<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
Commission file number 000-19720
ABAXIS, INC.
(Exact name of registrant as specified in its charter)
California 77-0213001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization ) Identification No.)
1320 Chesapeake Terrace
Sunnyvale, California 94089
(Address of principal executive offices)
Telephone: (408) 734-0200
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by
Section 13 or 15(d) Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter
period that the registrant was required to file such
reports), Yes X No
----- -------
and
(2) has been subject to such filing requirements for the
90 days. Yes X No
----- ------
At August 11, 1997, 11,886,153 shares of common stock, no par value, were
outstanding.
This report on Form 10-Q, including all exhibits, contains 74 pages.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
---- ----
<S> <C> <C> <C>
Facing Sheet.................................................................................. 1
Table of Contents............................................................................. 2
Part I. Financial Information
Item 1. Financial Statements:
Condensed Statements of Operations -
Three Months Ended June 30, 1997 and 1996................................ 3
Condensed Balance Sheets - June 30, 1997 and March 31,1997.................. 4
Condensed Statements of Cash Flows -
Three Months Ended June 30, 1997 and 1996............................... 5
Notes to Condensed Financial Statements..................................... 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................... 7
Part II. Other Information
Item 2. Changes in Securities....................................................... 11
Item 6. Exhibits and Reports on Form 8-K............................................ 11
Signatures.................................................................. 12
</TABLE>
2
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PART 1-FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ABAXIS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
-----------------------------------
<S> <C> <C>
Revenues:
Product sales $ 2,680,000 $ 1,104,000
Development and licensing revenue 73,000 107,000
------------- ------------
Total revenues 2,753,000 1,211,000
------------- ------------
Costs and operating expenses:
Cost of product sales 2,595,000 1,822,000
Research and development 375,000 391,000
Selling, general, and administrative 1,216,000 1,261,000
------------- ------------
Total costs and operating expenses 4,186,000 3,474,000
------------- ------------
Loss from operations (1,433,000) (2,263,000)
Interest income, net 58,000 92,000
Other income (expense) (1,000) --
------------- ------------
Net loss $ (1,376,000) $ (2,171,000)
============= ============
Net loss per share $ (0.12) $ (0.22)
------------- ------------
============= ============
Weighted average common shares 11,886,153 9,868,516
============= ============
</TABLE>
See notes to condensed financial statements.
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ABAXIS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
------------------------------------
(unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,161,000 $ 1,436,000
Short-term investments 4,583,000 3,885,000
Trade and other receivables 1,659,000 1,690,000
Interest receivable 44,000 80,000
Inventories 1,595,000 2,218,000
Prepaid expenses 142,000 135,000
------------- --------------
Total current assets 9,184,000 9,444,000
Property and equipment - net 2,415,000 2,453,000
Deposits and other assets 89,000 80,000
------------- --------------
Total assets $ 11,688,000 $ 11,977,000
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 948,000 $ 695,000
Accrued payroll and related expenses 635,000 604,000
Other accrued liabilities 766,000 578,000
Warranty reserve 552,000 495,000
Deferred revenue 255,000 247,000
Note payable 200,000 --
------------- --------------
Total current liabilities 3,356,000 2,619,000
------------- --------------
Long term liabilities--
Note payable 350,000 --
Shareholders' equity:
Common stock, no par value: 35,000,000 authorized;
11,886,153 issued and outstanding on June 30, 1997
and March 31, 1997 58,403,000 58,403,000
Accumulated deficit (50,421,000) (49,045,000)
------------- --------------
Total shareholders' equity 7,982,000 9,358,000
------------- --------------
Total liabilities and shareholders' equity $ 11,688,000 $ 11,977,000
============= =============
</TABLE>
See notes to condensed financial statements.
4
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ABAXIS, INC
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30,
1997 1996
-----------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss $ (1,376,000) $ (2,171,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 206,000 240,000
Changes in assets and liabilities:
Trade and other receivables 31,000 (333,000)
Interest receivable 36,000 (17,000)
Inventories 623,000 (105,000)
Prepaid expenses (7,000) 24,000
Deposits and other assets (9,000) (5,000)
Accounts payable 253,000 64,000
Accrued payroll and related expenses 31,000 (64,000)
Other accrued liabilities 245,000 66,000
Deferred revenue 8,000 (76,000)
Customer deposits -- (5,000)
------------- --------------
Net cash provided by (used in) operating activities 41,000 (2,382,000)
------------- --------------
INVESTING ACTIVITIES:
Purchase of available-for-sale securities (3,698,000) (1,486,000)
Maturities of available-for-sale securities 3,000,000 4,610,000
Purchase of property and equipment (168,000) (302,000)
------------- --------------
Net cash provided by (used in) investing activities (866,000) 2,822,000
------------- --------------
FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 68,000
Net proceeds from equipment financing 550,000 --
------------- --------------
Net cash provided by financing activities 550,000 68,000
------------- --------------
Increase (decrease) in cash and cash equivalents (275,000) 508,000
Cash and cash equivalents at beginning of period 1,436,000 1,591,000
------------- --------------
Cash and cash equivalents at end of period $ 1,161,000 $ 2,099,000
============= ==============
Supplemental disclosures of cash flow information:
Interest paid $ 9,000 $ --
</TABLE>
See notes to condensed financial statements.
5
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ABAXIS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The condensed financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations, although the Company believes the disclosures which are made are
adequate such that the information presented is not misleading. These condensed
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's Annual Report to Stockholders for
the fiscal year ended March 31, 1997.
The unaudited condensed financial statements included herein reflect all
adjustments (consisting only of normal recurring adjustments) which are, in the
opinion of management, necessary to state fairly the results for the periods
presented. The results for such periods are not necessarily indicative of the
results to be expected for the entire fiscal year ending March 31, 1998.
2. INVENTORY
Inventories are stated at the lower of cost (first-in, first-out) or market and
consist of the following:
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1997
<S> <C> <C>
Raw materials $ 695,000 $1,235,000
Work-in-process 457,000 723,000
Finished goods 443,000 260,000
-------------- --------------
$1,595,000 $2,218,000
============== ===============
</TABLE>
3. PER SHARE INFORMATION
Per share information for the three-months ended June 30, 1997 and 1996 is based
solely on weighted average shares of common stock outstanding during the period.
Common share equivalents have not been considered in the computation since their
inclusion would have an antidilutive effect.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
This Management's Discussion and Analysis of Financial Condition and Results of
Operations include a number of forward-looking statements which reflect the
Company's current views with respect to future events and financial performance.
These forward-looking statements are subject to certain risks and uncertainties,
including but not limited to, those discussed below that could cause actual
results to differ materially from historical results or those anticipated. Such
risks and uncertainties include market acceptance of the Company's products and
continuing development of its products, including required Federal Drug
Administration ("FDA") clearance and other government approvals, risks
associated with manufacturing and distributing products on a commercial scale,
including complying with Federal and State food and drug regulations and general
market conditions and competition. In this report, the words "anticipates",
"believes", expects", "future", "intends", and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date hereof.
Abaxis develops, manufactures and markets portable blood analysis systems for
use in any patient-care setting to provide clinicians with rapid blood
constituent measurements. The Company's products consist of a compact 6.9
kilogram analyzer and a series of single-use plastic disks called reagent discs
that contain all the chemicals required to perform a panel of up to 12 tests.
