Board Representation and Observer Rights. So long as
any portion of the Outstanding Balance under the Notes remains outstanding and
thereafter until the earlier of the fifth anniversary of the Effective Date and
the date that the Noteholders cease to hold at least twenty-five percent (25%)
of the Common Stock into which the Notes are convertible, the Noteholders shall
be entitled to either (i) designate one individual to be a director on the
Company's Board of Directors, and the Company shall use its best efforts to
have such individual designated by the Noteholders appointed, elected and
maintained as a director on the Company's Board of Directors; or (ii) appoint a
representative to attend and observe meetings of the Board of Directors of the
Company and any committee thereof.
15. PARTICIPATION RIGHTS.
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<PAGE> 34
15.1 Participation Rights. If at any time while any
portion of the Outstanding Balance under the Notes remains outstanding, the
Company grants, issues or sells any Common Stock, Option, Convertible
Securities or rights to purchase stock, warrants, securities or other property
(the "Purchase Rights") pro rata to the record holders of any class of Common
Stock, then each Noteholder shall be entitled to acquire, upon the terms
applicable to such Purchase Rights, the aggregate Purchase Rights which such
holder could have acquired if such holder had held the number of shares of
Common Stock acquirable upon complete conversion of the Note immediately before
the date on which a record is taken for the grant, issuance or sale of such
Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or
sale of such Purchase Rights.
15.2 Rights to Purchase. If at any time while any portion
of the Outstanding Balance under the Notes remains outstanding, the Company
grants, issues or sells any Common Stock, Options, Convertible Securities or
other Purchase Rights which issuance reduces either the percentage voting or
equity interest of the Noteholders in the Company (based on the number of
shares of Common Stock previously acquired by them under the Notes or Warrants,
or that could be acquired upon complete conversion of all Notes and exercise in
full of the Warrants held by them) and which are not subject to Section 15.1,
then each Noteholder shall have the right to purchase from the Company for
cash, upon the same terms and conditions as such equity securities are sold to
other investors, at the price per share at which such equity securities were
sold (based on the net proceeds to the Company calculated under the procedures
described in Section 6) that number of shares of such equity securities which,
if purchased by the Noteholder, would result in the Noteholder retaining the
percentage voting or equity interest in the Company held by the Noteholder
immediately prior to such reduction of the Noteholder's interest (based on the
number of shares of Common Stock previously acquired by them under the Notes or
Warrants, or that could be acquired upon complete conversion of all Notes and
exercise in full of the Warrants held by them); provided, however, that this
Section 15.2 shall apply only to issuances in connection with a capital raising
transaction effected as a public offering or a transaction or series of
transactions that is exempt from or otherwise not subject to the Securities
Act; but in no case shall this Section 15.2 apply to a transaction subject to
Section 6.
15.3 Option Rights. If at any time while any portion of
the Outstanding Balance under the Notes remains outstanding directors of the
Company are granted Common Stock, Options or Convertible Securities as part of
their retainer, then the Noteholders shall likewise be granted in the aggregate
an identical number of shares of Common Stock, Options or Convertible
Securities on the same terms and at the same time as those granted to a
director, provided that any restrictions on the grant, vesting, exercisability
or expiration of Options granted to directors shall not be applicable to the
Options granted to the Noteholders under this Section 15.3.
16. RSA NOTES. The conversion of the principal and due but unpaid
interest under the RSA Notes into Common Stock at a rate based on the Market
Price of Common Stock on the date of such conversion and the application of
principal and due but unpaid interest under the RSA Notes to exercise warrants
held by payees under the RSA Notes shall not constitute a breach of a
representation or warranty or a violation of a covenant by the Company under
this Agreement or trigger the provisions of Section 6 or Section 15.
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<PAGE> 35
17. MISCELLANEOUS.
17.1. Governing Law. This Agreement shall be governed in
all respects by and construed in accordance with the laws of the State of New
York without regard to provisions regarding choice of laws.
17.2. Survival. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by any party
hereto and the closing of the transactions contemplated hereby.
17.3. Successors and Assigns. Except as otherwise
expressly provided herein, the provisions hereof shall inure to the benefit of,
and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto whose rights or obligations hereunder are
affected by such amendments. The Notes and the rights and obligations therein
(including those under this Agreement) may not be assigned by the Noteholders
to a Person other than an Affiliate of the Noteholders without the advance
written consent of the Company, which consent may be withheld in the Company's
sole and absolute discretion. Any assignment or transfer of the Warrant shall
be governed by the terms and conditions set forth therein. This Agreement and
the rights and obligations therein may not be assigned by the Company without
the advance written consent of the Noteholders.
17.4. Entire Agreement. This Agreement, the Other
Transaction Documents and the Exhibits and Schedules hereto and thereto (all of
which are hereby expressly incorporated herein by this reference) constitute
the entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
17.5. Notices. Except as may be otherwise provided herein,
all notices and other communications required or permitted hereunder shall be
in writing and shall be conclusively deemed to have been duly given (a) when
hand delivered to the other party; (b) when received when sent by facsimile to
number set forth below (provided, however, that notices given by facsimile
shall not be effective unless either (i) a duplicate copy of such facsimile
notice is promptly given by one of the other methods described in this Section
17.5, or (ii) the receiving party delivers a written confirmation of receipt
for such notice either by facsimile or any other method described in this
Section 17.5; and (c) the next business day after deposit with a national
overnight delivery service, postage prepaid, addressed to the parties as set
forth below with next-business-day delivery guaranteed, provided that the
sending party receives a confirmation of delivery from the delivery service
provider.
<TABLE>
<CAPTION>
TO: THE NOTEHOLDERS TO: THE COMPANY
<S> <C>
c/o SAC Capital Advisors, LLC Substance Abuse Technologies, Inc.
777 Long Ridge Road 4517 NW 31st Avenue
Stamford, CT 06902 Ft. Lauderdale, FL 33369
Fax No.: (203) 614-2100 Fax No.: (954) 714-5049
Attn: Scott J. Lederman, Esq. Attn: Robert Stutman
</TABLE>
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<PAGE> 36
A party may change or supplement the addresses given above, or designate
additional addresses, for purposes of this Section 17.5 by giving the other
party written notice of the new address in the manner set forth above.
17.6. Amendments. Any term of this Agreement may be
amended only with the written consent of Company and the Noteholders.
17.7. Delays or Omissions. No delay or omission to
exercise any right, power or remedy accruing to Company or to the Noteholders,
upon any breach or default of any party hereto under this Agreement, shall
impair any such right, power or remedy of Company or the Noteholders, nor shall
it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of Company or the Noteholders of any breach or default under this
Agreement and any waiver on the part of Company or the Noteholders of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, or by law or otherwise, afforded to
Company or the Noteholders shall be cumulative and not alternative.
17.8. Legal Fees. The Company shall promptly reimburse the
Noteholders for any expenses, including reasonable attorneys' fees, incurred by
the Noteholders in any action at law, suit in equity, arbitration proceeding or
otherwise in enforcing any of their rights under this Agreement, the Notes or
the Other Transaction Documents.
17.9. Transaction Expenses. The Company shall promptly
reimburse the Noteholders' for all the costs and expenses (including reasonable
attorneys' fees) incurred by the Noteholders in connection with investigating,
negotiating and entering into the transactions contemplated under this
Agreement and the Other Transaction Documents; provided, however, that the
Company shall not be obligated to reimburse the Noteholders for (i) any
attorneys' fees incurred by the Noteholders in excess of Twenty Five Thousand
Dollars ($25,000) and (ii) for travel and lodging expenses of the executives of
S.A.C. Capital Associates, LLC incurred in connection with the transactions
contemplated hereunder.
