SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended: Commission File Number:
September 30, 1997 0 - 19957
Quantech Ltd.
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(Exact name of registrant as specified in its charter)
Minnesota 41-1709417
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) identification No.)
1419 Energy Park Drive
St. Paul, MN 55108
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(Address of principal executive offices) (Zip code)
(612)-647-6370
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(Registrant's telephone number, including area code)
N/A
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities 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 the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date: 51,040,759 shares of
Common Stock, par value $.01 per share, outstanding as of November 14, 1997.
Transitional Small Business Disclosure Format: YES NO X
<PAGE>
Index
PART I. FINANCIAL INFORMATION Page No.
Item 1: Financial Statements:
Balance Sheets as of September 30, 1997 and June 30, 1997 3
Statement of Operations for the Three Months
Ended September 30, 1997 and 1996 and from inception to
September 30, 1997 4
Statement of Stockholders' Equity from inception 5
to September 30, 1997
Statement of Cash Flows for the Three Months ended
September 30, 1997 and 1996 and from inception to
September 30, 1997 6
Notes to Financial Statements 7
Item 2: Management's Discussion and Analysis or Plan of Operation 8
Item 3: Quantitative and Qualitative Disclosure About Market Risk 11
PART II. OTHER INFORMATION 12
<PAGE>
QUANTECH LTD.
( A Development Stage Company )
NOTES TO UNAUDITED FINANCIAL STATEMENTS
Note 1. BASIS OF PRESENTATION
In the opinion of the management of the Company, the accompanying unaudited
financial statements contain all adjustments (consisting of only normal,
recurring adjustments) necessary to present fairly the financial position of the
Company as of September 30, 1997 and the results of operations and its cash
flows for the three month periods ended September 30, 1997 and 1996. The results
of operations for any interim period are not necessarily indicative of the
results for the year. These interim financial statements should be read in
conjunction with the Company's annual financial statements and related notes in
the Company's Annual Report on Form 10-KSB for the year ended June 30, 1997.
Note 2. LICENSE AGREEMENT
The Company has a license agreement with Ares-Serono for certain patents,
proprietary information and associated hardware related to SPR technology. The
license calls for an ongoing royalty of 6 percent on all products utilizing the
SPR technology which are sold by the Company. In addition, if the Company
sublicenses the technology, the Company will pay a royalty of 15 percent of all
revenues received by the Company under any sublicense. The original license
agreement allowed Ares-Serono to develop and market, under its own name,
products using the SPR technology. In November 1997 Ares-Serono agreed to
eliminate this provision of the license agreement in return for two additional
minimum royalty payments of $150,000 on each of December 31, 1998 and 1999. As
of September 30, 1997, the Company had paid $850,000 of the cumulative royalty
payments. In order to maintain its exclusive rights under the revised license
agreement, the Company must make its final original minimum payment of $150,000
by December 31, 1997, and the additional $150,000 payments in December 1998 and
1999. The Company has ratably accrued additional minimum royalty payments of
$131,250 as of September 30, 1997, because sales or sublicense revenues through
December 31, 1997 may not be adequate to meet the cumulative minimum royalty
payments. The Company intends to accrue $150,000 by December 31, 1997, and
continue accruing for future payments until royalty accruals based on revenues
exceed the minimum payment amounts.
Note 3. ISSUED BUT NOT YET ADOPTED ACCOUNTING STANDARD
The FASB has issued Statement No. 128, Earnings Per Share, which supersedes APB
Opinion No. 15. Statement No. 128 requires the presentation of earnings per
share by all entities that have common stock or potential common stock, such as
options, warrants, and convertible securities, outstanding that trade in a
public market. Those entities that have only common stock outstanding are
required to present basic earnings per-share amounts. All other entities are
required to present basic and diluted per-share amounts. Diluted per-share
amounts assume the conversion, exercise, or issuance of all potential common
stock instruments unless the effect is to reduce a loss or increase the income
per common share from continuing operations. All entities required to present
per-share amounts must initially apply Statement No. 128 for annual and interim
periods ending after December 15, 1997. Earlier application is not permitted.
The adoption of Statement No. 128 would have had no effect on reported earnings
(loss) per share.
<PAGE>
QUANTECH LTD.
(A Development Stage Company)
BALANCE SHEET
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
1997 1997
------------------ ------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 187,154 $ 718,893
Deferred debt issue costs 64,751 78,699
Other current assets 35,133 35,452
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Total Current Assets 287,038 833,044
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EQUIPMENT
Equipment 331,133 329,780
Leasehold Improvements 15,000 15,000
------------------ ------------------
346,133 344,780
Less accumulated depreciation (154,870) (139,267)
------------------ ------------------
Total Equipment 191,263 205,513
------------------ ------------------
OTHER ASSETS
License agreement, at cost, less amortization 2,980,779 2,096,558
Patents, at cost, less amortization 9,029 8,895
Organization expenses, at cost, less amortization - 113
------------------ ------------------
Total Other Assets 2,989,808 2,105,566
------------------ ------------------
TOTAL ASSETS $ 3,468,109 $ 3,144,123
================== ==================
LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
CURRENT LIABILITIES
Short term debt $ 1,645,00 $ 1,070,000
Accounts Payable 73,130 100,794
Accrued Expenses:
Spectrum Diagnostics Inc. obligations 32,060 36,509
Minimum Royalty Commitment 131,250 112,500
Accrued Interest 49,379 10,685
Accrued Severance 36,912 77,265
Accrued Payroll/Vacation 20,501 54,226
Other - 4,019
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Total Current Liabilities 1,988,232 1,465,998
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STOCKHOLDERS EQUITY (DEFICIT)
Common stock, $.01 par value; authorized 90,000,000
shares; issued and outstanding 51,040,759 shares at
September 30, 1997; and 48,040,759 at June 30, 1997 510,408 480,408
Additional paid-in capital 15,966,189 15,606,017
Deficit accumulated during the development stage (14,996,720) (14,408,300)
------------------ ------------------
Total Stockholders Equity 1,479,877 1,678,125
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TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $ 3,468,109 $ 3,144,123
================== ==================
</TABLE>
<PAGE>
QUANTECH LTD.