The system can be operated with minimal training and performs multiple routine
tests on whole blood using either venous or fingerstick samples. The system
provides test results in less than 15 minutes with the precision and accuracy
equivalent to a clinical laboratory. The Company currently markets this system
for veterinary use under the name VetScan(R) and in the human market under the
name Piccolo(R).
During the quarter ended June 30, 1997, the Company achieved record results in
terms of revenues and unit sales. A total of 249 Point-of-Care Blood Analyzers
were placed worldwide, of which 203 were VetScan systems and 46 were Piccolo
systems. The Company's product sales in the US accounted for 73% of its total
revenues, international sales accounted for 26% and Orbos contract revenue
accounted for the remaining 1%. Seventy-five percent (75%) of the sales in the
US were to the veterinary market and 25% were to the human medical market. Sales
to the US Navy and Marines pursuant to a contract completed in March 1997
totaled 45 Piccolo systems which accounted for essentially all of the US human
medical market sales. The US Navy has ordered an additional 88 Piccolo systems
which are scheduled for delivery during the second quarter of fiscal 1998. Sales
to VetSmart, a national veterinary chain, pursuant to an agreement signed in
March 1997 represented 30% of the sales in the US veterinary market while the
balance represented new analyzer placements to individual clinics as well as
continuing reagent sales to existing customers. Internationally, sales to Japan
constituted 68% of the total international shipments during the quarter ended
June 30, 1997. Of the total Japanese revenue, 82% was for veterinary
applications, including 58 VetScan systems, ordered in preparation for the
VetScan product launch in Japan during the second quarter of fiscal 1998. In
July 1997, upon receipt of the approval from the Japanese Ministry of
Agriculture, Forestry and Fishery ("Nosuisho") to permit sales of VetScan
systems to approximately 6,000 veterinary practices in Japan, the Company
received orders for 100 additional VetScan systems from its Japanese
distributors. There can be no assurance that the Company will receive additional
orders beyond the terms of current purchase orders.
Since the Company began shipments of the Point-of-Care Blood Analyzer through
June 30, 1997, the Company has placed a total of 1,365 Point-of-Care Blood
Analyzers worldwide of which 1,067 were VetScan systems and 298 were Piccolo
systems. In the United States the Company has placed 827 VetScan systems and 91
Piccolo systems. Internationally, the Company has placed 240 VetScan systems and
207 Piccolo systems.
Reagent disc shipments for the quarter ended June 30, 1997 were 101,000 discs, a
Company quarterly shipping record. Eighty-seven percent (87%) of the reagent
disc shipments were for veterinary applications. The increase in reagent disc
shipments is consistent with the Company's belief that there will be recurring
reagent disc revenue as the Company's
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product lines mature. This growth is mostly attributable to the expanded
installed base of VetScan systems and higher consumption rates of institutional
users. There can be no assurance this growth will continue.
The Company continues to develop new products that will provide further
opportunities for market penetration. The Company currently is in a feasibility
phase to develop four electrolyte test methods: bicarbonate, chloride, potassium
and sodium. The feasibility phase to develop these four tests methods is
expected to be completed by the end of the second quarter of fiscal 1998. If the
results are favorable, the Company will proceed with developing these tests into
marketable products for both the human and the veterinary markets. For the human
market, the Company plans on incorporating these tests into new panels
consistent with the codes in the 1998 version of the Current Procedures
Terminology manual published by the American Medical Association. The fixed-test
panels are: electrolytes, comprehensive metabolic, hepatic function, and basic
metabolic. The Company has all the tests for the hepatic function panel, and
will have all required tests for the additional three panels with the successful
development of the four electrolyte tests.
In June 1997, the Company introduced to the market a new reagent disc product
specially designed for the veterinary market, the Equine Profile. The test
methods contained in the Equine Profile are useful for providing indications of
the health condition of horses, particularly in the areas of hepatic dysfunction
and muscle damage. This new product enables the Company to offer the VetScan
system to approximately 11,000 equine practitioners in the United States where
portability and ease-of-use are important features for these practices. The
Company completed development of a new test method, creatine kinase (CK) during
fiscal 1997 which allowed for completion of the Equine Profile product. This
method will be entered into clinical trials during fiscal 1998 for inclusion in
new reagent disc products for the human medical market.
While the Company believes that its technology will allow it to develop reagent
disc products in the future to provide a variety of additional blood tests,
there can be no assurance that such future products will be developed, that such
products will receive required regulatory clearance, or that the Company will be
able to manufacture or market such products successfully.
In addition to investing its own resources in expanding the test menu, the
Company signed a letter of intent with Teramecs Co., Ltd. and Daiichi Pure
Chemicals Co., Ltd. in April 1997 to jointly develop additional test methods for
use on the Piccolo analyzer. The product development collaboration will focus on
commercializing targeted methods for lipids, proteins, and enzymes. The Company
expects to sign a definitive agreement during the second quarter of fiscal 1998.
There can be no assurance that the Company will be able to develop these new
test methods, or if the test methods were developed, be able to successfully
market these methods.
In order to fund the development and operating activities planned for fiscal
1998, the Company completed a private placement of convertible preferred stock
in July 1997 with net proceeds to the Company of approximately $2,750,000. In
May 1997, the Company also completed an equipment lease line of credit for $2
million to fund a new automated reagent disc assembly line as well as other
equipment needs. See "Liquidity" for further discussion.
Sales for any future periods are not predictable with a significant degree of
certainty. The Company generally operates with limited order backlog because its
products typically are shipped shortly after orders are received. As a result,
product sales in any quarter are generally dependent on orders booked and
shipped in that quarter. The Company's expense levels, which are to a large
extent fixed, are based in part on its expectations as to future revenues.
Accordingly the Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. As a result, any such shortfall
would have an immediate materially adverse impact on the Company's operating
results and financial condition. Until sales volume of the Company's products,
particularly its reagent discs, increase significantly so as to offset
associated fixed costs and to realize certain manufacturing economies of scale,
sales of the Company's products will result in further losses and adversely
affect the Company's results of operations and financial condition. The Company
believes that period to period comparisons of its results of operations are not
necessarily meaningful.
The Company's periodic operating results have in the past varied and in the
future may vary significantly depending on, but not limited to a number of
factors, including the level of competition; the size and timing of sales
orders; market acceptance of the current and new products; new product
announcements by the Company or its competitors; changes in pricing by the
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Company or its competitors; the ability of the Company to develop, introduce and
market new products on a timely basis; component costs and supply constraints;
manufacturing capacities and ability to scale up production; the mix of product
sales between the analyzers and the reagent discs; mix in sales channels; levels
of expenditure on research and development; changes in Company strategy;
personnel changes; regulatory changes; and general economic trends.
The Company continues to explore the application of its proprietary technology
used to produce the dry reagents used in the reagent discs, called the Orbos(R)
Discrete Lypholization Process, to other companies' products. This process
allows the production of an accurate, precise amount of active chemical
ingredients in the form of a soluble bead. The Company believes that the Orbos
process has broad applications in products where delivery of active ingredients
in a stable, pre-metered format is desired. The Company has contracts with
Becton Dickinson Immunocytometry Systems and Pharmacia Biotech, Inc. to either
supply products or license Orbos technology. The Company is currently working
with another company to determine potential suitability of the Orbos technology
to this company's product. As resources permit, the Company will pursue other
development, licensing or manufacturing agreement opportunities for its Orbos
technology with other companies. There can be no assurances, however, that other
applications will be identified or that additional agreements with the Company
will result.