17.10. Finder's Fees. Each party (a) represents and
warrants to the other party hereto that it has retained no finder or broker and
will pay no finder's fee in connection with the transactions contemplated by
this Agreement, and (b) hereby agrees to indemnify and to hold harmless the
other party hereto from and against any liability for any commission or
compensation in the nature of a finder's fee claimed by any broker or other
person or firm (and the costs and expenses of defending against such liability
or asserted liability) for which the indemnifying party or any of its employees
or representatives are responsible.
17.11. Titles and Subtitles. The titles of the Sections and
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
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<PAGE> 37
17.12. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
17.13. Severability. Should any provision of this Agreement
be determined to be illegal or unenforceable, such determination shall not
affect the remaining provisions of this Agreement.
17.14. Public Disclosure. Each party hereto agrees that
neither it nor its Affiliates shall make any public statement or issue any
press release relating to this Agreement, the Other Transaction Documents or
the transactions contemplated hereby or thereby, without the prior consent and
approval of the other party, unless such party determines that such disclosure
is required by law, in which case a copy of the disclosure shall provided to
the other party for review and comment a reasonable time prior to public
disclosure.
17.15. Appraisal Remedy. In case of any dispute as to
valuation of a security under this Agreement, the fair value of such security
shall be determined by an appraiser without any discount for liquidity or
restrictions under the Securities Act. This appraisal process shall be
instituted within fourteen (14) days after a party to this Agreement notifies
the other party of its desire to submit the issue to an appraiser. In the
event the parties do not agree on an appraiser within seven (7) days after a
party to this Agreement notifies the other party of its desire to submit the
issue to an appraiser, the fair value of such security shall be determined,
without any discount for liquidity or restrictions under the Securities Act, by
the majority determination of a panel of three (3) appraisers who shall be
selected in the following manner: the Company shall select one (1) appraiser
and the Noteholders shall jointly select one (1) appraiser and the two (2)
appraisers selected by the Company and the Noteholders shall jointly select a
third appraiser. The appraiser selected jointly by the parties and, if
applicable, each member of the appraisal panel shall be an individual who
personally and whose Affiliates shall not have a previous business relationship
with either party. The appraiser and, if applicable, the appraisal panel shall
endeavor to complete the appraisal as soon as practicable. The determination
of such appraiser and , if applicable, the appraisal panel shall be final and
binding on the Company and the Noteholders, and the fees and expenses of such
appraisal shall be borne equally by the Company, on the one hand, and the
Noteholders, on the other.
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<PAGE> 38
IN WITNESS WHEREOF, the parties have executed this Convertible
Loan and Warrant Agreement to be effective as of the date first above written.
S.A.C. CAPITAL ASSOCIATES, LLC SUBSTANCE ABUSE TECHNOLOGIES, INC.
By: By:
---------------------------- --------------------------------
Name: Name:
Title: Title:
STEVEN A. COHEN
By:
----------------------------
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<PAGE> 39
EXHIBIT A
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is made as of the 8th day of
November 1996 (the "Effective Date"), by and between Substance Abuse
Technologies, Inc., a Delaware corporation (the "Company"), on the one hand,
and on the other hand, S.A.C. Capital Associates, LLC, an Anguilla limited
liability company, and Steven A. Cohen (together, the "Stockholders").
RECITALS
WHEREAS, the Company and the Stockholders are parties to a Convertible
Loan and Warrant Agreement, dated November 8, 1996 (the "Note Agreement"),
pursuant to which the Company issued Convertible Notes and Warrants to the
Stockholders;
WHEREAS, the Stockholders may acquire shares of the Common Stock of
the Company, $0.01 par value (the "Common Stock"), under the Convertible Notes
and the Warrants; and
WHEREAS, the Note Agreement provides that the Company shall extend
certain registration rights to the Stockholders;
NOW, THEREFORE, the parties hereby agrees as follows:
1. Registration Rights. The Company covenants and agrees as
follows:
1.1 Definitions. For purposes of this Agreement:
(a) The term "register", "registered", and "registration"
refer to a registration affected by preparing and filing a registration
statement or similar document in compliance with the Securities Act of 1933, as
amended (the "Act"), and the use, by the Company, of its best efforts to cause
the declaration or ordering of effectiveness of such registration statement or
document.
(b) The term "Underlying Common Stock" means (1) any of
the shares of Common Stock issued pursuant to the Note Agreement, upon
conversion of the Convertible Notes and/or upon exercise of the Warrants, and
(2) any shares of the Common Stock of the Company issued as (or issuable upon
the conversion or exercise of any warrant, right or other security which is
issued as) a dividend or other distribution with respect to, or in exchange for
or in replacement of, the shares of Common Stock issued or issuable under the
Convertible Notes and the Warrants, excluding in all cases, however, any
Underlying Common Stock sold by a person in a transaction in which his, her or
its rights under this Section 1 are not assigned.
(c) The term "Holder" means any person owning or having
the right to acquire Underlying Common Stock or any assignee thereof in
accordance with Section 1.10 hereof.
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<PAGE> 40
1.2 Company Registration.
(a) Piggyback Registration Rights. If, at any time after
the Effective Date (but without any obligation to do so), the Company proposes
to register (including for this purpose a registration effected by the Company
for stockholders other than the Holders) any of its stock or other securities
under the Act in connection with the public offering of such securities solely
for cash (other than a registration statement or Form S-8 or Form S-4 or any
successor form thereto), the Company shall, at such time, promptly give each
Holder written notice of such registration. The Company shall, subject to the
provisions of Section 1.8, cause to be registered under the Act all of the
Underlying Common Stock owned by each Holder to be registered under the Act
under the proposed registration statement unless within twenty (20) days after
the mailing of the notice by the Company a Holder gives the Company written
notice in accordance with Section 2.5 that he does not want all or a portion of
the Underlying Common Stock held by him to be so registered.
(b) Demand Registration Rights. In the event that any of
the Underlying Common Stock, when issued to a Holder, are "restricted
securities" as defined in Rule 144 under the Act (or in any successor rule),
the Holders may demand that the Company register under the Act, all or a
portion of the Underlying Common Stock owned by the Holders. Such demand may
only be made one time in the aggregate for all of the Holders.
1.3 Obligations of the Company. Whenever undertaking
under this Section 1 to effect the registration of any Underlying Common Stock,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration
statement with respect to such Underlying Common Stock and use its best efforts
to cause such registration statement to become effective and keep such
registration statement effective for one hundred eighty (180) days or such
shorter period as requested by the Holders of a majority of the Underlying
Common Stock registered thereunder.
(b) Prepare and file with the Commission such amendments
and supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply with
the provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Underlying Common Stock owned
by them.
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under any applicable rule of
an exchange or Nasdaq and under such other securities or Blue Sky laws of the
States of Florida, California, Connecticut and New York, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions.
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<PAGE> 41
(e) In the event that an underwritten public offering is
utilized under the registration described in Section 1.2(a) or is demanded for
the registration described in Section 1.2(b), include the Underlying Common
Stock in such underwritten public offering and enter into and perform its
obligations under an underwriting agreement, in usual and customary form, with
the managing underwriter of such offering. Each Holder participating in such
underwriting shall also enter into and perform its obligations under such an
agreement.
(f) Notify each Holder of the Underlying Common Stock
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state 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.
(g) Furnish, at the request of any Holder requesting
registration of Underlying Common Stock pursuant to this Section 1, on the date
that such Underlying Common Stock are delivered to the underwriters for sale in
connection with a registration pursuant to this Section 1, if such securities
are being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of the Underlying Common Stock and (ii) a letter dated such date,
from the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of the
Underlying Common Stock.
