<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
ACT OF 1934
For the transition period from ____________________to____________________
Commission File Number: 0-19606
AMERICAN BIOMED, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 76-0136574
- ----------------------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
10077 Grogans Mill Road, Suite 100, The Woodlands, Texas 77380
- ---------------------------------------------------------------------------------------------------------------
(address of principal executive offices) (Zip Code)
</TABLE>
(713) 367-3895
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
N.A.
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year if
changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. X Yes No
--- ---
The total number of shares outstanding of common stock, $.001 par value as of
November 5, 1996 is 13,013,395.
<PAGE> 2
AMERICAN BIOMED, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C>
Item 1 - Financial Statements
Consolidated Condensed Balance Sheets 3
Consolidated Condensed Statements of Operations 4
Consolidated Condensed Statements of Cash Flows 5
Notes to Consolidated Condensed Financial Statements 6
Item 2 - Management's Discussion and
Analysis of Financial Condition
and Results of Operations 9
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 11
Item 5 Other Information 11
Item 6 Exhibits and Reports on Form 8-K 12
SIGNATURES 13
INDEX TO EXHIBITS 14
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 125,743 $ 9,177
Accounts receivable:
Trade, net of allowance for doubtful accounts
of $45,000 and $45,480 in 1996 and 1995, respectively 190,697 158,713
Other 28,404 32,064
Inventories 488,009 370,130
Other current assets 421,588 60,667
----------- -----------
Total current assets 1,254,441 630,751
----------- -----------
Property and equipment 118,932 200,736
Patents, net of accumulated amortization of $866,534
and $799,043 in 1996 and 1995, respectively 160,244 204,812
Goodwill, net of accumulated amortization of $566,602
and $451,308 in 1996 and 1995, respectively 705,096 779,528
Other assets 76,263 67,451
----------- -----------
Total assets $ 2,314,976 $ 1,883,278
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable, banks $ 235,000
Notes payable to stockholders and others $ 1,265,764 1,831,322
Current maturities of capital lease obligations 170,347 512,712
Current maturities, long term debt 34,846 -
Accounts payable 401,427 1,283,020
Accrued liabilities 551,034 595,984
Other current liabilities 3,000 -
----------- -----------
Total current liabilities 2,426,418 4,458,038
----------- -----------
Long-term debt, net of current maturities 119,641 -
Capital lease obligations, net of current maturities 455,720 7,095
Deferred revenue 175,000 220,000
Commitments and contingencies:
Stockholders' deficit:
Preferred stock, $.001 par value, 2,000,000 shares authorized,
1,390 shares and no shares issued and outstanding in 1996 and
1995,respectively 1
Common stock, $.001 par value, 25,000,000 shares authorized
in 1996 and 1995, 12,981,720 shares and 9,505,274 shares issued
and outstanding at September 30, 1996 and December 31, 1995,
respectively 12,982 9,505
Additional paid-in capital 23,003,108 19,190,146
Deficit accumulated during the development stage (23,626,294) (21,749,906)
Less treasury stock at cost, 68,323 shares (251,600) (251,600)
----------- -----------
Total stockholders' deficit (861,803) (2,801,855)
----------- -----------
Total liabilities and stockholders' deficit $ 2,314,976 $ 1,883,278
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
3
<PAGE> 4
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Three Months Ended Nine Months Ended September 4, 1984,
September 30, September 30, to
1996 1995 1996 1995 September 30, 1996
--------------------------- ----------------------------- ------------------
<S> <C> <C> <C> <C> <C>
Sales, net $ 187,761 $ 123,180 $ 417,197 $ 414,413 $ 3,152,311
Operating costs and expenses:
Cost of sales (89,248) (103,569) (295,721) (365,369) (3,107,789)
Selling, general and administrative
expenses (522,370) (453,205) (1,283,258) (1,750,268) (15,021,598)
Research and development expenses (139,792) (122,652) (492,478) (435,994) (7,101,679)
Distributor settlement (1,080,915)
----------- ---------- ----------- ------------ ------------
Loss from operations (563,649) (556,246) (1,654,260) (2,137,218) (23,159,670)
----------- ---------- ----------- ------------ ------------
Other income (expense):
Interest income 2,921 2,233 3,613 5,807 109,094
Interest expense (85,634) (80,810) (283,318) (192,106) (2,664,841)
Other income (2,630) 1,515,560 57,577 1,530,366 2,089,123
----------- ---------- ----------- ------------ ------------
Other income (expense) net (85,343) 1,436,983 (222,128) 1,344,067 (466,624)
----------- ---------- ----------- ------------ ------------
Net income (loss) $ (648,992) $ 880,737 $(1,876,388) $ (793,151) $(23,626,294)
=========== =========== =========== ============ ============
Net income (loss) per common share $ (.05) $ .08 $ (.18) $ (.09)
=========== =========== =========== ============
Weighted average number of shares
outstanding 12,299,078 11,331,100 10,688,212 9,252,363
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements.
4
<PAGE> 5
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Inception,
Nine Months Ended September 4, 1984,
September 30, to
1996 1995 September 30, 1996
---------------------------- -------------------
<S> <C> <C> <C>
Net cash used by operating activities $(1,205,283) $( 543,663) $(16,884,538)
----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures (23,615) (412,068)
Investment in patents (22,923) (39,082) (428,497)
Other investing activities (2,167) 243,816
----------- ----------- ------------
Net cash used by investing activities (46,538) (41,249) (596,749)
----------- ----------- ------------
Cash flows from financing activities:
Proceeds from notes payable to banks 2,333,880
Proceeds from notes payable to stockholders 34,750 26,800 1,225,921
Proceeds from notes payable to others 835,576 1,536,998 3,196,625
Principal payments on notes payable to banks (5,000) (33,880) (2,070,000)
Principal payments on notes payable to stockholders (123,522) (16,071) (660,254)
Principal payments on notes payable to others (1,135,002) (528,541) (2,355,349)
Principal payments on long-term debt (2,777) (14,566) (79,117)
Principal payments on capital lease obligation (42,055) (108,500) (572,944)
Proceeds from patent assignment and leaseback 500,000
Proceeds from equipment assignment and leaseback 305,000
Proceeds from sale of subordinated
convertible debentures 640,000
Net proceeds from sale of preferred stock 1,251,319 4,297,465
Net proceeds from sale of common stock and warrants
in connection with initial public offering, secondary
offering and private placements 268,535 500 8,608,501
Proceeds from exercise of stock purchase warrants and
stock options 286,563 60,000 3,126,543
Treasury stock acquired (500,000)
Other financing activities (389,241)
----------- ----------- ------------
Net cash provided by financing activities 1,368,387 922,740 17,607,030
----------- ----------- ------------
Net increase in cash and cash equivalents 116,566 337,828 125,743
Cash and cash equivalents at beginning
of period 9,177 21,246
----------- ----------- ------------
Cash and cash equivalents at end of period $ 125,743 $ 359,074 $ 125,743
=========== =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated condensed
financial statements
5
<PAGE> 6
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements
have been prepared in accordance with the requirements of Form 10-Q and
therefore do not include all information and footnotes necessary for a fair
presentation of financial position, results of operations, and cash flows in
conformity with generally accepted accounting principles. In the opinion of
management, the unaudited consolidated condensed financial statements reflect
all adjustments that are necessary for a fair statement of the results of the
periods presented, and all such adjustments are of a normal recurring nature.
The unaudited consolidated condensed financial statements include the
accounts of American BioMed, Inc. and its wholly-owned subsidiaries, Freedom
Machine, Inc. and Cathlab Corporation, (jointly referred to as the "Company")
after elimination of all intercompany transactions and accounts.
These unaudited consolidated condensed financial statements should be
read in connection with the financial statements for the year ended December
31, 1995 included in the Company's Annual Report filed on Form 10-K. Results
for the period are not necessarily indicative of year-end results.
2. CAPITAL STOCK
During 1996 management, in order to resolve outstanding financial
obligations, negotiated debt to equity conversions of approximately $1.2
million with various stockholders, vendors and a bank which was paid with the
issuance of approximately 832,000 shares of common stock. In conjunction with
this the Company filed a Form S-3 Registration Statement ("S-3") which became
effective August 23, 1996.
On July 17, 1996, the Board of Directors approved the issuance of
options to purchase 10,000 shares of common stock at $.50 per share in
connection with an employment agreement. The Board also authorized issuance of
options to purchase 10,000 shares at $.50 per share to an employee. In
connection with his hiring as Vice President Sales and Marketing, Arthur
Przybyl was granted options to purchase 100,000 shares of common stock at $1.00
per share.
The Company filed a Form S-8 Registration Statement ("Registration
Statement") on April 16, 1996. The Registration Statement relates to an
aggregate of 600,000 shares of the Company's common stock which are to be
offered upon the terms and subject to the conditions set forth in the
agreements referenced in the Registration Statement.
In lieu of interest on a stockholder note payable, the Company issued
30,000 shares of common stock.
In May 1996, the Company issued 198,000 shares of common stock to its
landlord in California to settle the outstanding lease obligation and to prepay
the lease for the remaining term.
On April 19, 1996, the Company issued 2,000 shares of common stock in
connection with a private placement.
In February 1996, the Company and Zanett Capital, Inc. ("Zanett"), a
financial consulting firm, signed an agreement whereby Zanett agreed to help
the Company raise capital pursuant to an offering of the Company's equity
securities. Claudio M. Guazzoni, a member of the Company's Board of
Directors, is Zanett's President and Chief Executive Officer. Pursuant to
Regulation S of the Securities Act, in July 1996 the Company sold 1,250,001
shares of Common Stock, at a purchase price of $.24 per share, and 1,390 shares
of its Series A Convertible Preferred Stock, par value $.001 per share ("Series
A Preferred"), at a purchase price of $1,000 per share, to a group of foreign
investors (the "Investors"). The Investors consisted of Heriot Holdings, Ltd,
Harlow Enterprises, Inc., Parkland Limited, Zanett Lombardier, Ltd.,
Queensborough Investments, All Fruit Limited, Emral Investments and Bruno
Guazzoni. Zanett Lombardier, Ltd. is an affiliate of Zanett and Bruno Guazzoni
is a relative of Claudio Guazzoni. The Series A Preferred, which bears no
dividends and confers no voting rights, is senior in priority to the Company's
other equity securities (except with the consent of a majority of the holders
of the Series A Preferred) and is convertible at any time after October 30,
1996 at the option of the holders into such number of Common Shares (the
"Series A Conversion Shares") as is equal to $1,000 divided by the lesser of
(i) $.24 and (ii) 80% of the average of closing bid price of the Common Stock
for the five consecutive days ending two days prior to the day the election to
convert is made (the "Conversion Price"). The number of Conversion Shares is
subject to adjustment from time to time upon the occurrence of stock splits,
reverse stock splits, and similar events. In July 1999, any outstanding shares
of the Series A Preferred will be automatically converted based on the
Conversion Price then in effect. In addition, registration rights were granted
to the Investors for the Common Stock purchased, as well as for the Common
Stock issuable upon conversion of the Series A Preferred. The term of the
registration rights is three years and includes three demand registration
rights and unlimited piggyback rights. In the event that the Company conducts
an underwritten offering during such term, the number of shares offered by the
holders pursuant to a piggyback registration may be cut back on a pro rata
basis at the discretion of the managing underwriter.