(A Development Stage Company)
STATEMENT OF OPERATIONS-UNAUDITED
<TABLE>
<CAPTION>
Period From
September 30,
Three Months Three Months 1991 (Date of
Ended Ended Inception), to
September 30, September 30, September 30,
1997 1996 1997
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Interest Income $ 6,824 $ 34,692 $ 177,605
-------------------- -------------------- --------------------
Expenses:
General and Administrative 222,857 357,494 7,881,065
Research and Development 314,261 362,832 4,959,966
Sales and Marketing - - 282,380
Minimum Royalty expense 18,750 18,750 981,250
Losses resulting from transactions
with Spectrum Diagnostics Inc. - - 556,150
Net Exchange (gain) - - (67,172)
Financing 39,376 2,413 538,091
-------------------- -------------------- --------------------
Total Expenses 595,244 741,489 15,131,730
-------------------- -------------------- --------------------
Loss before income taxes (588,420) (706,797) (14,954,125)
Income Taxes - - 42,595
-------------------- -------------------- --------------------
Net Loss $ (588,420) $ (706,797) $ (14,996,720)
==================== ==================== ====================
Loss per common share $ (0.01) $ (0.02)
Weighted average common shares
outstanding 48,497,281 46,902,063
</TABLE>
<PAGE>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY-UNAUDITED
Period From September 30, 1991 (date of Inception), to September 30, 1997
<TABLE>
<CAPTION>
Deficit
Accumulated
During
Par Additional the Paid for Due Cumulative
Shares Value Paid-In Development Subscriptions Not From Translation
Issued Amount Capital Stage Receivable Issued Officers Adjustment
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<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at Inception
Net Loss for 15 months ($3,475,608)
Common stock transactions:
Common stock issued, October 1991 3,200,000 $3,154,574
Common stock issued, November 1991 600,000 $611,746 $1,788,254
Common stock issuance costs ($889,849)
Cumulative translation adjustment $387,754
Common stock issued, September 1992 700,000 $699,033 $875,967 ($53,689)
Common stock issuance costs ($312,755)
Common stock to be issued $120,000
Cumulative translation adjustment ($209,099)
Elimination of cumulative translation
adjustment ($178,655)
Officers advances, net ($27,433)
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Balance, December 31, 1992 4,500,000 $4,465,353 $1,461,617 ($3,475,608) ($53,689) $120,000 ($27,433) $0
Net loss ($996,089)
Common stock transactions:
Common stock issued, January 1993 160,000 $1,600 $118,400 ($120,000)
Common stock issued, April 1993 30,000 $300 $11,700
Change in common stock par
value resulting from merger ($4,420,353) $4,420,353
Repayments $5,137
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Balance,June 30, 1993 4,690,000 $46,900 $6,012,070 ($4,471,697) ($53,689) $0 ($22,296) $0
Net loss ($1,543,888)
240,000 shares of common
stock to be issued $30,000
Repayments $53,689 $22,296
---------------------------------------------------------------------------------------------
Balance, June 30, 1994 4,690,000 $46,900 $6,012,070 ($6,015,585) $0 $30,000 $0 $0
Net loss ($2,070,292)
Common stock issued, June 1995 2,150,000 $21,500 $276,068 ($20,000) ($30,000)
Warrants issued for services $40,200
---------------------------------------------------------------------------------------------
Balance June 30, 1995 6,840,000 $68,400 $6,328,338 ($8,085,877) ($20,000) $0 $0 $0
Net loss ($2,396,963)
Common stock issued, net of
issuance costs of $848,877:
July, 1995 6,160,000 $61,600 $1,304,450
August, 1995 717,600 $7,176 $161,460
September, 1995 13,807,296 $138,073 $2,370,389
November, 1995 1,897,840 $18,978 $425,482
December, 1995 11,217,157 $112,172 $1,292,473
May, 1996 6,275,000 $62,750 $3,300,422
June, 1996 5,058 $51 $3,650
Payments received on
subscription receivable (19,192) ($192) ($14,808) $20,000
Compensation expense recorded
on stock options $125,000
---------------------------------------------------------------------------------------------
Balance, June 30, 1996 46,900,759 $469,008 $15,296,856 ($10,482,840) $0 $0 $0 $0
Net loss ($3,925,460)
Stock offering costs ($12,310)
Common stock issued upon exercise of
options and warrants
September 1996 10,000 $100 $2,400
October 1996 170,000 $1,700 $40,800
November 1996 15,000 $150 $3,600
December 1996 270,000 $2,700 $64,800 ($57,500)
January 1997 20,000 $200 $4,800
February 1997 150,000 $1,500 $17,250
March 1997 140,000 $1,400 $33,600
Payments received on
subscription receivable $57,500
Compensation expense recorded
on stock options $48,000
Common stock issued, June 1997 365,000 $3,650 $105,850
Warrants issued with notes payable $371
---------------------------------------------------------------------------------------------
Balance, June 30, 1997 48,040,759 $480,408 $15,606,017 ($14,408,300) $0 $0 $0 $0
Net Loss ($588,420)
Warrants issued with notes payable $7
Common stock issued, September 1997 3,000,000 $30,000 $360,000
Warrants issued, September 1997 $165
=============================================================================================
Balance, September 30, 1997 51,040,759 $510,408 $15,966,189 ($14,996,720) $0 $0 $0 $0
=============================================================================================
</TABLE>
<PAGE>
QUANTECH LTD
(A Development Stage Company)
STATEMENT OF CASH FLOWS-UNAUDITED
<TABLE>
<CAPTION>
Period From
September 30,
Three Months Three Months 1991 (Date of
Ended Ended Inception), to
September 30, September 30, September 30,
1997 1996 1997
------------------ ------------------ -----------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Loss $ (588,420) $ (706,797) $ (14,996,720)
Adjustments to reconcile net loss to net cash used in
operating activities:
Elimination of cumulative translation adjustment - - (178,655)
Depreciation 15,603 13,841 201,224
Amortization 80,408 59,732 1,437,025
Noncash compensation and interest - - 537,250
Losses resulting from transactions with
Spectrum Diagnostics Inc. - - 556,150
Write down of investment - - 67,500
Change in assets and liabilities, net of effects from
purchase of Spectrum Diagnostics Inc.:
(Increase) decrease in other current assets 319 (27,705) 41,305
Increase (decrease)in accounts payable (27,664) 40,932 71,575
Increase (decrease) in accrued expenses (25,102) 23,367 544,226
------------------ ------------------ -----------------
Net cash used in operating activities (544,856) (596,630) (11,719,120)
------------------ ------------------ -----------------
Cash Flows From Investing Activities
Purchase of property and equipment (1,353) (64,654) (422,891)
Proceeds on disposition of property - - 37,375
Organization expenses - - (97,547)
Patent spending (134) - (9,029)
Officer advances, net - - (109,462)
Purchase of investment - - (225,000)
Purchase of license agreement - - (1,950,000)
Advances to Spectrum Diagnostics, Inc. - - (320,297)
Prepaid securities issuance costs (10,403) - (112,046)
Purchase of Spectrum Diagnostics, Inc., net of cash
and cash equivalents acquired - - (1,204,500)
------------------ ------------------ -----------------
Net cash used in investing activities (11,890) (64,654) (4,413,397)
------------------ ------------------ -----------------
Cash Flows From Financing Activities
Net proceeds from the sale of common stock & warrants 7 2,500 12,880,804
Proceeds on debt obligations 25,000 - 3,753,435
Payments received on stock subscription receivables - - 5,000
Stock offering costs - (12,310) - -
Payments on debt obligations - (4,605) (522,810)
------------------ ------------------ -----------------
Net cash provided by financing activities 25,007 (14,415) 16,116,429
------------------ ------------------ -----------------
Effect of Exchange Rate Changes on Cash - - 203,242
------------------ ------------------ -----------------
Net increase (decrease) in cash (531,739) (675,699) 187,154
Cash
Beginning 718,893 2,942,871 -
------------------ ------------------ -----------------
Ending $ 187,154 $ 2,267,172 $ 187,154
================== ================== =================
Non-Cash Investing and Financing Activities
Issuance of debt, common stock and warrants for
sublicensing rights $ 940,165 $ 0 $ 940,165
================== ================== =================
</TABLE>
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
History
Quantech Ltd. ("Quantech" or the "Company") was formed under the laws of
Minnesota for the purpose of effecting the change of domicile of Spectrum
Diagnostics S.p.A. ("SDS") from Italy to the state of Minnesota through the
merger with SDS on April 14, 1993. Quantech had no operations prior to the
merger and is continuing the business of SDS to commercialize Surface Plasmon
Resonance ("SPR") technology licensed from Ares-Serono, S.A. SPR, the core
technology of Quantech's proposed medical diagnostic system, enables the Company
to integrate the existing diagnostic methodologies of immunoassays, DNA probes
and chemical binding into a single, simple economical system in order to provide
rapid, quantitative, diagnostic results. The Quantech system configuration
consists of a small bench top instrument and a series of disposables each
offering a particular test or series of tests. It is anticipated that the
Quantech system will have the ability to analyze body fluids (e.g. whole blood,
urine) without preparation or addition of reagents. The Company plans to first
market its system and related disposables to hospital Critical Care Units,
initially the Emergency Department. Its first tests will aid physicians in
assessing whether a patient has suffered a heart attack.
During November 1997 the Company and Ares-Serono agreed in principle to the
amendment to the terms of the license agreement, which amendment is awaiting
final execution. Ares-Serono agreed to eliminate a provision of the contract
that allowed it to market, under its own name, products using the SPR technology
in return for an increase in minimum royalty payments. In order to maintain its
exclusive rights under the revised license agreement, the Company must make its
original minimum payment of $150,000 by December 31, 1997, and additional
$150,000 payments in each of December 1998 and 1999.
Quantech is a development stage company which has suffered losses from
operations and will require additional financing to complete development, obtain
FDA approval and commercialize its product. The Company's product development
must be completed, FDA approval obtained, the product introduced to the market,
and ultimately, Quantech will need to successfully attain profitable operations.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
Results of Operations
The Company has incurred a net loss of $14,996,720 from September 30, 1991
(date of inception) through September 30, 1997 due to expenses related to
formation and operation of SDS in Italy, continuing costs of raising capital,
normal expenses of operating over an extended period of time, funds applied to
research and development, royalty payments related to the SPR technology, losses
due to expenses of Quantech's predecessor, Spectrum Diagnostics Inc., and
interest on borrowed funds. In addition, an investment of $3,356,629 was made
when Quantech purchased the exclusive rights to the SPR technology.