1.4 Furnish Information. It shall be a condition
precedent to the obligations of the Company to take any action pursuant to this
Section 1 with respect to the Underlying Common Stock of any selling Holder
that such Holder shall furnish to the Company such information regarding
itself, the Underlying Common Stock held by it, and the intended method of
disposition of such securities as shall be required to effect the registration
of such Holder's Underlying Common Stock.
1.5 Expenses of Registration. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification, to the extent set forth in Section 1.3, of the Underlying Common
Stock with respect to the first registration pursuant to Section 1.2 for each
Holder (which right may be assigned as provided in Section 1.10), including
(without limitation) all registration, filing, and qualification fees, printers
and accounting fees relating or apportionable thereto, but excluding
underwriting discounts and commissions relating to Underlying Common Stock.
1.6 Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock,
the Company shall not be required under Section 1.2 to include any of the
Holders' securities in such underwriting unless they accept the
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<PAGE> 42
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
good faith will not, jeopardize the success of the offering by the Company. If
the total amount of securities, including Underlying Common Stock, requested by
shareholders to be included in such offering exceeds the amount of securities
sold other than by the Company that the underwriters determine in their sole
discretion is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Underlying Common Stock, which the underwriters determine
in good faith will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among the selling shareholders according
to the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders). For purposes of the preceding parenthetical
concerning apportionment, for any selling shareholder which is a holder of
Underlying Common Stock and which is a partnership or corporation, the
partners, retired partners and shareholders of such holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
shareholder", and any pro rata reduction with respect to such "selling
shareholder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"selling shareholder", as defined in this sentence.
1.7 Delay of Registration. No Holder shall have any right
to obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
1.8 Indemnification. In the event any Underlying Common
Stock are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder who is not a director or executive
officer of the Company, any underwriter (as defined in the Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, or the 1934 Act or
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation"): (i) any untrue statement or alleged untrue statement of a
material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged violation
by the Company of the Act, the 1934 Act, any state securities law or any rule
or regulation promulgated under the Act, or the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.8(a) shall not apply to amounts paid
in settlement of any such loss,
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<PAGE> 43
claim, damage, liability, or action if such settlement is effected without the
consent of the Company, nor shall the Company be liable in any such case for
any such loss, claim, damage, liability, or action to the extent that it arises
out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder
will indemnify and hold harmless the Company, each of its directors, each of
its officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Act, any underwriter, any
other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the
foregoing persons may become subject, under the Act, or the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this subsection 1.8(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 1.8(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder.
(c) Promptly after receipt by an indemnified party under
this Section 1.8 of notice of the commencement of any action (including any
governmental action) such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.7, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.8, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.8.
(d) If the indemnification provided for in this Section
1.8 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to therein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion
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<PAGE> 44
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 that resulted in such loss, liability, claim, damage,
or expense 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 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.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this
Section 1.8 shall survive the completion of any offering of Underlying Common
Stock in a registration statement under this Section 1, and otherwise.
1.9 Reports Under Securities Exchange Act of 1934. With a
view to making available to the Holders the benefits of Rule 144 promulgated
under the Act and any other rule or regulation of the Commission that may at
any time permit a Holder to sell securities of the Company to the public
without registration, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Commission Rule 144 promulgated under the
Act;
(b) file with the Commission in a timely manner all
reports and other documents required of the Company under the Act and the 1934
Act; and
(c) furnish to any Holder, so long as the Holder owns any
Underlying Common Stock, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144
promulgated under the Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), (ii) a copy of the most recent annual
and quarterly reports of the Company and such other report and documents so
filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the Commission
which permits the selling of any such securities without registration.
1.10 Assignment of Registration Rights. The rights to
cause the Company to register Underlying Common Stock pursuant to this Section
1 may be assigned (but only with all related obligations) by a Holder to a
transferee or assignee of such securities, provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted or subject to volume limitations under the Act.
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1.11 Termination of Registration Rights. No Holder shall
be entitled to exercise any right provided for in this Section 1 after November
6, 2002; provided that at least two registration statements of the Company have
been declared effective prior to such date with respect to which the Holders
are entitled to exercise the rights provided for in this Section 1.
2. Miscellaneous.
2.1 Successors and Assigns. Except as otherwise provided
herein, the terms and conditions of this Agreement shall inure to the benefit
of and be binding upon the respective successors and assigns of the parties
(including transferees of the Notes, the Underlying Common Stock or any shares
issued or issuable upon the exercise of the Warrants). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
2.2 Governing Law. This Agreement shall be governed by
and construed under the laws of the State of New York.
2.3 Counterparts. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
2.4 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
2.5 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given upon personal delivery to the party to be notified
or upon deposit with the United States Post Office, by registered or certified
mail, postage prepaid or upon deposit with an express courier, addressed to the
party to be notified at the address indicated for such party on the signature
page hereof, or at such other address as such party may designate by ten (1)
days advance written notice to the other parties.
2.6 Expenses. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
2.7 Amendments and Waivers. The Company and Holders of
50% of the Underlying Common Stock (to the extent issued and outstanding) and
of Notes representing 50% of the Outstanding Balance (to the extent issued and
outstanding) (as defined in the Note Agreement) can agree to an amendment of,
or a waiver to, the terms of this Agreement.
2.8 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
S.A.C. CAPITAL ASSOCIATES, LLC SUBSTANCE ABUSE TECHNOLOGIES, INC.
Address for Notice: Address for Notice:
c/o S.A.C. Capital Advisors, LLC 4517 NW 31st Avenue
777 Long Ridge Road Ft. Lauderdale, FL 33369
Stamford, CT 06902
By: By:
---------------------------- ----------------------------
Name: Name:
Title: Title:
STEVEN A. COHEN
Address for Notice:
c/o S.A.C. Capital Advisors, LLC
777 Long Ridge Road
Stamford, CT 06902
- ----------------------------------
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EXHIBIT B
CONVERTIBLE SENIOR PROMISSORY NOTE
$____________ New York, New York
November 8, 1996 (the "Effective Date)
FOR VALUE RECEIVED, Substance Abuse Technologies, Inc. ("Debtor"), promises to
pay to __________________ ("Lender"), the principal sum of
________________________ ($_________) and to pay interest on the outstanding
principal of this Convertible Senior Promissory Note (this "Note"), in
accordance with Section 2 of this Note. This Note is delivered simultaneously
with the delivery of a Convertible Senior Promissory Note of even date herewith
(the "Other Note") by the Company to ___________________________ (the "Other
Note Holder"), in connection with, and subject to the terms and conditions set
forth in, that certain the Convertible Loan and Warrant Agreement of even date
herewith (the "Purchase Agreement") between Debtor, on the one hand and on the
other hand, Lender and the Other Note Holder. Capitalized Terms not defined in
this Note shall have the meaning set forth in the Purchase Agreement.
1. Maturity. The term of this Note will begin on the Effective
Date and end on the third anniversary of the Effective Date (the "Maturity
Date"). To the extent not previously converted into securities of Debtor
pursuant to the Purchase Agreement, the entire unpaid principal balance under
this Note (such unpaid principal balance is referred to as the "Outstanding
Balance") shall be due and payable on the Maturity Date.
2. Interest. Interest on the Outstanding Balance will accrue
from the Effective Date at the rate of seven percent (7%) per annum, calculated
on the basis of a 360 day year and actual days elapsed until the entire
Outstanding Balance has been repaid or has been converted pursuant to the
Purchase Agreement. The Company will pay to Lender all interest accrued on the
Outstanding Balance in quarterly installments with each installment due and
payable on March 15, June 15, September 15 and December 15 (or the first
business day after such dates) of each year during the term of this Note (such
that the first installment of interest shall accrue from the Effective Date
through and be due and payable on December 15, 1996), except that all accrued
but unpaid interest shall at Lender's option (A) remain due and payable and
accrue at the rate set forth in Section 13.2(ii) of the Purchase Agreement, or
(B) shall be converted to principal and the Outstanding Balance shall be
correspondingly increased.