6
<PAGE> 7
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL
STATEMENTS - Continued
(Unaudited)
3. SUPPLEMENTAL INFORMATION FOR STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Inception,
Nine Months Ended September 4, 1984
September 30, to
1996 1995 September 30, 1996
-------------------------- ------------------
<S> <C> <C> <C>
Interest Paid $ 342,578 $ 147,797 $ 1,096,876
Noncash investing and financing activities:
Equipment acquired through
capital lease obligations 2,031 268,570
Equipment and leasehold improvements
acquired through notes payable 35,775
Conversion of accrued interest
payable to principal on note
payable to stockholders 26,800 105,170
Conversion of Series A and Series B
Preferred Stock to
common stock 444
Conversion of debentures
to common stock 640,000
Deferred offering costs incurred
in prior year charged against
offering proceeds 41,000
Issuance of common stock in connection
with purchase of assets of VMS, Inc. 124,999
Issuance of common stock in connection
with purchase of assets of Superstat, Inc. 81,819
Conversion of notes payable to common stock 407,360 457,360
Common stock and warrants issued in lieu of
interest expense 57,744 1,383,169
Patent assignment and leaseback 500,000
Issuance of common stock in connection with
Therex settlement 77
Transfer of note receivable from officer 25,000
Writeup of property and equipment on Cathlab
due to sale and leaseback agreement 221,616
Issuance of common stock and warrants
for services 1,544,921 54,833 2,184,848
</TABLE>
7
<PAGE> 8
4. INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method.
Inventories consisted of the following:
<TABLE>
<CAPTION>
September 30 December 31
1996 1995
------------ ------------
<S> <C> <C>
Raw materials $ 187,256 $ 146,901
Work in process 184,686 166,893
Finished goods 116,067 56,336
--------- ----------
$ 488,009 $ 370,130
========= ==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
In March 1996, Aberlyn agreed to discuss a restructuring of all
Company leases and an agreement to restructure the leases was reached May 28,
1996 with Board of Directors' approval received July 17, 1996. The
restructuring has resulted in lease payments over a twenty-four month period
with the initial payment commencing June 1, 1996. The payment schedule is as
follows:
<TABLE>
<S> <C>
Months 1-5 $ 15,000 (each)
Month 6 50,000
Months 7-11 15,000 (each)
Month 12 50,000
Months 13-17 15,000 (each)
Month 18 125,000
Months 19-23 25,000 (each)
Month 24 $ 215,000
</TABLE>
The above payments are based on outstanding principal of approximately
$514,000 and total accrued interest of approximately $148,000. Accumulated
late fees and additional accumulated miscellaneous expenses totaling $115,728
was converted into 115,000 shares of the Company's common stock. The price
reflects a discount from the closing bid price of $1.125 per share on May 28,
1996.
In June 1996, the Company executed an installment note payable to a
vendor in the amount of $157,263, payable in monthly installments of $3,858
including interest, beginning September 1, 1996 and maturing August 1, 2000.
The note bears interest at 8.25% per year and is uncollateralized.
In July 1995, United States Surgical Corporation ("USSC") elected not
to exercise its option to acquire certain assets. As a result, the Company
retained $1.0 million of the initial payment as a forfeited option fee. The
other $1.0 million is payable to USSC plus interest at 10% per year. The note,
originally due January 20, 1996 which is collateralized by the Company's stent
technology, was extended to September 15, 1996.
In September 1996, the balance of the USSC note was paid from the
proceeds received in connection with the issuance of promissory notes (the
"Notes") in the amount of $835,576 to a group of foreign parties consisting of
Hariot Holdings, Bruno Guazzoni and Zanett Lombardier, Ltd. (collectively, the
"Lenders"). The Notes, bearing interest at 10% per annum and secured by the
Company's OmniStent(TM), Evert-O-Cath(TM) and Cardiac Assist technologies,
matured October 17, 1996, payable in U.S. dollars. The Notes were paid in full
in November 1996. See "Subsequent Event." In addition to the Notes, the
Lenders received warrants to purchase an aggregate of 250,000 shares of the
Company's Common Stock (the "Bridge Warrants") and certain registration rights
in connection with such stock. The Bridge Warrants, issued pursuant to
Regulation S of the Securities Act, have a term of five years from the date of
issuance and an exercise price equal to the lowest market price for the Common
Stock during the period beginning on the day prior to the date of issuance and
ending on the earlier of (i) 180 days thereafter and (ii) the day prior to the
date of exercise. The exercise price of the Bridge Warrants and the number of
shares of Common Stock underlying the Bridge Warrants are both subject to
adjustment upon the occurrence of stock splits, reverse stock splits, the
issuance of below-market securities, and other events. In addition, the
Lenders were given registration rights with respect to the shares of Common
Stock issuable upon exercise of the Bridge Warrants. The term of the
registration rights is three years and includes three demand registration
rights and unlimited piggyback rights. In the event that the Company conducts
an underwritten offering during such term, the number of shares offered by the
holders pursuant to a piggyback registration may be cut back on a pro rata
basis at the discretion of the managing underwriter.
6. SUBSEQUENT EVENT
Pursuant to Regulation S of the Securities Act, in November 1996 the
Company issued units consisting of (i) 1,500 shares of its 1996 Series B
Preferred Convertible Stock, par value $.001 per share (the "Series B
Preferred"), and (ii) an equal number of warrants to purchase Common Stock (the
"Warrants") to a group of foreign investors (the "Series B Investors") for a
total purchase price of $1,500,000, or $1,000 per unit. The Series B Investors
consisted of Otato Limited Partnership, Showman Investment Limited, Wood Gundy
London Limited and Ailouros Ltd, none of which are affiliates of the Company or
"U.S. persons" (as such term is defined in Regulation S of the Securities Act).
The proceeds of the sale were used to pay off the Notes in the amount of
$835,576, with the balance to be used to fund clinical trials and for general
working capital. The Series B Preferred, which bears no dividends and confers
no voting rights, is pari passu to the Series A Preferred and senior in
priority to the Company's other equity securities (except with the consent of a
majority of the holders of the Series B Preferred) and is convertible at any
time at the option of the holders into a number of shares of Common Stock (the
"Series B Conversion Shares") based on the lesser of (i) the average of the
market price for the Common Stock for the ten consecutive days prior to the
sixtieth day after the closing date of the Series B issuance and (ii) between
70% and 86% (depending on the length of time since the closing date of the
Series B issuance) of the average of the market price for the five consecutive
days prior to the day the election to convert is made (the "Series B Conversion
Price"). The number of Series B Conversion Shares is subject to adjustment
from time to time upon the occurrence of stock splits, reverse stock splits,
and similar events. In November 1998, any outstanding shares of the Series B
Preferred will be automatically converted based on the Series B Conversion
Price then in effect. Each Warrant entitles the holder to the number of shares
of Common Stock equal to the quotient of $1,000 divided by the market price of
the Common Stock on the closing date of the Series B issuance. The exercise
price of the Warrants is equal to the average of the market price for the
Common Stock for the ten consecutive days prior to the sixtieth day after the
closing date of the Series B issuance. The Warrants terminate five years after
issuance and the exercise price of the Warrants and the number of shares of
Common Stock underlying the Warrants are both subject to adjustment upon the
occurrence of stock splits, reverse stock splits, the issuance of below-market
securities, and other events. In addition to the Series B Preferred and the
Warrants, the Series B Investors were given registration rights with respect to
the shares of Common Stock issuable upon conversion of the Series B Preferred
and exercise of the Warrants. The term of the registration rights is three
years and includes three demand registration rights and unlimited piggyback
rights. In the event that the Company conducts an underwritten offering during
such term, the number of shares offered by the holders pursuant to a piggyback
registration may be cut back on a pro rata basis at the discretion of the
managing underwriter. The Company's rights to its OmniStent(TM),
Evert-O-Cath(TM) and Cardiac Assist technologies were assigned to the Series B
Preferred purchasers as collateral until such time as the Company's authorized
Common Stock is increased to thirty-five million shares and a sufficient number
of shares of Common Stock is reserved to provide for the full conversion and
exercise of the holders' Series B Preferred and Warrants, respectively. An
amendment to the Company's Certificate of Incorporation, which would increase
the number of shares of authorized Common Stock to fifty million, is on the
ballot for the Company's annual stockholders meeting scheduled for November 22,
1996. Zanett served as the placement agent for the purchase and sale of the
Series B Preferred.
8
<PAGE> 9
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A Development Stage Enterprise)
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - Continued
(Unaudited)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company is in the development stage and has had limited operating
revenues since its inception on September 4, 1984. From September 4, 1984
through September 30, 1996, the Company had an accumulated deficit of
$23,626,294.
During the quarter ended September 30, 1996, the Company's sales
increased 52.4% to $187,761 compared with sales of $123,180 for the same period
in 1995. Sales for the nine months increased by .7% to $417,197 compared with
sales of $414,413 for the same period in 1995. The primary reason for the
quarter increase is attributed to the increased activity by the Cathlab
international distributors. International export sales of Cathlab's products
increased to $104,563 or 31.8% this quarter from $79,289 in the third quarter
1995. Domestic sales increased 90% from $41,474 to $78,816 over the same
period.
Cost of sales represented 70.9% and 88.2% of sales for the nine months
ended September 30, 1996 and 1995, respectively. Obsolete inventory of
approximately $37,000 was written off during the nine months ended September 30,
1995.
Selling, general and administrative expenses decreased 26.7% to
$1,283,258 during the first nine months of 1996, compared to $1,750,268 for the
same period in 1995. The overall decrease is due to several factors. The
Company subleased 3,000 square feet of the Cathlab facility to an unrelated
party in January 1996 and downsized the corporate headquarters and research and
development facility, resulting in savings of approximately $52,000 for the
nine months ended September 30, 1996. The most significant difference was the
legal expense and other transaction costs incurred in the second quarter of
1995 related to the USSC transaction.
The third quarter 1996 increase of 15.2% over the same period in 1995
of selling, general and administrative expenses is attributable to increases in
marketing and investor relations activity.
Research and development expenses totaled $492,478 during the first
nine months, an increase of 12.9% from the 1995 first nine months total of
$435,994. The increase in research and development expenditures is primarily
attributed to the Company's efforts to initiate U.S. clinical trials for the
OmniCath(R).
The Company's interest expense totaled $85,634 for the third quarter
of 1996, compared to $80,810 for the third quarter of 1995.
The Company's continued emphasis on cost containment and a focus on
its core technologies resulted in the loss from operations improving from
$2,137,218 in 1995 to $1,654,260 in 1996, representing a 22.6% improvement.
In addition, net cash used by operating activities in the nine months ended
September 30, 1996 increased 121.7% or $661,620 compared to the same period in
1995 due to the forfeited option fee of $1 million and the sale of the European
Patent for $500,000 in 1995.
For the period from inception to September 30, 1996, the Company's
other income of $2,089,123 consisted primarily of $400,000 received from
Guerbet in 1991 in connection with the development of certain of the Company's
products, proceeds of $49,900 received from the initial phase of a grant
obtained from the National Institute of Health during 1992 in connection with
the development of certain of the Company's heart pumps, $105,417 in settlement
of accounts payable to certain vendors, $110,000 amortization of the license
fee received from Wright Medical Technologies, Inc. and $1.0 million from USSC
as a forfeited option fee. An additional $494,676 was realized on August 11,
1995 when the Company sold the European patent for the OmniCath(R) atherectomy
catheter for a purchase price of $500,000 cash to Guerbet S.A. of France.