For the three months ended September 30, 1997 the Company had interest
income of $6,824 compared to $34,692 for the same period in 1996. This decrease
is a result of less cash on hand as proceeds obtained from Quantech's private
placements of securities have been used for operations and research and
development.
General and administration expenses decreased to $222,857 for the three
months ended September 30, 1997 from $357,494 for the three months ended
September 30, 1996. The decrease in general and administrative spending was the
result of the restructuring that the Company began in June 1997 and completed in
October 1997. The restructuring was aimed at reducing expenses and focusing the
Company's resources on completing development of its diagnostic system. Changes
that were implemented included reducing the number of employees, consultants and
outside services employed in the administrative and marketing functions. The
Company anticipates that these expenses will increase significantly in the
future as the Company completes development of its system and begins to
manufacture and distribute its products.
<PAGE>
Research and development costs decreased to $314,261 in the three months
ended September 30, 1997 from $362,832 in the same period of 1996. This decrease
was due to the above mentioned restructuring, with cost reductions resulting
primarily from reduced outside contract development work as the Company focused
its resources on completing the system development with a reconfigured internal
development team led by Thomas R. Witty, Ph.D. who recently joined the Company
as Vice President of Research and Development. It is expected that future
research and development expenditures will increase significantly as Quantech
completes development of its system, conducts FDA work, and begins development
of additional disposable tests for its system.
There was no change in the minimum royalty expense recorded for the quarter
ended September 30, 1997 compared to the same quarter for the previous year.
Royalty expense is expected to increase to $37,500 per quarter starting in
January 1998 as the Company begins accruing for minimum payments scheduled for
December 1998 and 1999 (see Notes to Financial Statements, Note 2 - License
Agreement).
Financing expenses were higher for the quarter ended September 30, 1997
compared to the same period in 1996 due to increased debt from the sale of
convertible promissory notes in 1997 to fund operations. Financing expenses are
expected to increase as a result of the sale of additional convertible
promissory notes and interest on such notes.
For the three months ended September 30, 1997 Quantech had a loss of
$588,420 as compared to $706,797 for the same period ended September 30, 1996.
This decreased loss was the result of lower operating expenses partially offset
by lower interest income.
The Company has made significant progress in the development of its system,
but this progress has been much slower than anticipated. Although Quantech has
been able to complete prototype systems that demonstrate that its SPR technology
does work to detect certain conditions, it has not been able to achieve
reproducible results at sensitivity levels necessary for quantitative analysis
throughout the entire required clinical range for its initial test. Quantech's
development is focused upon the system reproducibility and sensitivity necessary
for FDA approval and market acceptance. After such development is complete, the
next major step will be to submit its system and first test to the FDA for
approval, which submission is expected in early 1998. Product introduction is
anticipated in the later part of 1998, which introduction is expected to include
at least two tests for the system.
In addition to development activity, the Company is in discussions with
potential strategic partners regarding the sublicensing of Quantech's technology
outside of its core medical area, research and development collaborations for
medical and industrial applications of Quantech's technology, distribution of
its system once developed and device manufacturing. The timetable for submitting
the Company's system to the FDA and introduction to the market will be
influenced by the Company's ability to obtain further funding, enter into
strategic relationships, complete prototype development of its system, necessary
testing for submission of its FDA filing and delays it may encounter with the
FDA in its review of the system. There can be no assurance that the Company will
be able to obtain the required funding, enter into any strategic agreements or
ultimately complete its system.
Liquidity and Capital Resources
From inception to September 30, 1997, Quantech has raised approximately
$17,600,000 through a combination of public stock sales, private stock sales and
debt obligations. Additional funds are needed immediately to continue current
operations. To provide these additional funds, the Company is currently seeking
up to a maximum of $1,405,000 through the sale of notes (the "Notes") and
warrants (the "Warrants"). The Notes will be due and payable on June 1, 1998, or
earlier upon Quantech completing a transaction that provides it with a minimum
of $5,000,000 (the "Additional Funding"). Interest will be the prime rate plus
<PAGE>
five percent and the Notes will be secured by all of the assets of the Company.
For each dollar invested in the Note the investor will receive a Warrant to
purchase three shares of Quantech Common Stock at an exercise price equal to the
lower of (a) $0.25 per share; (b) the average market value of Quantech's Common
Stock for the ten trading days prior to December 20, 1997; or (c) 80% of the
price of the Additional Funding or, if the Additional Funding has not occurred
prior to June 1, 1998, the lower of 80% of the market price of the Company's
Common Stock for the 20 consecutive trading days prior to the issuance of the
Warrant or June 1, 1998. The principal amount of the Notes are convertible into
shares of the Company's Common Stock at a price equal to, and calculated in the
same manner as, the Warrant Exercise Price. Terms are subject to negotiation and
may change. The Company believes it will complete the sale of most or all of the
$1,405,000 of the Notes by December 20, 1997, and Directors, and Director
affiliates, of the Company have already purchased $150,000 of the Notes. There
can be no assurance, however, that the Company will be able to raise this or any
other funding and continue its operations. See "Cautionary Statements -
Immediate and Future Capital Needs."
The Company anticipates that the $1,405,000 will be sufficient to allow it
to complete development of its system, start its FDA work, and make its December
31, 1997 $150,000 minimum royalty payment to Ares-Serono. Funds of at least $7.5
million will be needed to complete its FDA work, begin developing additional
tests, establish manufacturing capabilities, launch the Quantech system and
repay the Notes. Quantech is currently reviewing multiple avenues of future
funding including a secondary offering of securities, private sale of equity or
debt with equity features or arrangements with strategic partners. The Company
does not have any commitments for any such financing and there can be no
assurance that the Company will obtain additional capital when needed or that
additional capital will not have a dilutive effect on current shareholders.
Although the Company has a limited lending arrangement with its bank, it does
not anticipate receiving significant funding from commercial lenders.
Quantech incurred capital expenditures of $1,353 in the three month period
ended September 30, 1997. The Company anticipates significant capital
expenditures in the future for laboratory and production equipment and office
expansion as the Company nears product introduction. The timing and amount of
such expenditures will be governed by the Company's development and market
introduction schedules which are subject to change due to a number of factors
including development delays, FDA approval and availability of future financing.
The Company currently has outstanding 51,040,759 shares of Common Stock. It
also has options and warrants outstanding to purchase an additional 23,143,903
shares.
Cautionary Statements
As provided for under the Private Securities Litigation Act of 1995, the
Company wishes to caution investors that the following important factors, among
others, in some cases have affected, and in the future could affect, the
Company's actual results of operations and cause such results to differ
materially from those anticipated in forward-looking statements made in this
document and elsewhere by or on behalf of the Company.
No History of Operations; Development Stage Company; Going Concern Uncertainty
To date, the Company does not have a product ready to be brought to market
and its proposed operations are subject to all of the risks inherent in a new
business enterprise, including completion of commercial development and FDA
approval of its instrument within reasonable time frames and financial
constraints, lack of marketing experience and lack of production history. The
likelihood of the success of the Company must be considered in light of the
expenses, difficulties and delays frequently encountered in connection with the
start-up of new businesses, and specifically those historically encountered by
Quantech, the development of a new product and the competitive environment in
which the Company will operate. The report of the independent auditors on the
Company's financial statements for the period ended June 30, 1997, includes an
explanatory paragraph relating to the uncertainty of the Company's ability to
continue as a going concern. The Company is a development stage company which
has suffered losses from operations, requires additional financing, and
ultimately needs to successfully attain profitable operations. These factors
raise substantial doubt about the Company's ability to continue as a going
concern. There can be no assurance that the Company will be able to develop a
commercially viable product or marketing system or attain profitable operations.
<PAGE>
Immediate and Future Capital Needs
The Company does not have sufficient funds to complete development of its
system, submit its system to the FDA or commence commercial production and sales
of its system. The Company's ability to continue as a going concern, complete
its system, submit its system to the FDA and commence sales will depend upon the
continued availability of investment capital, funding made by strategic
partner(s) or licensing revenues, until revenues from the sale of instruments
and associated test disposables are sufficient to maintain operations.
Additional funds may have to be raised through equity or debt financing. There
can be no assurance that any additional financing can be obtained on favorable
terms, if at all. Such additional financing may result in dilution to Company
shareholders and/or additional debt to the Company. If funding is not available
immediately and in the future when needed, the Company may be forced to cease
operations and abandon its business. In such event, Company shareholders could
lose their entire investment.