3. Prepayment; Acceleration. The Outstanding Balance and all
accrued interest and any and all other sums payable to Lender hereunder may not
be prepaid prior to the Maturity Date without the consent of Lender in its sole
and absolute discretion. All prepayments so permitted shall be applied first
against the costs and expenses of collection (if any) then against the
Outstanding Balance. The Outstanding Balance is subject to acceleration at the
option of Lender as set forth in the Purchase Agreement. Following any such
acceleration, Lender shall have the rights and remedies set forth under the
Purchase Agreement.
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4. Default. Debtor will be deemed to be in default hereunder
upon any default under this Note, the Other Note or the Purchase Agreement and
thereafter Lender shall be entitled to exercise all rights and remedies
provided for herein, under the Purchase Agreement and by law or equity. Any
default under this Note is subject to the terms of the Purchase Agreement.
5. Miscellaneous.
(a) Debtor hereby waives presentment, demand, protest, notice of
dishonor, diligence and all other notices, any release or discharge arising
from any extension of time, discharge of a prior party, release of any or all
of any security given from time to time for this Note (if any), or other cause
of release or discharge other than actual payment in full hereof.
(b) No delay or omission to exercise any right, power or remedy
accruing to Lender, upon any breach or default of any party hereto under this
Note or the Purchase Agreement, shall impair any such right, power or remedy of
Lender, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of any similar breach or default thereafter
occurring; nor shall any waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of Lender of any breach or default under this Note or the
Purchase Agreement and any waiver on the part of Lender of any provisions or
conditions of this Note or the Purchase Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Note, the Purchase Agreement, or by law or
otherwise, afforded to Lender shall be cumulative and concurrent, and shall not
be alternative. The acceptance at any time by Lender of any past-due amount
shall not be deemed to be a waiver of the right to require prompt payment when
due of any other amounts then or thereafter due and payable.
(c) Time is of the essence hereof.
(d) The remedies of Lender as provided herein and in the Purchase
Agreement, or any one or more of them, or in law or in equity, shall be
cumulative and concurrent, and may be pursued singularly, successively or
together at Lender's sole discretion, and may be exercised as often as occasion
therefor shall occur.
(e) It is expressly agreed that if this Note is referred to an
attorney or if suit is brought to collect or interpret this Note or any part
hereof or to enforce or protect any rights conferred upon Lender by this Note
or any other document evidencing or securing this Note, then Debtor promises
and agrees to pay all costs, including reasonable attorneys' fees, incurred by
Lender.
(f) If any provisions of this Note would require Debtor to pay
interest hereon at a rate exceeding the highest rate allowed by applicable law,
Debtor shall instead pay interest under this Note at the highest rate permitted
by applicable law.
(g) This Note and the rights and obligations herein (including
those under the Purchase Agreement) may not be assigned by Lender to a Person
other than an Affiliate without the advance written consent of Debtor which
consent may be withheld in the Company's sole and
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absolute discretion. This Note and the rights and obligations herein may not
be assigned by Debtor without the advance written consent of Lender.
(h) Any term of this Note may be amended only with the written
consent of Lender.
(i) The shares of Common Stock issuable under this Note are
subject to a Registration Rights Agreement with the Debtor dated November 8,
1996.
(j) This Note shall be governed in all respects by and construed
in accordance with the laws of the State of New York without regard to
provisions regarding choice of laws.
IN WITNESS WHEREOF, Debtor has executed this Convertible Senior
Promissory Note as of the date first above written.
SUBSTANCE ABUSE TECHNOLOGIES, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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EXHIBIT C
WARRANT
WARRANT NO. SHARES
NO SALE, OFFER OR TRANSFER OF THIS WARRANT SHALL BE MADE UNLESS A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED, WITH RESPECT TO SUCH
TRANSACTION IS THEN IN EFFECT OR SUCH TRANSFER IS EXEMPT FROM
REGISTRATION UNDER SUCH ACT.
WARRANT
TO SUBSCRIBE FOR AND PURCHASE SHARES OF
COMMON STOCK OF
SUBSTANCE ABUSE TECHNOLOGIES, INC.
This certifies that, for value received, ______________________ or its
registered assigns (the "Holder"), is entitled, subject to the terms and
conditions of this Warrant, at any time or from time to time at or after July
1, 1997 (the "Commencement Date") and at or before 5:00 P.M., New York time, on
June 30, 2000 (the "Expiration Date"), to subscribe for and purchase an
aggregate of _________________________ (___________) fully paid and
non-assessable shares of the common stock, $.01 par value ("Common Stock"), of
Substance Abuse Technologies, Inc. (the "Company"), at a purchase price of
$2.00 per share (the "Purchase Price"), upon surrender of this Warrant and
payment of the Purchase Price to the Company at its principal office (currently
4517 NW 31st Avenue, Ft. Lauderdale, FL 33369) or at such other place as the
Company may designate by written notice to the Registered Holders. The number
of shares of Common Stock issuable upon exercise of this Warrant and the
Purchase Price are subject to adjustment and change as provided herein (any
reference hereinafter to Purchase Price shall mean the Purchase Price as
adjusted pursuant the terms of this Warrant). This Warrant is issued pursuant
to that certain Convertible Loan and Warrant Agreement, dated November 8, 1996
(the "Effective Date"), between the Company and the Holders (the "Purchase
Agreement").
1. CERTAIN DEFINITIONS.
As used in this Warrant the following terms shall have the following
respective meanings:
"Convertible Securities" shall mean any stock or securities (directly
or indirectly) convertible into Common Stock.
"Market Price" as to any security on any day shall mean the closing
sale price of such security as reported for such day pursuant to the
consolidated quotation system or any other transaction reporting plan under
Section 11A of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or, if there have been no sales so reported for such day, the average of
the best bid and best offer prices quoted under the consolidated quotation
system or any other such transaction reporting plan as of 4:00 P.M., New York
time, on such day, or, if on any day such
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security is not so quoted, the average of the best bid and best offered prices
on such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor or comparable
organization. If at any time such security is not listed on any domestic
securities exchange or quoted under a transaction reporting plan or in the
domestic over-the-counter market, the "Market Price" shall be the fair value
thereof determined jointly by the Company and the Registered Holders; provided
that if such parties are unable to reach agreement as to the Market Price, the
Market Price shall be determined by appraisal as set forth in Section 12 of
this Warrant.
"Note" shall mean Convertible Senior Promissory Notes, dated November
8, 1996, executed by the Company pursuant to the Purchase Agreement.
"Options" means any rights, warrants or options to subscribe for or
purchase Common Stock or Convertible Securities.
"Person" shall mean any natural person and any corporation,
partnership, limited liability company, joint venture, association, joint-stock
partnership, trust, unincorporated organization or government or other agency
or political subdivision thereof.
"Registered Holder" shall mean any Person in whose name this Warrant
is registered upon the books and records maintained by the Company.
"Subsidiary" shall mean, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock entitled (without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a
majority of the partnership or other similar ownership interest thereof is at
the time owned or controlled, directly or indirectly, by an Person or one or
more Subsidiaries of that Person or a combination thereof. For purposes
hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a limited liability company, partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
limited liability company, partnership, association or other business entity
gains or losses or shall be or control any managing director or general partner
of such limited liability company, partnership, association or other business
entity.
"Underlying Common Stock" shall mean (i) the shares of Common Stock
issued or issuable upon exercise of the Warrant and (ii) any Common Stock
issued or issuable with respect to the securities referred to in clause (i)
above by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
"Warrant" as used herein, shall include this Warrant and any warrant
delivered in substitution or exchange therefor as provided herein.