9
<PAGE> 10
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash requirements have been exceeding its resources due
to its expenditures related to research and development, size of its general
and administrative staff, expenditures related to obtaining regulatory
approvals, obtaining and maintaining manufacturing and distribution
arrangements and the expenses of product introductions.
During 1995 the Company was unable to meet certain of its obligations
as they came due. Certain executive officers have deferred payment of salaries
amounting to $290,433. In addition, the Company is in arrears to certain
vendors and suppliers. Accounts payable and accrued liabilities, including
deferred officer salaries, amounted to $952,461 at September 30, 1996.
Management has resolved a large percentage of these outstanding obligations by
effecting debt to equity conversion, which became effective August 1996. (See
Footnote 2 - Capital Stock). The Company had a working capital deficiency as
of September 30, 1996 of $1,171,977, an improvement of approximately $2.7
million over December 31, 1995.
At September 30, 1996, the Company had cash and cash equivalents in
the amount of $125,743 compared with cash and cash equivalents of $9,177 at
December 31, 1995. Funds of approximately $1.7 million were received in
conjunction with a private placement during the first six months of 1996.
Options and warrants exercised during the second and third quarters provided
the Company with an additional $286,563.
In addition to the distributor agreements signed in 1995, agreements
were signed in June 1996 with a distributor in Mexico on an exclusive
arrangement and a non-exclusive agreement was finalized for the West Indies.
The Company has expanded its international business through non-exclusive
agreements in the following countries: Argentina, Greece, Brazil, Germany,
Kuwait, Norway, Taiwan, Belize and China. Discussions are proceeding regarding
distributor agreements with companies in other international and U.S. markets.
There can be no assurances of the execution of any agreements resulting from
these discussions.
The Company is also pursuing private label opportunities for its
Cathlab products to supply third-party companies with existing FDA approved
product lines. Additional opportunities are in the discussion stages to
provide OEM manufacturing capabilities to companies for products the Company
does not currently manufacture. No agreements have been signed or executed
subsequent to September 30, 1996 and there can be no assurances of the
execution of any agreements.
The Company is uncertain today that the distributors now in place will
be able to effectively market and sell the Company's core technologies, the
OmniCath(R), OmniStent(TM) and Evert-O-Cath(TM). As such, the Company has
undertaken efforts to identify healthcare companies with similar technologies
or companies seeking new proprietary products to strengthen their existing
market position. This strategy is directed toward the formation of strategic
alliances, joint venture arrangements, licensing and distributor agreements,
and research and development agreements/projects. An integral part of this
strategy is to aggressively pursue the sale of ancillary technologies (not core
technologies) which will enable the Company to focus its resources exclusively
on its core technologies and commercial non-angioplasty balloon catheter
products.
The Company requires additional funds to enable it to complete
development of its core technologies and, subject to obtaining required
regulatory approvals, commercialization of the OmniCath(R) for peripheral use,
to enter into marketing and distribution arrangements for the Evert-O-Cath(TM),
to commence and continue the development of the OmniStent(TM) and other products
as well as enhancements to the OmniCath(R) and the Evert-O-Cath(TM), and to
expand its manufacturing and distribution abilities with respect to Cathlab
products. If the Company experiences delays in the introduction, manufacturing
or sale of the OmniCath(R), or if the OmniCath(R) does not achieve market
acceptance for any reason, substantial additional financing may be required by
the Company to continue its operations, and to improve, complete the
development of, obtain regulatory approvals for, and manufacture or market
products. The Company receives some revenues and expects to continue to
receive revenues from the sale of Cathlab's products. The Company anticipates
that Cathlab's revenues should increase during 1996; however, this increase
will not be sufficient to satisfy the Company's funding needs. Pursuant to
Regulation S of the Securities Act, in November 1996 the Company issued units
consisting of (i) 1,500 shares of its 1996 Series B Preferred Convertible Stock,
par value $.001 per share (the "Series B Preferred"), and (ii) an equal number
of warrants to purchase Common Stock (the "Warrants") to a group of foreign
investors (the "Series B Investors") for a total purchase price of $1,500,000,
or $1,000 per unit. The Series B Investors consisted of Otato Limited
Partnership, Showman Investment Limited, Wood Gundy London Limited and Ailouros
Ltd., none of which are affiliates of the Company or "U.S. persons" (as such
term is defined in Regulation S of the Securities Act). The proceeds of the
sale were used to pay off the Notes in the amount of $835,576, with the balance
to be used to fund clinical trials and for general working capital. The Series
B Preferred, which bears no dividends and confers no voting rights, is pari
passu to the Series A Preferred and senior in priority to the Company's other
equity securities (except with the consent of a majority of the holders of the
Series B Preferred) and is convertible at any time at the option of the
holders, subject to certain volume restrictions imposed by the terms of the
Series B Certificate of Designations, into a number of shares of Common Stock
(the "Series B Conversion Shares") based on the lesser of (i) the average of
the market price for the Common Stock for the ten consecutive days prior to the
sixtieth day after the closing date of the Series B issuance and (ii) between
70% and 86% (depending on the length of time since the closing date of the
Series B issuance) of the average of the market price for the five consecutive
days prior to the day the election to convert is made (the "Series B Conversion
Price"). The number of Series B Conversion Shares is subject to adjustment
from time to time upon the occurrence of stock splits, reverse stock splits,
and similar events. In November 1998, any outstanding shares of the Series B
Preferred will be automatically converted based on the Series B Conversion
Price then in effect. Each Warrant entitles the holder to the number of shares
of Common Stock equal to the quotient of $1,000 divided by the market price of
the Common Stock on the closing date of the Series B issuance. The exercise
price of the Warrants is equal to the average of the market price for the
Common Stock for the ten consecutive days prior to the sixtieth day after the
closing date of the Series B issuance. Each Warrant may be exercised at any
time by the holder thereof, subject to certain volume restrictions imposed by
the terms of the Warrant. The Warrants terminate five years after issuance and
the exercise price of the Warrants and the number of shares of Common Stock
underlying the Warrants are both subject to adjustment upon the occurrence of
stock splits, reverse stock splits, the issuance of below-market securities,
and other events. In addition to the Series B Preferred and the Warrants, the
Series B Investors were given registration rights with respect to the shares of
Common Stock issuable upon conversion of the Series B Preferred and exercise of
the Warrants. The term of the registration rights is three years and includes
three demand registration rights and unlimited piggyback rights. In the event
that the Company conducts an underwritten offering during such term, the number
of shares offered by the holders pursuant to a piggyback registration may be
cut back on a pro rata basis at the discretion of the managing underwriter. The
Company's rights to its OmniStent(TM), Evert-O-Cath(TM) and Cardiac Assist
technologies were assigned to the Series B Preferred purchasers as collateral
until such time as the Company's authorized Common Stock is increased to
thirty-five million shares and a sufficient number of shares of Common Stock is
reserved to provide for the full conversion and exercise of the holders'
Series B Preferred and Warrants, respectively. An amendment to the Company's
Certificate of Incorporation, which would increase the number of shares of
authorized Common Stock to fifty million, is on the ballot for the Company's
annual stockholders meeting scheduled for November 22, 1996. Zanett served as
the placement agent for the purchase and sale of the Series B Preferred. The
Company has an ongoing need to raise additional funds to enable it to maintain
its operations and advance the research and development of its core
technologies.
10
<PAGE> 11
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to the Company's report on Form 10-K for the year
ended December 31, 1995 and Form 10-Q for the quarter ended March 31, 1996 for
a description of other legal proceedings to which the Company became a party
during the nine (9) months ended September 30, 1996, which information is
incorporated by reference herein.
ITEM 5. OTHER INFORMATION
The Company, in cooperation with its Principal Clinical Investigator,
Dr. Samuel S. Ahn, filed and received approval for an IRB (Institutional Review
Board) at UCLA to conduct a multi-center prospective randomized study comparing
atherectomy using the OmniCath(R) device vs. balloon angioplasty to treat
Peripheral Arterial Occlusion Disease. The clinical studies began during the
third quarter 1996. Upon conclusion of these clinical investigations, the
Company will submit for approval a 510(k) Notification to the FDA for
peripheral use of its OmniCath(R) atherectomy catheter.
In addition, the Company is preparing to submit in the fourth quarter
1996 an IRB at UCLA and a U.S. Investigational Device Exemption (IDE)
application so that clinical trials can begin in the U.S. for use of its
OmniCath(R) atherectomy catheter as an adjunct to balloon angioplasty in the
treatment of partial stenosis of arteriovenous grafts. The Company is
proceeding to develop a randomized clinical investigation utilizing UCLA
Medical Center as its Central Monitoring Center. The Company will file an
additional 510(k) Notification for this indication as soon as the clinical
investigations are concluded.
The Company is a party to litigation arising in the ordinary course of
business. Management regularly analyzes current information and, as necessary,
provides accrual for probable liabilities for the eventual disposition of the
matter. In the opinion of management, the ultimate outcome of these matters
will not materially affect the Company's financial position, results of
operations or cash flows.
The Board of Directors authorized an increase in the number of
directors to six on July 17, 1996. Richard S. Serbin was elected to fill the
vacant seat. Mr. Serbin is Executive Vice President and Director of
Bio-Imaging Technologies, Inc., and has served in that capacity since 1991.
Bio-Imaging Technologies, Inc. provides specialized consulting services to help
pharmaceutical and biotechnology companies and medical device manufacturers
facilitate drug and device evaluation and regulatory review. Mr. Serbin is a
registered patent attorney, registered pharmacist, a member of the Board of
Trustees of the Mountainside Hospital and a member of the Board of Health of
Roseland, New Jersey.
11
<PAGE> 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following documents are filed as exhibits to this Report.
3.1 Certificate of Designations, Preferences and Rights
of 1996 Series A Convertible Preferred Stock
3.2 Certificate of Designations, Preferences and Rights
of 1996 Series B Convertible Preferred Stock
11.1 Computation of Income (Loss) Per Common Share
27 Financial Data Schedule
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN BIOMED, INC.
Date: November 14, 1996 /s/ STEVEN B. RASH
---------------------------------------
Steven B. Rash
President and Chief Executive Officer
Date: November 14, 1996 /s/ COLENE F. BLANKINSHIP
---------------------------------------
Colene F. Blankinship, CPA
Controller
Chief Accounting Officer
13
<PAGE> 14
INDEX TO EXHIBITS
The following documents are filed as part of this Report:
Exhibit
-------
3.1 Certificate of Designations, Preferences and Rights
of 1996 Series A Convertible Preferred Stock
3.2 Certificate of Designations, Preferences and Rights
of 1996 Series B Convertible Preferred Stock
11.1 Computation of Income (Loss) Per Common Share
27 Financial Data Schedule
14
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
AMERICAN BIOMED, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
American BioMed, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation pursuant to authority of the Board of Directors as required
by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of Incorporation,
the Board of Directors hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $.001 per share (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
Series A Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 1,390 shares of
Preferred Stock, is the Series A Convertible Preferred Stock (the "Series A
Preferred Stock") and the stated value shall be One Thousand Dollars
($1,000.00) per share (the "Stated Value").
