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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-K/A-1
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
For the Fiscal Year Ended December 31, 1996
OR
[ ] 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)
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DELAWARE 76-0136574
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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10077 GROGAN'S MILL ROAD, SUITE 100, THE WOODLANDS, TEXAS 77380
(Address of principal executive office) (Zip Code)
(281) 367-3895
(Registrant's telephone number including area code)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.001 PAR VALUE
(Title of Class)
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 Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No ____
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
form 10-K. ____
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 20, 1997, was $16,597,204.
The number of outstanding shares of Common Stock, $.001 par value, of the
registrant was 14,260,002 shares as of March 20, 1997.
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TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS.................................................... 2
ITEM 2. PROPERTIES.................................................. 20
ITEM 3. LEGAL PROCEEDINGS........................................... 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 21
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS......................................... 22
ITEM 6. SELECTED FINANCIAL DATA..................................... 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................... 24
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 28
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.................................................. 28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.......... 28
ITEM 11. EXECUTIVE COMPENSATION...................................... 29
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.................................................. 31
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 32
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K.................................................... 34
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PART I
ITEM 1. BUSINESS
Cautionary Statement For Purposes of The "Safe Harbor" Provisions Of The
Private Securities Litigation Reform Act of 1995
American BioMed, Inc. is including the following cautionary statement in
this Annual Report on Form 10-K to make applicable and take advantage of the new
"safe harbor" provisions of the Private Securities Litigation Reform Act of 1995
for any forward-looking statement made by, or on behalf of, the Company. The
factors identified in this cautionary statement are important factors (but not
necessarily all important factors) that could cause actual results to differ
materially from those expressed in any forward-looking statement made by, or on
behalf of, the Company. Forward-looking statements are identified with a
footnote on the page in which they appear.
The statements contained in all parts of this document regarding future
business activities, products and product developments, financial performance,
future regulatory approvals, business strategies, market acceptance, business
arrangements, and results and other statements which are not historical facts
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, those relating to: (i) the Company's business strategy; (ii)
the intention to contract with other organizations for the research, development
and, if applicable, registration of product candidates, and to seek joint
development or licensing arrangements; (iii) the research or development of
particular products or technologies; (iv) anticipated results of such
development activities and related clinical trials or of required regulatory
approvals; and (v) the reliance on collaborative partners for development,
regulatory or marketing activities. Many important factors affect the Company's
ability to achieve the stated outcomes and to successfully develop and
commercialize its product candidates, including, among other things, the ability
to: (i) obtain substantial additional funds; (ii) obtain and maintain all
necessary patents or licenses; (iii) demonstrate the safety and efficacy of
product candidates at each stage of development; (iv) meet applicable regulatory
standards and receive required regulatory approvals; (v) produce product
candidates in commercial quantities at reasonable costs; (vi) compete
successfully against other products; and (vii) market products in a profitable
manner. As a result, there also can be no assurance that the forward-looking
statements included herein will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements included
herein, the inclusion of such information should not be regarded as a
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
GENERAL
American BioMed, Inc., including its wholly-owned subsidiaries, (the
"Company"), a development stage enterprise, is engaged in the development,
manufacture and marketing of medical devices. The Company's primary technology
is directed at interventional cardiology, endovascular surgery and minimally
invasive surgical devices. The principal products are atherectomy catheters,
stents, clot filters, 100% silicone balloon catheters and drug delivery catheter
systems. The Company's primary business strategy is to design and develop
minimally invasive medical devices to treat atherosclerotic disease. The Company
holds patents on its OmniCath(R) atherectomy catheter, a device that
mechanically removes the atherosclerotic disease ("plaque") from within blood
vessels or other synthetic implanted vessel devices. The Company also has patent
and/or proprietary rights to stent devices, the OmniStent(TM) and the
OmniFilter, a catheter-mounted temporary blood filter. These devices are
implantable within the vessel of the body to maintain an open lumen allowing
necessary rates of blood flow.
The third product area, 100%-silicone balloon catheters, is protected by a
series of patents for the nine 510(k) product approvals which the Company is
currently marketing. The Cathlab Corporation ("Cathlab") subsidiary manufactures
and markets our series of non-angioplasty 100%-silicone balloon catheter
products. These products are used to remove arterial blockages and gallstones,
to measure the cardiac output of the heart (through thermodilution) and to
angioscopically view the interior of the blood vessel.
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The fourth product area is a toposcopic catheter, the Evert-O-Cath(TM), a
drug delivery catheter which is used to precisely inject fluids or drugs to the
lesion or diseased area. This product group is also protected by patents and has
510(k) approval for sale in the U.S. It is believed that drugs/coatings applied
to the treated disease site will further reduce the incidence of restenosis as
coatings should allow for a smoother artery lining after an atherectomy or stent
procedure. The clinical success objective of interventional cardiologists,
radiologists and vascular surgeons in treating atherosclerosis is to facilitate
an acceptable rate of blood flow through the vessel and to eliminate or minimize
subsequent reoccurrence of plaque re-buildup (restenosis).
Efforts are underway to bring the Company's core technologies to market.
The Company received Institutional Review Board (IRB) approval at the University
of California at Los Angeles authorizing the start of Phase II human clinical
trials for the OmniCath(R) peripheral atherectomy catheter to begin in August
1996. The clinical trials at UCLA commenced August 1, 1996. The Company expects
these clinical trials to be completed during third quarter 1997 and submission
to the FDA six months later.(1) Currently the Company has six clinical sites and
intends to expand the number of sites to 10 in 1997.(1)
In addition, the Company filed an Investigative Device Exemption (IDE) with
the FDA in February 1997 to conduct human clinical trials for its OmniCath(R)
atherectomy catheter for hemodialysis A-V fistula restenosis. These clinical
trials will be conducted in parallel with the ongoing peripheral clinical trials
and the Company anticipates completion of these trials before the end of 1997
and hopes to make an FDA submission in the U.S. within six months after
conclusion of the clinical trials.(1)
The Company is moving forward in its efforts to commercialize its
OmniStent(TM) and stent delivery system technologies. Management hopes to start
clinical trials within twelve months.(1)
INDUSTRY BACKGROUND
Interventional Cardiology and Endovascular Surgery
Over 65 million Americans suffer from some form of coronary or peripheral
vascular disease. The most noted of these diseases is cardiovascular. This
disease is progressive and degenerative, and is characterized by a buildup of
fatty materials ("plaque") within the lining of the arterial blood vessels. The
buildup of plaque results in an obstruction (stenosis) that reduces blood flow
through the arteries and may eventually lead to total blockage causing tissue
damage and death. The plaque forms at varying degrees of hardness, eccentrically
or concentrically within the artery, reducing the elastic nature of the vessel
and thereby compromising the vessel's ability to efficiently pump blood to vital
organs.
Despite significant advances in product technologies, the disease continues
to be the leading cause of mortality in the U.S. today. Degenerative
atherosclerotic narrowing of the arteries that feed the heart ("coronary
arteries"), known as coronary heart disease, afflicts over six million persons
in the U.S. alone. It is largely responsible for approximately 1.5 million
"heart attacks" each year in the U.S., of which approximately 500,000 result in
death. Atherosclerosis also affects arteries in the kidneys ("renal arteries")
and in the abdomen, groin and legs ("peripheral arteries") and is a leading
cause of strokes, reno-vascular hypertension (a type of high blood pressure) and
peripheral vascular disease.
Prior to the late 1960's, pharmaceuticals represented the most common form
of treatment for coronary heart disease and other forms of atherosclerosis.
While often effective in alleviating many symptoms, pharmaceuticals did not
address the underlying problems of narrowed arteries and reduced blood flow.
During the late 1960's, cardiovascular surgeons pioneered a new type of open
heart surgery that grafted a blood vessel from the patient's leg to the diseased
coronary artery to bypass the blockage, thereby providing a longer-term
treatment, but one that was highly invasive, costly and required a lengthy
hospital stay. Today, bypass graft surgeries of the coronary arteries and of
other peripheral vessels account for over 600,000 procedures annually in the
United States. Bypass surgery generally is performed when the patient displays
extensive deposits of
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(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
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atherosclerotic plaque throughout the length of one or more vessels thereby
rendering impractical the attempted opening ("dilating") of the blocked
("occluded") arteries due to the procedural time required, the critical location
of the occlusion, or the inability to safely access the blockage.
In the late 1970's, cardiologists developed a less-invasive method of
treating atherosclerosis, the method known as balloon angioplasty. In its
simplest form, balloon angioplasty involves threading a small balloon-tipped
catheter through the arterial system to the site of the blockage. The balloon is
inflated, dilating the vessel and thereby displacing the plaque by pressing it
against the artery wall. The arterial opening is thereby enlarged, restoring
blood flow.
There are inherent risks in balloon angioplasty, including vessel
dissection, acute closure due to overstretching of the vessel, and the potential
that small pieces of plaque will break off and move downstream to block critical
parts of the blood vessel. The blood supply to critical heart tissue is
temporarily cut off while the balloon is inflated, increasing the risk of a
heart attack during the procedure. The balloon-dilated artery may spasm during
and/or immediately after the procedure and cut off the blood supply to critical
tissues. Balloon angioplasty is generally not considered suitable for patients
with extensive atherosclerosis nor for patients who suffer from very severe
blockages of arteries that supply large areas of the heart with blood.
Additionally, since the atherosclerotic plaque is not removed during the balloon
procedure and because certain damage to the inner lining of the arteries can
occur when the balloon is inflated, there is a high rate of re-blockage or
"restenosis" of the treated artery(ies).
The limitations inherent in balloon angioplasty have created a significant
opportunity for alternative types of angioplasty devices, including stents and
atherectomy devices. A third method, lasers, has been shown to be damaging to
the arterial walls and now is used only for narrowly defined clinical
indications. Laser systems are expensive and require special facilities and
maintenance. Stents and atherectomy devices are rapidly becoming the growth
products in atherosclerotic procedures.
The number of angioplasty (including atherectomy) procedures performed and
the market for coronary and peripheral angioplasty devices and accessories have
grown at a rapid rate as a result of a number of factors, including the general
aging of the world's population. Industry sources project the stent and
atherectomy device market to grow at a rate of 50% and 30% per annum,
respectively(1). Based upon such projections, stents would become a $750 million
business by 1998, while the sale of atherectomy devices would grow to $350
million in sales by 1998(1). Delivery catheters for coatings of the treated
stenosis is projected to be over $100 million by 1998(1).
PRODUCTS
The OmniCath(R) Atherectomy Catheter
The OmniCath(R) is an "atherectomy catheter," designed to allow physicians
to remove atherosclerotic plaque from obstructed blood vessels throughout the
body, enlarging the narrowed vessel openings and thereby restoring normal blood
flow. The Company is developing the OmniCath(R) with catheter shafts of several
different diameters for use in coronary arteries which feed the heart (5.8 to 7
French) and in peripheral arteries in the abdomen, groin and legs (7 French and
8 French). "French" is a measure of diameter, one French is equivalent to 1/3rd
of a millimeter. The OmniCath(R) is self-contained and disposable and is powered
by a small battery pack and motor assembly in the handle. Connected to the
handle is the catheter shaft which will vary in length depending on the distance
needed from insertion to the treatment site. The weight of the OmniCath(R) is
approximately 11 ounces.
The OmniCath(R)'s shaft has a side-window and a small rotating cylindrical
blade near its distal end (the end of the catheter or farthest part of the
catheter which is inserted into the body). At the surface opposite the
side-window are two deflector wires which, when advanced against the arterial
wall opposite the plaque using controls in the handle, stabilize the catheter
shaft and allow the window to cover a larger volume of the plaque,
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(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
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compressing it into the path of the rotating blade. Once the deflector wires are
engaged and the side window is in position, using controls on the OmniCath(R)
handle, the rotating blade can be advanced and retracted across the side-window
at approximately 11,000 RPM to shave the atherosclerotic plaque from the
interior surface of the vessel walls. The blade does not come into contact with
the non-diseased arterial walls during the atherectomy procedure. The shaved
plaque is aspirated into an annular space in the catheter and evacuated through
a removal port at the proximal end of the catheter (the end at the OmniCath(R)
handle) via a vacuum system. This enables the excised plaque to be collected and
examined while the atherectomy is taking place. There is very little loss of
blood during the procedure as the OmniCath(R) is designed to restrict the amount
of blood which enters the catheter system. Further, the blockage of blood
circulation by an inflated balloon, which often occurs in balloon angioplasty,
does not occur in a procedure using the OmniCath(R). The deflectable system
which holds the catheter in place is designed to allow for continuous blood
flow. This allows more time to complete a procedure although a procedure using
the OmniCath(R) should generally require less time than a procedure utilizing
multiple balloon inflations to break up the plaque. As opposed to balloon
angioplasty, which cracks and displaces plaque, the shaving mechanism of the
OmniCath(R) removes plaque and is designed to leave the artery clean and smooth,
free of fissures, ruptures, and flaps.
Overall, the OmniCath(R) is designed for ease of use and provides the
physician with the capability to multiple lesion atherectomy procedures with a
single placement as opposed to the multiple placements often required with
balloon angioplasty and competitive atherectomy devices. The OmniCath(R)'s
features, including its lightweight and compact construction are designed to
provide a competitive advantage over existing atherectomy catheters. See "Item
1 -- Business -- Competition."
The Company had commenced limited human clinical trials in the United
States with the 8 French OmniCath(R) for peripheral use. The device was
initially used on patients during 1991 and 1992. Although no adverse effects or
complications were observed or reported from the use of the OmniCath(R) on any
patient, the trials indicated that the OmniCath(R) needed certain modifications.
In July 1992, the Company contracted with an independent third-party to conduct
a product design review of the OmniCath(R). Based on the results of that review,
improvements to the OmniCath(R) were made including increasing battery and motor
power for guiding the catheter through the body, strengthening the deflector
wires which hold the catheter in place, enhancing the cutter and debris-removal
system, and creating a better ergonomically profiled product for the end user.
The Company informed the FDA of the improvements in July 1992, and the FDA
requested additional information on the modifications before human clinical
testing could resume. The Company submitted the additional information and
received permission from the FDA to resume Phase I clinical trials in July 1993.
The Company completed its Phase I trials and submitted its data to FDA. The
Company received approval by the FDA for its Phase II peripheral OmniCath(R)
atherectomy clinical trials in 1995 and commenced Phase II on August 1, 1996 at
the University of California at Los Angeles.
The Company has applied to the government of Canada to conduct human
clinical trials for coronary arteries in Canada and is currently awaiting such
approval. The Company has not yet applied for U.S. FDA approval of the
OmniCath(R) for coronary use but expects to file for investigative device
exemption (IDE) at the successful conclusion of the OmniCath(R) peripheral
clinical trials(1). There can be no assurance that required regulatory approvals
will be received on a timely basis or at all. See "Item
1 -- Business -- Government Regulation."
The OmniStent(TM)
Although angioplasty and atherectomy contributed greatly to less invasive
treatment of atherosclerosis, it was not until 1994 that a third less invasive
means of treatment was developed. This new means consists of simple spring-like
devices called stents which when placed in a treated vessel, greatly reduces
acute and chronic clinical failure rate of restenosis.
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(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
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Stents provide a foundation for support to a weakened vessel. The most
common design is the metal stent which comprises a tubular structure, normally
having a pattern of slots which when expanded produce a tiny tubular grillwork
which can hold a diseased vessel open, thereby providing a channel for blood
flow to the heart or limbs.
It appears that the majority of flow-limiting lesions, whether in a duct
(biliary), tract (esophageal) or vessel (vascular stenosis, aneurysm,
arteriovenous shunts, etc.), are stent treatable. The stent is placed in a
relatively conventional manner for angioplasty. The lesion is crossed with a
conventional guide wire, and the lesion is predilated using a conventional
balloon catheter; using the exchange technique, the delivery balloon catheter is
then advanced over the wire to the lesion being treated. At the site of the
lesion, initial inflation to 5-6 atm is carried out. To further imbed the coiled
stent into the subintimal layers of the arterial wall, higher inflation
pressures that expand the compliant delivery balloon to larger diameters are
then used.
The OmniStent(TM) has been successfully manufactured using a unique,
patented proprietary process that makes a one piece, endless loop without
welding, soldering or annealing. The Company also has a proprietary process in
which it forms and shapes the stents prior to use. The Company is also looking
at metals other than stainless steel (which it has previously used) and is
designing its own delivery catheter which may use a variation of its
Evert-O-Cath(TM).
The Company has patented two distinct stent configurations, the coil stent
and the bifurcated stent. The coil stent is a straight coil wound in helix which
would be used in supporting a longitudinal section of vessel such as a major
coronary vessel, (i.e., left anterior descending or right coronary artery or a
major peripheral vessel such as the aortic iliac or femoral). The coil is formed
from an endless loop of wire formed in a plurality of arcuate sections.
The bifurcated OmniStent(TM) is a Y-shaped bifurcated stent designed for
use in aortic bifurcation. However, small versions may be used at any branched
blood vessel. The bifurcated version is also an endless stent overcoming the
deficiencies of prior art in construction. However, it is unique in design as no
other company has solved the dilemma of manufacturing and deploying a bifurcated
stent. All rely on a series of single stents, placed in close proximity, and
usually requiring an access from each artery (lateral and contralateral
femoral). This is very distressful to the patient requiring a surgical prep,
artery puncture and catheter sheath on each side of the groin. Potentially it is
twice as difficult, dangerous and time consuming to both patient and doctor as
the bifurcated OmniStent(TM). In addition, the Company has developed a process
of reproducing the stents using photoetching which significantly reduces cost
and production error.
A patent application was filed June 8, 1992 authored by David Summers,
Ph.D. titled Artificial Support for a Blood Vessel, and US Patent No. 5,342,387
for such patent application was issued on August 30, 1994. A
Continuation-In-Part and PCT were filed June 16, 1993. The PCT is in its
national phase in Canada, Japan and United States and the EPO in Europe. In
addition, the Company has received notification from the U.S. Patent and
Trademark Office that on March 4, 1997 the Company will receive a second patent
on its stent technology titled Method and Apparatus for Making a Stent under
patent number 5,607,445. All patents are assigned to the Company.
The Company's patent includes a proven biocompatible coating used to coat
the interior surface of artificial hearts. This neutralized collagen compound is
considered to be one of the most blood- and tissue-compatible biomaterials used
to construct a smooth blood flow around the device. When applied as a thin film
it provides a smooth, biochemically stable protein coating with non-pseudo
intima properties, very little platelet adhesion, and high blood compatibility.
In addition, when used as a substrate, the coating bonds easily with various
anticoagulant molecules such as Heparin and phospholipids which are used to
further reduce thrombosis. The Company has developed a concept for covering its
stents with graft material and plans to file a patent on this process in the
future. The endoprosthesis will enable the Company to become active in the
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endovascular graft market.(1) The greatest advantage in using the endless loop,
self-expanding metals is the potential for generating mural pressures within a
stenosis sufficient for precise stent-vessel apposition.
Once the vessel is acutely dilated, the stent could be passed through the
stenosis on a guide wire, in its endless, elongated configuration, then released
to allow the coils to reform at the stenosis. The gradual mural pressure of the
"memory" reforming coil produces a subsequent chronic vessel dilation over a
period of several hours or days until the "memory" diameter of the coil is
reached. This could greatly impact the restenosis problem in that the acute
trauma of angioplasty (i.e., rapid vessel wall stretching, dissection of
internal elastic lamina and media) could be modulated over the succeeding days
after angioplasty by gentle though constant vessel wall "remolding."
The OmniStent(R) has several advantages over competitive products. It is a
dual, endless coil which gives the stent versatility in using almost any
material; the dual coil gives more than two times the hoop strength of a single
coil; the continuous loop allows easy deployment whether on a balloon,
guidewire, or through a sheath (such as the Schneider Wallstent). When coiled,
according to the reversible arcuate sections (the preferred embodiment in US
Patent 5,342,387), the open sections can be used to place at vessel branches
allowing open flow into these branches. In addition, the patent claims a
bifurcated stent made of the same endless loop, that presents wide applications
in peripheral stenting and grafts (the aortoileal stenosis is the most common
pathology in peripheral vascular disease). The endless, bifurcated stent can
thus be inserted into both iliac vessels from a unilateral (one puncture)
technique. It is the most versatile stent in the interventional field.
Although the Company intends to commercialize the OmniStent(TM) as quickly
as possible, the current regulatory climate at the FDA has made the approval
process extremely slow for new products. Therefore, there can be no assurances
that the product will be approved within a timeframe which will permit the
stents to contribute to the Company's need for short-term capital, nor can there
be any assurances that the FDA will ever approve the OmniStent(TM).
The Evert-O-Cath(TM) Drug Delivery Catheter
The Evert-O-Cath(TM) is a "toposcopic catheter" used to inject fluids and
drugs, such as thrombolytic agents (drugs that dissolve blood clots) and
chemotherapeutic agents, in the body in an extremely precise and localized
manner and to withdraw fluids from the body. The Evert-O-Cath(TM) features a
flexible and extremely soft-tipped catheter (the "primary catheter"), inside of
which lies a second, interior catheter known as a "topo" element. The thin and
flexible toposcopic catheter adapts to the contours of lumen permitting it to be
extended further into the body than a conventional catheter. The toposcopic
catheter also can be extended around near-total obstructions, causing less
friction and less damage to the lumen and allowing passage of the catheter
through tight strictures that, otherwise, would be unpassable. The
Evert-O-Cath(TM) is designed to be useful for reaching remote or extremely
fragile places in the body that, currently, are inaccessible to other catheters.
The most applicable use of the Evert-O-Cath(TM) is in conjunction with
balloon angioplasty where it can be used to both dilate and deliver localized
drugs to the angioplasty site to modulate restenosis or thrombus formations.
The Company is developing a dilating version of the Evert-O-Cath(TM) to
combine drug delivery with angioplasty. As an angioplasty catheter, the
Evert-O-Cath(TM) is expected to provide a method of extruding a drug delivery
balloon from the interior of a catheter. In addition, the eversion of the
balloon from within the Evert-O-Cath(TM) makes the placement through narrow and
tortuous blood vessels, such as saphenous vein grafts, much easier than with
conventional balloon catheters. This procedure, when used in fragile grafts,
should result in less abrasion to arterial walls, and fewer cases of downstream
blockage of the blood vessel by dislodged plaque. The everting balloon could
remain extruded continually during dilatation from the Evert-O-
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(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
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Cath(TM), allowing perfusion through the lumen and thus making multiple and
prolonged dilations easy to perform without withdrawing the catheter from the
vessel.
A version of the Evert-O-Cath(TM) was approved by the FDA for certain
non-coronary applications in July 1994. The Company developed prototypes during
1994 and, based on feedback from potential users of the dilating
Evert-O-Cath(TM), the prototypes have been modified to better satisfy existing
medical needs. The Company intends to file a 510(k) Notification with the FDA
with respect to these modifications when the Company is convinced there is a
commercial market application for this product. There can be no assurance that a
favorable determination with respect to the Company's 510(k) Notification will
be obtained. See "Item 1. Business -- Government Regulation."
The OmniFilter
The Company has developed a percutaneous temporary filter which is mounted
on a guide wire and is used to prevent stroke-causing blood clots from reaching
various organs of the human body. The filter is deployed remotely, opened within
a vessel and then remotely closed, safely and reliably removed with clots intact
within a mesh filter containing the entrapped material. The size of the filter
is such that blood flow is not significantly reduced through straining, but
embolytic debris is caught and retained by the filter.
The Company believes that the OmniFilter will find significant use in such
emerging procedures as percutaneous angioplasty and stenting for carotid
arteries, acute lytic procedures for limb salvage, and endoluminal stent
grafting for such procedures or endoluminal aortic abdominal aneurysm.
Cathlab Catheters
The Company's Cathlab subsidiary has nine FDA approved balloon catheters,
six of which are currently being marketed within the United States and abroad.
The 100%-silicone design of these catheters is resistant to environmental
factors, unaffected by body temperature, and more bio-compatible than latex
balloons or polyvinyl chloride (PVC) tubing. The patented one-piece balloon
design eliminates glue and ties, providing superior smoothness and preventing
the possibility of balloon dislodgement.
Allergy to latex has been increasingly recognized as a cause of
life-threatening intraoperative anaphylaxis (a systemic reaction). Frequent use
of latex in patients or by health care workers can result in sensitization that
may place some individuals at risk for such a life-threatening allergic
reaction. The 100% silicone design of Cathlab's catheters negates the potential
risk of intraoperative anaphylaxis.
During second quarter 1997 the Company intends to file two 510(k)
notifications with the FDA for approval of an innovative product line of
flexible 100%-silicone balloon infusion catheters for thrombectomy and
thrombolysis which will expand the Company's existing product line.(1)
Prototypes are currently being tested and the Company believes these new
products will provide surgeons with increased effectiveness, safety and
user-friendliness and represent an improvement over existing products now on the
market. The Company plans to launch these products as soon as FDA approval is
received.(1)
Embolectomy and Bi-Lumen Catheters
Cathlab manufactures and markets an embolectomy catheter, which is used in
procedures to remove arterial blockages, generally clotted blood but also
bacteria and other substances ("emboli"). The catheter is passed through a
surgical cutting or opening in an artery (an "arteriotomy"), along the artery,
and through any suspected emboli, with the balloon deflated. The balloon is then
inflated with saline solution and the embolus is removed by withdrawing the
catheter tip through the arteriotomy.
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assumptions and risk factors that may affect actual results.
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Cathlab manufactures and markets a bi-lumen embolectomy and irrigation
catheter which is used to assist in the removal of clotted blood from inside a
vessel, as well as, to irrigate a vessel with saline or other drug solutions
during a surgical procedure.
Occlusion Catheter
Cathlab manufactures and markets an occlusion catheter which is used to
occlude the flow of blood in a vessel during a surgical procedure. Occlusion of
vessels during surgical procedures with a balloon catheter is much less
traumatic to the vessel than other methods of occlusion (i.e. clamps or
sutures).
Thermodilution Catheter
Cathlab manufactures and markets a thermodilution catheter which is used in
the assessment of a patient's hemodynamic condition (the efficiency of the heart
muscle) through direct intracardiac and pulmonary artery pressure monitoring and
cardiac output determination. This catheter is also used for blood sampling and
infusing solutions.
Angiographic/Angioscopic Irrigation Catheter
Cathlab manufactures and markets an angiographic/angioscopic irrigation
catheter which is used as a sheath for insertion of an appropriate size
angioscope to visually examine the interior of circulatory vessels. The
flexibility of this catheter permits its navigation through tortuous vessels of
the circulatory system. The variety of sizes and lengths of this catheter
provide compatibility with a variety of angioscopes.
Biliary Catheter
Cathlab manufactures and markets a biliary catheter which is used for the
removal of intraductal stones and debris from the biliary tree. Cathlab is
currently developing a biliary catheter for use during laparoscopic procedures.
Cardiac-Assist Devices
Angioplasty and other therapies involving the removal or displacement of
plaque from the arteries are intended to increase blood flow but do not relieve
the heart muscle ("myocardium") from its continual job of pumping blood
throughout the circulatory system. The Company holds four issue patents on a
cardiac-assist pump for future development of cardiac-assist devices which have
the basic objective of assisting the myocardium in moving blood through the body
at a physiologically acceptable rate. The Company has no plans to develop these
pumps at the present time.
Spinal Dissector
The Company has patented and developed prototypes of minimally invasive
devices for use in spinal surgery, which have been evaluated in vivo. In August
1994, the Company licensed its "Spinal Dissector" spinal instrument to Wright
Medical Technology, Inc. for a license fee of $300,000 plus royalties. This
device is used for both anterior and posterior lumbar disc decompression
procedures.
SCIENTIFIC ADVISORY BOARD
American BioMed, Inc. has established relationships with outside scientific
advisors and views access to such advisors as an important resource. The
advisors counsel the Company with respect to its research and development
programs, new technological advances and medical requirements. The Company's
Scientific Advisory Board was reformulated in February 1996 and the advisors
are:
SAMUEL S. AHN, M.D., F.A.C.S. -- Dr. Ahn has served as Chief Clinical
Advisor to the Company since January 1996. Dr. Ahn is Associate Clinical
Professor of Surgery at the University of California at Los Angeles. He serves
on the editorial board of the Journal of Vascular Surgery, and is a reviewer or
guest reviewer for Surgery, Arteriosclerosis, Thrombosis and Vascular Biology,
Journal of Endovascular Surgery,
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Annals of Vascular Surgery, Vascular Surgery, and others. He is author or
co-author of over 70 peer review articles, a visiting professor at University of
Louisville; Yonsei University, Seoul, Korea; University of Ulm, Ulm, Germany;
Ultrech Hospital, Ultrech, Netherlands; Ochsner Clinic and others. He holds
membership in the American Medical Association, Association for Academic
Surgery, American College of Surgeons (Fellow), Western Vascular Society, Los
Angeles Surgical Society, etc.
LARRY STUART-DEUTSCH, M.D. -- Dr. Deutsch is Professor and Chief of
Vascular and Interventional Radiology at the University of California at Irvine.
He is a Research Radiologist and is involved in numerous scientific projects.
DARWIN ETON, M.D., F.A.C.S. -- Dr. Eton is Associate Professor of Surgery
at the University of Southern California, Los Angeles, with major research
activities in gene therapy of intimal hyperplasia, stented vascular grafts and
approaches to less invasive aortic surgery with laparoscopic instrumentation.
LAWRENCE A. YEATMAN, M.D., F.A.C.C. -- Dr. Yeatman is Professor of
Cardiology and Chief of Cardiac CathLab at University of California at Los
Angeles Medical Center is the Company's advisor regarding coronary applications
for the OmniCath(R) and OmniStent(TM).
DAVID A. LEE, M.D. -- Dr. Lee is Associate Professor of Ophthalmology and
Director of Tissue Culture Laboratory at University of California at Los Angeles
Medical Center, and Chief of Glaucoma Division at Jules Stein Eye Institute. For
many years he has specialized in experimental and clinical ocular pharmacology
and pharmaceutics. He will lead the investigations of molecular and cellular
reactions to the Company's products.
J. PATRICK JOHNSON, M.D. -- Dr. Johnson is Associate Professor of
Neurosurgery at the University of California at Los Angeles, and a director of
the Comprehensive Spine Center. He specializes in spine, nerve roots and the
spinal cord. Dr. Johnson advises the Company regarding its MIS Spinal Dissector
and Needlescope products.
RICHARD STOUT, M.D. -- Dr. Stout is a professional clinical and regulatory
affairs consultant in the medical device field. He reviews, comments and advises
the Company on all FDA, Enzyme Commission and other regulatory matters.
MARKETING PLANS AND ARRANGEMENTS
The Company's sales and marketing primary objective is to increase revenues
by marketing its products through specialty healthcare distributors who are
engaged in selling medical devices used in the operating room to vascular
surgeons and interventional radiologists. In fiscal year 1996 the Company
embarked on efforts to revamp and increase its global distribution network by
developing business relationships with distributors who have existing,
experienced sales organizations and by supporting their selling efforts. The
Company increased its marketing visibility by attending the Annual Society of
Vascular Surgeons meeting and the International Society of Vascular Surgeons
meeting. In addition, the Company attended the Annual Vascular Workshop meeting
in order to educate vascular surgeons on the uses and benefits of the Company's
silicone balloon and OmniCath(R) atherectomy product lines. The Company produced
marketing literature and a training program for its products in order to support
its distributors' selling efforts. These efforts resulted in the Company
enhancing its existing distribution relationships and the creation of twenty-two
(22) new distributors in 1996. The Company believes that these efforts and new
business relationships will help to increase revenues in 1997.(1)
In 1996, the Company's product sales mix was 60% international and 40%
domestic. This was a major improvement over 1995, in which over 90% of the
Company's sales were international. (See "Footnote 15 Sales Information" in the
Financial Statements) Customers in the United States have included the U.S.
Department of Defense and the Company's current distributor in the southeast,
Horizon Medical Products.
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The Company sold directly to forty-nine (49) hospitals in the United States and
is in the process of developing two OEM distribution arrangements.
Internationally, the Company's largest distributors are Sorin Biomedical in
Italy, Megamed in Brazil and Argentina, and Amevisa in Spain. The Company
currently markets its products in twenty-two (22) countries through thirty-seven
(37) distributors. The Company believes it will obtain additional international
distribution agreements in 1997 as soon as it achieves its ISO 9001 and CE Mark
status for its products.(1)
The Company is committed to finding global distribution partners who can
effectively capture at least ten (10) percent marketshare in their respective
country or territory. At present, the Company intends that additional marketing
efforts will include videotape training modules and marketing literature
produced in a country's respective language.(1) In addition, the Company hopes
to continue to enhance its marketing visibility through increased participation
in appropriately targeted trade shows.(1) The Company's strategy is to create an
established avenue for global distribution for future product launches as the
Company gains FDA approval for its products.(1)
The Company is uncertain today that the distributors now in place will be
able to effectively market and sell the Company's core product 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.(1) 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.(1)
The OmniCath(R)
The Company, in anticipation of receiving the required commercial
regulatory approvals for peripheral and A-V fistula use, has begun formulating a
comprehensive marketing and sales strategy. The Company has determined that the
most expeditious and cost-effective method of marketing the OmniCath(R) is to
ally itself with a strategic partner whose marketing and distribution networks
are global in scope and is selling to healthcare providers who are high volume
users of angioplasty, atherectomy and stent devices. By selecting one or more
strategic partners, the Company can focus its efforts on manufacturing, product
development and securing regulatory approvals while the strategic partner or
partners can focus on selling with their existing, experienced sales
organizations.
The Company is currently marketing the OmniCath(R) in selected
international markets through existing Cathlab distributors and will continue to
do so until the Company gains FDA approval for U.S. sales and/or strategic
partners are selected.
If the OmniCath(R) obtains the required commercial regulatory approvals,
the Company will focus its marketing efforts to health care providers that are
high volume users of angioplasty, atherectomy and stent devices(1). The Company
has determined that the fastest and most cost-effective method of marketing its
proposed initial peripheral atherectomy catheter products, the OmniCath(R) in
the 7 French and 8 French size, is to rely on distributors of medical products
with existing, experienced sales organizations. In this way, the Company can
focus its resources on product development and regulatory approvals.(1)
Evert-O-Cath(TM)
If the Evert-O-Cath(TM) is successfully developed, the Company intends to
market this product through various domestic and foreign third-party
distributors or to license the rights to this product for fees and royalties.
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(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
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Cathlab Catheters
During 1996 Cathlab revamped its existing distribution network by adding
twenty-two new distributors globally in an effort to upgrade the professionalism
and sales efforts of its distributors. These domestic and foreign distributors
cover the continental United States, Western Europe, Central and South America,
Canada, Australia, the Far East, the Caribbean and Southeast Asia. The
distribution agreements are generally for three-year terms and are subject to
early termination for certain reasons, including failure to meet sales quotas
and minimum purchase requirements.
In addition, Cathlab is pursuing private label opportunities to supply
third party companies with existing product lines. Additional opportunities are
being explored and are in various discussion stages to provide OEM manufacturing
capabilities to companies for products we do not currently manufacture but
capitalize on existing, proprietary silicone technologies.
GOVERNMENT REGULATION
The catheters and stent devices which have been and are being developed by
the Company (and any products intended to be researched, developed or marketed
in the future) are all medical devices subject to regulation by the FDA.
Pursuant to the Federal Food, Drug, and Cosmetic Act and regulations promulgated
thereunder (the "FDC Act"), the FDA regulates and must approve the manufacture,
distribution and promotion of medical devices in the United States. Various
states and foreign countries in which the Company's products may be sold in the
future may impose additional regulatory requirements.
If the manufacturer or distributor of medical devices can establish that a
proposed device is "substantially equivalent" to a device that is legally
marketed, the manufacturer or distributor may seek FDA marketing clearance for
the device by filing a "510(k) Notification." The 510(k) Notification and the
claim of substantial equivalence must be supported by various types of data and
materials, including test results. Following submission of the 510(k)
Notification, the manufacturer or distributor may not place the device into
commercial distribution until an order is issued by the FDA. The order is
generally sent within 90 days of the submission and the order may declare the
FDA's determination that the device is substantially equivalent to another
legally marketed device and allow the proposed device to be marketed in the
United States. The FDA may, however, determine that the proposed device is not
substantially equivalent, or may require further information, such as additional
test data, before the FDA is able to make a determination regarding substantial
equivalence.
If a manufacturer or distributor of medical devices cannot establish that a
proposed device is substantially equivalent, whether or not the FDA has made a
determination in response to a 510(k) Notification, the manufacturer or
distributor will have to seek "premarket approval" of the proposed device. A
premarket approval application would be submitted supported by extensive data,
including preclinical and human clinical trial data, as well as extensive
literature, to provide recommendations to the FDA. While the FDA has responded
to 510(k) Notifications and premarket approval applications ("PMAs") within the
allotted time period, reviews more often than not occur over a significantly
protracted time period, usually 12 to 18 months for a PMA, and possibly as much
as a year or more for certain 510(k) Notifications supported by clinical data. A
number of devices have never been cleared for marketing under either the PMA or
510(k) Notification process.
If human clinical trials of a proposed device are required and the device
presents significant risk, the manufacturer or distributor of the device will
have to file an Investigational Device Exemption ("IDE") application with the
FDA prior to commencing human clinical trials. The IDE application must be
supported by data, including the results of animal and mechanical testing. If
the IDE application is approved, human clinical trials may begin.
In June 1991, the Company's IDE application with respect to the OmniCath(R)
for peripheral use was approved allowing the Company to commence limited human
clinical trials with one physician investigator at one institution, who could
use the device on a total of ten patients to mechanically remove accumulations
of plaque from peripheral arteries. During 1992, an additional institution was
approved by the FDA to conduct
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human clinical trials. The Company concluded Phase I of the IDE as approved by
the FDA and submitted an IDE Supplement to the FDA in August 1994. The
Supplement contained the clinical data (generated on 12 patients) which
demonstrated the performance of the device. The Company was granted conditional
approval by the FDA to expand the clinical trials in the United States for
peripheral vessels. To date, the OmniCath(R) device has been used, domestically
and internationally, on more than 60 patients. The Company must accumulate case
study data on at least 50 patients for the peripheral trials and have follow-up
for at least six months, before the 510(k) Notification can be prepared and
initially filed. The Company commenced the required trials in August 1996 and
expects to complete the trials in the third quarter 1997(1). As previously
stated, the Company filed an IDE application in February 1997 with respect to
the OmniCath(R) for hemodialysis A-V fistula restenosis clinical trials which
represents an expansion from peripheral applications of the OmniCath(R) to
include A-V grafts. Animal studies have been completed to demonstrate safety and
to provide the basis of efficacy in debulking A-V grafts in hemodialysis
patients. Clinical data on eleven patients was presented to the FDA in June 1996
in a presubmission meeting and received a favorable review from the FDA. The
clinical trials will require 50 patients and it is anticipated that these
clinical trials will be completed before the end of 1997 and FDA 510(k)
submission three months after completion of the required number of clinical
trial cases.(1)
By virtue of the additional risk associated with the use of a mechanical
catheter in the arteries of the heart, the OmniCath(R) for coronary application,
presently under development, will require more extensive animal and mechanical
testing than did the peripheral OmniCath(R) before an IDE application can be
filed and human clinical trials undertaken. The Company does not intend to
pursue the coronary application until the peripheral and A-V fistula indications
are approved by the FDA.
The Evert-O-Cath(TM) was cleared to market by the FDA for certain
non-coronary applications (see previous discussion under "General"). The Company
developed prototypes during the fourth quarter of 1991 and, based on feedback
from potential users of the Evert-O-Cath(TM), the prototypes were modified to
better satisfy medical needs. The Company received clearance from the FDA to
market the Evert-O-Cath(TM) commercially in July 1994. The Company is developing
a therapeutic version of the Evert-O-Cath(TM) for angioplasty applications and
expects that mechanical, animal and human testing and follow-up will be required
under an IDE to support the filing of a premarket approval application with
respect to that version of the Evert-O-Cath(TM) (see previous discussion under
"General"). In the second quarter of 1993, the Company completed mechanical
testing and in the first quarter 1994 completed animal testing of the
therapeutic version of the Evert-O-Cath(TM).
The heart pumps under development by the Company would require extensive
evaluation prior to use on humans. These proposed products would ultimately
require tests on humans under an IDE, and premarket approval. Although design
and preclinical engineering has been completed, the Company will not commit
further significant resources to these products until such time as the Company
secures a strategic partner in the global healthcare industry to collaborate in
the development efforts as well as to provide the substantial funds required.
Cathlab has nine specialty products which have all received marketing
clearance via the 510(k) Notification process. The Company is currently
marketing the embolectomy catheter, bilumen irrigation catheter, occlusion
catheter, biliary gall stone removal catheter, thermodilution catheter and the
angiographic/angioscopic catheter. The urological catheter is in various stages
of testing and production and is expected to be launched in the fourth quarter
1997 if all development phases are completed and satisfactory to our strategic
partner.(1) The facility housing Cathlab has been inspected by both the federal
and state FDA and has been licensed for operation as a medical device
manufacturer. The Company passed its latest FDA inspection in May 1996 and
received no 483 violations during the inspection.
Any products distributed or to be distributed by the Company are subject to
pervasive and continuing regulation by the FDA. Products must be manufactured in
registered establishments and be manufactured in
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accordance with "Good Manufacturing Practices," as such term is defined under
the FDC Act. Labeling and promotional activities are subject to scrutiny by the
FDA and, in certain circumstances, by the Federal Trade Commission. The export
of devices is also subject to regulation in certain instances.
The Medical Device Reporting ("MDR") regulation obligates the Company to
provide information to the FDA on product malfunctions or injuries alleged to
have been associated with the use of the product or in connection with certain
product failures which could cause serious injury. If, as a result of FDA
inspections, MDR reports or other information, the FDA believes that the Company
is not in compliance with the law, the FDA can institute proceedings to detain
or seize products, enjoin future violations, or assess civil and/or criminal
penalties against the Company, its officers or employees(1). Any action by the
FDA could result in disruption of the Company's operations for an undetermined
time(1).
In addition to the foregoing, numerous other federal and state agencies,
such as environmental, fire hazard control, working condition and other similar
regulators, have jurisdiction to take actions that could have a materially
adverse effect upon the Company's ability to do business(1).
THIRD PARTY REIMBURSEMENT
Hospitals, physicians and other healthcare providers that purchase medical
devices, such as the Cathlab products, OmniCath(R), OmniStent(TM) or the
Evert-O-Cath(TM), for use in furnishing care to their patients, typically rely
on third-party payers, principally Medicare, Medicaid, and private health
insurance plans, to reimburse all or part of the costs or fees associated with
the medical procedures performed with those devices, and/or of the costs of
acquiring those devices. Cost control measures adopted by third-party payers in
recent years, including the Medicare prospective payment system for inpatient
hospital patients, and reductions in Medicare payments for hospital outpatient
services and capital costs, have had and may continue to have a significant
effect on the purchasing practices of many providers, generally causing them to
be more selective in the purchase of medical devices. Limitations may be imposed
upon the conditions for which procedures may be performed or on the cost of
procedures for which third-party reimbursement is available, which may adversely
affect the market for the Company's products. In addition, if competing devices
or procedures are available, choices may be made on the basis of price. While
the Company cannot predict the cost of its devices, or the procedures to be
performed with its products, or the relative cost and efficacy of competing
products or procedures, changes in third-party payer reimbursement practices
regarding the procedures performed with medical devices sold by the Company may
adversely affect the Company's financial position, results of operations, and
cash flows(1).
While third-party payers generally make their own decision regarding which
items and services to cover, Medicaid and other third-party payers often apply
standards similar to Medicare's in determining whether to provide coverage for a
particular medical procedure. The Medicare statute prohibits payment for any
items or services that are not reasonable and necessary for the diagnosis or
treatment of illness or injury or to improve the functioning of a malformed body
member, and the Health Care Financing Administration ("HCFA"), an agency within
the Department of Health and Human Services responsible for administering the
Medicare program, has interpreted this provision to prohibit Medicare coverage
of procedures that, among other things, are not deemed safe and effective
treatments for the conditions for which they are being used, or which are still
investigational. For medical devices, FDA clearance for marketing is required,
but is not determinative of whether these prerequisites for Medicare coverage
have been met.
While a limited number of national coverage decisions are made by HCFA, in
general, the determination of whether a procedure satisfies these standards is
made by the Medicare carrier or intermediary which processes claims for
reimbursement within that carrier's or intermediary's jurisdiction. The Company
has not requested a national coverage decision with respect to procedures to be
performed using the OmniCath(R), the OmniStent(TM) or the Evert-O-Cath(TM)
because the Company believes that procedures utilizing other catheter products
are currently covered by Medicare, the Company does not intend to request a
decision. The
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(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
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unavailability of third-party coverage or inadequacy of third-party
reimbursement for procedures using the OmniCath(R), the OmniStent(TM), or the
Evert-O-Cath(TM) could adversely affect the Company's ability to market those
products.
The Company is unable to predict what additional legislation or
regulations, if any, may be enacted or adopted in the future relating to the
Company's business or the healthcare industry, including third-party coverage
and reimbursement, or what effect any such legislation or regulation may have on
the Company.
MANUFACTURING
The Company has manufactured all of the OmniCath(R)s used by the Company to
date in its development and testing efforts and shipped by the Company for use
in limited human clinical trials. The Company believes it has sufficient
capacity and the capability to manufacture all of the Company's requirements for
the OmniCath(R)s for the foreseeable future.(1)
The Cathlab Corporation
The Company's primary facility, the Cathlab Division, was formed in January
1984 and was issued a trademark in early 1990. On April 30, 1992 American
BioMed, Inc. acquired Cathlab from founding shareholders. The Cathlab Division
is located in Irvine, California, in a highly sophisticated manufacturing
facility encompassing approximately 13,000 square feet. Cathlab has nine
FDA-approved balloon catheters used primarily for vascular surgery for removal
of embolus (blood clots). Six of the catheters are currently being marketed
within the U.S. and abroad.
Presently, Cathlab is producing 40,000 advanced silicone technology
embolectomy catheters, bi-lumen irrigation catheters, occlusion catheters,
angioscopy catheters, biliary catheters and cardiac output catheters annually
with a capacity to manufacture approximately 500,000 catheters annually. Cathlab
also has the capacity and capability to manufacture other American BioMed
products such as the OmniCath(R), the Evert-O-Cath(TM), the OmniStent(TM) and
the Spinal Dissector. During 1996, the Company consolidated all manufacturing
operations, development efforts and technical support activities in the Irvine,
California facility.
Cathlab is presently selling products through various domestic and foreign
third-party distributors and independent representatives. These domestic and
foreign distributors cover the continental United States, parts of Western
Europe, Central and South America, Canada, Australia, the Far East and Southeast
Asia. The distribution agreements are generally for three-year terms and are
subject to early termination for certain reasons, including failure to meet
sales quotas and minimum purchase requirements. In addition, the Company is
pursuing private label opportunities to provide OEM manufacturing opportunities
for existing products and products not currently manufactured but that
capitalizes on the Company's existing silicone technologies.
An important element in Cathlab's growth strategy is the development of a
sales and marketing infrastructure through the employment of application
engineers, clinical support personnel and ultimately direct salesmen. Although
the Company intends to rely primarily on independent distributors or strategic
partners for the near future, it ultimately plans to establish direct sales
representation in selected U.S. geographical areas augmented by independent
distributors. The Company's application engineers and clinical support personnel
will supplement the efforts of the sales representative and distributors by
providing all customers with in-service training and product education. Export
sales will continue to be handled via a network of carefully selected foreign
distributors who have their own professional support organizations. The Company
will continue to review/revamp and expand its distributor network in order to
maximize revenues. This is being accomplished by enhancing existing distribution
relationships and the creation of 22 new distributor relationships during 1996.
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assumptions and risk factors that may affect actual results.
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The 100%-silicone catheters are designed to be resistant to environmental
factors, unaffected by body temperature and more biocompatible than latex
balloons or polyvinyl chloride (PVC) tubing. Allergy to latex has been
increasingly recognized as a cause of life threatening intraoperative
anaphylaxis (a systemic reaction). Frequent use of latex in patients or by
healthcare workers can result in sensitivity which may place some individuals at
risk for such a life-threatening allergic reaction. The 100%-silicone design of
Cathlab's catheters negate the potential risk of intraoperative anaphylaxis.
The key to Cathlab's superiority lies in the patented, one-piece balloon
design of the catheters, thereby eliminating glue and ties which, in turn,
provide superior smoothness and prevent the possibility of balloon dislodgement.
The Company has applied for the CE Mark Certification, and following the
award of the ISO 9001 Seal, the certifying body for the CE Mark will be
immediately scheduled. The ISO 9001 Quality Manual has been written with the CE
Mark in mind, and CE Mark enhancements to the ISO Standard have been designed
into the Company's Quality Manual. In addition, the Company's current FDA-GMP
Procedure Manual has been revised to reflect both the additional ISO 9001 and CE
Mark Standards.
The Company's primary manufacturing and research and development center,
the Cathlab Division located in Irvine, California, is already implementing the
ISO 9001 procedures and current research and development projects are fully
compliant with ISO and CE Mark Standards, as well as FDA-GMP requirements.
Freedom Machine, Inc.
Certain assets of Freedom Machine, Inc. (Freedom) relating to its hole
punch activities were sold during the fourth quarter of 1995 for approximately
$6,500. As the assets were sold at an amount which approximates net book value,
a small gain on sale resulted and goodwill of approximately $120,000 was written
off by the Company. Effective September 30, 1996 the subsidiary was dissolved
and the remaining assets were transferred to the Company.
RESEARCH AND DEVELOPMENT
The Company's research and development efforts as well as its ongoing
technical support activities were consolidated in the Irvine, California
facility in September 1996. The consolidation resulted in a better utilization
of resources, annual cost savings, improved communication and reduced product
development lead times. As a result of this decision the 4,800 square foot
facility in The Woodlands, Texas was closed and all R&D prototypes,
Computer-Aided Design (CAD), testing apparatus, ink drawing plotters and
computer simulation work stations have been consolidated in Irvine, California,
greatly improving the utilization of this equipment.
The Company's research and development efforts in interventional cardiology
are aimed at increasing the convenience, ease and speed for use of percutaneous
transluminal coronary angioplasty ("PTCA") and percutaneous transluminal
angioplasty ("PTA") devices (including balloon and atherectomy catheters) while
expanding the clinical applications for which PTCA and PTA are appropriate. The
development of superior PTCA and PTA catheters requires the resolution of
several conflicting performance parameters, including catheter profile
(diameter), trackability (the ability to follow the paths of tortuous arteries)
and pushability (the ability to push through tight strictures). Meeting these
conflicting objectives requires expertise in a number of technical disciplines
that the Company must develop and retain on an internal basis. Research and
development expenses in the fiscal years ended December 31, 1996, 1995, and 1994
were $640,792, $537,962, and $1,167,773, nearly all of which was applied to the
development of the OmniCath(R), OmniStent(TM) and Evert-O-Cath(TM). As of March
1, 1997, the Company has 4 employees in its research and development department.
Research and development expenses increased 19.1% in 1996 over 1995 and
decreased 53.9% between 1995 and 1994. Research and development efforts for the
foreseeable future will be focused on the Company's core technologies which
include balloon catheters, OmniCath(R), OmniStent(TM), blood filter and
Evert-O-Cath(TM) drug delivery system. The Company anticipates that research and
development expenses will increase as products approach commercial viability and
may be funded by increased revenue generated through Cathlab Division
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sales, from the sale of ancillary technology or through joint development
agreements with strategic partners(1). See "Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations."
The Company has entered into agreements with various persons and entities
to conduct contract research and development and for the provision of consulting
services. These consultants are paid consulting fees plus out-of-pocket expenses
associated with their consulting efforts.
PATENTS AND PROPRIETARY INFORMATION
The medical device industry traditionally has placed considerable
importance on obtaining and maintaining patents and trade secret protection for
significant new technologies, products and processes. The Company pursues a
policy of generally obtaining patent protection in both the U.S. and abroad for
patentable subject matter in its proprietary devices. The Company has been
issued five U.S. patents relating to atherectomy catheters and two relating to
cardiac-assist pumps, and the Company has a 50% interest in two other U.S.
patents relating to cardiac-assist pumps. The Company has received patents on
the OmniStent(TM) and spinal dissector. The Company has applications pending for
additional U.S. patents and foreign patents relating to the OmniCath(R) and
OmniStent(TM), and has foreign applications pending with respect to the
cardiac-assist pumps.
The U.S. patents currently have terms expiring at various dates from 1997
to 2009, with the earliest of the current patents relating to the OmniCath(R)
expiring in 2008. The foreign patents expire on various dates commencing in
2009. As the Company develops modifications or improvements of existing methods
or products or develops new products or processes, it will seek additional
patents. The Company believes, although there can be no assurances, that the
patented aspects of its products enhance the functionality of its products and
suitability for their intended purposes which, in turn, may increase their
likelihood of commercial acceptance(1). The patents may limit, to some extent,
the ability of others to develop competing products.
In connection with the Company's acquisition of Cathlab Corporation, the
Company is now the owner of rights relating to two United States patents
concerning the method of attaching the balloon to the catheter, as well as
owning patent rights relating to the same process in the United Kingdom, Germany
and Spain. Various foreign patent applications relating to the same process are
pending.
Lawrence M. Hoffman, currently a director, stockholder and paid consultant
of the Company and formerly a Vice President, is a limited partner of Aberlyn
Capital Management Limited Partnership ("Aberlyn") and is an officer, director
and stockholder of Aberlyn Capital Management, Inc., the general partner of
Aberlyn. Effective December 31, 1992, the Company and Aberlyn entered into a
Patent Assignment and License Agreement (the "Patent and License Agreement")
pursuant to which the Company assigned patents owned by the subsidiary, Cathlab
Corporation (the "Cathlab Patents"), to Aberlyn in return for $500,000. The
Cathlab Patents were exclusively licensed back to the Company for three years
for a monthly license fee of $16,355, after which Aberlyn was required to
reassign the Cathlab Patents to the Company in exchange for $50,000. Under its
terms, if the Company declined to purchase the Cathlab Patents, the Patent and
License Agreement would automatically be extended for an additional nine months
for a monthly license fee of $17,099, after which the Cathlab Patents would
automatically revert back to the Company.
The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment to Aberlyn in consideration of $205,000. The equipment was exclusively
leased back to the Company for three years for a monthly fee of $6,706, after
which Aberlyn was required to return the equipment to the Company in exchange
for $20,500. Under the terms, if the Company opted not to purchase the
equipment, the Equipment Lease would automatically be extended for an additional
three months for a monthly payment of $7,011, after which the equipment would
automatically revert back to the Company.
- ---------------
(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
17
<PAGE> 19
Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which the
Company assigned certain equipment to Aberlyn in consideration of $100,000. The
equipment was exclusively leased back to the Company for three years for a
monthly fee of $3,271, after which Aberlyn was required to return the equipment
to the Company in exchange for $10,000. If the Company declined to purchase the
equipment, the term of the Second Equipment Lease was to be automatically
extended or an additional three months for a monthly payment of $3,420, after
which the equipment would automatically revert back to the Company.
The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease (the "Leases") were modified. The payment terms of
the license fee pursuant to the Patent and License Agreement were revised to
semiannual payments of $97,445 and the payment terms of the Equipment Lease were
similarly revised to semiannual payments of $39,100 and $20,281, respectively.
In consideration to Aberlyn for making these modifications, the Company issued
warrants to Aberlyn to purchase 150,000 shares of the Company's common stock at
an exercise price of $1.50 per share exercisable over a five-year period. On May
28, 1996, Aberlyn and the Company reached an agreement to restructure the Leases
which resulted in a revised schedule of lease payments over a twenty-four month
period, with the initial payment commencing on June 1, 1996. The payments were
based on an outstanding principal amount of approximately $500,000 and total
accrued interest of approximately $148,000. In addition, 115,000 shares of
common stock were issued in payment of consulting fees, investment banking
service fees and miscellaneous expenses totaling $115,728.
The Company believes that its future success does not depend solely upon
patents, but rather depends, to a significant extent, upon the technical
competence and creative skills of its personnel, the execution of its strategic
plan and on its significant unpatented proprietary technology.(1) The Company
has no knowledge that it is infringing any existing patent such that it would be
liable for material damages or prevented from manufacturing or marketing its
planned products. However, competitors continue to obtain new patents and to
file applications to modify or expand claims of existing patents that could lead
to possible conflict with the Company's products or proposed products.
The Company may decide for business reasons to retain a patentable
invention as a trade secret. In that event, or if patent protection is
unobtainable, the Company must rely upon trade secrets, know-how and continuing
technological innovation to maintain its competitive position. Employees and
consultants of the Company who have access to proprietary information have
signed confidentiality agreements with the Company.