Other Factors
As described in the Company's Form 10-KSB for the year ended June 30, 1997
under Cautionary Statements, there are additional factors concerning the Company
that should be considered including: uncertainty of market acceptance of ,
effects of government regulation on Quantech's product and its sale, ability to
manufacture its product, exposure to the risk of product liability and market
for the Company's shares.
ITEM 3 QUANTITATIVE AND QUALITATIVE DISCLOSURE
ABOUT MARKET RISK
Not Applicable.
<PAGE>
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
Not Applicable
Item 2. Changes in Securities
In September 1997, the Company entered into an agreement to cancel
certain sublicense rights that had been granted to other parties. In
return for these sublicense rights, the Company issued 3,000,000 shares
of the Company's Common Stock, convertible secured promissory notes
totaling $550,000, and warrants to purchase 1,650,000 shares of Common
Stock to the sublicense owners.
The convertible secured promissory notes carry an interest rate of 13.5%
and are payable June 1, 1998. The notes are also convertible into shares
of Common Stock at a price the lessor of (I) $0.35 per share or (II) a
price equal to 80 percent of the market price of the Common Stock for
(i) the 20 consecutive trading days prior to the issuance of the notes
or June 1, 1998, if the notes have not been paid by June 1, 1998 or (ii)
the price at which the transaction which triggers prepayment of the
notes is completed. The warrants exercise price is calculated in the
same manner as the notes conversion price, except the maximum price is
limited to $0.25.
Item 3. Defaults upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable
Item 6. Exhibits and Reports on 8-K
a. Exhibits -
10.1 Form of convertible note issued to affiliate in private placement.
10.2 Form of warrant issued to affiliate in private placement.
10.3 Form of amended royalty agreement with Ares-Serono.
27. Financial Data Schedule (filed in electronic format only)
b. Reports on 8-K - None
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
QUANTECH LTD
/s/ Robert Case
Robert Case
Chief Executive Officer
/s/ Gregory G. Freitag
Gregory G. Freitag
Chief Operating Officer and
Date: November 14, 1997 Chief Financial Officer
<PAGE>
EXHIBIT INDEX
QUANTECH LTD.
FORM 10-QSB for Quarter Ended
September 30, 1997
Exhibit Number Description
- ------------------- -----------------------------------------------------
10.1 Form of convertible note issued to affiliate in
private placement.
10.2 Form of warrant issued to affiliate in private placement.
10.3 Form of amended royalty agreement with Ares-Serono.
27 Financial Data Schedule (filed in electronic format only)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED
FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT,
OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
QUANTECH LTD.
$_______________ ______________, 1997
(Date of Issue)
1. The Convertible Note. Quantech Ltd., a Minnesota corporation
(hereinafter the "Company") promises to pay to the order of (hereinafter the
"Holder"), at the Holder's address as registered with the Company or at such
other place as the Holder may designate in writing from time to time, Dollars ($
), in legal tender of the United States, with interest accruing on the unpaid
principal balance as of the date hereof at the rate of ___________ percent
(______%) per annum (which is equal to five percent (5%) plus the Prime Rate as
quoted in the Wall Street Journal on the date hereof). The entire principal and
accrued interest on this Convertible Note shall be due and payable in full, in
cash, on the earliest to occur of (i) June 1, 1998, (ii) the completion by the
Company of its next private or public equity financing with gross proceeds of at
least $5,000,000 ("Financing") or (iii) the completion of any sale or conveyance
to another corporation of the property of the Company as an entirety or
substantially as an entirety ("Sale"), (iv) the completion of any consolidation
or merger to which the Company is a party or any statutory exchange of
securities with another corporation (including any exchange effected in
connection with a merger of a third corporation into the Company) ("Merger"), or
(v) the execution of any licensing arrangement in connection with which the
Company provides the right to control a significant portion of its business and
receives cash in excess of $5,000,000 upon execution of such arrangement
("Licensing"). Interest shall be computed on the basis of actual days elapsed in
a year of three hundred sixty (360) days. With 20 days' written notice from the
Company, the indebtedness evidenced by this Convertible Note may be prepaid in
whole or in part at any time without penalty or premium, but partial prepayments
shall be applied first to accrued interest payments owing hereunder. This
Convertible Note is delivered by the Company in accordance with the Subscription
and Loan Agreement of even date herewith entered into by the Holder and accepted
by the Company.
2. Subordination. This Convertible Note is secured by the Company's
assets as set forth in the Security Agreement of even date herewith. The terms
of this Convertible Note are subject to the terms of the Security Agreement and
Inter-Creditor Agreement each dated of even date herewith. The Company covenants
and agrees, and each Holder of the Convertible Note by acceptance thereof
covenants and agrees, that the payment of the principal of and the interest on
the Convertible Note is hereby expressly subordinated and made subject to the
prior payment in full of all indebtedness of the Company outstanding on the date
hereof or hereafter incurred (i) for money borrowed by the Company from banks,
finance companies, trust companies, pension trusts, insurance companies or other
financial institutions; (ii) in connection with the issuance of tax exempt notes
<PAGE>
or debentures; and (iii) in connection with the acquisition of capital equipment
(collectively, the "Senior Debt"). By acceptance of the Convertible Note, the
Holder expressly agrees that Agent appointed in the Inter-Creditor Agreement has
the authority to execute subordination agreements on behalf of the Holder with
holders of the Senior Debt.
3. Transferability. The Convertible Note may be converted into Common
Stock of the Company pursuant to the terms of Section 6 hereof (the "Conversion
Shares"), and the Convertible Note and the Conversion Shares may be transferred,
subject to the following conditions. The Holder of the Convertible Note, by
acceptance thereof, agrees to give written notice to the Company at least ten
(10) days before transferring or converting the Convertible Note, or
transferring any Conversion Shares, of such Holder's intent to do so, describing
briefly the manner of the proposed transfer or conversion. Promptly upon
receiving such written notice, the Company shall present copies thereof to
counsel for the Company. If, in the opinion of counsel satisfactory in form and
substance to the Company, the proposed transfer or conversion may be effected
without constituting a violation of the applicable federal and state securities
laws, such Holder shall be entitled to transfer or convert the Convertible Note
or to dispose of the Conversion Shares received upon conversion of the
Convertible Note as contemplated in the above referred to notice provided by the
Holder to the Company, provided that an appropriate legend may be endorsed on
the Convertible Note or the certificates for any of the Conversion Shares
respecting restrictions on transfer thereof necessary or advisable in the
opinion of counsel satisfactory in form and substance to the Company to prevent
further transfers which would be in violation of the securities laws or
adversely affect the exemptions relied upon by the Company. To such effect, the
Company may request that the intended transferee execute an investment and
representation letter satisfactory in form and substance to the Company. Upon
transfer of the Convertible Note or any Conversion Shares, the transferee, by
acceptance of the Convertible Note or Conversion Shares, agrees to be bound by
the provisions, terms, conditions and limitations of the Convertible Note and
the investment and representation letter, if any, required by the Company. If
(a) no opinion of counsel referred to in this Section has been provided to the
Company, or (b) in the opinion of such counsel the proposed transfer, conversion
or disposition of the Convertible Note or the Conversion Shares described in the
Holder's written notice given pursuant to this Section may not be effected
without registration or without adversely affecting the exemptions relied upon
by the Company, the Holder will limit its activities and restrict its transfer,
conversion or disposition accordingly.
4. Exchange of Convertible Note. At any time at the request of any
Holder of the Convertible Note and upon compliance with the provisions of
Section 3 above and surrender of such Convertible Note for such purpose to the
Company at its principal office or such other office or agency as it may
authorize for such purpose, the Company at its expense (except for any transfer
tax arising out of the exchange) shall execute and deliver in exchange therefor
a new Convertible Note or Convertible Notes, in the denomination or
denominations ($1,000 and integral multiples thereof only, plus one Convertible
Note in a lesser denomination if required) as such Holder may request, in an
aggregate principal amount equal to the unpaid portion of the principal amount
of the Convertible Note surrendered and substantially in the form thereof, dated
as of the date of the Convertible Note so surrendered and payable to or upon the
order of such Holder.
5. Replacement of Convertible Note. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of the
<PAGE>
Convertible Note and in the case of any such loss, theft or destruction, upon
delivery of a bond of indemnity satisfactory to the Company if requested by the
Company, or in the case of any such mutilation, upon surrender and cancellation
of such Convertible Note, the Company shall issue a new Convertible Note
identical in form to the lost, stolen, destroyed or mutilated Convertible Note.