RESULTS OF OPERATIONS
REVENUE
During the three-month period ended June 30, 1997, the Company reported total
revenues of approximately $2,753,000 ($2,680,000 in product revenue and $73,000
in Orbos contract revenue), a $1,542,000 or 127% increase as compared to net
revenue of approximately $1,211,000 ($1,104,000 in product revenue and $107,000
in Orbos contract revenue) for the same period in fiscal 1997. The increase in
revenue for the quarter ended June 30, 1997 compared to the quarter ended June
30, 1996 was due to increased unit sales of VetScan systems in the US, direct
sales of Piccolo systems to the US military which yields higher net revenues
compared to distributor sales of VetScan systems, and new and repeat reagent
disc sales in the domestic and international markets. Revenues from Orbos
contracts are primarily dependent upon sales of products using the Orbos
technology by other parties, which is out of the control of the Company and,
therefore, may vary significantly from quarter to quarter.
COST OF PRODUCT SALES
Cost of product sales during the quarter ended June 30, 1997, was approximately
$2,595,000, or 94% of total revenues, as compared to approximately $1,822,000,
or 150% of total revenues for the quarter ended June 30, 1996. The increase in
cost of product sales was primarily a function of the increase in sales volume,
partially offset by higher efficiency resulting from better standardized
manufacturing processes.
RESEARCH AND DEVELOPMENT
Research and development expenses during the first quarter of fiscal 1998 were
approximately $375,000, or 14% of total revenues. First quarter fiscal 1998
expenses decreased $16,000 or 4% from research and development expenses of
approximately $391,000 or 32% of total revenues for the same period in fiscal
1997. The decrease is mainly the result of the reallocation of a portion of the
development resources to support product manufacturing activities. The Company
expects research and development expenses to increase as the Company undertakes
development of new test methods to expand its test menus as well as other
development projects.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses totaled approximately $1,216,000 or
44% of total revenues for the three-month period ended June 30, 1997. This is a
$45,000 or 4% decrease from selling, general and administrative expenses of
approximately $1,261,000 or 104% of total revenues for the three-month period
ending June 30, 1996. This quarter to
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quarter decrease is the result of the Company's cost containment efforts. The
Company expects selling, general and administrative expenses to remain at
comparable levels for the remainder of fiscal 1998.
NET INTEREST INCOME
Net interest income totaled approximately $58,000 or 2% of total revenues for
the quarter ended June 30, 1997, compared to $92,000 or 8% of total revenues in
the comparable quarter of fiscal 1997. The decrease in interest was primarily
the result of decreased investment levels. The Company incurred interest expense
related to payments on an equipment loan of approximately $9,000 during the
period ended June 30, 1997. The Company incurred no interest expense during the
period ended June 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company had approximately $1,161,000 in cash and cash
equivalents and $4,583,000 in short-term investments, for total cash and
investment resources of $5,744,000. The Company expects to incur substantial
additional costs to support its future operations, including further
commercialization of its products and development of new test methods that will
allow the Company to further penetrate the human diagnostic market; acquisition
of capital equipment for the Company's manufacturing facilities, which includes
the ongoing development and implementation of an automated manufacturing line to
provide capacity for commercial volumes; costs related to continuing development
of its current and future products; and additional pre-clinical testing and
clinical trials for its current and future products. The Company is currently
contracting with a vendor to build an automated disc assembly line to provide
anticipated capacity for future demand and to improve production efficiency. The
Company estimates the cost of this new assembly line will be approximately
$1,500,000 of which approximately $973,000 was paid through June 30, 1997. The
Company expects to pay the balance upon acceptance of the equipment. In April
1997, in anticipation of taking delivery of the automated assembly line, the
Company arranged for an equipment financing loan of up to $2,000,000, with 36
monthly payments, and a final balloon payment equal to 10% of the original
principal amount. The equipment financing loan is collateralized by the
Company's equipment and bears interest at approximately 16%. As of June 30,
1997, the Company has drawn $600,000 against this equipment financing loan.
Additional manufacturing equipment will also need to be added during fiscal 1998
to provide sufficient production capabilities. Additionally, inventories and
receivables related to the commercialization of the VetScan and Piccolo systems
could increase significantly in future periods, which would require significant
capital resources.
Net cash provided by operating activities during the three months ended June 30,
1997 was approximately $41,000 compared to net cash used of approximately
$2,382,000 for the same period ended June 30, 1996. The decrease in net cash
used in operating activities was due to decreases in receivables and inventories
and increases in accounts payable, accrued payroll and other accrued liabilities
offset by net loss. Net inventories at the end of fiscal 1997 were somewhat
higher than normal in anticipation of shipping requirements for the Navy and
VetSmart orders scheduled for shipment in April 1997. The Company was able to
decrease net inventory by $623,000 during the quarter. Changes in accrued
liabilities were mainly due to an accrual of executive officer severance
payments.
Net cash used in investing activities during the three months ended June 30,1997
was approximately $866,000, compared to approximately $2,822,000 provided by
investing activities during the three months ended June 30, 1996. The change
from net cash provided by investing activities in the three months ended June
30, 1996 to net cash used in investing activities in the three months ended June
30, 1997 was primarily the result of a decrease in maturities and sales of
short-term investments, offset by an increase in purchases of short-term
investments.
Net cash provided by financing activities for the three month period ended June
30, 1997 was approximately $550,000 compared to approximately $68,000 for the
same period in fiscal 1997. The increase in net cash provided by financing
activities in fiscal 1998 is due to the net proceeds received from an equipment
financing loan. The cash provided by financing activities in fiscal 1997 was
from employee stock option exercises.
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On July 18, 1997, the Company issued 3,000 shares of Series B Convertible
Preferred Stock at a price per share of $1,000 to two institutional investors,
with net proceeds to the Company of approximately $2,750,000. The convertible
preferred stock may be converted into common stock at the lesser of either the
five-day average market price at closing or at a fixed discount to the then
market price. The Company will be registering the underlying common stock for
resale by these investors.
The Company anticipates that its existing capital resources, equipment financing
loan and anticipated revenue from the sales of its products will be adequate to
satisfy its currently planned operating and financial requirements through
fiscal 1998. The Company's future capital requirements will largely depend upon
the increased market acceptance of its Point-of-Care Blood Analyzer products. To
the extent that existing resources and anticipated revenue from the sale of the
Piccolo and VetScan systems are insufficient to fund the Company's activities,
additional funds will be required to be raised from the issuance of public or
private securities. In the event that the Company is unsuccessful in raising
additional funding, the Company will have to significantly reduce its operating
expenses, which could have a material adverse impact on the Company's ability to
develop, manufacture and market products, and hence the Company's results of
operations. There can be no assurance that any financing will be available, or
if available, be available at terms acceptable to the Company.