The Company has four trademarks: the OmniCath(R), the OmniStent(TM), the
Evert-O-Cath(TM), and Cathlab Corporation(R). The Company has applied to
register the OmniStent(TM); however, there can be no assurance that federal
registration will be obtained. "Cathlab Corporation(R)" and "OmniCath(R)" are
registered trademarks.
COMPETITION
Competition in the biomedical industry is intense. Cathlab's catheters
compete directly with similar products sold by a number of companies. There can
be no assurance that these products will be able to obtain or maintain a sizable
market share, if any. There are many companies and academic institutions that
are capable of developing products of similar design, and that have developed
and are capable of developing products based on other technologies, that are or
may be competitive with the Company's current and proposed products. Many of
those companies and academic institutions are well-established, have
substantially greater financial and other resources than the Company, and have
established reputations for success in the development, sale and service of
products. These companies and academic institutions may succeed in developing
competing products that are more effective than those of the Company or that
receive FDA approval more quickly than the Company's products. The Company's
ability to compete will be dependent upon its ability to get products approved
by regulatory authorities and introduced to the market, including the
- ---------------
(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
18
<PAGE> 20
arrangement of a distribution network, and to provide products with advanced
performance features, none of which can be assured.
In addition to competition from other atherectomy devices, other
angioplasty modalities, such as lasers, thermal systems (e.g. hot-tip,
hot-balloon, and spark ablation), disruptive devices (e.g., ultrasonic
angioplasty), and stents may provide competition to the OmniCath(R) and the
OmniStent(TM). The current atherectomy devices anticipated to be competitive to
the OmniCath(R) are the Simpson Atherocath (Devices for Vascular Intervention,
Inc., a division of Eli Lilly, Inc.), the Transluminal Extraction Catheter, or
"TEC" device (InterVentional Technologies, Inc.), the Auth Rotablator (Heart
Technology, Inc.), and the Kensey Catheter (Theratek International, Inc., a
division of Dow Corning Wright, a subsidiary of Dow Corning Corp.). If the
product receives regulatory approval on a timely basis, the Company believes the
OmniCath(R)'s competitive position will be enhanced by its closed aspiration
system (which eliminates down-stream debris), low cost disposability,
microangioscope capability, and conventional guidewire capability, as well as by
the positioning of its side-window which allows the rotating blade to shave
plaque from inside the catheter as opposed to from the tip of the catheter(1).
Competition to the Company's OmniStent(TM) is expected to come from Johnson &
Johnson, which had its Palmaz-Schatz Stent approved by the FDA in 1994, the Cook
Gianturco, from Medtronic's Wiktor Stent and from Schneider's Wallstent, neither
of which has obtained full FDA approval.
While lasers, ultrasonic angioplasty devices and other new modalities have
proliferated over the past several years, none of these technologies has yet
been shown to reduce the restenosis rate or to reduce the overall procedural
cost of angioplasty. Lasers are particularly expensive (most laser angioplasty
systems sell for $100,000 - $300,000), and the Company believes lasers will be
accepted only if significantly better results can be shown clinically. Lasers
have been found to be damaging to the arterial wall, and non-laser versions
including thermal balloon devices, spark ablation systems, and other new
modalities are currently under development and have not reached
commercialization. The Company believes that direct removal of tissue without
thermal effect may be the most desirable approach for angioplasty, as most
thermal systems cause trauma to the arterial wall, resulting in proliferation of
fibrous tissue and early restenosis.
The Company does not know of any person or entity currently marketing a
toposcopic catheter with features similar to the Evert-O-Cath(TM).
EMPLOYEES
As of March 1, 1997, the Company had 32 full-time employees, 4 in research
and development, 1 in sales and marketing, 18 in manufacturing, 2 in quality
control and 7 in corporate management and administration. None of the Company's
employees is represented by labor unions. The Company considers its relationship
with its employees to be in good standing. The Company also employs two paid
consultants (Dr. Samuel S. Ahn and Lawrence M. Hoffman) who are paid on a
monthly basis at rates ranging from $3,725 to $15,000 per month.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information pertaining to executive officers
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven B. Rash.......................... 49 President, Chief Executive Officer and
Chairman of the Board
Colene Stigler Blankinship.............. 47 Controller and Chief Accounting Officer,
Secretary and Treasurer
</TABLE>
- ---------------
(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
19
<PAGE> 21
STEVEN B. RASH has served as President, Chief Executive Officer and
director of the Company since July 15, 1995 and as Chairman of the Board since
February 4, 1997. From 1994 until June 1995, Mr. Rash served as Vice President
of Operations of Blue Rhino Corporation, an industrial products manufacturer.
From 1992 to 1994, Mr. Rash served as President of the Technical Services
Division of the Maxum Health Corporation, a company engaged in providing mobile
MRI services. From 1989 to 1992, Mr. Rash served as the President of Intex
Medical Technologies, Inc., a medical equipment manufacturer. Prior thereto, Mr.
Rash held various positions with BOC Group, plc., an international manufacturer
of industrial gases and healthcare products and services. Mr. Rash holds an MBA
from Southern Illinois University and served for four years in the U.S. Army,
where he reached the rank of Captain.
COLENE STIGLER BLANKINSHIP, CPA joined the Company February 7, 1995 as
Controller and became the Chief Accounting Officer November 1995. She was
elected Secretary/Treasurer February 4, 1997. From 1992 through 1994 Mrs.
Blankinship served as Controller of Excel Resources, Inc., a gas marketing
company in Houston, Texas. She has 13 years experience in public accounting
which includes 9 years with the local firm of Tribolet, Fuller & Associates,
P.C., Humble, Texas. Mrs. Blankinship attended Texas Tech University and North
Harris County College and is a CPA. Mrs. Blankinship is a national director of
the American Society of Women Accountants, a position she has held since July
1996.
ITEM 2. PROPERTIES
As of March 1, 1997, the Company subleases from an unaffiliated party
approximately 2,400 square feet of space at 10077 Grogan's Mill Road, Suite 100,
The Woodlands, Texas, which houses its corporate headquarters. The sublease
expires May 1997. The lease does not have renewal provisions and requires rent
of approximately $13,000 in 1997. The Company believes that these facilities are
adequate for its operations during the remaining term of the lease.
In connection with the Company's acquisition of Cathlab Corporation, it now
leases approximately 13,000 square feet of space at 17991 Fitch, Irvine,
California, which houses the manufacturing and production facilities for the
Cathlab products. The lease commenced on September 1, 1990 and was renewed in
August 1996 for an additional year. The Company subleased 3,000 square feet to
an unrelated party in January 1996 for $3,000 per month expiring August 1997.
The Company believes that this facility is adequate for its operations during
the remaining term of the lease. At this time the Company is investigating a
facility encompassing approximately 25,000 square feet which will better meet
the Company's future needs. It is undetermined at this time where this facility
will be located.
ITEM 3. LEGAL PROCEEDINGS
On December 8, 1994, a vendor commenced a lawsuit against the Company
regarding unpaid invoices in the amount of $124,759 plus attorney fees and
accrued interest. On June 15, 1995, the parties to the lawsuit executed a
Stipulation of Settlement Agreement, a Consent Judgment and a Stipulation of
Dismissal to be held in escrow. The Company agreed to pay $125,000 to the vendor
under the settlement agreement; $25,000 was paid upon execution of this
stipulation and the balance was due on or before October 31, 1995. The amount of
$100,000 was included in accounts payable at December 31, 1995. The balance was
paid through the issuance of 116,145 shares of the Company's common stock in
1996.
In December 1995 the American Arbitration Association awarded a consultant
$50,000 with interest at prime plus three percent from May 1, 1995. The Company
sought to have the award vacated but on July 30, 1996 the award was confirmed.
An Application for Turnover Order was filed in December 1996 requiring the
Company to pay the consultant or satisfy the judgment with the proceeds of any
consummated sale of the Company's obsolete inventory in the form of foreign-made
dental and medical surgical supplies and utensils. The resolution of this matter
will not have a material adverse impact on the Company's financial position,
results of operations or cash flows.
The Company is occasionally a party to litigation (other than that
specifically noted) arising in the ordinary course of business. Management
regularly analyzes current information and, as necessary, provides an accrual
for probable liabilities for the eventual disposition of the matter. In the
opinion of management, the
20
<PAGE> 22
ultimate outcome of these matters will not materially impact the Company's
financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders (the "Annual Meeting")
on November 22, 1996. The stockholders of record on October 28, 1996 were
entitled to vote at the meeting. The following directors were elected to serve
until the next Annual Meeting or until their successors are duly elected and
qualified:
<TABLE>
<CAPTION>
FOR WITHHELD
--------- ---------
<S> <C> <C>
Steven B. Rash.......................................... 9,288,746 1,518,025
Lawrence M. Hoffman..................................... 8,818,505 1,988,266
Claudio M. Guazzoni..................................... 8,822,005 1,984,766
Richard S. Serbin....................................... 9,312,246 1,494,525
</TABLE>
The proposal to amend the Company's Certificate of Incorporation to
increase the authorized number of shares of the Company's Common Stock, par
value $.001 per share, from twenty five million shares to fifty million shares
was approved by a vote of 8,397,800 for, 2,300,929 against, and 108,042
abstaining.
The 1996 Incentive Stock Option Plan (the "Incentive Stock Plan") was
approved by a vote of 2,975,932 for, 2,235,924 against, 62,127 abstaining and
5,532,788 broker non-votes.
21
<PAGE> 23
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock traded on the Nasdaq Small-Cap Market under the
symbol ABMI from October 22, 1991 through October 13, 1994. On October 13, 1994,
the Company was delisted from NASDAQ because the Company's equity fell below the
required $1,000,000 on June 30, 1994. The following table sets forth, for the
periods indicated, the range of high and low bid prices for the Common Stock as
reported by the NASD's OTC Bulletin Board(R). The quotes represent
"Inter-dealer" prices without adjustment or markups, markdowns or commissions
and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
COMMON
STOCK
----------------------
HIGH LOW
---- ---
<S> <C> <C>
YEAR ENDING DECEMBER 31, 1995
First Quarter............................................. 15/32 1/6
Second Quarter............................................ 1 11/32
Third Quarter............................................. 11/16 1/4
Fourth Quarter............................................ 1/2 15/16
YEAR ENDING DECEMBER 31, 1996
First Quarter............................................. 25/32 3/8
Second Quarter............................................ 2 13/16 5/8
Third Quarter............................................. 2 1/4 1
Fourth Quarter............................................ 2 7/8
</TABLE>
As of October 28, 1996, there were approximately 310 holders of record and
approximately 2,500 additional beneficial shareholders of the Company's common
stock. The closing Inter-dealer prices for the Company's common stock on March
20, 1997 was $1.18.
To date the Company has not paid any dividends on its common stock. The
payment of future dividends, if any, is within the discretion of the Board of
Directors and will depend on the Company's earnings, its capital requirements
and financial condition, as well as, other relevant factors. The Company does
not intend to declare any dividends in the foreseeable future, but instead
intends to retain all earnings, if any, for use in the Company's business
operations.
RECENT SALES OF UNREGISTERED SECURITIES.
Pursuant to Section 4(2) of the Securities Act, in March 1997 the Company
issued 125 shares of its Series C Convertible Preferred Stock, par value $.001
per share, to Nelson Partners for a total purchase price of $2,500,000, or
$20,000 per share. For a more detailed description of the terms of this
transaction, see "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Subsequent Events."
22
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data presented below has been derived from the
consolidated financial statements of the Company (A Development Stage
Enterprise). The Company declared no common stock dividends during any period
presented. The operating results of Freedom Machine, Inc. and Cathlab
Corporation since the respective dates of acquisition are included in the
selected operating statement data below. This data should be read in conjunction
with the consolidated financial statements included elsewhere herein.
SELECTED OPERATING STATEMENT DATA:
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL INCEPTION,
YEAR YEAR YEAR YEAR YEAR SEPT. 4, 1984
ENDED ENDED ENDED ENDED ENDED THROUGH
DEC. 31, 1996 DEC. 31, 1995 DEC. 31, 1994 DEC. 31, 1993 DEC. 31, 1992 DEC. 31, 1996
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Sales, Net................. $ 579,533 $ 660,770 $ 637,375 $ 826,590 $ 610,379 $ 3,314,647
Cost of Sales.............. (420,838) (649,355) (782,729) (960,232) (419,752) (3,232,906)
Interest Income............ 4,252 7,239 902 23,663 39,176 109,734
Other Income (Expense)..... (114,762) 1,561,203(2) (56,209)(1) 1,353 69,926 1,916,784
Interest Expense........... (313,914) (276,688) (182,606) (1,261,203) (361,539) (2,695,438)
Research & Devel.
Expense.................. (640,792) (537,962) (1,167,773) (2,397,405) (1,692,793) (7,249,993)
Selling, General & Admin.
Expense.................. (1,718,595) (2,169,591) (2,235,116) (4,381,165) (2,898,836) (15,456,935)
Distributor Settlement..... -- -- -- -- (1,080,915) (1,080,915)
------------ ----------- ----------- ------------ ----------- ------------
Net Loss................... $ (2,625,116) $(1,404,384) $(3,786,156) $ (8,148,399) $(5,734,354) $(24,375,022)
Less Preferred Stock
Dividends................ (1,183,413) -- -- -- -- (1,183,413)
------------ ----------- ----------- ------------ ----------- ------------
Net Loss Available to
Common Shareholders...... $ (3,808,529) $(1,404,384) $(3,786,156) $ (8,148,399) $(5,734,354) $(25,558,435)
============ =========== =========== ============ =========== ============
Net Loss per Common Share.. $ (.34) $ (0.15) $ (0.46) $ (1.62) $ (1.66)
============ =========== =========== ============ ===========
Average Number of Common
Shares Outstanding....... 11,310,592 9,362,198 8,188,980 5,041,698 3,459,001
============ =========== =========== ============ ===========
</TABLE>
- ---------------
(1) Other expense in December 31, 1994 includes the write-off of the Superstat
assets. See "Item 1 -- Business -- Products."
(2) Other income in December 31, 1995 includes $1,000,000 forfeited escrow
deposit received from USSC and sale of OmniCath(R) EPO patent to Guerbet.
See "Item 1 -- Business -- Marketing Plans and Arrangements."
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Working Capital (Deficit)................. $ (256,206) $ (3,827,287) $ (3,246,020) $ (1,057,831) $(1,536,621)
Total Assets.............................. 3,069,151 1,883,278 2,445,076 4,000,345 5,424,303
Long-Term Debt, Net of Current
Maturities.............................. 110,472 -- 611 2,784 16,679
Capital Lease Obligations, Net of Current
Maturities.............................. 302,766 7,095 18,033 485,580 433,211
Total Liabilities......................... 2,940,556 4,685,133 4,002,192 2,761,942 4,243,538
Preferred Stock........................... 3 -- -- -- 10
Deficit Accumulated During the Development
Stage................................... (24,375,022) (21,749,906) (20,345,522) (16,559,366) (8,410,967)
Total Stockholders' Equity (Deficit)...... 128,595 (2,801,855) (1,557,116) (1,238,403) 1,180,765
</TABLE>
23
<PAGE> 25
ITEM 7. 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 December 31, 1996, the Company had an accumulated deficit of
$24,375,022.
Year Ended December 31, 1996 Compared With Year Ended December 31, 1995
During the year the Company made substantial investments in five key areas.
First, we consolidated all manufacturing operations into our Irvine, California
facility, enabling us to increase our manufacturing capabilities and
efficiencies. Secondly, investments were made in our manufacturing
infrastructure resulting in productivity improvements. Third, we invested in
product development and clinical investigational programs to further the
advancement of our core product technologies. Fourth, we invested in the
expansion of our sales and marketing efforts by implementing new marketing
programs. Finally, we invested considerable time and effort in reshaping our
balance sheet via a debt to equity conversion and the raising of additional
equity capital via private placements.
Net sales decreased $81,237 or 12.3% for 1996 compared to 1995. The decline
is due to delays encountered in product registrations in international markets
by the Company's newly appointed international distributors, discontinued
product lines and limited international OmniCath(R) sales due to U.S.
OmniCath(R) clinical trial needs. Foreign export sales decreased to 60% in 1996
compared to 81% in 1995. The Company appointed twenty-two (22) new international
distributors in 1995. After an international distributor is appointed, the
distributor must comply with the applicable country regulations before products
can be imported and sold in a particular country. Depending upon the country,
the registration period can take from as little as a few weeks to over nine
months, causing delays in product sales while the distributor awaits approval to
sell the product. The Company believes that its revised distribution network
will result in increased product sales, primarily in Western Europe, South
America, Japan and the Pacific Rim countries. The Company discontinued its hole
punch operations during the fourth quarter of 1995. The hole punch operations
provided approximately $30,000 or 4.5% of net sales during 1995 and
approximately $42,000 or 6.6% of net sales during 1994. Related cost of goods
sold consisted of approximately $26,000 and $37,000 in 1995 and 1994,
respectively.
Gross profit margins increased to 27.4% in 1996 compared to 1.7% in 1995.
This increase is due primarily to better inventory management, decrease in
factory overhead and increased productivity of the plant. In order to improve
inventory management the Company instituted restocking procedures to take
advantage of bulk order discounts and computerized inventory management, as well
as shipping and receiving information. The better tracking system enabled the
Company to avoid having any expired inventory during 1996. In February 1996 the
Company hired a director of manufacturing to assess the inefficiencies in the
current system and to ready the plant for increased production. The Company
negotiated a more favorable rental rate resulting in decreased facility rent, a
portion of which is allocated to plant overhead, introduced energy saving
operating techniques, reduced scrap rates and improved batch yields. Higher
recruitment standards, improved training for production employees and revised
salary structures to reduce personnel turnover were instituted. Since the
manufacturing process is labor intensive, these changes resulted in increased
productivity as well as reducing costs. "See Liquidity and Capital Resources"
below.
Total selling, general and administrative expenses decreased during 1996 to
$1,718,595 from $2,169,591. 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 consolidated
all manufacturing activities, technical support and research and development in
the Irvine, California facility. In addition, the Company renegotiated the
Cathlab facility lease in August 1996 for an additional $16,000 in savings in
1996 and an annual savings of $48,000.
24
<PAGE> 26
Research and development expenses increased 19.1% to $640,792 in 1996
compared to $537,962 in 1995. The increase is primarily attributed to the
Company's efforts to initiate U.S. clinical trials for the OmniCath(R). These
expenses are expected to increase in the future as the Company's products
approach commercial viability and will be funded by increased revenue generated
through Cathlab Division sales or from the sale of ancillary technologies or
through joint development agreements with strategic partners.(1)
Interest expense increased 13.5% to $313,914 in 1996. This is primarily due
to the obligation due USSC. The Note, originally due January 20, 1996, was
extended to March 15, 1996 and subsequently extended to September 1996. Monthly
payments were made from March through August 1996, and the remaining balance
paid in September 1996 with proceeds received from promissory notes. These
promissory notes were repaid in full in November 1996.
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
During the fiscal year ended December 31, 1995, the Company had net sales
of $660,770, compared to net sales of $637,375 for 1994, an increase of 3.6%. Of
net 1995 sales, $568,522 or 86.04% resulted from sales of Cathlab's catheter
products, $29,849 or 4.52% resulted from sales of Freedom's catheter hole
punches, and $62,399 or 9.44% resulted from other sales. International sales
accounted for approximately 81.29% of total 1995 sales, and 58.6% or $385,209 of
1994 sales consisting primarily of sales of the Cathlab products in Europe and
Central and South America, and American BioMed products to Europe. Foreign
export sales increased 39% in 1995 as compared to 1994. The Company primarily
markets its product through distributors. As contracts are renewed or new
distributors are appointed either due to the non-performance of a prior
distributor or the expansion to new territories, overall sales are expected to
increase. Changes to international distributors will result in a short-term
decrease in sales while the distributor complies with the applicable country's
regulations.
Cost of sales was $649,355 or 98.3% of total sales during 1995, compared to
$782,729 or 122% of total sales during 1994. These high percentages are due in
large measure to the lower than expected profit margins as well as much lower
than expected production while fixed manufacturing expenses were still incurred.
During 1995 and 1994 the Company was unable to buy in bulk due to the shortage
of cash. As a result of the material shortage, operations were scaled back and
in 1995 the plant was shut down for one week. Cost of sales is continuing to
decrease as the Company's cash position improves and production increases.
During 1994 and 1995 management's cost containment strategy included plant
shutdowns when necessary, reducing personnel, and closely monitoring purchases
without sacrificing quality. See "Liquidity and Capital Resources" below.
The Company's selling, general and administrative expenses decreased during
1995 to $2,169,591 compared to $2,235,116 in 1994. The decrease from 1994 was
primarily due to reduction in personnel and significantly limiting the amount
expended on advertising and promotion.
A significant portion of the Company's expenditures to date have been on
research and development, particularly with respect to the OmniCath(R),
OmniStent(TM), Evert-O-Cath(TM) and heart pumps. Research and development
expenses totaled $537,962 during the year ended December 31, 1995, compared to
$1,167,773 for 1994.
The Company's interest expense increased to $276,688 in 1995 from $182,606
in December 1994. The increase in 1995 was due primarily to late charges
incurred in connection with delinquent payments related to its lease obligations
due Aberlyn Capital Management Limited Partnership. See "Liquidity and Capital
Resources," below.
For the period from inception to December 31, 1995, the Company's other
income of $2,031,546 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
- ---------------
(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
25
<PAGE> 27
heart pumps, $47,244 in settlement of accounts payable to certain vendors, and
$80,000 amortization of the license fee received from Wright Medical
Technologies, Inc. On May 1, 1995, the Company and United States Surgical
Corporation ("USSC"), a Delaware corporation, entered into an Option Agreement
(the "Option Agreement"), pursuant to which USSC was granted a 90-day option to
purchase the Company's technologies for stents (including the OmniStent(TM)),
atherectomy catheters (including the OmniCath(R) Atherectomy Catheter),
toposcopic catheters (including the Evert-O-Cath(TM) Drug Delivery catheter) and
all intellectual property rights, inventory, equipment and goodwill related
thereto (collectively, the "Assets"). Upon execution of the Option Agreement,
USSC paid $2.0 million to the Company (the "Initial Payment") in consideration
of the option and in partial consideration of the purchase price.
On July 20, 1995, 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 was payable to USSC
plus interest at 10% per annum beginning July 20, 1995 (the "Note"). The Note,
originally due January 20, 1996 which was collateralized by the Company's stent
technology, was extended to March 15, 1996 and subsequently to September 15,
1996.
The remaining $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.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a working capital deficiency as of December 31, 1996 of
$256,206, an improvement of $3,571,081. At December 31, 1996, the Company had
cash and cash equivalents of $1,183,613 compared to $9,177 at December 31, 1995.
The net cash used by operating activities in 1996 of $1.6 million was 10%
more than in 1995. In 1996 the cash flow was favorably impacted by the
negotiations of debt to equity conversions of approximately $1.5 million with
various stockholders, vendors and a bank. In addition, two consultants were paid
in stock rather than cash. Net cash used by operating activities in 1995 was 50%
greater than in 1994. The Company decreased its operating liabilities by
approximately $276,000 in 1995 versus the increase in liabilities which occurred
in 1994.
Cash flows of $452,145 were provided by investing activities in 1995 as
compared to cash used by investing activities of $76,923 and $50,646 in 1996 and
1994, respectively. Cash flows were favorably impacted in 1995 by the sale of
technology and assets of the Company's hole punch operations.
The Company plans to install vendor upgrades for each of its computer-based
applications that will accommodate the millennium change. The Company does not
believe that the millennium change will have an adverse impact on its
operations.
Capital expenditures in 1996 were $46,773 and included new computers and
leasehold improvements to the Cathlab facility to facilitate the relocation of
the research and development activities from Texas. The Company expects capital
expenditures in 1997 to increase to approximately $150,000 for additional
computers, accounting software upgrades, manufacturing equipment and molds. In
addition, the Company continues to invest in the development of its patents as
evidenced by the use of funds of $31,414, $51,877 and $50,646 for the years
ended December 31, 1996, 1995 and 1994, respectively. Since inception, the
Company has expended $436,988 on internally developed patents.
Cash flows of $2,906,223, $1,019,504 and $737,871 were provided by
financing activities for the years ended December 31, 1996, 1995, and 1994,
respectively. Since inception, financing activities have provided net cash of
$19,144,866. Financing activities consist of note proceeds and repayments,
capital lease obligations and repayments, proceeds from the sale of debentures,
preferred stock, common stock and warrants, proceeds from the exercise of
warrants and options, related offering and financing costs, cash dividends on
preferred stock and the acquisition of treasury stock.
In February 1996, the Company and Zanett, a financial consulting firm,
signed an agreement whereby Zanett agreed to assist the Company in raising
capital pursuant to an offering of the Company's equity
26
<PAGE> 28
securities. (See "Related Party Transactions"). Funds of approximately $1.7
million were raised in the first offering. An additional $1.5 million was
received pursuant to an offering of the Company's securities in November 1996.
On May 28, 1996, Aberlyn and the Company reached an agreement to
restructure the Leases which resulted in a revised schedule of lease payments
over a twenty-four month period, with the initial payment commencing on June 1,
1996. In addition, 115,000 shares of common stock were issued in payment of
consulting fees, investment banking service fees and accumulated miscellaneous
expenses totaling $115,728.
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 stockholders. The Notes, bearing
interest at 10% per annum and collateralized 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.
Cash proceeds of $97,000 from the exercise of options, $391,325 from the
exercise of warrants and $3,231 from the purchase of stock by individuals were
received in 1996.
In December 1996, the Company received proceeds of $1 million from a 30-day
note payable to bridge any potential funding shortfalls (regarding clinical
trial costs) until such time as warrants were exercised or new equity funding
was received. Interest of 12% per year is payable in either cash or stock in
January 1997. The note was paid in full in January 1997 and the interest was
paid by the issuance of 11,722 shares of common stock.
As a result of Securities and Exchange Commission guidance issued in early
1997 with respect to beneficial conversion features in connection with the
issuance of convertible preferred stock, the Company was deemed to recognize
noncash preferred stock dividends totaling approximately $1.2 million in fiscal
year 1996. This amount is equivalent to the discount from the fair market value
of the common stock given to the purchasers of the Series A and B calculated as
of the date of the sale of such stock.
The Company requires additional funds to enable it to complete development
and, subject to obtaining required regulatory approvals, commercialization of
the OmniCath(R) for peripheral and A-V fistula use, to enter into marketing and
distribution arrangements for the OmniCath(R), to commence and continue the
development of other products which include the OmniStent(TM), Evert-O-Cath(TM),
and other products as well as product enhancements to its existing 100%-silicone
balloon catheters, the OmniCath(R), Evert-O-Cath(TM) and OmniStent(TM) and to
expand its manufacturing and distribution abilities with respect to the Cathlab
products. Research and development expenditures for 1997, including amounts for
clinical affairs, are expected to be approximately $1.2 million. 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(1). 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 significantly during 1997; however, this increase will not be
sufficient to satisfy the Company's funding needs(1). There can be no assurance
that the Company will be able
- ---------------
(1) The previous sentence is a forward-looking statement. See page two for
assumptions and risk factors that may affect actual results.
27
<PAGE> 29
to obtain additional funding on acceptable terms or in time to fund any
necessary or desirable expenditures. In the event such funding is not obtained,
the Company's research and development projects will be delayed or scaled back.
In order to continue as a going concern, the Company must raise additional funds
as noted above and ultimately must achieve profitable operations.
The Company completed a $2.5 million convertible preferred equity funding
on March 24, 1997 which will provide the Company with sufficient cash to meet
its cash requirements for twelve to fifteen months. (See "Subsequent Events"
below.) Management believes that by the fourth quarter of 1997, cash flow from
operations will be sufficient to meet the Company's cash requirements. In
addition, the Company is actively engaged in discussions to sell selected
non-core technologies to third-party healthcare companies.
Though still a developmental stage company engaged in the development,
manufacture and marketing of medical devices, the Company has ten products
presently available to market and has formulated a comprehensive business
strategy which it believes will enable it to capitalize on its technologies and
on developing trends in the healthcare industry. The Company launched an
aggressive cost reduction campaign which has drastically reduced operating
expenses. At the same time the Company initiated efforts to revamp its existing
distribution network by replacing underperforming distributors with professional
domestic and international distributor organizations, thereby creating a
world-class distributor network. Management believes it will be able to raise
the capital necessary to fund the commercialization efforts of its existing
technologies and current working capital for the foreseeable future by
"unbundling" its core technologies and identifying a prestigious international
healthcare corporation for each technology/product in a specific international
market(1).
The Company's strategic plan consists of focusing on increasing the market
penetration of its 10 existing FDA-approved products, continuing to revamp its
distribution network as new distributors are warranted, continuing to focus on
the commercialization of its core technologies by pursuing US and international
regulatory approval, aggressively pursuing the sale of ancillary technology to
meet future cash requirements and validation of the proprietary nature of its
technologies, continuation of efforts to identify and pursue strategic alliances
and a continuing effort to reduce manufacturing costs. The Company's aggressive
cost reduction program has resulted in annual cost savings in excess of $600,000
in selling, general and administrative expenses as well as reducing
manufacturing costs 28.2% or over $126,000 in 1996. These reductions have
enabled the Company to shift additional resources into its clinical trial
efforts, new product development efforts and increased sales and marketing
programs.
Management believes that the Company is now positioned to capitalize on its
silicone manufacturing expertise and patented minimally invasive technologies as
all cost containment programs and restructuring of the Company's manufacturing
operations, which include employee training and rebuilding of the Company's
infrastructure, are now in place. Although there can be no assurances,
management anticipates that these actions, coupled with a concentrated focus of
its efforts on the marketing and distribution of its FDA approved products and
successful completion of its ongoing clinical trials, will result in revenue
growth in the next twelve months.
In addition, during 1996, management 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 distribution agreements, and research and
development agreements. An integral part of this on-going strategy is to
aggressively pursue the sale of all ancillary technology which will enable the
Company to focus its resources exclusively on its core technologies and
commercial non-angioplasty balloon catheter products. Although there can be no
assurances, the Company does not foresee any risks associated with these
initiatives.
SUBSEQUENT EVENTS
Pursuant to Section 4(2) of the Securities Act, in March 1997 the Company
issued 125 shares of its Series C Convertible Preferred Stock, par value $.001
per share (the "Series C Preferred") to Nelson Partners, an unaffiliated
investor, for a total purchase price of $2,500,000, or $20,000 per share. The
proceeds
28
<PAGE> 30
of the sale will be used to fund clinical trials, research and development
projects and general working capital. The Series C Preferred, which bears no
dividends and confers no voting rights, is of equal rank with shares of the
Series A Preferred and the Series B Preferred and senior to the Company's other
equity securities (except with the consent of the majority of the holders of
Series C Preferred). The Series C Preferred is convertible at any time on or
after 120 days after the initial date of issuance at the option of the holder
into a number of shares of common stock (the "Series C Conversion Shares") based
on a formula as defined in the purchase agreement.
The Series C conversion price is the lesser of (i) $1.75 (adjusted if there
is a lock up in effect) or (ii) the average of the closing bid price for the
common stock for the five consecutive trading days immediately preceding the
date the election to convert is made (the "Series C Conversion Price"). The
number of Series C Conversion Shares is subject to adjustment from time to time
upon the occurrence of stock splits, reverse stock splits, and similar events.
On March 1, 2000 any outstanding shares of the Series C Preferred will be
automatically converted based on the Series C Conversion Price then in effect.
Registration rights were conferred upon the Series C Preferred requiring
the Company to file an S-3 Registration Statement on or before the ninetieth day
following the issuance date covering the resale of the Series C Conversion
Shares.
In the event the Company effects a lock-up on the ability of the holders of
the Series C Preferred to convert their shares into common stock, each such
holder will be entitled to a warrant (the "Lock-Up Warrant") exercisable for
that number of shares of common stock equal to ( 1/2) one-half of the number of
shares of common stock which would have been issuable had such holder converted,
and on the last day of the lock-up period will be entitled to an additional
Lock-Up Warrant exercisable for that number of shares of common stock equal to
one-half of the number of shares of common stock which would have been issuable
had such holder converted. The exercise price of the Lock-Up Warrant is the
fixed conversion price that is in effect at the time of issuance, but not
subject to any adjustments.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Consolidated Financial Statements and Financial Statement
Schedule on page F-1 herein.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth information pertaining to executive officers
of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Steven B. Rash........................... 49 President and Chief Executive Officer
Chairman of the Board
Lawrence M. Hoffman...................... 53 Director
Claudio Guazzoni......................... 34 Director
Richard S. Serbin........................ 52 Director
Colene Stigler Blankinship............... 47 Controller and Chief Accounting Officer
Secretary and Treasurer
</TABLE>
STEVEN B. RASH has served as President, Chief Executive Officer and
director of the Company since July 15, 1995. Mr. Rash was appointed Chairman of
the Board on February 4, 1997. From 1994 until June 1995, Mr. Rash served as
Vice President of Operations of Blue Rhino Corporation, an industrial products
manufacturer. From 1992 to 1994, Mr. Rash served as President of the Technical
Services Division of the
29
<PAGE> 31
Maxum Health Corporation, a company engaged in providing mobile MRI services.
From 1989 to 1992, Mr. Rash served as the President of Intex Medical
Technologies, Inc., a medical equipment manufacturer. Prior thereto, Mr. Rash
held various positions with BOC Group, PLC, an international manufacturer of
industrial gases and healthcare products and services. Mr. Rash holds an MBA
from Southern Illinois University and served for four years in the U.S. Army,
where he reached the rank of Captain.
LAWRENCE M. HOFFMAN has served as a director of the Company since April
1991 and as Vice President of Corporate Relations from July 1990 to December
1991, when he was appointed Vice President of Business Development, a position
he held until June 28, 1995. From March 28, 1995 until June 28, 1995, Mr.
Hoffman served as the interim Treasurer. Mr. Hoffman is also President and Chief
Executive Officer of Aberlyn Group, Inc., a financial consulting firm that he
founded in 1989. Prior to founding Aberlyn Group, Inc., Mr. Hoffman was employed
as Director of Corporate Finance at Monmouth Investments, a New Jersey-based
securities brokerage firm. From January 1986 to May 1988, Mr. Hoffman served as
Chairman of Nicholas, Lawrence & Co., a securities brokerage firm specializing
in institutional trading and biotechnology companies. Mr. Hoffman holds a B.S.
in Economics from New York University.
CLAUDIO M. GUAZZONI has served as a director of the Company since March 7,
1996. Mr. Guazzoni is the President and Chief Executive Officer of Zanett
Capital, Inc. ("Zanett") and has served in that capacity since 1993. He is
engaged in the business of providing financial and strategic consulting services
to business entities. Prior to his service at Zanett, Mr. Guazzoni was a Money
Manager with Delphi Capital Management, Inc. in 1992 and an associate with
Salomon Brothers, Inc. from 1985 to 1991.
RICHARD S. SERBIN has served as a director of the Company since July 17,
1996. Since 1991, Mr. Serbin has served as Executive Vice President and a
director of Bio-Imaging Technologies, Inc. which provides specialized consulting
services to pharmaceutical and biotechnology companies. From January 1991 to
March 1992, Mr. Serbin was Chairman of the Board of Radius Scientific, Inc., a
medical communications company which he founded. From June 1989 to January 1990,
he served as President of Bradley Pharmaceuticals, Inc. and from September 1988
to May 1989, held the position of Senior Vice President of Lifetime Corporation,
a holding company whose major asset, Kimberly Quality Care, is a provider of
home healthcare and temporary nursing services. 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. Mr. Serbin holds a B.S. from Rutgers College of Pharmacy, a J.D. from
Seton Hall Law School and a LL.M in Trade Regulation from New York University
School of Law.
COLENE STIGLER BLANKINSHIP, CPA joined the Company February 7, 1995 as
Controller and became the Chief Accounting Officer November 1995. She was
elected Secretary and Treasurer on February 4, 1997. From 1992 through 1994, Ms.
Blankinship served as Controller of Excel Resources, Inc., a gas marketing
company in Houston, Texas. She has 13 years experience in public accounting
which includes 9 years with the local firm of Tribolet, Fuller & Associates,
P.C., Humble, Texas. Ms. Blankinship attended Texas Tech University and North
Harris County College and is a CPA. Ms. Blankinship is a national director of
the American Society of Women Accountants, a position she has held since July
1996.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
To the Company's best knowledge, upon its review of Forms 3, 4 and 5 and
any amendments thereto furnished to the Company pursuant to Section 16 of the
Securities Act of 1934, as amended, all required reports for fiscal year 1996
have been filed on a timely basis by reporting persons except for Mr. Serbin who
was late in filing a Form 3 and Messrs. Hoffman and Guazzoni who were late in
filing all their forms.
30
<PAGE> 32
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation table sets forth the aggregate
compensation paid or accrued by the Company to the Chief Executive Officer and
to executive officers whose annual compensation exceeded $100,000 for the fiscal
year ended December 31, 1996, for services during the fiscal years ended
December 31, 1996, 1995 and 1994.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
- -------------------------------------------------------------------- --------------------- -------
(a) (b) (c) (d) (e) (f) (g) (h) (i)
OTHER
ANNUAL RESTRICTED SHARES/ ALL
COMPEN- STOCK OPTIONS/ LTP OTHER
NAME AND SALARY BONUS SATION AWARD(S) SARS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(1) ($) (#) ($) ($)
------------------ ---- ------- ----- ------- ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Steven B. Rash.................... 1996 141,875 7,496
President, Chief Executive 1995 61,875(2) 19,941(3) 600,000(4)
Officer
</TABLE>
- ---------------
(1) Cost of life insurance and auto allowance.
(2) Annual compensation of $135,000 prorated from July 16, 1995, when Mr. Rash
began his service with the Company.
(3) Includes relocation expenses paid in the amount of $19,745.
(4) Represents options issued in connection with a three-year employment
agreement, vesting on various dates during the term of the agreement. See
"Employment Agreements."
The following table sets forth certain information with respect to stock
options granted during the fiscal year ended December 31, 1996 to each of the
named executive officers.
STOCK OPTIONS GRANTED
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE PER SHARE AT
ASSUMED RATES OF
% OF CLOSING BID STOCK APPRECIATION
TOTAL ON DATE FOR OPTION TERM
DATE OF NO. OF OPTIONS PRICE PER OF --------------------
NAME GRANT SHARES GRANTED SHARE GRANT(4) 5% 10%
---- ------- ------ -------- --------- ----------- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Steven B. Rash............. -- -- -- -- -- -- --
</TABLE>
The following table sets forth certain information with respect to each
exercise of stock options during the fiscal year ended December 31, 1996 by each
of the named executive officers and the number and value of unexercised options
held by such named executive officers as of December 31, 1996.
AGGREGATED OPTION EXERCISES IN 1996 FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
EXERCISE REALIZED UNEXERCISABLE UNEXERCISABLE
NAME (#) ($) (#) ($)
---- ----------- -------- --------------- ---------------
<S> <C> <C> <C> <C>
Steven B. Rash...................... 0 0 150,000/450,000 131,250/393,750
</TABLE>
EMPLOYMENT AGREEMENTS
Steven B. Rash entered into a three-year employment agreement (the
"Agreement") with the Company dated July 15, 1995. Pursuant to the Agreement,
Mr. Rash is employed as President and Chief Executive
31
<PAGE> 33
Officer of the Company. The Agreement provides for a salary of $135,000 per year
with annual increases plus bonuses of up to 50% and an option to purchase
600,000 shares of common stock. In 1997 Mr. Rash's agreement was extended to
December 31, 1999. The base salary was increased to $165,000 per year, with a
cash bonus of $30,000 to be paid should the Company's revenues exceed $2 million
in 1997. Options to purchase an additional 820,000 shares of common stock at
$.50 per share were granted. Additionally, options previously granted under the
original agreement which had not vested as of December 31, 1996 shall vest
evenly over the next three years.
COMPENSATION COMMITTEES INTERLOCKS AND INSIDER PARTICIPATION
Until June 1995, the Company did not have a Compensation Committee.
Compensation matters were determined by the Board of Directors. In June 1995,
the Board created and appointed a Compensation Committee. Effective November 26,
1996 the Board of Directors elected Messrs. Hoffman and Guazzoni to serve on the
Compensation Committee. Mr. Hoffman is a consultant of the Company and was Vice
President of Corporate Relations from July 1990 to December 1991 and from
December 1991 to June 28, 1995 served as Vice President of Business Development.
In addition, Mr. Hoffman served as the Company's interim Treasurer from March
28, 1995 until June 28, 1995. (See Item 13, "Certain Relationship and Related
Transactions.")
COMPENSATION OF DIRECTORS
It has been the Company's policy to compensate the directors only for their
reasonable travel expenses in relation to in-person board meetings and
stockholder meetings. Effective November 22, 1996 the directors will each also
receive an option to purchase 12,000 shares of common stock at $1.00 per share,
to be vested November 22, 1997. For each board meeting attended, either
telephonically or in person, the directors will also receive options to purchase
2,000 shares of common stock. The Chairman of the Board will receive an option
to purchase 15,000 shares of common stock vested upon issuance. At December 31,
1996 no one had been elected Chairman of the Board. New officers were elected
February 4, 1997 at which time Mr. Rash became Chairman.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of March 20, 1997,
regarding the beneficial ownership of the common stock by (i) each person or
group known to the Company to beneficially own more than 5% of the outstanding
common stock, (ii) each director of the Company, (iii) certain executive
officers, individually, and (iv) all directors and officers as a group. As of
March 20, 1997, the Company had issued and outstanding 14,260,001 shares of
common stock.
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER(1) BENEFICIAL OWNERSHIP(2)(3) PERCENT OF CLASS
------------------- -------------------------- -----------------
<S> <C> <C>
STEVEN B. RASH.......................... 151,900(4) 1.1%
LAWRENCE M. HOFFMAN..................... 953,674(5) 6.4%
18 Winter Place
Aberdeen, NJ
CLAUDIO GUAZZONI........................ 274,139(6)(7) 1.9%
10 E. 76th Street
New York, NY
All Directors and Officers as a Group (4
persons).............................. 1,385,713(8) 8.9%
</TABLE>
- ---------------
(1) Unless otherwise specified, the address of each beneficial owner is American
BioMed, Inc., 10077 Grogan's Mill Road, Suite 100, The Woodlands, Texas
77380.
(2) Unless otherwise noted, the Company believes that all persons named in the
table have sole voting and investment power with respect to all shares of
common stock beneficially owned by them.
32
<PAGE> 34
(3) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days upon the exercise of options or
warrants or other convertible securities.
(4) Includes 150,000 shares which may be acquired within 60 days upon the
exercise of vested options.
(5) Includes 425,000 shares issuable upon the exercise of warrants held by
Aberlyn Capital Management ("Aberlyn Partnership"). Mr. Hoffman owns a
limited partnership interest in Aberlyn Partnership, and is an officer,
director and stockholder of Aberlyn Capital Management, Inc., which is a
general partner of Aberlyn Partnership. Also, includes 225,000 shares which
may be acquired within 60 days upon the exercise of options by Mr. Hoffman.
(6) Includes 249,139 shares issuable upon the exercise of warrants held by
Zanett Capital. Mr. Guazzoni is President and Chief Executive Officer of
Zanett Capital, Inc.
(7) Includes 25,000 shares issuable upon the exercise of warrants held by Zanett
Securities. Mr. Guazzoni is a 50% owner of Zanett Securities.
(8) Includes 1,076,139 shares which may be acquired within 60 days upon the
exercise of options or warrants.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
For the period from inception, September 4, 1984, to December 31, 1996, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,082,072. Of this amount, $37,500, $50,000 and $152,250 related to the years
ended December 31, 1996, 1995 and 1994, respectively.
On August 23, 1995 the Company sold its proprietary OmniCath(R) atherectomy
EPA patent to Guerbet SEA., a stockholder of the Company, of Paris, France for
$500,000 cash.
Steven B. Rash entered into a three-year employment agreement with the
Company, dated as of July 15, 1995 (the "Agreement"). Pursuant to the Agreement,
Mr. Rash is employed as President and Chief Executive Officer of the Company.
The Agreement provides for a salary of $135,000 per year with annual increases,
plus bonuses of up to fifty percent, and options to purchase 600,000 shares of
common stock. In 1997 Mr. Rash's agreement was extended to December 31, 1999.
The base salary was increased to $165,000 per year, with a cash bonus of $30,000
to be paid should the Company's revenues exceed $2 million in 1997. Options to
purchase an additional 820,000 shares of common stock at $.50 per share were
granted. Additionally, options previously granted under the original agreement
which had not vested as of December 31, 1996 shall vest evenly over the next
three years.
Lawrence M. Hoffman, currently a director, stockholder and paid consultant
of the Company and formerly a Vice President, is a limited partner of Aberlyn
Capital Management Limited Partnership ("Aberlyn") and is an officer, director
and stockholder of Aberlyn Capital Management, Inc., the general partner of
Aberlyn. Effective December 31, 1992, the Company and Aberlyn entered into a
Patent Assignment and License Agreement (the "Patent and License Agreement")
pursuant to which the Company assigned patents owned by the subsidiary, Cathlab
Corporation (the "Cathlab Patents"), to Aberlyn in return for $500,000. The
Cathlab Patents were exclusively licensed back to the Company for three years
for a monthly license fee of $16,355, after which Aberlyn was required to
reassign the Cathlab Patents to the Company in exchange for $50,000. Under its
terms, if the Company declined to purchase the Cathlab Patents, the Patent and
License Agreement would automatically be extended for an additional nine months
for a monthly license fee of $17,099, after which the Cathlab Patents would
automatically revert back to the Company.
The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment to Aberlyn in consideration of $205,000. The equipment was exclusively
leased back to the Company for three years for a monthly fee of $6,706, after
which Aberlyn was required to return the equipment to the Company in exchange
for $20,500. Under the terms, if the Company opted not to purchase the
equipment, the Equipment Lease would automatically be extended for an additional
three months for a monthly payment of $7,011, after which the equipment would
automatically revert back to the Company.
33
<PAGE> 35
Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which the
Company assigned certain equipment to Aberlyn in consideration of $100,000. The
equipment was exclusively leased back to the Company for three years for a
monthly fee of $3,271, after which Aberlyn was required to return the equipment
to the Company in exchange for $10,000. If the Company declined to purchase the
equipment, the term of the Second Equipment Lease was to be automatically
extended or an additional three months for a monthly payment of $3,420, after
which the equipment would automatically revert back to the Company.
The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease were modified. The payment terms of the license fee
pursuant to the Patent and License Agreement were revised to semiannual payments
of $97,445 and the payment terms of the Equipment Lease were similarly revised
to semiannual payments of $39,100 and $20,281, respectively. In consideration to
Aberlyn for making these modifications, the Company issued warrants to Aberlyn
to purchase 150,000 shares of the Company's common stock at an exercise price of
$1.50 per share exercisable over a five-year period. On May 28, 1996, Aberlyn
and the Company reached an agreement to restructure the Leases which resulted in
a revised schedule of lease payments over a twenty-four month period, with the
initial payment commencing on June 1, 1996. The payments were based on an
outstanding principal amount of approximately $500,000 and total accrued
interest of approximately $148,000. In addition, 115,000 shares of common stock
were issued in payment of consulting fees, investment banking service fees and
accumulated miscellaneous expenses totaling $115,728.
On February 18, 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 offshore private placement of equity.
Claudio M. Guazzoni, a member of the Company's Board of Directors, is Zanett's
President and Chief Executive Officer. As a retainer for availability of
services by Zanett, the Company agreed to grant Zanett warrants to purchase
shares of common stock at a rate of 1 for every 10 shares of common stock or
warrants issued in connection with equity and bridge financings raised by
Zanett. Each of the warrants will be exercisable at an exercise price of $0.50
per share for five years from the date it is granted, which shall be the date of
the closing of the particular equity or bridge financing in question. During
1996 through the efforts of Zanett, the Company sold 1,250,001 shares of common
stock, 1,390 shares of Series A Preferred and 1,500 shares of Series B Preferred
pursuant to Regulation S of the Securities Act of 1933, as amended. In
connection with these placements, the Company issued warrants to purchase
811,310 shares of common stock to unrelated third-parties upon assignment of
such warrants by Zanett. In addition a 10% placement fee of approximately
$319,000 has been paid to Zanett or their designated representative in
connection with the sale of the Series A and Series B Preferred.
In September 1996, Zanett was granted a warrant to purchase 25,000 shares
of common stock at $.9375 in connection with the placement of bridge financing.
The warrants are exercisable for five years.
The Company does not have a policy against employing relatives. During the
years ended December 31, 1996, 1995 and 1994, the Company paid salaries and
wages to relatives of officers of the Company amounting to $22,692, $51,600, and
$88,776, respectively.
34
<PAGE> 36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
a. and d. Financial Statements and Financial Statement Schedule
See Index to Consolidated Financial Statements and Consolidated Financial
Statement Schedule on Page F-1 herein.
b. Reports on Form 8-K
None.
c. Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<S> <C>
2.1 -- Agreement and Plan of Merger among American BioMed, Inc.,
ABI Acquisition, Inc. and Cathlab Corporation dated March
30, 1992(3)
3.1 -- Certificate of Incorporation.(1)
3.2 -- By-laws.(1)
3.3 -- Certificate of Designations, Preferences and Rights of
1996 Series A Convertible Preferred Stock(5)
3.4 -- Certificate of Designations, Preferences and Rights of
1996 Series B Convertible Preferred Stock(5)
3.5 -- Certificate of Designations, Preferences and Rights of
1997 Series C Convertible Preferred Stock
4.2 -- Specimen Common Stock Certificate(1)
10.17 -- Summers Note, dated September 1990, between the Company
and David P. Summers, as amended(1)
10.28 -- 1992 Stock Option Plan of the Company and forms of
incentive stock option agreement and non-qualified stock
option agreement(2)
10.57 -- Patent License, Research & Development Agreement between
Wright Medical Technology, Inc. and American BioMed,
Inc.(2)
10.69 -- Stipulation of Settlement, Scott Printing Corporation v.
American BioMed, Inc.(4)
10.70 -- Employment contract with Steven B. Rash(4)
10.71 -- Purchase of Technology Agreement, Guerbet, S.A.(4)
10.73 -- Corporate Communications Settlement Agreement(4)
10.74 -- Distribution Agreement with Horizon Medical(4)
10.80 -- 1996 Incentive Stock Option Plan(6)
10.81 -- Aberlyn Schedule No. 3 to Master Lease Agreement No.
0001E and Patent Schedule No. 2 to Patent Assignment and
License Agreement No. 0001P, effective June 1, 1996(7)
10.82 -- Securities Purchase Agreement, dated February 20, 1996,
between the Company and certain investors relating to the
issuance and sale of Common Stock and 200 shares of the
1996 Series A Convertible Preferred Stock
10.83 -- Securities Purchase Agreement, dated February 20, 1996,
between the Company and certain investors relating to the
issuance and sale of 1,190 shares of the 1996 Series A
Convertible Preferred Stock
</TABLE>
35
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
------- ----------------------
<C> <S>
10.84 -- Form of Registration Rights Agreement, dated February 20,
1996, between the Company and holders of the 1996 Series
A Convertible Preferred Stock
10.85 -- Securities Purchase Agreement, dated November 7, 1996,
between the Company and certain investors relating to the
issuance and sale of the 1996 Series B Convertible
Preferred Stock
10.86 -- Form of Registration Rights Agreement, dated November 7,
1996, between the Company and holders of the 1996 Series
B Convertible Preferred Stock
10.87 -- Securities Purchase Agreement, dated March 21, 1997,
between the Company and certain investors relating to the
issuance and sale of the 1997 Series C Convertible
Preferred Stock
10.88 -- Registration Rights Agreement, dated March 21, 1997,
between the Company and holders of the 1997 Series C
Convertible Preferred Stock
11.1 -- Computation of (Loss) per Common Share(7)
21.1 -- Subsidiaries of the Registrant(7)
23.1 -- Consent of Coopers & Lybrand L.L.P.
27 -- Financial Data Schedule(7)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, as amended, File No. 33-424372, dated August 4, 1992.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(3) Incorporated by reference to the Company's Current Report on Form 8-K for
April 30, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(6) Incorporated by reference to the Company's Proxy Statement for the November
22, 1996 Annual Meeting.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
36
<PAGE> 38
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT
SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets at December 31, 1996 and 1995... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996, 1995 and 1994 and for the period from
inception, September 4, 1984, to December 31, 1996........ F-4
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the period from inception to December 31,
1993, for the years ended December 31, 1996, 1995 and 1994
and for the period from inception, September 4, 1984, to
December 31, 1996......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994, and for the period from
inception, September 4, 1984, to December 31, 1996........ F-7
Notes to Consolidated Financial Statements.................. F-8
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
Report of Independent Accountants........................... F-27
Schedule II -- Valuation and Qualifying Accounts............ F-28
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission, which are not presented,
are not required under the related instructions or are inapplicable, and
therefore have been omitted.
F-1
<PAGE> 39
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
American BioMed, Inc.:
We have audited the accompanying consolidated balance sheets of American
BioMed, Inc. and Subsidiaries (the "Company") (a development stage enterprise)
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, changes in stockholders' equity (deficit) and cash flows for the
years ended December 31, 1996, 1995 and 1994 and for the period from inception,
September 4, 1984, to December 31, 1996. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
BioMed, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the results
of its operations and its cash flows for the years ended December 31, 1996, 1995
and 1994, and for the period from inception, September 4, 1984, to December 31,
1996, in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Notes 1 and 18 to the consolidated financial statements, the Company has
operated as a development stage enterprise since its inception by devoting
substantially all of its efforts to financial planning, raising capital,
research and development and developing markets for its products. Consequently,
as shown in the accompanying consolidated financial statements through December
31, 1996, the Company had a cumulative loss of $24,375,022 since its inception
and had a working capital deficit of $256,206 at December 31, 1996. The above
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Accordingly, the Company's continued existence is dependent upon
its ability to obtain additional working capital, to develop and market its
products and, ultimately, upon its ability to attain profitable operations. The
consolidated financial statements do not include any adjustments that might
result from the outcome of these uncertainties.