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2. EXERCISE
2.1 Exercise Period. The Warrants shall not be exercisable in
whole or in part until the Commencement Date. On and after the Commencement
Date, the Warrant shall be exercisable only to the extent that the number of
shares of Common Stock that the Registered Holder is deemed to beneficially own
as a result of the Warrant, when added to the number of shares of Common Stock
otherwise beneficially owned by the Registered Holder, does not result in the
Registered Holder being deemed the beneficial owner of greater than ten percent
(10%) of shares of Common Stock, all as determined under Rule 16a-1(a)(1) under
the Securities Exchange Act of 1934, as amended, or any successor rule.
Notwithstanding the immediately preceding sentence, except as provided in
Section 4.1 of this Warrant, the Warrant shall be fully exercisable at any time
during the 30-day period immediately prior to the Expiration Date.
2.2 Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items:
(a) an Election to Purchase in the form attached hereto
as Exhibit A, properly completed and executed by the Person (the
"Purchaser") exercising all or part of the purchase rights represented
by this Warrant;
(b) this Warrant;
(c) if this Warrant is not registered in the name of the
Purchaser, an Assignment or Assignments in the form set forth in
Exhibit B hereto evidencing the assignment of this Warrant to the
Purchaser, in which case the Registered Holder shall have complied
with the provisions set forth in Section 7.1 hereof; and
(d) either (1) a check or wire transfer payable to the
Company in an amount equal to the product of the Purchase Price
multiplied by the number of shares of Common Stock being purchased
upon such exercise (the "Aggregate Exercise Price"), (2) a written
notice to the Company that the Purchaser is exercising the Warrant (or
a portion thereof) by authorizing the Company to withhold from
issuance a number of shares of Common Stock issuable upon such
exercise of the Warrant which when multiplied by the Market Price of
Common Stock is equal to the Aggregate Exercise Price (and such
withheld shares of Common Stock shall no longer be issuable under this
Warrant), provided that the Purchase Price may be paid under the
foregoing Section 2.2(i)(d)(2) only in the event that either (A) the
SEC (or any applicable state) has not declared effective the
registration statement described under Section 6 hereof by the
Commencement Date, or (B) the Company has failed to file such
amendments and/or supplements to any such registration statement
covering the Company's offer and sale of the Underlying Common Stock
or to supplement and keep current any prospectus forming a part of
such registration statement as may be necessary to permit the Company
to deliver to a Registered Holder upon any sale by the Company of the
Underlying Common Stock a prospectus meeting the requirements of the
Securities Act of 1933, as amended (the "Securities Act") and the
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<PAGE> 53
regulations of the SEC thereunder, and as may be necessary to comply
with any applicable state securities laws, and such failure has
continued for a period of fifteen (15) days, or (3) if the Holder
holds a Note, a written notice to the Company that the Holder is
exercising the Warrant (or a portion thereof) by authorizing the
Company to withhold and apply such amount of the accrued but unpaid
interest under the Note as is equal to the Aggregate Purchase Price
(and such amount of the accrued and unpaid interest under the Note
shall no longer be payable to the Holder).
(ii) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within three (3) business days after the date of the exercise, together with
cash in lieu of any fraction of a share of Common Stock that would be issuable
upon such exercise in an amount equal to the Market Price of such fractional
share as of the date of exercise. No fractional shares of Common Stock or
scrip representing fractional shares Common Stock shall be issued upon an
exercise of this Warrant. Unless this Warrant has expired or all of the
purchase rights represented hereby have been exercised, the Company shall
prepare a new Warrant, substantially identical hereto, representing the rights
formerly represented by this Warrant which have not expired or been exercised
and shall within such three (3) day period, deliver such new Warrant to the
Purchaser.
(iii) The shares of Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the time of
exercise, and the Purchaser shall be deemed for all purposes to have become the
record holder of such Common Stock at such time.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely
exercise of this Warrant. The Company shall from time to time take all such
action as may be necessary to assure that the par value per share of the
unissued Common Stock acquirable upon exercise of this Warrant is at all times
equal to or less than the Purchase Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser to make any governmental filings or obtain any governmental
approvals required prior to or in connection with any exercise of this Warrant
(including, without limitation, making any filings required to be made by the
Company).
3. EXPIRATION DATE
The Warrant evidenced hereby may not be exercise before the
Commencement Date or after the Expiration Date with respect to the shares of
the Common Stock as to which the Warrant may be exercised and, to the extent
not exercised by the Expiration Date, the Warrant evidenced hereby shall become
void.
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4. ADJUSTMENTS
Subject to the provisions of this Section 4, the Purchase Price and
the number of shares of the Common Stock as to which the Warrant may be
exercised shall be subject to adjustment from time to time as hereinafter set
forth:
4.1 Adjustment of Number of Shares Upon Adjustment of Purchase
Price Under the Note. In the event that before May 1, 1998, the Conversion
Price (as defined in the Purchase Agreement) is reduced pursuant to Section 6.1
of the Purchase Agreement, then this Warrant and any other Warrant collectively
shall cease to be exercisable with respect to that number of shares of Common
Stock equal to (i) the Initial Purchase Amount (as defined below), multiplied
by (ii) a fraction the numerator of which is equal to the amount obtained by
subtracting the Conversion Price immediately after the decrease in the
Conversion Price pursuant to Section 6.1 of the Purchase Agreement from the
Conversion Price immediately prior to such decrease and the denominator of
which is the Conversion Price immediately after such decrease, minus (iii) the
number of shares of Common Stock theretofore issued upon conversion of the
Notes (such number to be adjusted to reflect any changes in capitalization
described in Section 4.5), and divided by (iv) 2.2727; provided that the number
of shares of Common Stock for which this Warrant shall cease to be exercisable
pursuant to this Section 4.1 shall not exceed twenty percent (20%) of the
Initial Purchase Amount. For purposes of this Section 4.1, the term "Initial
Purchase Amount" shall mean the number of shares of Common Stock for which this
Warrant was potentially exercisable on November 7, 1996, as adjusted pursuant
to Section 4.5 and 4.7 of this Warrant.
4.2 Expression of Purchase Price and Number of Shares.
Irrespective of any adjustments or change in the Purchase Price or the number
of securities actually purchasable under the Warrant, the Warrants theretofore
and thereafter issued may continue to express the purchase price and the number
of securities purchasable thereunder as the Purchase Price and the number of
securities purchasable were expressed in the Warrant when initially issued.
4.3 Effect on Purchase Price and Number of Shares of Certain
Events. If and whenever on or after the Effective Date, the Company issues or
sells any share of Common Stock (other than upon exercise of an Option or
conversion of Convertible Securities outstanding immediately before the
Effective Date), or in accordance with this Section 4.3 is deemed to have
issued or sold any share of Common Stock, for a consideration per share less
than the Purchase Price in effect immediately prior to such time, then
immediately upon such issuance or sale the Purchase Price shall be reduced to
the price per share at which such share of Common Stock has been issued or sold
or is deemed pursuant to this Section 4 to have been issued or sold. Upon each
such adjustment of the Purchase Price, the number of shares of Common Stock
issuable upon the exercise of each Warrant (to the extent not theretofore
exercised) shall be increased to a number determined by multiplying the number
of such shares so purchasable immediately prior to such adjustment by a
fraction, the numerator of which shall be the Purchase Price in effect
immediately prior to such adjustment and the denominator of which shall be the
Purchase Price in effect immediately after such adjustment. For purposes of
determining the adjusted Purchase Price under this Section 4.3, the following
shall be applicable:
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(i) Issuance of Rights or Options. If on or after the
Effective Date the Company in any manner issues, grants or sells any Options
and the price per share for which a share of Common Stock is issuable upon the
exercise of any such Option, or upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option, is less than the Purchase Price
in effect immediately prior to the time of the granting or sale of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For purposes of this
Section 4.3(i), the "price per share for which a share of Common Stock is
issuable" shall be equal to the sum of the amount of consideration (if any)
received or receivable by the Company with respect to the issuance, grant or
sale of the Option, plus the amount of consideration (if any) that would be
received by the Company with respect to exercise of the Option in full plus the
amount of consideration (if any) that would be received by the Company with
respect to conversion or exchange in full of any Convertible Security issuable
upon exercise of such Option, all divided by the total number of shares of
Common Stock issuable upon exercise of the Option and conversion or exchange of
the Convertible Security. No further adjustment of the Purchase Price shall be
made upon the actual issue of such Common Stock or of such Convertible Security
upon the exercise of such Options or upon the actual issue of such Common Stock
upon conversion or exchange of such Convertible Security.