PART II-OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On July 18, 1997, pursuant to a Securities Purchase Agreement among the Company,
RGC International Investors LDC and Advantage Fund Ltd., each of which is an
accredited investor as defined in Regulation D to the best knowledge of the
Company, the Company issued 3,000 shares of Series B Convertible Preferred Stock
at a price per share of $1,000, with net proceeds to the Company of
approximately $2,750,000. The shares were sold in this transaction under Rule
506 and/or Section 4 (2) of the Securities and Exchange Act of 1933, as amended,
have not been registered with the Securities and Exchange Commission and carry a
restrictive legend. The Series B Preferred Stock is convertible to common stock
on or before July 18, 2002 at the lesser of the average closing bid price of the
common stock for the five trading days prior to July 18, 1997, $2.7125, or 80%
of the average closing bid prices for the five trading days prior to the
conversion date. The Company and the investors have entered into a Registration
Rights Agreement of the same date providing for the registration of the Common
Stock on or prior to November 1, 1997.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits included herein (numbered in accordance with Item 601 of Regulation
S-K)
<TABLE>
<CAPTION>
Exhibit Number Description
--------------------- ------------------------------------------------
<S> <C>
3.3 Certificate of Determination
10.23 Registration Rights Agreement dated July 18,
1997 between the Company and certain
shareholders
10.24 Securities Purchase Agreement dated July 18,
1997 between the Company and certain
shareholders
27.0 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None
11
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SIGNATURE
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.
ABAXIS, INC.
August 14, 1997 by: /s/Clinton H. Severson
- ------------------------ ------------------------------------
Date Clinton H. Severson
President and Chief Executive Officer
(Principal Executive Officer)
August 14, 1997 by: /s/ Ting W. Lu
- ------------------------ ------------------------------------
Date Ting W. Lu
Vice President of Finance & Administration
and Chief Financial Officer
(Principal Financial and Accounting Officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
- ------- --------
<S> <C>
3.3 Certificate of Determination
10.23 Registration Rights Agreement dated July 18, 1997
between the Company and certain shareholders
10.24 Securities Purchase Agreement dated July 18, 1997
between the Company and certain shareholders
27.0 Financial Data Schedule
</TABLE>
<PAGE> 1
CERTIFICATE OF DETERMINATION OF RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS
OF
SERIES B CONVERTIBLE PREFERRED STOCK
OF
ABAXIS, INC.
(Pursuant to Section 401 of the
California General Corporation Law)
Clinton H Severson and Ting W. Lu certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of said Corporation.
2. Pursuant to authority by said Corporation's Articles of Incorporation,
the Board of Directors of said Corporation (the "Board of Directors" or the
"Board") has duly adopted the following recital and resolution:
WHEREAS, the Articles of Incorporation of the Corporation provide for
a class of its authorized shares known as Preferred Stock, comprising Five
Million (5,000,000) shares issuable from time to time in one or more series;
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation in accordance with the provisions of its
Articles of Incorporation, the Board of Directors hereby authorizes a series of
the Corporation's previously authorized Preferred Stock, no par value (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges, power and restrictions
thereof as follows:
Series B Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of 3,000 shares
of Preferred Stock, is Series B Convertible Preferred Stock, no par value (the
"Series B Preferred Stock").
II. Rank
The Series B Preferred Stock shall rank (i) prior to the
Corporations common stock, no par value per share ("Common Stock"); (ii) prior
to any class or series of capital stock of the Corporation hereafter created
(unless, with the consent of the holders of Series B Preferred Stock
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obtained in accordance with Article IX hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
B Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series B Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series B Preferred Stock ("Pari Passu Securities");
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series B Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series B Preferred Stock ("Senior Securities"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
III. Dividends
The Series B Preferred Stock shall not bear any dividends. In
no event, so long as any Series B Preferred Stock shall remain outstanding,
shall any dividend whatsoever be declared or paid upon, nor shall any
distribution be made upon, any Junior Securities (other than a distribution of
Junior Securities), nor shall any shares of Junior Securities be purchased or
redeemed by the Corporation nor shall any moneys be paid to or made available
for a sinking fund for the purchase or redemption of any Junior Securities,
without, in each such case, the written consent of the holders of a majority of
the outstanding shares of Series B Preferred Stock, voting together as a class,
provided, however, that Common Stock may be repurchased from consultants,
employees, officers and directors of the Corporation pursuant to written
compensatory agreements approved by a majority of the disinterested members of
the Board of Directors of the Corporation.
IV. Liquidation Preference
A. If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or State bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of sixty (60) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series B Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined
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in Article IV.C) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series B Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate liquidation preference payable on all such shares.
B. At the option of any holder of Series B Preferred Stock, a
consolidation or merger of the Corporation with or into any Person (as defined
below) or Persons (other than with or into a wholly-owned subsidiary solely for
the purpose of reincorporation as a publicly traded corporation in a new
jurisdiction), or the sale, transfer or other disposition of all or
substantially all of the assets of the Corporation or the consummation of any
transaction or series of transactions which results in the Corporation's
shareholders immediately prior to such transaction not holding at least fifty
percent (50%) of the voting power of the surviving entity or continuing entity
(each, a "Specified Transaction") shall either: (i) be deemed to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute an amount equal to 125% of the
Liquidation Preference with respect to each outstanding share of Series B
Preferred Stock in accordance with and subject to the terms of this Article IV
or (ii) be treated pursuant to Article VI.C(c) hereof. "Person" shall mean any
individual, corporation, limited liability company, partnership, association,
trust or other entity or organization.
C. For purposes hereof, the "Liquidation Preference" with respect
to a share of the Series B Preferred Stock shall mean an amount equal to the sum
of (i) $1,000, the purchase price paid for the initial share of Series B
Preferred Stock issued by the Corporation (the "Per Share Purchase Price") on
the date of the initial issuance thereof (the "Issue Date") plus (ii) an amount
equal to five percent (5%) per annum of the Per Share Purchase Price (the
"Accretion Amount") for the period beginning on the Issue Date and ending on the
earlier of (i) the date of final distribution to the holder thereof and (ii) the
date the Accretion Amount stops accruing in accordance with the last sentence of
this Article IV.C (pro rated for any portion of such period). In the event that
the closing bid price of the Common Stock on Nasdaq, or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded (in each case, as reported by Bloomberg, L.P. ("Bloomberg")), is
greater than (i) 160% of the Fixed Conversion Price (as defined herein) for five
(5) consecutive Trading Days (as defined herein) at any time after the first
anniversary of the Issue Date or (ii) 100% of the Fixed Conversion Price for
five (5) consecutive Trading Days at any time after the second anniversary of
the Issue Date, then the Accretion Amount will cease to accrue on the last day
of any such five (5) consecutive Trading Day period (each of the conditions in
(i) and (ii) are referred to herein as a "Target Price").