II. Rank
All shares of the 1996 Series A Preferred Stock shall rank (i) prior
to the Corporation's Common Stock, par value $.001 per share (the "Common
Stock"); (ii) prior to any class or series of
<PAGE> 2
capital stock of the Corporation hereafter created (unless, with the consent of
the holders of Series A Preferred Stock obtained in accordance with Article IX
hereof, such class or series of capital stock specifically, by its terms, ranks
senior to or pari passu with the Series A Preferred Stock) (collectively, with
the Common Stock, "Junior Securities"); (iii) pari passu with any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series A Preferred Stock obtained in accordance with Article
IX hereof) specifically ranking, by its terms, on parity with the Series A
Preferred Stock the "Pari Passu Securities"); and (iv) junior to any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series A Preferred Stock obtained in accordance with Article
IX hereof) specifically ranking, by its terms, senior to the Series A Preferred
Stock the "Senior Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
III. No Dividends
The Series A Preferred Stock will bear no dividends, and the holders
of the Series A Preferred Stock shall not be entitled to receive dividends on
the Series A Preferred Stock.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case
under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its
property, or make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or if a
decree or order for relief in respect of the Corporation shall be entered by a
court having jurisdiction in the premises in an involuntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or
ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event (a "Liquidation Event"), the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto, the holders
of shares of Series A Preferred Stock, subject to Article VI, shall have
received the Liquidation Preference (as defined in Article IV.C) with respect
to each share. If upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of the Series A Preferred
Stock and holders of Pari Passu Securities shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Corporation legally available for distribution
to the Series A Preferred Stock and the Pari Passu Securities shall be
distributed ratably
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<PAGE> 3
among such shares in proportion to the ratio that the Liquidation Preference
payable on each such share bears to the aggregate Liquidation Preference
payable on all such shares.
B. For purposes hereof, the "Liquidation Preference"
with respect to a share of the Series A Preferred Stock shall mean an amount
equal to the Stated Value thereof.
V. Redemption of Series A Preferred Stock
A. Except as provided in Article V.B below, the Series A
Preferred Stock is not subject to redemption.
B. In the event that the Corporation (i) fails to issue
shares of Common Stock to the holders of Series A Preferred Stock upon exercise
by the holders of their conversion rights in accordance with the terms of this
Certificate of Designation (for a period of at least sixty (60) days if such
failure is solely as a result of the circumstances governed by the second
paragraph of Article VI.E. below and the Corporation is using all commercially
reasonable efforts to authorize a sufficient number of shares of Common Stock
as soon as practicable), (ii) fails to transfer any certificate for shares of
Common Stock issued to the holders upon conversion of the Series A Preferred
Stock and when required by this Certificate of Designation or the Registration
Rights Agreement, dated as of July __, 1996, by and among the Corporation and
the other signatories thereto (the "Registration Rights Agreement") or (iii)
fails to remove any restrictive legend on any certificate or any shares of
Common Stock issued to the holders of Series A Preferred Stock upon conversion
of the Series A Preferred Stock as and when required by this Certificate of
Designation, the Securities Purchase Agreements dated as of July __, 1996, by
and between the Corporation and the other signatories thereto with respect to
the original issuance of the Series A Preferred Stock (collectively the
"Securities Purchase Agreement") or the Registration Rights Agreement (each of
the foregoing failures being a "Mandatory Redemption Event") and any such
failure specified in clauses (i) - (iii) above, shall continue uncured for
twenty (20) business days after the Corporation shall have been notified
thereof in writing by the holder; then, upon the occurrence and during the
continuation of any Mandatory Redemption Event specified in clauses (i) - (iii)
above, at the option of the holders of at least 50% of the then outstanding
shares of Series A Preferred Stock by written notice (the "Mandatory Redemption
Notice") to the Corporation of such Mandatory Redemption Event, the Corporation
shall purchase the holder's shares of Series A Preferred Stock for an amount
per share (the "Mandatory Redemption Amount") equal to 125% multiplied by the
Redemption Price in effect at the time of the redemption hereunder.
The "Redemption Price" with respect to each share of Series A
Preferred Stock shall mean the amount equal to (x) 125% multiplied by (y) the
number of shares of Common Stock to which such failure relates multiplied by
(z) the closing bid price of the Common Stock on NASDAQ (as defined below), the
Bulletin Board (as defined below) or the principal securities exchange or other
securities market on which the Common Stock is then being traded on (i) the
fortieth day
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<PAGE> 4
following the Closing Date under the Securities Purchase Agreement and (ii) the
Conversion Default Date (as defined below), whichever is greater.
If the Corporation fails to pay the Mandatory Redemption
Amount for each share within five (5) business days of written notice that such
amount is due and payable, then each holder of Series A Preferred Stock shall
have the right at any time, so long as the Mandatory Redemption Event continues
to require the Corporation, upon written notice, to immediately issue (in
accordance with the terms of Article VI below), in lieu of the Mandatory
Redemption Amount, with respect to each outstanding share of Series A Preferred
Stock held by such holder, the number of shares of Common Stock of the
Corporation equal to the Mandatory Redemption Amount divided by the Conversion
Price then in effect.
VI. Conversion at the Option of the Holder
A. Each holder of shares of Series A Preferred Stock
may, at its option at any time and from time to time after the earlier of (i)
the effective date of an amendment to the Company's Certificate of
Incorporation to increase the number of shares of Common Stock the Company is
authorized to issue to at least such amount as will allow for the reservation
for issuance and issuance of the full number of shares of Common Stock issuable
upon conversion of the Series A Preferred Stock (the "AMENDMENT"), (ii)
November 30, 1996 or (iii) the receipt of a Fundamental Transaction Notice (as
hereinafter defined), upon surrender of the certificates therefor, convert all
or any part of the shares of Series A Preferred Stock held by such holder into
Common Stock (an "Optional Conversion"). Each share of Series A Preferred
Stock shall be convertible into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Stated Value thereof by
the then effective Conversion Price (as defined below); provided, however, that
in no event shall holders of shares of Series A Preferred Stock be entitled to
convert any such shares in excess of that number of shares upon conversion of
which the sum of (x) the number of shares of Common Stock beneficially owned by
the holder and its affiliates (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
the shares of Series A Preferred Stock) and (y) the number of shares of Common
Stock issuable upon the conversion of the shares of Series A Preferred Stock
with respect to which the determination of this proviso is being made would
result in beneficial ownership by the holder and its affiliates of more than
4.9% of the outstanding shares of Common Stock. For purposes of the proviso
contained in the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13 D-G thereunder, except as otherwise
provided in clause (x) of such proviso.
B. The "Conversion Price" shall be the lesser of (i)
eighty percent (80%) of the average of the closing bid prices for the Common
Stock on the NASDAQ Small Cap Market ("NASDAQ"), or if not therein quoted, on
the National Association of Securities Dealers, Inc. OTC Bulletin Board (the
"Bulletin Board") or on the principal securities exchange or other securities
market on which the Common Stock is then being traded, for the five (5)
consecutive Trading Days (as defined below) ending two (2) Trading Days prior
to the date (the "Conversion Date") the
-4-
<PAGE> 5
Conversion Notice is sent by a holder to the Corporation via facsimile (the
"Variable Conversion Price"), and (ii) $0.24 (the "Fixed Conversion Price")
(subject to equitable adjustments from time to time pursuant to the
antidilution provisions of Article VI.C below). "Trading Day" shall mean any
day on which the Common Stock is traded for any period on NASDAQ, the Bulletin
Board or on the principal securities exchange or other securities market on
which the Common Stock is then being traded.
C. The Conversion Price shall be subject to adjustment
from time to time as follows:
(a) Adjustment to Fixed Conversion Price Due to
Stock Split, Stock Dividend, Etc. If at any time when the Series A Preferred
Stock is issued and outstanding, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, or other similar event,
the Fixed Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the Fixed
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof.
(b) Adjustment to Variable Conversion Price. If
at any time when Series A Preferred Stock is issued and outstanding, the number
of outstanding shares of Common Stock is increased or decreased by a stock
split, stock dividend, combination, reclassification or other similar event,
which event shall have taken place during the reference period for
determination of the Conversion Price for any Optional Conversion or Mandatory
Conversion of the Series A Preferred Stock, then the Variable Conversion Price
shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all five (5)
Trading Days utilized to calculate the Conversion Price.
(c) Adjustment Due to Merger, Consolidation, Etc.
If, at any time when Series A Preferred Stock is issued and outstanding and
prior to the conversion of all Series A Preferred Stock, there shall be (i)
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged), (iii) any sale or transfer of
all or substantially all of the assets of the Corporation or (iv) any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, then the holders of Series A
Preferred Stock shall, upon being given at least thirty (30) days prior written
notice of such transaction (a "Fundamental Transaction Notice"), thereafter
have the right to purchase and receive upon conversion of Series A Preferred
Stock, upon the basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such shares of stock and/or securities or other property as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock
-5-
<PAGE> 6
immediately theretofore purchasable and receivable upon the conversion of
Series A Preferred Stock held by such holders had such merger, consolidation,
exchange of shares, recapitalization, reorganization or other similar event not
taken place, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the holders of the Series A Preferred
Stock to the end that the provisions hereof (including, without limitation,
provisions for adjustment of the Conversion Price and of the number of shares
issuable upon conversion of the Series A Preferred Stock) shall thereafter be
applicable, as nearly as may be practicable in relation to any shares of stock
or securities thereafter deliverable upon the conversion thereof. The
Corporation shall not effect any transaction described in this subsection (c)
unless (i) each holder of Series A Preferred Stock has received written notice
of such transaction at least thirty (30) days prior thereto and in no event
later than ten (10) days prior to the record date for the determination of
shareholders entitled to vote with respect thereto, and (ii) the provisions of
this paragraph have been complied with. The above provisions shall apply
regardless of whether or not there would have been sufficient shares of Common
Stock authorized and available for issuance upon conversion of the shares of
Series A Preferred Stock outstanding as of the date of such transactions, and
similarly apply to successive reclassifications, consolidations, mergers,
sales, transfers or share exchanges.
(d) No Fractional Shares. If any adjustment
under this Article VI.C. would create a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of shares.
D. In order to convert Series A Preferred Stock into
full shares of Common Stock, a holder shall: (i) fax a copy of the fully
executed notice of conversion in the form attached hereto ("Notice of
Conversion") to the Corporation at the office of the Corporation or its
designated Transfer Agent, if any, for the Series A Preferred Stock that the
holder elects to convert the same, which notice shall specify the number of
shares of Series A Preferred Stock to be converted, the applicable Conversion
Price and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of each certificate to be converted)
prior to Midnight, New York City time (the "Conversion Notice Deadline") on the
date of conversion specified on the Notice of Conversion; and (ii) surrender
the original certificates representing the Series A Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed, along with a
copy of the Notice of Conversion as soon as practicable thereafter to the
office of the Corporation or the Transfer Agent, if any, for the Series A
Preferred Stock; provided, however, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (a) below). In the
case of a dispute as to the calculation of the Conversion Price, the
Corporation shall promptly issue such number of shares of Common Stock to
purchase shares of Common Stock that are not disputed in accordance with
subparagraph (b) below. The Corporation shall submit the disputed calculations
to its outside accountant via facsimile within two (2) business days of receipt
of the Notice of Conversion. The accountant shall audit the calculations and
notify the Corporation and the holder
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<PAGE> 7
of the results no later than 48 hours from the time it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive absent
manifest error.
(a) Lost or Stolen Certificates. Upon receipt by
the Corporation of evidence of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing shares of Series A Preferred
Stock, and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Corporation, and upon surrender and cancellation
of the Preferred Stock Certificate(s), if mutilated, the Corporation shall
execute and deliver new Preferred Stock Certificate(s) of like tenor and date.