COOPERS & LYBRAND L.L.P
Houston, Texas
March 21, 1997
F-2
<PAGE> 40
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............. $ 1,183,613 $ 9,177
Accounts receivable, trade, net of
allowance for doubtful accounts of
$57,500 and $45,480 for 1996 and
1995, respectively.................. 168,359 158,713
Accounts receivable, other............ 19,848 32,064
Inventories........................... 462,097 370,130
Prepaid expenses...................... 277,195 60,667
------------ ------------
Total current assets........... 2,111,112 630,751
Property and equipment, net............. 81,315 200,736
Patents, net of accumulated amortization
of $870,014 and $799,043 in 1996 and
1995, respectively.................... 164,655 204,812
Goodwill, net of accumulated
amortization of $574,391 and $451,308
in 1996 and 1995, respectively........ 656,444 779,528
Other assets............................ 55,625 67,451
------------ ------------
Total assets................... $ 3,069,151 $ 1,883,278
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Notes payable, banks.................. $ 235,000
Notes payable to stockholders and
others.............................. $ 1,278,485 1,831,322
Current maturities of long-term
debt................................ 38,404
Current maturities of capital lease
obligations......................... 266,078 512,712
Accounts payable...................... 301,184 1,283,020
Accrued liabilities................... 483,167 595,984
------------ ------------
Total current liabilities...... 2,367,318 4,458,038
Long-term debt, net of current
maturities............................ 110,472
Capital lease obligations, net of
current maturities.................... 302,766 7,095
Deferred revenue........................ 160,000 220,000
Commitments and contingencies
Stockholders' equity (deficit):
Preferred stock, $.001 par value,
2,000,000 shares authorized,
Series A: Convertible preferred
stock, 1,390 shares authorized,
1,390 shares issued and outstanding
at December 31, 1996, $1,000 per
share or $1,390,000 aggregate
liquidation preference............. 1
Series B: Convertible preferred
stock, 2,500 shares authorized,
1,500 shares issued and outstanding
at December 31, 1996, $1,000 per
share or $1,500,000 aggregate
liquidation preference plus an
additional 10% per year from the
date of issuance................... 2
Common stock, $.001 par value,
50,000,000 and 25,000,000 shares
authorized in 1996 and 1995
respectively, 13,544,019 and
9,505,274 shares issued at December
31, 1996 and 1995, respectively, of
which 68,323 shares are held in
treasury............................ 13,544 9,505
Additional paid-in capital............ 24,741,670 19,190,146
Deficit accumulated during the
development stage................... (24,375,022) (21,749,906)
Less treasury stock at cost, 68,323
shares.............................. (251,600) (251,600)
------------ ------------
Total stockholders' equity
(deficit).................... 128,595 (2,801,855)
------------ ------------
Total liabilities and
stockholders' equity
(deficit).................... $ 3,069,151 $ 1,883,278
============ ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 41
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INCEPTION
ENDED ENDED ENDED SEPTEMBER 4, 1984,
DECEMBER 31, DECEMBER 31, DECEMBER 31, TO DECEMBER 31,
1996 1995 1994 1996
------------ ------------ ------------ ------------------
<S> <C> <C> <C> <C>
Sales, net........................ $ 579,533 $ 660,770 $ 637,375 $ 3,314,647
Cost of sales..................... (420,838) (649,355) (782,729) (3,232,906)
------------ ----------- ----------- ------------
Gross profit...................... 158,695 11,415 (145,354) 81,741
------------ ----------- ----------- ------------
Operating Expenses:
Selling, general and
administrative............... (1,718,595) (2,169,591) (2,235,116) (15,456,935)
Research and development........ (640,792) (537,962) (1,167,773) (7,249,993)
Distributor settlement.......... -- -- -- (1,080,915)
------------ ----------- ----------- ------------
(2,359,387) (2,707,553) (3,402,889) (23,787,843)
------------ ----------- ----------- ------------
Loss from operations.... (2,200,692) (2,696,138) (3,548,243) (23,706,102)
------------ ----------- ----------- ------------
Other income (expense):
Interest income................... 4,252 7,239 902 109,734
Interest expense.................. (313,914) (276,688) (182,606) (2,695,438)
Other income (expense)............ (114,762) 1,561,203 (56,209) 1,916,784
------------ ----------- ----------- ------------
Other income (expense),
net................... (424,424) 1,291,754 (237,913) (668,920)
------------ ----------- ----------- ------------
Net loss................ $ (2,625,116) $(1,404,384) $(3,786,156) $(24,375,022)
Less preferred stock
dividends............. (1,183,413) -- -- (1,183,413)
------------ ----------- ----------- ------------
Net loss available to
common shareholders... $ (3,808,529) $(1,404,384) $(3,786,156) $(25,558,435)
============ =========== =========== ============
Net loss per common
share................. $ (.34) $ (0.15) $ (0.46)
============ =========== ===========
Weighted average number
of common shares
outstanding........... 11,310,592 9,362,198 8,188,980
============ =========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE> 42
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE TREASURY STOCK
---------------- -------------------- PAID-IN DEVELOPMENT --------------------
SHARES PAR SHARES PAR CAPITAL STAGE SHARES COSTS
-------- ----- ---------- ------- ----------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of $1 par value common stock
on September 4, 1984................ 1,000 $ 1,000
Redemption of $1 par value common
stock............................... (1,000) (1,000)
Issuance of $.001 par value common
stock............................... 1,000,000 1,000
Issuance of $.001 par value common
stock at fair market value of
services rendered................... 100,000 100 $ 19,900
Issuance of Series A preferred
stock............................... 156,250 $ 156 499,844
Issuance of common stock pursuant to a
three-for-one stock split subsequent
to December 31, 1990, retroactively
applied............................. 2,200,000 2,200 (2,200)
Redemption of common stock pursuant to
a one-for 2.325 reverse stock split
subsequent to December 31, 1990,
retroactively applied............... (1,880,645) (1,881) 1,881
Issuance of $.001 par value common
stock in connection with Bridge
Notes............................... 182,000 182 45,318
Issuance of stock purchase warrants... 100,000
Sale of common stock, net of offering
costs............................... 800,000 800 3,059,472
Conversion of Series A preferred
stock............................... (156,250) (156) 223,214 223 (67)
Conversion of $255,000 principal
amount of debenture................. 63,750 64 254,936
Exercise of underwriter's over
allotment option, net of offering
costs............................... 111,700 112 483,367
Issuance of $.001 par value common
stock in connection with acquisition
of Freedom Machine, Inc............. 60,000 60 206,940
Conversion of $385,000 principal
amount of debentures................ 96,250 96 384,904
Issuance of $.001 par value common
stock in connection with acquisition
of Cathlab Corporation.............. 450,000 450 2,024,550
Issuance of $.001 par value common
stock in connection with acquisition
of VMS, Inc......................... 27,777 28 124,971
Issuance of $.001 par value common
stock in connection with 6%
promissory notes.................... 58,576 59 263,533
Issuance of $.001 par value common
stock in connection with purchase of
assets of SuperStat, Inc............ 18,182 18 81,801
Issuance of $.001 par value common
stock in connection with a $500,000
loan from a bank.................... 79,365 79 357,064
Issuance of $.001 par value common
stock in connection with Therex
settlement.......................... 58,823 59 499,941
Issuance of Series B preferred stock,
net of offering costs............... 287,500 288 2,545,858
Exercise of stock purchase warrants... 678,717 679 2,800,341
Issuance of $.001 par value common
stock in connection with Therex
settlement.......................... 77,000 77 (77)
<CAPTION>
TOTAL
------------
<S> <C>
Issuance of $1 par value common stock
on September 4, 1984................ $ 1,000
Redemption of $1 par value common
stock............................... (1,000)
Issuance of $.001 par value common
stock............................... 1,000
Issuance of $.001 par value common
stock at fair market value of
services rendered................... 20,000
Issuance of Series A preferred
stock............................... 500,000
Issuance of common stock pursuant to a
three-for-one stock split subsequent
to December 31, 1990, retroactively
applied.............................
Redemption of common stock pursuant to
a one-for 2.325 reverse stock split
subsequent to December 31, 1990,
retroactively applied...............
Issuance of $.001 par value common
stock in connection with Bridge
Notes............................... 45,500
Issuance of stock purchase warrants... 100,000
Sale of common stock, net of offering
costs............................... 3,060,272
Conversion of Series A preferred
stock...............................
Conversion of $255,000 principal
amount of debenture................. 255,000
Exercise of underwriter's over
allotment option, net of offering
costs............................... 483,479
Issuance of $.001 par value common
stock in connection with acquisition
of Freedom Machine, Inc............. 207,000
Conversion of $385,000 principal
amount of debentures................ 385,000
Issuance of $.001 par value common
stock in connection with acquisition
of Cathlab Corporation.............. 2,025,000
Issuance of $.001 par value common
stock in connection with acquisition
of VMS, Inc......................... 124,999
Issuance of $.001 par value common
stock in connection with 6%
promissory notes.................... 263,592
Issuance of $.001 par value common
stock in connection with purchase of
assets of SuperStat, Inc............ 81,819
Issuance of $.001 par value common
stock in connection with a $500,000
loan from a bank.................... 357,143
Issuance of $.001 par value common
stock in connection with Therex
settlement.......................... 500,000
Issuance of Series B preferred stock,
net of offering costs............... 2,546,146
Exercise of stock purchase warrants... 2,801,020
Issuance of $.001 par value common
stock in connection with Therex
settlement..........................
Issuance of $.001 par value common
stock in connection with consulting
agreement........................... 175,000
Exercise of stock options............. 38,962
Reacquire $.001 par value common stock
originally issued in connection with
Therex settlement................... (500,000)
</TABLE>
F-5
<PAGE> 43
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CHANGE IN STOCKHOLDERS' EQUITY
(DEFICIT) -- (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
PREFERRED STOCK COMMON STOCK ADDITIONAL DURING THE TREASURY STOCK
---------------- -------------------- PAID-IN DEVELOPMENT --------------------
SHARES PAR SHARES PAR CAPITAL STAGE SHARES COSTS
-------- ----- ---------- ------- ----------- ------------ -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Treasury stock reissued, 67,500 common
shares at cost...................... $ 1,600 67,500 248,400
Issuance of 193,500 warrants in
connection with 9% promissory
notes............................... 574,176
Dividend requirement on Series B
preferred stock..................... (135,209)
Conversion of Series B preferred stock
into $.001 par value common stock... (287,500) $(288) 1,268,465 $ 1,268 134,091
Sale of common stock for cash, net of
offering costs...................... 1,500,000 1,500 3,501,299
Net loss for the period............... (16,559,366)
-------- ----- ---------- ------- ----------- ------------ -------- ---------
Balance, December 31, 1993............ -- -- 7,390,054 7,390 18,041,979 (16,559,366) (68,323) (251,600)
-------- ----- ---------- ------- ----------- ------------ -------- ---------
Issuance of shares in connection with
private placements.................. 684,395 684 566,734
Issuance of shares in connection with
Officer subscription................ 40,000 40 31,460
Issuance of shares to an officer in
connection with private placement... 15,000 15 2,985
Exercise of stock options............. 400,000 400 224,600
Issuance of shares to employees in
lieu of salary...................... 11,500 12 11,738
Issuance of shares previously paid for
but not issued...................... 8,548 9 (9)
Conversion of shareholder loan........ 111,111 111 49,889
Issuance of shares in payment of
expenses............................ 117,812 118 70,396
Issuance of shares for services....... 524,554 524 55,726
Additional accrual of expenses related
to 1993 offering.................... (24,795)
Net loss for the year................. (3,786,156)
-------- ----- ---------- ------- ----------- ------------ -------- ---------
Balance, December 31, 1994............ -- -- 9,302,974 9,303 19,030,703 (20,345,522) (68,323) (251,600)
-------- ----- ---------- ------- ----------- ------------ -------- ---------
Issuance of shares in connection with
officer loan........................ 2,000 2
Issuance of shares to an officer in
lieu of salary...................... 15,000 15 6,161
Issuance of shares in payment of
expenses............................ 34,300 34 47,239
Issuance of shares in connection with
private placement................... 151,000 151 60,349
Issuance of options................... 37,500
Issuance of warrants.................. 8,400
Other................................. (206)
Net loss for the year................. (1,404,384)
-------- ----- ---------- ------- ----------- ------------ -------- ---------
Balance, December 31, 1995............ -- -- 9,505,274 9,505 19,190,146 (21,749,906) (68,323) (251,600)
-------- ----- ---------- ------- ----------- ------------ -------- ---------
Issuance of shares in connection with
private placements, net of offering
costs............................... 2,890 3 1,250,001 1,250 2,870,066
Exercise of stock options............. 197,000 197 142,220
Exercise of warrants.................. 744,165 744 390,581
Issuance of options................... 237,087
Issuance of shares in payment of
certain liabilities................. 1,245,579 1,246 1,545,263
Issuance of shares for services....... 600,000 600 366,900
Issuance of shares to individuals..... 2,000 2 3,229
Other................................. (3,822)
Net loss for the year................. (2,625,116)
-------- ----- ---------- ------- ----------- ------------ -------- ---------
Balance, December 31, 1996............ 2,890 $ 3 13,544,019 $13,544 $24,741,670 $(24,375,022) (68,323) $(251,600)
======== ===== ========== ======= =========== ============ ======== =========
<CAPTION>
Total
------------
<S> <C>
Treasury stock reissued, 67,500 common
shares at cost...................... $ 250,000
Issuance of 193,500 warrants in
connection with 9% promissory
notes............................... 574,176
Dividend requirement on Series B
preferred stock..................... (135,209)
Conversion of Series B preferred stock
into $.001 par value common stock... 135,071
Sale of common stock for cash, net of
offering costs...................... 3,502,799
Net loss for the period............... (16,559,366)
------------
Balance, December 31, 1993............ 1,238,403
------------
Issuance of shares in connection with
private placements.................. 567,418
Issuance of shares in connection with
Officer subscription................ 31,500
Issuance of shares to an officer in
connection with private placement... 3,000
Exercise of stock options............. 225,000
Issuance of shares to employees in
lieu of salary...................... 11,750
Issuance of shares previously paid for
but not issued......................
Conversion of shareholder loan........ 50,000
Issuance of shares in payment of
expenses............................ 70,514
Issuance of shares for services....... 56,250
Additional accrual of expenses related
to 1993 offering.................... (24,795)
Net loss for the year................. (3,786,156)
------------
Balance, December 31, 1994............ (1,557,116)
------------
Issuance of shares in connection with
officer loan........................ 2
Issuance of shares to an officer in
lieu of salary...................... 6,176
Issuance of shares in payment of
expenses............................ 47,273
Issuance of shares in connection with
private placement................... 60,500
Issuance of options................... 37,500
Issuance of warrants.................. 8,400
Other................................. (206)
Net loss for the year................. (1,404,384)
------------
Balance, December 31, 1995............ (2,801,855)
------------
Issuance of shares in connection with
private placements, net of offering
costs............................... 2,871,319
Exercise of stock options............. 142,417
Exercise of warrants.................. 391,325
Issuance of options................... 237,087
Issuance of shares in payment of
certain liabilities................. 1,546,509
Issuance of shares for services....... 367,500
Issuance of shares to individuals..... 3,231
Other................................. (3,822)
Net loss for the year................. (2,625,116)
------------
Balance, December 31, 1996............ $ 128,595
============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE> 44
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INCEPTION,
SEPTEMBER 4,
YEAR ENDED YEAR ENDED YEAR ENDED 1984, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $(2,625,116) $(1,404,384) $(3,786,156) $(24,375,022)
----------- ----------- ----------- ------------
Adjustments to reconcile net loss to cash used by
operating activities
Depreciation and amortization......................... 334,012 660,539 714,530 2,775,567
Write off of goodwill................................. 120,000 120,000
Expenses paid by transfer of equipment................ 3,380 33,754 37,134
Loss (gain) on sale of assets......................... 24,972 (501,043) (476,071)
Interest expense recorded upon issuance of common
stock and warrants in connection with notes
payable............................................. 1,250,907
Issuance of common stock and warrants for services.... 604,587 53,245 138,515 1,066,347
Write off of note receivable from officer............. 25,000
Noncash compensation.................................. 45,900 45,900
Gain on sale of investment securities................. (4,190)
Distributor settlement................................ 625,915
Write off of investment in joint venture.............. 227,256
Write off of patents.................................. 600 78,567 79,167
Write off of obsolete inventory....................... 43,325 367,688
Changes in operating assets and liabilities:
Accounts receivable, net.............................. 2,570 (97,115) 207,607 (130,649)
Inventories........................................... (91,967) (74,007) 239,282 (924,224)
Restricted cash....................................... 250,000
Other assets.......................................... 51,145 (57,495) 5,396 (12,946)
Accounts payable...................................... (135,640) (203,921) 627,239 1,004,808
Accrued liabilities................................... 239,973 (12,142) 468,107 803,294
Deferred revenue...................................... (60,000) (60,000) 280,000 160,000
----------- ----------- ----------- ------------
Total adjustments................................... 970,252 (79,334) 3,042,997 7,040,903
----------- ----------- ----------- ------------
Net cash used by operating activities............... (1,654,864) (1,483,718) (743,159) (17,334,119)
----------- ----------- ----------- ------------
Cash flows from investing activities:
Capital expenditures...................................... (46,773) (1,076) (435,226)
Issuance of notes receivable.............................. (85,000)
Proceeds from repayment of notes receivable............... 35,000
Investments in patents.................................... (31,414) (51,877) (50,646) (436,988)
Investment in joint venture............................... (2,015) (229,271)
Organization costs........................................ (1,000)
Purchase of investment securities......................... (4,391)
Proceeds from sale of investment securities............... 8,581
Proceeds from sale of assets.............................. 1,264 507,113 508,377
Cash acquired in acquisition of Freedom Machine........... 6,338
Cash acquired in acquisition of Cathlab Corporation....... 6,446
----------- ----------- ----------- ------------
Net cash provided (used) by investing activities.... (76,923) 452,145 (50,646) (627,134)
----------- ----------- ----------- ------------
Cash flows from financing activities:
Cash dividends on preferred stock......................... (138)
Offering costs............................................ (322,859) (652,653)
Financing costs........................................... (59,309)
Proceeds from notes payable to banks...................... 268,880 2,333,880
Proceeds from notes payable to stockholders............... 34,750 40,912 1,225,921
Proceeds from notes payable to others..................... 1,835,576 1,688,560 40,489 5,742,337
Repayments of notes payable to bank....................... (5,000) (250,000) (2,070,000)
Repayments of notes payable to stockholders............... (286,260) (822,992)
Repayments of notes payable to others..................... (1,932,618) (614,145) (22,961) (4,775,017)
Proceeds from patent assignment and leaseback............. 500,000
Proceeds from equipment assignment and leaseback.......... 305,000
Principal payments under capital lease obligations........ (99,278) (115,411) (141,572) (630,167)
Proceeds from sale of debentures.......................... 640,000
Proceeds from sale of preferred stock..................... 2,890,356 5,936,502
Proceeds from sales of common stock and exercise of
unregistered warrants................................... 694,556 60,500 601,918 8,734,317
Proceeds from exercise of stock options................... 97,000 200,205 336,167
Treasury stock acquired................................... (500,000)
Proceeds from issuance of registered stock purchase
warrants................................................ 100,000
Proceeds from exercise of registered stock purchase
warrants................................................ 2,801,018
----------- ----------- ----------- ------------
Net cash provided by financing activities........... 2,906,223 1,019,504 737,871 19,144,866
----------- ----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents........ 1,174,436 (12,069) (55,934) 1,183,613
Cash and cash equivalents at beginning of period............ 9,177 21,246 77,180
----------- ----------- ----------- ------------
Cash and cash equivalents at end of period.................. $ 1,183,613 $ 9,177 $ 21,246 $ 1,183,613
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-7
<PAGE> 45
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
American BioMed, Inc. (the "Company") was incorporated on September 4,
1984, for the purpose of developing, manufacturing and marketing medical,
surgical and diagnostic devices to health care providers that are high volume
users of angioplasty, atherectomy and stent devices, third-party distributors
and independent representatives geographically located in North and South
America, Western Europe, the Middle East, the Far East and Southeast Asia, and
are also the targeted markets for the Company's developed products. Domestic and
foreign export sales comprise approximately 40% and 60% respectively, of the
Company's sales. The Company faces competition from primarily two other
companies. The Company has operated as a development stage enterprise since its
inception by devoting substantially all of its efforts to research and
development, developing markets for its products and raising capital to support
these efforts. The following is a summary of the Company's significant
accounting policies.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Cathlab Corporation and Freedom Machine,
Inc., after elimination of all intercompany accounts and transactions. Effective
September 30, 1996, the Company dissolved Freedom Machine, Inc. and all
remaining assets were transferred to the Company. The Company operates
predominately in a single segment, which accounts for in excess of 90% of the
Company's total revenues, loss and identifiable assets.
The Company's financial statements have been prepared using accounting
principles applicable to a going concern, which contemplates the realization of
assets and liquidation of liabilities in the ordinary course of business. The
financial statements do not include any adjustments relating to the
recoverability and classifications of recorded assets and liabilities that might
be necessary should the Company be unable to continue in existence.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid instruments purchased with an original maturity date of three
months or less to be cash equivalents. The Company primarily invests its excess
cash in deposits with major banks and other financial institutions, and at
times, these deposits may exceed federally insured limits. The Company has not
experienced any losses in such accounts. The Company selects depository
institutions based upon management's review of the financial stability of the
institution. For these short-term instruments, the carrying amount approximates
estimated fair value.
Inventories
Inventories are stated at the lower of cost or market value. Cost is
determined using the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are recorded at cost. Maintenance and repairs that
do not improve or extend the life of the assets are expensed as incurred.
Expenditures for renewals and betterments are capitalized. The cost of assets
retired and the related accumulated depreciation are removed from the accounts
and any gain or loss is included in the results of operations when incurred.
Depreciation for property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets for financial reporting
purposes and the modified accelerated cost recovery system for tax reporting
purposes.
F-8
<PAGE> 46
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Technology and Patents
Patents represent the cost of obtaining the rights to utilize and develop
certain atherectomy catheters, heart-assist pumps and related devices. The costs
of the patents are amortized using the straight-line method over the estimated
useful lives of the patents (5 years). The market for the Company's products is
characterized by rapidly changing technology, evolving industry standards and
changing customer needs. The Company believes that its future success will
depend, in part, upon its ability to change, identify and develop technical
innovations and apply them to new products designed for specific applications.
The Company's success depends, in part, on its ability to continue to have
patent protection for its products, maintain trade secret protection and operate
without infringing on the proprietary rights of others. The Company intends to
vigorously defend its patents against any infringements. The Company has been
issued several patents and several others are pending, all of which were
internally developed.
Goodwill
Goodwill represents the excess of the purchase price of acquired companies
over the estimated fair value of the net assets at the date of acquisition and
is being amortized using the straight-line method over ten years. The purchase
price is allocated to assets and liabilities based upon their fair values.
Amounts allocated to intangible assets are the same for financial and tax
reporting purposes. The Company periodically compares the carrying value of its
goodwill to the anticipated undiscounted future operating income from the
businesses whose acquisition gave rise to the goodwill and for 1996 no
impairment is indicated or expected.
Long-Lived Assets
In fiscal year 1996 the Company adopted the Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" ("SFAS 121"). SFAS 121
requires that long-lived assets and certain identifiable intangibles to be held
and used by an entity be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Based on the review of the Company's long-lived assets, adoption of
SFAS 121 did not have a material impact on its financial position, results of
operations or cash flows.
Other Assets
Other assets consist of the long-term portion of a two-year prepaid
consulting agreement for investor relations services and long-term deposits.
Revenue Recognition
Revenue is recognized when products are shipped.
Research and Development
Research and development costs are expensed as incurred.
Loss Per Share
Loss per share is computed on the basis of the weighted average number of
shares of common stock and common stock equivalents outstanding during the
periods.
F-9
<PAGE> 47
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: -- (CONTINUED)
Concentration of Credit Risk
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral on its trade receivables. Reserves are
maintained for potential credit losses, and such losses have been within
management's expectations.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
Regulation
The Company's medical equipment is subject to review by the United States
Food and Drug Administration (the "FDA"). The FDA regulates and must approve the
manufacture, distribution and promotion of medical devices in the United States.
Various states and foreign countries in which the Company's products may be sold
impose additional regulatory requirements. Certain of the Company's products
have received marketing clearance from the FDA through the 510(k) Notification
process, other products are pending FDA approval, and other products are being
evaluated.
Third-Party Reimbursement
The Company sells its products to distributors, hospitals, physicians and
other health care providers for use in furnishing care to their patients.
Substantially all except the distributors rely on third-party payors,
principally Medicare, Medicaid, and private health insurance plans, to reimburse
all or part of the costs or fees associated with the medical procedures
performed. While the Company cannot predict the cost of its devices, or the
procedures to be performed with its products, or the relative cost and efficacy
of competing products or procedures, changes in third-party payor reimbursement
practices regarding the procedures performed with medical devices sold by the
Company may adversely affect the Company.
Millennium Change
The Company plans to install vendor upgrades for each of its computer-based
applications that will accommodate the millennium change. The Company does not
believe that the millennium change will have an adverse impact on its
operations.
Reclassifications
Certain reclassifications have been made to prior year financial
information in order to conform to current year presentation.
F-10
<PAGE> 48
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVENTORIES:
Inventories consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Raw materials............................................... $178,762 $146,901
Work in process............................................. 157,114 166,893
Finished Goods.............................................. 126,221 56,336
-------- --------
$462,097 $370,130
======== ========
</TABLE>
3. PROPERTY AND EQUIPMENT, NET:
Property and equipment consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1996 1995
--------- ---------
<S> <C> <C>
Furniture and fixtures...................................... $ 51,133 $ 86,149
Machinery and equipment..................................... 627,917 571,943
Leasehold improvements...................................... 15,673 46,493
Equipment under capital lease agreements.................... 24,243 137,996
--------- ---------
718,966 842,581
Less accumulated depreciation and amortization.............. (637,651) (641,845)
--------- ---------
$ 81,315 $ 200,736
========= =========
</TABLE>
Included in accumulated depreciation and amortization at December 31, 1996
and 1995 is $22,195 and $104,088, respectively, of accumulated amortization on
equipment acquired under capital lease agreements. Depreciation expense for the
years ended December 31, 1996, 1995 and 1994 was approximately $133,000,
$191,000 and $313,000, respectively.
4. GOODWILL
In November 1995 the Company sold certain assets and the associated
customer base of the catheter hole punch operations to a related party.
Accordingly, the Company wrote off approximately $120,000 of goodwill associated
with these assets.
5. DEFERRED REVENUE
On August 26, 1994, the Company signed a Patent License, Research &
Development Agreement with Wright Medical Technologies, Inc. (WMT) in which the
Company licensed to WMT the world-wide manufacturing and distribution rights to
the "spinal dissector". The Company received a $300,000 license fee and will
receive 5% royalty from sales by WMT through the life of the patent. The Company
granted to WMT a stock purchase warrant for 150,000 shares with an exercise
price of $2.00. The warrant is exercisable through August 1999. The contract
called for the Company to continue to develop the spinal dissector on behalf of
WMT and granted the Company the first right of refusal for the manufacturing of
the spinal dissector. The Company performed and received additional fees for
development services of $2,400 and $66,754 during the years ended December 31,
1995 and 1994, respectively. No development fees were included in revenues for
the year ended December 31, 1996. The $300,000 license fee is being amortized
over five years, the life the
F-11
<PAGE> 49
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEFERRED REVENUE -- (CONTINUED)
Company uses to amortize patents. The unamortized balance of $160,000 and
$220,000 is reflected as deferred revenue as of December 31, 1996 and 1995,
respectively.
6. NOTES PAYABLE AND LONG-TERM DEBT:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
Notes payable to banks consisted of the following:
Note payable bearing interest at the bank's prime rate
(8.5% at December 31, 1995) plus 2% with interest and
principal due December 31, 1994. The note was extended
to March 30, 1996 and is guaranteed by a third party
and by two officers of the Company, and is
collateralized by certain equipment.................... -- $ 235,000
========== ==========
Notes payable to stockholders and others consisted of the
following:
Uncollateralized promissory note, bearing interest at 10%,
payable quarterly with principal due on demand......... $ 242,450 $ 242,450
$651,000 uncollateralized promissory notes, bearing
interest at 6% per year. The notes mature at the
earlier of (a) dates ranging from July 25, 1993 to
August 20, 1993, or (b) closing of any public or
private offering in which the gross proceeds of the
offering exceed $3,000,000. In connection with the sale
of these notes the Company issued 58,576 unregistered
shares of common stock in lieu of a higher stated
interest rate. The value of the shares issued was
amortized over the term of the notes................... -- 177,360
Note payable to a stockholder bearing interest at 6% per
year payable in monthly installments in the following
manner: (a) $15,000 including interest by September 11,
1995; (b) $2,500 including interest commencing October
1, 1995; (c) $12,000 including interest commencing
March 1, 1996; and (d) a lump sum of $188,676 including
interest on October 1, 1996. The note is collateralized
by Russian microsurgical instruments................... -- 276,510
Note payable to USSC effective July 20, 1995, bearing
interest at 10% per year, collateralized by stent
technology maturing January 20, 1996, extended to
September 15, 1996..................................... -- 1,000,000
Note payable to a director bearing interest at 9% per
year, payable on demand................................ -- 2,500
Note payable to a Company bearing interest at 10% per
year, payable in monthly installments of $500 including
interest, maturing May 31, 1996, collateralized by
certain equipment...................................... -- 8,685
Note payable to an insurance company bearing interest at
10.2% per year payable in monthly installments of
$5,562 including interest, maturing August 10, 1996.... -- 42,840
Note payable to an insurance company bearing interest at
9.61% per year, payable in monthly installments of $622
including interest, maturing June 9, 1996.............. -- 4,215
Note payable to landlord bearing interest at 9% per year
payable in monthly installments of $4,699 including
interest, maturing January 1, 1997..................... -- 76,762
</TABLE>
F-12
<PAGE> 50
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
<S> <C> <C>
6. NOTES PAYABLE AND LONG-TERM DEBT: -- (CONTINUED)
Note payable to an insurance company bearing interest at
8.7% per year payable in monthly installments of $5,298
including interest, maturing July 8, 1997................. 36,035 --
Uncollateralized note payable to a company bearing interest
at 12% per year, maturing January 27, 1997................ 1,000,000 --
---------- ----------
$1,278,485 $1,831,322
========== ==========
Long-term debt consisted of the following:
Note payable to a law firm bearing interest at 8.25% per
year payable in monthly installments of $3,858 including
interest, maturing August 1, 2000......................... $ 148,876 --
Less current maturities..................................... (38,404) --
---------- ----------
$ 110,472 $ --
========== ==========
</TABLE>
7. ACCRUED LIABILITIES:
Accrued liabilities consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1996 1995
-------- --------
<S> <C> <C>
Accrued interest payable.................................... $133,129 $269,539
Accrued payroll and related taxes........................... 132,672 243,811
Accrued offering costs...................................... 102,000
Other....................................................... 115,366 82,634
-------- --------
$483,167 $595,984
======== ========
</TABLE>
8. COMMITMENTS AND CONTINGENCIES:
Lease Obligations
The Company leases certain patents and equipment under agreements
classified as capital leases. In addition, the Company leases its office space
and other properties under noncancelable operating leases through August 1997.
Future minimum payments under the capital leases and noncancelable operating
leases with initial or remaining terms of one year or more consisted of the
following at December 31, 1996:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- ---------
<S> <C> <C>
1997........................................................ $ 338,953 $ 89,428
1998........................................................ 315,981 4,110
1999........................................................ -- 2,909
2000........................................................ -- 2,909
2001........................................................ -- 1,455
--------- --------
Total minimum lease payments................................ 654,934 $100,811
========
Amounts representing interest............................... (86,090)
---------
Present value of future lease payments...................... 568,844
Less current maturities..................................... (266,078)
---------
$ 302,766
=========
</TABLE>
F-13
<PAGE> 51
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. COMMITMENTS AND CONTINGENCIES: -- (CONTINUED)
Rental expense under operating leases for the years ended December 31,
1996, 1995 and 1994 and for the period from inception, September 4, 1984, to
December 31, 1996 amounted to $157,972, $243,881, $251,553 and $1,131,130,
respectively.
Litigation
On December 8, 1994, a vendor commenced a lawsuit against the Company
regarding unpaid invoices in the amount of $124,759 plus attorney fees and
accrued interest. On June 15, 1995, the parties to the lawsuit executed a
Stipulation of Settlement, a Consent Judgment and a Stipulation of Dismissal to
be held in escrow. The Company agreed to pay $125,000 to the vendor under the
settlement agreement; $25,000 was paid upon execution of this stipulation and
the balance was due on or before October 31, 1995. The amount of $100,000 is
included in accounts payable at December 31, 1995. The balance was paid through
the issuance of 116,145 shares of the Company's common stock in 1996.
In December 1995 the American Arbitration Association awarded a consultant
$50,000 with interest at prime plus 3% from May 1, 1995. The Company sought to
have the award vacated but on July 30, 1996 the award was confirmed. An
Application for Turnover Order was filed in December 1996 requiring the Company
to pay the consultant or satisfy the judgment with the proceeds of any
consummated sale of the Company's obsolete inventory in the form of foreign-made
dental and medical surgical supplies and utensils. The resolution of this matter
will not have a material adverse impact on the Company's financial position,
results of operations or cash flows.
The Company is occasionally a party to litigation (other than that
specifically noted) 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.
9. FEDERAL INCOME TAXES:
At December 31, 1996, the Company had net operating loss (NOL) and research and
development (R&D) credit carryforwards available to offset future taxable income
approximately as follows:
<TABLE>
<CAPTION>
YEAR EXPIRES N O L R & D
- ------------ ----------- --------
<S> <C> <C> <C>
2003................................................. $ 71,500
2004................................................. 14,300
2005................................................. 450,300 $ 7,635
2006................................................. 1,462,000 50,550
2007................................................. 3,122,800 143,632
2008................................................. 7,432,100 163,052
2009................................................. 2,181,300 73,637
2010................................................. 925,000 34,286
2011................................................. 3,409,000 41,669
----------- --------
$19,068,300 $514,461
=========== ========
</TABLE>
Net operating loss carryforwards for financial reporting purposes and
alternative minimum tax reporting purposes are approximately the same as those
under the regular tax method. Special limitations exist under
F-14
<PAGE> 52
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FEDERAL INCOME TAXES: -- (CONTINUED)
the tax law which may restrict the utilization of the regular tax and
alternative minimum tax net operating loss carryforwards. The amount of this
restriction, if any, has not been determined.
The Company adopted the liability method of accounting for income taxes
pursuant to Statement of Financial Accounting Standards No. 109 (SFAS 109)
"Accounting For Income Taxes". Under this method, deferred income taxes are
recorded to reflect the tax consequences on future years of temporary
differences between the tax basis of assets and liabilities and their financial
amounts at year-end. The Company provides a valuation allowance to reduce
deferred tax assets to their net realizable value. The tax-effected components
of deferred tax assets at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Total deferred tax assets
Net operating losses and other............................ $ 7,995,000 $ 6,836,000
Valuation allowance....................................... (7,995,000) (6,836,000)
----------- -----------
$ -0- $ -0-
=========== ===========
</TABLE>
The Company has significant net operating loss carryforwards for which
realization of tax benefits is uncertain and therefore all deferred tax assets
have been fully reserved at December 31, 1996 and 1995, respectively. The change
in the total valuation allowance for the year ended December 31, 1996 and 1995
was a net increase of approximately $1,159,000 and $314,000, respectively.
Contributing primarily to this change were operating losses incurred during
1996.
10. RELATED PARTY TRANSACTIONS:
For the period from inception, September 4, 1984, to December 31, 1996, the
Company made payments for legal, engineering and consulting services and
products and supplies provided by certain stockholders which amounted to
$1,082,072. Of this amount, $37,500, $50,000 and $152,250 related to the years
ended December 31, 1996, 1995 and 1994, respectively.
On August 23, 1995 the Company sold its proprietary OmniCath(R) atherectomy
EPO patent to Guerbet S.A., a stockholder of the Company, of Paris, France for
$500,000 cash.
Steven B. Rash entered into a three-year employment agreement with the
Company, dated as of July 15, 1995 (the "Agreement"). Pursuant to the Agreement,
Mr. Rash is employed as President and Chief Executive Officer of the Company.
The Agreement provides for a salary of $135,000 per year with annual increases,
plus bonuses of up to fifty percent, and options to purchase 600,000 shares of
common stock at $0.50 per share. The options vest at varying times during the
term of Mr. Rash's three-year employment agreement. In 1997 Mr. Rash's agreement
was extended to December 31, 1999. The base salary was increased to $165,000 per
year, with a cash bonus of $30,000 to be paid should the Company's revenues
exceed $2 million in 1997. Options to purchase an additional 820,000 shares of
common stock at $.50 per share were granted. Additionally, options previously
granted under the original agreement which had not vested as of December 31,
1996 shall vest evenly over the next three years.
A director, stockholder and paid consultant of the Company and formerly a
Vice President, is a limited partner of Aberlyn Capital Management Limited
Partnership ("Aberlyn") and is an officer, director and stockholder of Aberlyn
Capital Management, Inc., the general partner of Aberlyn. Effective December 31,
1992, the Company and Aberlyn entered into a Patent Assignment and License
Agreement (the "Patent and License Agreement") pursuant to which the Company
assigned patents as collateral which are owned by the subsidiary, Cathlab
Corporation (the "Cathlab Patents"), to Aberlyn in return for $500,000. The
Cathlab
F-15
<PAGE> 53
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS: -- (CONTINUED)
Patents were exclusively licensed back to the Company for three years for a
monthly license fee of $16,355, after which Aberlyn was required to reassign the
Cathlab Patents to the Company in exchange for $50,000. Under its terms, if the
Company declined to purchase the Cathlab Patents, the Patent and License
Agreement would automatically be extended for an additional nine months for a
monthly license fee of $17,099, after which the Cathlab Patents would
automatically revert back to the Company.
The Company and Aberlyn entered into an equipment lease effective May 13,
1993 (the "Equipment Lease") pursuant to which the Company assigned certain
equipment as collateral to Aberlyn in consideration of $205,000. The equipment
was exclusively leased back to the Company for three years for a monthly fee of
$6,706, after which Aberlyn was required to return the equipment to the Company
in exchange for $20,500. Under the terms, if the Company opted not to purchase
the equipment, the Equipment Lease would automatically be extended for an
additional three months for a monthly payment of $7,011, after which the
equipment would automatically revert back to the Company.
Effective August 13, 1993, the Company and Aberlyn entered into an
additional equipment lease (the "Second Equipment Lease") pursuant to which the
Company assigned certain equipment to Aberlyn in consideration of $100,000. The
equipment was exclusively leased back to the Company for three years for a
monthly fee of $3,271, after which Aberlyn was required to return the equipment
to the Company in exchange for $10,000. If the Company declined to purchase the
equipment, the term of the Second Equipment Lease was to be automatically
extended or an additional three months for a monthly payment of $3,420, after
which the equipment would automatically revert back to the Company.
The Company and Aberlyn entered into an agreement effective March 28, 1994
whereby the terms of the Patent and License Agreement, the Equipment Lease and
the Second Equipment Lease were modified. The payment terms of the license fee
pursuant to the Patent and License Agreement were revised to semiannual payments
of $97,445 and the payment terms of the Equipment Lease were similarly revised
to semiannual payments of $39,100 and $20,281, respectively. In consideration to
Aberlyn for making these modifications, the Company issued warrants to Aberlyn
to purchase 150,000 shares of the Company's common stock at an exercise price of
$1.50 per share exercisable over a five-year period. On May 28, 1996, Aberlyn
and the Company reached an agreement to restructure the Leases which resulted in
a revised schedule of lease payments over a twenty-four month period, with the
initial payment commencing on June 1, 1996. The payments were based on an
outstanding principal amount of approximately $500,000 and total accrued
interest of approximately $148,000. In addition, 115,000 shares of common stock
were issued in payment of consulting fees, investment banking service fees and
accumulated miscellaneous expenses totaling $115,728.
On February 18, 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 offshore private placement of equity. A
member of the Company's Board of Directors, is Zanett's President and Chief
Executive Officer. As a retainer for availability of services by Zanett, the
Company agreed to grant Zanett warrants to purchase shares of common stock at a
rate of 1 for every 10 issued at an exercise price of $0.50 per share,
exercisable for five years from date of grant. Date of grant is the date of each
closing. During 1996 through the efforts of Zanett, the Company sold 1,250,001
shares of common stock, 1,390 shares of Series A preferred and 1,500 shares of
Series B preferred stock pursuant to Regulation S of the Securities Act of 1933,
as amended. In connection with these placements, the Company issued warrants to
purchase 811,310 shares of common stock to unrelated parties. In addition, a 10%
placement fee of approximately $319,000 has been paid to Zanett or their
designated representative.
In September 1996, Zanett was issued a restricted exercise warrant to
purchase 25,000 shares of common stock at $.9375 in connection with the
placement of bridge financing.
F-16
<PAGE> 54
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. RELATED PARTY TRANSACTIONS: -- (CONTINUED)
The Company does not have a policy against employing relatives. During the
years ended December 31, 1996, 1995 and 1994, the Company paid salaries and
wages to relatives of officers of the Company amounting to $22,692, $51,600, and
$88,776, respectively.
11. CAPITAL STOCK:
Common Stock
Pursuant to Regulation S of the Securities Act, in February 1996 the
Company sold 1,250,001 shares of common stock at a purchase price of $0.24 per
share to a group of foreign investors.
On November 22, 1996 the shareholders approved the increase in authorized
shares of the Company's common stock from 25,000,000 to 50,000,000.
Preferred Stock
In December 1992, the Company created a new class of preferred stock, the
"Series B preferred stock", with an offering price of $10 per share, consisting
of 350,000 shares. As of December 31, 1992, the Company had sold 10,000 shares
of Series B preferred stock and had received gross proceeds of $100,000. During
the first quarter of 1993, an additional 277,500 shares of the Series B
preferred stock were sold netting $2,456,145. Annual cumulative 10% dividends
were payable quarterly commencing April 1, 1993.
Pursuant to the Certificate of Incorporation, as amended, during the period
July 1993 through October 22, 1993 (the date of a public offering), all the
287,500 shares of the Series B preferred stock outstanding were converted into
1,202,773 shares of common stock. The accrued dividends thereon were converted
into 65,693 shares of common stock, and $138 was paid in cash.
Pursuant to Regulation S of the Securities Act, in February 1996 the
Company sold 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 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 or (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 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.
Pursuant to Regulation S of the Securities Act, in November 1996 the
Company issued units consisting of (i) 1,500 of its 1996 Series B convertible
preferred 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 proceeds of the sale were used to pay off
notes in the amount of $835,576, with the balance to be used to fund clinical
trials and for general working capital.
F-17
<PAGE> 55
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
11. CAPITAL STOCK: -- (CONTINUED)
The Series B Preferred, which bears no dividends and confers no voting
rights, is of equal priority 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, i.e., $1.40 per share or (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, 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 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.
As a result of Securities and Exchange Commission guidance issued in early
1997 with respect to beneficial conversion features in connection with the
issuance of convertible preferred stock, the Company was deemed to recognize
noncash preferred stock dividends totaling approximately $1.2 million in fiscal
year 1996. This amount is equivalent to the discount from the fair market value
of the common stock given to the purchasers of the Series A and B calculated as
of the date of the sale of such stock.
The board of directors is authorized to determine, prior to issuing any
such series of preferred stock and without any vote or action by the
shareholders, the rights, preferences, privileges and restrictions of the shares
of such series, including dividend rights, voting rights, terms of redemption,
the provisions of any purchase, retirement or sinking fund to be provided for
the shares of any series, conversion and exchange rights, the preferences upon
any distribution of the assets of the Company, including in the event of
voluntary or involuntary liquidation or dissolution of the Company, and the
preferences and relative rights among each series of preferred stock.
12. STOCK PURCHASE WARRANTS:
Under the terms of the agreement with Aberlyn Capital Management Limited
Partnership (See Note 10), the Company issued Aberlyn and Aberlyn Holdings
Company, Inc., an affiliate of Aberlyn, warrants to purchase 15,000 and 60,000
shares of common stock, respectively, at $7.50 per share. The warrants expire in
January 1998.
In September and October 1993 the Company issued warrants to purchase a
total of 193,500 shares of its common stock. These warrants are exercisable at
any time during the five-year period from date of issue at a per share price of
$1.00. During 1996 warrants for 2,500 shares were exercised.
F-18
<PAGE> 56
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK PURCHASE WARRANTS: -- (CONTINUED)
In July 1993 the Company issued stock purchase warrants to the holders of
the Series B preferred stock to purchase an aggregate of 288,203 shares of the
Company's common stock at an exercise price of $6.65 per share. The warrants
expire in June 1998.
In August 1993 the Company issued warrants to purchase 848,002 shares of
common stock at an exercise price of $2.16 per share in connection with a 30-day
lock-up agreement upon the conversion of the Series B preferred stock on October
22, 1993. The warrants expire in 1998.
Also in connection with the initial public offering, the Company issued
80,000 warrants to its underwriter, which were convertible into 40,000 shares of
common stock at $8.25 per common share. The warrants had an antidilution feature
such that at December 31, 1995, the amount was 166,244 warrants to purchase
83,122 shares of common stock at $3.97 per common share. These warrants expired
October 1996.
In connection with the offering of 1,500,000 shares in October 1993, the
Company issued warrants to its underwriters to purchase 150,000 shares of common
stock at prices ranging from $2.50 to $3.60 per share. The warrants are
exercisable for five years.
In March 1994, the Company issued warrants to purchase 20,000 shares of
common stock at $1.00 per share in connection with a loan guarantee. In June
1994, the Company issued an additional 50,000 warrants to purchase common stock
in connection with the renewal and extension of the note which is due when the
Company raises a minimum of $1,000,000 in new equity. The warrants are
exercisable for five years.
In connection with the modification of the lease terms with Aberlyn in May
1996, the Company issued warrants to purchase 150,000 shares of common stock at
$1.50 per share. The warrants are exercisable for five years.
In connection with the private placement of 552,042 shares of common stock
in January and February, 1994, the Company issued warrants to purchase 224,139
shares of common stock at $1.35 per share. The warrants are exercisable for five
years.
In June 1994, the Company issued warrants to purchase 282,634 shares of
common stock at prices ranging from $1.00 per share to $3.60 per share. These
warrants were issued as a result of transactions during 1993 in connection with
various bridge loans and are exercisable for five years. Warrants for 105,665
shares were exercised during 1996. One warrant was underexercised by one share
which is thereby forfeited.
In August 1994, in connection with a licensing agreement with Wright
Medical Technologies (See Note 5), the Company issued warrants to purchase
150,000 shares of common stock at $2.00 per share. The warrants are exercisable
for five years.
In October 1994, the Company granted to one of its investment bankers, in
consideration for past services performed, warrants to purchase 100,000 shares
of common stock at $2.50 per share. The warrants are exercisable for five years.
In March 1995, in settlement of the cancellation of a distribution
agreement with MediHeat, Inc., the Company issued warrants to purchase 65,000
shares of common stock at $.45 per share. The warrants were exercised in 1996.
During February through April 1995, in connection with a bridge loan, the
Company issued warrants to purchase 1,374,250 shares of common stock at $.40 per
share. The warrants are exercisable for two years and were registered on an S-3
Registration Statement effective August 23, 1996. As of December 31, 1996,
620,000 shares have been issued in connection with the exercise of these
warrants.
F-19
<PAGE> 57
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK PURCHASE WARRANTS: -- (CONTINUED)
In May 1995, the Company issued warrants to purchase 15,000 shares of
common stock at $0.6875 per share to its landlord at Cathlab in consideration
for continuing the lease in its delinquent status. The warrants were exercised
in 1996.
On June 16, 1995, the Board authorized warrants to Aberlyn Capital
Management Limited Partnership in order to induce Aberlyn to not accelerate the
repayment of loans in the amount of $455,298. The warrants are to purchase
100,000 shares of common stock at $.1875 per share and 100,000 shares of common
stock at $.50 per share and are exercisable for five years. An expense of
$37,500 was recorded in 1995 for the difference between the fair market value of
the stock and the warrant prices.
In connection with the early exercise of warrants issued for bridge loans,
the Company issued warrants to purchase 132,000 shares at $.25 per share in
September 1995. Warrants for 40,000 shares were exercised in 1996. The remaining
warrants are exercisable through September 1997.
In connection with the sale of 1,000 shares in September 1995, the Company
issued a warrant to purchase 1,000 shares at $.50 per share. The warrant was
exercised in 1996.
Warrants to purchase 20,000 shares of common stock at an exercise price of
$.50 per share were issued in connection with the settlement of litigation in
September 1995, exercisable for two years.
In connection with the issuance of promissory notes in September 1996, the
Company issued 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 or (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 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.
In connection with a consulting agreement, the Company issued warrants to
purchase 836,310 shares of common stock at prices ranging from $0.50 to $1.40
for fees in connection with the Series A Preferred, Series B Preferred and
bridge loan financing and are exercisable for five years from date of grant.
Warrants to purchase 1,209,677 shares at $1.40 were issued in connection with
the issuance of Series B Preferred Stock, exercisable for five years.
In December 1996 warrants to purchase 25,000 shares of common stock at
$1.50 per share were issued for fees in connection with a short-term loan. The
warrants are exercisable for five years.
F-20
<PAGE> 58
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. STOCK PURCHASE WARRANTS: -- (CONTINUED)
Cumulative shares issuable under warrants and their expiration dates as of
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
GRANT EXPIRATION NUMBER OF EXERCISE
DATE DATE SHARES PRICE
----- ---------- --------- --------
<S> <C> <C> <C>
January 1993............................ 1998 75,000 $7.50
June - October 1993..................... 1998 337,397 $1.00
July 1993............................... 1998 288,203 $6.65
October 1993............................ 1998 848,002 $2.16
October 1993............................ 1998 135,571 $3.60
October 1993............................ 1998 45,000 $2.50
January - February 1994................. 1999 224,139 $1.35
March 1994.............................. 1999 150,000 $1.50
March - June 1994....................... 1999 70,000 $1.00
August 1994............................. 1999 150,000 $2.00
October 1994............................ 1999 100,000 $2.50
February - April 1995................... 1997 754,250 $0.40
June 1995............................... 2000 100,000 $0.1875
June 1995............................... 2000 100,000 $0.50
September 1995.......................... 1997 92,000 $0.25
September 1995.......................... 1997 20,000 $0.50
July 1996............................... 2001 704,167 $0.50
September 1996.......................... 2001 275,000 $0.9375
November 1996........................... 2001 1,209,677 $1.40
November 1996........................... 2001 107,143 $1.40
December 1996........................... 2001 25,000 $1.50
---------
5,810,549
=========
</TABLE>
13. STOCK OPTIONS:
At December 31, 1996, the Company had four stock-based compensation plans
which are described below. Additionally, the Company has issued options that are
not part of these plans to various employees and consultants (the "Other Plan").
The Company applies APB Opinion 25 and related interpretations in accounting for
its plans. The compensation cost that has been charged against income for its
stock option plans was approximately $238,000, and $98,000 for 1996 and 1995,
respectively. Had compensation cost for the Company's four stock-based
compensation plans and Other Plan been determined consistent with Financial
Accounting Standards Board Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and earnings
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
YEAR 1996 1995
---- ----------- -----------
<S> <C> <C>
Net loss
As reported........................... $(2,625,116) $(1,404,384)
Pro forma............................. $(2,936,878) $(1,637,082)
Net loss available to common
shareholders
As reported........................... $(3,808,529) $(1,404,384)
Pro forma............................. $(4,120,291) $(1,637,082)
Net loss per common share
As reported........................... $ (.34) $ (.15)
Pro forma............................. $ (.36) $ (.17)
</TABLE>
F-21
<PAGE> 59
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS: -- (CONTINUED)
The Company's fixed option plans include the 1996 Incentive Stock Option
Plan (the "1996 Plan"), the 1994 Stock Option Plan (the "1994 Plan"), the 1992
Stock Option Plan (the "1992 Plan"), the 1990 Stock Option Plan (the "1990
Plan") and the Other Plan. Options under the plans, except the Other Plan,
generally vest 20% per year over five years after one year of service and have a
maximum term of ten years. Options under the Other Plan vest over various
periods ranging from immediate to three years.
The 1996 Plan provides for the grant of (i) stock options, including
incentive stock options and non-qualified stock options, (ii) shares of
restricted stock, (iii) performance awards payable in cash or common stock, (iv)
shares of phantom stock, (v) stock bonuses, and (vi) cash bonuses (collectively,
the "Incentive Awards"). As of December 31, 1996 no Incentive Awards have been
granted under the 1996 Plan. The maximum number of shares of common stock
subject to Incentive Awards that may be granted under the 1996 Plan to any one
individual during any calendar year is 50,000. The number of shares of common
stock subject to the 1996 Plan is 1,500,000 and is effective October 10, 1996 as
approved by the stockholders at the annual meeting held November 22, 1996. The
1996 Plan will terminate October 10, 2006 unless earlier terminated by the
Company.
Under the 1994 Plan, options to purchase an aggregate of 1,500,000 shares
are available for grants to employees and consultants of the Company and its
subsidiaries. The 1994 Plan will terminate on April 8, 2004 unless terminated
earlier by the Company.
Under the 1992 Plan, options to purchase 5,000 shares remain granted and
not exercised. The 1992 Plan will terminate on April 9, 2002 unless sooner
terminated by the Board.
Under the 1990 Plan, 75,000 options expired December 1996. No further
grants may be made under either the 1992 Plan or the 1990 Plan.
In April 1995, in consideration for termination of a distribution
agreement, the Company granted a distributor an option to purchase 437,500
shares at $.40 per share.
In connection with his employment in 1995 as President and CEO, the Company
granted Steven B. Rash options to purchase 600,000 shares of common stock at
$.50 per share vesting at various times during his three-year contract. The
options are exercisable through 2002.
In connection with a consulting agreement, the Company issued options to
purchase 100,000 shares at $.001 per share and 300,000 shares at $.56 per share
to a medical consultant in December 1995, exercisable for ten years. The options
are exercisable through 2005.
In connection with their employment in 1996, the Company granted hiring
options to three employees for a total of 115,000 at exercise prices ranging
from $.50 to 1.25 which equaled fair market value at the time of issuance. The
options are exercisable for five years.
In connection with settlement agreements, the Company granted options to
purchase 225,000 shares of common stock to Lawrence M. Hoffman and 150,000
shares of common stock to a former officer at an exercise price of $.6875. The
options are exercisable through 1999 and 1998, respectively.
The fair value of each option grant is estimated on the date of the grant
using the Black Scholes option-pricing model with the following weighted-average
assumptions used for grants in 1996 and 1995; dividend yield of 0% for all
years; expected volatility of 109%; risk-free interest rate of 6.25%; and
expected term equal to 80% of the full term.
F-22
<PAGE> 60
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. STOCK OPTIONS: -- (CONTINUED)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995 and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE SHARES EXERCISE
FIXED OPTIONS (000) PRICE (000) PRICE
------------- ------ --------- ------ ---------
<S> <C> <C> <C> <C>
Outstanding at beginning of year........ 4,662 $0.87380 3,313 $1.08786
Granted................................. 560 $0.77511 2,005 $0.45182
Exercised............................... 197 $1.00000 0
Forfeited/Expired....................... 2,287 $0.89761 656 $0.66458
Outstanding at end of year.............. 2,738 $0.82464 4,662 $0.87380
Options exercisable at year end......... 1,372 $0.93222 3,126 $0.75429
Weighted average exercise price of options
granted during the year:
Exercise price less than fair market
value.............................. $0.72542 $0.40877
Exercise price equal to fair market
value.............................. $1.01190 --
Exercise price greater than fair
market value....................... $0.50000 $0.46364
Weighted average fair value of options
granted during the year:
Fair value less than market value..... $0.87514 $0.51893
Fair value equal to market value...... $0.76818 --
Fair value greater than market
value.............................. $0.32455 $0.32893
</TABLE>
The following summarizes information about fixed stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------- --------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
RANGE OF CONTRACTUAL EXERCISE EXERCISE
EXERCISE PRICES SHARES LIFE PRICE SHARES PRICE
--------------- --------- ----------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
$0.0010-0.2500................... 120,000 7.93840 $0.03208 108,000 $0.01481
$0.2501-0.999.................... 1,732,500 4.86869 $0.52572 685,000 $$0.61579
$1.0000-2.9999................... 662,250 2.76117 $1.00189 443,900 $1.00000
$3.000-6.9999.................... 223,226 2.50233 $3.04480 135,290 $3.04435
</TABLE>
F-23
<PAGE> 61
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUPPLEMENTAL INFORMATION FOR CONSOLIDATED STATEMENT OF CASH FLOWS:
<TABLE>
<CAPTION>
INCEPTION
YEAR YEAR YEAR SEPTEMBER 4,
ENDED ENDED ENDED 1984, TO
DECEMBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest Paid.............................. $ 392,580 $178,156 $ 59,333 $1,146,878
Noncash investing and financing activities:
Equipment acquired through capital lease
agreements............................... 266,539
Equipment and leasehold improvements
acquired through notes payable........... 35,775
Conversion of accrued interest payable to
principal on notes 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.................................... 488,671 50,000 538,671
Common stock and warrants issued in lieu of
interest................................. 58,139 12,812 1,387,300
Patent assignment and leaseback............ 500,000
Issuance of common stock in connection with
Therex settlement........................ 77
Transfer of note receivable from officer... 25,000
Write-up of property and equipment on
Cathlab due to sale and leaseback
agreement................................ 221,616
Issuance of common stock and warrants for
services................................. 367,500 56,412 138,515 1,007,427
Issuance of common stock for certain
liabilities.............................. 1,546,509 1,546,509
</TABLE>
15. SALES INFORMATION:
Sales to three customers during the year ended December 31, 1994
represented 16.2%, 15.6% and 11.0% of the Company's total net sales. During the
year ended December 31, 1995 sales to three customers represented 24.8%, 20.2%
and 10.4% of net sales. Sales to three customers during the year ended December
31, 1996 represented 18.7%, 18.2% and 12.9% of net sales. The loss of any of
these major accounts would be material to the Company's overall results of
operations, financial position and cash flows.
Foreign export sales for 1995 and 1994 were approximately 81% and 59%,
respectively. Of the $579,533 in total net sales for the year ended December 31,
1996, approximately 60% was foreign sales, mainly to European and South and
Central American countries.
F-24
<PAGE> 62
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. ACQUISITION AND PURCHASE AGREEMENTS:
During October 1992, the Company acquired the assets of SuperStat, Inc.
("SuperStat") in exchange for 18,182 shares of the Company's common stock,
valued at $81,819. Superstat has developed a patented modified collagen
hemostatic sponge for use to control bleeding in vascular and general surgery.