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V. Redemption
A. If any of the following events (each, a "Mandatory Redemption
Event") shall occur:
(i) The Corporation fails to issue shares of Common Stock
to the holders of Series B Preferred Stock upon exercise by the holders of their
conversion rights in accordance with the terms of this Certificate of
Determination (for a period of at least sixty (60) days if such failure is
solely as a result of the circumstances governed by the second paragraph of
Article VI.F below and the Corporation is using all commercially reasonable
efforts to authorize a sufficient number of shares of Common Stock as soon as
practicable), fails to transfer or to cause its transfer agent to transfer any
certificate for shares of Common Stock issued to the holders upon conversion of
the Series B Preferred Stock as and when required by this Certificate of
Determination or the Registration Rights Agreement, dated as of the Issue Date,
by and among the Corporation and the other signatories thereto (the
"Registration Rights Agreement"), fails to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series B
Preferred Stock upon conversion of the Series B Preferred Stock as and when
required by this Certificate of Determination, the Securities Purchase Agreement
dated as of the Issue Date, by and between the Corporation and the other
signatories thereto (the "Purchase Agreement") or the Registration Rights
Agreement, and any such failure shall continue uncured (or any announcement not
to honor its obligations shall not be rescinded) for ten (10) business days;
(ii) The Corporation fails to obtain effectiveness with
the Securities and Exchange Commission (the "SEC") of the Registration Statement
(as defined in the Registration Rights Agreement) prior to November 30, 1997 or
such Registration Statement lapses in effect (or sales otherwise cannot be made
thereunder, whether by reason of the Company's failure to amend or supplement
the prospectus included therein in accordance with the Registration Rights
Agreement or otherwise) (a "Sale Restriction Day") for more than thirty (30)
consecutive days or sixty (60) days in any twelve (12) month period after such
Registration Statement becomes effective, provided that such failure or lapse is
not due to acts or failures to act by the holders; and provided further,
however, that the Automatic Conversion Date set forth in Article VII hereof
shall be extended by the number of Sale Restriction Days which exceed a total of
thirty (30) days;
(iii) The Corporation shall make an assignment. for the
benefit of creditors, or apply for or consent to the appointment of a receiver
or trustee for it or for all or substantially all of its property or business;
or such a receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation;
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(v) The Corporation shall fail to maintain the listing of
the Common Stock on the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap
Market, the New York Stock Exchange or the American Stock Exchange and such
failure shall remain uncured for at least thirty (30) days;
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v) at the option of
the holders of at least 50% of the then outstanding shares of Series B Preferred
Stock by written notice (the "Mandatory Redemption Notice") to the Corporation
of such Mandatory Redemption Event, or upon the occurrence of any Mandatory
Redemption Event specified in subparagraphs (iii) or (iv), the Corporation
shall, to the extent permitted by law, purchase each holder's shares of Series B
Preferred Stock for an amount per share equal to the greater of (1) 125%
multiplied by the sum of (a) the aggregate Per Share Purchase Price of the
shares to be redeemed, plus (b) in the event the closing sale price of the
Common Stock on Nasdaq or the principal securities exchange or other securities
market on which the Common Stock is then being traded (in each case, as reported
by Bloomberg) is greater than a Target Price, an amount equal to the aggregate
Accretion Amount thereon for the period beginning on the Issue Date and ending
on the date of payment of the Mandatory Redemption Amount (the "Mandatory
Redemption Date") and (2) the "parity value" of the shares to be redeemed, where
parity value means the product of (a) the number of shares of Common Stock
issuable upon conversion of such shares in accordance with Article VI below
(treating the Trading Day immediately preceding the Mandatory Redemption Date as
the "Conversion Date" (as hereinafter defined) and assuming that the Applicable
Percentage (as defined in Article VI.B.) is 20%), multiplied by (b) the closing
sale price for the Common Stock on the principal trading market for such shares
on such "Conversion Date" (the greater of such amounts being referred to as the
"Mandatory Redemption Amount").
In the case of a Mandatory Redemption Event, if the
Corporation fails to pay the Mandatory Redemption Amount, to the extent
permitted by law, for each share within ten (10) business days of written notice
that such amount is due and payable, then (assuming there are sufficient
authorized shares) in addition to all other available remedies, each holder of
Series B Preferred Stock shall have the night at any time, so long as the
Mandatory Redemption Event continues, to require the Corporation, upon written
notice, to immediately issue (in accordance with and subject to the terms of
Article VI below), in lieu of the Mandatory Redemption Amount, with respect to
each outstanding share of Series B Preferred Stock held by such holder, the
number of shares of Common Stock of the Corporation equal to the Mandatory
Redemption Amount divided by the Conversion Price then in effect.
B. If the Series B Preferred Stock ceases to be convertible as a
result of the limitations described in the second paragraph of Article VI.A
below (a "19.99% Redemption Event"), and the Corporation has not prior to, or
within forty-five (45) days of, the date that such 19.99% Redemption Event
arises, (i) obtained approval of the issuance of additional shares of Common
Stock by the requisite vote of the holders of the then-outstanding Common Stock
(not including any shares of Common Stock held by present or former holders of
Series B Preferred Stock that were issued upon conversion of Series B Preferred
Stock) or (ii) received other permission pursuant to Nasdaq Requirement 4460(i)
allowing the Corporation to resume issuances of shares of Common Stock upon
conversion of Series B Preferred Stock, then the
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Corporation shall be obligated to redeem immediately all of the then outstanding
Series B Preferred Stock, in accordance with this Article V.B. An irrevocable
Redemption Notice shall be delivered promptly to the holders of Series B
Preferred Stock at their registered address appearing on the records of the
Corporation and shall state (1) that 19.99% of the Outstanding Common Amount (as
defined in Article VI.A below) has been issued upon exercise of the Series B
Preferred Stock, (2) that the Corporation is obligated to redeem all of the
outstanding Series B Preferred Stock and (3) the Mandatory Redemption Date,
which shall be a date within five (5) business days of the date of the
Redemption Notice. On the Mandatory Redemption Date, the Corporation shall make
payment of the Mandatory Redemption Amount (as defined in Article V.A. above) in
cash.
VI. Conversion at the Option of the Holder
A. Each holder of shares of Series B Preferred Stock may, at its
option at any time and from time to time after the Issue Date, upon surrender of
the certificates therefor, convert any or all of its shares of Series B
Preferred Stock into Common Stock as follows (an "Optional Conversion"). Each
share of Series B Preferred Stock shall be convertible into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing (1)
the sum of (a) the Per Share Purchase Price thereof plus (b) the Conversion
Accretion Amount (as defined below) by (2) the then effective Conversion Price
(as defined below); provided, however, that, unless the holder delivers a waiver
in accordance with the immediately following sentence, in no event shall a
holder of shares of Series B Preferred Stock be entitled to convert any such
shares in excess of that number of shares upon conversion of which the sum of
(x) the number of shares of Common Stock beneficially owned by the holder and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
shares of Series B Preferred Stock) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series B Preferred Stock with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by a holder and such holder's affiliates of more than
4.9% of the outstanding shares of Common Stock. For purposes of the proviso to
the immediately preceding sentence, (i) beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso and (ii) a holder may waive the limitations set forth
therein by written notice to the Corporation upon not less than sixty-one (61)
days prior written notice (with such waiver taking effect only upon the
expiration of such sixty-one (61) day notice period). The "Conversion Accretion
Amount" means the product of the Per Share Purchase Price, multiplied by .05,
multiplied by (N/365), where "N" equals the number of days elapsed from the
Issue Date to and including the Conversion Date (as defined in Article VI.B.
below).