However, the Corporation shall not be obligated to reissue such lost or stolen
Preferred Stock Certificate(s) if the holder contemporaneously requests the
Corporation to convert such Series A Preferred Stock.
(b) Delivery of Common Stock Upon Conversion.
Upon the surrender of certificates as described above from a holder of Series A
Preferred Stock accompanied by a Notice of Conversion, the Corporation shall
issue and, within two (2) business days (the "Delivery Period") after such
surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above),
deliver to or upon the order of the holder (i) that number of shares of Common
Stock for the portion of the shares of Series A Preferred Stock converted as
shall be determined in accordance herewith and (ii) a certificate representing
the balance of the shares of Series A Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual
damages and/or equitable relief, the Corporation shall pay to a holder $250 in
cash for the first day beyond such Delivery Period that the Corporation fails
to deliver Common Stock issuable upon surrender of shares of Series A Preferred
Stock with a Notice of Conversion and $500 per day in cash for each day
thereafter until such time as the earlier of the date that the Corporation has
delivered all such Common Stock and the tenth business day beyond such Delivery
Period. Such cash amount shall be paid to such holder by the fifth day of the
month following the month in which it has accrued. In the event the
Corporation fails to deliver such Common Stock prior to the expiration of the
ten (10) business day period after the Delivery Period for any reason (whether
due to a requirement of law or a stock exchange or otherwise), such holder
shall be entitled to (in addition to any other remedies available to the
holder), Conversion Default Payments (as defined herein) in accordance with
Article VI.E. hereof beginning on the expiration of such ten (10) business day
period.
(c) No Fractional Shares. If any conversion of
Series A Preferred Stock would result in a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion of the Series A Preferred Stock shall be the
next higher number of shares.
(d) Conversion Date. The "Conversion Date" shall
be the date specified in the Notice of Conversion, provided (i) that the
advance copy of the Notice of Conversion is faxed to the Corporation before
Midnight, New York City time, on the Conversion Date, and (ii) that the
original Preferred Stock Certificate(s), duly endorsed, are surrendered along
with a copy of the Notice of Conversion as soon as practicable thereafter to
the office of the Corporation or the Transfer
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<PAGE> 8
Agent for the Series A Preferred Stock. The person or persons entitled to
receive the shares of Common Stock issuable upon conversion shall be treated
for all purposes as the record holder or holders of such securities as of the
Conversion Date and all rights with respect to the shares of Series A Preferred
Stock surrendered shall forthwith terminate except the right to receive the
shares of Common Stock or other securities or property issuable on such
conversion.
E. On the earlier of (i) the effective date of the
Amendment and (ii) November 30, 1996, and at all times thereafter, a number of
shares of the authorized but unissued Common Stock sufficient to provide for
the conversion of the Series A Preferred Stock outstanding at the then current
Conversion Price shall at all times be reserved by the Corporation, free from
preemptive rights, for such conversion or exercise. If the Corporation shall
issue any securities or make any change in its capital structure which would
change the number of shares of Common Stock into which each share of the Series
A Preferred Stock shall be convertible at the then current Conversion Price the
Corporation shall at the same time also make proper provision so that
thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free from preemptive rights, for conversion of the
outstanding Series A Preferred Stock on the new basis.
If, at any time following the earlier of (i) the effective date of the
Amendment and (ii) November 30, 1996, a holder of shares of Series A Preferred
Stock submits a Conversion Notice and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a "Conversion
Default"), the Corporation shall issue to the holder all of the shares of
Common Stock which are available to effect such conversion. The number of
shares of Series A Preferred Stock included in the Notice of Conversion which
exceeds the amount which is then convertible into available shares of Common
Stock (the "Excess Amount") shall, notwithstanding anything to the contrary
contained herein, not be convertible into Common Stock in accordance with the
terms hereof until (and at the holder's option at any time after) the date
additional shares of Common Stock are authorized by the Corporation to permit
such conversion, at which time the Conversion Price in respect thereof shall be
the lesser of (i) the Conversion Price on the Conversion Default Date and (ii)
the Conversion Price on the Conversion Date subsequently elected by the holder
in respect thereof. The Corporation shall pay to the holder payments
("Conversion Default Payments") for a Conversion Default in the amount of (a)
(N/365), multiplied by (b) the closing bid price of the Common Stock on NASDAQ,
the Bulletin Board or the principal securities exchange or other securities
market on which the Common Stock is then being traded on (I) the fortieth day
following the Closing Date under the Securities Purchase Agreement and (II) the
Conversion Default Date, whichever is greater, multiplied by (c) the Excess
Amount on the first day of the Conversion Default (the "Conversion Default
Date"), multiplied by (d) .25, where N = the number of days from the Conversion
Default Date to the date (the "Authorization Date") that the Corporation
authorizes a sufficient number of shares of Common Stock to effect conversion
or exercise of the full number of shares of Series A Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default
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<PAGE> 9
Payment for each calendar month shall be paid in cash or shall be convertible
into Common Stock at the Conversion Price, at the holder's option, as follows:
(a) In the event holder elects to take such
payment in cash, cash payment shall be made to holder by the fifth day of the
month following the month in which it has accrued; and
(b) In the event holder elects to take such
payment in Common Stock, the holder may convert such payment amount into Common
Stock at the Conversion Price (as in effect at the time of Conversion) at any
time after the fifth day of the month following the month in which it has
accrued in accordance with the terms of this Article VI.
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock as required pursuant to the terms of this
Article VI.E or to cause a Mandatory Redemption pursuant to Article V.B, and
each holder shall have the right to pursue all remedies available at law or in
equity (including a decree of specific performance and/or injunctive relief).
F. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series A Preferred Stock.
VII. Mandatory Conversion
Each share of Series A Preferred Stock issued and outstanding on July
__, 1999, automatically shall be converted into shares of Common Stock on such
date at the then effective Conversion Price in accordance with the provisions
of Article VI hereof (the "Mandatory Conversion").
VIII. Voting Rights
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation
Law ("DGCL"), and in this Article VIII, and in Article IX below.
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<PAGE> 10
Notwithstanding the above, the Corporation shall provide each holder
of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Corporation, or any proposed liquidation, dissolution or winding up of the
Corporation, the Corporation shall mail a notice to each holder, at least ten
(10) days prior to the record date specified therein (or 30 days prior to the
consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the
extent known at such time.
To the extent that under the DGCL the vote of the holders of the
Series A Preferred Stock, voting separately as a class or series as applicable,
is required to authorize a given action of the Corporation, the affirmative
vote or consent of the holders of at least a majority of the shares of the
Series A Preferred Stock represented at a duly held meeting at which a quorum
is present or by written consent of a majority of the shares of Series A
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series A Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share
of Series A Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series A Preferred Stock
shall be entitled to notice of (and copies of proxy materials and other
information sent to shareholders) all shareholder meetings or written consents
with respect to which they would be entitled to vote, which notice would be
provided pursuant to the Corporation's by-laws and the DGCL.
IX. Protection Provision
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series A Preferred Stock or any Senior Securities so as to
affect adversely the Series A Preferred Stock;
(b) create any new class or series of capital
stock having a preference over the Series A Preferred Stock as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Senior Securities");
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<PAGE> 11
(c) create any new class or series of capital
stock ranking pari passu with the Series A Preferred Stock as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of
Series A Preferred Stock;
(e) issue any shares of Series A Preferred Stock
after July 25, 1996; or (f) do any act or thing not authorized or
contemplated by this Certificate of Designation which would result in taxation
of the holders of shares of the Series A Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series A
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series A Preferred Stock that did not agree to
such alteration or change (the "Dissenting Holders") and Dissenting Holders
shall have the right for a period of thirty (30) days to convert pursuant to
the terms of this Certificate of Designation as they exist prior to such
alteration or change or continue to hold their shares of Series A Preferred
Stock.
X. Cancellation of Series A Preferred Stock
In the event any shares of Series A Preferred Stock shall be converted
pursuant to Article VI, the shares so converted shall be canceled, shall return
to the status of unauthorized, but unissued preferred stock of no designated
series, and shall not be issuable by the Corporation as Series A Preferred
Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 12
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 25th of July, 1996.
AMERICAN BIOMED, INC.
By: /s/ Steven B. Rash
----------------------------------
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<PAGE> 13
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series A
Preferred Stock, represented by stock certificate Nos(s). (the "Preferred Stock
Certificates") into shares of common stock ("Common Stock") of American BioMed,
Inc. (the "Corporation") according to the conditions of the Certificate of
Designation of Series A Preferred Stock, as of the date written below. If
shares are to be issued in the name of a person other than the undersigned, the
undersigned will pay all transfer taxes payable with respect thereto and is
delivering herewith such certificates. No fee will be charged to the Holder
for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Series A Preferred Stock shall be made pursuant to
registration of the Common Stock under the Securities Act of 1933, as amended
(the "Act"), or pursuant to an exemption from registration under the Act.
Check if applicable [ ]
The undersigned acknowledges that the securities to which this
certificate relates have not been registered under the Securities Act
of 1933, as amended (the "1933 Act") and that offers, sales or other
transfers of such securities must be made in compliance with
Regulation S promulgated under the 1933 Act, pursuant to an effective
registration statement under the 1933 Act or pursuant to an available
exemption from registration, and the undersigned certifies that the
undersigned has not made, nor will the undersigned make or cause to be
made, any offer, sale or other transfer of such securities, in
violation of the 1933 Act, other applicable securities laws or the
rules and regulations of the Securities and Exchange Commission.
Date of Conversion:_________________________
Applicable Conversion Price:________________
Number of Shares of
Common Stock to be Issued:__________________
Signature:__________________________________
Name:_______________________________________
Address:____________________________________
* The Corporation is not required to issue shares of Common Stock until the
original Series A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
<PAGE> 1
EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
1996 SERIES B CONVERTIBLE PREFERRED STOCK
OF
AMERICAN BIOMED, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
American Biomed, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "CORPORATION"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation pursuant to authority of the Board of Directors as required
by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the
"BOARD") in accordance with the provisions of its Certificate of Incorporation,
the Board of Directors hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $.001 per share (the
"PREFERRED STOCK"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
1996 Series B Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 2,500 shares of
Preferred Stock, is the 1996 Series B Convertible Preferred Stock (the "SERIES
B PREFERRED STOCK") and the stated value shall be One Thousand Dollars
($1,000.00) per share (the "STATED VALUE").