6. Conversion of Convertible Note.
(a) Right of Conversion. Subject to and upon compliance with
the provisions of Section 3 above and this Section, the Holder of this
Convertible Note or any Convertible Notes issued in exchange for it shall have
the right at any time after the Conversion Price (as defined below) is
determined and prior to the payment in full of this Convertible Note, at the
Holder's option, to convert the principal amount of any such Convertible Note
(with accrued interest up to the date of conversion to be paid in cash in full),
or any portion of such principal amount which is $1,000 or an integral multiple
thereof, into that number of fully paid and nonassessable shares of Common Stock
of the Company obtained by dividing the principal amount of the Convertible
Note, or portion thereof to be converted, by the Conversion Price (as defined
below), subject to adjustments as provided herein and by surrender of the
Convertible Note, such surrender to be made in the manner provided in this
Section. For purposes of this Convertible Note, the "Conversion Price" shall be
equal to the lesser of (a) $.25 per share, (b) the average of the last sale
price of the Company's Common Stock for each of the 10 consecutive trading days
immediately preceding December 20, 1997 or (c) the price per share determined as
follows: (i) 80% of the per share price at which any shares of the Company's
Common Stock are sold in a Financing which is prior to the closing of a Sale,
Merger or Licensing (as such terms are defined below), or (ii) in the case of
any Sale which is prior to the closing of a Financing, Merger or Licensing, 80%
of the per share consideration the shareholders of the Company would be entitled
to receive if there was a distribution to the shareholders (assuming the
exercise of outstanding "in-the-money" options and Convertible Notes, including
this Convertible Note) of proceeds from the Sale, or (iii) in case of any Merger
which is prior to the closing of a Financing, Sale or Licensing, 80% of the
average of the last sale price of the Company's Common Stock for the 20
consecutive trading days immediately following the public announcement of the
Merger, or (iv) in the case of any Licensing which is prior to the closing of a
Financing, Sale or Merger, 80% of the average of the last sale price of the
Company's Common Stock for the 20 consecutive trading days immediately following
the public announcement of the Licensing, or (v) in the event there is no
Financing, Sale, Merger or Licensing prior to June 1, 1998, the Conversion Price
shall be the lower of (A) 80% of the average of the last sale price of the
Company's Common Stock for each of the 20 consecutive trading days immediately
preceding the issuance of this Convertible Note or (B) 80% of the average of the
last sale price of the Company's Common Stock for each of the 20 consecutive
trading days prior to June 1, 1998.
(b) Conversion Price, Subject to Adjustment. The Conversion
Price shall be subject to adjustment from time to time as hereinafter provided.
Upon each adjustment of the Conversion Price, the Holder thereafter will be
entitled to receive the number of shares of Common Stock obtained by dividing
the then effective Conversion Price by the Conversion Price resulting from such
adjustment.
(c) Stock Split or Combination. In case the corporation shall
at any time subdivide or split its outstanding Common Stock into a greater
<PAGE>
number of shares, the Conversion Price in effect immediately prior to such
subdivision or split shall be proportionately reduced, and conversely in case
the outstanding Common Stock of the corporation shall be combined into a smaller
number of shares, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(d) Capital Reorganization, Merger, Etc. If any capital
reorganization or reclassification of the capital stock of the corporation, or
consolidation or merger of the corporation with another corporation, or the sale
of all or substantially all of its assets to another corporation shall be
effected in such a way that Holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the Holders
shall thereafter have the right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the Common Stock of the corporation
immediately theretofore receivable upon the conversion of the Convertible Note,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of Common Stock
equal to the number of shares of Common Stock immediately theretofore receivable
upon the conversion of the Convertible Note had such reorganization,
reclassification, consolidation, merger or sale not taken place, and in any such
case appropriate provision shall be made with respect to the rights and
interests of the Holders to the end that the provisions hereof (including
without limitation provisions for adjustments of the Conversion Price and of the
number of shares receivable upon the conversion of the Convertible Note) shall
thereafter be applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter receivable upon the conversion of the
Convertible Note. The corporation shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the surviving
corporation (if other than this corporation), the corporation resulting from
such consolidation or the corporation purchasing such assets shall assume by
written instrument executed and mailed to the registered Holders at the last
address of such Holders appearing on the books of the corporation, the
obligation to deliver to such Holders such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holders may be entitled to
receive.
(e) Notice of Adjustment of Conversion Price. Upon any
adjustment of the Conversion Price, then and in each such case the corporation
shall give written notice thereof, by first-class mail, postage prepaid,
addressed to the registered Holders affected by such adjustment at the addresses
of such Holders as shown on the books of the corporation, which notice shall
state the Conversion Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares receivable at such price upon the
conversions of the Convertible Note, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
(f) Other Notices. In case at any time:
(i) the corporation shall pay any dividend
payable in stock upon its Common Stock or make any distribution (other than
regular cash dividends) to the Holders of its Common Stock;
<PAGE>
(ii) the corporation shall offer for
subscription pro rata to the Holders of its Common Stock any additional shares
of stock of any class or other rights;
(iii) there shall be any capital reorganization,
reclassification of the capital stock of the corporation, or consolidation or
merger of the corporation with, or sale of all or substantially all of its
assets to another corporation; or
(iv) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the corporation;
then, in any one or more of said cases, the corporation shall give
written notice, by first-class mail, postage prepaid, addressed to the Holders
at the addresses of such Holders as shown on the books of the corporation, of
the date on which (aa) the books of the corporation shall close or a record
shall be taken for such dividend, distribution or subscription rights, or (bb)
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up shall take place, as the case may be. Such notice
shall also specify the date as of which the Holders of Common Stock of record
shall participate in such dividend, distribution or subscription rights, or
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be. Such
written notice shall be given at least 20 days prior to the action in question
and not less than 20 days prior to the record date or the date on which the
corporation's transfer books are closed in respect thereto.
(g) Surrender of Convertible Note. In order to exercise the
conversion privilege, the Holder of the Convertible Note to be converted in
whole or in part shall surrender such Convertible Note to the Company at its
principal office or at such other agency maintained for such purpose by the
Company, and shall give written notice to the Company at such office or agency
that the Holder elects to convert such Convertible Note or the portion thereof
specified in said notice. Such notice shall also state the name or names,
together with address or addresses, in which the certificate or certificates for
shares of Common Stock which shall be issuable on such conversion shall be
issued. The Convertible Note surrendered for conversion shall, unless the shares
issuable on conversion are to be issued in the same name as the name of the
original Holder, be accompanied by instruments of transfer, in form satisfactory
to the Company, duly executed by each Holder of his duly authorized attorney.
After the surrender of such Convertible Note, as aforesaid, the Company shall
issue and shall deliver at such office or agency to such Holder, or on his
written order, a certificate or certificates for the number of full shares of
capital stock issuable upon the conversion of such Convertible Note or portion
thereof in accordance with the provisions of this Section. Any fractional
interest in respect of a share arising upon such conversion shall be settled as
provided in Subsection (c) of this Section. In case any Convertible Note of a
denomination greater than $1,000 shall be surrendered for partial conversion,
the Company shall pay the remaining unconverted balance in cash.
(h) Fractional Shares. No fractional shares of
Common Stock shall be issued upon conversion of the Convertible Note.
Any portion of the Convertible Note not convertible into a whole share of
Common Stock shall be paid in cash.
<PAGE>
8. Events of Default. Each of the following events shall be
an Event of Default ("Event of Default") for purposes of the Convertible Note:
(a) Convertible Note Terms. The Company defaults in the due
and punctual performance or observance of any material terms contained in the
Convertible Note, and such default continues for a period of thirty (30)
consecutive days after written notice thereof to the Company by any Holder of
the Convertible Note or Common Stock issued upon conversion of the Convertible
Note; except that any default occurring due to the failure of the Company to act
in accordance with Section 8(b) hereof will result in an immediate default by
the Company and such default may be waived by the Holders of a majority of the
total principal amount of the then outstanding Convertible Notes in
substantially the same form as this Convertible Note; or
(b) Insolvency Matters. The Company makes an assignment for
the benefit of creditors, or admits in writing its inability to pay its debts as
they become due, or files a voluntary petition in bankruptcy, or is adjudicated
a bankrupt or insolvent, or files any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statute, law or regulation, or
files any answer admitting or fails to deny the material allegations of a
petition filed against the Company for any such relief, or seeks or consents to
or acquiesces in the appointment of any trustee, receiver or liquidator of the
Company or all or any substantial part of the properties of the Company, or the
Company or its directors or majority stockholders take any action looking to the
dissolution or liquidation of the Company.