In March 1995, under an agreement with SuperStat, the Company transferred
the license agreement to BioCell, Inc. and was relieved of the obligation to pay
royalties in consideration of receiving a .5% royalty on future product sales by
BioCell, Inc. The unamortized value of $47,727 was expensed in 1994.
17. SUBSEQUENT EVENT:
Pursuant to Section 4(2) of the Securities Act, in March 1997 the Company
issued 125 shares of its Series C convertible preferred stock, par value $.001
per share (the "Series C Preferred") to Nelson Partners, an unaffiliated
investor, for a total purchase price of $2,500,000 or $20,000 per share. The
proceeds of the sale will be used to fund clinical trials, research and
development projects and general working capital. The Series C Preferred, which
bears no dividends and confers no voting rights, is of equal rank with shares of
the Series A Preferred and the Series B Preferred and senior to the Company's
other equity securities (except with the consent of the majority of the holders
of Series C Preferred). The Series C Preferred is convertible at any time on or
after 120 days after the initial date of issuance at the option of the holder
into a number of shares of common stock (the "Series C Conversion Shares") based
on a formula as defined in the purchase agreement:
The Series C conversion price is the lesser of (i) $1.75 (adjusted if there
is a lock up in effect) or (ii) the average of the closing bid price for the
common stock for the five consecutive trading days immediately preceding the
date the election to convert is made (the "Series C Conversion Price"). The
number of Series C Conversion Shares is subject to adjustment from time to time
upon the occurrence of stock splits, reverse stock splits, and similar events.
On March 1, 2000 any outstanding shares of the Series C Preferred will be
automatically converted based on the Series C Conversion Price then in effect.
Registration rights were conferred upon the Series C Preferred requiring
the Company to file an S-3 Registration Statement on or before the ninetieth day
following the issuance date covering the resale of the Series C Conversion
Shares.
In the event the Company effects a lock-up, each holder of the Series C
Preferred will be entitled to a warrant (the "Lock-Up Warrant") exercisable for
that number of shares of common stock equal to ( 1/2) one-half of the number of
shares of common stock which would have been issuable had such holder converted,
and on the last day of the lock-up period will be entitled to an additional
Lock-Up Warrant exercisable for that number of shares of common stock equal to
one-half of the number of shares of common stock which would have been issuable
had such holder converted. The exercise price of the Lock-Up Warrant is the
fixed conversion price that is in effect at the time of issuance, but not
subject to any adjustments.
18. OPERATIONS:
The Company has incurred recurring operating losses and negative cash flow.
In order to continue as a going concern, the Company must raise additional
capital and ultimately achieve profitable operations. Though still a
developmental stage company engaged in the development, manufacture and
marketing of medical devices, the Company has ten products presently available
to market and has formulated a comprehensive business strategy which it believes
will enable it to capitalize on its technologies and developing trends in the
healthcare industry. The Company launched an aggressive cost reduction campaign
which has drastically reduced operating expenses. At the same time the Company
has initiated efforts to revamp its existing distribution network by replacing
underperforming distributors with professional domestic
F-25
<PAGE> 63
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
18. OPERATIONS: -- (CONTINUED)
and international distributor organizations, thereby creating a world-class
distributor network. Management believes it will be able to raise the capital
necessary to fund the commercialization efforts of its existing technologies and
current working capital for the foreseeable future by "unbundling" its core
technologies and identifying a prestigious international healthcare corporation
for each technology and product in a specific international market.
The Company's strategic plan consists of focusing on increasing the market
penetration of its 10 existing FDA-approved products, continuing to revamp its
distribution network as new distributors are warranted, continuing to focus on
the commercialization of its core technologies by pursuing US and international
regulatory approval, aggressively pursuing the sale of ancillary technology to
meet future cash requirements and validation of the proprietary nature of its
technologies, continuation of efforts to identify and pursue strategic alliances
and a continuing effort to reduce manufacturing costs. The Company's aggressive
cost reduction program has resulted in annual cost savings estimated to be in
excess of $600,000 in selling, general and administrative expenses as well as
reducing manufacturing costs 28.2% or over $126,000 in 1996 as compared to 1995.
These reductions have enabled the Company to shift additional resources into its
clinical trial efforts, new product development efforts and increased sales and
marketing programs.
Management believes that the Company is now positioned to capitalize on its
silicone manufacturing expertise and patented minimally invasive technologies as
all cost containment programs and restructuring of the Company's manufacturing
operations, which include employee training and rebuilding of the Company's
infrastructure, are now in place.
In addition, during 1996, management 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 distribution agreements, and research and
development agreements and projects. An integral part of this on-going strategy
is to aggressively pursue the sale of all ancillary technology which will enable
the Company to focus its resources exclusively on its core technologies and
commercial non-angioplasty balloon catheter products. Although there can be no
assurances, the Company does not foresee any risks associated with these
initiatives.
F-26
<PAGE> 64
AMERICAN BIOMED, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
American BioMed, Inc.
Our report on the consolidated financial statements of American BioMed,
Inc. and Subsidiaries (a development stage enterprise), which refers to
substantial doubt regarding the Company's ability to continue as a going
concern, is included on Page F-2 in this Form 10-K. In connection with our
audits of such consolidated financial statements, we have also audited the
related consolidated financial statement schedule listed in the index on Page
F-1 of this Form 10-K.
In our opinion, the consolidated financial statement schedule referred to
above, when considered in relation to the basic consolidated financial
statements taken as a whole, present fairly, in all material respects, the
information required to be included therein.
COOPERS & LYBRAND L.L.P.
Houston, Texas
March 21, 1997
F-27
<PAGE> 65
SCHEDULE II
AMERICAN BIOMED, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
ADDITIONS
------------------------------
BALANCE AT (1) (2)
BEGINNING CHARGED TO CHARGED TO BALANCE AT
OF COSTS OTHER ACCOUNTS- DEDUCTIONS- END OF
DESCRIPTION PERIOD AND EXPENSES DESCRIBE DESCRIBE PERIOD
----------- ---------- ------------ --------------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1994
Allowance for doubtful accounts......... $ 88,156 $ 170,212 $240,780(1) $ 17,588
Allowance for deferred tax assets....... 5,421,100 1,100,900 6,522,000
DECEMBER 31, 1995
Allowance for doubtful accounts......... 17,588 51,919 24,027(1) 45,480
Allowance for deferred tax assets....... 6,522,000 314,000 6,836,000
DECEMBER 31, 1996
Allowance for doubtful accounts......... 45,480 13,238 1,218(1) 57,500
Allowance for deferred tax assets....... 6,836,000 1,159,000 7,995,000
</TABLE>
- ---------------
(1) Write-off of bad debts.
F-28
<PAGE> 66
SIGNATURES
Pursuant to the Requirements of the Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of The
Woodlands, State of Texas, on the 2nd day of July, 1997.
AMERICAN BIOMED, INC.
By: /s/ STEVEN B. RASH
----------------------------------
Steven B. Rash
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933, Amendment
Number 1 to this registration statement has been signed by the following persons
in the capacities and on the dates indicated:
<TABLE>
<C> <S> <C>
/s/ STEVEN B. RASH Chairman of the Board, July 2, 1997
- ----------------------------------------------------- President and Chief Executive
Steven B. Rash Officer
/s/ COLENE BLANKINSHIP Controller July 2, 1997
- ----------------------------------------------------- (Principal Financial and
Colene Blankinship Accounting Officer)
/s/ LAWRENCE M. HOFFMAN Director July 2, 1997
- -----------------------------------------------------
Lawrence M. Hoffman
/s/ RICHARD SERBIN Director July 2, 1997
- -----------------------------------------------------
Richard Serbin
/s/ CLAUDIO GUAZZONI Director
- -----------------------------------------------------
Claudio Guazzoni
</TABLE>
<PAGE> 67
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
2.1 -- Agreement and Plan of Merger among American BioMed, Inc.,
ABI Acquisition, Inc. and Cathlab Corporation dated March
30, 1992(3)
3.1 -- Certificate of Incorporation.(1)
3.2 -- By-laws.(1)
3.3 -- Certificate of Designations, Preferences and Rights of
1996 Series A Convertible Preferred Stock(5)
3.4 -- Certificate of Designations, Preferences and Rights of
1996 Series B Convertible Preferred Stock(5)
3.5 -- Certificate of Designations, Preferences and Rights of
1997 Series C Convertible Preferred Stock
4.2 -- Specimen Common Stock Certificate(1)
10.17 -- Summers Note, dated September 1990, between the Company
and David P. Summers, as amended(1)
10.28 -- 1992 Stock Option Plan of the Company and forms of
incentive stock option agreement and non-qualified stock
option agreement(2)
10.57 -- Patent License, Research & Development Agreement between
Wright Medical Technology, Inc. and American BioMed,
Inc.(2)
10.69 -- Stipulation of Settlement, Scott Printing Corporation v.
American BioMed, Inc.(4)
10.70 -- Employment contract with Steven B. Rash(4)
10.71 -- Purchase of Technology Agreement, Guerbet, S.A.(4)
10.73 -- Corporate Communications Settlement Agreement(4)
10.74 -- Distribution Agreement with Horizon Medical(4)
10.80 -- 1996 Incentive Stock Option Plan(6)
10.81 -- Aberlyn Schedule No. 3 to Master Lease Agreement No.
0001E and Patent Schedule No. 2 to Patent Assignment and
License Agreement No. 0001P, effective June 1, 1996(7)
10.82 -- Securities Purchase Agreement, dated February 20, 1996,
between the Company and certain investors relating to the
issuance and sale of Common Stock and 200 shares of the
1996 Series A Convertible Preferred Stock
10.83 -- Securities Purchase Agreement, dated February 20, 1996,
between the Company and certain investors relating to the
issuance and sale of 1,190 shares of the 1996 Series A
Convertible Preferred Stock
10.84 -- Form of Registration Rights Agreement, dated February 20,
1996, between the Company and holders of the 1996 Series
A Convertible Preferred Stock
10.85 -- Securities Purchase Agreement, dated November 7, 1996,
between the Company and certain investors relating to the
issuance and sale of the 1996 Series B Convertible
Preferred Stock
10.86 -- Form of Registration Rights Agreement, dated November 7,
1996, between the Company and holders of the 1996 Series
B Convertible Preferred Stock
10.87 -- Securities Purchase Agreement, dated March 21, 1997,
between the Company and certain investors relating to the
issuance and sale of the 1997 Series C Convertible
Preferred Stock
</TABLE>
<PAGE> 68
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
------- -------------------
<C> <S>
10.88 -- Registration Rights Agreement, dated March 21, 1997,
between the Company and holders of the 1997 Series C
Convertible Preferred Stock
11.1 -- Computation of (Loss) per Common Share(7)
21.1 -- Subsidiaries of the Registrant(7)
23.1 -- Consent of Coopers & Lybrand L.L.P.
27 -- Financial Data Schedule(7)
</TABLE>
- ---------------
(1) Incorporated by reference to the Company's Registration Statement on Form
S-1, as amended, File No. 33-424372, dated August 4, 1992.
(2) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1994.
(3) Incorporated by reference to the Company's Current Report on Form 8-K for
April 30, 1992.
(4) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1995.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1996.
(6) Incorporated by reference to the Company's Proxy Statement for the November
22, 1996 Annual Meeting.
(7) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
<PAGE> 1
EXHIBIT 3.5
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS
OF
SERIES C CONVERTIBLE PREFERRED STOCK
OF
AMERICAN BIOMED, INC.
American BioMed, Inc. (the "COMPANY"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority conferred upon the Board of
Directors of the Company by the Certificate of Incorporation of the Company,
and pursuant to Section 151 of the General Corporation Law of the State of
Delaware, the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, $.001 par value per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other
rights, and the qualifications, limitations or restrictions thereof, of 125
shares of Series C Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 125 shares
of Series C Convertible Preferred Stock (the "SERIES C PREFERRED
SHARES"), $.001 par value per share, which shall have the following
powers, designations, preferences and other special rights:
(1) Dividends. The Series C Preferred Shares shall not bear
any dividends.
(2) Holder's Conversion of Series C Preferred Shares. A
holder of Series C Preferred Shares shall have the right, at such
holder's option, to convert the Series C Preferred Shares into shares
of the Company's common stock, $.001 par value per share (the "COMMON
STOCK"), on the following terms and conditions:
(a) Conversion Right. Subject to the provisions of
Sections 2(g), 2(j) and 2(k) below, at any time or times on or after
120 days after the initial date of issuance of the Series C Preferred
Shares, any holder of Series C Preferred Shares shall be entitled to
convert any Series C Preferred Shares into fully paid and
nonassessable shares (rounded to the nearest whole share in accordance
with Section 2(h) below) of Common Stock, at the Conversion Rate (as
defined below); provided, however, that in no event other than upon a
Mandatory Conversion pursuant to Section 2(g) hereof, shall any holder
be entitled to convert Series C Preferred Shares in excess of that
number of Series C Preferred Shares which, upon giving effect to such
conversion, would cause the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates to exceed 4.9% of
the outstanding shares
<PAGE> 2
of the Common Stock following such conversion. For purposes of the
foregoing proviso, the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the
number of shares of Common Stock issuable upon conversion of the
Series C Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of
Common Stock which would be issuable upon (i) conversion of the
remaining, nonconverted Series C Preferred Shares beneficially owned
by the holder and its affiliates and (ii) exercise of the remaining,
unexercised Warrants (as defined below) beneficially owned by the
holder and its affiliates. Except as set forth in the preceding
sentence, for purposes of this paragraph, beneficial ownership shall
be calculated in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended.
(b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of each of the Series C Preferred
Shares pursuant to Section (2)(a) shall be determined according to the
following formula (the "CONVERSION RATE"):
(.07)(N/365)(20,000) + 20,000
----------------------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
(i) "CONVERSION PRICE" means, as of any
Conversion Date (as defined below), the lower of the Fixed Conversion
Price and the Floating Conversion Price, each in effect as of such
date and subject to adjustment as provided herein;
(ii) "FIXED CONVERSION PRICE" means $1.75,
subject to adjustment as provided herein; provided, however, that if
the Company shall effect a Lock-Up (as defined in Section 2(j)
hereof), the "Fixed Conversion Price" shall be the lesser of (i) the
Fixed Conversion Price in effect immediately prior to the delivery of
the Lock-Up Notice (as defined below) and (ii) the Average Market
Price for the Common Stock for the twenty (20) consecutive trading
days immediately preceding the last day of the Lock-Up Period (as
defined below);
(iii) "FLOATING CONVERSION PRICE" means, as of
any date of determination, the amount obtained by multiplying the
Conversion Percentage in effect as of such date by the Average Market
Price for the Common Stock for the five (5) consecutive trading days
immediately preceding such date;
(iv) "CONVERSION PERCENTAGE" means the following
percentage (regardless of whether the Lock-Up is affected, but subject
to adjustment as otherwise provided herein);
(A) 100% if the Conversion Date (as
defined below) is on or before 180 days following the Issuance
Date (as defined below);
2
<PAGE> 3
(B) 89% if the Conversion Date is
after 180 days following the Issuance Date but on or before 210
days following the Issuance Date;
(C) 86.5% if the Conversion Date is
after 210 days following the Issuance Date but on or before 240
days following the Issuance Date;
(D) 84% if the Conversion Date is
after 240 days following the Issuance Date but on or before 270
days following the Issuance Date;
(E) 81% if the Conversion Date is
after 270 days following the Issuance Date but on or before 300
days following the Issuance Date;
(F) 78% if the Conversion Date is
after 300 days following the Issuance Date but on or before 330
days following the Issuance Date; and
(G) 75% if the Conversion Date is any
time after 330 days following the Issuance Date.
(v) "AVERAGE MARKET PRICE" means, with respect
to any security for any period, that price which shall be computed as
the arithmetic average of the Closing Bid Prices (as defined below)
for such security for each trading day in such period;
(vi) "CLOSING BID PRICE" means, for any security
as of any date, the last closing bid price on the Nasdaq National
Market (the "NASDAQ-NM") as reported by Bloomberg Financial Markets
("BLOOMBERG"), or, if the Nasdaq-NM is not the principal trading market
for such security, the last closing bid price of such security on the
principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not
apply, the last closing bid price of such security in the
over-the-counter market on the pink sheets or bulletin board for such
security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price
of such security as reported by Bloomberg. If the Closing Bid Price
cannot be calculated for such security on such date on any of the
foregoing bases, the Closing Bid Price of such security on such date
shall be the fair market value as reasonably determined in good faith
by the Board of Directors of the Company (all as appropriately adjusted
for any stock dividend, stock split or other similar transaction
during such period); and
(vii) "N" means the number of days from, but
excluding, the Issuance Date through and including the Conversion Date
for the Series C Preferred Shares for which conversion is being
elected.
(viii) "ISSUANCE DATE" means the initial date of
issuance of the Series C Preferred Shares.
3
<PAGE> 4
(c) Adjustment to Conversion Price - Registration
Statement. If the registration statement (the "REGISTRATION
STATEMENT") covering the resale of the shares of Common Stock issuable
upon conversion of the Series C Preferred Shares and required to be
filed by the Company pursuant to the Registration Rights Agreement
between the Company and the initial holders of the Series C Preferred
Shares (the "REGISTRATION RIGHTS AGREEMENT") is not declared effective
by the SEC on or before the ninetieth (90th) day following the
Issuance Date (the "SCHEDULED EFFECTIVE DATE"), or if after the
Registration Statement has been declared effective by the SEC, sales
cannot be made pursuant to the Registration Statement (whether because
of a failure to keep the Registration Statement effective, to disclose
such information as is necessary for sales to be made pursuant to the
Registration Statement, to register sufficient shares of Common Stock
or otherwise), then, as partial relief for the damages to any holder
by reason of any such delay in or reduction of its ability to sell the
underlying shares of Common Stock (which remedy shall not be exclusive
of any other remedies available at law or in equity), the Conversion
Percentage and the Fixed Conversion Price shall be adjusted as
follows:
(i) Conversion Percentage. Subject to the last
paragraph of this Section 2(c), the Conversion Percentage in effect at
such time for each time period set forth in Section 2(b)(iv) with
respect to the Series C Preferred Shares which may be converted as
permitted by Section 2(k) hereof during the period that sales cannot
be made pursuant to the Registration Statement, shall be reduced by a
number of percentage points equal to the product of (A) two and
one-half (2.5) and (B) the sum of (I) the number of months (prorated
for partial months) after the Scheduled Effective Date and prior to
the date that the relevant Registration Statement is declared
effective by the SEC and (II) the number of months (prorated for
partial months) that sales cannot be made pursuant to the Registration
Statement after the Registration Statement has been declared
effective. (For example, if the Registration Statement becomes
effective one and one-half (1 1/2) months after the Scheduled
Effective Date, the Conversion Percentage for each period set forth in
Section 2(b)(iv) with respect to 25% of the Series C Preferred Shares
would decrease by three and three-quarters percent (3.75%) until any
subsequent adjustment; if thereafter sales could not be made pursuant
to the Registration Statement for a period of two (2) additional
months, the Conversion Percentage with respect to such 25% of the
Series C Preferred Shares for each remaining period set forth in
Section 2(b)(iv) would decrease by an additional five percent (5%),
for an aggregate decrease of eight and three-quarters percent (8.75%);
and
(ii) Fixed Conversion Price. Subject to the last
paragraph of this Section 2(c), the Fixed Conversion Price in effect
at such time with respect to the Series C Preferred Shares which may
be converted as permitted by Section 2(k) hereof during the period
that sales cannot be made pursuant to the Registration Statement,
shall be reduced by an amount equal to the product of (A) four
thousand three hundred and seventy-five hundred thousandths of a
dollar ($.04375) and (B) the sum of (I) the number of months (prorated
for partial months) after the Scheduled Effective Date and prior to
the date that the Registration Statement is declared effective by the
SEC and (II) the number of months (prorated for partial months) that
sales cannot be made pursuant to the Registration Statement after the
Registration Statement has been declared effective. (For example, if
the
4
<PAGE> 5
Registration Statement becomes effective one and one-half (1 1/2)
months after the Scheduled Effective Date, the Fixed Conversion Price
with respect to 25% of the Series C Preferred Shares would be $1.6844
until any subsequent adjustment; if thereafter sales could not be made
pursuant to the Registration Statement for a period of two (2)
additional months, the Fixed Conversion Price with respect to such 25%
of the Series C Preferred Shares would then be $1.5969)).
Provided however, notwithstanding anything to the contrary, (i) if the
Registration Statement is not declared effective by the SEC on or
before the one-hundred and twentieth (120th) day following the
Issuance Date, for purposes of the adjustment to the Conversion
Percentage and the Fixed Conversion Price under this Section 2(c) for
the time period between the ninetieth (90th) day and the one-hundred
and twentieth (120th) day, 25% of the Series C Preferred Shares shall
be assumed to be subject to the right to convert pursuant to Section 2
hereof, and (ii) after the Registration Statement has been declared
effective by the SEC, if sales cannot be made pursuant to the
Registration Statement during the Lock-Up Period (as defined in
Section 2(j) hereof).
(d) Adjustment to Conversion Price -- Dilution and
Other Events. In order to prevent dilution of the rights granted under
this Certificate of Designations, the Conversion Price will be subject
to adjustment from time to time as provided in this Section 2(d).
(i) Adjustment of Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common
Stock into a greater number of shares, the Fixed Conversion Price in
effect immediately prior to such subdivision will be proportionately
reduced. If the Company at any time combines (by combination, reverse
stock split or otherwise) one or more classes of its outstanding
shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will
be proportionately increased.
(ii) Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other similar transaction which is effected in such a way that holders
of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as an "ORGANIC
CHANGE." Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance satisfactory to
the holders of a majority of the Series C Preferred Shares then
outstanding) to insure that each of the holders of the Series C
Preferred Shares will thereafter have the right to acquire and receive
in lieu of or in addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Series C Preferred Shares, such shares of
stock, securities or assets as may be issued or payable with respect
to or in exchange for the number of shares of Common Stock immediately
theretofore acquirable and receivable upon the
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<PAGE> 6
conversion of such holder's Series C Preferred Shares had such Organic
Change not taken place. In any such case, the Company will make
appropriate provision (in form and substance satisfactory to the
holders of a majority of the Series C Preferred Shares then
outstanding) with respect to such holders' rights and interests to
insure that the provisions of this Section 2(d) and Section 2(e) below
will thereafter be applicable to the Series C Preferred Shares. The
Company will not effect any such consolidation, merger or sale, unless
prior to the consummation thereof, the successor entity (if other than
the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument (in form and
substance satisfactory to the holders of a majority of the Series C
Preferred Shares then outstanding), the obligation to deliver to each
holder of Series C Preferred Shares such shares of stock, securities
or assets as, in accordance with the foregoing provisions, such holder
may be entitled to acquire. For purposes of this Agreement, "PERSON"
shall mean an individual, a limited liability company, a partnership,
a joint venture, a corporation, a trust, an unincorporated
organization and a government or any department or agency thereof.
(iii) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each
holder of Series C Preferred Shares, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(B) The Company will give written notice to each
holder of Series C Preferred Shares at least twenty (20) days prior to
the date on which the Company closes its books or takes a record (I)
with respect to any dividend or distribution upon the Common Stock,
(II) with respect to any pro rata subscription offer to holders of
Common Stock or (III) for determining rights to vote with respect to
any Organic Change, dissolution or liquidation.
(C) The Company will also give written notice to
each holder of Series C Preferred Shares at least twenty (20) days
prior to the date on which any Organic Change, Major Transaction (as
defined below), dissolution or liquidation will take place.
(e) Purchase Rights. If at any time the Company
grants, issues or sells any Options, Convertible Securities or rights
to purchase stock, warrants, securities or other property pro rata to
the record holders of any class of Common Stock (the "PURCHASE
RIGHTS"), then the holders of Series C Preferred Shares will be
entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock
acquirable upon complete conversion of the Series C Preferred Shares
immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is
taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
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<PAGE> 7
(f) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice
(as defined below) as provided for in Section 4 below:
(i) Holder's Delivery Requirements. To convert
Series C Preferred Shares into full shares of Common Stock on any date
(the "CONVERSION DATE"), the holder thereof shall (A) deliver or
transmit by facsimile, for receipt on or prior to 11:59 p.m., Pacific
Time on such date, a copy of a fully executed notice of conversion in
the form attached hereto as Exhibit I (the "CONVERSION NOTICE"), to
the Company or its designated transfer agent (the "TRANSFER AGENT"),
and (B) surrender to a common carrier for delivery to the Company or
the Transfer Agent as soon as practicable following such date, the
original certificates representing the Series C Preferred Shares being
converted (or an indemnification undertaking with respect to such
shares in the case of their loss, theft or destruction) (the
"PREFERRED STOCK CERTIFICATES") and the originally executed Conversion
Notice.
(ii) Company's Response. Upon receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall
immediately send, via facsimile, a confirmation of receipt of such
Conversion Notice to such holder. Upon receipt by the Company or the
Transfer Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, together with the originally executed
Conversion Notice, the Company or the Transfer Agent (as applicable)
shall, within five (5) business days following the date of receipt,
(A) issue and surrender to a common carrier for overnight delivery to
the address as specified in the Conversion Notice, a certificate,
registered in the name of the holder or its designee, for the number
of shares of Common Stock to which the holder shall be entitled or (B)
credit the aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance
account at The Depository Trust Company.
(iii) Dispute Resolution. In the case of a
dispute as to the determination of the Average Market Price or the
arithmetic calculation of the Conversion Rate, the Company shall
promptly issue to the holder the number of shares of Common Stock that
is not disputed and shall submit the disputed determinations or
arithmetic calculations to the holder via facsimile within three (3)
business days of receipt of such holder's Conversion Notice. If such
holder and the Company are unable to agree upon the determination of
the Average Market Price or arithmetic calculation of the Conversion
Rate within two (2) business days of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company
shall within one (1) business day submit via facsimile (A) the
disputed determination of the Average Market Price to an independent,
reputable investment bank or (B) the disputed arithmetic calculation
of the Conversion Rate to its independent, outside accountant. The
Company shall cause the investment bank or the accountant, as the case
may be, to perform the determinations or calculations and notify the
Company and the holder of the results no later than forty-eight (48)
hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be binding upon all parties
absent manifest error.
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<PAGE> 8
(iv) Record Holder. The person or persons
entitled to receive the shares of Common Stock issuable upon a
conversion of Series C Preferred Shares shall be treated for all
purposes as the record holder or holders of such shares of Common
Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If the
Company shall fail to issue to a holder within ten (10) business days
following the date of receipt by the Company or the Transfer Agent of
the Preferred Stock Certificates to be converted pursuant to a
Conversion Notice, a certificate for the number of shares of Common
Stock to which such holder is entitled upon such holder's conversion
of Series C Preferred Shares, in addition to all other available
remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement between the Company and the initial
holders of the Series C Preferred Shares (the "SECURITIES PURCHASE
AGREEMENT") (including indemnification pursuant to Section 8 thereof),
the Company shall pay additional damages to such holder on each day
after the tenth (10th) business day following the date of receipt by
the Company or the Transfer Agent of the Preferred Stock Certificates
to be converted pursuant to the Conversion Notice, for which such
conversion is not timely effected, an amount equal to 0.1% of the
product of (A) the number of shares of Common Stock not issued to the
holder and to which such holder is entitled and (B) the Closing Bid
Price of the Common Stock on the business day following the date of
receipt by the Company or the Transfer Agent of the Preferred Stock
Certificates to be converted pursuant to the Conversion Notice.
(g) Mandatory Conversion. If any Series C Preferred
Shares remain outstanding on March 31, 2000, then all such Series C
Preferred Shares shall be converted as of such date in accordance with
this Section 2 as if the holders of such Series C Preferred Shares had
given the Conversion Notice on March 31, 2000, and the Conversion Date
had been fixed as of March 31, 2000, for all purposes of this Section
2, and all holders of Series C Preferred Shares shall thereupon and
with two (2) business days thereafter surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company or the
Transfer Agent. No person shall thereafter have any rights in respect
of Series C Preferred Shares, except the right to receive shares of
Common Stock on conversion thereof as provided in this Section 2.
(h) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of
Common Stock (including fractions thereof) issuable upon conversion of
more than one share of the Series C Preferred Shares by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of a fraction of a share of
Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock,
the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
(i) Taxes. The Company shall pay any and all taxes
which may be imposed upon it with respect to the issuance and delivery
of Common Stock upon the conversion of the Series C Preferred Shares.
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<PAGE> 9
(j) Lock-Up. If the Lock-Up Conditions (as defined below)
are satisfied, but only for that period of time that the Lock-Up
Conditions are satisfied, the Company may at its option at any time
after the 180th day following the Issuance Date but before 361st day
following the Issuance Date (the "LOCK-UP EXERCISE PERIOD"), prohibit
holders of the Series C Preferred Shares from exercising any
conversion rights granted pursuant to Section (2)(a) (the "LOCK-UP")
for a period (the "LOCK-UP PERIOD") beginning on the Lock-Up Notice
Delivery Date (as defined below) until the earlier of (Y) ninety (90)
after the Lock-Up Notice Delivery Date and (Z) such time as the
Lock-Up Conditions (as defined below) are no longer satisfied;
provided, however, that, if the LockUp Notice Delivery Date is on or
after 271st day following the Issuance Date, the Lock-Up Period shall
terminate on the 360th day following the Issuance Date.
(i) Lock-Up Conditions. The "LOCK-UP
CONDITIONS" shall be deemed satisfied only for such period of time as
the Board of Directors of the Company is in possession of material,
non-public information relating to a business transaction involving
the Company which would be required to be disclosed to the public
before any member of the Board of Directors would be able to sell any
equity securities of the Company in compliance with the anti-fraud
provisions of the Securities Act of 1933. The Company shall give
prompt notice to each of the holders of the Series C Preferred Shares
if at any time during the Lock-Up period such condition is not
properly satisfied.
(ii) Consideration for Lock-Up. In consideration
for the Company's exercise of the Lock-Up, the Company shall (A) on
the Lock-Up Notice Delivery Date (as defined below) deliver to each
holder of Series C Preferred Shares a warrant (the "LOCK-UP WARRANT")
exercisable for that number of shares of Common Stock equal to
one-half (1/2) of the number of shares of Common Stock which would
have been issuable had such holder converted such holder's Series C
Preferred Shares which, except for the effect of the Lock-Up, such
holder could have converted pursuant to Section 2(k) hereof as of the
LockUp Notice Delivery Date, and (B) on the last day of the Lock-Up
Period deliver to each holder of Series C Preferred Shares an
additional Lock-Up Warrant exercisable for that number of shares of
Common Stock equal to one-half (1/2) of the number of shares of Common
Stock which would have been issuable had such holder converted such
holder's Series C Preferred Shares which, except for the effect of the
Lock-Up, would have become subject to the holder's right to convert
pursuant to Section 2(k) hereof after the Lock-Up Notice Delivery Date
but during the Lock-Up Period. The Lock-Up Warrants shall be issued in
substantially the form of the warrants issued to the holders of the
Series C Preferred Shares in connection with the conversion of the
Series C Preferred Shares; provided, however, that the exercise price
of the Lock-Up Warrants shall be the Fixed Conversion Price as in
effect at the time of issuance thereof but such exercise price shall
not be subject to adjustment as set forth in Section (2)(b)(ii)
hereof.
(iii) Mechanics of Lock-Up. To effect the Lock-Up,
the Company shall (x) deliver or transmit by facsimile, for receipt on
or prior to 11:59 p.m., Central Time on any date (the "LOCK-UP NOTICE
DELIVERY DATE") during the Lock-Up Exercise Period, to each holder of
Series C Preferred Shares (I) a copy of a fully executed notice in the
form of Exhibit II hereto (the "LOCK-UP NOTICE") and (II) executed
agreements
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<PAGE> 10
("LOCK-UP AGREEMENTS"), in the form attached hereto as Exhibit III,
from each officer or director of the Company or any subsidiary of the
Company who beneficially owns, or has any disposition power with
respect to, 0.05% or more of the total outstanding shares of Common
Stock as of the Lock-Up Notice Delivery Date which, for the benefit of
the holders of the Series C Preferred Shares, which obligates such
persons not to sell or otherwise dispose of any shares of Common Stock
until one day after each of the holders of the Series C Preferred
Shares has received written notice from the Company that the Lock-Up
Period has ended, and (y) surrender to a common carrier for delivery
to each Series C Preferred Share holder as soon as practicable
following such date, an originally executed Lock-Up Notice, originally
executed Lock-Up Agreements and an originally executed Lock-Up
Warrant; provided, however, that such Lock-Up Notice shall not be
effective with respect to the conversion of any shares of Series C
Preferred Shares for which a holder of such shares has, prior to
receipt of the Lock-Up Notice, properly delivered a Conversion Notice
pursuant to Section (2)(f)(i).
(k) Conversion Restriction. The right of a holder of
Series C Preferred Shares to convert Series C Preferred Shares pursuant to this
Section 2 shall be subject to the following limitations (which shall be applied
independently):
(i) Prior to the 120th day following the
Issuance Date, holders of Series C Preferred Shares shall not be
entitled to convert any Series C Preferred Shares;
(ii) During the period beginning on the 120th
day following the Issuance Date and ending on the 210th day following
the Issuance Date, each Buyer and all of their respective successors
shall be entitled to convert no more than 25% of the number of Series
C Preferred Shares purchased by such Buyer;
(iii) During the period beginning on the 120th day
following the Issuance Date and ending on 300th day following the
Issuance Date, each Buyer and all of their respective successors shall
be entitled to convert no more than 50% of the number of Series C
Preferred Shares purchased by such Buyer;
(iv) During the period beginning on the 120th day
following the Issuance Date and ending on the 390th day following the
Issuance Date, each Buyer and all of their respective successors shall
be entitled to convert no more than 75% of the number of Series C
Preferred Shares purchased by such Buyer; and
(v) After the 390th day following the Issuance
Date, each holder of the Series C Preferred Shares shall be entitled
to convert any and all of the Series C Preferred Shares then held by
such person.
Provided however, notwithstanding the foregoing, any holder of Series C
Preferred Shares shall be immediately entitled to convert such holder's Series
C Preferred Shares into shares of Common Stock pursuant to this Section 2 upon
(i) the occurrence of any Triggering Event, (ii) any public announcement by the
Company stating that the Company intends to consummate, or is the subject
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<PAGE> 11
of, a Major Transaction, (iii) execution of a definitive agreement by the
Company with respect to a Major Transaction or (iv) the consummation of a Major
Transaction.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition
to all other rights of the holders of Series C Preferred Shares
contained herein, after a Major Transaction (as defined below), the
holders of Series C Preferred Shares shall have the right in
accordance with Section 3(f), at the option of the holders of at least
two-thirds (2/3) of the Series C Preferred Shares then outstanding, to
require the Company to redeem all of the Series C Preferred Shares
then outstanding at a price per Series C Preferred Share equal to the
greater of (i) 100% of the Liquidation Value (as defined below) of
such share and (ii) the price calculated in accordance with the
Redemption Rate (as defined below) calculated as of the date of the
public announcement of such Major Transaction or the next date on
which the exchange or market on which the Common Stock is traded is
open if such public announcement is made (A) after 1:00 p.m. Central
Time on such date or (B) on a date on which the exchange or market on
which the Common Stock is traded is closed.
(b) Redemption Option Upon Triggering Event. In
addition to all other rights of the holders of Series C Preferred
Shares contained herein, after a Triggering Event (as defined below),
the holders of Series C Preferred Shares shall have the right in
accordance with Section 3(g), at the option of the holders of at least
two-thirds (2/3) of the Series C Preferred Shares then outstanding, to
require the Company to redeem all of the Series C Preferred Shares
then outstanding at a price per Series C Preferred Share equal to the
greater of (i) 120% of the Liquidation Value of such share and (ii)
the price calculated in accordance with the Redemption Rate as of the
date immediately preceding such Triggering Event on which the exchange
or market on which the Common Stock is traded is open.
(c) "Redemption Rate". The "REDEMPTION RATE" shall,
as of any date of determination, be equal to (i) the Conversion Rate
in effect as of such date as calculated pursuant to Section 2(b)
multiplied by (ii) the Closing Bid Price of the Common Stock on such
date.
(d) "Major Transaction". A "MAJOR TRANSACTION" shall
be deemed to have occurred at such time as any of the following
events:
(i) the consummation of any merger,
reorganization, restructuring, consolidation or similar transaction by
or involving the Company except (A) a merger or consolidation where
the Company is the survivor or (B) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company;
(ii) sale of all or substantially all of the
assets of the Company or all of its material subsidiaries or any
similar transaction or related transactions
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<PAGE> 12
which effectively results in a sale of all or substantially all of the
assets of the Company and/or its subsidiaries;
(iii) the occurrence, after the date hereof, of
the acquisition, by any person (including any entity or association)
or persons (other than any existing stockholder of the Company or two
or more existing stockholders of the Company, acting in concert, of
securities of the Company (or the power to vote such securities)
representing 50% or more of the total voting power of all outstanding
Common Stock or other voting securities of the Company; or
(iv) the failure of the Company to continue to
own, directly or indirectly, all of the capital stock of all of its
material subsidiaries (other than due to a merger or consolidation of
any subsidiary into the Company or a wholly-owned subsidiary of the
Company).
(e) "Triggering Event". A "TRIGGERING EVENT" shall be
deemed to have occurred at such time as any of the following events:
(i) either (A) the failure of the Registration
Statement to be effective or to cover the resale of all of the shares
of Common Stock issued or issuable upon conversion of the Series C
Preferred Shares and exercise of the Warrants at any time after sixty
(60) days after the Scheduled Effective Date (provided that for
purposes of determining the Closing Bid Price under Section 3(c)
above, the Triggering Event shall be deemed to have occurred on the
first day of such 60-day period) or (B) for any period of sixty (60)
consecutive days after the date that is sixty (60) days after the
Scheduled Effective Date, other then during the Lock-Up Period, that
Common Stock issued or issuable upon conversion of the Shares C
Preferred Shares cannot be sold under the Registration Statement for
any reason (provided that for purposes of determining the Closing Bid
Price under Section 3(c) above, the Triggering Event shall be deemed
to have occurred on the first day of such 60-day period);
(ii) if for any reason, the Company fails to
perform or observe any covenant, agreement or other provision
contained in Sections 9 or 10 hereof or in Section 4(h) of the
Securities Purchase Agreement.
(iii) Steven Rash ceases to be the Chief Executive
Officer of the Company prior to March 31, 1998 other than in
connection with a Major Transaction;
(iv) the Company's notice to any holder of Series
C Preferred Shares or Warrants, including by way of public
announcement, at any time, of its intention for any reason not to
comply with requests for conversion of any Series C Preferred Shares
or exercise of any Warrant for shares of Common Stock other than in
connection with or pursuant to a proper exercise of the Company's
Lock-Up rights pursuant to Section 2(j);
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(v) if for any reason, the Company fails to
perform or observe any covenant, agreement or other provision
contained herein or in the Securities Purchase Agreement or the
Registration Rights Agreement, and such failure is not cured within 30
days after the Company knows, or should have known with the exercise
of reasonable diligence, of the occurrence thereof, and such failure
has had, or could reasonably be expected to have, a material adverse
effect on (A) the financial condition, operating results, business,
properties or operations of the Company and its subsidiaries taken as
a whole taking into account any proceeds reasonably expected to be
received by the Company or its subsidiaries in the foreseeable future
from insurance policies or rights of indemnification or (B) the Series
C Preferred Shares; or
(vi) any representation or warranty contained in
the Securities Purchase Agreement or the Registration Rights Agreement
is false or misleading on or as of the date made and which either
reflects or has had a material adverse effect on (A) the financial
condition, operating results, business, properties or operations of
the Company and its subsidiaries taken as a whole taking into account
any proceeds reasonably expected to be received by the Company or its
subsidiaries in the foreseeable future from insurance policies or
rights of indemnification or (B) the Series C Preferred Shares.
(f) Mechanics of Redemption at Option of Buyer Upon
Major Transaction. No sooner than fifteen (15) days nor later than ten
(10) days prior to the consummation of a Major Transaction, but not
prior to the public announcement of such Major Transaction, the
Company shall deliver written notice thereof via facsimile and
overnight courier ("NOTICE OF MAJOR TRANSACTION") to each holder of
Series C Preferred Shares. At any time after receipt of a Notice of
Major Transaction, the holders of at least two-thirds (2/3) of the
Series C Preferred Shares then outstanding may require the Company to
redeem all of the holders' Series C Preferred Shares then outstanding
in accordance with Section 3(a) by delivering written notice thereof
via facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION
OF BUYER UPON MAJOR TRANSACTION") to the Company, which Notice of
Redemption at Option of Buyer Upon Major Transaction shall indicate
(i) the number of Series C Preferred Shares that such holders are
voting in favor of redemption and (ii) the applicable redemption
price, as calculated pursuant to Section 3(a) above.
(g) Mechanics of Redemption at Option of Buyer Upon
Triggering Event. Within one (1) day after the occurrence of a
Triggering Event, the Company shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF TRIGGERING EVENT") to each
holder of Series C Preferred Shares. At any time after receipt of a
Notice of Triggering Event, the holders of at least two-thirds (2/3)
of the Series C Preferred Shares then outstanding may require the
Company to redeem all of the Series C Preferred Shares then
outstanding in accordance with Section 3(b) by delivering written
notice thereof via facsimile and overnight courier ("NOTICE OF
REDEMPTION AT OPTION OF BUYER UPON TRIGGERING EVENT") to the Company,
which Notice of Redemption at Option of Buyer Upon Triggering Event
shall indicate (i) the number of Series C Preferred Shares that such
holders are voting in favor of redemption and (ii) the applicable
redemption price, as calculated pursuant to Section 3(b) above.
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<PAGE> 14
(h) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer Upon Major
Transaction or a Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, from the holders of at least
two-thirds (2/3) of the Series C Preferred Shares then outstanding,
the Company shall immediately notify each holder by facsimile of the
Company's receipt of such requisite notices necessary to affect a
redemption and each holder of Series C Preferred Shares shall
thereafter promptly send such holder's Preferred Stock Certificates to
be redeemed to the Company or its Transfer Agent. The Company shall
pay the applicable redemption price, as calculated pursuant to Section
3(a) or 3(b) above, in cash to such holder within thirty (30) days
after the Company's receipt of the requisite notices required to
affect a redemption; provided that a holder's Preferred Stock
Certificates shall have been so delivered to the Company or its
Transfer Agent; provided further that if the Company is unable to
redeem all of the Series C Preferred Shares, the Company shall redeem
an amount from each holder of Series C Preferred Shares equal to such
holder's pro-rata amount (based on the number of Series C Preferred
Shares held by such holder relative to the number of Series C
Preferred Shares outstanding) of all Series C Preferred Shares being
redeemed. If the Company shall fail to redeem all of the Series C
Preferred Shares submitted for redemption (other than pursuant to a
dispute as to the determination of the Closing Bid Price or the
arithmetic calculation of the Redemption Rate), the applicable
redemption price payable in respect of such unredeemed Series C
Preferred Shares shall bear interest at the rate of 2.5% per month
(prorated for partial months) until paid in full. Until the Company
pays such unpaid applicable redemption price in full to each holder,
holders of at least two-thirds (2/3) of the Series C Preferred Shares
then outstanding, including shares of Series C Preferred Shares
submitted for redemption pursuant to this Section 3 and for which the
applicable redemption price has not been paid, shall have the option
(the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption,
require the Company to promptly return to each holder all of the
Series C Preferred Shares that were submitted for redemption by such
holder under this Section 3 and for which the applicable redemption
price has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon
the Company's receipt of such Void Optional Redemption Notice(s) and
prior to payment of the full applicable redemption price to each
holder, (i) the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event or the Notice(s) of Redemption at Option of Buyer
Upon Major Transaction, as the case may be, shall be null and void
with respect to those Series C Preferred Shares submitted for
redemption and for which the applicable redemption price has not been
paid, (ii) the Company shall immediately return any Series C Preferred
Shares submitted to the Company by each holder for redemption under
this Section 3(i) and for which the applicable redemption price has
not been paid, (iii) the Fixed Conversion Price of such returned
Series C Preferred Shares shall be adjusted to the lesser of (A) the
Fixed Conversion Price as in effect on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company and (B) the
lowest Closing Bid Price during the period beginning on the date on
which the Notice(s) of Redemption of Option of Buyer Upon Major
Transaction or the Notice(s) of Redemption at Option of Buyer Upon
Triggering Event, as the case may be, is delivered to the Company and
ending on the date on which the Void Optional Redemption Notice(s) is
delivered to the Company; provided that no adjustment shall be made if
such adjustment would result in an increase of the Fixed
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<PAGE> 15
Conversion Price then in effect, and (iv) the Conversion Percentage in
effect at such time and thereafter shall be reduced by a number of
percentage points equal to the product of (A) two and one-half (2.5)
and (B) the number of months (prorated for partial months) in the
period beginning on the date on which the Notice(s) of Redemption at
Option of Buyer Upon Major Transaction or the Notice(s) of Redemption
at Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Company and ending on the date on which the Void
Optional Redemption Notice(s) is delivered to the Company.
Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation
of the Redemption Rate, such dispute shall be resolved pursuant to
Section 2(f)(iii) above with the term "Closing Bid Price" being
substituted for the term "Average Market Price" and the term
"Redemption Rate" being substituted for the term "Conversion Rate".
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert.
If at any time after the earlier to occur of (i) effectiveness of the
Registration Statement or (ii) sixty (60) days after the Scheduled
Effective Date, other than during the Lock-Up Period, upon the
Company's receipt of a Conversion Notice, the Company does not issue
shares of Common Stock which are registered for resale under the
Registration Statement within five (5) business days of the time
required in accordance with Section 2(f) hereof, for any reason or for
no reason, including, without limitation, because the Company (x) does
not have a sufficient number of shares of Common Stock authorized and
available, (y) is otherwise prohibited by applicable law or by the
rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over
the Company or its Securities, including without limitation the
Nasdaq-NM, from issuing all of the Common Stock which is to be issued
to a holder of Series C Preferred Shares pursuant to a Conversion
Notice or (z) fails to have a sufficient number of shares of Common
Stock registered and eligible for resale under the Registration
Statement, then the Company shall issue as many shares of Common Stock
as it is able to issue in accordance with such holder's Conversion
Notice and pursuant to Section 2(f) above and, with respect to the
unconverted Series C Preferred Shares, the holder, solely at such
holder's option, can, in addition to any other remedies such holder
may have hereunder, under the Securities Purchase Agreement (including
indemnification under Section 8 thereof), under the Registration
Rights Agreement, at law or in equity, elect to:
(i) require the Company to redeem from such
holder those Series C Preferred Shares for which the Company is
unable to issue Common Stock in accordance with such holder's
Conversion Notice ("MANDATORY REDEMPTION") at a price per Series C
Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the
greater of (x) 120% of the Liquidation Value of such share and (y)
the Redemption Rate as of such Conversion Date;
(ii) if the Company's inability to fully convert
Series C Preferred Shares is pursuant to Section 4(a)(z) above,
require the Company to issue restricted shares
15
<PAGE> 16
of Common Stock in accordance with such holder's Conversion Notice
and pursuant to Section 2(f) above; or
(iii) void its Conversion Notice and retain or
have returned, as the case may be, the nonconverted Series C
Preferred Shares that were to be converted pursuant to such
holder's Conversion Notice.
(b) Mechanics of Fulfilling Holder's Election. The
Company shall immediately send via facsimile to a holder of Series
C Preferred Shares, upon receipt of a facsimile copy of a
Conversion Notice from such holder which cannot be fully satisfied
as described in Section 4(a) above, a notice of the Company's
inability to fully satisfy such holder's Conversion Notice (the
"INABILITY TO FULLY CONVERT NOTICE"). Such Inability to Fully
Convert Notice shall indicate (i) the reason why the Company is
unable to fully satisfy such holder's Conversion Notice, (ii) the
number of Series C Preferred Shares which cannot be converted and
(iii) the applicable Mandatory Redemption Price. Such holder must
within five (5) business days of receipt of such Inability to Fully
Convert Notice deliver written notice via facsimile to the Company
("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of its election
pursuant to Section 4(a) above.
(c) Payment of Redemption Price. If such holder shall
elect to have its shares redeemed pursuant to Section 4(a)(i)
above, the Company shall pay the Mandatory Redemption Price in cash
to such holder within thirty (30) days of the Company's receipt of
the holder's Notice in Response to Inability to Convert. If the
Company shall fail to pay the applicable Mandatory Redemption Price
to such holder on a timely basis as described in this Section 4(c)
(other than pursuant to a dispute as to the determination of the
Closing Bid Price or the arithmetic calculation of the Redemption
Rate), such unpaid amount shall bear interest at the rate of 2.5%
per month (prorated for partial months) until paid in full. Until
the full Mandatory Redemption Price is paid in full to such holder,
such holder may void the Mandatory Redemption with respect to those
Series C Preferred Shares for which the full Mandatory Redemption
Price has not been paid and receive back such Series C Preferred
Shares. Notwithstanding the foregoing, if the Company fails to pay
the applicable Mandatory Redemption Price within such thirty (30)
days time period due to a dispute as to the determination of the
Closing Bid Price or the arithmetic calculation of the Redemption
Rate, such dispute shall be resolved pursuant to Section 2(f)(iii)
above with the term "Closing Bid Price" being substituted for the
term "Average Market Price" and the term "Redemption Rate" being
substituted for the term "Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one holder of
Series C Preferred Shares on the same day and the Company can
convert and redeem some, but not all, of the Series C Preferred
Shares pursuant to this Section 4, the Company shall convert and
redeem from each holder of Series C Preferred Shares electing to
have Series C Preferred Shares converted and redeemed at such time
an amount equal to such holder's pro-rata amount (based on the
number of Series C Preferred Shares held by such holder relative to
the number of Series C
16
<PAGE> 17
Preferred Shares outstanding) of all Series C Preferred Shares being
converted and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion
or redemption pursuant to this Certificate of Designations of less
than all of the Series C Preferred Shares represented by a particular
Preferred Stock Certificate, the Company shall promptly cause to be
issued and delivered to the holder of such Series C Preferred Shares a
preferred stock certificate representing the remaining Series C
Preferred Shares which have not been so converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any
of the Series C Preferred Shares are outstanding, reserve and keep
available out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series C Preferred
Shares, such number of shares of Common Stock as shall from time to
time be sufficient to effect the conversion of all of the Series C
Preferred Shares then outstanding; provided that the number of shares
of Common Stock so reserved shall at no time be less than 125% of the
number of shares of Common Stock for which the Series C Preferred
Shares are at any time convertible.
(7) Voting Rights. Holders of Series C Preferred Shares shall
have no voting rights, except as required by law, including but not
limited to the General Corporation Law of the State of Delaware, and
as expressly provided in this Certificate of Designations.
(8) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Series C Preferred Shares shall be
entitled to receive in cash out of the assets of the Company, whether
from capital or from earnings available for distribution to its
stockholders (the "PREFERRED FUNDS"), before any amount shall be paid
to the holders of any of the capital stock of the Company of any class
junior in rank to the Series C Preferred Shares in respect of the
preferences as to the distributions and payments on the liquidation,
dissolution and winding up of the Company, an amount per Series C
Preferred Share equal to the sum of (i) $20,000 and (ii) an amount
equal to the product of (.07) (N/365) ($20,000) (such sum being
referred to as the "LIQUIDATION VALUE"); provided that, if the
Preferred Funds are insufficient to pay the full amount due to the
holders of Series C Preferred Shares and holders of shares of other
classes or series of preferred stock of the Company that are of equal
rank with the Series C Preferred Shares as to payments of Preferred
Funds (the "PARI PASSU SHARES"), then each holder of Series C
Preferred Shares and Pari Passu Shares shall receive a percentage of
the Preferred Funds equal to the full amount of Preferred Funds
payable to such holder as a liquidation preference, in accordance with
their respective Certificate of Designations, Preferences and Rights,
as a percentage of the full amount of Preferred Funds payable to all
holders of Series C Preferred Shares and Pari Passu Shares. The
purchase or redemption by the Company of stock of any class, in any
manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company.
Neither the consolidation or merger of the Company with or into any
other Person, nor the sale or transfer by the Company of less than
substantially all of its assets,
17
<PAGE> 18
shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Company. No holder of Series C
Preferred Shares shall be entitled to receive any amounts with respect
thereto upon any liquidation, dissolution or winding up of the Company
other than the amounts provided for herein.
(9) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Series C Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. The rights of the shares of
Common Stock shall be subject to the preferences and relative rights
of the Series C Preferred Shares. The Series C Preferred Shares shall
be of equal rank with shares of the Company's 1996 Series A
Convertible Preferred Stock and 1996 Series B Convertible Preferred
Stock. Without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Series C Preferred
Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that is of senior or equal rank to the Series C
Preferred Shares in respect of the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the
Company. Without the prior express written consent of the holders of
not less than two-thirds (2/3) of the then outstanding Series C
Preferred Shares, the Company shall not hereafter authorize or make
any amendment to the Company's Certificate of Incorporation or bylaws,
or file any resolution of the board of directors with the Delaware
Secretary of State containing any provisions, which would adversely
affect or otherwise impair the rights or relative priority of the
holders of the Series C Preferred Shares relative to the holders of
the Common Stock or the holders of any other class of capital stock.
In the event of the merger or consolidation of the Company with or
into another corporation, the Series C Preferred Shares shall maintain
their relative powers, designations and preferences provided for
herein and no merger shall result inconsistent therewith.
(10) Restriction on Redemption and Dividends.
(a) Restriction on Dividends. If any Series C Preferred
Shares are outstanding, without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Series C Preferred Shares, the Company shall not directly or
indirectly declare, pay or make any dividends or other distributions
upon any of the Common Stock so long as written notice thereof has
been given to holders of the Series C Preferred Shares at least 30
days prior to the earlier of (a) the record date taken for or (b) the
payment of any such dividend or other distribution. Notwithstanding
the foregoing, this Section 10 (a) shall not prohibit the Company from
declaring and paying a dividend in cash with respect to the Common
Stock so long as the Company: (i) pays simultaneously to each holder
of Series C Preferred Shares an amount in cash equal to the amount
such holder would have received had all of such holder's Series C
Preferred Shares been converted to Common Stock pursuant to Section 2
hereof one business day prior to the record date for any such
dividend, and (ii) after giving effect to the payment of any dividend
and any other payments required in connection therewith including to
the holders of the Series C Preferred Shares under clause 10 (a)(i)
hereof, the Company has in cash or cash equivalents an amount equal to
the aggregate of: (A) all of its liabilities reflected on its most
recently available balance sheet, (B) the amount of any indebtedness
incurred by the Company or any of its subsidiaries
18
<PAGE> 19
since its most recent balance sheet and (C) 125% of the amount payable
to all holders of any shares of any class of preferred stock of the
Company assuming a liquidation of the Company as the date of its most
recently available balance sheet.
(b) Restriction on Redemption. If any Series C Preferred
Shares are outstanding, without the prior express written consent of
the holders of not less than two-thirds (2/3) of the then outstanding
Series C Preferred Shares, the Company shall not directly or
indirectly redeem, purchase or otherwise acquire from any person or
entity other than from a direct or indirect wholly-owned subsidiary of
the Company, or permit any subsidiary of the Company to redeem,
purchase or otherwise acquire from any person or entity other than
from the Company or another direct or indirect wholly-owned subsidiary
of the Company, any of the Company's or any subsidiary's capital stock
or other equity securities (including, without limitation, warrants,
options and other rights to acquire such capital stock or other equity
securities) except for (a) the redemption of shares of 1996 Series A
Preferred Stock, 1996 Series B Preferred Stock or Series C Preferred
Stock pursuant to the Certificate of Incorporation of the Company or
the respective Certificate of Designations, Preferences and Rights as
in effect on the date hereof, (b) the redemption or repurchase of
Common Stock and Preferred Stock up to an aggregate of $250,000 per
year but in no event more than $1,000,000 in the aggregate after the
date hereof from directors and officers of the Company or any of its
subsidiaries in the event any such person shall cease to be employed
by, or a director of, the Company or any of its direct or indirect
subsidiaries for any reason, including without limitation, upon death,
retirement, permanent disability or termination for any reason.
(11) Vote to Change the Terms of Series C Preferred Shares.
The affirmative vote at a meeting duly called for such purpose or the
written consent without a meeting, of the holders of not less than
two-thirds (2/3) of the then outstanding Series C Preferred Shares,
shall be required for any change to this Certificate of Designations
or the Company's Certificate of Incorporation which would amend,
alter, change or repeal any of the powers, designations, preferences
and rights of the Series C Preferred Shares.