(ii) Issuance of Convertible Securities. If on or after
the Effective Date the Company in any manner issues, grants or sells any
Convertible Security and the price per share for which a share of Common Stock
is issuable upon conversion or exchange thereof is less than the Purchase Price
in effect immediately prior to the time of such issue or sale, then such share
or shares of Common Stock shall be deemed to have been issued and sold by the
Company at such time for such price per share. For the purposes of this
Section 4.3(ii), the "price per share for which a share of Common Stock is
issuable" shall be equal to the sum of the amount of consideration (if any)
received or receivable by the Company with respect to the issuance, grant or
sale of the Convertible Security plus the amount of consideration (if any) that
would be received by the Company with respect to the conversion or exchange of
such Convertible Security in full, all divided by the total number of shares of
Common Stock issuable upon conversion or exchange of the Convertible Security.
No further adjustment of the Purchase Price shall be made upon the actual issue
of such Common Stock upon conversion or exchange of any Convertible Security,
and if any such issue or sale of such Convertible Security is made upon
exercise of any Options for which adjustments of the Purchase Price has been or
is to be made pursuant to other provisions of this Section 4, no further
adjustment of the Purchase Price shall be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the
amount to be received by the Company upon the exercise of any Options
outstanding as of the Effective Date, the additional consideration, if any,
payable upon the issuance, conversion or exchange of any Convertible Securities
outstanding as of the Effective Date, or the rate at which any Convertible
Securities outstanding as of the Effective Date are convertible into or
exchangeable for Common Stock changes at any time after the Effective Date,
then such Option or Convertible Security and the Common Stock deemed issuable
upon exercise, conversion or exchange thereof shall be deemed for purposes of
this Section 4.3 to have been issued as of the date of such changes;
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provided that no such change shall at any time cause the Purchase Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised
Convertible Securities. Upon the expiration of any Option described in Section
4.3(i) or the termination of any right to convert or exchange any Convertible
Securities described in Section 4.3(ii) without the exercise or conversion in
whole or in part of such Option or Convertible Security, the Purchase Price
then in effect and the number of shares of Common Stock issuable hereunder
shall be adjusted immediately to the Purchase Price and the number of shares of
Common Stock which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, never been issued,
granted or sold; provided that if such expiration or termination would result
in an increase in the Purchase Price then in effect, such increase shall not be
effective until the later of (A) the date of such expiration or termination and
(B) thirty (30) days after the Company has delivered notice of such expiration
or termination to the Noteholders. For purposes of this Section 4.3, the
expiration or termination of any Option or Convertible Security which was
outstanding as of the Effective Date shall not cause the Purchase Price
hereunder to be adjusted unless, and only to the extent that, a change in the
term of such Option or Convertible Security caused it to be deemed to have been
issued after the Effective Date pursuant to Section 4.3(iii).
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount of
consideration received by the Company shall be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving corporation, the amount
of consideration therefor shall be deemed to be the fair value of such portion
of the net assets and business of the non-surviving entity as is attributable
to such Common Stock, Options or Convertible Securities, as the case may be.
The fair value of any consideration other than cash or securities shall be
determined jointly by the Company and the Registered Holders. If such parties
are unable to reach agreement, such fair value shall be determined by appraisal
pursuant to Section 12.
(vi) Integrated Transactions. In case any Option is
issued in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
shall be deemed to have been issued without consideration.
(vii) Each Series a Separate Security. In case an
agreement relating to Options or Convertible Securities provides that more than
one Purchase Price, conversion or exchange provisions are applicable to the
securities issuable thereunder, then the securities subject to each different
exercise price, conversion or exchange provisions shall be deemed to be subject
to separate Options or Convertible Securities for purposes of applying this
Section 4.3.
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(viii) Treasury Shares. The Common Stock outstanding at any
given time does not include shares owned or held by or for the account of the
Company or any Subsidiary, and the disposition of any shares so owned or held
shall be considered an issue or sale of Common Stock.
(ix) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (A) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (B) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date shall be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
4.4 Certain Sales of Common Stock. If and whenever on or after
the Effective Date the Company issues or sells, or in accordance with Section
4.3 is deemed to have issued or sold, any share of Common Stock for a
consideration per share that is equal to or greater than the Purchase Price in
effect immediately prior to such issuance or sale, but that does not exceed the
lower of the Market Price per share of Common Stock on the day of such issuance
or sale and One Hundred and Fifteen percent (115%) of the Purchase Price in
effect immediately prior to such issuance or sale, then immediately upon such
issuance or sale the Purchase Price shall be reduced to the price determined by
multiplying the Purchase Price in effect immediately prior to such issuance or
sale by a fraction, the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issuance or
sale multiplied by the Market Price per share of Common Stock on the day of
such issuance or sale, plus (ii) the number of shares issued or sold, or in
accordance with Section 4.3 deemed to have been issued or sold, multiplied by
the price per share at which such Common Stock was issued or sold, or in
accordance with Section 4.3 is deemed to be issued or sold, and the denominator
of which shall be the product of (A) the total number of shares of Common Stock
outstanding immediately after such issuance or sale, multiplied by (B) the
Market Price per share of Common Stock on the day of such issuance or sale.
Upon any calculation of the Purchase Price described in the first sentence of
this Section 4.4, the number of shares of Common Stock issuable upon the
exercise of each Warrant shall be increased to a number determined by
multiplying the number of such shares so purchasable immediately prior to such
adjustment by a fraction, the numerator of which shall be the Purchase Price in
effect immediately prior to such adjustment and the denominator of which shall
be the Purchase Price in effect immediately after such adjustment.
4.5 Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Purchase Price in effect immediately prior to
such subdivision shall be proportionately reduced, and the number of shares of
Common Stock obtainable upon exercise of this Warrant (to the extent not
theretofore exercised) and the Initial Purchase Amount shall be proportionally
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Purchase Price shall be proportionately
increased, and the number of shares of Common Stock issuable upon exercise of
this Warrant (to the extent not theretofore exercised) and the Initial Purchase
Amount shall be proportionally decreased.