<PAGE> 2
II. Rank
All shares of the Series B Preferred Stock shall rank (i) prior to the
Corporation's Common Stock, par value $.001 per share (the "COMMON STOCK");
(ii) except as specifically provided herein, prior to any class or series of
capital stock of the Corporation hereafter created (unless, with the consent of
the holders of Series B Preferred Stock obtained in accordance with Article IX
hereof, such class or series of capital stock specifically, by its terms, ranks
senior to or pari passu with the Series B Preferred Stock) (collectively, with
the Common Stock, "JUNIOR SECURITIES"); (iii) pari passu with (A) the
Corporation's 1996 Series A Convertible Preferred Stock, par value $.001 per
share (the "SERIES A PREFERRED STOCK"), (B) a to be created new class of the
Corporation's Preferred Stock, par value $.001 per share (the "NEW PREFERRED
STOCK"), having such designations, rights and preferences as may be designated
by the Corporation's Board of Directors provided, that, such new class of
Preferred Stock shall have been issued within sixty (60) days of the closing of
the transactions contemplated by that certain Securities Purchase Agreement,
dated as of November 4, 1996, by and between the Company and the Purchaser
listed on the execution page thereof and shall not have an aggregate
liquidation preference in excess of [$2,000,000] and (C) any class or series of
capital stock of the Corporation hereafter created (with the consent of the
holders of Series B Preferred Stock obtained in accordance with Article IX
hereof) specifically ranking, by its terms, on parity with the Series B
Preferred Stock (collectively, the "PARI PASSU SECURITIES"); and (iv) junior to
any class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of Series B Preferred Stock obtained in accordance
with Article IX hereof) specifically ranking, by its terms, senior to the
Series B Preferred Stock (the "SENIOR SECURITIES"), in each case as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
III. No Dividends
The Series B Preferred Stock will bear no dividends, and the holders
of the Series B Preferred Stock shall not be entitled to receive dividends on
the Series B Preferred Stock.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case
under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its
property, or make an assignment for the benefit of its creditors, or admit in
writing its inability to pay its debts generally as they become due, or if a
decree or order for relief in respect of the Corporation shall be entered by a
court having jurisdiction in the premises in an involuntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law resulting in the appointment of a receiver,
liquidator,
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<PAGE> 3
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or ordering the winding
up or liquidation of its affairs, and any such decree or order shall be
unstayed and in effect for a period of sixty (60) consecutive days and, on
account of any such event (a "LIQUIDATION EVENT"), the Corporation shall
liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto, the holders
of shares of Series B Preferred Stock, subject to Article VI, shall have
received the Liquidation Preference (as defined in Article IV.C) with respect
to each share. If upon the occurrence of a Liquidation Event, the assets and
funds available for distribution among the holders of the Series B Preferred
Stock and holders of Pari Passu Securities shall be insufficient to permit the
payment to such holders of the preferential amounts payable thereon, then the
entire assets and funds of the Corporation legally available for distribution
to the Series B Preferred Stock and the Pari Passu Securities (except certain
of the Company's intellectual property rights, as to which the holders of
Series A Preferred Stock have been granted a first lien and security interest,
pursuant to the terms of that certain Security Agreement dated November 4,
1996, in order to secure the Company's obligations to such holders under
Section V and VI of the Certificate of Designation governing the Series A
Preferred Stock) of shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate Liquidation Preference payable on all such shares.
B. At the option of the holders of 50% or more of the
then outstanding shares of Series B Preferred Stock, the sale, conveyance or
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series of related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other Person (as defined below) or Persons when
the Corporation is not the survivor shall either: (i) be deemed to be a
liquidation, dissolution or winding up of the Corporation for purposes of this
Article IV; or (ii) be treated pursuant to Article VI.C hereof. "PERSON" shall
mean any individual, corporation, limited liability company, partnership,
association, trust or other entity or organization.
C. For purposes hereof, the "LIQUIDATION PREFERENCE"
with respect to a share of the Series B Preferred Stock shall mean an amount
equal to the sum of (i) the Stated Value thereof, plus (ii) an amount equal to
ten percent (10%) per annum of such Stated Value for the period beginning on
the date of issuance of such share and ending on the date of the Liquidation
Event.
V. Redemption of Series B Preferred Stock
A. Except as provided in Articles V.B and C below, the
Series B Preferred Stock is not subject to redemption.
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<PAGE> 4
B. In the event that the Corporation (i) fails to issue
shares of Common Stock to the holders of Series B Preferred Stock upon exercise
by the holders of their conversion rights in accordance with the terms of this
Certificate of Designation (for a period of at least sixty (60) days if such
failure is solely as a result of the circumstances governed by the second
paragraph of Article VI.E. below and the Corporation is using all commercially
reasonable efforts to authorize a sufficient number of shares of Common Stock
as soon as practicable), (ii) fails to transfer any certificate for shares of
Common Stock issued to the holders upon conversion of the Series B Preferred
Stock as and when required by this Certificate of Designation or the
Registration Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT") or (iii)
fails to remove any restrictive legend on any certificate or any shares of
Common Stock issued to the holders of Series B Preferred Stock upon conversion
of the Series B Preferred Stock as and when required by this Certificate of
Designation, the Securities Purchase Agreement, dated as of November 4, 1996,
by and between the Corporation and the other signatories thereto with respect
to the original issuance of the Series B Preferred Stock (the "SECURITIES
PURCHASE AGREEMENT") or the Registration Rights Agreement (each of the
foregoing failures being a "MANDATORY REDEMPTION EVENT") and any such failure
shall continue uncured for ten (10) business days after the Corporation shall
have been notified thereof in writing by the holder; then, upon the occurrence
and during the continuation of any Mandatory Redemption Event specified in
clauses (i) - (iii) above, at the option of the holders of at least 50% of the
then outstanding shares of Series B Preferred Stock by written notice (the
"MANDATORY REDEMPTION NOTICE") to the Corporation of such Mandatory Redemption
Event, the Corporation shall purchase all of the then outstanding shares of
Series B Preferred Stock for an amount per share (the "MANDATORY REDEMPTION
AMOUNT") equal to 125% multiplied by the Mandatory Redemption Price in effect
at the time of the redemption hereunder.
(i) The "MANDATORY REDEMPTION PRICE" with respect to
each share of Series B Preferred Stock shall mean the amount equal to the
greater of (A) (x) the number of shares of Common Stock to which such failure
relates, multiplied by (y) the greater of (i) the last reported sale price of
the Common Stock on the OTC Bulletin Board (the "BULLETIN BOARD"), or the
closing bid price of the Common Stock on the National Association of Securities
Dealers, Inc. Small Cap Market (the"SMALLCAP") or the principal securities
exchange or other securities market on which the Common Stock is then being
traded (the "CLOSING PRICE") on the Closing Date under the Securities Purchase
Agreement (the "CLOSING DATE") and (ii) the Closing Price of the Common Stock
on the Conversion Default Date (as defined below) and (B) the sum of (x) the
Stated Value thereof plus (y) the amount equal to ten percent (10%) per annum
of such Stated Value for the period beginning on the issuance of such share and
ending on the Conversion Default Date.
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<PAGE> 5
(ii) If the Corporation fails to pay the Mandatory
Redemption Amount for each share within five (5) business days of written
notice that such amount is due and payable, then each holder of Series B
Preferred Stock shall have the right at any time, so long as the Mandatory
Redemption Event continues to require the Corporation, upon written notice, to
immediately issue (in accordance with the terms of Article VI below), in lieu
of the Mandatory Redemption Amount, with respect to each outstanding share of
Series B Preferred Stock held by such holder, the number of shares of Common
Stock of the Corporation equal to the Mandatory Redemption Amount divided by
the Conversion Price then in effect.
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<PAGE> 6
C. The Company shall have the right, in its sole
discretion, to redeem (an "OPTIONAL REDEMPTION") all of the Series B Preferred
Stock then outstanding at the Optional Redemption Price (as defined herein), in
accordance with the redemption procedures set forth below. The Company shall
effect such Optional Redemption by giving at least thirty (30) days and not
more than sixty (60) days prior written notice (the "OPTIONAL REDEMPTION
NOTICE") to the holders of Series B Preferred Stock at the address and
facsimile number of such holder appearing in the Company's register for the
Series B Preferred Stock, which Optional Redemption Notice shall be deemed to
have been delivered three (3) business days after the Company's mailing (by
overnight courier, with a copy by facsimile) of such notice. Such Optional
Redemption Notice shall indicate the date on which such redemption is to become
effective (the "EFFECTIVE DATE OF THE OPTIONAL REDEMPTION") and the Optional
Redemption Price. Holders of Series B Preferred Stock may convert their
shares of Series B Preferred Stock into Common Stock (and the restrictions
imposed by Article VI.A (ii) hereof shall not apply to any such conversion) by
delivering a Notice of Conversion (as defined herein) to the Company at any
time prior to the Effective Date of the Optional Redemption.
The Optional Redemption Price, shall be paid to the holder of
the Series B Preferred Stock within ten (10) business days of the Effective
Date of the Optional Redemption; provided, however, that the Company shall not
be obligated to deliver any portion of the Optional Redemption Price until
either the certificate(s) evidencing the Series B Preferred Stock being
redeemed are delivered to the office of the Company, or the holder notifies the
Company that such certificate(s) have been lost, stolen or destroyed and
delivers appropriate documentation to the Company pursuant to Article VI D(a)
hereof. Notwithstanding anything herein to the contrary, in the event that the
certificates evidencing the Series B Preferred Stock redeemed are not delivered
to the Company prior to the tenth business day following the Effective Date of
the Optional Redemption, the redemption of the Series B Preferred Stock
pursuant to this Article still be deemed effective as of the Effective Date of
the Optional Redemption and the Optional Redemption Price shall be paid to the
holder of Series B Preferred Stock redeemed within 5 business days of the date
the certificates evidencing the Series B Preferred Stock redeemed are actually
delivered to the Company.
The Corporation shall not be entitled to send any Optional
Redemption Notice and begin the redemption procedure unless it has (i) the full
amount of the Optional Redemption Price, in cash, available in a demand or
other immediately available account in a bank or similar financial institution
or (ii) immediately available credit facilities, in the full amount of the
Optional Redemption Price, with a bank or similar financial institution on the
date the Redemption Notice is delivered to the applicable holder.
Notwithstanding the foregoing the thirty (30) day notice period referred to
herein shall be extended with respect to any holder of Series B Preferred Stock
by such number of days after the date of the Optional Redemption Notice as such
holder is not permitted to sell all of the shares of Common Stock upon
conversion of its Series B Preferred Stock pursuant to an effective
registration statement filed with the Securities and Exchange Commission under
the Securities Act of 1933, as amended (or a successor statute) (the
"SECURITIES ACT"), Regulation S under the Securities Act, pursuant to Rule
144(k) under the Securities Act, or any other exemption under the Securities
Act.
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<PAGE> 7
The "OPTIONAL REDEMPTION PRICE" with respect to each share of
Series B Preferred Stock shall mean the amount equal to the product obtained by
multiplying (i) the sum of the Stated Value thereof plus an amount equal to ten
(10%) percent per annum of such Stated Value for the period beginning on the
issuance of such share and ending on the Effective Date of the Optional
Redemption hereunder multiplied by (ii) 130%.
VI. Conversion at the Option of the Holder
A. (i) Subject to the limitations contained in Article
VI.A(ii), each holder of shares of Series B Preferred Stock may, at its option,
at any time on or after that date which is sixty (60) days after the Closing
Date, upon surrender of the certificates therefor, convert shares of Series B
Preferred Stock held by such holder into shares of Common Stock (an "OPTIONAL
CONVERSION"). Each share of Series B Preferred Stock shall be convertible into
such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing (x) the sum of (i) the Stated Value thereof, plus (ii)
an amount equal to ten percent (10%) per annum of such Stated Value for the
period beginning on the Closing Date and ending on the Conversion Date (the
"PREMIUM"), by (y) the then effective Conversion Price (as defined below);
provided, however, that in no event shall holders of shares of Series B
Preferred Stock be entitled to convert any such shares in excess of that number
of shares upon conversion of which the sum of (x) the number of shares of
Common Stock beneficially owned by the holder and its affiliates (other than
shares of Common Stock which may be deemed beneficially owned through the
ownership of the unconverted portion of the shares of Series B Preferred Stock
or the unexercised or unconverted portion of any other securities of the
Corporation (including, without limitation, the Warrants issued pursuant to the
Securities Purchase Agreement) subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (y) the number of
shares of Common Stock issuable upon the conversion of the shares of Series B
Preferred Stock with respect to which the determination of this proviso is
being made would result in beneficial ownership by the holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the proviso contained in the immediately preceding sentence,
beneficial ownership shall be determined in accordance with Section 13(d) of
the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder, except as otherwise provided in clause (x) of such proviso. The
restriction contained in the proviso of this Article V.A shall not be altered,
amended, deleted or changed in any manner whatsoever unless the holders of a
majority of the Common Stock shall approve such alteration, amendment, deletion
or change.