Notwithstanding anything to the contrary contained herein, if,
at any time, the aggregate number of shares of Common Stock then issued upon
conversion of the Series B Preferred Stock equals 19.99% of the "Outstanding
Common Amount" (as hereinafter defined), the Series B Preferred Stock shall,
from that time forward, cease to be convertible into Common Stock in accordance
with the terms of this Article VI and Article VII below, unless the Corporation
(i) has obtained approval of the issuance of additional shares of Common Stock
by
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the requisite vote, in person or by proxy, of the holders of the
then-outstanding Common Stock (not including any shares of Common Stock held by
present or former holders of Series B Preferred Stock that were issued upon
conversion of Series B Preferred Stock), or (ii) shall have otherwise obtained
permission to allow such issuances from Nasdaq in accordance with Nasdaq
Requirement 4460(i). For purposes of this paragraph, "Outstanding Common Amount"
means (i) the number of shares of the Common Stock outstanding on the Issue Date
pursuant to the Purchase Agreement plus (ii) any additional shares of Common
Stock issued thereafter in respect of such shares pursuant to a stock dividend,
stock split or similar event. The maximum number of shares of Common Stock
issuable as a result of the 19.99% limitation set forth herein is hereinafter
referred to as the "Maximum Share Amount." With respect to each holder of Series
B Preferred Stock, the Maximum Share Amount shall refer to such holder's pro
rata share thereof determined in accordance with Article X below. In the event
that Corporation obtains Shareholder Approval, the approval of The Nasdaq Stock
Market or otherwise concludes that it is able to increase the number of shares
to be issued above the Maximum Share Amount (such increased number being the
"New Maximum Share Amount"), the references to Maximum Share Amount, above,
shall be deemed to be, instead, references to the greater New Maximum Share
Amount. As used herein, "Shareholder Approval" means approval by the
shareholders of the Corporation in accordance with Nasdaq Requirement 4460(i).
In the event that Shareholder Approval is not obtained, there are insufficient
reserved or authorized shares or a registration statement covering the
additional shares of Common Stock which constitute the New Maximum Share Amount
is not effective prior to the Maximum Share Amount being issued (if such
registration statement is necessary to allow for the public resale of such
securities), the Maximum Share Amount shall remain unchanged; provided, however,
that the Holder may grant an extension to obtain a sufficient reserved or
authorized amount of shares or of the effective date of such registration
statement. In the event that (a) the aggregate number of shares of Common Stock
issued pursuant to the outstanding Series B Preferred Stock represents at least
thirty percent (30%) of the Maximum Share Amount and (b) the sum of (x) the
aggregate number of shares of Common Stock issued upon conversion of Series B
Preferred Stock plus (y) the aggregate number of shares of Common Stock that
remain issuable upon conversion of Series B Preferred Stock, represents at least
one hundred percent (100%) of the Maximum Share Amount (the "Triggering Event"),
the Corporation will seek (by calling a special or regular meeting of its
shareholders) and use its best efforts to obtain Shareholder Approval (or obtain
such other relief as will allow conversions hereunder in excess of the Maximum
Share Amount) as soon as practicable following the Triggering Event and before
the Maximum Conversion Date. Notwithstanding the foregoing, the Corporation may,
in lieu of seeking Shareholder Approval as set forth above, redeem the shares of
Series B Preferred Stock convertible into shares of Common Stock in excess of
the Maximum Share Amount pursuant to Article V.B. above, and shall promptly
provide to the Holder written binding notification of such election to redeem,
together with reasonable assurances regarding the source of funds for such
redemption.
B. (a) Subject to subparagraph (b) below, the "Conversion Price"
shall be 80% of the Market Price (as defined herein) (the "Variable Conversion
Price"), but not greater than 100% of the average of the closing bid prices for
the five (5) consecutive Trading Days prior to the Issue Date, rounded to the
nearest whole cent (the "Fixed Conversion Price"). "Market Price" shall mean the
average closing bid price of the Common Stock on Nasdaq, or on the principal
securities exchange or other securities market on which the Common Stock is then
being traded (in each case, as reported by Bloomberg) for the five (5)
consecutive Trading Days ending five (5) Trading Days prior to the date (the
"Conversion Date") the Conversion Notice is sent by a holder to the Corporation
via facsimile. "Trading Day" shall mean any day on which the Common Stock is
traded for any period on Nasdaq, or on the
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principal securities exchange or other securities market on which the Common
Stock is then being traded.
(b) Notwithstanding anything contained in subparagraph
(a) of this Paragraph B to the contrary, in the event: (i) the Corporation
publicly announces a Specified Transaction or (ii) any person, group or entity
(including the Corporation) publicly announces a tender offer to purchase 50% or
more of the Corporation's Common Stock (the date of such announcement is
hereinafter referred to as the "Announcement Date"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal to the lower of
(x) the Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Article VI.B. For purposes hereof, "Adjusted Conversion
Price Termination Date" shall mean, with respect to any proposed transaction or
tender offer for which a public announcement as contemplated by this
subparagraph (b) has been made, the date upon which the Corporation (in the case
of clause (i) above) or the person, group or entity (in the case of clause (ii)
above) publicly announces the termination or abandonment of the proposed
transaction or tender offer which caused this subparagraph (b) to become
operative.
C. The Conversion Price shall be subject to adjustment from time
to time as follows:
(a) Adjustment to Fixed Conversion Price Due to Stock
Split, Stock Dividend, Etc. If at any time when the Series B Preferred Stock is
issued and outstanding, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification,
below-Market Price rights offering to all holders of Common Stock or other
similar event, the Fixed Conversion Price shall be proportionately reduced, or
if the number of outstanding shares of Common Stock is decreased by a reverse
stock split, combination or reclassification of shares, or other similar event,
the Fixed Conversion Price shaft be proportionately increased. In such event,
the Corporation shall notify its transfer agent ("Transfer Agent") of such
change on or before the effective date thereof.
(b) Adjustment to Variable Conversion Price. If at any
time when Series B Preferred Stock is issued and outstanding, the number of
outstanding shares of Common Stock is increased or decreased by a stock split,
stock dividend, combination, reclassification, below-Market Price rights
offering to all holders of Common Stock or other similar event, which event
shall have taken place during the reference period for determination of the
Conversion Price for any Optional Conversion or Automatic Conversion of the
Series B Preferred Stock, then the Variable Conversion Price shall be calculated
giving appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event for all twenty (20) Trading Days
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immediately preceding the Conversion Date. In such event, the Corporation shall
notify the Transfer Agent of such change on or before the effective date thereof
(c) Adjustment Due to Merger, Consolidation, Etc. If, at
any time when Series B Preferred Stock is issued and outstanding and prior to
the conversion of all Series B Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of another class
or classes of stock or securities of the Corporation or another entity, or in
case of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation, then the holders of Series B Preferred Stock shall thereafter have
the right to receive upon conversion of the Series B Preferred Stock, upon the
bases and upon the terms and conditions specified herein and in lieu of the
shares of Common Stock immediately theretofore issuable upon conversion, such
stock, securities or assets which the holders of Series B Preferred Stock would
have been entitled to receive in such transaction had the Series B Preferred
Stock been converted in full (without regard to any limitations on conversion
contained herein) immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of Series B Preferred Stock to the end that the provisions hereof
(including, without limitations, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock) shall thereafter be applicable, as nearly as may
be practicable in relation to any securities or assets thereafter deliverable
upon the conversion of Series B Preferred Stock. The Corporation shall not
effect any transaction described in this subsection (c) unless (a) it first
gives, to the extent practicable, thirty (30) days' prior written notice (but in
any event at least fifteen (15) business days prior written notice) of such
merger, consolidation, exchange of shares, recapitalization, reorganization or
other similar event or sale of assets (during which time the holders of Series B
Preferred Stock shall be entitled to convert the Series B Preferred Stock) and
(b) the resulting successor or acquiring entity (if not the Corporation) assumes
by written instrument the obligations of this subsection (c). The above
provisions shall similarly apply to successive consolidations, mergers, sales,
transfers or share exchanges.