(12) Lost or Stolen Certificates. Upon receipt by the Company
of evidence satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates
representing the Series C Preferred Shares, and, in the case of loss,
theft or destruction, of any indemnification undertaking by the holder
to the Company and, in the case of mutilation, upon surrender and
cancellation of the Preferred Stock Certificate(s), the Company shall
execute and deliver new preferred stock certificate(s) of like tenor
and date; provided, however, the Company shall not be obligated to
re-issue preferred stock certificates if the holder contemporaneously
requests the Company to convert such Series C Preferred Shares into
Common Stock.
(13) Withholding Tax Obligations. Notwithstanding anything
herein to the contrary, to the extent that the Company receives advice
in writing from its counsel that there is a reasonable basis to
believe that the Company is required by applicable federal laws or
regulations and delivers a copy of such written advice to the holders
of the Series C Preferred Shares so effected, the Company may
reasonably condition the making of any distribution (as
19
<PAGE> 20
such term is defined under applicable federal tax laws and
regulations) in respect of any Series C Preferred Share on the holder
of such Series C Preferred Shares depositing with the Company an
amount of cash sufficient to enable the Company to satisfy its
withholding tax obligations (the "Withholding Tax") with respect to
such distribution. Notwithstanding the foregoing or anything to the
contrary, if any holder of the Series C Preferred Shares so effected
receives advice in writing from its counsel that there is a reasonable
basis to believe that the Company is not so required by applicable
federal laws or regulations and delivers a copy of such written advice
to the Company, the Company shall not be permitted to condition the
making of any such distribution in respect of any Series C Preferred
Share on the holder of such Series C Preferred Shares depositing with
the Company any Withholding Tax with respect to such distribution,
provided however; the Company may reasonably condition the making of
any such distribution in respect of any Series C Preferred Share on
the holder of such Series C Preferred Shares executing and delivering
to the Company, at the election of the holder, either: (i) if
applicable, a properly completed Internal Revenue Service Form 4224,
or (ii) an indemnification agreement in reasonably acceptable form
with respect to any federal tax liability, penalties and interest that
may be imposed upon the Company by the Internal Revenue Service as a
result of the Company's failure to withhold in connection with such
distribution to such holder. If the conditions in the preceding two
sentences are fully satisfied, the Company shall not be required to
pay any additional damages set forth in Section 2(f)(v) of this
Certificate of Designations if its failure to timely deliver any
Conversion Shares results solely from the holder's failure to deposit
any withholding tax hereunder or provide to the Company an executed
indemnification agreement in the form of Exhibit IV hereto.
20
<PAGE> 21
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Steven Rash its Chief Executive Officer, as of the
21st day of March 1997.
AMERICAN BIOMED, INC.
By: /s/ STEVEN RASH
------------------------------
Steven Rash
Chief Executive Officer
<PAGE> 22
EXHIBIT I
AMERICAN BIOMED, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights of American BioMed, Inc. (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the
undersigned hereby elects to convert the number of shares of Series C
Convertible Preferred Stock, $.001 par value per share (the "SERIES C PREFERRED
SHARES"), of American BioMed, Inc., a Delaware corporation (the "COMPANY"),
indicated below into shares of Common Stock, $.001 par value per share (the
"COMMON STOCK"), of the Company, by tendering the stock certificate(s)
representing the share(s) of Series C Preferred Shares specified below as of
the date specified below.
The undersigned acknowledges that any sales by the undersigned of the
securities issuable to the undersigned upon conversion of the Series C
Preferred Shares shall be made only pursuant to (i) a registration statement
effective under the Securities Act of 1933, as amended (the "Act"), or (ii)
advice of counsel that such sale is exempt from registration required by
Section 5 of the Act.
Date of Conversion:
-------------------------------------
Number of Series C
Preferred Shares to be converted
-------------------------------------
Stock certificate no(s). of Series C
Preferred Shares to be converted:
-------------------------------------
Please confirm the following information:
Conversion Price:
-------------------------------------
Number of shares Common Stock
to be issued:
-------------------------------------
<PAGE> 23
Please issue the Common Stock into which the Series C Preferred Shares are
being converted in the following name and to the following address:
Issue to: (1)
-------------------------------------
-------------------------------------
Facsimile Number:
-------------------------------------
Authorization:
-------------------------------------
By:
----------------------------------
Title:
-------------------------------
Dated:
-------------------------------
ACKNOWLEDGED AND AGREED:
AMERICAN BIOMED, INC.
By:
----------------------------------
Name:
-------------------------------
Title:
-------------------------------
Dated:
-------------------------------
- --------
(1) If other than to the record holder of the Series C Preferred Shares, any
applicable transfer tax must be paid by the undersigned.
<PAGE> 24
EXHIBIT II
AMERICAN BIOMED, INC.
LOCK-UP NOTICE
Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of American BioMed, Inc. (the
"COMPANY"). In accordance with and pursuant to Section (2)(j) of the
Certificate of Designations, the Company hereby elects to exercise its LockUp
rights (as set forth in the Certificate of Designations), effective as of the
date hereof. Consequently, the Company shall not be required to convert any
Series C Preferred Shares which have a Conversion Date (as defined in the
Certificate of Designations) during the period beginning on the date hereof and
ending on the earlier of (i) that date which is ninety (90) days from the date
hereof and (ii) the 360th day following the Issuance Date (as defined in the
Certificate of Designations).
Authorization:
--------------------------------
By:
----------------------------------
Title:
-------------------------------
Dated:
-------------------------------
<PAGE> 25
EXHIBIT III
AMERICAN BIOMED, INC.
FORM OF LOCK-UP AGREEMENT
Reference is made to the Certificate of Designations, Preferences and
Rights (the "CERTIFICATE OF DESIGNATIONS") of American BioMed, Inc. (the
"COMPANY"). The undersigned has been advised that in accordance with and
pursuant to Section (2)(j) of the Certificate of Designations, effective as of
__________ (the "LOCK-UP COMMENCEMENT DATE"), the Company has elected to
exercise its Lock-Up rights (as set forth in the Certificate of Designations)
with respect to shares of Series C Convertible Preferred Stock (the "SERIES C
PREFERRED SHARES"), $.001 par value per share. Consequently, the Company shall
not be required to convert any Series C Preferred Shares which have a
Conversion Date (as defined in the Certificate of Designations) during the
period (the "Lock Up Period") beginning on the Lock-Up Commencement Date and
ending on the earlier of (i) that date which is ninety (90) days from the
Lock-Up Commencement Date and (ii) [the 360th day following the Issuance Date
(as defined in the Certificate of Designations)].
In consideration of the agreement by the holders of the Series C
Preferred Shares not to convert any Series C Preferred Shares pursuant to the
Lock-Up rights, and for other good and valuable consideration, the undersigned
hereby irrevocably agrees that until one day after each of the holders of the
Series C Preferred Shares has received written notice from the Company that the
LockUp Period has ended the undersigned will not, directly or indirectly,
without the prior written consent of the holders representing a majority of the
outstanding Series C Preferred Shares, sell, contract to sell, pledge, grant
any option for the sale of or otherwise dispose or cause the disposition of any
shares of the Company's common stock, $.001 par value per share (the "COMMON
STOCK"), or any securities convertible into or exchangeable or exercisable for
any shares of Common Stock owned by the undersigned. Notwithstanding the
foregoing, the undersigned shall not need to obtain such written consent with
respect to (1) a transfer (not involving a sale in the public market) of shares
of Common Stock by the undersigned in a bona fide charitable or other donative
transaction or in any estate planning transaction so long as in each case the
transferee of such shares agrees in writing to be bound by the terms of this
agreement and furnishes a copy of such agreement to holders of the Series C
Preferred Shares prior to effecting any such transfer and (2) a transfer (not
involving a sale in the public market) of shares of Common Stock, if the
undersigned is a natural person, due to the death or disability of the
undersigned so long as the transferee of such shares agrees in writing to be
bound by the terms of this agreement and furnishes a copy of such agreement to
holders of the Series C Preferred Shares prior to effecting any such transfer.
In furtherance of the foregoing, the Company and the
Company's transfer agent and registrar are hereby authorized to decline to make
any transfer or securities if such transfer would constitute a violation or
breach of this agreement.
Very truly yours,
----------------------------------------
Signature
----------------------------------------
Print Name:
<PAGE> 1
EXHIBIT 10.82
SECURITIES PURCHASE AGREEMENT
THE SECURITIES BEING SUBSCRIBED FOR HEREIN (AND THE SECURITIES
ISSUABLE UPON CONVERSION OF PREFERRED STOCK) HAVE NOT BEEN REGISTERED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES ACT
OF 1933, AS AMENDED, (THE "1933 ACT") OR THE SECURITIES COMMISSION OF ANY STATE
UNDER ANY STATE SECURITIES LAW. SUCH SECURITIES ARE BEING OFFERED PURSUANT TO
THE SAFE HARBOR EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT AFFORDED BY
REGULATION S ("REGULATION S") PROMULGATED UNDER THE 1933 ACT. SUCH SECURITIES
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED STATES OR TO
U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE SECURITIES
ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH
OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. AN INVESTMENT IN SUCH SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN
MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED
BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED, PASSED UPON,
CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ANY
INFORMATION PROVIDED BY THE COMPANY TO POTENTIAL INVESTORS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of February
20, 1996 by and among AMERICAN BIOMED, INC., a Delaware corporation, with
headquarters located at 10077 Grogran's Mill Road, Suite 100, The Woodlands,
Texas 77380 (the "COMPANY"), and each of the Purchasers (individually, a
"PURCHASER" and collectively, the "PURCHASERS") set forth on the execution
pages hereof (the "EXECUTION PAGES").
<PAGE> 2
WHEREAS:
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the safe harbor exemption from securities
registration afforded by the provisions Regulation S ("REGULATION S"), as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 ACT");
B. Each of the Purchasers desires to purchase, upon the terms and
conditions stated in this Agreement, (i) the number of shares of the Company's
Common Stock, par value $.001 per share (the "Common Stock") at a price equal
to Twenty-four Cents ($.24) and/or (ii) the number of shares of the Company's
Series A Convertible Preferred Stock, par value $.001 per share (the "PREFERRED
STOCK"), at a price equal to One Thousand Dollars ($1,000) per share, the
stated value thereof, set forth immediately below each such Purchaser's name on
the Execution Pages. The rights, preferences and privileges of the Preferred
Stock, including the terms upon which such Preferred Stock is convertible into
shares of the Company's Common Stock, are set forth in the form of Certificate
of Designation attached hereto as EXHIBIT "A" (the "CERTIFICATE OF
DESIGNATION"). The shares of Common Stock and Preferred Stock to be issued and
sold hereunder are hereinafter referred to as the "COMMON SHARES" and the
"PREFERRED SHARES", respectively, and the shares of Common Stock issuable upon
conversion of the Preferred Shares are hereinafter referred to as the
"CONVERSION SHARES".
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as EXHIBIT "B" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws;
NOW THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF COMMON SHARES AND PREFERRED SHARES.
a. Purchase of Common Shares and Preferred Shares. Subject to the
satisfaction (or waiver) of the conditions set forth in Section 6 and Section 7
below, the Company shall issue and sell to each Purchaser and each Purchaser
shall purchase from the Company (i) the number of Common Shares at a price
equal to Twenty-four cents ($.24) per share and/or (ii) the number of Preferred
Shares at a price equal to One Thousand Dollars ($1,000) per share, the stated
value thereof (collectively, the "PURCHASE PRICE"), set forth immediately below
each such Purchaser's name on the Execution Pages.
b. Form of Payment. At the Closing (as hereinafter defined), (i) the
Purchasers shall pay the Purchase Price by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed certificates representing such Common Shares
-2-
<PAGE> 3
and/or Preferred Shares, and (ii) the Company shall deliver such certificates
against delivery of such Purchase Price.
c. Closing/Closing Date. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, an
individual closing ("CLOSING") shall be conducted with respect to each
Purchaser or group of Purchasers on July 24, 1996 or on such other date as the
parties shall agree. Such Closings shall occur at the offices of Klehr,
Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia,
Pennsylvania 19102. For the purposes of this Agreement and compliance with
Regulation S, the date on which the last such Closing takes place, and all
Common Shares and/or Preferred Shares offered hereby have been purchased, shall
be deemed to be the "CLOSING DATE".
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants to the Company solely with
respect to such Purchaser that:
a. Investment Purpose. The Purchaser is purchasing the Common Shares
and/or Preferred Shares (including the Conversion Shares) (collectively, the
Common Shares, the Preferred Shares and the Conversion Shares are hereinafter
referred to as the "SECURITIES")) for its own account for investment only and
not with a present view towards the public sale or distribution thereof, except
pursuant to sales that are exempt from the registration requirements of the
1933 Act and/or sales registered under the 1933 Act. Purchaser understands that
Purchaser must bear the economic risk of this investment indefinitely, unless
the Securities are registered pursuant to the 1933 Act and any applicable state
securities or blue sky laws ("State Acts") or an exemption from such
registration is available, and that the Company has no present intention of
registering any such Securities other than as contemplated by the Registration
Rights Agreement. Purchaser represents and warrants to the Company, as of the
date of this Agreement, that Purchaser has no present plan or intention to sell
the Securities in the United States or to a U.S. person at any predetermined
time, and has made no predetermined arrangements to sell the Securities.
Purchaser covenants that neither Purchaser nor its affiliates nor any person
acting on its or their behalf has entered, has the intention of entering, or
will enter into any put option, short position or other similar instrument or
position in the U.S. with respect to the Securities at any time after receipt
of the term sheet concerning the transaction contemplated thereby (the "Term
Sheet") until the expiration of the period commencing on the Closing Date and
ending forty (40) days thereafter (the "Restricted Period") or for the intended
purpose of lowering the price at which the Preferred Shares are convertible
into Conversion Shares and neither Purchaser nor any of its affiliates nor any
person acting on its or their behalf will at any time use Conversion Shares or
Preferred Shares to settle/cover any put option, short position or other
similar instrument or position entered into prior to the end of the Restricted
Period.
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<PAGE> 4
b. Accredited Investor Status. The Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D ("REGULATION
D") as promulgated by the SEC under the 1933 Act.
c. Reliance on Exemptions. The Purchaser understands that the Common
Shares and/or the Preferred Shares are being offered and sold to it in reliance
upon specific exemptions from the registration requirements of United States
federal and state securities laws and that the Company is relying upon the
truth and accuracy of, and the Purchaser's compliance with, the
representations, warranties, agreements, acknowledgments and understandings of
the Purchaser set forth herein in order to determine the availability of such
exemptions and the eligibility of the Purchaser to acquire the Preferred
Shares.
d. Information. The Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Purchaser or its advisors. The Purchaser and
its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received what the Purchaser believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other due
diligence investigation conducted by Purchaser or any of its advisors or
representatives shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Purchaser understands that its investment in the Securities involves a high
degree of risk.
e. Governmental Review. The Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Offshore Transaction. The Purchaser represents and warrants to the
Company that (i) the Purchaser is not a "U.S. person" as that term is defined
in Rule 902(o) of Regulation S and, in that regard, further represents that (a)
it is organized under the laws of a jurisdiction other than the United States
and (b) if organized by a "U.S. Person" principally for the purpose of
investing in securities not registered under the Act, it was organized and is
owned by Accredited Investors who are not natural persons, estates or trusts;
(ii) the Preferred Shares were not offered to the Purchaser in the United
States and at the time of execution of this Subscription Agreement and the time
of any offer to the Purchaser to purchase Preferred Shares hereunder, the
Purchaser was physically outside the United States; (iii) the Purchaser is
purchasing the Securities for its own account and not on behalf of or for the
benefit of any U.S. person and the sale and resale of the Securities have not
been prearranged with any U.S. person or buyer in the United States; (iv) the
Purchaser agrees that all offers and sales of the Securities prior to the
expiration of the Restricted Period shall not be made to U.S. persons or for
the account or benefit of U.S. persons and shall otherwise be made in
compliance with the provisions of Regulation S. Purchaser is not a distributor
or dealer with respect to the Securities.
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<PAGE> 5
g. Signatory's Representation. The Purchaser represents and warrants
that the signatory to this Agreement is not a U.S. Person (as defined in
Regulation S), and is not located in the U.S. at the time of signing this
Agreement.
h. No Scheme to Evade Registration. Purchaser's acquisition of the
Securities is not a transaction (or any element of a series of transactions)
that is part of a plan or scheme to evade the registration provisions of the
1933 Act.
i. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Purchaser and are valid and binding agreements of the
Purchaser enforceable in accordance with their terms.
j. Residency. The Purchaser is a resident of the country set forth
immediately below its name on the Execution Pages.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated, and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company and each of its subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the operations, properties, financial condition or prospects of the
Company or on the transactions contemplated hereby.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, and the
Registration Rights Agreement to issue and sell the Common Shares and/or the
Preferred Shares in accordance with the terms hereof and, upon approval of the
Amendment by the Company's stockholders and the filing thereof with the
Secretary of State of the State of Delaware, to issue the Conversion Shares
upon conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation, (ii) the execution and delivery of this Agreement
and the Registration Rights Agreement by the Company and the consummation by it
of the transactions contemplated hereby and thereby (including without
limitation the issuance of the Common Shares and/or the Preferred Shares and
the issuance and reservation for issuance of the Conversion Shares issuable
upon conversion thereof) have been duly authorized by the Company's Board of
Directors and, except for the approval of the Amendment (as hereinafter
defined) by the Company's stockholders, no further consent or authorization of
the Company, its Board or Directors, or its stockholders is required, (iii)
this Agreement has been
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<PAGE> 6
duly executed and delivered by the Company, and (iv) this Agreement
constitutes, and upon execution and delivery by the Company of the Registration
Rights Agreement, such agreement will constitute, a valid and binding
obligation of the Company enforceable against the Company in accordance with
its terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Shares) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares to be reserved for issuance upon conversion of the Preferred Shares
upon the effective date of the Amendment (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below), is set forth on SCHEDULE
3(C). All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and nonassessable. No shares of
capital stock of the Company are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens or encumbrances.
Except as disclosed in SCHEDULE 3(C), as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for any shares of capital stock of the
Company or any of its subsidiaries, or arrangements by which the Company or any
of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of its or their securities under the
1933 Act (except the Registration Rights Agreement). The Company has furnished
to the Purchaser true and correct copies of the Company's Restated Certificate
of Incorporation as in effect on the date hereof ("CERTIFICATE OF
INCORPORATION"), the Company's By-laws, as in effect on the date hereof (the
"BY-LAWS"), the Certificate of Designation and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the
material rights of the holders thereof in respect thereto. The Company shall
provide the Purchaser with a written update of this representation signed by
the Company's Chief Executive or Chief Financial Officer on behalf of the
Company as of the Closing Date.
d. Issuance of Shares. The Common Shares and/or Preferred Shares are,
and upon the effective date of the Amendment, the Conversion Shares will be
duly authorized and, upon issuance in accordance with the terms of this
Agreement, the Conversion Shares shall be validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement, and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Common Shares and/or the
Preferred Shares, and after the effective date of the Amendment, the issuance
and reservation for issuance of the Conversion Shares) will not (i) result in a
violation of the Certificate of Incorporation or By-laws or (ii) conflict with,
or constitute a default (or an event
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<PAGE> 7
which with notice or lapse of time or both would become a default) under, or
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Except as
set forth on Schedule 3(e) hereof, neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation, By-laws or
other organizational documents and neither the Company nor any of its
subsidiaries is in default (and no event has occurred which with notice or
lapse of time or both would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, except for possible defaults or rights as
would not, individually or in the aggregate, have a Material Adverse Effect.
The businesses of the Company and its subsidiaries are not being conducted, and
shall not be conducted so long as a Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity,
except for possible violations which either singly or in the aggregate do not
have a Material Adverse Effect. Except as specifically contemplated by this
Agreement and as required under the 1933 Act and any applicable state
securities laws, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency or any regulatory or self regulatory agency in order for
it to execute, deliver or perform any of its obligations under this Agreement,
or the Registration Rights Agreement or to perform its obligations under the
Certificate of Designation, in each case in accordance with the terms hereof or
thereof.
f. SEC Documents, Financial Statements. Since December 31, 1995, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC DOCUMENTS"). The Company has delivered to Purchaser true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods
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<PAGE> 8
involved (except (i) as may be otherwise indicated in such financial statements
or the notes thereto, or (ii) in the case of unaudited interim statements, to
the extent they may include footnotes or may be condensed or summary
statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents, the Company has no
liabilities, contingent or otherwise, other than (i) liabilities incurred in
the ordinary course of business subsequent to December 31, 1995 and (ii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under generally accepted accounting principles to be
reflected in such financial statements, which, individually or in the
aggregate, are not material to the financial condition or operating results of
the Company. The Company has not provided to any Purchaser any information
which, according to applicable law, rule or regulation, should have been
disclosed publicly by the Company but which has not been so disclosed.
g. Absence of Certain Changes. Since December 31, 1995 there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 2(g) or in the SEC Documents.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company or any of its subsidiaries.
i. Disclosure. All information relating to or concerning the Company
set forth in this Agreement and provided to the Purchaser pursuant to Section
2(d) hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to Company or its subsidiaries or the respective business, properties,
prospects, operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed.
j. Acknowledgment Regarding Purchaser's Purchase of the Common Shares
and/or the Preferred Shares. The Company further acknowledges that Purchaser is
not acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement and the transactions
contemplated hereby and any advice given by the Purchaser or any of its
representatives or agents in connection with this Agreement and the
transactions contemplated hereby is merely incidental to the Purchaser's
purchase of the Common Shares and/or the Preferred Shares. The Company further
represents to Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company
and its representatives.
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<PAGE> 9
k. Current Public Information. The Company represents and warrants to
the Purchaser that the Company is a "domestic issuer" and a "reporting issuer"
as defined in Rule 902 of Regulation S. The Common Stock is registered under
Section 12(b) or 12(g) of the 1934 Act, and the Company has filed all the
materials required to be filed as reports pursuant to the 1934 Act for a period
of at least twelve months preceding the date hereof (or for such shorter period
as the Company was required by law to file such material), and all such filings
have been made on a timely basis. The Company is currently eligible to register
the resale of its Common Stock on a registration statement Form S-3 under the
1933 Act.
l. No Securities Offered in U.S. or to any U.S. Person. Based upon,
among other things, the representations and warranties of the Purchasers in
this Agreement, the Company represents that it has not offered the Common
Shares and/or the Preferred Shares offered hereunder to any Purchaser in the
U.S. or to any person in the United States or any U.S. Person (as defined in
Regulation S).
m. No Directed Selling Efforts in Regard to this Transaction. Neither
the Company nor any distributor participating in the transaction contemplated
hereby (if any) nor any person acting for the Company, or any such distributor,
has conducted any "directed selling efforts" in the United States, as such term
is defined in Rule 902 of Regulation S, or any general solicitation, as such
term is defined in Regulation D, with respect to any of the Securities.
n. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offerers
to buy any security under circumstances that would require registration of the
Securities under the 1933 Act.
o. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Zanett Capital Inc., whose
commissions and fees will be paid for by the Company.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Reporting Status. So long as the Purchasers beneficially own any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
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<PAGE> 10
c. Use of Proceeds. The Company shall not use the proceeds from the
sale of the Common Shares and/or the Preferred Shares for anything other than
the Company's internal working capital purposes, and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person.
d. Financial Information. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns, or sells all
of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; and (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its subsidiaries.
e. Reservation of Shares. The Company shall, at all times after the
effective date of the Amendment, have authorized, and reserved for the purpose
of issuance, a sufficient number of shares of Common Stock to provide for the
full conversion of the outstanding Preferred Shares and issuance of the
Conversion Shares in connection therewith (based on the Conversion Price of the
Preferred Shares in effect from time to time). The Company shall not reduce the
number of shares reserved for issuance upon conversion of the Preferred Shares
without the consent of each of the Purchasers, which consent will not be
unreasonably withheld.
f. Listing. The Company shall take all actions necessary to continue
the listing and trading of its Common Stock on the National Association of
Securities Dealers, Inc. OTC Bulletin Board (the "OTC BULLETIN BOARD") and
shall comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD until such time as such
Common Stock is listed on one of the securities exchanges or interdealer
question systems set forth in the next sentence. The Company shall use its best
efforts to secure the listing and trading of its Common Stock on either the
American Stock Exchange ("AMEX"), the New York Stock Exchange ("NYSE"), the
NASDAQ National Market System ("NASDAQ-NMS") or the NASDAQ Small Cap Market
("NASDAQ SMALL CAP") not later than December __, 1996, and thereafter to
continue the listing and trading of its Common Stock thereon and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and such exchanges, as applicable. The Company
shall promptly secure the listing of the Conversion Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion of
the Preferred Shares.
g. Corporate Existence. So long as the Purchaser beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence, except in
the event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
AMEX, the NYSE or the NASDAQ-NMS.
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<PAGE> 11
h. Amendment to Certificate of Incorporation. The Company shall use
its best efforts to amend, as soon as practicable after the date hereof (and in
any event no later than November 30, 1996), 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 the reservation for
issuance and issuance of the full number of shares of Common Stock issuable
upon conversion of the Preferred Shares (the "AMENDMENT"). In that regard, the
Company shall present to its stockholders a proposal to approve the Amendment
at its next annual meeting of stockholders or a special meeting of stockholders
called for such purpose and shall prepare proxy materials with respect thereto
which contain the recommendation of the Company's Board of Directors for the
approval of the Amendment and which comply, in all material respects, with the
proxy rules promulgated pursuant to the 1934 Act.
i. Conclusion of Offering. The Company and the Purchasers agree that
the Closing Date shall be deemed to be a conclusion of the offering of Common
Shares and/or Preferred Shares contemplated hereby. The Company acknowledges
and agrees that, for purposes of clarifying and specifying the applicable
Restricted Period under Regulation S, the Purchasers intend to observe as the
Restricted Period (as defined in Regulation S) for the Common Shares and/or
Preferred Shares, the period commencing on the Closing Date and ending 40 days
thereafter.
j. Legends. The Conversion Shares, and the certificates evidencing the
same, shall at all times be free of legends (except as provided in Section 5
below), "stock transfer restrictions," or other restrictions, except for
covenants of the Purchasers expressly set forth in this Agreement.
k. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for the
payment of its own expenses incurred in connection with the negotiation,
execution, delivery and performance of this Agreement.
5. LEGENDS; SUBSEQUENT TRANSFERS.
a. Resales of Securities by Purchasers. Each Purchaser acknowledges,
covenants and agrees that the Securities may and will only be resold by it (a)
in compliance with Regulation S; or (b) pursuant to an exemption from
registration under the 1933 Act other than Regulation S; or (c) pursuant to an
effective and current registration statement under the 1933 Act. Each Purchaser
agrees that it shall not make any offers or sales of the Securities prior to
the expiration of the Restricted Period to any U.S. person or for the account
or benefit of any U.S. person and any such offers or sales prior to such
expiration shall otherwise be made in compliance with the provisions of
Regulation S. In connection with any sale or transfer of the Securities prior
to the end of the Restricted Period, the Purchaser transferring such Securities
will obtain and deliver to the Company a certificate of the prospective
transferee confirming that: (i) the prospective transferee is not a U.S.
person; (ii) the securities have been offered and sold or transferred to the
prospective transferee outside the United States, and the prospective
transferee has no present intention to reoffer or resale
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<PAGE> 12
the Securities to a U.S. person or in the United States; (iii) prior to the end
of the Restricted Period, the prospective transferee will not offer to sell the
Securities to a U.S. person or for the account or benefit of a U.S. person or
in the United States; and (iv) if the prospective transferee effects any
further transfer, offer or sale of the Securities prior to the end of the
Restricted Period, such transfer, offer or sale shall comply with the terms of
Regulation S and the prospective transferee will obtain and deliver to the
Company a certificate of the subsequent transferee to the effect of clauses
(i)-(iv) of this sentence.
b. Legends. The certificates representing the Common Shares and/or the
Preferred Shares and any Conversion Shares issued during the Restricted Period,
shall bear the following legend (the "LEGEND"):
"The securities represented hereby have been issued pursuant
to Regulation S promulgated under the Securities Act of 1933, as
amended (the "1933 Act"), and have not been registered under the
1933 Act. Such securities may not be transferred, offered or sold
prior to the end of the forty (40) day period (the "Restricted
Period") commencing on July__, 1996 unless such transfer, offer or
sale is made in an "offshore transaction" and not to or for the
account of or benefit of a "U.S. Person" (as such terms are defined
in Regulation S) and is otherwise in accordance with the
requirements of Regulation S. Following expiration of the
Restricted Period, the securities represented hereby may not be
offered, sold or otherwise transferred in the United States or to a
U.S. Person unless the securities are registered under the 1933 Act
and applicable state securities laws, or such offers, sales and
transfers are made pursuant to an available exemption from the
registration requirements of those laws."
c. Removal of Legend Following the Expiration of the Restricted
Period. Following the expiration of the Restricted Period, the Company will
remove or will promptly instruct its transfer agent to remove the Legend from
the Common Shares and/or the Preferred Shares and, if applicable, from the
Conversion Shares issued during the Restricted Period (and will instruct its
transfer agent to issue without the Legend, the Conversion Shares issuable upon
any conversion or exercise occurring after the Restricted Period), if the
Purchaser holding such Securities or any other person in whose name such
certificates have been or are to be issued shall have delivered a certificate
(a "Removal Certificate") to the Company to the following effect:
"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
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<PAGE> 13
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."
d. Removal of Legend in Connection with Bona Fide Pledge. Upon the
submission, at any time after the expiration of the Restricted Period, by a
Purchaser of a written request for legend removal for the purpose of a bona
fide pledge or deposit of the Common Shares and/or the Preferred Shares with a
margin account, together with the certificates for which the legend removal is
being requested, the Company will reissue or will promptly instruct its
transfer agent to reissue the certificates representing the Common Shares
and/or the Preferred Shares to be so pledged or deposited without the Legend,
and no Removal Certificate shall be required to be delivered in connection
therewith.
e. Irrevocable Instructions to Transfer Agent. The Company will issue
to its transfer agent an irrevocable instruction letter to issue Common Stock
upon conversion of the Preferred Shares (in accordance with the Certificate of
Designation and, so long as Section 5(c) above is complied with, free of the
Legend) upon receipt of a valid Notice of Conversion from the Purchaser and the
certificates representing the Preferred Shares.
f. Preservation of the Legend. Notwithstanding the provisions of this
Section 5, if with respect to the Company's receipt of a Removal Certificate
from any person, prior to any removal of the Legend, there shall have been
after the date hereof any amendment to the 1933 Act or Regulation S or any no
action letter or interpretative release shall have been promulgated by the SEC
after the date hereof which explicitly disallows the removal of the Legend
under the circumstances in which the request that it be removed is being made,
then the Company shall have no obligation to remove or to instruct its transfer
agent to remove the Legend, unless the Company shall have received from the
person requesting such removal a written letter of counsel to such person
reasonably acceptable to the Company and its counsel confirming that the Legend
may be so removed or share certificates may be so issued without the Legend
without violation of the 1933 Act. If the person requesting a removal of the
Legend is unable to supply the legal opinion referred to above then the Company
shall, upon demand of such person, be obligated to register the Common Stock
for resale pursuant to the terms of the Registration Rights Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Common
Shares and/or the Preferred Shares to each of the Purchasers at a Closing is
subject to the satisfaction, at or before the date and time of any such
Closing, of each of the following conditions thereto, provided that these
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<PAGE> 14
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion.
(i) The Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Company.
(ii) The Purchaser shall have delivered the Purchase Price in
accordance with Section 1(b) above.
(iii) The representations and warranties of the Purchasers
shall be true and correct in all material respects as of the date when made and
as of the date and time of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date), and the
Purchasers shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchasers at or
prior to such Closing.
(iv) No injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each of the Purchasers hereunder to purchase the
Preferred Shares at the closing is subject to the satisfaction, at or before
the Closing of each of the following conditions, provided that these conditions
are for the Purchasers' sole benefit and may be waived by a Purchaser at any
time in its sole discretion:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Purchaser.
(ii) The Certificate of Designation shall have been filed
with the Secretary of State of the State of Delaware, and a copy thereof
certified by the Secretary of State shall have been delivered to the Purchaser.
(iii) The Company shall have delivered duly executed
certificates representing the Common Shares and/or the Preferred Shares being
so purchased to the Purchaser in accordance with Section 1(b) above.
(iv) The Common Stock shall be authorized for quotation on
the OTC Bulletin Board and trading in the Common Stock (or on the OTC Bulletin
Board generally) shall not have
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<PAGE> 15
been suspended by the SEC or the OTC Bulletin Board (the Purchaser acknowledges
that the Common Stock is authorized for quotation on the OTC Bulletin Board as
of the date hereof).
(v) The representations and warranties of the Company shall
be true and correct in all material respects as of the date when made and as of
the Closing as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing. The Purchasers
shall have received a certificate, executed by the chief executive officer of
the Company, dated as of the Closing, to the foregoing effect and as to such
other matters as may be reasonably requested by the Purchasers.
(vi) No injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vii) The Purchasers shall have received the officer's
certificate described in Section 3(c) above, dated as of the Closing.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in the
County of Kent in the State of Delaware with respect to any dispute arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
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<PAGE> 16
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by courier, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
American BioMed, Inc.
10077 Grogran's Mill Road, Suite 100
The Woodlands, Texas 77380
If to a Purchaser, to the address set forth immediately below such
Purchaser's name on the Execution Pages.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor the Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each of the Purchasers may assign its rights
hereunder to any of its "affiliates," as that term is defined under the 1934
Act, without the consent of the Company. This provision shall not limit a
Purchaser's right to transfer the Securities pursuant to the terms of the
Certificate of Designation and this Agreement or to assign its rights hereunder
to any such transferee; provided, however, that a Purchaser may not sell or
otherwise transfer the Preferred Shares except (i) to the Company or to a
stockholder or a group of stockholders who immediately prior to the sale
control a majority of the Company's voting shares (a "Controlling Stockholder"
or "Controlling Group", as applicable); (ii) to an affiliate of such Purchaser;
(iii) in connection with any merger, consolidation, reorganization or sale of
more than fifty percent (50%) of the outstanding Common Stock of the Company (a
"Reorganization"); (iv) in a registered public offering or a public sale
pursuant to Rule 144 or other applicable exemption from the registration
requirements of the Act (or any successor rule or regulation); or (v) in a
private sale (other than to the Company, to a Controlling Stockholder or a
Controlling Group, to an affiliate of such Purchaser, or in a Reorganization),
provided that the Purchaser shall not sell or otherwise transfer during any
ninety (90) day period a portion(s) of the Preferred Shares which, if converted
into Common Stock at the time of the transfer, would represent, in the
aggregate (together with other shares of Common Stock
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<PAGE> 17
the beneficial ownership of which is transferred), beneficial ownership by the
transferee(s) of more than four and nine-tenths percent (4.9%) of the Common
Stock then outstanding.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closings hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Purchasers. The Company agrees to indemnify and hold
harmless each of the Purchasers and each of its officers, directors, employees,
partners, agents and affiliates for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations set forth in Section 3 hereof, including advancement of
expenses as they are incurred.
j. Publicity. The Company and each of the Purchasers shall have
the right to approve before issuance any press releases, SEC or NASD filings,
or any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the
prior approval of the Purchaser, to make any press release or SEC or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that a closing shall not have occurred on
or before fifteen (15) days from the date hereof, unless the parties agree
otherwise, this Agreement shall terminate at the close of business on such
date.
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<PAGE> 18
IN WITNESS WHEREOF, the Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
AMERICAN BIOMED, INC.
By: /s/ STEVEN B. RASH
-------------------------
Name: /s/ Steven B. Rash
-----------------------
President & CEO
Its: -----------------------
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<PAGE> 19
PURCHASER (Name and Signature):
HERIOT HOLDINGS, LTD.
By: /s/ P.M. BENEST
-------------------------
Name: P.M. Benest
-----------------------
Its: Authorized Signature
ADDRESS:
P.O. Box 129
St. Helier
Jersey
Channel Islands
British Isles Admin.
RESIDENCE:
Jersey Management-British Virgin Island Register
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 100
Number of Common Shares 104,167
Purchase Price: $125,000
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<PAGE> 20
HARLOW ENTERPRISES, INC.
By: /s/ P.M. BENEST
-------------------------
Name: P.M. Benest
-----------------------
Its: Authorized Signature
ADDRESS:
P.O. Box 129
St. Helier
Jersey
Channel Islands
British Isles Admin.
RESIDENCE:
Jersey Management-Panama Registered
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 100
Number of Common Shares 104,167
Purchase Price: $125,000
-20-
<PAGE> 21
PARKLAND LIMITED
By: /s/ P.M. BENEST
-------------------------
Name: P.M. Benest
-----------------------
Its: Authorized Signature
ADDRESS:
P.O. Box 129
St. Helier
Jersey
Channel Islands
British Isles Admin.
RESIDENCE:
Jersey Management-British Virgin Islands Register
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares:
-------
Number of Common Shares 208,333
Purchase Price: $ 50,000
-21-
<PAGE> 1
EXHIBIT 10.83
SECURITIES PURCHASE AGREEMENT
THE PREFERRED STOCK BEING SUBSCRIBED FOR HEREIN AND THE COMMON STOCK
ISSUABLE UPON CONVERSION OF THE PREFERRED STOCK HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE U.S. SECURITIES
ACT OF 1933, AS AMENDED, (THE "1933 ACT") OR THE SECURITIES COMMISSION OF ANY
STATE UNDER ANY STATE SECURITIES LAW. SUCH SECURITIES ARE BEING OFFERED
PURSUANT TO THE SAFE HARBOR EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
AFFORDED BY REGULATION S ("REGULATION S") PROMULGATED UNDER THE 1933 ACT. SUCH
SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE UNITED
STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN REGULATION S) UNLESS THE
SECURITIES ARE REGISTERED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS,
OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE PURSUANT TO AN AVAILABLE EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE
UNLAWFUL. AN INVESTMENT IN SUCH SECURITIES INVOLVES A HIGH DEGREE OF RISK. IN
MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN EXAMINATION OF
THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS AND THE RISKS
INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR DISAPPROVED
BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY AUTHORITY.
FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED, PASSED UPON,
CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ANY
INFORMATION PROVIDED BY THE COMPANY TO POTENTIAL INVESTORS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of February
20, 1996 by and among AMERICAN BIOMED, INC., a Delaware corporation, with
headquarters located at 10077 Grogran's Mill Road, Suite 100, The Woodlands,
Texas 77380 (the "COMPANY"), and each of the Purchasers (individually, a
"PURCHASER" and collectively, the "PURCHASERS") set forth on the execution
pages hereof (the "EXECUTION PAGES").
<PAGE> 2
WHEREAS:
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the safe harbor exemption from securities
registration afforded by the provisions Regulation S ("REGULATION S"), as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "1933 ACT");
B. Each of the Purchasers desires to purchase, upon the terms and
conditions stated in this Agreement, the number of shares of the Company's
Series A Convertible Preferred Stock, par value $.001 per share (the "PREFERRED
STOCK"), set forth immediately below each such Purchaser's name on the
Execution Pages, at a price equal to One Thousand Dollars ($1,000) per share,
the stated value thereof. The rights, preferences and privileges of the
Preferred Stock, including the terms upon which such Preferred Stock is
convertible into shares of the Company's Common Stock, par value $.001 per
share, (the "COMMON STOCK") are set forth in the form of Certificate of
Designation attached hereto as EXHIBIT "A" (the "CERTIFICATE OF DESIGNATION").
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as EXHIBIT "B" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations
promulgated thereunder, and applicable state securities laws;
NOW THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
a. Purchase of Preferred Stock. Subject to the satisfaction (or
waiver) of the conditions set forth in Section 6 and Section 7 below, the
Company shall issue and sell to each Purchaser and each Purchaser shall
purchase from the Company the number of shares of Preferred Stock set forth
immediately below each such Purchaser's name on the Execution Pages, at a price
equal to One Thousand Dollars ($1,000) per share, the stated value thereof (the
"PURCHASE PRICE"). The shares of Preferred Stock to be issued and sold
hereunder are hereinafter referred to as the "PREFERRED SHARES."
b. Form of Payment. At the Closing (as hereinafter defined), (i) the
Purchasers shall pay the Purchase Price by wire transfer to the Company, in
accordance with the Company's written wiring instructions, against delivery of
duly executed certificates representing such Preferred Shares, and (ii) the
Company shall deliver such certificates against delivery of such Purchase
Price.
c. Closing/Closing Date. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, a individual
closing ("CLOSING") shall be conducted with respect to each Purchaser or group
of Purchasers on July 24, 1996 or such other date as the parties shall agree.
Such Closing shall occur at the offices of Klehr, Harrison, Harvey, Branzburg &
Ellers,
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<PAGE> 3
1401 Walnut Street, Philadelphia, Pennsylvania 19102. For the purposes
of this Agreement and compliance with Regulation S, the date on which the last
such Closing takes place, and all Preferred Shares offered hereby have been
purchased, shall be deemed to be the "CLOSING DATE".
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants to the Company solely with
respect to such Purchaser that:
a. Investment Purpose. The Purchaser is purchasing the Preferred
Shares (including the shares of Common Stock issuable upon conversion of the
Preferred Shares (the "CONVERSION SHARES") (collectively, the "SECURITIES"))
for its own account for investment only and not with a present view towards the
public sale or distribution thereof, except pursuant to sales that are exempt
from the registration requirements of the 1933 Act and/or sales registered
under the 1933 Act. Purchaser understands that Purchaser must bear the economic
risk of this investment indefinitely, unless the Securities are registered
pursuant to the 1933 Act and any applicable state securities or blue sky laws
("State Acts") or an exemption from such registration is available, and that
the Company has no present intention of registering any such Securities other
than as contemplated by the Registration Rights Agreement. Purchaser represents
and warrants to the Company, as of the date of this Agreement, that Purchaser
has no present plan or intention to sell the Securities in the United States or
to a U.S. person at any predetermined time, and has made no predetermined
arrangements to sell the Securities. Purchaser covenants that neither Purchaser
nor its affiliates nor any person acting on its or their behalf has entered,
has the intention of entering, or will enter into any put option, short
position or other similar instrument or position in the U.S. with respect to
the Securities at any time after receipt of the term sheet concerning the
transaction contemplated thereby (the "Term Sheet") until the expiration of the
period commencing on the Closing Date and ending forty (40) days thereafter
(the "Restricted Period") or for the intended purpose of lowering the price at
which the Preferred Shares are convertible into Conversion Shares and neither
Purchaser nor any of its affiliates nor any person acting on its or their
behalf will at any time use Conversion Shares or Preferred Shares to
settle/cover any put option, short position or other similar instrument or
position entered into prior to the end of the Restricted Period.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D ("REGULATION
D") as promulgated by the SEC under the 1933 Act.
c. Reliance on Exemptions. The Purchaser understands that the
Preferred Shares are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and the Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Preferred Shares.
-3-
<PAGE> 4
d. Information. The Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Purchaser or its advisors. The Purchaser and
its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received what the Purchaser believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other due
diligence investigation conducted by Purchaser or any of its advisors or
representatives shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Purchaser understands that its investment in the Securities involves a high
degree of risk.
e. Governmental Review. The Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Offshore Transaction. The Purchaser represents and warrants to the
Company that (i) the Purchaser is not a "U.S. person" as that term is defined
in Rule 902(o) of Regulation S and, in that regard, further represents that (a)
it is organized under the laws of a jurisdiction other than the United States
and (b) if organized by a "U.S. Person" principally for the purpose of
investing in securities not registered under the Act, it was organized and is
owned by Accredited Investors who are not natural persons, estates or trusts;
(ii) the Preferred Shares were not offered to the Purchaser in the United
States and at the time of execution of this Subscription Agreement and the time
of any offer to the Purchaser to purchase Preferred Shares hereunder, the
Purchaser was physically outside the United States; (iii) the Purchaser is
purchasing the Securities for its own account and not on behalf of or for the
benefit of any U.S. person and the sale and resale of the Securities have not
been prearranged with any U.S. person or buyer in the United States; (iv) the
Purchaser agrees that all offers and sales of the Securities prior to the
expiration of the Restricted Period shall not be made to U.S. persons or for
the account or benefit of U.S. persons and shall otherwise be made in
compliance with the provisions of Regulation S. Purchaser is not a distributor
or dealer with respect to the Securities.
g. Signatory's Representation. The Purchaser represents and
warrants that the signatory to this Agreement is not a U.S. Person (as defined
in Regulation S), and is not located in the U.S. at the time of signing this
Agreement.
h. No Scheme to Evade Registration. Purchaser's acquisition of the
Securities is not a transaction (or any element of a series of transactions)
that is part of a plan or scheme to evade the registration provisions of the
1933 Act.
i. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Purchaser and are valid and binding agreements of the
Purchaser enforceable in accordance with their terms.
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<PAGE> 5
j. Residency. The Purchaser is a resident of the country set forth
immediately below its name on the Execution Pages.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated, and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company and each of its subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the operations, properties, financial condition or prospects of the
Company or on the transactions contemplated hereby.
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, and the
Registration Rights Agreement to issue and sell the Preferred Shares in
accordance with the terms hereof and, upon approval of the Amendment (as
hereinafter defined) by the Company's stockholders and the filing thereof with
the Secretary of State of the State of Delaware, to issue the Conversion Shares
upon conversion of the Preferred Shares in accordance with the terms of the
Certificate of Designation to issue the Conversion Shares upon conversion of
the Preferred Shares in accordance with the terms of the Certificate of
Designation, (ii) the execution and delivery of this Agreement and the
Registration Rights Agreement by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation the
issuance of the Preferred Shares and the issuance and reservation for issuance
of the Conversion Shares issuable upon conversion thereof) have been duly
authorized by the Company's Board of Directors and, except for the approval of
the Amendment by the Company's stockholders no further consent or authorization
of the Company, its Board or Directors, or its stockholders is required, (iii)
this Agreement has been duly executed and delivered by the Company, and (iv)
this Agreement constitutes, and upon execution and delivery by the Company of
the Registration Rights Agreement, such agreement will constitute, a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Shares) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares to be reserved for issuance upon conversion of the Preferred Shares
on the effective date of the Amendment (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(f) below), is set forth on SCHEDULE
3(C). All of such outstanding shares of capital stock have been, or upon
issuance will be,
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<PAGE> 6
validly issued, fully paid and nonassessable. No shares of capital stock of the
Company are subject to preemptive rights or any other similar rights of the
stockholders of the Company or any liens or encumbrances. Except as disclosed
in SCHEDULE 3(C), as of the date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its subsidiaries, or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries, and (ii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement). The Company has furnished to the Purchaser
true and correct copies of the Company's Restated Certificate of Incorporation
as in effect on the date hereof ("CERTIFICATE OF INCORPORATION"), the Company's
By-laws, as in effect on the date hereof (the "BY-LAWS"), the Certificate of
Designation and the terms of all securities convertible into or exercisable for
Common Stock of the Company and the material rights of the holders thereof in
respect thereto. The Company shall provide the Purchaser with a written update
of this representation signed by the Company's Chief Executive or Chief
Financial Officer on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Preferred Shares are, and on the effective
date of the Amendment the Conversion Shares will be, duly authorized and, upon
issuance in accordance with the terms of this Agreement, upon conversion of the
Preferred Shares such Shares shall be validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement, and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including without limitation, the issuance of the Preferred Shares, and after
the effective date of the Amendment, the issuance and reservation for issuance
of the Conversion Shares) will not (i) result in a violation of the Certificate
of Incorporation or By-laws or (ii) conflict with, or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Except as
set forth on Schedule 3(e) hereof, neither the Company nor any of its
subsidiaries is in violation of its Certificate of Incorporation, By-laws or
other organizational documents and neither the Company nor any of its
subsidiaries is in default (and no event has occurred which with notice or
lapse of time or both would put the Company or any of its subsidiaries in
default) under, nor has there occurred any event giving others (with notice or
lapse of time or both) any rights of
-6-
<PAGE> 7
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for possible defaults or rights as would not, individually or in
the aggregate, have a Material Adverse Effect. The businesses of the Company
and its subsidiaries are not being conducted, and shall not be conducted so
long as a Purchaser owns any of the Securities, in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations which either singly or in the aggregate do not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, or the Registration Rights
Agreement or to perform its obligations under the Certificate of Designation,
in each case in accordance with the terms hereof or thereof.
f. SEC Documents, Financial Statements. Since December 31, 1995, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act of 1934, as amended (the "1934 ACT") (all of the foregoing
filed prior to the date hereof and all exhibits included therein and financial
statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
"SEC DOCUMENTS"). The Company has delivered to Purchaser true and complete
copies of the SEC Documents, except for such exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the 1934 Act and the
rules and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to
December 31, 1995 and (ii) obligations under contracts and commitments incurred
in the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition
or operating results of the Company. The Company has not provided to
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<PAGE> 8
any Purchaser any information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has
not been so disclosed.
g. Absence of Certain Changes. Since December 31, 1995 there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 2(g) or in the SEC Documents.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company or any of its subsidiaries.
i. Disclosure. All information relating to or concerning the Company
set forth in this Agreement and provided to the Purchaser pursuant to Section
2(d) hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to Company or its subsidiaries or the respective business, properties,
prospects, operations or financial conditions, which, under applicable law,
rule or regulation, requires public disclosure or announcement by the Company
but which has not been so publicly announced or disclosed.
j. Acknowledgment Regarding Purchaser's Purchase of the Preferred
Shares. The Company further acknowledges that Purchaser is not acting as a
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by the Purchaser or any of its representatives or agents in
connection with this Agreement and the transactions contemplated hereby is
merely incidental to the Purchaser's purchase of the Preferred Shares. The
Company further represents to Purchaser that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation of the
Company and its representatives.
k. Current Public Information. The Company represents and warrants to
the Purchaser that the Company is a "domestic issuer" and a "reporting issuer"
as defined in Rule 902 of Regulation S. The Common Stock is registered under
Section 12(b) or 12(g) of the 1934 Act, and the Company has filed all the
materials required to be filed as reports pursuant to the 1934 Act for a period
of at least twelve months preceding the date hereof (or for such shorter period
as the Company was required by law to file such material), and all such filings
have been made on a timely basis. The Company is currently eligible to register
the resale of its Common Stock on a registration statement Form S-3 under the
1933 Act.
l. No Securities Offered in U.S. or to any U.S. Person. Based upon,
among other things, the representations and warranties of the Purchasers in
this Agreement, the Company
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<PAGE> 9
represents that it has not offered the Preferred Shares offered hereunder to
any Purchaser in the U.S. or to any person in the United States or any U.S.
Person (as defined in Regulation S).
m. No Directed Selling Efforts in Regard to this Transaction. Neither
the Company nor any distributor participating in the transaction contemplated
hereby (if any) nor any person acting for the Company, or any such distributor,
has conducted any "directed selling efforts" in the United States, as such term
is defined in Rule 902 of Regulation S, or any general solicitation, as such
term is defined in Regulation D, with respect to any of the Securities.
n. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales in any security or solicited any offerers
to buy any security under circumstances that would require registration of the
Securities under the 1933 Act.
o. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with Zanett Capital Inc., whose
commissions and fees will be paid for by the Company.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Reporting Status. So long as the Purchasers beneficially own any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the
1934 Act or the rules and regulations thereunder would permit such termination.
c. Use of Proceeds. The Company shall not use the proceeds from the
sale of the Preferred Shares for anything other than the Company's internal
working capital purposes, and shall not, directly or indirectly, use such
proceeds for any loan to or investment in any other corporation, partnership,
enterprise or other person.
d. Financial Information. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns, or sells all
of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; and (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its subsidiaries.
e. Reservation of Shares. The Company shall, at all times after the
effective date of the Amendment, have authorized, and reserved for the purpose
of issuance, a sufficient number of shares
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<PAGE> 10
of Common Stock to provide for the full conversion of the outstanding Preferred
Shares and issuance of the Conversion Shares in connection therewith (based on
the Conversion Price of the Preferred Shares in effect from time to time). The
Company shall not reduce the number of shares reserved for issuance upon
conversion of the Preferred Shares without the consent of each of the
Purchasers, which consent will not be unreasonably withheld.
f. Listing. The Company shall take all actions necessary to continue
the listing and trading of its Common Stock on the National Association of
Securities Dealers, Inc. OTC Bulletin Board (the "OTC BULLETIN BOARD") and
shall comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the NASD until such time as such
Common Stock is listed on one of the securities exchanges or interdealer
question systems set forth in the next sentence. The Company shall use its best
efforts to secure the listing and trading of its Common Stock on either the
American Stock Exchange ("AMEX"), the New York Stock Exchange ("NYSE"), the
NASDAQ National Market System ("NASDAQ-NMS") or the NASDAQ Small Cap Market
("NASDAQ SMALL CAP") not later than December __, 1996, and thereafter to
continue the listing and trading of its Common Stock thereon and will comply in
all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the NASD and such exchanges, as applicable. The Company
shall promptly secure the listing of the Conversion Shares upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, such
listing of all Conversion Shares from time to time issuable upon conversion of
the Preferred Shares.
g. Corporate Existence. So long as the Purchaser beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence, except in
the event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
agreements and instruments entered into in connection herewith and (ii) is a
publicly traded corporation whose Common Stock is listed for trading on the
AMEX, the NYSE or the NASDAQ-NMS.
h. Amendment to Certificate of Incorporation. The Company shall use
its best efforts to amend, as soon as practicable after the date hereof (and in
any event no later than November 30, 1996), 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 the reservation for
issuance and issuance of the full number of shares of Common Stock issuable
upon conversion of the Preferred Shares (the "AMENDMENT"). In that regard, the
Company shall present to its stockholders a proposal to approve the Amendment
at its next annual meeting of stockholders or a special meeting of stockholders
called for such purpose and shall prepare proxy materials with respect thereto
which contain the recommendation of the Company's Board of Directors for the
approval of the Amendment and which comply, in all material respects, with the
proxy rules promulgated pursuant to the 1934 Act.
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<PAGE> 11
i. Conclusion of Offering. The Company and the Purchasers agree that
the Closing Date shall be deemed to be a conclusion of the offering of
Preferred Shares contemplated hereby. The Company acknowledges and agrees that,
for purposes of clarifying and specifying the applicable Restricted Period
under Regulation S, the Purchasers intend to observe as the Restricted Period
(as defined in Regulation S) for the Preferred Shares, the period commencing on
the Closing Date and ending 40 days thereafter.
j. Legends. The Conversion Shares, and the certificates evidencing
the same, shall at all times be free of legends (except as provided in Section
5 below), "stock transfer restrictions," or other restrictions, except for
covenants of the Purchasers expressly set forth in this Agreement.
k. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for the
payment of its own expenses incurred in connection with the negotiation,
execution, delivery and performance of this Agreement.
5. LEGENDS; SUBSEQUENT TRANSFERS.
a. Resales of Securities by Purchasers. Each Purchaser acknowledges,
covenants and agrees that the Securities may and will only be resold by it (a)
in compliance with Regulation S; or (b) pursuant to an exemption from
registration under the 1933 Act other than Regulation S; or (c) pursuant to an
effective and current registration statement under the 1933 Act. Each Purchaser
agrees that it shall not make any offers or sales of the Securities prior to
the expiration of the Restricted Period to any U.S. person or for the account
or benefit of any U.S. person and any such offers or sales prior to such
expiration shall otherwise be made in compliance with the provisions of
Regulation S. In connection with any sale or transfer of the Securities prior
to the end of the Restricted Period, the Purchaser transferring such Securities
will obtain and deliver to the Company a certificate of the prospective
transferee confirming that: (i) the prospective transferee is not a U.S.
person; (ii) the securities have been offered and sold or transferred to the
prospective transferee outside the United States, and the prospective
transferee has no present intention to reoffer or resale the Securities to a
U.S. person or in the United States; (iii) prior to the end of the Restricted
Period, the prospective transferee will not offer to sell the Securities to a
U.S. person or for the account or benefit of a U.S. person or in the United
States; and (iv) if the prospective transferee effects any further transfer,
offer or sale of the Securities prior to the end of the Restricted Period, such
transfer, offer or sale shall comply with the terms of Regulation S and the
prospective transferee will obtain and deliver to the Company a certificate of
the subsequent transferee to the effect of clauses (i)-(iv) of this sentence.
b. Legends. The certificates representing the Preferred Shares and any
Conversion Shares issued during the Restricted Period, shall bear the following
legend (the "LEGEND"):
"The securities represented hereby have been issued pursuant to
Regulation S promulgated under the Securities Act of 1933, as
ed (the "1933 Act"), and have not been registered under the
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<PAGE> 12
1933 Act. Such securities may not be transferred, offered or sold
prior to the end of the forty (40) day period (the "Restricted
Period") commencing on July __, 1996 unless such transfer, offer or
sale is made in an "offshore transaction" and not to or for the
account of or benefit of a "U.S. Person" (as such terms are defined
in Regulation S) and is otherwise in accordance with the
requirements of Regulation S. Following expiration of the
Restricted Period, the securities represented hereby may not be
offered, sold or otherwise transferred in the United States or to a
U.S. Person unless the securities are registered under the 1933 Act
and applicable state securities laws, or such offers, sales and
transfers are made pursuant vailable exemption from the
requirements of those laws."
c. Removal of Legend Following the Expiration of the Restricted
Period. Following the expiration of the Restricted Period, the Company will
remove or will promptly instruct its transfer agent to remove the Legend from
the Preferred Shares and, if applicable, from the Conversion Shares issued
during the Restricted Period (and will instruct its transfer agent to issue
without the Legend, the Conversion Shares issuable upon any conversion or
exercise occurring after the Restricted Period), if the Purchaser holding such
Securities or any other person in whose name such certificates have been or are
to be issued shall have delivered a certificate (a "Removal Certificate") to
the Company to the following effect:
"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."
d. Removal of Legend in Connection with Bona Fide Pledge. Upon the
submission, at any time after the expiration of the Restricted Period, by a
Purchaser of a written request for legend removal for the purpose of a bona
fide pledge or deposit of Preferred Shares with a margin account, together with
the certificates for which the legend removal is being requested, the Company
will reissue or will promptly instruct its transfer agent to reissue the
certificates representing the Preferred Shares to be so pledged or deposited
without the Legend, and no Removal Certificate shall be required to be
delivered in connection therewith.