9. Remedies on Default. Upon the occurrence of an Event of Default as
described under Section 8 hereof, the Holder may (a) declare the principal
amount hereof and all accrued but unpaid interest thereon through the date of
the Company's full payment hereof, to be immediately due and payable upon
written notice from the Holder to the Company; (b) exercise and enforce any or
all rights and remedies available upon default to a secured party under the
Uniform Commercial Code; (c) exercise or enforce any or all other rights or
remedies available to each Holder hereof by law or agreement pursuant to the
terms of the Security Agreement, against the Company or against any other person
or property.
10. Registration Rights.
(a) If at any time after the date of this Convertible Note and prior to
the end of the one-year period following complete exercise of this Convertible
Note or __________________________, 2003, whichever occurs earlier, the Company
proposes to register under the 1933 Act (except by a Form S-4 or Form S-8
Registration Statement or any successor forms thereto) or qualify for a public
distribution under Section 3(b) of the 1933 Act, any of its securities, it will
give written notice to all Holders of this Convertible Note and any Conversion
Shares of its intention to do so and, on the written request of any such Holder
given within twenty (20) days after receipt of any such notice (which request
shall specify the interest in this Convertible Note or the Conversion Shares
intended to be sold or disposed of by such Holder and describe the nature of any
proposed sale or other disposition thereof), the Company will use its best
efforts to cause all such Conversion Shares, the Holders of which shall have
requested the registration or qualification thereof, to be included in such
registration statement proposed to be filed by the Company; provided, however,
that if a greater number of Conversion Shares is offered for participation in
the proposed offering than in the reasonable opinion of the managing underwriter
of the proposed offering can be accommodated without adversely affecting the
<PAGE>
proposed offering, then the amount of Conversion Shares proposed to be offered
by such Holders for registration, as well as the number of securities of any
other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
(b) Further, on a one-time basis only, provided Form S-3, or such
successor form as may be adopted, is available, during the term of this
Convertible Note, upon request by the Holder or Holders of a majority in
interest of (i) this Convertible Note, (ii) any Convertible Notes issued
pursuant to the offering described in the Company's Private Placement Memorandum
dated April 9, 1997, as restated on October ____, 1997, and (iii) any Conversion
Shares underlying all such Convertible Notes, the Company will promptly take all
necessary steps to register or qualify, under the 1933 Act and the securities
laws of such states as the Holders may reasonably request, such number of
Conversion Shares issued and to be issued upon exercise all of such Convertible
Notes requested by such Holders in their request to the Company. The Company
shall keep effective and maintain any registration, qualification, notification,
or approval specified in this Paragraph (b) for such period as may be reasonably
necessary for such Holder or Holders of such Conversion Shares to dispose
thereof and from time to time shall amend or supplement the prospectus used in
connection therewith to the extent necessary in order to comply with applicable
law. Notwithstanding the foregoing, if in the reasonable opinion of the managing
underwriter of any proposed financing by the Company a registration of the
Conversion Shares pursuant to this Paragraph (b) would adversely affect the
proposed financing, then the Company shall not be obligated to register any
portion of the Conversion Shares until such time as the managing underwriter
deems it would no longer adversely impact the proposed financing.
(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 10, the Company shall bear the following
fees, costs, and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the Company,
fees and disbursements of counsel for the underwriter or underwriters of such
securities (if the Company is required to bear such fees and disbursements), all
internal expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders;
(d) The Company hereby indemnifies each of the Holders of this
Convertible Note and of any Conversion Shares, and the officers and directors,
if any, who control such Holders, within the meaning of Section 15 of the 1933
Act, against all losses, claims, damages, and liabilities caused by (1) any
untrue statement or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (and as amended or supplemented if the
Company shall have furnished any amendments thereof or supplements thereto), any
Preliminary Prospectus or any state securities law filings; (2) any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading except insofar as
such losses, claims, damages or liabilities are caused by any untrue statement
or omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
<PAGE>
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages or liabilities which are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Holder expressly for use therein.
11. Modification and Waiver. No purported amendment, modification or
waiver of any provision hereof shall be binding unless set forth in a written
document signed by the Company and the Holder of the Convertible Note (in the
case of amendments or modifications) or by the party to be charged thereby (in
the case of waivers). Any waiver shall be limited to the provision hereof in the
circumstances or events specifically made subject thereto, and shall not be
deemed a waiver of any other term hereof or of the same circumstance or event
upon any reoccurrence thereof.
12. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given, when received, if personally delivered or delivered by telex,
telegram or telecopy, or five (5) days after depositing in the U.S. Mails for
delivery by first class mail, postage prepaid and addressed as provided below,
(a) if to any Holder of the Convertible Note, addressed to such Holder at its
address as shown on the books of the Company, or at such other address as such
Holder may specify by written notice to the Company, or (b) if to the Company at
1419 Energy Park Drive, St. Paul, MN 55108, Attention: President, or at such
other address as the Company may specify by written notice to the Holders of the
Convertible Note or Common Stock issued upon conversion of the Convertible Note.
13. Successors and Assigns. All the terms and provisions of the
Convertible Note shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the Company and
each Holder of the Convertible Note, whether or not so expressed.
14. Applicable Law. The laws of the State of Minnesota shall
govern the validity of the Convertible Note, the construction of its
terms and the interpretation of the rights and duties of the Company and each
Holder of the Convertible Note.
15. Waiver of Demand, Presentment and Notice of Dishonor. The
undersigned and each endorser or guarantor hereof hereby waives demand,
presentment, protest, notice of protest and notice of dishonor.
16. Corporate Obligation. No recourse under or upon any obligation,
covenant or agreement contained in this Convertible Note, or for any claim based
hereon or otherwise in respect hereof, shall be had against any promoter,
subscriber to shares, incorporator, shareholder, officer, or director, as such,
past, present or future, of the Company or of any successor corporation, either
directly or through the Company or any successor or corporation or through any
trustee, receiver, or any other person, whether by virtue of any constitution,
statute, or rule of law, or by the enforcement of any assessment or penalty or
otherwise, except as expressly agreed to by the party charged.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Convertible Note to be
signed by its duly authorized officer as of the date first written above.
Quantech Ltd.
By_____________________________________
Its____________________________________
<PAGE>
DATES AND PRINCIPAL AMOUNTS OF CONVERTIBLE NOTES
ISSUED TO AFFILIATES OF REGISTRANT
AFFILIATE DATE OF ISSUE AMOUNT
Gregory G. Freitag June 3, 1997 $ 10,000
James F. Lyons June 3, 1997 $ 25,000
Edward E. Strickland June 3, 1997 $ 25,000
Strickland Family Limited Partnership June 3, 1997 $ 25,000
Robert Case June 30, 1997 $ 50,000
The securities represented by this certificate has not been registered, under
either the Securities Act of 1933, as amended, or applicable state securities
laws. They may not be sold, offered for sale or transferred in the absence of an
effective registration under the Securities Act of 1933, as amended, and the
applicable state securities laws or an opinion of counsel satisfactory in form
and substance to counsel for the Company that such transaction will not result
in a prohibited transaction under the Securities Act of 1933, as amended, or the
applicable state securities laws.
WJ-_________
WARRANT
TO PURCHASE ___________________ SHARES OF COMMON STOCK
OF
Quantech Ltd.
THIS CERTIFIES THAT, for good and valuable consideration _____________
_____________________________________, (the "Investor") or his, her or its
registered assigns, is entitled to subscribe for and purchase from Quantech
Ltd., a Minnesota corporation (the "Company"), at any time after the Warrant
Exercise Price has been determined as set forth below to and including,
________________, 2002,____________________ (________________________) fully
paid and nonassessable shares of the Common Stock of the Company at the Warrant
Exercise Price (defined below), subject to the antidilution provisions of this
Warrant. Reference is made to this Warrant in the Subscription and Loan
Agreement executed by the Investor and the Company's Confidential Private
Placement Memorandum dated April 9, 1997, as restated on October ____, 1997
("Memorandum").