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4.6 Reorganization, Reclassification, Consolidation, Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or the majority of the Company's assets or other
transaction, in each case which is effected in such a way that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "Organic Change." Prior to the
consummation of any Organic Change, the Company shall make appropriate
provision (in form and substance satisfactory to the Registered Holders) to
insure that each of the Registered Holders shall thereafter have the right to
acquire and receive, in lieu of or in addition to (as the case may be) the
shares of Common Stock immediately theretofore acquirable and receivable upon
the exercise of such Warrant, such shares of stock, securities or assets as may
be issued or payable in connection with such Organic Change with respect to or
in exchange for the number of shares of Common Stock issuable had this Warrant
been fully exercised immediately prior to such Organic Change. In any such
case, the Company shall make appropriate provision (in form and substance
satisfactory to the Registered Holders) with respect to such holders' rights
and interests to insure that the provisions of this Section 4 shall thereafter
be applicable to the Warrants (including, in the case of any such
consolidation, merger or sale in which the successor entity or purchasing
entity is other than the Company, an immediate reduction in the Purchase Price
to the value of the Common Stock reflected by the terms of such consolidation,
merger or sale, and a corresponding immediate adjustment in the number of
shares of Common Stock issuable upon exercise of this Warrant (to the extent
not theretofore exercised), if the value so reflected is less than the Purchase
Price in effect immediately prior to such consolidation, merger or sale). The
Company shall not effect any such consolidation, merger or sale, unless prior
to the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by written instrument (in form and substance satisfactory to the
Registered Holders), the obligation to deliver to each such holder such shares
of stock, securities or assets as, in accordance with the foregoing provisions,
such holder may be entitled to acquire.
4.7 Certain Events. If any event occurs of the type contemplated
by the provisions of this Section 4 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features or any
dividend or distribution of the capital stock issued by any Person other than
the Company), then the Company's Board of Directors shall make an appropriate
adjustment in the Purchase Price and the number of shares issuable upon
exercise of this Warrant (to the extent not theretofore exercised) and the
Initial Purchase Amount so as to protect the rights of the Registered Holders;
provided that no such adjustment shall increase the Purchase Price as otherwise
determined pursuant to this Section 4.
4.8 Calculation of Purchase Price; Notices.
(i) All calculations of the Purchase Price under this
Section 4 shall be computed to the nearest One-Thousandth (1/1000th) of a cent.
(ii) Immediately upon any adjustment of the Purchase
Price, the Company shall give written notice thereof to the Registered Holders,
setting forth in reasonable detail and certifying the calculation of such
adjustment, provided however, that such notice shall not be
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deemed to be conclusive as to the Purchase Price calculation. At the request
of a Registered Holder, the Company shall certify the Purchase Price of and the
number of shares for which a Warrant at the time may be exercised.
(iii) The Company shall given written notice to the
Registered Holders at least thirty (30) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any subdivision
or combination of the Common Stock that is subject to Section 4.5, or any other
dividend or distribution upon the Common Stock, (B) with respect to any pro
rata subscription offer to holders of Common Stock or (C) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation.
(iv) The Company shall also give written notice to the
Registered Holders at least thirty (30) days prior to the date on which any
Organic Change, dissolution or liquidation shall take place.
4.9 Excluded Transactions. The provisions of this Section 4 shall
not apply to the following transactions: (i) the conversion of the Notes and
exercise of the Warrant, (ii) the issuance of Common Stock in the acquisition
of the minority ownership interests in U.S. Drug Testing, Inc. and Good Ideas
Enterprises, Inc. as previously disclosed to the public, (iii) the acquisition
of any Person engaged exclusively in, or engaged in a business directly related
to, the business of substance abuse testing, (iv) conversion of shares of the
Series A Preferred Stock of the Company (the "Preferred Stock") outstanding as
of the Effective Date, in accordance with the terms of the Preferred Stock, (v)
transactions that are subject to Section 15.2 or Section 15.3 of the Purchase
Agreement, (vi) Options granted or to be granted to officers of the Company,
not previously employed by the Company, as an inducement essential to entering
into a contract of employment with the Company provided that the total number
of shares of Common Stock subject to all such excluded Options that may be
outstanding at any one time shall not exceed Two Hundred Fifty Thousand
(250,000) shares of Common Stock, and (vii) the issuance of 200,000 shares of
Common Stock to John Sloan described in Section 8.2(c).
5. NO RIGHTS OR LIABILITIES AS STOCKHOLDERS AND NOTICE TO REGISTERED
HOLDER
Nothing contained herein shall be construed as conferring upon the
Registered Holders the right to vote or to consent or to receive notice as a
stockholder in respect of the meetings of shareholders for the election of
directors of the Company or any other matter, or any other rights whatsoever as
a stockholder of the Company; provided, however, that in the event that:
(a) the Company shall take a record of the holders of its Common
Stock or other stock or securities for the purpose of entitling them to receive
any dividend or other distribution, or any right to subscribe for or purchase
any shares of stock of any class or any other securities or to receive any
other right;
(b) the Company shall take action to accomplish any capital
reorganization, or reclassification of the capital stock of the Company, or a
consolidation or merger of the Company into, or a sale of all or substantially
all of its assets to, another corporation;
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(c) the Company shall take action to redeem or convert any or all
of outstanding Common Stock or other stock or securities of the Company; or
(d) the Company shall take action looking to a voluntary
dissolution, liquidation or winding up of the Company;
then, and in each such case, the Company shall mail or cause to be mailed to
the Registered Holders of this Warrant a notice specifying, as the case may be,
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution or right, or (ii) the date on which such reorganization,
reclassification, consolidation, merger, conveyance, dissolution, liquidation,
winding-up, redemption or conversion is to take place, and the time, if any, is
to be fixed, as of which the holders of record of Common Stock or such other
stock or securities shall be entitled to exchange their shares of Common Stock
or such other stock or securities for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation, winding-up, conversion or redemption. Such notice
shall be delivered at least thirty (30) days prior to the date therein
specified.
6. DUTY TO REGISTER COMMON STOCK
Promptly after the Effective Date, the Company shall file a
registration statement with the Securities and Exchange Commission ("SEC")
under the Securities Act registering the Company's offer and sale of the
Underlying Common Stock and the Company shall use its best efforts to have the
SEC declare effective such registration statement within three (3) months after
the Effective Date. The Company shall similarly register the Company's offer
and sale of the Underlying Common Stock under any applicable state securities
laws. So long as any Warrants remain outstanding, the Company shall file such
amendments and/or supplements to any registration statement under the
Securities Act or under any state securities laws covering the offer and sale
of such Underlying Common Stock and supplement and keep current any prospectus
forming a part of such registration statement as may be necessary to permit the
Company to deliver to a Registered Holder upon any sale of the Underlying
Common Stock a prospectus meeting the requirements of the Securities Act and
the regulations of the SEC thereunder, and as may be necessary to comply with
any applicable state securities laws. The shares of Common Stock issuable
under this Warrant are subject to a Registration Rights Agreement with the
Company dated November 7, 1996.
7. TRANSFERS AND EXCHANGES
7.1 Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights
hereunder (including those under the Purchase Agreement) are transferable, in
whole or in part, without charge to the Registered Holders, upon surrender of
this Warrant with a properly executed Assignment (in the form of Exhibit B
hereto) at the principal office of the Company.
7.2 Warrant Exchangeable for Different Denominations. This
Warrant is exchangeable, upon the surrender hereof by the Registered Holders at
the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights
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hereunder, and each of such new Warrants shall represent such portion of such
rights as is designated by the Registered Holders at the time of such
surrender. The date the Company initially issues this Warrant shall be deemed
to be the "Date of Issuance" hereof regardless of the number of times new
certificates representing the unexpired and unexercised rights formerly
represented by this Warrant shall be issued. All Warrants representing
portions of the rights hereunder are referred to herein as the "Warrants."
8. VALID ISSUANCE AND PAYMENT OF TAXES
All shares of Common Stock issued upon the exercise of this Warrant
shall be validly issued, fully paid and non-assessable, and the Company shall
pay all taxes and other governmental charges that may be imposed in respect of
the issue or delivery thereof. The Company shall not be required to pay any
tax or other charge imposed in connection with any transfer involved in the
issuance of any certificate for shares of Common Stock in any name other than
that of the Registered Holder of this Warrant, and in such case the Company
shall not be required to issue or deliver any stock certificate or security
until such tax or other charge has been paid, or it has been established to the
Company's reasonable satisfaction that no tax or other charge is due.