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<PAGE> 13
e. Irrevocable Instructions to Transfer Agent. The Company will issue
to its transfer agent an irrevocable instruction letter to issue Common Stock
upon conversion of the Preferred Shares (in accordance with the Certificate of
Designation and, so long as Section 5(c) above is complied with, free of the
Legend) upon receipt of a valid Notice of Conversion from the Purchaser and the
certificates representing the Preferred Shares.
f. Preservation of the Legend. Notwithstanding the provisions of this
Section 5, if with respect to the Company's receipt of a Removal Certificate
from any person, prior to any removal of the Legend, there shall have been
after the date hereof any amendment to the 1933 Act or Regulation S or any no
action letter or interpretative release shall have been promulgated by the SEC
after the date hereof which explicitly disallows the removal of the Legend
under the circumstances in which the request that it be removed is being made,
then the Company shall have no obligation to remove or to instruct its transfer
agent to remove the Legend, unless the Company shall have received from the
person requesting such removal a written letter of counsel to such person
reasonably acceptable to the Company and its counsel confirming that the Legend
may be so removed or share certificates may be so issued without the Legend
without violation of the 1933 Act. If the person requesting a removal of the
Legend is unable to supply the legal opinion referred to above then the Company
shall, upon demand of such person, be obligated to register the Common Stock
for resale pursuant to the terms of the Registration Rights Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Shares to each of the Purchasers at a Closing is subject to the
satisfaction, at or before the date and time of any such Closing, of each of
the following conditions thereto, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
(i) The Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Company.
(ii) The Purchaser shall have delivered the Purchase Price in
accordance with Section 1(b) above.
(iii) The representations and warranties of the Purchasers
shall be true and correct in all material respects as of the date when made and
as of the date and time of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date), and the
Purchasers shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchasers at or
prior to such Closing.
(iv) No injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
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<PAGE> 14
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each of the Purchasers hereunder to purchase the
Preferred Shares at the closing is subject to the satisfaction, at or before
the Closing of each of the following conditions, provided that these conditions
are for the Purchasers' sole benefit and may be waived by a Purchaser at any
time in its sole discretion:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Purchaser.
(ii) The Certificate of Designation shall have been filed
with the Secretary of State of the State of Delaware, and a copy thereof
certified by the Secretary of State shall have been delivered to the Purchaser.
(iii) The Company shall have delivered duly executed
certificates representing the Preferred Shares being so purchased to the
Purchaser in accordance with Section 1(b) above.
(iv) The Common Stock shall be authorized for quotation on
the OTC Bulletin Board and trading in the Common Stock (or on the OTC Bulletin
Board generally) shall not have been suspended by the SEC or the OTC Bulletin
Board (the Purchaser acknowledges that the Common Stock is authorized for
quotation on the OTC Bulletin Board as of the date hereof).
(v) The representations and warranties of the Company shall
be true and correct in all material respects as of the date when made and as of
the Closing as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing. The Purchasers
shall have received a certificate, executed by the chief executive officer of
the Company, dated as of the Closing, to the foregoing effect and as to such
other matters as may be reasonably requested by the Purchasers.
(vi) No injunction. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over the
matters contemplated hereby which prohibits the consummation of any of the
transactions contemplated by this Agreement.
(vii) The Purchasers shall have received the officer's
certificate described in Section 3(c) above, dated as of the Closing.
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<PAGE> 15
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in the
County of Kent in the State of Delaware with respect to any dispute arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by courier, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
American BioMed, Inc.
10077 Grogran's Mill Road, Suite 100
The Woodlands, Texas 77380
If to a Purchaser, to the address set forth immediately below such
Purchaser's name on the Execution Pages.
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<PAGE> 16
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor the Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, each of the Purchasers may assign its rights
hereunder to any of its "affiliates," as that term is defined under the 1934
Act, without the consent of the Company. This provision shall not limit a
Purchaser's right to transfer the Securities pursuant to the terms of the
Certificate of Designation and this Agreement or to assign its rights hereunder
to any such transferee; provided, however, that a Purchaser may not sell or
otherwise transfer the Preferred Shares except (i) to the Company or to a
stockholder or a group of stockholders who immediately prior to the sale
control a majority of the Company's voting shares (a "Controlling Stockholder"
or "Controlling Group", as applicable); (ii) to an affiliate of such Purchaser;
(iii) in connection with any merger, consolidation, reorganization or sale of
more than fifty percent (50%) of the outstanding Common Stock of the Company (a
"Reorganization"); (iv) in a registered public offering or a public sale
pursuant to Rule 144 or other applicable exemption from the registration
requirements of the Act (or any successor rule or regulation); or (v) in a
private sale (other than to the Company, to a Controlling Stockholder or a
Controlling Group, to an affiliate of such Purchaser, or in a Reorganization),
provided that the Purchaser shall not sell or otherwise transfer during any
ninety (90) day period a portion(s) of the Preferred Shares which, if converted
into Common Stock at the time of the transfer, would represent, in the
aggregate (together with other shares of Common Stock the beneficial ownership
of which is transferred), beneficial ownership by the transferee(s) of more
than four and nine-tenths percent (4.9%) of the Common Stock then outstanding.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closings hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Purchasers. The Company agrees to indemnify and hold
harmless each of the Purchasers and each of its officers, directors, employees,
partners, agents and affiliates for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations set forth in Section 3 hereof, including advancement of
expenses as they are incurred.
j. Publicity. The Company and each of the Purchasers shall have the
right to approve before issuance any press releases, SEC or NASD filings, or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the
prior approval of the Purchaser, to make any press release or SEC or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
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<PAGE> 17
k. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that a closing shall not have occurred
on or before ninety (90) days from the date hereof, unless the parties agree
otherwise, this Agreement shall terminate at the close of business on such
date.
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<PAGE> 18
IN WITNESS WHEREOF, the Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
AMERICAN BIOMED, INC.
By: /s/ STEVEN B. RASH
-----------------------
Name: Steven B. Rash
---------------------
Its: President & CEO
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<PAGE> 19
PURCHASER (Name and Signature):
/s/ ZANNETT LOMBARDIER, LTD.
By:
Name:
Its:
ADDRESS:
Kirk House
PO Box 1100
Grand Cayman, Cayman Islands
British West Indies
Attn: Peter Goulden
RESIDENCE:
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 390
Purchase Price: $390,000
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<PAGE> 20
QUEENSBOROUGH INVESTMENTS
By: /s/ P.M. BENEST
-----------------------
Name: P.M. Benest
---------------------
Its: Authorized Signature
ADDRESS:
P.O. Box 129
St. Helier
Jersey
Channel Islands
British Isles Admin.
RESIDENCE:
Jersey Management-British Virgin Islands Register
RESIDENCE:
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 250
Purchase Price: $250,000
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<PAGE> 21
ALL FRUIT LIMITED
By: /s/ P.M. BENEST
-----------------------
Name: P.M. Benest
---------------------
Its: Authorized Signature
ADDRESS:
P.O. Box 129
St. Helier
Jersey
Channel Islands
British Isles Admin.
RESIDENCE:
Jersey Management-British Virgin Islands Registered
ADDRESS:
RESIDENCE:
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 150
Purchase Price: $150,000
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<PAGE> 22
EMRAL INVESTMENTS
By: /s/ P.M. BENEST
-----------------------
Name: P.M. Benest
---------------------
Its: Authorized Signature
ADDRESS:
P.O. Box 129
St. Helier
Jersey
Channel Islands
British Isles Admin.
RESIDENCE:
Jersey Management-British Virgin Islands Registered
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 400
Purchase Price: $400,000
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<PAGE> 1
EXHIBIT 10.84
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
February 20, 1996, by and among American BioMed, Inc., a Delaware corporation
("Company") and the subscribers ("Subscribers") to the Company's offering of
shares of (i) 1996 Series A Convertible Preferred Stock, par value $.001 per
share (the "Preferred Shares") and/or (ii) Common Stock, par value $.001 per
share (the "Common Shares") pursuant to the Securities Purchase Agreement
between the Company and the Subscribers of even date herewith ("Subscription
Agreement").
1. DEFINITIONS. For purposes of this Agreement:
(a) The term "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act") and,
to the extent possible, in compliance with Rule 415 under the Act, and the
declaration or ordering of effectiveness of such registration statement or
document;
(b) The term "Registrable Securities" means (i) the Common Shares and
(ii) the Common Stock or other securities issuable or issued (x) upon
conversion of the Preferred Shares and (y) in exchange for or as a dividend or
distribution on the Common Stock referred to in clause (x) hereof (the
"Conversion Shares"); provided, however, that, notwithstanding the foregoing,
the term Registrable Securities does not include securities that at the time
the determination is being made, in the written opinion of the Company=s
counsel (in form, substance and scope reasonably acceptable to the Holders),
may be immediately sold or transferred in the United States by the Holder
thereof without registration under the Act free of any restrictive legend.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the aggregate number of (i) Commons Shares which have
been issued pursuant to the Subscription Agreement and (ii) Conversion Shares
which have been issued or are issuable upon conversion of the Preferred Shares
at the time of such determination; and
(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof.
2. DEMAND REGISTRATION.
(a) At any time beginning after the end of the Restricted Period (as
defined in the Subscription Agreement), the Holders of at least 20% of the
Registrable Securities then outstanding may notify the Company in writing that
they demand that the Company file a registration statement
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under the Act covering the registration of all of the Registrable Securities.
Upon receipt of such notice, the Company shall, within ten (10) days, give
written notice of such request to all Holders and shall, subject to the
limitations of subsection 2(b), effect as soon as practicable, and in any event
within 60 days of the receipt of such request, the registration under the Act
of all Registrable Securities which the Holders request, by notice given to the
Company within (10) days of receipt of the Company's notice, to be registered
as expeditiously as reasonably possible after the mailing of such notice by the
Company (a "Demand Registration").
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as part of their request made pursuant to this Section 2 and the Company shall
include such information in the written notice referred to in subsection 2(a).
In such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 6(f)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders, and reasonably acceptable to the Company.
(c) The Company is obligated to effect only three (3) demand
registrations pursuant to Section 2 of this Agreement. The Company agrees to
include all Registrable Securities held by all Holders in such Registration
Statement without cutback or reduction. In the event the Company is unable to
fulfill its obligation of the preceding sentence with respect to any
registration, such registration shall not be counted as a Demand Registration
under this Agreement for any Holder of Registrable Securities which were not
included in such Registration Statement.
3. PIGGYBACK REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including, for this purpose, a registration
effected by the Company for shareholders other than the Holders) any of its
Common Stock under the Act in connection with the public offering of such
securities for cash (other than a registration on Form S-8 or on Form S-4), the
Company shall, at such time, promptly give each Holder written notice of such
registration. Upon the written request of each Holder given by fax within ten
(10) days after mailing such notice by the Company, which request shall state
the intended method of disposition of such shares of such Holder, the Company
shall cause to be registered under the Act all of the Registrable Securities
that each such Holder has requested to be registered (a "Piggyback
Registration").
4. LIMITATION ON OBLIGATION TO REGISTER.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the
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successful marketing of the securities proposed to be registered by the
Company, then the number of such Registrable Securities to be included in the
registration statement shall be allocated among all Holders who had requested
Piggyback Registration, in the proportion that the number of Registrable Shares
which each such Holder seeks to register bears to the total number of
Registrable Securities sought to be included by all Holders; provided that in
no event shall the number of Registrable Securities be less than 50% of the
total number of shares included in such registration.
(b) Notwithstanding anything to the contrary herein, the Company shall
have the right (i) to defer the initial filing or request for acceleration of
effectiveness of any Demand Registration or Piggyback Registration or (ii)
after effectiveness, to suspend effectiveness of any such registration
statement, if, in the good faith judgment of the board of directors of the
Company and upon the advice of counsel to the Company, such delay in filing or
requesting acceleration of effectiveness or such suspension of effectiveness is
necessary in light of the existence of material non-public information
(financial or otherwise) concerning the Company, disclosure of which at the
time is not, in the opinion of the board of directors of the Company upon the
advice of counsel (A) otherwise required and (B) in the best interests of the
Company; provided, however, that the Company will not delay or suspend
effectiveness of such registration for more than three months from the date of
the demand, unless it is then engaged in an acquisition that would make such
registration impracticable, in which case it will use its best efforts to
eliminate such impracticability as soon as possible.
(c) Notwithstanding anything to the contrary contained herein, if
Common Shares or Conversion Shares referred to in Section 1(b) above, in the
written opinion of Company=s counsel (in form, substance and scope reasonably
acceptable to the Holders), may be immediately sold or transferred in the
United States by the Holder thereof without registration free of any
restrictive legend, no registration in respect thereof need be effected by the
Company hereunder.
5. OBLIGATIONS TO INCREASE AVAILABLE SHARES. In the event that the number
of shares available under a registration statement filed pursuant to Section 2
is insufficient to cover all of the Registrable Securities then outstanding,
the Company shall amend that registration statement, or file a new registration
statement, or both, so as to cover all shares of Registrable Securities then
outstanding. The Company shall effect such amendment or new registration within
sixty (60) days of the date the registration statement filed under Section 2 is
insufficient to cover all the shares of Registrable Securities then
outstanding. Any Registration Statement filed hereunder shall, to the extent
permissible by the Rules of the Securities and Exchange Commission, state that,
in accordance with Rule 416 under the Act, such Registration Statement also
covers such indeterminate numbers of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Shares to prevent dilution
resulting from stock changes or by reason of changes in the conversion price in
accordance with the terms thereof.
6. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
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(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to keep the registration statement
effective and comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.
(c) With respect to any Demand Registration, use best efforts to keep
such registration statement effective until the Holders of Registrable
Securities covered by such registration statement have completed the
distribution described in the registration statement.
(d) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided
that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(h) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
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offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
(i) If requested by any Holder, promptly include in any Registration
Statement or prospectus, pursuant to a supplement or post-effective amendment
if necessary, such information as such Holder may reasonably request to have
included therein, including, without limitation, information relating to the
"plan of distribution" of the Registrable Securities, the purchase price being
paid therefor and any other terms of the offering of the Registrable Securities
to be sold in such offering; and make all required filings of such prospectus
supplement or post-effective amendment as soon as practicable after the Company
is notified of the matters to be included in such prospectus supplement or
post-effective amendment;
(j) make available at reasonable times for inspection by the Holders
and any attorney or accountant retained by such Holders, all financial and
other records, pertinent corporate documents and properties of the Company and
cause the Company's officers, directors and employees to supply all information
reasonably requested by any such Holder, attorney or accountant in connection
with such Registration Statement or any post-effective amendment thereto
subsequent to the filing thereof and prior to its effectiveness; provided,
that, any person to whom information is provided under this clause (j) agrees
in writing to maintain the confidentiality of such information to the extent
such information is not in the public domain; and
(k) have stop orders lifted as soon as practicable.
7. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities or to determine that registration is not
required pursuant to Rule 144 or other applicable provision of the Act.
8. Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and including the reasonable
fees and disbursements incurred of only one counsel for the selling Holders,
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Holders who had requested such registration shall
bear such expenses prorated, based on the number of shares included in the
Registration Statement); provided further, however,
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that if at the time of such withdrawal, the Holders have learned of a material
adverse change in the condition, business, or prospects of the Company from
that known to the Holders at the time of their request, then the Holders shall
not be required to pay any of such expenses and shall retain their rights
pursuant to Section 2.
9. Expenses of Company Registration. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of registrable Securities with respect to the registrations pursuant to Section
2 for each Holder, including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto (and including the reasonable fees and disbursements incurred of only
one counsel for the selling Holders selected by them), but excluding
underwriting discounts and commissions relating to Registrable Securities.
10. Indemnification. In the event any Registrable Securities are included
in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each "Holder Indemnified Persons" (defined for purposes of this
Section 9 as each Holder, the shareholders, parties, employees, agents,
officers and directors of each Holder acting in their capacity as such, any
underwriter (as defined in the Act) for such Holder and each person, if any,
who controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act")), against any
losses, claims, damages, expenses, or liabilities (joint or several) ("Losses")
to which they may become subject under the Act, the 1934 Act or other federal
or state law, insofar as such Losses (or actions in respect thereof) arise out
of or are based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
(ii) the omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation by the Company of the Act, the 1934 Act, any state securities law
or any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will reimburse each such Holder Indemnified
Person for any legal or other expenses reasonably incurred by him, her or it in
connection with investigating or defending any such Loss or action; provided,
however, that the indemnity agreement contained in this subsection 9(a) shall
not apply to amounts paid in settlement of any such Loss or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such Loss or action to the extent that it arises out of or is based
upon a Violation which occurs (i) in reliance upon and in conformity with
written information furnished expressly for use in connection with such
registration by any such Holder Indemnified Person, or (ii) the failure of such
Holder Indemnified Person to deliver a copy of the registration statement or
the prospectus, or any amendments or supplements thereto, after the Company or
underwriters has furnished such person with a sufficient number of copies of
the same.
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(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the "Company Indemnified Persons" (defined for the purpose of
this Section 9 as the Company, each of its directors in their capacity as such,
each of its officers who have signed the registration statement in their
capacity as such, each person, if any, who controls the Company within the
meaning of the Act in their capacity as such, any underwriter and any other
Holder Indemnified person selling securities in such registration statement),
against any Loss (joint or several) to which the Company or any such director,
officer, controlling person, or underwriter or controlling person, or other
such Holder Indemnified Person may become subject under the Act, the 1934 Act
or other federal or state law, insofar as such Loss (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company and any such
Company Indemnified Person in connection with investigating or defending any
such Loss or action; provided, however, that the indemnity agreement contained
in this subsection 10(b) shall not apply to amounts paid in settlement of any
such Loss or action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld; provided further,
however, that, in no event shall any indemnity under this subsection 10(b)
exceed the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 10, deliver to the
indemnifying party similarly noticed, to assume the defense thereof with
counsel mutually satisfactory to the parties; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
reasonably incurred fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 10.
(d) The obligations of the Company and Holders under this Section 10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement.
11. Reports Under Securities Exchange Act of 1934. With a view to making
available to the Holders the benefits of Rule 144 promulgated under the Act and
any other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
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(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or regulation
of the SEC which permits the selling of any such securities without
registration.
12. Amendment of Registration Rights. Any provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the aggregate
number of Common Shares or Conversion Shares. Any amendment or waiver effected
in accordance with this paragraph shall be binding upon each Holder, each
future holder, and the Company.
13. Notices. All notices required or permitted under this Agreement shall
be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at President, American BioMed, Inc., 10077
Grogan's Mill Road, suite 100, The Woodlands, Texas 77380, Telecopy No.
(713)-367-3212 and (ii) the Holders at their respective last address as the
party shall have furnished in writing as a new address to be entered on such
register. Any notice, except as otherwise provided in this Agreement, shall be
made by fax and shall be deemed given at the time of transmission of the fax.
14. Termination. This Agreement shall terminate on the later to occur of
(a) the date that is three years from the date of this Agreement and (b) the
date any distribution of Registrable Securities described in a registration
statement filed pursuant to this Agreement is completed; but without prejudice
to (i) the parties' rights and obligations arising from breaches of this
Agreement occurring prior to such termination or (ii) other indemnification
obligations under this Agreement.
15. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this
Agreement by the Company or any Holder, respectively, shall be made without the
prior written consent of the majority in interest of the Holders and the
Company, respectively; provided that the rights of a Holder may be transferred
to a subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a Demand
Registration or Piggyback Registration, a writing executed by such
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transferee agreeing to be bound as a Holder by the terms of this Agreement);
and provided further that the Company may transfer its rights and obligations
under this Agreement to a purchaser of all or a substantial portion of its
business if the obligations of the Company under this Agreement are assumed in
connection with such transfer, either by merger or other operation of law
(which may include without limitation a transaction whereby the Registrable
Securities are converted into securities of the successor in interest) or by
specific assumption executed by the transferee.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Act or the Securities Exchange Act of 1934, which matters shall be
construed and interpreted in accordance with such laws. Any action brought to
enforce, or otherwise arising out of, this Agreement shall be heard and
determined only in either a federal or state court sitting in the County of
Kent in the State of Delaware.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
AMERICAN BIOMED, INC.
By:
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President
SUBSCRIBER
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Subscriber's Name
By:
------------------------------------
(Signature)
Address:
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EXHIBIT 10.85
SECURITIES PURCHASE AGREEMENT
THE PREFERRED STOCK AND WARRANTS BEING SUBSCRIBED FOR HEREIN AND THE
COMMON STOCK ISSUABLE UPON CONVERSION AND EXERCISE THEREOF HAVE NOT BEEN
REGISTERED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES
COMMISSION OF ANY STATE UNDER ANY STATE SECURITIES LAW. SUCH SECURITIES ARE
BEING OFFERED PURSUANT TO THE SAFE HARBOR EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AFFORDED BY REGULATION S ("REGULATION S") PROMULGATED UNDER THE
SECURITIES ACT. SUCH SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE UNITED STATES OR TO U.S. PERSONS (AS SUCH TERM IS DEFINED IN
REGULATION S) UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES AND TRANSFERS ARE MADE
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
THIS SECURITIES PURCHASE AGREEMENT DOES NOT CONSTITUTE AN OFFER TO
SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED
HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
WOULD BE UNLAWFUL. AN INVESTMENT IN SUCH SECURITIES INVOLVES A HIGH DEGREE OF
RISK. IN MAKING AN INVESTMENT DECISION, INVESTORS MUST RELY ON THEIR OWN
EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING, INCLUDING THE MERITS
AND THE RISKS INVOLVED. THESE SECURITIES HAVE NOT BEEN RECOMMENDED, APPROVED OR
DISAPPROVED BY ANY FEDERAL OR STATE SECURITIES COMMISSION OR REGULATORY
AUTHORITY. FURTHERMORE, THE FOREGOING AUTHORITIES HAVE NOT REVIEWED, PASSED
UPON, CONFIRMED OR DETERMINED THE ACCURACY OR ADEQUACY OF THIS DOCUMENT OR ANY
INFORMATION PROVIDED BY THE COMPANY TO POTENTIAL INVESTORS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of November 7, 1996,
by and among AMERICAN BIOMED, INC., a Delaware corporation, with headquarters
located at 10077 Grogran's Mill Road, Suite 100, The Woodlands, Texas 77380
(the "COMPANY"), and each of the purchasers (individually, a "PURCHASER" and
collectively, the "PURCHASERS") set forth on the execution pages hereof (the
"EXECUTION PAGES").
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WHEREAS:
A. The Company and the Purchasers are executing and delivering this
Agreement in reliance upon the safe harbor exemption from securities
registration afforded by the provisions of Regulation S ("REGULATION S"), as
promulgated by the United States Securities and Exchange Commission (the "SEC")
under the Securities Act of 1933, as amended (the "SECURITIES ACT");
B. Each of the Purchasers desires to purchase, upon the terms and
conditions stated in this Agreement, the number of units (the "UNITS") set
forth immediately below such Purchaser's name on the Execution Pages, each Unit
consisting of (i) one (1) share of the Company's 1996 Series B Convertible
Preferred Stock, par value $.001 per share (the "SERIES B PREFERRED STOCK") and
(ii) one (1) warrant (the "WARRANT"), in the form attached hereto as Exhibit"B",
to purchase that number of shares of Common Stock (as defined below) equal to
the quotient obtained by dividing (x) the Purchase Price (as defined below) by
(y) the average of the Closing Price (as defined in the Certificate of
Designation (as defined below)) for the ten (10) consecutive trading days
immediately preceding the date of closing hereunder. The rights, preferences
and privileges of the Series B Preferred Stock, including the terms upon which
such Series B Preferred Stock is convertible into shares of the Company=s
common stock, par value $.001 per share (the "COMMON STOCK"), are set forth in
the form of Certificate of Designations, Preferences and Rights attached hereto
as EXHIBIT "A" (the "CERTIFICATE OF DESIGNATION"). The shares of Series B
Preferred Stock to be issued and sold hereunder are hereinafter referred to as
the "PREFERRED SHARES."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights
Agreement, in the form attached hereto as EXHIBIT "C" (the "REGISTRATION RIGHTS
AGREEMENT"), pursuant to which the Company has agreed to provide certain
registration rights under the Securities Act and the rules and regulations
promulgated thereunder, and applicable state securities laws;
NOW THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
a. Purchase of Units. Subject to the satisfaction (or waiver) of the
conditions set forth in Section 6 and Section 7 below, the Company shall issue
and sell to each Purchaser and each Purchaser shall purchase from the Company
the number of Units set forth immediately below each such Purchaser's name on
the Execution Pages, at a price equal to One Thousand Dollars ($1,000) per Unit
(the "PURCHASE PRICE").
b. Form of Payment. At or prior to the Closing (as hereinafter
defined), (i) each Purchaser shall pay the Purchase Price by wire transfer to
the Company, in accordance with the Company's written wiring instructions,
against delivery of duly executed certificates representing the Preferred
Shares and the Warrants comprising such Units, and (ii) the Company shall
deliver
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such certificates against delivery of such Purchase Price. The Purchase
Price payable by each Purchaser is set forth immediately below such Purchaser's
name on the Execution Pages.
c. Closing/Closing Date. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, closing
("CLOSING") shall be conducted on November ___, 1996 or such other date as the
parties shall agree. Such Closing shall occur at the offices of Klehr,
Harrison, Harvey, Branzburg & Ellers, 1401 Walnut Street, Philadelphia,
Pennsylvania 19102. For the purposes of this Agreement and compliance with
Regulation S, the date on which the Closing takes place, and all Units offered
hereby have been purchased, shall be deemed to be the "CLOSING DATE."
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser represents and warrants to the Company solely with
respect to such Purchaser that:
a. Investment Purpose. The Purchaser is purchasing the Units
(including the Preferred Shares, the shares of Common Stock issuable upon
conversion of the Preferred Shares (the "CONVERSION SHARES"), the Warrants and,
if applicable, the shares of Common Stock issuable upon exercise of the
Warrants (the "WARRANT SHARES") (collectively with the Units, the
"SECURITIES")) for its own account for investment only and not with a present
view towards the public sale or distribution thereof, except pursuant to sales
that are exempt from the registration requirements of the Securities Act and/or
sales registered under the Securities Act. Purchaser understands that Purchaser
must bear the economic risk of this investment indefinitely, unless the
Securities are registered pursuant to the Securities Act and any applicable
state securities or blue sky laws ("STATE ACTS") or an exemption from such
registration is available, and that the Company has no present intention of
registering any such Securities other than as contemplated by the Registration
Rights Agreement. Purchaser represents and warrants to the Company, as of the
date of this Agreement, that Purchaser has no present plan or intention to sell
the Securities in the United States or to a "U.S. PERSON" (as defined in
Regulation S) at any predetermined time, and has made no predetermined
arrangements to sell the Securities. Purchaser covenants that neither Purchaser
nor its affiliates nor any person acting on its or their behalf has entered,
has the intention of entering, or will enter into any put option, short
position or other similar instrument or position (through the use of options,
swaps or other derivative securities) with respect to the Securities
(collectively, "SELL SHORT" or "SOLD SHORT" as the context requires) at any
time after receipt of the term sheet concerning the transaction contemplated
thereby (the "TERM SHEET") until the expiration of the period commencing on the
Closing Date and ending sixty (60) days thereafter (the "LIMITATION PERIOD") or
for the intended purpose of lowering the price at which the Preferred Shares
are convertible into Conversion Shares and neither Purchaser nor any of its
affiliates nor any person acting on its or their behalf will at any time use
Conversion Shares or Preferred Shares to settle/cover any put option, short
position or other similar instrument or position entered into prior to the end
of the Limitation Period. In addition, upon the conclusion of the Limitation
Period, the Purchaser may Sell Short only as follows:
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<PAGE> 4
(i) On any Trading Day that the average of the Closing Prices
(as defined in the Certificate of Designation) 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 (as defined in the
Certificate of Designation) then in effect but does not exceed 150% of the
Maximum Conversion Price then in effect, the Purchaser may only Sell Short
Conversion Shares to the extent that the number of Conversion Shares to be Sold
Short together with the aggregate number of Conversion Shares actually sold
(other than Conversion Shares sold to cover shares of Common Stock Sold Short
in accordance with the provisions set forth in this Section 2(a)) or Sold Short
by such Purchaser during the thirty (30) day period ending on the Trading Day
immediately preceding the Trading Day of such proposed short sale 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 the Purchaser at Closing or thereafter; or
(ii) 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, the Purchaser may only Sell Short Conversion Shares to
the extent that the number of Conversion Shares to be Sold Short together with
the aggregate number of Conversion Shares actually sold (other than Conversion
Shares sold to cover shares of Common Stock Sold Short in accordance with the
provisions set forth in this Section 2(a)) or Sold Short by such Purchaser
during the thirty (30) day period ending on the Trading Day immediately
preceding the Trading Day of such proposed short sale 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
the Purchaser at Closing or thereafter.
Further, as a condition to any transfer of any or all of the Preferred Shares,
any transferee shall agree to be bound by the restrictions contained in this
Section 2(a), which agreement shall be for the benefit of the Company and all
holders of Preferred Shares. Notwithstanding the foregoing, on any Trading Day
after the expiration of the Limitation Period 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 equal to or greater than 150% of the
Maximum Conversion Price, the restrictions contained in paragraphs (i) and (ii)
above shall not be applicable and the Purchaser and any subsequent transferee
may Sell Short without restriction.
b. Accredited Investor Status. The Purchaser is an "ACCREDITED
INVESTOR" as that term is defined in Rule 501(a) of Regulation D ("REGULATION
D") as promulgated by the SEC under the Securities Act.
c. Reliance on Exemptions. The Purchaser understands that the Units,
the Preferred Shares and the Warrants are being offered and sold to it in
reliance upon specific exemptions from the registration requirements of United
States federal and state securities laws and that the Company is relying upon
the truth and accuracy of, and the Purchaser's compliance with, the
representations,
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<PAGE> 5
warranties, agreements, acknowledgments and understandings of the Purchaser set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Purchaser to acquire the Units, the Preferred Shares and the
Warrants.
d. Information. The Purchaser and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Purchaser or its advisors. The Purchaser and
its advisors, if any, have been afforded the opportunity to ask questions of
the Company and have received what the Purchaser believes to be satisfactory
answers to any such inquiries. Neither such inquiries nor any other due
diligence investigation conducted by Purchaser or any of its advisors or
representatives shall modify, amend or affect Purchaser's right to rely on the
Company's representations and warranties contained in Section 3 below. The
Purchaser understands that its investment in the Securities involves a high
degree of risk.
e. Governmental Review. The Purchaser understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Offshore Transaction. The Purchaser represents and warrants to the
Company that (i) the Purchaser is not a "U.S. PERSON" as that term is defined
in Rule 902(o) of Regulation S and, in that regard, further represents that (a)
it is organized under the laws of a jurisdiction other than the United States
and (b) if organized by a U.S. Person principally for the purpose of investing
in securities not registered under the Act, it was organized and is owned by
Accredited Investors who are not natural persons, estates or trusts; (ii) the
Units, Preferred Shares and Warrants were not offered to the Purchaser in the
United States and at the time of execution of this Subscription Agreement and
the time of any offer to the Purchaser to purchase Units, Preferred Shares or
Warrants hereunder, the Purchaser was physically outside the United States;
(iii) the Purchaser is purchasing the Securities for its own account and not on
behalf of or for the benefit of any U.S. person and the sale and resale of the
Securities have not been prearranged with any U.S. person or buyer in the
United States; (iv) the Purchaser agrees that all offers and sales of the
Securities prior to the expiration of the period commencing on the Closing Date
and ending forty (40) days thereafter (the "RESTRICTED PERIOD") shall not be
made to U.S. persons or for the account or benefit of U.S. persons and shall
otherwise be made in compliance with the provisions of Regulation S. Purchaser
is not a distributor or dealer with respect to the Securities.
g. Signatory's Representation. The Purchaser represents and warrants
that the signatory to this Agreement is not a U.S. Person, and is not located
in the United States at the time of signing this Agreement.
h. No Scheme to Evade Registration. Purchaser's acquisition of the
Securities is not a transaction (or any element of a series of transactions)
that is part of a plan or scheme to evade the registration provisions of the
Securities Act.
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<PAGE> 6
i. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Purchaser and are valid and binding agreements of the
Purchaser enforceable in accordance with their terms.
j. Residency. The Purchaser is a resident of the country set forth
immediately below its name on the Execution Pages.
k. Acknowledgments Regarding Placement Agent. Each of the Purchasers
acknowledges that Zanett Capital, Inc. is acting as placement agent (the
"PLACEMENT AGENT") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. Each of the Purchasers
further acknowledges that the Placement Agent has acted solely as placement
agent in connection with the offering of the Securities by the Company, that
the information and data provided to each such Purchaser and referred to in
subsection (d) above have not been subjected to independent verification by the
Placement Agent and that the Placement Agent makes no representation or
warranty with respect to the accuracy or completeness of such information, data
or other related disclosure material.
l. Rank of Series B Preferred Stock. Each of the Purchasers
acknowledges and understands that the Series B Preferred Stock shall rank pari
passu with the Series A Preferred Stock and the New Securities (as such terms
are defined in the Certificate of Designation) with respect to distributions
available upon a liquidation or other winding up of the Company except that, in
the event of a Conversion Default (as such term is defined in the Certificate
of Designation of the Series A Preferred Stock (the "SERIES A CERTIFICATE OF
DESIGNATION")) with respect to the Series A Preferred Stock, the holders of
Series A Preferred Stock have been granted a first lien and security interest
in and to certain of the Company's intellectual property (the "COLLATERAL")
described in that certain Security Agreement dated as of the date hereof by and
between the Company and [Zanett Lombardier, Ltd.], as Collateral Agent, as
security for the Company's payment of Conversion Default redemption
obligations.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Purchaser that:
a. Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing
under the laws of the jurisdiction in which it is incorporated, and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted. The Company and each of its subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which the nature of the business conducted by it makes such
qualification necessary and where the failure so to qualify would have a
Material Adverse Effect. "MATERIAL ADVERSE EFFECT" means any material adverse
effect on the operations, properties, financial condition or prospects of the
Company or on the transactions contemplated hereby.
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<PAGE> 7
b. Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Warrants, to issue and sell the Units,
Preferred Shares and Warrants in accordance with the terms hereof and to issue
the Conversion Shares and Warrant Shares upon conversion of the Preferred
Shares and exercise of the Warrants, respectively, in accordance with the terms
thereof; (ii) the execution and delivery of this Agreement, the Registration
Rights Agreement and the Warrants by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including without limitation
the issuance of the Units, Preferred Shares and the Warrants and the issuance
and reservation for issuance of the Conversion Shares and Warrant Shares
issuable upon conversion and exercise thereof) have been duly authorized by the
Company's Board of Directors and, except as set forth on SCHEDULE 3(B) hereof,
no further consent or authorization of the Company, its Board or Directors, or
its stockholders is required; (iii) this Agreement has been duly executed and
delivered by the Company; and (iv) this Agreement constitutes, and upon
execution and delivery by the Company of the Registration Rights Agreement and
the Warrants, such agreement will constitute a valid and binding obligation of
the Company enforceable against the Company in accordance with its terms.
c. Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Preferred Shares and the Warrants)
exercisable for, or convertible into or exchangeable for any shares of Common
Stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on SCHEDULE
3(C). All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and nonassessable. No shares of
capital stock of the Company are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens or encumbrances.
Except as disclosed in SCHEDULE 3(C), as of the date of this Agreement, (i)
there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exchangeable for, any shares of capital stock of the
Company or any of its subsidiaries, or arrangements by which the Company or any
of its subsidiaries is or may become bound to issue additional shares of
capital stock of the Company or any of its subsidiaries, and (ii) there are no
agreements or arrangements under which the Company or any of its subsidiaries
is obligated to register the sale of any of its or their securities under the
Securities Act (except the Registration Rights Agreement). The Company has
furnished to the Purchaser true and correct copies of the Company's Restated
Certificate of Incorporation as in effect on the date hereof ("CERTIFICATE OF
INCORPORATION"), the Company's By-laws as in effect on the date hereof (the
"BY-LAWS"), the Certificate of Designation and all other instruments and
agreements governing securities convertible into or exercisable for Common
Stock of the Company. The Company shall provide the Purchaser with a written
update of this representation signed by the Company's Chief Executive Officer
or Chief Financial Officer on behalf of the Company as of the Closing Date.
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<PAGE> 8
d. Issuance of Shares. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, the Preferred
Shares will be validly issued, fully paid and non-assessable, and free from all
taxes, liens and charges with respect to the issue thereof and will not be
subject to preemptive rights or other similar rights of stockholders of the
Company. The Conversion Shares and Warrant Shares are duly authorized and, upon
conversion of the Preferred Shares and exercise of the Warrants in accordance
with the terms thereof, the Conversion Shares and Warrant Shares will be
validly issued, fully paid and non-assessable, and free from all taxes, liens
and charges with respect to the issue thereof and will not be subject to
preemptive rights or other similar rights of stockholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement, the Registration Rights Agreement and the Warrants by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Preferred Shares and
Warrants and the issuance and reservation for issuance of the Conversion Shares
and Warrant Shares) will not (i) result in a violation of the Certificate of
Incorporation or By-laws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its subsidiaries is a party, or result in a violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations) applicable to the Company or any of its subsidiaries or
by which any property or asset of the Company or any of its subsidiaries is
bound or affected (except for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a Material Adverse Effect). Neither the
Company nor any of its subsidiaries is in violation of its Certificate of
Incorporation, By-laws or other organizational documents and neither the
Company nor any of its subsidiaries is in default (and no event has occurred
which with notice or lapse of time or both would put the Company or any of its
subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to
which the Company or any of its subsidiaries is a party, except for possible
defaults or rights as would not, individually or in the aggregate, have a
Material Adverse Effect. The businesses of the Company and its subsidiaries are
not being conducted, and shall not be conducted so long as a Purchaser owns any
of the Securities, in violation of any law, ordinance or regulation of any
governmental entity, except for possible violations which either singly or in
the aggregate do not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and as required under the Securities Act and any
applicable state securities laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with,
any court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Warrants or to perform its
obligations under the Certificate of Designation, in each case in accordance
with the terms hereof or thereof.
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<PAGE> 9
f. SEC Documents, Financial Statements. Since December 31, 1995, the
Company has filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the "EXCHANGE Act") (all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to the Purchaser true
and complete copies of the SEC Documents, except for such exhibits, schedules
and incorporated documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act and
the rules and regulations of the SEC promulgated thereunder applicable to the
SEC Documents, and none of the SEC Documents, at the time they were filed with
the SEC, contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have
been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to the
date of such financial statements and (ii) obligations under contracts and
commitments incurred in the ordinary course of business and not required under
generally accepted accounting principles to be reflected in such financial
statements, which, individually or in the aggregate, are not material to the
financial condition or operating results of the Company. The Company has not
provided to any Purchaser any information which, according to applicable law,
rule or regulation, should have been disclosed publicly by the Company but
which has not been so disclosed.
g. Absence of Certain Changes. Since December 31, 1995 there has been
no material adverse change and no material adverse development in the business,
properties, operations, financial condition, results of operations or prospects
of the Company, except as disclosed in Schedule 3(g) or in the SEC Documents.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of
the Company or any of its subsidiaries, threatened against or affecting the
Company or any of its subsidiaries.
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<PAGE> 10
i. Disclosure. All information relating to or concerning the Company
set forth in this Agreement and provided to the Purchaser pursuant to Section
2(d) hereof and otherwise in connection with the transactions contemplated
hereby is true and correct in all material respects and the Company has not
omitted to state any material fact necessary in order to make the statements
made herein or therein, in light of the circumstances under which they were
made, not misleading. No event or circumstance has occurred or exists with
respect to Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which, under
applicable law, rule or regulation, requires public disclosure or announcement
by the Company but which has not been so publicly announced or disclosed.
j. Acknowledgment Regarding the Purchaser's Purchase of the Units. The
Company acknowledges and agrees that the Purchaser is not acting as a financial
advisor or fiduciary of the Company (or in any similar capacity) with respect
to this Agreement and the transactions contemplated hereby, and any advice
given by the Purchaser or any of its representatives or agents in connection
with this Agreement and the transactions contemplated hereby is merely
incidental to the Purchaser's purchase of the Units. The Company further
represents to Purchaser that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company
and its representatives.
k. Current Public Information. The Company represents and warrants to
the Purchaser that the Company is a "DOMESTIC ISSUER" and a "REPORTING ISSUER"
as defined in Rule 902 of Regulation S. The Common Stock is registered under
Section 12(b) or 12(g) of the 1934 Act, and the Company has filed all the
materials required to be filed as reports pursuant to the 1934 Act for a period
of at least twelve months preceding the date hereof (or for such shorter period
as the Company was required by law to file such materials), and all such
filings have been made on a timely basis. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form S-3
under the Securities Act.
l. No Securities Offered in United States or to any U.S. Person.
Based upon, among other things, the representations and warranties of the
Purchasers in this Agreement, the Company represents that it has not offered
the Securities being offered hereby to any Purchaser in the United States or to
any person in the United States or any U.S. Person.
m. No Directed Selling Efforts in Regard to this Transaction. Neither
the Company nor any distributor participating in the transaction contemplated
hereby (if any) nor any person acting for the Company, or any such distributor,
has conducted any "DIRECTED SELLING EFFORTS" in the United States, as such term
is defined in Rule 902 of Regulation S, or any "GENERAL SOLICITATION," as such
term is defined in Regulation D, with respect to any of the Securities being
offered hereby.
n. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any
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<PAGE> 11
security or solicited any offerers to buy any security under circumstances that
would require registration of the Securities being offered hereby under the
Securities Act.
o. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for dealings with the Placement Agent, whose
commissions and fees will be paid for by the Company.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and 7 of this Agreement.
b. Reporting Status. So long as the Purchasers beneficially own any of
the Securities, the Company shall timely file all reports required to be filed
with the SEC pursuant to the Exchange Act, and the Company shall not terminate
its status as an issuer required to file reports under the Exchange Act even if
the Exchange Act or the rules and regulations thereunder would permit such
termination.
c. Use of Proceeds. The Company shall use the proceeds from the sale
of the Units (i) to redeem, on the Closing Date, the outstanding notes payable
to (A) Zanett Lombardier, Ltd., in the principal amount of $400,000, (B) Hariot
Holdings, Inc. in the principal amount of $217,788 and (C) Bruno Guazzoni in
the principal amount of $217,788 (collectively, the "NOTES"); (ii) for the
Company's internal working capital purposes, at a rate not to exceed One
Hundred Thousand Dollars ($100,000.00) per month and (iii) to provide a minimum
of Six Hundred Fifty Thousand Dollars ($650,000.00) of funding for current FDA
trials and clinicals with respect to certain of the Company's products.
d. Financial Information. The Company agrees to send the following
reports to each Purchaser until such Purchaser transfers, assigns, or sells all
of the Securities: (i) within ten (10) days after the filing with the SEC, a
copy of its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; and (ii) within one (1) day after release,
copies of all press releases issued by the Company or any of its subsidiaries.
e. Reservation of Shares. At all times following the amendment of the
Company's Certificate of Incorporation as provided in Section 4(h) hereof, the
Company shall have authorized and reserved for the purpose of issuance two (2)
times the number of shares of Common Stock required to provide for the full
conversion of the outstanding Preferred Shares and issuance of the Conversion
Shares in connection therewith and the full exercise of the Warrants and the
issuance of the Warrant Shares in connection therewith (based on the conversion
price of the Preferred Shares and the exercise price of the Warrants in effect
from time to time). In that regard, on the Closing Date, the Company shall have
at least 5,000,000 shares of Common Stock (the "RESERVED SHARES") reserved for
issuance upon conversion of the Preferred Shares and exercise of the Warrants
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<PAGE> 12
(subject to adjustment in order to comply with the immediately preceding
sentence) and, following the amendment of the Certificate of Incorporation as
provided in Section 4(h) hereof, shall have increased the number of Reserved
Shares by such number of shares of Common Stock as required to comply with the
first sentence of this subsection; provided that the Company shall not reduce
the number of shares reserved for issuance upon conversion of the Preferred
Shares and the full exercise of the Warrants without the consent of each of the
Purchasers, which consent will not be unreasonably withheld.
f. Listing. The Company shall take all actions necessary to continue
the listing and trading of its Common Stock on the National Association of
Securities Dealers, Inc. ("NASD") OTC Bulletin Board (the "OTC BULLETIN
BOARD"), shall comply in all respects with the Company's reporting, filing and
other obligations under the bylaws or rules of the NASD until such time as such
Common Stock is listed on the NASDAQ Small Cap Market or another national
interdealer quotation system or stock exchange and thereafter shall comply in
all respects with the Company's reporting, filing and other obligations of such
interdealer quotation system or stock exchange.
g. Corporate Existence. So long as the Purchaser beneficially owns any
Preferred Shares or Warrants, the Company shall maintain its corporate
existence, except in the event of a merger, consolidation or sale of all or
substantially all of the Company's assets, as long as the surviving or
successor entity in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith regardless of whether or not the Company would have had a sufficient
number of shares of Common Stock authorized and available for issuance in order
to affect the conversion of all Preferred Shares and exercise in full of all
Warrants outstanding as of the date of such transaction and (ii) is a publicly
traded corporation whose common stock is listed for trading on the American
Stock Exchange, the New York Stock Exchange or the NASDAQ National Market
System.
h. Amendment to Certificate of Incorporation. The Company shall use
its best efforts to amend, as soon as practicable after the date hereof (and in
any event no later than November 30, 1996), 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 the reservation for
issuance and issuance of (i) the full number of shares of Common Stock which
the Company has contractually obligated itself to issue under agreements
(including shares of Common Stock issuable upon conversion of the 1996 Series A
Convertible Preferred Stock) in effect prior to the date hereof (the
"AMENDMENT") and (ii) the number of shares of Common Stock the Company is
required to reserve for issuance pursuant to Section 3(e) hereof upon
conversion. In that regard, the Company shall present to its stockholders a
proposal to approve the Amendment at its next annual meeting of stockholders or
a special meeting of stockholders called for such purpose and shall prepare
proxy materials with respect thereto which contain the recommendation of the
Company's Board of Directors for the approval of the Amendment and which
comply, in all material respects, with the proxy rules promulgated pursuant to
the Exchange Act. Until the Amendment is effective and a sufficient number of
shares of Common Stock are reserved for issuance upon the full conversion of
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<PAGE> 13
the 1996 Series A Convertible Preferred, the Company shall not issue any shares
of Common Stock upon the conversion of any shares of Series A Preferred Stock.
i. [Intentionally Omitted]
j. Legends. The Conversion Shares and Warrant Shares, and the
certificates evidencing the same, shall at all times be free of legends (except
as provided in Section 5 below), "STOCK TRANSFER RESTRICTIONS," or other
restrictions, except for covenants of the Purchasers expressly set forth in
this Agreement.
k. Expenses. Except as otherwise provided in Section 5 of the
Registration Rights Agreement, each party hereto shall be responsible for the
payment of its own expenses incurred in connection with the negotiation,
execution, delivery and performance of this Agreement.
l. Transfer of Preferred Shares. The Company shall take all actions
necessary to prevent transfers of shares of Preferred Shares unless the
restrictions with respect to such transfers provided for in Section 2(a) hereof
are fully complied with. Further, the Company shall not waive the requirements
contained in Section 2(a) hereof under any circumstances.
m. Redemption of Notes. The Company shall redeem the
outstanding Notes within five (5) business days after the Closing.
n. Additional Offers and Sales. The Company shall not offer or sell
any securities in an offering which would result in an extension of the 40
restricted period under Regulation S under the Securities Act with respect to
the Series B Preferred Stock to a date that is more than 61 days after the
Closing Date.
5. LEGENDS; SUBSEQUENT TRANSFERS.
a. Resales of Securities by Purchasers. Each Purchaser acknowledges,
covenants and agrees that the Securities may and will only be resold by it (a)
in compliance with Regulation S; or (b) pursuant to an exemption from
registration under the Securities Act other than Regulation S; or (c) pursuant
to an effective and current registration statement under the Securities Act.
Each Purchaser agrees that it shall not make any offers or sales of the
Securities prior to the expiration of the Restricted Period to any U.S. person
or for the account or benefit of any U.S. person and any such offers or sales
prior to such expiration shall otherwise be made in compliance with the
provisions of Regulation S. In connection with any sale or transfer of the
Securities prior to the end of the Restricted Period, the Purchaser
transferring such Securities will obtain and deliver to the Company a
certificate of the prospective transferee confirming that: (i) the prospective
transferee is not a U.S. person; (ii) the securities have been offered and sold
or transferred to the prospective transferee outside the United States, and the
prospective transferee has no present intention to reoffer or resell the
Securities to a U.S. person or in the United States; (iii) prior to the end of
the Restricted
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<PAGE> 14
Period, the prospective transferee will not offer to sell the Securities to a
U.S. person or for the account or benefit of a U.S. person or in the United
States; and (iv) if the prospective transferee effects any further transfer,
offer or sale of the Securities prior to the end of the Restricted Period, such
transfer, offer or sale shall comply with the terms of Regulation S and the
prospective transferee will obtain and deliver to the Company a certificate of
the subsequent transferee to the effect of clauses (i)-(iv) of this sentence.
b. Legends.
(i) The certificates representing the Preferred Shares, Warrants and
any Conversion Shares and Warrant Shares issued during the Restricted Period,
shall bear the following legend (the "REGULATION S LEGEND"):
"The securities represented hereby have been issued pursuant to
Regulation S promulgated under the Securities Act of 1933, as
amended (the "1933 ACT"), and have not been registered under the
1933 Act. Such securities may not be transferred, offered or sold
prior to the end of the forty (40) day period (the "RESTRICTED
PERIOD") commencing on _______ __, 1996 unless such transfer, offer
or sale is made in an "OFFSHORE TRANSACTION" and not to or for the
account of or benefit of a "U.S. PERSON" (as such terms are defined
in Regulation S) and is otherwise in accordance with the
requirements of Regulation S. Following expiration of the
Restricted Period, the securities represented hereby may not be
offered, sold or otherwise transferred in the United States or to a
U.S. Person unless the securities are registered under the 1933 Act
and applicable state securities laws, or such offers, sales and
transfers are made pursuant to an available exemption from the
registration requirements of those laws."
(ii) The certificates representing the Preferred Shares shall bear
the following legend (in addition to the Regulation S Legend)(the "SERIES B
LEGEND"):
"The shares of the Corporation's 1996 Series B Convertible
Preferred Stock represented by this certificate are subject to
restrictions on convertibility as more fully set forth in the
Certificate of Designations, Preferences and Rights with respect to
such shares of 1996 Series B Convertible Preferred Stock."
c. Removal of Legend Following the Expiration of the Restricted
Period. Following the expiration of the Restricted Period, the Company will
remove or will promptly instruct its transfer agent to remove the Regulation S
Legend from the Preferred Shares and Warrants and, if applicable, from the
Conversion Shares and Warrant Shares issued during the Restricted Period
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<PAGE> 15
(and will instruct its transfer agent to issue without the Legend, the
Conversion Shares and Warrant Shares issuable upon any conversion or exercise
occurring after the Restricted Period), if the Purchaser holding such
Securities or any other person in whose name such certificates have been or are
to be issued shall have delivered a certificate (a "REMOVAL CERTIFICATE") to
the Company to the following effect:
"The undersigned acknowledges that the securities to which this
certificate relates have not been registered under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), and that offers,
sales or other transfers of such securities must be made in
compliance with Regulation S promulgated under the Securities Act,
pursuant to an effective registration statement under the
Securities 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 Securities Act, other applicable securities laws or the
rules and regulations of the Securities and Exchange Commission."
d. Removal of Legend in Connection with Bona Fide Pledge. Upon the
submission by a Purchaser, at any time after the expiration of the Restricted
Period, of a written request for legend removal for the purpose of a bona fide
pledge or deposit of Preferred Shares with a margin account, together with the
certificates for which the legend removal is being requested, the Company will
reissue or will promptly instruct its transfer agent to reissue the
certificates representing the Preferred Shares to be so pledged or deposited
without the Regulation S Legend, and no Removal Certificate shall be required
to be delivered in connection therewith.
e. Irrevocable Instructions to Transfer Agent. The Company will issue
to its transfer agent an irrevocable instruction letter to issue Common Stock
upon conversion of the Preferred Shares (in accordance with the Certificate of
Designation) and upon exercise of the Warrants upon receipt of a valid Notice
of Conversion or Exercise Agreement from the Purchaser and the certificates
representing the Preferred Shares or Warrants. So long as Section 5(c) above is
complied with, the Conversion Shares and the Warrant Shares shall be issued
free of the Regulation S Legend.
f. Preservation of the Legend. Notwithstanding the provisions of this
Section 5, if with respect to the Company's receipt of a Removal Certificate
from any person, prior to any removal of the Regulation S Legend, there shall
have been after the date hereof any amendment to the Securities Act or
Regulation S or any no action letter or interpretative release shall have been
promulgated by the SEC after the date hereof which explicitly disallows the
removal of the Regulation S Legend under the circumstances in which the request
that it be removed is being made, then the Company shall have no obligation to
remove or to instruct its transfer agent to remove the Regulation S Legend,
unless the Company shall have received from the person requesting such removal
a written
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<PAGE> 16
letter of counsel to such person reasonably acceptable to the Company
and its counsel confirming that the Regulation S Legend may be so removed or
share certificates may be so issued without the Regulation S Legend without
violation of the Securities Act. If the person requesting a removal of the
Regulation S Legend is unable to supply the legal opinion referred to above,
then the Company shall, upon demand of such person, be obligated to register
the Common Stock for resale pursuant to the terms of the Registration Rights
Agreement.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to
each of the Purchasers at Closing is subject to the satisfaction, at or before
the date and time of such Closing, of each of the following conditions thereto,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion.
(i) The Purchaser shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the same to
the Company.
(ii) The Purchaser shall have delivered the Purchase Price in
accordance with Section 1(b) above.
(iii) The representations and warranties of the Purchasers
shall be true and correct in all material respects as of the date when made and
as of the date and time of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date), and the
Purchasers shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the Purchasers at or
prior to such Closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each of the Purchasers hereunder to purchase the
Units at the closing is subject to the satisfaction, at or before the Closing
of each of the following conditions, provided that these conditions are for the
Purchasers' sole benefit and may be waived by a Purchaser at any time in its
sole discretion:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Purchaser.
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<PAGE> 17
(ii) The Certificate of Designation shall have been filed
with the Secretary of State of the State of Delaware, and a copy thereof
certified by the Secretary of State shall have been delivered to the Purchaser.
(iii) The Company shall have delivered duly executed
certificates representing the Preferred Shares and Warrants being so purchased
to the Purchaser in accordance with Section 1(b) above.
(iv) The Common Stock shall be authorized for quotation on
the OTC Bulletin Board and trading in the Common Stock (or on the OTC Bulletin
Board generally) shall not have been suspended by the SEC or the OTC Bulletin
Board. (The Purchaser acknowledges that the Common Stock is authorized for
quotation on the OTC Bulletin Board as of the date hereof.)