The "Warrant Exercise Price" shall be equal to the lesser of (a) $.25
per share, (b) the average of the last sale price of the Company's Common Stock
for each of the 10 consecutive trading days immediately preceding December 20,
1997 or (c) the price per share determined as follows: (i) 80% of the per share
price at which any shares of the Company's Common Stock are sold in the next
private or public equity financing with gross proceeds of at least $5,000,000
(the "Financing") which is prior to the closing of a Sale, Merger or Licensing
(as such terms are defined below), or (ii) in the case of any sale or conveyance
to another corporation of the property of the Company as an entirety or
substantially as an entirety for cash ("Sale") which is prior to the closing of
a Financing, Merger or Licensing, 80% of the per share consideration the
shareholders of the Company would be entitled to receive if there was a
distribution to the shareholders (assuming the exercise of outstanding
"in-the-money" options and warrants, including this Warrant) of proceeds from
the Sale, or (iii) in case of any consolidation or merger to which the Company
is a party or any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company) ("Merger") which is prior to the closing of a
Financing, Sale or Licensing, 80% of the average of the last sale price of the
Company's Common Stock for the 20 consecutive trading days immediately following
the public announcement of the Merger, or (iv) in the case of any licensing
arrangement in connection with which the Company provides the right to control a
significant portion of its business and receives cash in excess of $5,000,000
upon execution of such arrangement ("Licensing") which is prior to the closing
of a Financing, Sale or Merger, 80% of the average of the last sale price of the
Company's Common Stock for the 20 consecutive trading days immediately following
the public announcement of the Licensing, or (v) in the event there is no
Financing, Sale, Merger or Licensing prior to June 1, 1998, the Warrant Exercise
<PAGE>
Price shall be the lower of (A) 80% of the average of the last sale price of the
Company's Common Stock for each of the 20 consecutive trading days immediately
preceding the issuance of this Warrant or (B) 80% of the average of the last
sale price of the Company's Common Stock for each of the 20 consecutive trading
days prior to June 1, 1998. The number of shares subject to this Warrant and the
per share prices to which reference is made in determining the Warrant Exercise
Price Warrant shall be proportionally adjusted to reflect any stock dividend or
any subdivision or combination of shares effected by the Company subsequent to
the date of issuance of this Warrant.
The shares which may be acquired upon exercise of this Warrant are
referred to herein as the "Warrant Shares." As used herein, the term "Holder"
means the Investor, any party who acquires all or a part of this Warrant as a
registered transferee of the Investor, or any record holder or holders of the
Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. The term "Common Stock" means and includes the Company's presently
authorized common stock, par value $.01 per share, and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of assets upon the
voluntary or involuntary liquidation, dissolution, or winding up of the Company.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise; Transferability.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant along
with a check in payment of the Warrant Exercise Price for such shares.
(b) This Warrant is transferable in whole or in part, subject to
applicable federal and state securities laws and regulations. This Warrant may
not be sold, transferred, assigned, hypothecated or divided into two or more
Warrants of smaller denominations, nor may any Warrant shares issued pursuant to
exercise of this Warrant be transferred, except as provided in Section 7 hereof.
2. Exchange and Replacement. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant. This
Warrant shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Company shall pay all expenses,
taxes (other than stock transfer taxes), and other charges payable in connection
with the preparation, execution, and delivery of Warrants pursuant to this
Section 2.
<PAGE>
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties, and agreements as may
be required solely to comply with the exemptions relied upon by the Company, or
the registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject to
adjustment as provided in this Section 5.
(a) After the determination of the initial Warrant Exercise Price, the
Warrant Exercise Price shall be adjusted from time to time such that in case the
Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification
or otherwise;
<PAGE>
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a
party or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale or
conveyance and in any such case, if necessary, appropriate adjustment shall be
made in the application of the provisions set forth in this Section with respect
to the rights and interests thereafter of any Holders of the Warrant, to the end
that the provisions set forth in this Section shall thereafter correspondingly
be made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this Subsection shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
<PAGE>
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel. If in the opinion of such counsel the proposed transfer may be effected
without registration or qualification (under any federal or state securities
laws), the Company, as promptly as practicable, shall notify the Holder of such
opinion, whereupon the Holder shall be entitled to transfer this Warrant or to
dispose of Warrant Shares received upon the previous exercise of this Warrant,
all in accordance with the terms of the notice delivered by the Holder to the
Company; provided that an appropriate legend may be endorsed on this Warrant or
the certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the opinion of the counsel referred to in this Section 7, the
proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares the Company shall promptly give written notice thereof to the Holder, and
the Holder will limit its activities in respect to such as, in the opinion of
such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means:
<PAGE>
(i) if the Company's Common Stock is traded on an exchange or is quoted
on the Nasdaq National Market, then the average closing or last sale
prices, respectively, reported for the ten (10) business days
immediately preceding exercise of the Warrant,
(ii) if the Company's Common Stock is not traded on an exchange or on
the Nasdaq National Market but is traded on the Nasdaq SmallCap Market
or other over-the-counter market, then the average closing bid and
asked prices reported for the ten (10) business days immediately
preceding the exercise of the Warrant, and
(iii) if the Company's Common Stock is not traded on an exchange, the
Nasdaq National Market, or the Nasdaq SmallCap Market or other
over-the-counter market, then the price established in good faith by
the Company's Board of Directors.
9. Registration Rights.
(a) If at any time after this Warrant becomes exercisable and prior to
the end of the one-year period following complete exercise of this Warrant or
__________________________, 2003, whichever occurs earlier, the Company proposes
to register under the 1933 Act (except by a Form S-4 or Form S-8 Registration
Statement or any successor forms thereto) or qualify for a public distribution
under Section 3(b) of the 1933 Act, any of its securities, it will give written
notice to all Holders of this Warrant, any Warrants issued pursuant to Section 2
and/or Section 3(a) hereof, and any Warrant Shares of its intention to do so
and, on the written request of any such Holder given within twenty (20) days
after receipt of any such notice (which request shall specify the interest in
this Warrant or the Warrant Shares intended to be sold or disposed of by such
Holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such Warrant
Shares, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement proposed to
be filed by the Company; provided, however, that if a greater number of Warrant
Shares is offered for participation in the proposed offering than in the
reasonable opinion of the managing underwriter of the proposed offering can be
accommodated without adversely affecting the proposed offering, then the amount
of Warrant Shares proposed to be offered by such Holders for registration, as
well as the number of securities of any other selling shareholders participating
in the registration, shall be proportionately reduced to a number deemed
satisfactory by the managing underwriter.
(b) Further, on a one-time basis only, provided Form S-3, or such
successor form as may be adopted, is available, during the term of this Warrant,
upon request by the Holder or Holders of a majority in interest of (i) this
Warrant, (ii) any Warrants issued pursuant to Section 2 and/or Section 3(a)
hereof (iii) any Warrants issued pursuant to the offering described in the
Memorandum, and (iv) any Warrant Shares underlying all such Warrants, the
Company will promptly take all necessary steps to register or qualify, under the
1933 Act and the securities laws of such states as the Holders may reasonably
request, such number of Warrant Shares issued and to be issued upon exercise all
of such Warrants requested by such Holders in their request to the Company. The
<PAGE>
Company shall keep effective and maintain any registration, qualification,
notification, or approval specified in this Paragraph (b) for such period as may
be reasonably necessary for such Holder or Holders of such Warrant Shares to
dispose thereof and from time to time shall amend or supplement the prospectus
used in connection therewith to the extent necessary in order to comply with
applicable law. Notwithstanding the foregoing, if in the reasonable opinion of
the managing underwriter of any proposed financing by the Company a registration
of the Warrant Shares pursuant to this Paragraph (b) would adversely affect the
proposed financing, then the Company shall not be obligated to register any
portion of the Warrant Shares until such time as the managing underwriter deems
it would no longer adversely impact the proposed financing.
(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders;
(d) The Company hereby indemnifies each of the Holders of this Warrant
and of any Warrant Shares, and the officers and directors, if any, who control
such Holders, within the meaning of Section 15 of the 1933 Act, against all
losses, claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading except insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages or liabilities which are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Holder expressly for use therein.
IN WITNESS WHEREOF, Quantech Ltd. has caused this Warrant to be signed by
its duly authorized officer and this Warrant to be dated ______________________,
1997.
"Company"
Quantech Ltd.