(ii) The Series B Preferred Stock may be converted
into shares of Common Stock only in accordance with the following schedule:
(a) On any Trading Day (as defined below)
that the average of the Closing Prices (as defined below) for the Common Stock
for the five (5) consecutive Trading Days immediately preceding such Trading
Day is greater than 100% of the Maximum Conversion Price then in effect (as
defined below) but does not exceed 150% of the Maximum Conversion Price then
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<PAGE> 8
in effect, a holder of Series B Preferred Stock may only convert shares of
Series B Preferred Stock to the extent that the number of Conversion Shares to
be issued together with the aggregate number of Conversion Shares issued to or
Sold Short (as defined in the Securities Purchase Agreement) by such holder
during the thirty (30) day period ending on the Trading Day immediately
preceding the Trading Day of such proposed conversion does not exceed 0.50
multiplied by the number of Conversion Shares which would have been issuable
(based on the Conversion Price which would have been in effect on the Closing
Date) upon conversion in full of the Preferred Shares issued to or acquired by
such holder on the Closing Date or thereafter; or
(b) On any Trading Day that the average of
the Closing Prices for the Common Stock for the five (5) consecutive Trading
Days immediately preceding such Trading Day is less than the Maximum Conversion
Price then in effect a holder of Series B Preferred Stock may only convert
shares of Series B Preferred Stock to the extent that the number of Conversion
Shares to be issued together with the aggregate number of Conversion Shares
issued to or Sold Short (as such term is defined in the Securities Purchase
Agreement) by such holder during the thirty (30) day period ending on the
Trading Day immediately preceding the Trading Day of such proposed conversion
does not exceed 0.25 multiplied by the number of Conversion Shares which would
have been issuable (based on the Conversion Price which would have been in
effect on the Closing Date) upon conversion in full of the Preferred Shares
issued to or acquired by such holder on the Closing Date or thereafter.
Notwithstanding the foregoing, (i) on any Trading Day on or after the date
which is sixty (60) days after the Closing Date that the average of the Closing
Prices for the Common Stock for the five (5) consecutive Trading Days ending on
the immediately preceding Trading Day is greater than 150% of the Maximum
Conversion Price and (ii) at any time after the delivery by the Company of an
Offering Redemption Notice to the holders of Series B Preferred Stock pursuant
to Article V.C hereof, the restrictions contained in this Article VI.A shall
not be applicable and the holder may convert the Series B Preferred Stock
without restriction.
B. The "CONVERSION PRICE" shall be the lesser of (i) the
Applicable Percentage (as hereinafter defined) of the average of the Closing
Prices for the Common Stock for the five (5) consecutive Trading Days ending
one Trading Day prior to the date (the "CONVERSION DATE") the Conversion Notice
is sent by a holder to the Corporation via facsimile (the "DISCOUNTED
CONVERSION PRICE"), and (ii) the average of the Closing Prices for the Common
Stock for the ten (10) consecutive Trading Days ending on the sixtieth (60th)
day (or the first Trading Day thereafter if such day is not a Trading Day)
after the Closing Date (the "MAXIMUM CONVERSION PRICE") (subject to equitable
adjustments from time to time pursuant to the antidilution provisions of
Article VI.C below). "TRADING DAY" shall mean any day on which the Common
Stock is traded for any period on the Bulletin Board, the SmallCap or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded. The "APPLICABLE PERCENTAGE" shall be determined in
accordance with the following schedule:
Number of Days After Closing Date Applicable Percentage
--------------------------------- ---------------------
-8-
<PAGE> 9
60 greater than or equal to X less than 90 86%
90 greater than or equal to X less than 120 84%
120 greater than or equal to X less than 150 82%
150 greater than or equal to X less than 180 80%
180 greater than or equal to X less than 210 78%
210 greater than or equal to X less than 240 76%
240 greater than or equal to X less than 270 74%
270 greater than or equal to X less than 300 72%
300 greater than or equal to X less than 70%
Where X represents the Conversion Date.
C. The Conversion Price shall be subject to adjustment
from time to time as follows:
(a) Adjustment to Maximum Conversion Price Due to
Stock Split, Stock Dividend, Etc. If at any time when the Series B Preferred
Stock is issued and outstanding, the number of outstanding shares of Common
Stock is increased by a stock split, stock dividend, combination
reclassification, below-Market Price (as defined in Article VI.G) rights
offering to all holders of Common Stock or other similar event, the Maximum
Conversion Price shall each be proportionately reduced, or if the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the Maximum
Conversion Price shall each be proportionately increased. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof.
(b) Adjustment to Conversion Price. If at any
time when Series B Preferred Stock is issued and outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification, below-Market Price (as defined
in Article VI.G) rights offering to all holders of Common Stock or other
similar event, which event shall have taken place during the reference period
for determination of the Conversion Price for any Optional Conversion or
Mandatory Conversion of the Series B Preferred Stock, then the Discounted
Conversion Price or Maximum Conversion Price, as the case may be, shall be
calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all five (5) or ten
(10) Trading Days, as the case may be, utilized to calculate the Conversion
Price.
(c) Adjustment Due to Merger, Consolidation, Etc.
If, at any time when Series B Preferred Stock is issued and outstanding and
prior to the conversion of all Series B Preferred Stock, there shall be (i)
any reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged), (iii) any sale or transfer of
-9-
<PAGE> 10
all or substantially all of the assets of the Corporation or (iv) any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, then the holders of Series B
Preferred Stock shall, upon being given at least thirty (30) days prior written
notice of such transaction, thereafter have the right to purchase and receive
upon conversion of Series B Preferred Stock, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the conversion of Series B Preferred Stock held
by such holders had such merger, consolidation, exchange of shares,
recapitalization, reorganization or other similar event not taken place, and in
any such case appropriate provisions shall be made with respect to the rights
and interests of the holders of the Series B Preferred Stock to the end that
the provisions hereof (including, without limitation, provisions for adjustment
of the Conversion Price and of the number of shares issuable upon conversion of
the Series B Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The Corporation shall not effect any
transaction described in this subsection (c) unless (i) each holder of Series B
Preferred Stock has received written notice of such transaction at least thirty
(30) days prior thereto and in no event later than ten (10) days prior to the
record date for the determination of shareholders entitled to vote with respect
thereto, and (ii) the provisions of this paragraph have been complied with.
The above provisions shall apply regardless of whether or not there would have
been a sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series B Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(d) No Fractional Shares. If any adjustment
under this Article VI.C. would create a fractional share of Common Stock, such
fractional share shall be disregarded and the number of shares of Common Stock
issuable upon conversion shall be the next higher number of shares.
D. In order to convert Series B Preferred Stock into
full shares of Common Stock, a holder shall: (i) fax a copy of the fully
executed notice of conversion in the form attached hereto ("NOTICE OF
CONVERSION") to the Corporation at the office of the Corporation or its
designated Transfer Agent, if any, for the Series B Preferred Stock that the
holder elects to convert the same, which notice shall specify the number of
shares of Series B Preferred Stock to be converted, the applicable Conversion
Price and a calculation of the number of shares of Common Stock issuable upon
such conversion (together with a copy of each certificate to be converted)
prior to Midnight, New York City time (the "CONVERSION NOTICE DEADLINE") on the
date of conversion specified on the Notice of Conversion (the "CONVERSION
DATE"); and (ii) surrender the original certificates representing the Series B
Preferred Stock being converted (the "PREFERRED STOCK CERTIFICATES"), duly
endorsed, along with a copy of the Notice of Conversion as soon as practicable
thereafter to the office of the Corporation or the Transfer Agent, if any, for
the Series B Preferred Stock; provided, however, that the Corporation shall not
be obligated to issue certificates evidencing the shares of
-10-
<PAGE> 11
Common Stock issuable upon such conversion unless either the Preferred Stock
Certificates are delivered to the Corporation or its Transfer Agent as provided
above, or the holder notifies the Corporation or its Transfer Agent that such
certificates have been lost, stolen or destroyed (subject to the requirements
of subparagraph (a) below). In the case of a dispute as to the calculation of
the Conversion Price, the Corporation shall promptly issue such number of
shares of Common Stock to purchase shares of Common Stock that are not disputed
in accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall
audit the calculations and notify the Corporation and the holder of the results
no later than 48 hours from the time it receives the disputed calculations.
The accountant's calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by
the Corporation of evidence of the loss, theft, destruction or mutilation of
any Preferred Stock Certificates representing shares of Series B Preferred
Stock, and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Corporation, and upon surrender and cancellation
of the Preferred Stock Certificate(s), if mutilated, the Corporation shall
execute and deliver new Preferred Stock Certificate(s) of like tenor and date.
However, the Corporation shall not be obligated to reissue such lost or stolen
Preferred Stock Certificate(s) if the holder contemporaneously requests the
Corporation to convert such Series B Preferred Stock.
(b) Delivery of Common Stock Upon Conversion.
Upon the surrender of certificates as described above from a holder of Series B
Preferred Stock accompanied by a Notice of Conversion, the Corporation shall
issue and, within two (2) business days (the "DELIVERY PERIOD") after such
surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above),
deliver to or upon the order of the holder (i) that number of shares of Common
Stock for the portion of the shares of Series B Preferred Stock converted as
shall be determined in accordance herewith and (ii) a certificate representing
the balance of the shares of Series B Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual
damages and/or equitable relief, the Corporation shall pay to a holder $250 in
cash for the first day beyond such Delivery Period that the Corporation fails
to deliver Common Stock issuable upon surrender of shares of Series B Preferred
Stock with a Notice of Conversion and $500 per day in cash for each day
thereafter until such time as the earlier of the date that the Corporation has
delivered all such Common Stock and the tenth business day beyond such Delivery
Period. Such cash amount shall be paid to such holder by the fifth day of the
month following the month in which it has accrued. In the event the
Corporation fails to deliver such Common Stock prior to the expiration of the
ten (10) business day period after the Delivery Period for any reason (whether
due to a requirement of law or a stock exchange or otherwise), such holder
shall be entitled to (in addition to any other remedies available to the
holder), Conversion Default Payments (as defined herein) in accordance with
Article VI.E. hereof beginning on the expiration of such ten (10) business day
period.
-11-
<PAGE> 12
(c) No Fractional Shares. If any conversion of
Series B Preferred Stock would result in a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion of the Series B Preferred Stock shall be the
next higher number of shares.
(d) Conversion Date. The "CONVERSION DATE" shall
be the date specified in the Notice of Conversion, provided (i) that the
advance copy of the Notice of Conversion is faxed to the Corporation before
Midnight, New York City time, on the Conversion Date, and (ii) that the
original Preferred Stock Certificate(s), duly endorsed, are surrendered along
with a copy of the Notice of Conversion as soon as practicable thereafter to
the office of the Corporation or the Transfer Agent for the Series B Preferred
Stock. The person or persons entitled to receive the shares of Common Stock
issuable upon conversion shall be treated for all purposes as the record holder
or holders of such securities as of the Conversion Date and all rights with
respect to the shares of Series B Preferred Stock surrendered shall forthwith
terminate except the right to receive the shares of Common Stock or other
securities or property issuable on such conversion.