9. MUTILATED OR MISSING WARRANTS
In case any of the Warrants shall be mutilated, lost, stolen or
destroyed, the Company shall issue and deliver in exchange and substitution
for, and upon cancellation of, the mutilated Warrant, or in lieu of, and in
substitution for, the Warrant lost, stolen or destroyed, a new Warrant of like
tenor and representing an equivalent right or interest, but only upon receipt
of reasonable evidence of such loss, theft, or destruction of such Warrant.
10. RESERVE
The Company hereby covenants that at all times there shall be reserved
for issuance such number and type of securities as the Registered Holders are
entitled to receive upon exercise of the Warrants. Prior to the issuance of
any equity securities (or any instrument exercisable for or convertible into
equity securities) and whenever otherwise required to satisfy this Section 10,
the Company will amend its Articles of Incorporation to the extent necessary to
ensure that there is reserved for issuance a sufficient quantity of such equity
securities (and Common Stock into which such equity securities may be
convertible) as the Registered Holders are entitled to receive upon exercise of
this Warrant.
11. NO IMPAIRMENT
The Company will not, by amendment of its Certificate of Incorporation
or bylaws, or through reorganization, consolidation, merger, dissolution, issue
or sale of securities, sale of assets or any other voluntary action, avoid or
seek to avoid the observance or performance of any of the terms of this
Warrant, but will at all times in good faith assist in the carrying out of all
such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Registered Holders against
impairment. Without limiting the generality of the foregoing, the Company (a)
shall not increase the par value of any shares issuable upon exercise
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of this Warrant above the Purchase Price and (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and non-assessable shares of Common Stock upon
exercise of this Warrant.
12. APPRAISAL
In case of any dispute as to valuation of a security under
this Agreement, the fair value of such security shall be determined by an
appraiser without any discount for liquidity or restrictions under the
Securities Act. This appraisal process shall be instituted within fourteen
(14) days after a party to this Agreement notifies the other party of its
desire to submit the issue to an appraiser. In the event the parties do not
agree on an appraiser within seven (7) days after a party to this Agreement
notifies the other party of its desire to submit the issue to an appraiser, the
fair value of such security shall be determined, without any discount for
liquidity or restrictions under the Securities Act, by the majority
determination of a panel of three (3) appraisers who shall be selected in the
following manner: the Company shall select one (1) appraiser and the
Registered Holders shall jointly select one (1) appraiser and the two (2)
appraisers selected by the Company and the Registered Holders shall jointly
select a third appraiser. The appraiser selected jointly by the parties and,
if applicable, each member of the appraisal panel shall be an individual who
personally and whose Affiliates shall not have a previous business relationship
with either party. The appraiser and, if applicable, the appraisal panel shall
endeavor to complete the appraisal as soon as practicable. The determination
of such appraiser and , if applicable, the appraisal panel shall be final and
binding on the Company and the Registered Holders, and the fees and expenses of
such appraisal shall be borne equally by the Company, on the one hand, and the
Registered Holders, on the other.
13. NOTICES
Except as may be otherwise provided herein, all notices and
other communications required or permitted hereunder shall be in writing and
shall be conclusively deemed to have been duly given (a) when hand delivered to
the other party; (b) when received when sent by facsimile to number set forth
below (provided, however, that notices given by facsimile shall not be
effective unless either (i) a duplicate copy of such facsimile notice is
promptly given by one of the other methods described in this Section 13, or
(ii) the receiving party delivers a written confirmation of receipt for such
notice either by facsimile or any other method described in this Section 13;
and (c) the next business day after deposit with a national overnight delivery
service, postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
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<TABLE>
<CAPTION>
TO: THE REGISTERED HOLDER TO: THE COMPANY
<S> <C>
c/o SAC Capital Advisors LLC Substance Abuse Technologies, Inc.
777 Long Ridge Road 4517 NW 31st Avenue
Stamford, CT 06902 Ft. Lauderdale, FL 33369
Fax No.: (203) 614-2100 Fax No.: (954) 714-5049
Attn: Scott J. Lederman, Esq. Attn: Robert Stutman
</TABLE>
A party may change or supplement the addresses given above, or designate
additional addresses, for purposes of this Section 13 by giving the other party
written notice of the new address in the manner set forth above.
14. HEADINGS.
The headings in this Warrant are for purposes of convenience in
reference only, and shall not be deemed to constitute a part hereof.
15. GOVERNING LAW.
This Warrant shall be construed and enforced in accordance with, and
governed by, the laws of the State of New York without regard to provisions
regarding choice of laws.
16. SEVERABILITY.
If any term, provision, covenant or restriction of this Warrant is
held by a court of competent jurisdiction to be invalid, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions of this
Warrant shall remain in full force and effect and shall in no way be affected,
impaired or invalidated.
17. NO INCONSISTENT AGREEMENTS.
The Company will not on or after the date of this Warrant enter into
any agreement which is inconsistent with the rights granted to the Registered
Holders of this Warrant or otherwise conflicts with the provisions hereof. The
Company hereby represents and warrants that the rights granted to the
Registered Holders hereunder do not in any way conflict with and are not
inconsistent with the rights granted to holders of the Company's securities
under any other agreements, except rights that have been waived.
18. SATURDAYS, SUNDAYS AND HOLIDAYS.
If the Expiration Date falls on a Saturday, Sunday or legal holiday,
the Expiration Date shall automatically be extended until 5:00 p.m. the next
business day.
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IN WITNESS WHEREOF, Substance Abuse Technologies, Inc. has caused this
Warrant to be signed manually by a duly authorized officer of the Company.
SUBSTANCE ABUSE TECHNOLOGIES, INC.
By:
-------------------------------
Name:
Title:
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<PAGE> 65
EXHIBIT A
[Warrant]
ELECTION TO PURCHASE
To: Substance Abuse Technologies, Inc.
----------------------------------
----------------------------------
----------------------------------
The undersigned hereby elects to exercise the Warrant represented by
the within Warrant Certificate to purchase __________ shares of the Common
Stock issuable upon the exercise of the Warrant and requests that certificates
for such shares shall be issued in the name of:
--------------------------------------------------
(Name)
--------------------------------------------------
(Address)
--------------------------------------------------
(Taxpayer number)
and be delivered to:
----------------------------
--------------------------------------------------
(Name)
at
-----------------------------------------------
(Address)
and, if said number of shares of the Common Stock shall not be all the shares
of the Common Stock evidenced by the within Warrant Certificate, that a new
Warrant Certificate for the balance remaining of such said shares be registered
in the name of:
--------------------------------------------------
(Name)
--------------------------------------------------
(Address)
--------------------------------------------------
(Taxpayer number)
and delivered to the undersigned at the address below stated.
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<PAGE> 66
Dated: , 19
--------------- --
Name of holder of Warrant Certificate:
--------------------------------------------------
(please print)
--------------------------------------------------
(Address)
--------------------------------------------------
(Signature)
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<PAGE> 67
EXHIBIT B
[Warrant]
ASSIGNMENT
(to be executed by the registered holder
to effect a transfer of the within Warrant)
FOR VALUE RECEIVED
------------------------------------------------------------
hereby sells, assigns and transfers unto
--------------------------------------
- -------------------------------------------------------------------------------
(Name)
- -------------------------------------------------------------------------------
(Address)
- -------------------------------------------------------------------------------
the right to purchase the ________ shares of Common Stock evidenced by this
Warrant, and does hereby irrevocably constitute and appoint ___________________
_________________________________________________ to transfer the said right
on the books of the Company, with full power of substitution.
Dated:
-----------------------
------------------------------------
(Signature)
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