By_________________________________
Gregory G. Freitag, Chief Financial Officer
and Chief Operating Officer
<PAGE>
To: Quantech Ltd.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder
- ----------------------------- in Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
------------------------------------------------
(Print Name)
Please insert social security
or other identifying number
of registered holder of
certificate (______________) Address:
------------------------------------------------
------------------------------------------------
Date: _________, 19 ________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers unto
______________________________________________ the right to purchase the
securities of Quantech Ltd. to which the within Warrant relates and appoints
____________________, attorney, to transfer said right on the books of Quantech
Ltd. with full power of substitution in the premises.
Dated:___________ _________________________________________
(Signature)
Address:
------------------------------------------
------------------------------------------
<PAGE>
DATES AND AMOUNTS OF COMMON STOCK PURCHASE WARRANTS
ISSUED TO AFFILIATES OF REGISTRANT
NUMBER
AFFILIATE DATE OF ISSUE OF SHARES
Gregory G. Freitag June 3, 1997 30,000
James F. Lyons June 3, 1997 75,000
Edward E. Strickland June 3, 1997 75,000
Strickland Family Limited Partnership June 3, 1997 75,000
Robert Case June 30, 1997 150,000
Amendment to License Agreement
This Amendment to License Agreement, dated as of ____ October 1997, is by
and among Applied Research Systems ARS Holding N.V. ("ARS"); Laboratoires Serono
S.A. ("LSA"), the successor in interest to Serono Diagnostic S.A. ("Diagnostic")
(ARS, LSA and any successor thereof being collectively referred to as the
"Serono Companies") and Quantech Ltd. ("Quantech"), the successor in interest to
Spectrum Diagnostics, S.p.A. ("Spectrum").
RECITALS:
A. The Serono Companies and Quantech are parties to the License, Sublicense
and Purchase Agreement dated November 7th, 1991, attached as Exhibit A (the
"License Agreement").
B. Section 2 (a) (i) of the License Agreement reserves from the scope of the
license granted to Spectrum thereunder, among other reservations, a right
to develop and commercialize the SPR technology for the development of
products to be marketed in the name of the Serono Companies and/or Serono
Affiliates (the "SPR License Reservation").
C. Section 2 (d) of the License Agreement sets forth a series of benchmarks of
aggregate payments (the "Minimum Royalties") and Section 4(b) of the
License Agreement sets forth sublicense, assignment and transfer royalties
(the "Transfer Royalties").
D. Section 2 (e) of the License Agreement grants the Serono Companies and
Serono Affiliates the right to demand a royalty-free right to use any
technology Spectrum has developed with respect to SPR (the "Grant Back
License"), subject to certain reservations.
E. Upon an Event of Default, Section 10 of the License Agreement (the "Default
Provision") provides that the license rights granted to Spectrum shall
terminate and revert back to the Serono Companies.
F. The Serono Companies and Quantech wish to amend and restate the License
Agreement as it concerns the SPR License Reservation, the Minimum
Royalties, the Transfer Royalties, the Grant Back License, and the Default
Provision.
In consideration of the agreements contained herein and other good and valuable
consideration, the sufficiency of which is hereby acknowledged, the parties
agree as follows:
1. Definitions. All of the defined terms in the License Agreement shall have
the same meanings in this Amendment to License Agreement.
<PAGE>
2. SPR License Reservation. Upon Payment to the Serono Companies pursuant to
Section 2(d) of the License Agreement of Minimum Royalties of at least
$1,000,000 in the aggregate by December 31, 1997, the Serono Companies, on
behalf of themselves and the Serono Affiliates, shall waive all of their
rights under the SPR License Reservation.
3. Minimum Royalties. Section 2 (d) of the License Agreement shall be amended
to read as follows:
(d) Minimum Royalty: Notwithstanding anything stated in this Agreement
to the contrary, in the event that the royalty payments actually paid to
the Serono Companies by Spectrum and/or any Third Party Transferee pursuant
to Section 4 of this Agreement do not equal the following amounts: (a) at
least $500,000 in the aggregate by December 31, 1993; (b) at least $850,000
in the aggregate by December 31, 1995; (c) at least $1,000,00 in the
aggregate by December 31, 1997; (d) at least $1,150,00 in the aggregate by
December 31, 1998; and (e) at least $1,300,000 in the aggregate by December
31, 1999, then each time one of the first three of such benchmarks is not
met, the cumulative royalties to be paid to the Serono Companies pursuant
to Section 4(d) hereof shall be increased by two million ($2,000,000)
dollars so that if all three initial benchmarks are not met, the cumulative
royalties payable to the Serono Companies pursuant to Section 4(d) hereof
shall be increased from eighteen million ($18,000,000) dollars to
twenty-four million ($24,000,000) dollars. Also if any one of the first
three of such benchmarks is not met the restrictions on the Serono
Companies pursuant to Section 2(a)(i) hereof that provide only the Serono
Companies and/or Serono Affiliates shall be allowed to market products
developed pursuant to the retention of the right to develop and
commercialize SPR shall lapse. If Spectrum shall receive any lump sum
payment from any Third Party Transferee under a Transfer Agreement prior to
December 31, 1999, then Spectrum shall accelerate payment of the minimum
royalties set forth in this Section 2(d) by paying up to twenty percent
(20%) of such lump sum payment to the Serono Companies. It is expressly
understood that such lump sum payments do not give rise to any additional
royalty obligations than would otherwise be payable to the Serono Companies
under Section 4(b) and shall not increase any aggregate minimum royalties
payable under this Section 2(d).
4. Section 4(b)(B) of the License Agreement shall be restated to read as
follows:
(B) Commencing on July 2, 1996, each Third Party Transferee shall pay
Third Party Royalties to Diagnostic equal to the 15% Royalties. The
obligation of Spectrum and any subsequent Third Party Transferees to pay
<PAGE>
Third Party Royalties to the Serono Companies shall terminate only in
accordance with subparagraph 4(d) below.
5. Grant Back License. Section 2(e) of the License Agreement shall be amended
to read as follows:
(e) Spectrum Obligation to provide technology: Upon termination of
this Agreement under Section 10 below, the Serono Companies shall be
entitled to a royalty-free license to make, use and sell whatever
technology Spectrum has developed with respect to SPR, provided that such
license shall be subject to the terms and conditions of any Preferred
Transfer Agreement (as that term is defined in Section 6 of the Amendment
to License Agreement) which is in force and effect at the time of such
termination of this Agreement. This royalty-free license shall not extend
to any technology and/or data and/or patents which Spectrum developed with
a third party and with respect to which the third party retained a
proprietary right.
6. Default Provision. Upon an Event of Default under the Default Provision,
any sublicense granted by Quantech to a Preferred Third Party Transferee
under a Preferred Transfer Agreement prior to the Event of Default shall
survive termination of the license and sublicense rights in the Licensed
SPR Technology granted to Spectrum and reversion of such license and
sublicense rights to the Serono Companies under the Default Provision,
and such Preferred Transfer Agreement shall continue in full force and
effect under its own terms and conditions. For purposes of this
Section 6, a "Preferred Third Party Transferee" shall be any third
party which had assets of $100 million or more at the end of the third
party's fiscal year immediately preceding the execution of such
Transfer Agreement. For purposes of this Section 6, a "Preferred
Transfer Agreement" shall be any Transfer Agreement with a Preferred
Third Party Transferee which is approved by LSA, which approval will not
be unreasonably withheld.
7. Execution in Counterparts. This Amendment to License Agreement may be
executed in one or more counterparts, all of which shall be considered
one and the same agreement, and shall become a binding agreement when
one or more counterparts have been signed by each party and delivered
to the other party.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered this
Amendment to License Agreement as of the date first above written.
APPLIED RESEARCH SYSTEMS LABORATOIRES SERONO S.A.
ARS HOLDING N.V.
___________________________ ___________________________
By_________________________ By_________________________
Its________________________ Its________________________
QUANTECH LTD.
___________________________
By Gregory G. Freitag
Its COO and CFO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS CONTAINED IN THE REGISTRANT'S FORM
10-QSB FOR THE QUARTER ENDED 9/30/97 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 187,154
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 287,038
<PP&E> 346,133
<DEPRECIATION> 154,870
<TOTAL-ASSETS> 3,468,109
<CURRENT-LIABILITIES> 1,988,232
<BONDS> 0
0
0
<COMMON> 510,408
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</TABLE>