E. A number of shares of the authorized but unissued
Common Stock sufficient to provide for the conversion of the Series B Preferred
Stock outstanding at the then current Conversion Price shall at all times be
reserved by the Corporation, free from preemptive rights, for such conversion
or exercise. If the Corporation shall issue any securities or make any change
in its capital structure which would change the number of shares of Common
Stock into which each share of the Series B Preferred Stock shall be
convertible at the then current Conversion Price the Corporation shall at the
same time also make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series B Preferred Stock
on the new basis. If, at any time, a holder of shares of Series B Preferred
Stock submits a Conversion Notice and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a "CONVERSION
DEFAULT"), the Corporation shall issue to the holder all of the shares of
Common Stock which are available to effect such conversion (including, with the
holder's written consent, any shares underlying outstanding Warrants held by
such Holder ("BORROWED SHARES")). The number of shares of Series B Preferred
Stock included in the Notice of Conversion which exceeds the amount which is
then convertible into available shares of Common Stock (including Borrowed
Shares, if any) (the "EXCESS AMOUNT") shall, notwithstanding anything to the
contrary contained herein, not be convertible into Common Stock in accordance
with the terms hereof until (and at the holder's option at any time after) the
date additional shares of Common Stock are authorized by the Corporation to
permit such conversion, at which time the Conversion Price in respect thereof
shall be the lesser of (i) the Conversion Price on the first day of the
Conversion Default (the "CONVERSION DEFAULT DATE") and (ii) the Conversion
Price on the Conversion Date subsequently elected by the holder in respect
thereof. The Corporation shall pay to the holder payments ("CONVERSION DEFAULT
PAYMENTS") for a Conversion Default in the amount of (a) (N/365), multiplied by
(b) the sum of the Stated Value with respect to each share of Series B
Preferred Stock, multiplied by (c) the Default Amount on the Conversion Default
Date, multiplied by (d) .25,
-12-
<PAGE> 13
where (i) N = the number of days from the Conversion Default Date to the date
(the "AUTHORIZATION DATE") that the Corporation authorizes a sufficient number
of shares of Common Stock to effect conversion of the full number of shares of
Series B Preferred Stock and (ii) "DEFAULT AMOUNT" means the Excess Amount plus
the number of shares of Series B Preferred Stock that would not be convertible
as a result of this Article VI.E but for the Borrowed Shares. The Corporation
shall send notice to the holder of the authorization of additional shares of
Common Stock, the Authorization Date and the amount of holder's accrued
Conversion Default Payments. The accrued Conversion Default Payment for each
calendar month shall be paid in cash or shall be convertible into Common Stock
at the Conversion Price, at the holder's option, as follows:
(a) In the event holder elects to take such
payment in cash, cash payment shall be made to holder by the fifth day of the
month following the month in which it has accrued; and
(b) In the event holder elects to take such
payment in Common Stock, the holder may convert such payment amount into Common
Stock at the Conversion Price (as in effect at the time of Conversion) at any
time after the fifth day of the month following the month in which it has
accrued in accordance with the terms of this Article VI.
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock as required pursuant to the terms of this
Article VI.E or to cause a Mandatory Redemption pursuant to Article V.B, and
each holder shall have the right to pursue all remedies available at law or in
equity (including a decree of specific performance and/or injunctive relief).
F. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of Series B Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of Series B Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series B Preferred Stock.
G. "MARKET PRICE," as of any date, (i) means the average
of the closing bid prices for the shares of Common Stock as reported on the
SmallCap for the five (5) Trading Days immediately preceding such date, or (ii)
if SmallCap is not the principal trading market for the shares of Common Stock,
the average of the last reported sale prices on the principal trading market
for the Common Stock during the same period, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price
shall be the average fair market
-13-
<PAGE> 14
value as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to the holder, with the costs of the
appraisal to be borne by the Corporation. The manner of determining the Market
Price of the Common Stock set forth in the foregoing definition shall apply
with respect to any other security in respect of which a determination as to
market value must be made hereunder.
VII. Mandatory Conversion
Each share of Series B Preferred Stock issued and outstanding on
November 4, 1998, automatically shall be converted into shares of Common Stock
on such date at the then effective Conversion Price in accordance with the
provisions of Article VI hereof (the "MANDATORY CONVERSION").
VIII. Voting Rights
The holders of the Series B Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation
Law ("DGCL"), and in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder
of Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of
its shareholders for the purpose of determining shareholders who are entitled
to receive payment of any dividend or other distribution, any right to
subscribe for, purchase or otherwise acquire (including by way of merger,
consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Corporation, or any proposed liquidation, dissolution or winding up of the
Corporation, the Corporation shall mail a notice to each holder, at least ten
(10) days prior to the record date specified therein (or 30 days prior to the
consummation of the transaction or event, whichever is earlier), of the date
on which any such record is to be taken for the purpose of such dividend,
distribution, right or other event, and a brief statement regarding the amount
and character of such dividend, distribution, right or other event to the
extent known at such time.
To the extent that under the DGCL the vote of the holders of the
Series B Preferred Stock, voting separately as a class or series as applicable,
is required to authorize a given action of the Corporation, the affirmative
vote or consent of the holders of at least a majority of the shares of the
Series B Preferred Stock represented at a duly held meeting at which a quorum
is present or by written consent of a majority of the shares of Series B
Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series B Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share
of Series B Preferred Stock shall
-14-
<PAGE> 15
be entitled to a number of votes equal to the number of shares of Common Stock
into which it is then convertible using the record date for the taking of such
vote of shareholders as the date as of which the Conversion Price is
calculated. Holders of the Series B Preferred Stock shall be entitled to
notice of (and copies of proxy materials and other information sent to
shareholders) all shareholder meetings or written consents with respect to
which they would be entitled to vote, which notice would be provided pursuant
to the Corporation's by-laws and the DGCL.
IX. Protection Provision
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock or any Senior Securities or Pari
Pasu Securities so as to affect adversely the Series B Preferred Stock (other
than the initial designation of the New Preferred Stock contemplated by Article
II(iii)(B));
(b) create any new class or series of capital
stock having a preference over the Series B Preferred Stock as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "SENIOR SECURITIES");
(c) create any new class or series of capital
stock ranking pari passu with the Series B Preferred Stock as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "PARI PASSU SECURITIES") (other than
the initial designation of the New Preferred Stock contemplated by Article
II(iii)(B));
(d) increase the authorized number of shares of
Series A Preferred Stock, Series B Preferred Stock or new Preferred Stock
(after its initial designation);
(e) issue any shares of Series B Preferred Stock
after November 4, 1996; or
(f) do any act or thing not authorized or
contemplated by this Certificate of Designation which would result in taxation
of the holders of shares of the Series B Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series B Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series B
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series B
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series B Preferred Stock that did not agree to
such alteration or change (the "DISSENTING
-15-
<PAGE> 16
HOLDERS") and Dissenting Holders shall have the right for a period of thirty
(30) days to convert pursuant to the terms of this Certificate of Designation
as they exist prior to such alteration or change or continue to hold their
shares of Series B Preferred Stock.
X. Cancellation of Series B Preferred Stock
In the event any shares of Series B Preferred Stock shall be converted
pursuant to Article VI, the shares so converted shall be canceled, shall return
to the status of unauthorized, but unissued preferred stock of no designated
series, and shall not be issuable by the Corporation as Series B Preferred
Stock.
XI. Condition to Transfer
The shares of Series B Preferred Stock are not transferrable unless
the transferee thereof shall deliver a written agreement to the Corporation,
which agreement shall be for the benefit of the Corporation and all holders of
Series B Preferred Stock, pursuant to which such transferee agrees to be bound
by the restrictions contained in Section 2(a) of the Securities Purchase
Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-16-
<PAGE> 17
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 4th day of November, 1996.
AMERICAN BIOMED, INC.
By: /s/ Steven B. Rash
---------------------------------------
-17-
<PAGE> 18
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series B
Preferred Stock (the "CONVERSION"), represented by stock certificate Nos(s).
___________ (the "PREFERRED STOCK CERTIFICATES") into shares of common stock
("COMMON STOCK") of American Biomed, Inc. (the "CORPORATION") according to the
conditions of the Certificate of Designation of Series B Preferred Stock (the
"CERTIFICATE OF DESIGNATION"), as of the date written below. If shares are to
be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any. A copy of each Preferred Stock
Certificate is attached hereto (or evidence of loss, theft or destruction
thereof).
The undersigned represents and warrants that the Conversion complies with the
restrictions set forth in Article VI.A.(ii) of the Certificate of Designation.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the Series B Preferred Stock shall be made pursuant to
registration of the Common Stock under the Securities Act of 1933, as amended
(the "ACT"), or pursuant to an exemption from registration under the Act.
Check if applicable [ ]
The undersigned acknowledges that the securities to which this
certificate relates have not been registered under the Securities Act
of 1933, as amended (the "1933 ACT") and that offers, sales or other
transfers of such securities must be made in compliance with
Regulation S promulgated under the 1933 Act, pursuant to an effective
registration statement under the 1933 Act or pursuant to an available
exemption from registration, and the undersigned certifies that the
undersigned has not made, nor will the undersigned make or cause to be
made, any offer, sale or other transfer of such securities, in
violation of the 1933 Act, other applicable securities laws or the
rules and regulations of the Securities and Exchange Commission.
Date of Conversion:___________________________
Applicable Conversion Price:__________________
Number of Shares of
Common Stock to be Issued:___________________
Signature:___________________________________
Name:________________________________________
Address:_____________________________________
* The Corporation is not required to issue shares of Common Stock until the
original Series B Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
<PAGE> 1
EXHIBIT 11.1
AMERICAN BIOMED, INC. AND SUBSIDIARIES
COMPUTATION OF INCOME (LOSS) PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Computation of income (loss) per common
share:
Net income (loss) $( 648,992) $ 880,737 $(1,876,388) $( 793,151)
=========== =========== =========== ===========
Weighted average shares
outstanding 12,299,07 9,280,609 10,688,212 9,252,363
Stock options assumed exercised 3,906,613
Less common shares assumed
repurchased (1,856,122)
----------- ----------- ----------- -----------
Weighted average shares used in
computing net income (loss) per share 12,299,078 11,331,100 10,688,212 9,252,363
=========== =========== =========== ===========
Income (loss) per common share $ ( .05) $ .08 $ ( .18) $ (.09)
=========== =========== =========== ===========
Computation of income (loss) per
common share assuming full dilution
(A):
Weighted average shares outstanding
used in computing net income (loss)
per share 12,299,078 11,331,100 10,688,212 9,252,363
=========== =========== =========== ===========
Income (loss) per common share
assuming full dilution $ ( .05) $ .08 $ ( .18) $ (.09)
=========== =========== =========== ===========
</TABLE>
___________________
(A) This calculation is submitted in accordance with Securities and
Exchange Act of 1934 Release No. 9083 although it is contrary to APB
Opinion 15 because it does not result in any dilution.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 125,743
<SECURITIES> 0
<RECEIVABLES> 235,697
<ALLOWANCES> 45,000
<INVENTORY> 488,009
<CURRENT-ASSETS> 1,254,441
<PP&E> 798,122
<DEPRECIATION> 679,190
<TOTAL-ASSETS> 2,314,976
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0
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