(v) The representations and warranties of the Company shall
be true and correct in all material respects as of the date when made and as of
the Closing as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing. The Purchasers
shall have received a certificate, executed by the chief executive officer of
the Company, dated as of the Closing, to the foregoing effect and as to such
other matters as may be reasonably requested by the Purchasers.
(vi) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
(vii) The Purchasers shall have received the officer's
certificate described in Section 3(c) above, dated as of the Closing.
(viii) The Purchasers shall have received evidence that each
of the holders of the Company's Series A Convertible Preferred Stock shall have
(i) consented to the creation of the Series B Preferred Stock and (ii)
consented that the sole remedy of the holder of Series A Convertible Preferred
Stock upon a Conversion Default shall be to execute upon, or receive the
proceeds from the sale of, the Collateral.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware without regard to the
principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located
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<PAGE> 18
in the County of Kent in the State of Delaware with respect to any dispute
arising under this Agreement, the agreements entered into in connection
herewith or the transactions contemplated hereby or thereby.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived or amended other than by an
instrument in writing signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier and shall be effective
five days after being placed in the mail, if mailed, or upon receipt or refusal
of receipt, if delivered personally or by courier, in each case addressed to a
party. The addresses for such communications shall be:
If to the Company:
American BioMed, Inc.
10077 Grogran's Mill Road, Suite 100
The Woodlands, Texas 77380
If to a Purchaser, to the address set forth immediately below such
Purchaser's name on the Execution Pages.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor the Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the
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<PAGE> 19
other. Notwithstanding the foregoing, each of the Purchasers may assign its
rights hereunder to any of its "AFFILIATES," as that term is defined under the
1934 Act, without the consent of the Company. This provision shall not limit a
Purchaser's right to transfer the Securities pursuant to the terms of the
Certificate of Designation, Warrants and this Agreement or to assign its rights
hereunder to any such transferee.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Acknowledgment. Each of the Purchasers acknowledges and agrees that
an affiliate (the "PURCHASING AFFILIATE") of the Placement Agent may subscribe
for Securities pursuant hereto and that neither the Placement Agent nor any of
its affiliates shall be under any obligation to advise the Purchasers or the
Company of the activities of the Purchasing Affiliate with respect to such
Securities following the Closing. Each of the Purchasers further acknowledges
and agrees that the Purchasing Affiliate will act independently of the
Placement Agent and may take action with respect to its investment in the
Securities which may be inconsistent or contrary to any action or interest of
the Placement Agent, the Company or the Purchasers. The acknowledgments set
forth in the preceding sentences shall not act as a waiver of any obligation
required by any law by which the Purchasing Affiliate is bound or any written
agreement to which the Purchasing Affiliate is a party.
j. Survival. The representations and warranties of the Company and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Purchasers. The Company agrees to indemnify and hold
harmless each of the Purchasers and each of its officers, directors, employees,
partners, agents and affiliates for loss or damage arising as a result of or
related to any breach or alleged breach by the Company of any of its
representations set forth in Section 3 hereof, including advancement of
expenses as they are incurred.
k. Publicity. The Company and each of the Purchasers shall have the
right to approve before issuance any press releases, SEC or NASD filings, or
any other public statements with respect to the transactions contemplated
hereby; provided, however, that the Company shall be entitled, without the
prior approval of the Purchaser, to make any press release or SEC or NASD
filings with respect to such transactions as is required by applicable law and
regulations (although the Purchasers shall be consulted by the Company in
connection with any such press release prior to its release and shall be
provided with a copy thereof).
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<PAGE> 20
l. Further Assurances. Each party shall do and perform, or cause to be
done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
m. Termination. In the event that a closing shall not have occurred on
or before ninety (90) days from the date hereof, unless the parties agree
otherwise, this Agreement shall terminate at the close of business on such
date.
[Remainder of Page Intentionally Left Blank]
IN WITNESS WHEREOF, the Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
AMERICAN BIOMED, INC.
By: /s/ STEVEN B. RASH
--------------------------------------
Name: Steven B. Rash
------------------------------------
Title: President & CEO
-----------------------------------
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<PAGE> 21
PURCHASER:
NAME: Wood Gundy London Ltd.
SIGNATURE:
------------------------------------
By: /s/ Mark Gleeson
---------------------------------------
Name: Mark Gleeson
Title: Associate Director Bond Operations
ADDRESS:
Cotton Centre
Cotton Lane
London 5E 2QL
England
PLACE OF EXECUTION OF AGREEMENT:
------------------------
IF PURCHASER IS NOT A NATURAL PERSON
COUNTRY OF ORGANIZATION:
--------------------------------
ADDRESS TO WHICH SECURITIES SHOULD BE SENT (IF DIFFERENT FROM ABOVE
ADDRESS):
Cotton Centre
Cotton Lane
London 5E 2QC
England
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Units: 800
Purchase Price: $1,000
Date: 28 Oct 96
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<PAGE> 22
PURCHASER:
NAME: Shoham Investments Ltd.
SIGNATURE:
------------------------------------
By: /s/ A. I. Gesundheit
---------------------------------------
Name: A. I. Gesundheit
Title: President
ADDRESS:
23 Hatayasim Street
Jeruselem 92507 Israel
PLACE OF EXECUTION OF AGREEMENT: Jeruselem, Israel
IF PURCHASER IS NOT A NATURAL PERSON
COUNTRY OF ORGANIZATION: Israel
ADDRESS TO WHICH SECURITIES SHOULD BE SENT (IF DIFFERENT FROM ABOVE
ADDRESS):
c/o Reuben Taub
245 Park Avenue
New York, NY 10167
Suite 9B
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Units: 250
Purchase Price: $250,000
Date: 10/30/96
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<PAGE> 23
PURCHASER:
NAME: Otata Limited Partnership
SIGNATURE:
------------------------------------
By: /s/ Rihal H. Gallagher
---------------------------------------
Name: Rihal W. Gallagher
Title: Authorized Signature
ADDRESS:
c/o Gallagher & Company Ltd.
P.O. Box 1845 GT
Grand Caymen, B.W.I.
PLACE OF EXECUTION OF AGREEMENT: Grand Caymen, B.W.I.
IF PURCHASER IS NOT A NATURAL PERSON
COUNTRY OF ORGANIZATION: Grand Caymen, B.W.I.
ADDRESS TO WHICH SECURITIES SHOULD BE SENT (IF DIFFERENT FROM ABOVE
ADDRESS):
Merrill Lynch International Ltd.
Ropemaker Place
25 Ropemaker Place
London EC2Y9LY
Attn: Maitane Fernandez de Mendiola
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Units: 250
Purchase Price: $250,000
Date: October 25, 1996
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<PAGE> 24
PURCHASER:
NAME: Ailouros Ltd.
SIGNATURE:
------------------------------------
By: /s/ MICHAEL KATZ
---------------------------------------
Name: Michael Katz
Title: Director
ADDRESS:
153c Fulham Road
London U.K. SW3 GSN
PLACE OF EXECUTION OF AGREEMENT: London, England
IF PURCHASER IS NOT A NATURAL PERSON
COUNTRY OF ORGANIZATION: Antigua
ADDRESS TO WHICH SECURITIES SHOULD BE SENT (IF DIFFERENT FROM ABOVE
ADDRESS):
-------------------------
-------------------------
-------------------------
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Units: 200
Purchase Price: $200,000 - US $
Date: Oct. 28, 1996
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<PAGE> 1
EXHIBIT 10.86
EXHIBIT C
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into
as of November 7, 1996, by and among American Biomed, Inc., a Delaware
corporation (the "COMPANY") and the subscribers (the "SUBSCRIBERS") to the
Company's offering of up to 2,500 units (the "UNITS"), each Unit consisting of
(i) one (1) share of 1996 Series B Convertible Preferred Stock (the "PREFERRED
SHARES") and (ii) one (1) warrant (the "WARRANT") to purchase one (1) share of
the Company=s common stock, $.001 par value per share (the "COMMON STOCK")
pursuant to the Securities Purchase Agreement between the Company and the
Subscribers of even date herewith (the "SUBSCRIPTION AGREEMENT").
1. DEFINITIONS. For purposes of this Agreement:
(a) The term "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "SECURITIES
ACT") and, to the extent possible, in compliance with Rule 415 under the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "REGISTRABLE SECURITIES" means the Common Stock or other
securities issuable or issued (i) upon conversion of the Preferred Shares and
exercise of the Warrants and (ii) in exchange for or as a dividend or
distribution on the Common Stock referred to in clause (i) hereof; provided,
however, that, notwithstanding the foregoing, the term Registrable Securities
does not include securities that at the time the determination is being made,
in the written opinion of the Company=s counsel (in form, substance and scope
reasonably acceptable to the Holders), may be immediately sold or transferred
in the United States by the Holder thereof without registration under the
Securities Act free of any restrictive legend.
(c) The term "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the
number of shares of Common Stock which have been issued or are issuable upon
conversion of the Preferred Shares and exercise of the Warrants at the time of
such determination; and
(d) The term "HOLDER" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof.
2. DEMAND REGISTRATION.
(a) At any time beginning after the end of the Restricted Period (as
defined in the Subscription Agreement), the Holders of Registrable Securities
of at least twenty percent (20%) of
<PAGE> 2
the Registrable Securities then outstanding may notify the Company in writing
that they demand that the Company file a registration statement under the
Securities Act covering the registration of all of the Registrable Securities.
Upon receipt of such notice, the Company shall, within ten (10) days, give
written notice of such request to all Holders and shall, subject to the
limitations of subsection 2(b), effect as soon as practicable, and in any event
within ninety (90) days of the receipt of such request, the registration under
the Securities Act of all Registrable Securities which the Holders request, by
notice given to the Company within ten (10) days of receipt of the Company's
notice, to be registered as expeditiously as reasonably possible after the
mailing of such notice by the Company (a "DEMAND REGISTRATION").
(b) If the Holders initiating the registration request hereunder
("INITIATING HOLDERS") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as part of their request made pursuant to this Section 2 and the Company shall
include such information in the written notice referred to in subsection 2(a).
In such event, the right of any Holder to include his Registrable Securities in
such registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 6(f)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders, and reasonably acceptable to the Company.
(c) The Company is obligated to effect only three (3) demand
registrations pursuant to Section 2 of this Agreement. The Company agrees to
include all Registrable Securities held by all Holders requesting inclusion in
such Registration Statement without cutback or reduction. In the event the
Company is unable to fulfill its obligation of the preceding sentence with
respect to any registration, such registration shall not be counted as a Demand
Registration under this Agreement.
3. PIGGYBACK REGISTRATION. If (but without any obligation to do so) the
Company proposes to register (including, for this purpose, a registration
effected by the Company for stockholders other than the Holders) any of its
Common Stock under the Securities Act in connection with the public offering of
such securities for cash (other than a registration on Form S-8 or on Form
S-4), the Company shall, at such time, promptly give each Holder written notice
of such registration. Upon the written request of each Holder given by fax
within ten (10) days after the mailing of such notice by the Company, which
request shall state the intended method of disposition of such shares of such
Holder, the Company shall cause to be registered under the Securities Act all
of the Registrable Securities that each such Holder has requested to be
registered (a "PIGGYBACK REGISTRATION").
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<PAGE> 3
4. LIMITATION ON OBLIGATION TO REGISTER.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of (i) all Registrable
Securities proposed to be included by the Holders pursuant to Section 3 hereof
and (ii) all other securities of the Company proposed to be included in such
registration statement for the account of persons other than the Company would
interfere with the successful marketing of the securities proposed to be
registered by the Company, then Registrable Securities may be excluded from
such registration statement only to the extent that the underwriter shall
require. Any such exclusion of Registrable Securities shall be pro-rata among
the Holders who had requested Piggyback Registration and the persons (the
"OTHER HOLDERS") entitled to include securities in such registration statement
pursuant to registration rights in existence as of the date hereof (such
securities held by Other Holders being hereinafter referred to as "OTHER
SECURITIES"), in the proportion that the number of Registrable Securities or
Other Securities which each such Holder or Other Holder seeks to register bears
to the total number of Registrable Securities and Other Securities sought to be
included by all Holders and Other Holders; provided, however, that Registrable
Securities may be excluded from such registration statement only to the extent
that the Company has first excluded all outstanding securities held by persons
who are not entitled to inclusion of such securities in such registration
statement or are not entitled to inclusion on a pro-rata basis with the
Registrable Securities; provided, further, however, that the Company shall
exclude all of the Registrable Securities from such registration statement
before any Other Securities entitled to be included in such registration
statement pursuant to the terms of that certain Registration Rights Agreement,
dated as of July 25, 1996, by and among the Company and the other signatories
thereto are excluded from such registration statement.
(b) Notwithstanding anything to the contrary herein, the Company shall
have the right (i) to defer the initial filing or request for acceleration of
effectiveness of any Demand Registration or Piggyback Registration or (ii)
after effectiveness, to suspend effectiveness of any such registration
statement, if, in the good faith judgment of the board of directors of the
Company and upon the advice of counsel to the Company, such delay in filing or
requesting acceleration of effectiveness or such suspension of effectiveness is
necessary in light of the existence of material non-public information
(financial or otherwise) concerning the Company, disclosure of which at the
time is not, in the opinion of the board of directors of the Company upon the
advice of counsel (A) otherwise required and (B) in the best interests of the
Company; provided, however, that the Company will not delay or suspend
effectiveness of such registration for more than three (3) months from the date
of the demand, unless it is then engaged in an acquisition or financing that
would make such registration impracticable, in which case it will use its best
efforts to eliminate such impracticability as soon as possible.
(c) Notwithstanding anything to the contrary contained herein, if the
shares of Common Stock referred to in Section 1(b) above, in the written
opinion of Company=s counsel (in form, substance and scope reasonably
acceptable to the Holders), may be immediately sold or transferred
-3-
<PAGE> 4
in the United States by the Holder thereof without registration free of any
restrictive legend, no registration in respect thereof need be effected by the
Company hereunder.
5. OBLIGATIONS TO INCREASE AVAILABLE SHARES. In the event that the number
of shares available under a registration statement filed pursuant to Section 2
is insufficient to cover all of the Registrable Securities requested to be
included therein (which request may be for all Registrable Securities issuable
at any time upon conversion of the Preferred Shares or exercise of the
Warrants) the Company shall amend that registration statement, or file a new
registration statement, or both, so as to cover all shares of Registrable
Securities requested to be included therein. The Company shall effect such
amendment or new registration within sixty (60) days of the date the
registration statement filed under Section 2 is insufficient to cover all the
shares of Registrable Securities then outstanding. Any Registration Statement
filed hereunder shall, to the extent permissible by the Rules of the Securities
and Exchange Commission, state that, in accordance with Rule 416 under the
Securities Act, such Registration Statement also covers such indeterminate
numbers of additional shares of Common Stock as may become issuable upon
conversion of the Preferred Shares to prevent dilution resulting from stock
changes or by reason of changes in the conversion price in accordance with the
terms thereof.
6. OBLIGATIONS OF THE COMPANY. Whenever required under this Agreement to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission (the
ASEC@) a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to keep the registration statement
effective and comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(c) With respect to any Demand Registration, use best efforts to keep
such registration statement effective until the Holders of Registrable
Securities covered by such registration statement have completed the
distribution described in the registration statement.
(d) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them.
(e) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement,
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<PAGE> 5
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(f) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(g) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(h) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Agreement, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
(i) If requested by any Holder, promptly include in any Registration
Statement or prospectus, pursuant to a supplement or post-effective amendment
if necessary, such information as such Holder may reasonably request to have
included therein, including, without limitation, information relating to the
"plan of distribution" of the Registrable Securities, the purchase price being
paid therefor and any other terms of the offering of the Registrable Securities
to be sold in such offering; and make all required filings of such prospectus
supplement or post-effective amendment as soon as practicable after the Company
is notified of the matters to be included in such prospectus supplement or
post-effective amendment;
(j) Make available at reasonable times for inspection by the Holders
and any attorney or accountant retained by such Holders, all pertinent
financial and other records, pertinent corporate documents and properties of
the Company and cause the Company's officers, directors and employees to supply
all information reasonably requested by any such Holder, attorney or accountant
in connection with such Registration Statement or any post-effective amendment
thereto
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<PAGE> 6
subsequent to the filing thereof and prior to its effectiveness; provided,
that, any person to whom information is provided under this clause (j) agrees
in writing to maintain the confidentiality of such information to the extent
such information is not in the public domain; and
(k) Have stop orders lifted as soon as practicable.
7. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities or to determine that registration is not
required pursuant to Rule 144 or other applicable provision of the Securities
Act.
8. EXPENSES OF DEMAND REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 2, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and including the reasonable
fees and disbursements incurred of only one counsel for the selling Holders,
shall be borne by the Company; provided, however, that the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities to be
registered (in which case all Holders who had requested such registration shall
bear such expenses prorated, based on the number of shares included in the
Registration Statement); provided further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of such expenses and shall retain their rights pursuant to Section 2.
9. EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay all
expenses incurred in connection with any registration, filing or qualification
of registrable Securities with respect to the registrations pursuant to Section
3 for each Holder, including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto (and including the reasonable fees and disbursements incurred of only
one counsel for the selling Holders selected by them), but excluding
underwriting discounts and commissions relating to Registrable Securities.
10. INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each "HOLDER INDEMNIFIED PERSON" (defined for purposes of this
Section 10 as each Holder, the stockholders, parties, employees, agents,
officers and directors of each Holder acting in their capacity as such, any
underwriter (as defined in the Securities Act) for such Holder and each person,
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<PAGE> 7
if any, who controls such Holder or underwriter within the meaning of the
Securities Act or the Exchange Act, against any losses, claims, damages,
expenses, or liabilities (joint or several) ("LOSSES") to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such Losses (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "VIOLATION"): (i) any untrue statement of a material fact
contained in such registration statement, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto,
(ii) the omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law; and the Company will reimburse
each such Holder Indemnified Person for any legal or other expenses reasonably
incurred by him, her or it in connection with investigating or defending any
such Loss or action; provided, however, that the indemnity agreement contained
in this subsection 10(a) shall not apply to amounts paid in settlement of any
such Loss or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such Loss or action to the extent
that it arises out of or is based upon a Violation which occurs (i) in reliance
upon and in conformity with written information furnished expressly for use in
connection with such registration by any such Holder Indemnified Person, or
(ii) the failure of such Holder Indemnified Person to deliver a copy of the
registration statement or the prospectus, or any amendments or supplements
thereto, after the Company or underwriters has furnished such person with a
sufficient number of copies of the same.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the "COMPANY INDEMNIFIED PERSONS" (defined for the purpose of
this Section 10 as the Company, each of its directors in their capacity as
such, each of its officers who have signed the registration statement in their
capacity as such, each person, if any, who controls the Company within the
meaning of the Securities Act or the Exchange Act, any underwriter and any
other stockholder selling securities in such registration statement), against
any Losses (joint or several) to which they may become subject under the
Securities Act, the Exchange Act or other federal or state law, insofar as such
Losses (or actions in respect thereof) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company and any such Company Indemnified Person in
connection with investigating or defending any such Losses or action; provided,
however, that the indemnity agreement contained in this subsection 10(b) shall
not apply to amounts paid in settlement of any such Losses or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided further, however, that, in no event
shall any indemnity under this subsection 10(b) exceed the net proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if
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<PAGE> 8
a claim in respect thereof is to be made against any indemnifying party under
this Section 10, deliver to the indemnifying party written notice to assume the
defense thereof with counsel mutually satisfactory to the parties; provided,
however, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 10, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 10.
(d) To the extent any indemnification by an indemnifying party
pursuant to this Section 10 is prohibited or limited by law, the indemnifying
party agrees to make the maximum contribution with respect to any amounts for
which it would otherwise be liable hereunder to the fullest extent permitted by
law in such proportion as is appropriate to reflect the relative fault of such
indemnifying party determined by reference to, among other things, whether an
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party and such indemnifying party=s relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, however, that (i) no contribution shall be
made under circumstances where the maker would not have been liable for
indemnification under the fault standards set forth in this Section 10, (ii) no
seller of Registrable Securities guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not guilty of
such fraudulent misrepresentation, and (iii) contribution (together with any
indemnification or other obligations under this Agreement) by any seller of
Registrable Securities shall be limited in amount to the net proceeds received
by such seller from the sale of such Registrable Securities.
(e) The obligations of the Company and Holders under this Section
10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Agreement.
11. REPORTS UNDER THE EXCHANGE ACT. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Securities Act and any
other rule or regulation of the SEC that may at any time permit a Holder to
sell securities of the Company to the public without registration, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times;
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<PAGE> 9
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company, if
true, that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration.
12. AMENDMENT OF REGISTRATION RIGHTS. Any provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the holders of a majority of the shares of
Common Stock issued or issuable upon conversion of the Preferred Shares. Any
amendment or waiver effected in accordance with this paragraph shall be binding
upon each Holder, each future holder, and the Company.
13. NOTICES. All notices required or permitted under this Agreement shall
be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company, Attn: President, American BioMed, Inc., 10077
Grogan=s Mill Road, suite 100, The Woodlands, Texas 77380, Telecopy No.
(713)-367-3212 and (ii) each Holder at the last address as the party shall have
furnished in writing as a new address to be entered on such register. Any
notice, except as otherwise provided in this Agreement, shall be made by fax
and shall be deemed given at the time of transmission of the fax.
14. TERMINATION. This Agreement shall terminate on the later to occur of
(a) the date that is three years from the date of this Agreement and (b) the
date any distribution of Registrable Securities described in a registration
statement filed pursuant to this Agreement is completed; but without prejudice
to (i) the parties' rights and obligations arising from breaches of this
Agreement occurring prior to such termination or (ii) other indemnification
obligations under this Agreement.
15. ASSIGNMENT. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this
Agreement by the Company or any Holder, respectively, shall be made without the
prior written consent of the majority in interest of the Holders and the
Company, respectively; provided that the rights of a Holder may be transferred
to a subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a Demand
Registration or Piggyback Registration, a writing executed by such transferee
agreeing to be bound as a Holder by the terms of this Agreement); and provided
further that the Company may transfer its rights and obligations under this
Agreement to a purchaser of all
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<PAGE> 10
or a substantial portion of its business if the obligations of the Company
under this Agreement are assumed in connection with such transfer, either by
merger or other operation of law (which may include without limitation a
transaction whereby the Registrable Securities are converted into securities of
the successor in interest) or by specific assumption executed by the
transferee.
16. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
in and wholly to be performed in that jurisdiction, except for matters arising
under the Securities Act or the Exchange Act, which matters shall be construed
and interpreted in accordance with such laws. Any action brought to enforce, or
otherwise arising out of, this Agreement shall be heard and determined only in
either a federal or state court sitting in the County of Kent in the State of
Delaware.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
AMERICAN BIOMED, INC.
By:
--------------------------------
President
SUBSCRIBER
-----------------------------------
Subscriber's Name
By:
--------------------------------
(Signature)
Address:
---------------------------
---------------------------
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<PAGE> 1
EXHIBIT 10.87
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 21,
1997, by and among American BioMed, Inc., a Delaware corporation, with
headquarters located at 10077 Grogan's Mill Road, Suite 100, The Woodlands,
Texas 77380 (the "COMPANY"), and the investors listed on the Schedule of Buyers
attached hereto (along with their successors and assigns, individually, a
"BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration pursuant
Section 4(2) of the Securities Act of 1933, as amended (the "1933 ACT");
B. The Company has authorized the following new series of its
Preferred Stock, $.001 par value per share (the "PREFERRED STOCK"): the
Company's Series C Convertible Preferred Stock (the "SERIES C PREFERRED
SHARES"), which shall be convertible into shares of the Company's Common Stock,
$.001 par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES"), in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights of the Series C Preferred Shares,
substantially in the form attached hereto as Exhibit A (the "CERTIFICATE OF
DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions stated
in this Agreement, an aggregate of up to 125 shares of the Series C Preferred
Shares in the respective amounts set forth opposite each Buyer's name on the
Schedule of Buyers;
D. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration
Rights Agreement substantially in the form attached hereto as Exhibit B (the
"REGISTRATION RIGHTS AGREEMENT") pursuant to which the Company has agreed to
provide certain registration rights under the 1933 Act and the rules and
regulations promulgated thereunder, and applicable state securities laws; and
E. As set forth in Section 4(l) hereof and Section 2(j)(ii) of the
Certificate of Designations, under certain circumstances holders of the Series
C Preferred Shares shall receive stock purchase warrants to acquire shares of
Common Stock substantially in the form attached hereto as Exhibit C (the
"WARRANTS").
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF SERIES C PREFERRED SHARES.
a. Purchase of Series C Preferred Shares. Subject to the
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7 below,
the Company shall issue and sell to the Buyers and the Buyers shall purchase
from the Company an aggregate of 125 Series C Preferred Shares, in the
respective amounts set forth opposite each Buyer's name on the Schedule of
Buyers (the
<PAGE> 2
"CLOSING"). The per share purchase price (the "PURCHASE PRICE") of the Series C
Preferred Shares shall be $20,000.00.
b. Closing Date. The date and time of the Closing (the "CLOSING
DATE") shall be 10:00 a.m. Central Standard Time, within five (5) business days
following the date hereof, subject to notification of satisfaction (or waiver)
of the conditions to the Closing set forth in Sections 6 and 7 below (or such
later date as is mutually agreed to by the Company and the Buyers). The Closing
shall occur on the Closing Date at the offices of Katten Muchin & Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
c. Form of Payment. On the Closing Date, (i) each Buyer shall
pay the Purchase Price to the Company for the Series C Preferred Shares to be
issued and sold to such Buyer at the Closing, by wire transfer of immediately
available funds in accordance with the Company's written wire instructions, and
(ii) the Company shall deliver to each Buyer, a stock certificate representing
such number of the Series C Preferred Shares which such Buyer is then
purchasing (as indicated opposite such Buyer's name on the Schedule of Buyers),
duly executed on behalf of the Company and registered in the name of such Buyer
or its designee (the "STOCK CERTIFICATES").
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the Series
C Preferred Shares, (ii) upon conversion of the Series C Preferred Shares, will
acquire the Conversion Shares then issuable and any Warrants issuable pursuant
to Section 4(l) hereof, (iii) will acquire any Warrants issuable pursuant to
Section 2(j)(ii) of the Certificate of Designations, and (iv) upon exercise of
the Warrants, will acquire the shares of Common Stock issuable upon exercise
thereof (the "WARRANT SHARES"), for its own account for investment only and not
with a view towards, or for resale in connection with, the public sale or
distribution thereof, except pursuant to sales registered or exempted under the
1933 Act; provided, however, that by making the representations herein, such
Buyer does not agree to hold any Series C Preferred Shares, Conversion Shares,
Warrants or Warrant Shares for any minimum or other specific term and reserves
the right to dispose of Series C Preferred Shares, Conversion Shares, Warrants
or Warrant Shares at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D
("REGULATION D") as promulgated by the United States Securities and Exchange
Commission (the "SEC") under the 1933 Act.
c. Reliance on Exemptions. Such Buyer understands that the
Series C Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares are being offered and sold to it in reliance on specific exemptions from
the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of,
and such
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<PAGE> 3
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Series C
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither
such inquiries nor any other due diligence investigations conducted by such
Buyer or its advisors, if any, or its representatives shall modify, amend or
affect such Buyer's right to rely on the Company's representations and
warranties contained in Section 3 below. Such Buyer understands that its
investment in the Series C Preferred Shares, the Conversion Shares, the
Warrants and the Warrant Shares involves a high degree of risk. Such Buyer has
sought such accounting, legal and tax advice as it has considered necessary to
make an informed investment decision with respect to its acquisition of the
Series C Preferred Shares, the Conversion Shares, the Warrants and the Warrant
Shares.
e. No Governmental Review. Such Buyer understands that no
United States federal or state agency or any other government or governmental
agency has passed on or made any recommendation or endorsement of the Series C
Preferred Shares, the Conversion Shares, the Warrants or the Warrant Shares or
the fairness or suitability of the investment in the Series C Preferred Shares,
the Conversion Shares, the Warrants or the Warrant Shares nor have such
authorities passed upon or endorsed the merits of the offering of the Series C
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Series C Preferred
Shares, the Conversion Shares, the Warrants and the Warrant Shares have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (c) such
Buyer provides the Company with reasonable assurance that such securities can
be sold, assigned or transferred pursuant to Rule 144 promulgated under the
1933 Act (or a successor rule thereto); (ii) any sale of such securities made
in reliance on Rule 144 promulgated under the 1933 Act (or a successor rule
thereto) ("RULE 144") may be made only in accordance with the terms of Rule 144
and further, if Rule 144 is not applicable, any resale of such securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act)
may require compliance with some other exemption under the 1933 Act or the
rules and regulations of the SEC thereunder; and (iii) neither the Company nor
any other person is under any obligation to register such securities under the
1933 Act or any state securities laws or to comply with the terms and
conditions of any exemption thereunder.
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<PAGE> 4
g. Legends. Such Buyer understands that the certificates or other
instruments representing the Series C Preferred Shares, the Warrants and, until
such time as the sale of the Conversion Shares and the Warrant Shares have been
registered under the 1933 Act as contemplated by the Registration Rights
Agreement, the stock certificates representing the Conversion Shares and the
Warrant Shares, shall, except as set forth below, bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR
ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR
APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Series C Preferred Shares,
the Conversion Shares, the Warrants or the Warrant Shares upon which it is
stamped, if, unless otherwise required by state securities laws, (i) the
Conversion Shares or the Warrant Shares are registered for sale under the 1933
Act, (ii) in connection with a sale transaction, such holder provides the
Company with an opinion of counsel, in a generally acceptable form, to the
effect that a public sale, assignment or transfer of the Series C Preferred
Shares, the Conversion Shares, the Warrants or the Warrant Shares may be made
without registration under the 1933 Act, or (iii) such holder provides the
Company with reasonable assurances that the Series C Preferred Shares, the
Conversion Shares, the Warrants or the Warrant Shares can be sold pursuant to
Rule 144 without any restriction as to the number of securities acquired as of
a particular date that can then be immediately sold. Each Buyer acknowledges,
covenants and agrees to sell the Series C Preferred Shares, the Conversion
Shares, the Warrants or the Warrant Shares represented by a certificate(s) from
which the legend has been removed, only pursuant to (i) a registration
statement effective under the 1933 Act, or (ii) advice of counsel that such
sale is exempt from registration required by Section 5 of the 1933 Act.. In the
event the above legend is removed from the Series C Preferred Shares, the
Conversion Shares, the Warrants or the Warrant Shares, the Company may, upon
reasonable advance notice to the holder, require that the above legend be
placed on any Series C Preferred Shares, Conversion Shares, Warrants or Warrant
Shares that cannot then be sold pursuant to an effective registration statement
or Rule 144(k) under the 1933 Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable in accordance with its
terms, subject as to enforceability to general principles
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of equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country specified
in its address on the Schedule of Buyers.
j. Brokers. No broker or placement agent is entitled to any
brokerage commission or placement agent fee from the Company in connection with
the sale of the Series C Preferred Shares hereunder based upon an agreement
made by such Buyer.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
subsidiaries are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power to own their properties and to carry on
their business as now being conducted. Each of the Company and its subsidiaries
is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which the nature of the business conducted by
it makes such qualification necessary, except to the extent that the failure to
be so qualified or be in good standing would not have a material adverse effect
on the Company and its subsidiaries taken as a whole.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement and the Registration Rights Agreement, and to issue
the Series C Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares in accordance with the terms hereof and thereof, (ii) the
execution and delivery of this Agreement, the Registration Rights Agreement and
the Warrants by the Company and the consummation by it of the transactions
contemplated hereby and thereby, including without limitation the issuance of
the Series C Preferred Shares and the Warrants and the reservation for issuance
and the issuance of the Conversion Shares and the Warrant Shares issuable upon
conversion or exercise thereof, have been duly authorized by the Company's
Board of Directors and no further consent or authorization is required by the
Company, its Board of Directors or its stockholders, (iii) this Agreement and
the Registration Rights Agreement have been duly executed and delivered by the
Company, (iv) this Agreement, the Registration Rights Agreement and the
Warrants constitute the valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except as such
enforceability may be limited by general principles of equity or applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies, and (v) prior to the Closing Date, the Certificate of Designations
has been filed with the Secretary of State of the State of Delaware and will be
in full force and effect, enforceable against the Company in accordance with
its terms.
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<PAGE> 6
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of 50,000,000 shares of Common Stock, of
which as of the date hereof, 14,015,529 shares were issued and outstanding, and
2,000,000 shares of Preferred Stock, of which as of the date hereof, (i) 1,500
shares of have been designated as 1996 Series A Convertible Preferred Stock,
1,390 of which shares are issued and outstanding and (ii) 2,500 shares of have
been designated as 1996 Series B Convertible Preferred Stock, all of which
shares are issued and outstanding. All of such outstanding shares have been
validly issued and are fully paid and nonassessable. Except as disclosed in
Schedule 3(c), no shares of Common Stock or Preferred Stock are subject to
preemptive rights or any other similar rights or any liens or encumbrances
suffered or permitted by the Company. Except as disclosed in Schedule 3(c), as
of the effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, any shares of
capital stock of the Company or any of its subsidiaries, or contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its subsidiaries or options, warrants, scrip, rights
to subscribe to, calls or commitments of any character whatsoever relating to,
or securities or rights convertible into, any shares of capital stock of the
Company or any of its subsidiaries, (ii) there are no outstanding debt
securities and (iii) there are no agreements or arrangements under which the
Company or any of its subsidiaries is obligated to register the sale of any of
their securities under the 1933 Act (except the Registration Rights Agreement).
Except as disclosed in Schedule 3(c), there are no securities or instruments
containing anti-dilution or similar provisions that will be triggered by the
issuance of the Series C Preferred Shares, the Warrants, the Conversion Shares
or the Warrant Shares as described in this Agreement. The Company has furnished
to the Buyer true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "CERTIFICATE
OF INCORPORATION"), and the Company's By-laws, as in effect on the date hereof
(the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock and the material rights of the holders thereof in
respect thereto.
d. Issuance of Securities. The Series C Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. 7,500,000 shares
of Common Stock have been duly authorized and reserved for issuance upon
conversion of the Series C Preferred Shares and upon exercise of the Warrants.
Upon conversion or exercise in accordance with the Certificate of Designations
or the Warrants, as the case may be, the Conversion Shares and the Warrant
Shares will be validly issued, fully paid and nonassessable and free from all
taxes, liens and charges with respect to the issue thereof, with the holders
being entitled to all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby will not
(i) result in a violation of the Certificate of Incorporation, any Certificate
of Designations, Preferences and Rights of any outstanding series of preferred
stock
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<PAGE> 7
of the Company or By-laws or (ii) conflict with in any material respect, or
constitute a material default (or an event which with notice or lapse of time
or both would become a material default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, or result in a material violation of any law, rule,
regulation, order, judgment or decree (including federal and state securities
laws and regulations and the rules and regulations of the principal market or
exchange on which the Common Stock is traded or listed) applicable to the
Company or any of its subsidiaries or by which any material property or asset
of the Company or any of its subsidiaries is bound or affected. Except as
disclosed in Schedule 3(e), neither the Company nor its subsidiaries is in
violation of any term of or in default under its Certificate of Incorporation,
Certificate of Designations, Preferences and Rights of any outstanding series
of preferred stock or By-laws, or their organizational charter or by-laws,
respectively. Except as disclosed in Schedule 3(e), neither the Company nor its
subsidiaries is in material violation of any term of or in any contract,
agreement, mortgage, indebtedness, indenture, instrument, judgment, decree or
order or any statute, rule or regulation applicable to the Company or its
subsidiaries, which, in each case, is material to the Company and its
subsidiaries taken as a whole. The business of the Company and its subsidiaries
is not being conducted, and shall not be conducted in violation, in any
material respect, of any law, ordinance, regulation of any governmental entity,
which, in any case, is material to the Company and its subsidiaries taken as a
whole. Except as specifically contemplated by this Agreement and as required
under the 1933 Act, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court
or governmental agency in order for it to execute, deliver or perform any of
its obligations under or contemplated by this Agreement or the Registration
Rights Agreement in accordance with the terms hereof or thereof. Except as
disclosed in Schedule 3(e), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof.
f. SEC Documents; Financial Statements. Since January 1,
1996, the Company has filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934
ACT") (all of the foregoing filed prior to the date hereof and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein and the Company's Registration Statements on
Form S-3 which was declared effective by the SEC on August 23, 1996, and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being hereinafter referred to as
the "SEC DOCUMENTS"). The Company has delivered to the Buyer or its
representative true and complete copies of the SEC Documents. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form
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<PAGE> 8
in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such financial
statements have been prepared in accordance with generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto,
or (ii) in the case of unaudited interim statements, to the extent they may
exclude footnotes or may be condensed or summary statements) and fairly present
in all material respects the financial position of the Company as of the dates
thereof and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end audit
adjustments). No other information provided by or on behalf of the Company to
the Buyer which is not included in the SEC Documents, including, without
limitation, information referred to in Section 2(d) of this Agreement, contains
any untrue statement of a material fact or omits to state any material fact
necessary in order to make the statements therein, in the light of the
circumstance under which they are or were made, not misleading.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g), since December 31, 1995 there has been no material adverse change and no
material adverse development in the business, properties, operations, financial
condition, results of operations or prospects of the Company or its
subsidiaries. The Company has not taken any steps, and does not currently expect
to take any steps, to seek protection pursuant to any bankruptcy law nor does
the Company or its subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's subsidiaries, wherein an unfavorable
decision, ruling or finding could reasonably be expected to (i) have a material
adverse effect on the transactions contemplated hereby (ii) adversely affect the
validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of the documents
contemplated herein or (iii), except as expressly set forth in the SEC Documents
or in Schedule 3(h), have a material adverse effect on the business, operations,
properties, financial condition or results of operation of the Company and its
subsidiaries taken as a whole.
i. Acknowledgment Regarding Buyers' Purchase of Series C
Preferred Shares. The Company acknowledges and agrees that each of the Buyers
is acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and any advice given by any of the Buyers
or any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is merely incidental to such
Buyer's purchase of the Series C Preferred Shares, the Warrants, the Conversion
Shares or the Warrant Shares. The Company further represents to each Buyer that
the
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<PAGE> 9
Company's decision to enter into this Agreement has been based solely on the
independent evaluation by the Company and its representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
subsidiaries or their respective business, properties, prospects, operations or
financial condition, which could be material but which has not been publicly
announced or disclosed in writing to the Buyers.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Series C Preferred Shares, the Warrants, the Conversion Shares or the Warrant
Shares.
l. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under circumstances that would require registration of the
Series C Preferred Shares, the Warrants, the Conversion Shares or the Warrant
Shares under the 1933 Act or cause this offering of Series C Preferred Shares,
the Warrants, the Conversion Shares or the Warrant Shares to be integrated with
prior offerings by the Company for purposes of the 1933 Act or any applicable
stockholder approval provisions.
m. Employee Relations. Neither the Company nor any of its
subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its subsidiaries, is any such dispute threatened. None of the
Company's or its subsidiaries' employees is a member of a union and the Company
and its subsidiaries believe that their relations with their employees are
good.
n. Intellectual Property Rights. The Company and its subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted. Except as set forth on Schedule 3(n), none of the
Company's trademarks, trade names, service marks, service mark registrations,
service names, patents, patent rights, copyrights, inventions, licenses,
approvals, government authorizations, trade secrets or other intellectual
property rights which, in each case, is material to the Company and its
subsidiaries taken as a whole, have expired or terminated, or are expected to
expire or terminate in the near future. The Company and its subsidiaries do not
have any knowledge of any material infringement by the Company or its
subsidiaries of trademark, trade name rights, patents, patent rights,
copyrights, inventions, licenses, service names, service marks, service mark
registrations, trade secret or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others and, except as set forth on Schedule 3(n), there is no claim, action or
proceeding being made or brought against, or to the Company's knowledge,
threatened against, the Company or its subsidiaries regarding trademark, trade
name, patents, patent rights, invention, copyright, license, service names,
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<PAGE> 10
service marks, service mark registrations, trade secret or other infringement;
and the Company and its subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their material intellectual properties.
o. Environmental Laws. The Company and its subsidiaries are (i)
in compliance, in all material respects, with any and all applicable foreign,
federal, state and local laws and regulations relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received
all material permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance, in all material respects, with all terms and conditions of
any such permit, license or approval.
p. Title. The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(p) or such
as do not materially affect the value of such property and do not materially
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries. Any real property and facilities held under lease
by the Company and its subsidiaries are held by them under valid, subsisting
and enforceable leases with such exceptions as are not material and do not
materially interfere with the use made and proposed to be made of such property
and buildings by the Company and its subsidiaries.
q. Insurance. The Company and each of its subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has been
refused any insurance coverage sought or applied for and neither the Company
nor any such subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to continue
its business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or operations of
the Company and its subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct, in all material
respects, their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit.
s. Internal Accounting Controls. The Company and each of its
subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i)
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transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
u. Tax Status. Except as set forth on Schedule 3(u), the Company
and each of its subsidiaries has made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and
other governmental assessments and charges that are material in amount, shown
or determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority
of any jurisdiction, and the officers of the Company know of no basis for any
such claim.
v. Certain Transactions. Except as set forth on Schedule 3(v) and
in the SEC Documents and except for arm's length transactions pursuant to which
the Company makes payments in the ordinary course of business upon terms no
less favorable than the Company could obtain from third parties and other than
the grant of stock options disclosed on Schedule 3(c), none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and
directors), including any contract, agreement or other arrangement providing
for the furnishing of services to or by, providing for rental of real or
personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
w. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Series C
Preferred Shares will increase in certain circumstances and that the number of
Warrant Shares issuable upon exercise of the Warrants will increase in certain
circumstances. The Company further acknowledges that its obligation to issue
Conversion Shares and the Warrants upon conversion of the Series C Preferred
Shares in accordance with this Agreement and the Certificate of Designations
and its obligation to issue the Warrant Shares upon exercise of the Warrants in
accordance with this Agreement and the Warrants, is, in each case, absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company.
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4. COVENANTS.
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Transactions With Affiliates. So long as (i) any Series C
Preferred Shares are outstanding or (ii) any Buyer owns Conversion Shares and
Warrant Shares with a market value equal to or greater than $200,000, the
Company shall not, and shall cause each of its subsidiaries not to, enter into,
amend, modify or supplement, or permit any subsidiary to enter into, amend,
modify or supplement, any agreement, transaction, commitment or arrangement
with any of its or any subsidiary's officers, directors, person who were
officers or directors at any time during the previous two years, stockholders
who beneficially own 5% or more of the Common Stock, or affiliates or with any
individual related by blood, marriage or adoption to any such individual or
with any entity in which any such entity or individual owns a 5% or more
beneficial interest (each a "RELATED PARTY"), except for (a) customary
employment arrangements and benefit programs on reasonable terms, (b) any
agreement, transaction, commitment or arrangement on an arms-length basis on
terms no less favorable than terms which would have been obtainable from a
person other than such Related Party, (c) any agreement, transaction,
commitment or arrangement which is approved by a majority of the disinterested
directors of the Company, for purposes hereof, any director who is also an
officer of the Company or any subsidiary of the Company shall not be a
disinterested director with respect to any such agreement, transaction,
commitment or arrangement. "Affiliate" for purposes hereof means, with respect
to any person or entity, another person or entity that, directly or indirectly,
(i) has a 5% or more equity interest in that person or entity, (ii) has 5% or
more common ownership with that person or entity, (iii) controls that person or
entity, or (iv) shares common control with that person or entity. "Control" or
"controls" for purposes hereof means that a person or entity has the power,
direct or indirect, to conduct or govern the policies of another person or
entity.
c. Reporting Status. Until the earlier of (i) the date as of
which the Investors (as that term is defined in the Registration Rights
Agreement) may sell all of the Conversion Shares and the Warrant Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto), or (ii) the date on which (A) the Investors shall have sold
all the Conversion Shares and the Warrant Shares and (B) none of the Series C
Preferred Shares or Warrants is outstanding (the "REGISTRATION PERIOD"), the
Company shall file all reports required to be filed with the SEC pursuant to
the 1934 Act, and the Company shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination.
d. Use of Proceeds. The Company shall use the proceeds from the
sale of the Series C Preferred Shares only for working capital and general
corporate purposes.
e. Financial Information. The Company agrees to send the following
to each Investors (as that term is defined in the Registration Rights
Agreement) during the Registration Period: (i) within five (5) days after the
filing thereof with the SEC, a copy of its Annual Reports on Form 10-K, its
Quarterly Reports on Form 10-Q, any Current Reports on Form 8-K and any
registration statements or amendments filed pursuant to the 1933 Act; (ii)
within one (1) day after
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release thereof, copies of all press releases issued by the Company or any of
its subsidiaries and (iii) copies of any notices and other information made
available to the security holders of the Company generally as soon as any such
notices or other information is made available to any security holders of the
Company.
f. Additional Financing; Right of First Refusal. The Company and
its subsidiaries shall not consummate any equity financing (including any debt
financing with an equity component) or issue any equity securities of the
Company or any subsidiary or securities convertible or exchangeable into or for
equity securities of the Company or any subsidiary (including any debt
securities with an equity component) in any form ("FUTURE OFFERINGS") during
the period beginning on the date hereof and ending 270 days after the Closing
Date unless it shall have first delivered to each Buyer or a designee appointed
by such Buyer, written notice (the "FUTURE OFFERING NOTICE") describing the
proposed Future Offering in all reasonable detail, including the terms and
conditions thereof, and providing each Buyer an option to participate in such
financing or purchase such securities, on the same terms and conditions
thereof, up to its Series C Aggregate Percentage (as defined below) of the
Series C Financing Amount (as defined below), as of the date of delivery of the
Future Offering Notice, in the Future Offering (the limitations referred to in
this sentence are collectively referred to as the "CAPITAL RAISING
LIMITATION"). For purposes of this Section 4(f), "SERIES C AGGREGATE
PERCENTAGE" at any time with respect to any Buyer shall mean the percentage
obtained by dividing (i) the aggregate number of Conversion Shares issued or
issuable, as if a conversion occurred on such date, upon conversion of the
Series C Preferred Shares then owned by such Buyer by (ii) the aggregate number
of Conversion Shares issued or issuable, as if a conversion occurred on such
date, upon conversion of all of the Series C Preferred Shares initially held by
all of the Buyers. For purposes of this Section 4(f), the "SERIES C FINANCING
AMOUNT" at any time shall mean (i) the Series C Financing Percentage (as
defined below) of the aggregate amount of such financing or securities, plus
(ii) any amount of such financing or securities which the holders of shares of
the Company's Series A Convertible Preferred Stock and the Company's Series B
Convertible Preferred Stock outstanding as of the date hereof have not agreed
to purchase in connection with such financing as stated in the Future Offering
Notice. For purposes of this Section 4(f), the "SERIES C FINANCING PERCENTAGE"
at any time shall mean the percentage of the face amount of the Series C
Preferred Shares outstanding at such time bears to the aggregate face amount of
the (i) shares of the Company's Series A Convertible Preferred Stock and the
Company's Series B Convertible Preferred Stock outstanding as of the date
hereof and outstanding at such time, and (ii) Series C Preferred Shares
outstanding at such time. A Buyer can exercise its option to participate in a
Future Offering by delivering written notice thereof to participate to the
Company within five (5) business days of receipt of a Future Offering Notice,
which notice shall state the quantity of securities being offered in the Future
Offering that such Buyer will purchase, up to its Series C Aggregate Percentage
of the Series C Financing Amount, and that number of securities it is willing
to purchase in excess thereof. In the event the Buyers and the holder of the
shares of the Company's Series A Convertible Preferred Stock or the Company's
Series B Convertible Preferred Stock fails to elect to fully participate in the
Future Offering within the periods described in this Section 4(f), the Company
shall have sixty (60) days thereafter to sell the securities of the Future
Offering respecting which such Buyer's rights were not exercised, upon the
terms and conditions no more favorable to the purchasers thereof than
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<PAGE> 14
specified in the Future Offering Notice. In the event the Company has not sold
such securities of the Future Offering within such sixty (60) day period, the
Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(f). The Capital Raising Limitation shall not apply to (i) a loan from a
commercial bank (ii) any transaction involving the Company's issuances of
securities in connection with (A) a merger, consolidation or sale of assets,
(B) any strategic partnership, joint venture or relationship (the primary
purpose of which is not to raise equity capital), or (C) the disposition or
acquisition of a business, product or license by the Company, (iii) the
issuance of securities pursuant to (A) a firm commitment, underwritten public
offering, (B) upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof or issued after
the date hereof not in violation of this Agreement, (C) the grant of additional
options or warrants or the issuance of additional securities, under any Company
stock option or restricted stock plan for the benefit of the Company's
employees, directors or consultants which such plan exists as of the date
hereof and is set forth in any disclosure schedule attached hereto, or (iv) any
issuance of securities or financing whereby the net consideration received or
to be received by the Company and any of its subsidiaries is less than
$1,000,000 in (i) any single transaction, (ii) any series of related
transactions, or (iii) series of unrelated transactions to the same person or
entity or to a group of persons and/or entities acting in concert.
g. Authorized Shares of Common Stock; Reservation of Shares. The
Company shall at all times, so long as any of the Series C Preferred Shares or
Warrants are outstanding, reserve and keep available out of its authorized and
unissued Common Stock, solely for the purpose of effecting the conversion of
the Series C Preferred Shares and the exercise of the Warrants, such number of
shares of Common Stock at least equal to the greater of (i) 7,500,000 prior to
November 30, 1997, and 12,500,000 on or after November 30, 1997, in each case,
as adjusted to give effect to any stock splits or similar transactions, and
(ii) 125% of the number of shares of Common Stock needed to provide for the
issuance of the Conversion Shares and the Warrant Shares with respect to
Warrants which have not been issued and 100% of the number of shares of Common
Stock needed to provide for the issuance of the Warrant Shares with respect to
Warrants which have been issued but not exercised.
h. Listing. The Company shall use its best efforts to cause all
the Registrable Securities (as defined in the Registration Rights Agreement)
covered by a Registration Statement to be listed on each securities exchange
(including the Nasdaq National Market System or the Nasdaq SmallCap Market) on
which securities of the same class or series issued by the Company are then
listed or quoted, if any, if the listing or quotation of such Registrable
Securities is then permitted under the rules of such exchange. The Company
shall (i) at such time as the Common Stock meets the eligibility requirements
of the Nasdaq National Market System, use its reasonable efforts to secure the
inclusion of shares of the Common Stock for quotation on the Nasdaq National
Market System, or (ii) if, despite the Company's reasonable efforts to satisfy
the preceding clause (i), the Company is unsuccessful in satisfying the
preceding clause (i), at such time as the Common Stock meets the eligibility
requirements of the Nasdaq SmallCap Market, use its reasonable efforts to
secure the inclusion of shares of the Common Stock for quotation on the Nasdaq
SmallCap Market. If, despite
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<PAGE> 15
the Company's reasonable efforts to satisfy clause (i) and clause (ii) of the
preceding sentence, the Company is unsuccessful in satisfying either clause (i)
or clause (ii) of the preceding sentence, the Company shall (i) maintain the
inclusion of shares of the Common Stock for quotation on the over-the-counter
market and (ii) secure the inclusion of such Registrable Securities for
quotation on the over-the-counter market. The Company shall promptly provide to
each holder of Series C Preferred Shares copies of any notices it receives
regarding the continued eligibility of the Common Stock for trading in the
over-the-counter market or, if applicable, any securities exchange (including
the Nasdaq National Market System or the Nasdaq SmallCap Market) on which
securities of the same class or series issued by the Company are then listed or
quoted, if any. The Company shall pay all fees and expenses in connection with
satisfying its obligation under this Section 4(h).
i. Expenses. Each of the Company and the Buyers shall each pay
its respective costs and expenses incurred by such party in connection with the
negotiation, investigation, preparation, execution and delivery of this
Agreement and the Registration Rights Agreement.
j. Intentionally Omitted
k. Corporate Existence. So long as any Series C Preferred
Shares remain outstanding, the Company shall not directly or indirectly (i)
consummate any merger, reorganization, restructuring, consolidation or similar
transaction by or involving the Company except (A) a merger or consolidation
where the Company is the survivor or (B) pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation
of the Company, (ii) consummate any sale of all or substantially all of the
assets of the Company or of all of its material subsidiaries or any similar
transaction or related transactions which effectively results in a sale of all
or substantially all of the assets of the Company and/or its subsidiaries, or
(iii) fail to continue to own, directly or indirectly, all of the capital stock
of all of its material subsidiaries (other than due to a merger or
consolidation of any subsidiary into the Company or a wholly-owned subsidiary
of the Company); (each such transaction, a "SALE OF THE COMPANY").
l. Warrant Issuances. Subject to the following sentence, the
Company shall issue to each Buyer, within five (5) business days after its
receipt of a Conversion Notice (as defined in the Certificate of Designations)
by such Buyer, a Warrant to acquire a number of shares of Common Stock equal
to: (i) 25% of the Conversion Shares to be received by such Buyer upon such
conversion if such Conversion Date (as defined in the Certificate of
Designations) is on or after the 271st day after the Closing Date but before
the 360th day after the Closing Date, (ii) 75% of the Conversion Shares to be
received by such Buyer upon such conversion if such Conversion Date is on or
after 361st day after the Closing Date but before the 450th day after the
Closing Date, or (iii) 100% of the Conversion Shares to be received by such
Buyer upon such conversion if such Conversion Date is on or after 451st day
after the Closing Date, in each case, with an exercise price equal to the Fixed
Conversion Price (as defined in the Certificate of Designations) in effect as
of such Conversion Date, subject to adjustment as provided in the Warrant. The
Company shall also issue to each Buyer, in the case of clauses (i), (ii) and
(iii) below, not later than five (5) business days prior to any consummation of
a Sale of the Company or, in the case of clause (iv) below, immediately upon a
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<PAGE> 16
Redemption pursuant to Section 3(b) or 4 of the Certificate of Designations, a
Warrant to acquire a number of shares of Common Stock equal to: (i) 50% of the
Conversion Shares which such Buyer would be entitled to receive assuming
conversion of all outstanding Series C Preferred Shares then held by such Buyer
as of the fifth (5th) business day prior to any consummation of a Sale of the
Company if the fifth (5th) business day prior to any consummation of a Sale of
the Company is on or before the 360th day after the Closing Date, (ii) 75%of
the Conversion Shares which such Buyer would be entitled to receive assuming
conversion of all outstanding Series C Preferred Shares then held by such Buyer
as of the fifth (5th) business day prior to any consummation of a Sale of the
Company if the fifth (5th) business day prior to any consummation of a Sale of
the Company is on or after 361st day after the Closing Date but before the
450th day after the Closing Date, (iii) 100%of the Conversion Shares which such
Buyer would be entitled to receive assuming conversion of all outstanding
Series C Preferred Shares then held by such Buyer as of the fifth (5th)
business day prior to any consummation of a Sale of the Company if the fifth
(5th) business day prior to any consummation of a Sale of the Company is on or
after 451st day after the Closing Date, or (iv) 100%of the Conversion Shares
which such Buyer would be entitled to receive assuming conversion of all
outstanding Series C Preferred Shares being redeemed by such Buyer pursuant to
Section 3(b) or 4 of the Certificate of Designations, in each case, with an
exercise price equal to the Fixed Conversion Price in effect as of the fifth
(5th) business day prior to any consummation of a Sale of the Company or any
such Redemption, subject to adjustment as provided in the Warrant, but without
giving effect to any adjustment to the Fixed Conversion Price required by
Section 2((c) (ii) of the Certificate of Designations; provided however, upon
full compliance with the foregoing upon a Sale of the Company, the Company
shall have no further obligation to issue any additional Warrants upon the
conversion of any Series C Preferred Shares pursuant to the preceding sentence.