(d) Adjustment Due to Distribution. Subject to
Article III, if the Corporation shall declare or make any distribution of its
assets (or rights to acquire its assets) to holders of Common Stock as a
dividend, stock repurchase, by way of return of capital or otherwise (including
any dividend or distribution to the Corporation's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off)) (a "Distribution"), then the holders of Series B Preferred Stock
shall be entitled, upon any conversion of shares of Series B Preferred Stock
after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been payable
to the holder with respect to the shares of Common Stock issuable upon such
conversion had such holder been the holder of such shares of Common Stock on the
record date for the determination of shareholders entitled to such Distribution.
(e) Purchase Rights. Subject to Article III, if at any
time when any Series B Preferred Stock is issued and outstanding, the
Corporation issues any convertible
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securities or rights to purchase stock, warrants, securities or other property
(the "Purchase Rights") pro rata to the record holders of any class of Common
Stock, then the holders of Series B Preferred Stock will be entitled to acquire,
upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights
which such holder could have acquired if such holder had held the number of
shares of Common Stock acquirable upon complete conversion of the Series B
Preferred Stock (without regard to any limitations on conversion contained
herein) immediately before the date on which a record is taken for the grant,
issuance or sale of such Purchase Rights, or, if no such record is taken, the
date as of which the record holders of Common Stock are to be determined for the
grant, issue or sale of such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each
adjustment or readjustment of the Conversion Price pursuant to this Article
VI.C, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series B Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
B Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series B Preferred Stock.
D. For purposes of Article VI.C(a) and (b) above, "Market Price,"
which shall be measured as of the record date in respect of the rights offering
means (i) the average of the last reported sale prices for the shares of Common
Stock on Nasdaq as reported by Bloomberg, as applicable, for the twenty (20)
Trading Days immediately preceding such date, or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Corporation or, (b) at the option of a majority-in-interest
of the holders of the outstanding Series B Preferred Stock, and at their
expense, by an independent investment bank reasonably acceptable to the Company
in the valuation of businesses similar to the business of the Corporation.
E. In order to convert Series B Preferred Stock into full shares
of Common Stock, a holder of Series B Preferred Stock shall: (i) submit a copy
of the fully executed notice of conversion in the form attached hereto as
Exhibit A ("Notice of Conversion") to the Corporation by facsimile dispatched on
the Conversion Date (or by other means resulting in notice to the Corporation on
the Conversion Date) at the office of the Corporation or its designated Transfer
Agent for the Series B Preferred Stock that the holder elects to convert the
same, which notice shall specify the number of shares of Series B Preferred
Stock to be converted, the applicable Conversion Price and a calculation of the
number of shares of Common Stock issuable upon such conversion (together with a
copy of the first page of each certificate to be converted) prior to 7:00 p.m.,
New York City time (the "Conversion Notice Deadline") on the date of conversion
specified on the Notice of Conversion; and (ii) surrender the original
certificates representing the Series B Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed,
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along with a copy of the Notice of Conversion to the office of the Corporation
or the Transfer Agent for the Series B Preferred Stock as soon as practicable
thereafter. The Corporation shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon such conversion, unless
either the Preferred Stock Certificates are delivered to the Company or its
Transfer Agent as provided above, or the holder notifies the Corporation or its
Transfer Agent that such certificates have been lost, stolen or destroyed
(subject to the requirements of subparagraph (a) below) and executes a customary
lost certificate indemnity agreement. In the case of a dispute as to the
calculation of the Conversion Price, the parties shall undertake to promptly
resolve such dispute, provided that the Corporation shall promptly issue such
number of shares of Common Stock that are not disputed in accordance with
subparagraph (b) below. In the event that the dispute is not promptly resolved,
the Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion. The accountant shall review the calculations and notify the
Corporation and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant's calculation shall be
deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series B Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon the
surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within two (2) business days after
such surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above)
(the "Delivery Period"), deliver (or cause its Transfer Agent to so issue and
deliver) to or upon the order of the holder (i) that number of shares of Common
Stock for the portion of the shares of Series B Preferred Stock converted as
shall be determined in accordance herewith and (ii) a certificate representing
the balance of the shares of Series B Preferred Stock not converted, if any. In
addition to any other remedies available to the holder, including actual damages
and/or equitable relief, the Corporation shall pay to a holder $500 per day in
cash for each day beyond a two (2) day grace period following the end of the
Delivery Period that the Corporation fails to deliver Common Stock issuable upon
surrender of shares of Series B Preferred Stock with a Notice of Conversion
until such time as the Corporation has delivered all such Common Stock. Such
cash amount shall be paid to such holder by the fifth day of the month following
the month in which it has accrued or, at the option of the holder (by written
notice to the Corporation by the first day of the month following the month in
which it has accrued), shall be convertible into Common Stock in accordance with
the terms of this Article VI.
In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Corporation's Transfer Agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder and its
compliance with the provisions contained in Article VI.A. and in this Article
VI.E., the Corporation shall use its best efforts to cause its Transfer Agent to
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electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) Fractional Shares. If any conversion of Series B
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion of
the Series B Preferred Stock shall be the next higher number of shares or, at
the option of the Corporation, cash in lieu of such fractional share in an
amount equal to such fraction multiplied by the closing sale price of the Common
Stock on Nasdaq or on the principal securities exchange or other securities
market on which the Common Stock is traded on the Conversion Date.
(d) Conversion Date. The "Conversion Date" shall be the
date specified in the Notice of Conversion, provided that the Notice of
Conversion is submitted by facsimile (or by other means resulting in notice) to
the Corporation or its Transfer Agent before Midnight, New York City time, on
the Conversion Date. The person or persons entitled to receive the shares of
Common Stock issuable upon conversion shall be treated for all purposes as the
record holder or holders of such securities as of the Conversion Date and all
rights with respect to the shares of Series B Preferred Stock surrendered shall
forthwith terminate except the right to receive the shares of Common Stock or
other securities or property issuable on such conversion and except that the
holders preferential rights as a holder of Series B Preferred Stock shall
survive to the extent the corporation fails to deliver such securities.
F. A number of shares of the authorized but unissued Common Stock
sufficient to provide for the conversion of the Series B Preferred Stock
outstanding at the then current Conversion Price shall at all times be reserved
by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the Issue Date, 2,376,042 authorized and unissued shares of
Common Stock have been duly reserved for issuance upon conversion of the Series
B Preferred Stock (the "Reserved Amount"). The Reserved Amount shall be
increased from time to time in accordance with the Company's obligations
pursuant to Section 4(g) of the Purchase Agreement. In addition, if the
Corporation shall issue any securities or make any change in its capital
structure which would change the number of shares of Common Stock into which
each share of the Series B Preferred Stock shall be convertible at the then
current Conversion Price, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series B Preferred Stock.