Notwithstanding the foregoing, the Company shall, in addition to the Warrants
otherwise issuable hereunder, issue to each Buyer such Warrants (the "LOCK-UP
WARRANTS") as may be issuable to a Buyer pursuant to Section 2(j)(ii) of the
Certificate of Designations. Each Warrant issued hereunder (including pursuant
to Section 2(j)(ii) of the Certificate of Designations) shall be immediately
exercisable and shall expire (to the extent not exercised) on the fifth (5th)
anniversary of its issuance date thereof. If the Company shall fail for any
reason or for no reason to issue to a Buyer within five (5) business days after
the time required under this Section 4(l) or Section 2(j)(ii) of the
Certificate of Designations, a Warrant for the number of shares of Common Stock
to which such Buyer is entitled, the Company shall, in addition to any other
remedies under this Agreement or otherwise available to such Buyer including
any indemnification pursuant to Section 8 hereof, pay as additional damages in
cash to such Buyer for each day such issuance is not timely effected after the
fifth (5th) business day following the time required under this Section 4(l) or
Section 2(j)(ii) of the Certificate of Designations, an amount equal to 0.1% of
the product of (x) the number of shares of Common Stock represented by the
Warrant not issued to the Buyer on a timely basis and to which such Buyer is
entitled and (y) the Closing Bid Price (as defined in the Certificate of
Designations) of the Common Stock on the last possible date which the Company
could have issued such Warrant to such Buyer without violating this Section
4(l) or Section 2(j)(ii) of the Certificate of Designations.
m. No Short Sales of the Common Stock. So long as (i) a Buyer or
any of its affiliates beneficially owns any Series C Preferred Shares, (ii) the
Company has not issued any publicly
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<PAGE> 17
traded convertible securities and (iii) the Company is not in default under the
Certificate of Designations for failing to effect any requested Redemption (as
defined in the Certificate of Designations) or conversion of any Series C
Preferred Shares pursuant to the Certificate of Designations, such Buyer and
its affiliates shall not engage in any short sales, beneficial short sales or
third party short sales of the Common Stock.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its
transfer agent to issue certificates, registered in the name of each Buyer or
its respective nominee(s), for the Conversion Shares and the Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Series C Preferred Shares or exercise of the Warrants (the
"IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). Prior to registration of the
Conversion Shares and the Warrant Shares under the 1933 Act, all such
certificates shall bear the restrictive legend specified in Section 2(g) of
this Agreement. The Company warrants that no instruction other than the
Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop
transfer instructions to give effect to Section 2(f) hereof (in the case of the
Conversion Shares or Warrant Shares, prior to registration of such shares under
the 1933 Act) will be given by the Company to its transfer agent and that the
Series C Preferred Shares, the Warrants, the Conversion Shares and the Warrant
Shares shall otherwise be freely transferable on the books and records of the
Company as and to the extent provided in this Agreement, the Registration
Rights Agreement or the Warrant. Nothing in this Section 5 shall affect in any
way each Buyer's obligations and agreement to comply with all applicable
securities laws upon resale of the Series C Preferred Shares, the Warrants,
Conversion Shares or the Warrant Shares. If a Buyer provides the Company with
an opinion of counsel, reasonably satisfactory in form, and substance to the
Company, that registration of a resale by such Buyer of any of the Series C
Preferred Shares, the Warrants, Conversion Shares or the Warrant Shares is not
required under the 1933 Act, the Company shall permit the transfer, and, in the
case of the Conversion Shares or the Warrant Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees,
in the event of a breach or threatened breach by the Company of the provisions
of this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Series C Preferred Shares to each Buyer at the Closing is subject to the
satisfaction, at or before the Closing Date, of each of the following
conditions, provided that these conditions are for the Company's sole benefit
and may be waived by the Company at any time in its sole discretion:
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<PAGE> 18
a. Such Buyer shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
b. The Certificate of Designations shall have been filed with the
Secretary of State of the State of Delaware.
c. Such Buyer shall have delivered to the Company the Purchase
Price for the Series C Preferred Shares being purchased by such Buyer at the
Closing by wire transfer of immediately available funds pursuant to the wire
instructions provided by the Company.
d. The representations and warranties of such Buyer shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by such Buyer at or prior to the Closing Date.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Series C
Preferred Shares at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to such Buyer.
b. The Certificate of Designations, shall have been filed with the
Secretary of State of the State of Delaware, and a copy thereof certified by
such Secretary of State shall have been delivered to such Buyer.
c. The Common Stock shall be authorized for quotation on the over-
the-counter market, AMEX, the Nasdaq National Market or The New York Stock
Exchange, Inc., trading in the Common Stock shall not have been suspended for
any reason and all of the Conversion Shares and Warrant Shares issuable upon
conversion of the Series C Preferred Shares or exercise of the Warrants, shall
be approved for listing on the over-the-counter market, AMEX, the Nasdaq
National Market or The New York Stock Exchange, Inc.
d. The representations and warranties of the Company shall be true
and correct in all material respects (except to the extent that any of such
representations and warranties is already qualified as to materiality in
Section 3 above, in which case, such representations and warranties shall be
true and correct without further qualification) as of the date when made and as
of the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific
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<PAGE> 19
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by
this Agreement to be performed, satisfied or complied with by the Company at or
prior to the Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer of the Company, dated as of the Closing
Date, to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, without limitation, an update as of the
Closing Date regarding the representation contained in Section 3(c) above.
e. Such Buyer shall have received the opinion of the Company's
counsel dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to such Buyer and in substantially the form of Exhibit D attached
hereto.
f. The Company shall have executed and delivered to such Buyer the
Stock Certificates (in such denominations as such Buyer shall request) for the
Series C Preferred Shares being purchased by such Buyer at the Closing.
g. The Board of Directors of the Company shall have adopted the
resolutions in substantially the form of Exhibit E attached hereto.
h. As of the Closing Date, the Company shall as of the Closing
Date have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Series C Preferred Shares and
the exercise of the Warrants, 7,500,000 shares of Common Stock.
i. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to the Buyers, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Series C Preferred Shares, the
Warrants, the Conversion Shares and the Warrant Shares hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of Series C Preferred Shares, the Warrants, the Conversion Shares
or the Warrant Shares and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "INDEMNITEES")
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (irrespective of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"), incurred by
any Indemnitee as a result of, or arising out of, or relating to (a) any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Warrants, the Certificate of Designations or the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation
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<PAGE> 20
of the Company contained in this Agreement, the Certificate of Designations,
the Warrants or the Registration Rights Agreement or any other certificate,
instrument or document contemplated hereby or thereby, or (c) any cause of
action, suit or claim brought or made against such Indemnitee and arising out
of or resulting from the execution, delivery, performance or enforcement of
this Agreement or any other instrument, document or agreement executed pursuant
hereto by any of the Indemnitees, any transaction financed or to be financed in
whole or in part, directly or indirectly, with the proceeds of the issuance of
the Series C Preferred Shares or the status of such Buyer or holder of the
Series C Preferred Shares, the Warrants, the Conversion Shares or the Warrant
Shares, as an investor in the Company, except for any such Indemnified
Liabilities which directly and primarily results from the particular
Indemnitee's gross negligence or willful misconduct. To the extent that the
foregoing undertaking by the Company may be unenforceable for any reason, the
Company shall make the maximum contribution to the payment and satisfaction of
each of the Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in two or
more identical counterparts, all of which shall be considered one and the same
agreement and shall become effective when counterparts have been signed by each
party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes
all other prior oral or written agreements between the Buyers, the Company,
their affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
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<PAGE> 21
f. Notices. Any notices consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a
copy is mailed by U.S. certified mail, return receipt requested; (iii) three
(3) days after being sent by U.S. certified mail, return receipt requested, or
(iv) one (1) day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
American BioMed, Inc.
10077 Grogan's Mill Road
Suite 100
The Woodlands, Texas 77380
Telephone: (713) 367-3895
Facsimile: (713) 367-3212
Attention: President
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut St.
Philadelphia, Pennsylvania 19102
Telephone: (215) 568-6060
Facsimile: (215) 568-6603
Attention: Todd L. Silverberg, Esq
If to the Transfer Agent:
Continental Stock Transfer &
Trust Company
2 Broadway, 19th Floor
New York, New York 10004
Telephone: (212) 509-4000
Facsimile: (212) 509-5150
Attn: William Seegraber
If to a Buyer, to its address and facsimile number on the Schedule of Buyers,
with copies to such Buyer's counsel as set forth on the Schedule of Buyers.
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns including any purchasers of the
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<PAGE> 22
Series C Preferred Shares. The Company shall not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the Buyer
including by merger or consolidation except as expressly provided in Section
4(k) hereof. A Buyer may assign some or all of its rights hereunder without the
consent of the Company, provided, however, that any such assignment shall not
release such Buyer from its obligations hereunder unless such obligations are
assumed by such assignee and the Company has consented to such assignment and
assumption.
h. No Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be
enforced by, any other person.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company contained in Sections 3
(other than Sections 3(b), (d) and (w)) and the representations and warranties
of the Buyers contained in Sections 2, shall survive the Closing until three
years after the Closing Date. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company contained in Sections
3(b), (d) and (w), the agreements and covenants set forth in Sections 4, 5 and
9, the indemnification provisions set forth in Section 8, shall survive the
Closing until the expiration of the applicable statute of limitations. Each
Buyer shall be responsible only for its own representations, warranties,
agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as
is required by applicable law and regulations (although each Buyer shall be
consulted by the Company in connection with any such press release or other
public disclosure prior to its release and shall be provided with a copy
thereof).
k. Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. Termination. In the event that the Closing shall not have
occurred with respect to a Buyer on or before five (5) business days from the
date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching
party at the close of business on such date without liability of any party to
any other party; provided, however, that if this Agreement is terminated
pursuant to this Section 9(l), the Company shall remain obligated to reimburse
the Buyers for the expenses described in Section 4(i) above.
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<PAGE> 23
m. Placement Agent. The Company acknowledges that it has engaged a
placement agent in connection with the sale of the Series C Preferred Shares,
which placement agent may have formally or informally engaged other agents on
its behalf. The Company shall be responsible for the payment of any placement
agent's fees or broker's commissions relating to or arising out of the
transactions contemplated hereby. The Company shall pay, and hold each Buyer
harmless against, any liability, loss or expense (including, without
limitation, reasonable attorneys' fees and out-of-pocket expenses) arising in
connection with any such claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
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<PAGE> 24
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
AMERICAN BIOMED, INC. NELSON PARTNERS
By: /s/ STEVEN RASH By: /s/ ANNE DUPUY
---------------------------------------- ------------------------
Name: Steven Rash Name: Anne Dupuy
Its: President and Chief Executive Its: Officer
Officer
<PAGE> 25
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
SERIES C
BUYER ADDRESS PREFERRED BUYER'S LEGAL COUNSEL
BUYER NAME AND FACSIMILE NUMBER SHARES AND COUNSEL'S ADDRESS
- --------------------------- ----------------------------- --------- ---------------------
<S> <C> <C> <C>
Nelson Partners c/o Leeds Management Services 125 Citadel Investment Group, L.L.C.
129 Front Street, 5th Floor 225 West Washington Street
Hamilton HM12 Bermuda Chicago, Illinois 60606
Attn: Anne Dupuy Attention: Ben Kopin
Facsimile: (441) 292-2239 Ken Simpler
Facsimile: (312) 368-1348
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Matthew S. Brown, Esq.
Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
</TABLE>
<PAGE> 1
EXHIBIT 10.88
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March
21, 1997 by and among American BioMed, Inc., a Delaware corporation, with
headquarters located at 10077 Grogan's Mill Road, Suite 100, The Woodlands,
Texas 77380 (the "COMPANY"), and the undersigned buyers (each, a "BUYER" and
collectively, the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, (i) to issue and sell to the Buyers shares of
the Company's Series C Convertible Preferred Stock (the "SERIES C PREFERRED
SHARES"), which will be convertible into shares of the Company's common stock,
.001 par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES") in accordance with the terms of the Company's Certificate of
Designations, Preferences and Rights of the Series C Preferred Shares (the
"CERTIFICATE OF DESIGNATIONS"), and (ii) as set forth in Section 4(l) of the
Securities Purchase Agreement and Section 2(j)(ii) of the Certificate of
Designations, to issue warrants (the "WARRANTS") which will be exercisable to
purchase shares of Common Stock (the "WARRANT SHARES"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"),
and applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on
<PAGE> 2
a continuous basis ("RULE 415"), and the declaration or ordering of
effectiveness of such Registration Statement(s) by the United States Securities
and Exchange Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Conversion Shares and
the Warrant Shares issued or issuable upon conversion of the Series C Preferred
Shares and exercise of the Warrants, respectively, and any shares of capital
stock issued or issuable with respect to the Conversion Shares, the Warrant
Shares, the Warrants or the Series C Preferred Shares as a result of any stock
split, stock dividend, recapitalization, exchange or similar event.
e. "REGISTRATION STATEMENT" means a registration statement
of the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on
or prior to thirty (30) days after the date of issuance of any Series C
Preferred Shares, file with the SEC a Registration Statement or Registration
Statements (as is necessary) on Form S-3 (or, if such form is unavailable for
such a registration, on such other form as is available for such a
registration, subject to the consent of each Buyer and the provisions of
Section 2(e), which consent will not be unreasonably withheld), covering the
resale of all of the Registrable Securities, which Registration Statement(s)
shall state that, in accordance with Rule 416 promulgated under the 1933 Act,
such Registration Statement(s) also covers such indeterminate number of
additional shares of Common Stock as may become issuable upon conversion of the
Series C Preferred Shares or exercise of the Warrants to prevent dilution
resulting from stock splits, stock dividends or similar transactions. Such
Registration Statement shall initially register for resale at least 5,000,000
shares of Common Stock, subject to adjustment as provided in Section 3(b), and
such registered shares of Common Stock shall be allocated among the Investors
pro rata based on the total number of Registrable Securities issued or issuable
as of each date that a Registration Statement, as amended, relating to the
resale of the Registrable Securities is declared effective by the SEC. The
Company shall use its best efforts to have the Registration Statement declared
effective by the SEC within ninety (90) days after the issuance of the relevant
Series C Preferred Shares.
b. Counsel and Investment Bankers. Subject to Section 5
hereof, in connection with any offering pursuant to Section 2, the Buyers shall
have the right to select legal counsel and an investment banker or bankers and
manager or managers to administer their interest in the which investment banker
or bankers or manager or managers shall be reasonably satisfactory to the
Company. The Company shall reasonably cooperate with any such counsel and
investment bankers.
c. Piggy-Back Registrations. If at any time prior to the
expiration of the Registration Period (as hereinafter defined) the Company
proposes to file with the SEC a Registration
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<PAGE> 3
Statement relating to an offering for its own account or the account of others
under the 1933 Act of any of its securities (other than on Form S-4 or Form
S-8) the Company shall promptly send to each Investor who is entitled to
registration rights under this Section 2(c) written notice of the Company's
intention to file a Registration Statement and of such Investor's rights under
this Section 2(c) and, if within twenty (20) days after receipt of such notice,
such Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, subject to the priorities set forth in
Section 2(d) below. No right to registration of Registrable Securities under
this Section 2(c) shall be construed to limit any registration required under
Section 2(a). The obligations of the Company under this Section 2(c) may be
waived by Investors holding a majority of the Registrable Securities. If an
offering in connection with which an Investor is entitled to registration under
this Section 2(c) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall,
unless otherwise agreed by the Company, offer and sell such Registrable
Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same
terms and conditions as other shares of Common Stock included in such
underwritten offering.
d. Priority in Piggy-Back Registration Rights in connection
with Registrations for Company Account. If the registration referred to in
Section 2(c) is to be an underwritten public offering and the managing
underwriter(s) advise the Company in writing, that in their reasonable good
faith opinion, marketing or other factors dictate that a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement is necessary to facilitate and not adversely affect the proposed
offering, then the Company shall include in such registration: (1) first, all
securities the Company proposes to sell for its own account, (2) second, up to
the full number of securities proposed to be registered for the account of the
holders of securities entitled to inclusion of their securities in the
Registration Statement by reason of demand registration rights, (3) third, the
securities requested to be registered by the holders of securities entitled to
participate in the registration pursuant to that certain Registration Rights
Agreement dated February 20, 1996, by and among the Company and certain
purchasers of the Series A Convertible Preferred Stock of the Company and
Common Stock but only to the extent that such securities would be entitled to
participate in the registration pursuant to such Registration Rights Agreement
as in effect on February 20, 1996 without regard to any amendments or
supplements thereto, and (4) fourth, the securities requested to be registered
by the Investors and other holders of securities entitled to participate in the
registration, drawn from them pro rata based on the number each has requested
to be included in such registration.
e. Eligibility for Form S-3. The Company represents, warrants
and covenants that it shall meet the requirements for the use of Form S-3 for
registration of the sale by the Buyers and any other Investor of the
Registrable Securities on and after the thirtieth (30th) day following the date
of issuance of any Series C Preferred Shares, and the Company has filed and
shall file all reports required to be filed by the Company with the SEC in a
timely manner so as to obtain and maintain such eligibility for the use of Form
S-3. In the event that Form S-3 is not available for sale by the Investors of
the Registrable Securities, then (i) the Company, with the consent of each
Investor
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<PAGE> 4
pursuant to Section 2(a), shall register the sale of the Registrable Securities
on another appropriate form and (ii) the Company shall undertake to register
the Registrable Securities on Form S-3 as soon as such form is available.
3. RELATED OBLIGATIONS.
Whenever an Investor has requested that any Registrable Securities be
registered pursuant to Section 2(c) or at such time as the Company is obligated
to file a Registration Statement with the SEC pursuant to Section 2(a), the
Company will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to thirtieth (30th) day following the date of issuance of any Series C
Preferred Shares, for the registration of Registrable Securities pursuant to
Section 2(a)) and use its best efforts to cause such Registration Statement(s)
relating to Registrable Securities to become effective as soon as possible
after such filing (by the ninetieth (90th) day following the issuance of the
relevant Series C Preferred Shares for the registration of Registrable
Securities pursuant to Section 2(a)), and keep the Registration Statement(s)
effective pursuant to Rule 415 at all times until the earlier of (i) the date
as of which the Investors may sell all of the Registrable Securities without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors shall have sold
all the Registrable Securities and (B) none of the Series C Preferred Shares or
Warrants is outstanding (the "REGISTRATION PERIOD"), which Registration
Statement(s) (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection with the
Registration Statement(s), which prospectus(es) are to be filed pursuant to
Rule 424 promulgated under the 1933 Act, as may be necessary to keep the
Registration Statement(s) effective at all times during the Registration
Period, and, during such period, comply with the provisions of the 1933 Act
with respect to the disposition of all Registrable Securities of the Company
covered by the Registration Statement(s) until such time as all of such
Registrable Securities shall have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof as set forth
in the Registration Statement(s). In the event the number of shares available
under a Registration Statement filed pursuant to this Agreement is insufficient
to cover all of the Registrable Securities, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefor, if applicable), or both, so as to cover all of the
Registrable Securities, in each case, as soon as practicable, but in any event
within fifteen (15) days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the
Company reasonably elects to rely). The Company shall use
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<PAGE> 5
it best efforts to cause such amendment and/or new Registration Statement to
become effective as soon as practicable following the filing thereof. For
purposes of the foregoing provision, the number of shares available under a
Registration Statement shall be deemed "INSUFFICIENT TO COVER ALL OF THE
REGISTRABLE SECURITIES" if on any anniversary of this Agreement, the number of
Registrable Securities issued or issuable upon conversion of the Series C
Preferred Shares and exercise of the Warrants is greater than the quotient
determined by dividing (i) the number of shares of Common Stock available for
resale under such Registration Statement by (ii) 1.25; provided that in the
case of the initial registration of the Registrable Securities pursuant to
Section 2(a), the Company shall be required to register at least 5,000,000
shares of Common Stock for resale. For purposes of the calculation set forth in
the foregoing sentence, any restrictions on the convertibility of the Series C
Preferred Shares shall be disregarded and such calculation shall assume that
the Series C Preferred Shares are then convertible into shares of Common Stock
at the then prevailing Conversion Rate (as defined in the Certificate of
Designations).
c. The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s) and its
legal counsel without charge (i) promptly after the same is prepared and filed
with the SEC at least one copy of the Registration Statement and any amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits, the prospectus(es) included
in such Registration Statement(s) (including each preliminary prospectus) and,
with regards to the Registration Statement, any correspondence by or on behalf
of the Company to the SEC or the staff of the SEC and any correspondence from
the SEC or the staff of the SEC to the Company or its representatives, (ii)
upon the effectiveness of any Registration Statement, ten (10) copies of the
prospectus included in such Registration Statement and all amendments and
supplements thereto (or such other number of copies as such Investor may
reasonably request) and (iii) such other documents, including any preliminary
prospectus, as such Investor may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
d. The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, or (c) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the
securities or "blue sky" laws of any jurisdiction in the United
-5-
<PAGE> 6
States or its receipt of actual notice of the initiation or threatening of any
proceeding for such purpose.
e. In the event Investors who hold a majority of the
Registrable Securities being offered in the offering select underwriters for
the offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the happening of
any event, of which the Company has knowledge, as a result of which the
prospectus included in a Registration Statement, as then in effect, includes an
untrue statement of a material fact or omission to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare a supplement or amendment to the Registration Statement to
correct such untrue statement or omission, and deliver ten (10) copies of such
supplement or amendment to each Investor (or such other number of copies as
such Investor may reasonably request). The Company shall also promptly notify
each Investor in writing (i) when a prospectus or any prospectus supplement or
post-effective amendment has been filed, and when a Registration Statement or
any post-effective amendment has become effective (notification of such
effectiveness shall be delivered to each Investor by facsimile on the same day
of such effectiveness and by overnight mail) (ii) of any request by the SEC for
amendments or supplements to a Registration Statement or related prospectus or
related information, (iii) of the Company's reasonable determination that a
post-effective amendment to a Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
h. The Company shall permit each Investor a single firm of
counsel, initially Katten Muchin & Zavis or such other counsel as thereafter
designated as selling stockholders' counsel by the Investors who hold a
majority of the Registrable Securities being sold, to review and comment upon
the Registration Statement(s) and all amendments and supplements thereto at
least seven (7) days prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement(s) or any amendment or supplement thereto without the prior approval
of such counsel, which consent shall not be unreasonably withheld.
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<PAGE> 7
i. At the request of the Investors who hold a majority of the
Registrable Securities being sold, the Company shall furnish, on the date that
Registrable Securities are delivered to an underwriter, if any, for sale in
connection with the Registration Statement (i) if required by an underwriter, a
letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering, addressed to the underwriters, and (ii) an opinion, dated as of such
date, of counsel representing the Company for purposes of such Registration
Statement, in form, scope and substance as is customarily given in an
underwritten public offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all
pertinent financial and other records, and pertinent corporate documents and
properties of the Company (collectively, the "RECORDS"), as shall be reasonably
deemed necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector
shall hold in strict confidence and shall not make any disclosure (except to an
Investor) or use of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement or is otherwise required under the 1933 Act, (b) the release of such
Records is ordered pursuant to a final, non-appealable subpoena or order from a
court or government body of competent jurisdiction, or (c) the information in
such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. Each Investor agrees
that it shall, upon learning that disclosure of such Records is sought in or by
a court or governmental body of competent jurisdiction or through other means,
give prompt notice to the Company and allow the Company, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, the Records deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement.
The Company agrees that it shall, upon learning that disclosure of such
information concerning an Investor is sought in or by a court or governmental
body of competent jurisdiction or through other means, give prompt written
notice to such Investor and allow such Investor, at the Investor's expense, to
undertake appropriate action to prevent disclosure of, or to obtain a
protective order for, such information.
-7-
<PAGE> 8
l. The Company shall use its best efforts to cause all the
Registrable Securities covered by a Registration Statement to be listed on each
securities exchange (including Nasdaq National Market or SmallCap system) on
which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange. In any event, so long as the Registrable
Securities are not listed on any securities exchange (including Nasdaq National
Market or SmallCap system), the Company shall cause all of the Registrable
Securities covered by a Registration Statement to be eligible for quotation on
the over-the-counter market. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(1).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any
managing underwriter or underwriters, to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts, as the case
may be, as the managing underwriter or underwriters, if any, or, if there is no
managing underwriter or underwriters, the Investors may reasonably request and
registered in such names as the managing underwriter or underwriters, if any,
or the Investors may request. Not later than the date on which any Registration
Statement registering the resale of Registrable Securities is declared
effective, the Company shall deliver to its transfer agent instructions,
accompanied by any reasonably required opinion of counsel, that permit sales of
unlegended securities in a timely fashion that complies with then mandated
securities settlement procedures for regular way market transactions.
n. The Company shall provide a transfer agent and registrar
of all such Registrable Securities not later than the effective date of such
Registration Statement.
o. If requested by the managing underwriters or an Investor,
the Company shall immediately incorporate in a prospectus supplement or
post-effective amendment such information as the managing underwriters and the
Investors agree should be included therein relating to the sale and
distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment; and supplement or
make amendments to any Registration Statement if requested by a shareholder or
any underwriter of such Registrable Securities.
p. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
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<PAGE> 9
q. The Company shall otherwise use its best efforts to
comply with all applicable rules and regulations of the SEC in connection with
any registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor in writing of the information the Company requires from each such
Investor if such Investor elects to have any of such Investor's Registrable
Securities included in the Registration Statement. It shall be a condition
precedent to the obligations of the Company to complete the registration
pursuant to this Agreement with respect to the Registrable Securities of a
particular Investor that such Investor shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of the Registrable Securities held by it as
shall be reasonably required to effect the registration of such Registrable
Securities and shall execute such documents in connection with such
registration as the Company may reasonably request.
b. Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement(s) hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such
Investor's Registrable Securities from the Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2 hereof, each Investor agrees
to enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation,
customary indemnification and contribution obligations, with the managing
underwriter of such offering and take such other actions as are reasonably
required in order to expedite or facilitate the disposition of the Registrable
Securities, unless such Investor notifies the Company in writing of such
Investor's election to exclude all of such Investor's Registrable Securities
from the Registration Statement(s).
d. Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(g)
or the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the
copies of the supplemented or amended prospectus contemplated by Section 3(g)
or the first sentence of 3(f) and, if so directed by the Company, such Investor
shall deliver to the Company (at the expense of the Company) or destroy all
copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten
registration hereunder unless such Investor (i) agrees to sell such Investor's
Registrable Securities on the basis provided in any underwriting arrangements
approved by the Investors entitled hereunder to approve such
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<PAGE> 10
arrangements, (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements, and (iii) agrees to
pay its pro rata share of all underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts
and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees,
and fees and disbursements of counsel for the Company, shall be paid by the
Company. In addition, the Company shall, in connection with each underwritten
public offering, pay up to $20,000 of the fees and disbursements of counsel for
the Investors. Notwithstanding the foregoing or anything herein to the
contrary, the Investors shall pay (i) any underwriting discounts or
commissions, (ii) any fees or expenses of any investment banker or financial
advisor engaged by the Investors, (iii) in connection with any offering which
is not an underwritten public offering, any fees and disbursements of counsel
for the Investors, and (iv) in connection with any offering which is an
underwritten public offering, any fees and disbursements of counsel for the
Investors which are in excess of $20,000 in connection with any such offering.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
a. To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents and each Person, if any, who controls any Investor within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
ACT"), and any underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who controls, any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state
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<PAGE> 11
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which the statements
therein were made, not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any
amendment thereof or supplement thereto with the SEC) or the omission or
alleged omission to state therein any material fact necessary to make the
statements made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any violation or alleged
violation by the Company of the 1933 Act, the 1934 Act, any other law,
including, without limitation, any state securities law, or any rule or
regulation thereunder relating to the offer or sale of the Registrable
Securities pursuant to a Registration Statement (the matters in the foregoing
clauses (i) through (iii) being, collectively, "VIOLATIONS"). Subject to the
restrictions set forth in Section 6(d) with respect to the number of legal
counsel, the Company shall reimburse the Investors and each such underwriter or
controlling person, promptly as such expenses are incurred and are due and
payable, for any legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(a): (i) shall not apply to a Claim arising out of
or based upon a Violation which occurs in reliance upon and in conformity with
information furnished in writing to the Company by any Indemnified Person or
underwriter for such Indemnified Person expressly for use in connection with
the preparation of the Registration Statement or any such amendment thereof or
supplement thereto, if such prospectus was timely made available by the Company
pursuant to Section 3(c); (ii) with respect to any preliminary prospectus,
shall not inure to the benefit of any such person from whom the person
asserting any such Claim purchased the Registrable Securities that are the
subject thereof (or to the benefit of any person controlling such person) if
the untrue statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or supplemented, if
such prospectus was timely made available by the Company pursuant to Section
3(c), and the Indemnified Person was promptly advised in writing not to use the
incorrect prospectus prior to the use giving rise to a violation and such
Indemnified Person, notwithstanding such advice, used it; (iii) shall not be
available to the extent such Claim is based on a failure of the Investor to
deliver or to cause to be delivered the prospectus made available by the
Company; and (iv) shall not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of the Company,
which consent shall not be unreasonably withheld. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf
of the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors,
each of its officers who signs the Registration Statement, each Person, if any,
who controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar
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<PAGE> 12
as such Claim or Indemnified Damages arise out of or are based upon any
Violation, in each case to the extent, and only to the extent, that such
Violation occurs in reliance upon and in conformity with written information
furnished to the Company by such Investor expressly for use in connection with
such Registration Statement; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as
does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding)
involving a Claim, such Indemnified Person or Indemnified Party shall, if a
Claim in respect thereof is to be made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice of the
commencement thereof, and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume control of the
defense thereof with counsel mutually satisfactory to the indemnifying party
and the Indemnified Person or the Indemnified Party, as the case may be;
provided, however, that an Indemnified Person or Indemnified Party shall have
the right to retain its own counsel with the fees and expenses to be paid by
the indemnifying party, if, in the reasonable opinion of counsel retained by
the indemnifying party, the representation by such counsel of the Indemnified
Person or Indemnified Party and the indemnifying party would be inappropriate
due to actual or potential differing interests between such Indemnified Person
or Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay reasonable fees for only one separate legal
counsel for the Investors, and such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the Claim relates. The Indemnified Party
or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all
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<PAGE> 13
information reasonably available to the Indemnified Party or Indemnified Person
which relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
indemnifying party shall be subrogated to all rights of the Indemnified Party
or Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action.
e. The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party
or Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however,
that: (i) no contribution shall be made under circumstances where the maker
would not have been liable for indemnification under the fault standards set
forth in Section 6; (ii) no seller of Registrable Securities guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from the Company or any seller of
Registrable Securities who was not guilty of fraudulent misrepresentation; and
(iii) contribution by any seller of Registrable Securities shall be limited in
amount to the net amount of proceeds received by such seller from the sale of
such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the
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<PAGE> 14
investors to sell securities of the Company to the public without registration
("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long
as the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable
Securities pursuant to this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment; (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a)
the name and address of such transferee or assignee, and (b) the securities
with respect to which such registration rights are being transferred or
assigned; (iii) immediately following such transfer or assignment the further
disposition of such securities by the transferee or assignee is restricted
under the 1933 Act and applicable state securities laws; (iv) at or before the
time the Company receives the written notice contemplated by clause (ii) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein; (v) such transfer shall
have been made in accordance with the applicable requirements of the Securities
Purchase Agreement; (vi) such transferee shall be an "ACCREDITED INVESTOR" as
that term is defined in Rule 501 of Regulation D promulgated under the 1933
Act; and (vii) in the event the assignment occurs subsequent to the date of
effectiveness of the Registration Statement required to be filed pursuant to
Section 2(a), the transferee agrees to pay all reasonable expenses of amending
or supplementing such Registration Statement to reflect such assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with
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<PAGE> 15
the written consent of the Company and Investors who hold two-thirds of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 10 shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a
copy is mailed by U.S. certified mail, return receipt requested; (iii) three
(3) days after being sent by U.S. certified mail, return receipt requested, or
(iv) one (1) day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
if to the Company:
American BioMed, Inc.
10077 Grogan's Mill Road
Suite 100
The Woodlands, Texas 77380
Telephone: (713) 367-3895
Facsimile: (713) 367-3212
Attention: President
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut St.
Philadelphia, Pennsylvania 19102
Telephone: (215) 568-6060
Facsimile: (215) 568-6603
Attention: Todd L. Silverberg, Esq
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's counsel as set forth on the Schedule of
Buyers. Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
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<PAGE> 16
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Illinois without regard to the
principles of conflict of laws. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein
and therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to
the subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a
party, may be delivered to the other party hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish
the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
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<PAGE> 17
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
AMERICAN BIOMED, INC. NELSON PARTNERS
By: /s/ STEVEN B. RASH By: /s/ ANNE DUPUY
------------------------------------ -------------------------
Name: Steven Rash Name: Anne Dupuy
Its: President and Chief Executive Its: Officer
Officer
<PAGE> 18
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
BUYER ADDRESS BUYER'S LEGAL COUNSEL
BUYER NAME AND FACSIMILE NUMBER AND COUNSEL'S ADDRESS
- ---------------------------- ----------------------------- ---------------------
<S> <C> <C>
Nelson Partners c/o Leeds Management Services Citadel Investment Group, L.L.C.
129 Front Street, 5th Floor 225 West Washington Street
Hamilton HM12 Bermuda Chicago, Illinois 60606
Attn: Anne Dupuy Attention: Ben Kopin
Facsimile: (441) 292-2239 Ken Simpler
Facsimile: (312) 368-1348
Katten Muchin & Zavis
525 W. Monroe Street
Chicago, Illinois 60661-3693
Attention: Matthew S. Brown, Esq.
Robert J. Brantman, Esq.
Facsimile: (312) 902-1061
</TABLE>
<PAGE> 19
FORM OF WARRANT
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS, OR AN OPINION OF COUNSEL IN FORM, SUBSTANCE
AND SCOPE REASONABLY ACCEPTABLE TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED
UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO
RULE 144 UNDER SAID ACT.
AMERICAN BIOMED, INC.
WARRANT TO PURCHASE COMMON STOCK
Warrant No.: Number of Shares:
---------------- -------------
Date of Issuance: [DATE OF CONVERSION]
American BioMed, Inc., a Delaware corporation (the "COMPANY"), hereby certifies
that, for value received, ____________________, the registered holder hereof or
its assigns, is entitled, subject to the terms set forth below, to purchase
from the Company upon surrender of this Warrant, at any time or times on or
after the date hereof, but not after 5:00 P.M. Central Standard Time on the
Expiration Date (as defined herein) ( ) fully paid nonassessable shares of
Common Stock (as defined herein) of the Company (the "WARRANT SHARES") at the
purchase price per share provided in Section 1(b) below (the "WARRANT EXERCISE
PRICE"); provided, however, that in no event shall the holder be entitled to
exercise this Warrant for a number of Warrant Shares in excess of that number
of Warrant Shares which would cause the aggregate number of shares of Common
Stock beneficially owned by the holder and its affiliates to exceed 4.9% of the
outstanding shares of the Common Stock following such exercise. For purposes of
the foregoing proviso the aggregate number of shares of Common Stock
beneficially owned by the holder and its affiliates shall include the number of
shares of Common Stock issuable upon exercise of this Warrant with respect to
which the determination of such proviso is being made, but shall exclude shares
of Common Stock which would be issuable upon (i) exercise of the remaining,
unexercised Series C Preferred Share Warrants (as defined below) beneficially
owned by the holder and its affiliates, and (ii) conversion of the remaining,
outstanding Series C Preferred Shares (as defined) beneficially owned by the
holder and its affiliates. Except as set forth in the preceding sentence, for
purposes of this paragraph, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
<PAGE> 20
Section 1.
(a) Securities Purchase Agreement. This Warrant is one of the
warrants (the "SERIES C PREFERRED SHARE WARRANTS") issued pursuant to (i)
Section 4(l) of that certain Securities Purchase Agreement dated as of March
18, 1997, among the Company and the Buyers referred to therein and (ii) Section
2(j)(ii) of the Certificate of Designations.
(b) Definitions. The following words and terms as used in
this Warrant shall have the following meanings:
"AVERAGE MARKET PRICE" means, with respect to any
security for any period, that price which shall be computed as the arithmetic
average of the last closing bid prices for such security for each trading day
in such period on the principal securities exchange or trading market for such
security where such security is listed or traded as reported by Bloomberg
Financial Markets ("BLOOMBERG"), or if the market value cannot be calculated
for such period on the foregoing bases, the last closing bid price of such
security in the over-the-counter market on the pink sheets or bulletin board
for such security as reported by Bloomberg, or, if no closing bid price is
reported for such security by Bloomberg, the last closing trade price of such
security as reported by Bloomberg. If the market value cannot be calculated for
such period on any of the foregoing bases, the Average Market Price shall be
the average fair market value during such period as reasonably determined in
good faith by the Board of Directors of the Company (all as appropriately
adjusted for any stock dividend, stock, split or other similar transaction
during such period).
"CERTIFICATE OF DESIGNATIONS" means the Company's
Certificate of Designations, Preferences and Rights of the Series C Preferred
Shares.
"COMMON STOCK" means (i) the Company's common stock, par
value $0.001 per share, and (ii) any capital stock into which such Common Stock
shall have been changed or any capital stock resulting from a reclassification
of such Common Stock.
"EXPIRATION DATE" means the date five (5) years from the
date of this Warrant or, if such date falls on a Saturday, Sunday or other day
on which banks are required or authorized to be closed in the City of Chicago
or the State of Illinois (a "HOLIDAY"), the next preceding date that is not a
Holiday.
"PERSON" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
"SECURITIES ACT" means the Securities Act of 1933, as
amended.
"WARRANT" shall mean this warrant and all warrants
issued in exchange, transfer or replacement of any thereof.
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<PAGE> 21
"WARRANT EXERCISE PRICE" shall be the Fixed
Conversion Price (as defined in the Certificate of Designations) of the
converted Series C Preferred Shares which resulted in the issuance of this
Warrant as of the Conversion Date (as defined in the Certificate of
Designations), subject to adjustment as hereinafter provided.
(c) Other Definitional Provisions.
(i) Except as otherwise specified herein, all
references herein (A) to the Company shall be deemed to include the Company's
successors and (B) to any applicable law defined or referred to herein, shall
be deemed references to such applicable law as the same may have been or may be
amended or supplemented from time to time.
(ii) When used in this Warrant, the words "HEREIN,"
"HEREOF," and "HEREUNDER," and words of similar import, shall refer to this
Warrant as a whole and not to any provision of this Warrant, and the words
"SECTION," "SCHEDULE," and "EXHIBIT" shall refer to Sections of, and Schedules
and Exhibits to, this Warrant unless otherwise specified.
(iii) Whenever the context so requires, the neuter
gender includes the masculine or feminine, and the singular number includes the
plural, and vice versa.
Section 2. Exercise of Warrant.
(a) Subject to the terms and conditions hereof, this Warrant
may be exercised by the holder hereof then registered on the books of the
Company, in whole or in part, at any time during normal business hours on any
business day on or after the opening of business on the date hereof and prior
to 5:00 P.M. Central Time on the Expiration Date by (i) delivery of a written
notice, in the form of the subscription notice attached as Exhibit A hereto, of
such holder's election to exercise this Warrant, which notice shall specify the
number of Warrant Shares to be purchased, (ii) payment to the Company of an
amount equal to the Warrant Exercise Price multiplied by the number of Warrant
Shares as to which the Warrant is being exercised (plus any applicable issue or
transfer taxes) (the "AGGREGATE EXERCISE PRICE") in cash or by check or wire
transfer, and (iii) the surrender of this Warrant, at the principal office of
the Company; provided, that if such Warrant Shares are to be issued in any name
other than that of the registered holder of this Warrant, such issuance shall
be deemed a transfer and the provisions of Section 7 shall be applicable. In
the event of any exercise of the rights represented by this Warrant in
compliance with this Section 2(a), a certificate or certificates for the
Warrant Shares so purchased, in such denominations as may be requested by the
holder hereof and registered in the name of, or as directed by, the holder,
shall be delivered at the Company's expense to, or as directed by, such holder
as soon as practicable after such rights shall have been so exercised, and in
any event no later than five (5) business days after such exercise. In the case
of a dispute as to the determination of the Warrant Exercise Price or the
Average Market Price of a security or the arithmetic calculation of the Warrant
Shares, the Company shall promptly issue to the holder the number of shares of
Common Stock that is not disputed and shall submit the disputed determinations
or arithmetic calculations to the holder via facsimile within one (1) day of
receipt of
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<PAGE> 22
the holder's subscription notice. If the holder and the Company are unable to
agree upon the determination of the Warrant Exercise Price or Average Market
Price or arithmetic calculation of the Warrant Shares within one (1) business
day of such disputed determination or arithmetic calculation being submitted to
the holder, then the Company shall immediately submit via facsimile (i) the
disputed determination of the Warrant Exercise Price or the Average Market
Price to an independent, reputable investment banking firm or (ii) the disputed
arithmetic calculation of the Warrant Shares to its independent, outside
accountant. The Company shall cause the investment banking firm or the
accountant, as the case may be, to perform the determinations or calculations
and notify the Company and the holder of the results no later than forty-eight
(48) hours from the time it receives the disputed determinations or
calculations. Such investment bank's or accountant's determination or
calculation, as the case may be, shall be deemed conclusive absent manifest
error.
(b) Unless the rights represented by this Warrant shall have
expired or shall have been fully exercised, the Company shall, as soon as
practicable and in any event no later than five (5) business days after any
exercise and at its own expense, issue a new Warrant identical in all respects
to the Warrant exercised except (i) it shall represent rights to purchase the
number of Warrant Shares purchasable immediately prior to such exercise under
the Warrant exercised, less the number of Warrant Shares with respect to which
such Warrant is exercised, and (ii) the holder thereof shall be deemed for all
corporate purposes to have become the holder of record of such Warrant Shares
immediately prior to the close of business on the date on which the Warrant is
surrendered and payment of the amount due in respect of such exercise and any
applicable taxes is made, irrespective of the date of delivery of certificates
evidencing such Warrant Shares, except that, if the date of such surrender and
payment is a date when the stock transfer books of the Company are properly
closed, such person shall be deemed to have become the holder of such Warrant
Shares at the opening of business on the next succeeding date on which the
stock transfer books are open.
(c) No fractional shares of Common Stock are to be issued
upon the exercise of this Warrant, but rather the number of shares of Common
Stock issued upon exercise of this Warrant shall be rounded up or down to the
nearest whole number.
(d) If the Company shall fail for any reason or for no reason
to issue to a holder within five (5) business days after the time required
under this Section 2, a certificate for the number of shares of Common Stock to
which the holder is entitled upon the holder's exercise of this Warrant or a
new Warrant for the number of shares of Common Stock to which such holder is
entitled pursuant to Section 2(b) hereof, the Company shall, in addition to any
other remedies under this Agreement or otherwise available to such holder
including any indemnification pursuant to Section 8 of Securities Purchase
Agreement, pay as additional damages in cash to such holder for each day such
issuance is not timely effected after the fifth (5th) business day following
the time required under this Section 2, an amount equal to 0.1% of the product
of (x) the number of shares of Common Stock not issued to the holder and the
number of shares of Common Stock represented by the new Warrant not issued to
the holder, on a timely basis and to which such holder is entitled hereunder
and (y) the Closing Bid Price (as defined in the Certificate of Designations)
of the Common Stock on the last
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<PAGE> 23
possible date which the Company could have issued such new Warrant or shares of
Common Stock to such holder without violating this Section 2.
Section 3. Covenants as to Common Stock. The Company hereby
covenants and agrees as follows:
(a) This Warrant is, and any Series C Preferred Share
Warrants issued in substitution for or replacement of this Warrant will upon
issuance be, duly authorized and validly issued.
(b) All Warrant Shares which may be issued upon the exercise
of the rights represented by this Warrant will, upon issuance, be validly
issued, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof.
(c) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized
and reserved at least the number of shares of Common Stock needed to provide
for the exercise of the rights then represented by this Warrant and the par
value of said shares will at all times be less than or equal to the applicable
Warrant Exercise Price.
(d) The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each
national securities exchange or automated quotation system, if any, upon which
shares of Common Stock are then listed (subject to official notice of issuance
upon exercise of this Warrant) and shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all shares of Common Stock
from time to time issuable upon the exercise of this Warrant; and the Company
shall so list on each national securities exchange or automated quotation
system, as the case may be, and shall maintain such listing of, any other
shares of capital stock of the Company issuable upon the exercise of this
Warrant if and so long as any shares of the same class shall be listed on such
national securities exchange or automated quotation system.
(e) The Company will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the
terms to be observed or performed by it hereunder, but will at all times in
good faith assist in the carrying out of all the provisions of this Warrant and
in the taking of all such action as may reasonably be requested by the holder
of this Warrant in order to protect the exercise privilege of the holder of
this Warrant against dilution or other impairment, consistent with the tenor
and purpose of this Warrant. No impairment of the designations, preferences and
rights of the Series C Preferred Shares contained in the Certificate of
Designations or any waiver thereof which has an adverse effect on the rights
granted hereunder shall be given effect until the Company has taken appropriate
action (satisfactory to the holders of Series C Preferred Share Warrants
representing a majority of the shares of Common Stock issuable upon the
exercise of such Series C Preferred Share Warrants then
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<PAGE> 24
outstanding) to avoid such adverse effect with respect to this Warrant. Without
limiting the generality of the foregoing, the Company (i) will not increase the
par value of any shares of Common Stock receivable upon the exercise of this
Warrant above the Exercise Price then in effect, and (ii) will take all such
actions as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant.
(f) This Warrant will be binding upon any entity succeeding
to the Company by merger, consolidation or acquisition of all or substantially
all of the Company's assets.
Section 4. Taxes. The Company shall not be required to pay any tax or
taxes attributable to the initial issuance of the Warrant Shares or any
permitted transfer involved in the issue or delivery of any certificates for
Warrant Shares in a name other than that of the registered holder hereof or
upon any permitted transfer of this Warrant.
Section 5. Warrant Holder Not Deemed a Stockholder. Except as
otherwise specifically provided herein, no holder, as such, of this Warrant
shall be entitled to vote or receive dividends or be deemed the holder of
shares of the Company for any purpose, nor shall anything contained in this
Warrant be construed to confer upon the holder hereof, as such, any of the
rights of a stockholder of the Company or any right to vote, give or withhold
consent to any corporate action (whether any reorganization, issue of stock,
reclassification of stock, consolidation, merger, conveyance or otherwise),
receive notice of meetings, receive dividends or subscription rights, or
otherwise, prior to the issuance to the holder of this Warrant of the Warrant
Shares which he or she is then entitled to receive upon the due exercise of
this Warrant. In addition, nothing contained in this Warrant shall be construed
as imposing any liabilities on such holder to purchase any securities or as a
stockholder of the Company, whether such liabilities are asserted by the
Company or by creditors of the Company. Notwithstanding this Section 5, the
Company will provide the holder of this Warrant with copies of the same notices
and other information given to the stockholders of the Company generally,
contemporaneously with the giving thereof to the stockholders.
Section 6. Representations of Holder. The holder of this Warrant, by
the acceptance hereof, represents that it is acquiring this Warrant and the
Warrant Shares for its own account for investment and not with a view to, or
for sale in connection with, any distribution hereof or of any of the shares of
Common Stock or other securities issuable upon the exercise thereof, and not
with any present intention of distributing any of the same. The holder of this
Warrant further represents, by acceptance hereof, that, as of this date, such
holder is an "ACCREDITED INVESTOR" as such term is defined in Rule 501(a)(1) of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act (an "ACCREDITED INVESTOR"). Upon exercise of this Warrant, the
holder shall, if requested by the Company, confirm in writing, in a form
satisfactory to the Company, that the Warrant Shares so purchased are being
acquired solely for the holder's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale and
that such holder is an Accredited Investor. If such holder cannot make such
representations because they would be factually incorrect, it shall be a
condition to such holder's exercise of the Warrant that the Company receive
such other representations as the Company considers reasonably necessary to
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<PAGE> 25
assure the Company that the issuance of its securities upon exercise of the
Warrant shall not violate any United States or state securities laws.
Section 7. Ownership and Transfer.
(a) The Company shall maintain at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee. The Company
may treat the person in whose name any Warrant is registered on the register as
the owner and holder thereof for all purposes, notwithstanding any notice to
the contrary, but in all events recognizing any transfers made in accordance
with the terms of this Warrant.
(b) This Warrant and the rights granted to the holder hereof
are transferable, in whole or in part, upon surrender of this Warrant, together
with a properly executed warrant power in the form of Exhibit B attached
hereto; provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Section 7(c) below.
(c) The holder of this Warrant understands that this Warrant
has not been and is not expected to be, registered under the Securities Act or
any state securities laws, and may not be offered for sale, sold, assigned or
transferred unless (a) subsequently registered thereunder, or (b) such holder
shall have delivered to the Company an opinion of counsel, reasonably
satisfactory in form, scope and substance to the Company, to the effect that
the securities to be sold, assigned or transferred may be sold, assigned or
transferred pursuant to an exemption from such registration; (i) any sale of
such securities made in reliance on Rule 144 promulgated under the Securities
Act may be made only in accordance with the terms of said Rule and further, if
said Rule is not applicable, any resale of such securities under circumstances
in which the seller (or the person through whom the sale is made) may be deemed
to be an underwriter (as that term is defined in the Securities Act) may
require compliance with some other exemption under the Securities Act or the
rules and regulations of the Securities and Exchange Commission thereunder; and
(ii) neither the Company nor any other person is under any obligation to
register the Series C Preferred Share Warrants under the Securities Act or any
state securities laws or to comply with the terms and conditions of any
exemption thereunder.
(d) The Company is obligated to register the Warrant Shares
for resale under the Securities Act pursuant to the Registration Rights
Agreement dated March __, 1997 by and between the Company and the Buyers listed
on the signature page thereto (the "REGISTRATION RIGHTS AGREEMENT") and the
initial holder of this Warrant (and certain assignees thereof) is entitled to
the registration rights in respect of the Warrant Shares as set forth in the
Registration Rights Agreement.
Section 8. Adjustment of Warrant Exercise Price. In order to prevent
dilution of the rights granted under this Warrant, the Warrant Exercise Price
shall be adjusted from time to time as follows:
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<PAGE> 26
(a) Adjustment of Warrant Exercise Price upon Subdivision or
Combination of Common Stock. If the Company at any time after the date of
issuance of this Warrant, subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Warrant Exercise Price in
effect immediately prior to such subdivision will be proportionately reduced
and the number of shares of Common Stock obtainable upon exercise of this
Warrant will be proportionately increased. If the Company at any time after the
date of issuance of this Warrant combines (by combination, reverse stock split
or otherwise) one or more classes of its outstanding shares of Common Stock
into a smaller number of shares, the Warrant Exercise Price in effect
immediately prior to such combination will be proportionately increased and the
number of shares of Common Stock obtainable upon exercise of this Warrant will
be proportionately decreased.
(b) Reorganization, Reclassification, Consolidation, Merger
or Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person (as defined below) or other similar transaction which is effected in
such a way that holders of Common Stock are entitled to receive (either
directly or upon subsequent liquidation) stock, securities or assets with
respect to or in exchange for Common Stock is referred to herein as "ORGANIC
CHANGE." Prior to the consummation of any Organic Change, the Company will make
appropriate provision (in form and substance satisfactory to the holders of the
Series C Preferred Share Warrants representing a majority of the shares of
Common Stock issuable upon exercise of such Series C Preferred Share Warrants
then outstanding) to insure that each of the holders of the Series C Preferred
Share Warrants will thereafter have the right to acquire and receive in lieu of
or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the exercise of such holder's Series
C Preferred Share Warrants, such shares of stock, securities or assets as may
be issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Series C Preferred Share Warrants had such Organic
Change not taken place. In any such case, the Company will make appropriate
provision (in form and substance satisfactory to the holders of the Series C
Preferred Share Warrants representing a majority of the shares of Common Stock
issuable upon exercise of such Series C Preferred Share Warrants then
outstanding) with respect to such holders' rights and interests to insure that
the provisions of this Section 8 and Section 9 below will thereafter be
applicable to the Series C Preferred Share Warrants. The Company will not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof, the successor entity (if other than the Company) resulting from
consolidation or merger or the entity purchasing such assets assumes, by
written instrument (in form and substance satisfactory to the holders of Series
C Preferred Share Warrants representing a majority of shares of Common Stock
issuable upon exercise of the Series C Preferred Share Warrants then
outstanding), the obligation to deliver to each holder of Series C Preferred
Share Warrants such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such holder may be entitled to acquire.
(c) Notices.
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<PAGE> 27
(i) Immediately upon any adjustment of the
Warrant Exercise Price, the Company will give written notice thereof to the
holder of this Warrant, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(ii) The Company will give written notice to the
holder of this Warrant at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (A) with respect to any dividend or
distribution upon the Common Stock, (B) with respect to any pro rata
subscription offer to holders of Common Stock or (c) for determining rights to
vote with respect to any Organic Change, dissolution or liquidation, except
that in no event shall such notice be provided to such holder prior to such
information being made known to the public.
(iii) The Company will also give written notice to
the holder of this Warrant at least twenty (20) days prior to the date on which
any Organic Change, dissolution or liquidation will take place.
Section 9. Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "PURCHASE RIGHTS"), then the holder of this Warrant
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
Section 10. Lost, Stolen, Mutilated or Destroyed Warrant. If this
Warrant is lost, stolen, mutilated or destroyed, the Company shall, on receipt
of an indemnification undertaking, issue a new Warrant of like denomination and
tenor as the Warrant so lost, stolen, mutilated or destroyed.
Section 11. Notice. Any notices consents, waivers or other
communications required or permitted to be given under the terms of this
Warrant must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) days after being sent by U.S. certified mail, return receipt
requested, or (iv) one (1) day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
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<PAGE> 28
If to the Company:
American BioMed, Inc.
10077 Grogan's Mill Road
Suite 100
The Woodlands, Texas 77380
Telephone: (713) 367-3895
Facsimile: (713) 367-3212
Attention: President
With a copy to:
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut St.
Philadelphia, Pennsylvania 19102
Telephone: (215) 568-6060
Facsimile: (215) 568-6603
Attention: Todd L. Silverberg, Esq
If to a holder of this Warrant, to it at the address set
forth below such holder's signature on the signature page
hereof.
Each party shall provide five (5) days' prior written notice to the other party
of any change in address or facsimile number.
Section 12. Miscellaneous. This Warrant and any term hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party or holder hereof against which enforcement of such change,
waiver, discharge or termination is sought. The headings in this Warrant are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof. This Warrant shall be governed by and interpreted under the
laws of the State of Illinois.
Section 13. Date. The date of this Warrant is __________. This
Warrant, in all events, shall be wholly void and of no effect after the close
of business on the Expiration Date, except that notwithstanding any other
provisions hereof, the provisions of Section 7 shall continue in full force and
effect after such date as to any Warrant Shares or other securities issued upon
the exercise of this Warrant.
* * * *
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<PAGE> 29
AMERICAN BIOMED, INC.
By:
---------------------------------
Name:
---------------------------------
President and Chief Executive
Officer
ACCEPTED:
[HOLDER]
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Address:
---------------------
- -----------------------------
- -----------------------------
<PAGE> 30
EXHIBIT A TO WARRANT
SUBSCRIPTION FORM
TO BE EXECUTED BY THE REGISTERED HOLDER TO EXERCISE THIS WARRANT
AMERICAN BIOMED, INC.
The undersigned hereby exercises the right to purchase the number of
Warrant Shares covered by this Warrant specified below according to the
conditions thereof and herewith makes payment therefor in the amount of
$__________, the Aggregate Exercise Price of such Warrant Shares in full, and
requests that such Warrant Shares be issued in the name of:
[HOLDER]
Dated:
-------------------------
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
Address:
-------------------------
-------------------------
-------------------------
-------------------------
Number of Warrant Shares
Being Purchased:
-------------------------
<PAGE> 31
EXHIBIT B TO WARRANT
FORM OF WARRANT POWER
FOR VALUE RECEIVED, the undersigned does hereby assign and transfer to
________________, Federal Identification No. __________, a warrant to purchase
____________ shares of the capital stock of AMERICAN BIOMED, INC., a Delaware
corporation, represented by warrant certificate no. _____, standing in the name
of the undersigned on the books of said corporation. The undersigned does
hereby irrevocably constitute and appoint ______________, attorney to transfer
the warrants of said corporation, with full power of substitution in the
premises.
Dated:
-------------------------
----------------------------------
By:
-------------------------------
Its:
------------------------------
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the application of our report which includes an explanatory
paragraph concerning the Company's ability to continue as a going concern, dated
March 21, 1997, included in the Annual Report on Form 10-K for the year ended
December 31, 1996, to the amended footnotes for the year ended December 31, 1996
which are included in this amendment on Form 10-K/A-1. We also consent to the
incorporation by reference of our report in the Company's registration
statements on Form S-8 (File No. 333-03612),
Form S-8 (File No. 333-25789), Form S-3 (File No. 333-03903), and Form S-3 (File
No. 333-24979).
COOPERS & LYBRAND L.L.P.
Houston, Texas
July 1, 1997