If at any time a holder of shares of Series B Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a "Conversion
Default"), the Corporation shall issue to the holder (or holders, if more than
one holder submits a Notice of Conversion in respect of the same Conversion
Date, pro rata based on the ratio that the number of shares of Series B
Preferred Stock then held by each such holder bears to the aggregate number of
such shares held by such holders) all of the shares of
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<PAGE> 13
Common Stock which are available to effect such conversion. The number of shares
of Series B Preferred Stock included in the Notice of Conversion which exceeds
the amount which is then convertible into available shares of Common Stock (the
"Excess Amount") shall, notwithstanding anything to the contrary contained
herein, not be convertible into Common Stock in accordance with the terms hereof
until (and at the holder's option at any time after) the date additional shares
of Common Stock are authorized by the Corporation to permit such conversion, at
which time the Conversion Price in respect thereof shall be the lesser of (i)
the Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in the
authorized number of shares of Common Stock as soon as possible following a
Conversion Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
of (a) (N/365), multiplied by (b) the sum of the aggregate Per Share Purchase
Price plus the Accretion Amount per share of Series B Preferred Stock through
the Authorization Date (as defined below), multiplied by (c) the Excess Amount
on the day the holder submits a Notice of Conversion giving rise to a Conversion
Default (the "Conversion Default Date"), multiplied by (d) .24, where (i) N =
the number of days from the Conversion Default Date to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series B Preferred Stock. The Corporation shall send notice to the holder of the
authorization of additional shares of Common Stock, the Authorization Date and
the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the Conversion Price, at the holder's
option, as follows:
(a) In the event the holder elects to make such payment in
cash, cash payment shall be made to holder by the fifth day of the month
following the month in which it has accrued; and
(b) In the event the holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares).
Nothing herein shall limit the holder's right to pursue actual
damages for the Corporation's failure to maintain a sufficient number of
authorized shares of Common Stock, and each holder shall have the right to
pursue all remedies available at law or in equity (including a decree of
specific performance and/or injunctive relief).
(G). Upon the occurrence of each adjustment or readjustment
of the Conversion Price pursuant to this Article VI, the Corporation, at its
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series B
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series B Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (i) such adjustment or
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<PAGE> 14
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series B Preferred Stock.
VII. Automatic Conversion
So long as the Registration Statement is effective and there
is not then a continuing Mandatory Redemption Event, each share of Series B
Preferred Stock issued and outstanding the fifth (5th) anniversary of the Issue
Date, subject to any extension pursuant to the proviso set forth in Article
V.A.(ii) (the "Automatic Conversion Date"), automatically shall be converted
into shares of Common Stock on such date at the then effective Conversion Price
in accordance with, and subject to, the provisions of Article VI hereof (the
"Automatic Conversion"). The Automatic Conversion Date shall be the Conversion
Date for purposes of determining the Conversion Price and the time within which
certificates representing the Common Stock must be delivered to the holder.
Voting Rights
The holders of the Series B Preferred Stock have no voting
power whatsoever, except as otherwise provided by the California General
Corporation Law ("CGCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each
holder of Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the CGCL the vote of the holders of
the Series B Preferred Stock, voting separately as a class or series as
applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the shares
of the Series B Preferred Stock represented at a duly held meeting at which a
quorum is present or by written consent of a majority of the shares of Series B
Preferred Stock (except as otherwise may be required under the CGCL) shall
constitute the approval of such
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<PAGE> 15
action by the class. To the extent that under the CGCL holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series B Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of shareholders as the date as of which the Conversion Price is calculated.
Holders of the Series B Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents (and copies of proxy materials and
other information sent to shareholders) with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
bylaws and the CGCL.
IX. Protective Provisions
So long as shares of Series B Preferred Stock are outstanding,
the Corporation shall not, without first obtaining the approval (by vote or
written consent, as provided by the CGCL) of the holders of at least a majority
of the then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the Series B Preferred Stock or any Senior Securities so as to
affect adversely the Series B Prefer-red Stock;
(b) create any new class or series of capital stock
having a preference over the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock
ranking pari passu with the Series B Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of
Series B Preferred Stock; or
(e) do any act or thing not authorized or
contemplated by this Certificate of Determination which would result in taxation
of the holders of shares of the Series B Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least a majority of the then
outstanding shares of Series B Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series B
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series B
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series B Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Determination as they exist prior to such alteration or
change or continue to hold their shares of Series B Preferred Stock.
X. Pro Rata Allocations
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The Maximum Share Amount and the Reserved Amount (including
any increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series B Preferred Stock based on the number of shares of Series B
Preferred Stock then held by each holder relative to the total aggregate number
of shares of Series B Preferred Stock then outstanding.
[Remainder of Page Intentionally Blank]
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<PAGE> 17
The undersigned declare under penalty of perjury under the laws of the
State of California that the matters set forth in the foregoing Certificate are
true and correct of their own knowledge. Executed at Sunnyvale, California on
July 10, 1997.
-----------------------------------------
Clinton H. Severson
President
-----------------------------------------
Ting W. Lu
Secretary
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series B
Preferred Stock, represented by stock certificate No(s). (the "Preferred Stock
Certificates") into shares of common stock ("Common Stock") Abaxis, Inc. (the
"Corporation") according to the conditions of the Certificate of Determination
of the Series B Preferred Stock, as of the date written below. If securities are
to be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any. A copy of each Preferred Stock
Certificate is attached hereto (or evidence of loss, theft or destruction
thereof).
The undersigned represents and warrants that all offers and sales by
the undersigned of the securities issuable to the undersigned upon conversion of
the Series B Preferred Stock have been or will be made pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act")
and in accordance with the prospectus delivery requirements of the Act, if
applicable, or pursuant to an exemption from registration under the Act.
Date of Conversion: ________________________
Applicable Conversion Price: _______________
Number of Shares of
Common Stock to be Issued: _________________
Signature: _________________________________
Name: ______________________________________
Address: ___________________________________
* The Corporation is not required to issue shares of Common Stock until
the original Series B Preferred Stock Certificate(s) (or evidence of loss, theft
or destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Determination for the number of business
days such issuance and delivery is late.
<PAGE> 1
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July ___,
1997, by and among Abaxis, Inc., a California corporation, with headquarters
located at 1320 Chesapeake Terrace, Sunnyvale, California 94089 (the "Company"),
and each of the undersigned (together with their respective affiliates and any
assignee or transferee of all of their respective rights hereunder, the "Initial
Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among
the parties hereto of even date herewith (the "Securities Purchase Agreement"),
the Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors shares of its Series B
Convertible Preferred Stock (the "Preferred Stock") that are convertible into
shares (the "Conversion Shares") of the Company's common stock (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth
in the Certificate of Determination of Rights, Preferences, Privileges and
Restrictions with respect to such Preferred Stock (the "Certificate of
Determination"); and
B. To induce the Initial Investors to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide certain
registration rights under the Securities Act of 1933, as amended, and the rules
and regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and each
of the Initial Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investors and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
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(iii) "Registrable Securities" means the Conversion Shares issued
or issuable and any shares of capital stock issued or issuable as a dividend on
or in exchange for or otherwise with respect to any of the foregoing.
(iv) "Registration Statement" means a registration statement of
the Company under the 1933 Act.
(b) Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, on or
prior to the date which is seventy-five (75) days after the date of the Closing
under the Securities Purchase Agreement (the "Closing Date"), file with the SEC
a Registration Statement on Form S-3 (or, if Form S-3 is not then available, on
such form of Registration Statement as is then available to effect a
registration of the Registrable Securities, subject to the consent of the
Investors, which consent will not be unreasonably withheld) covering the resale
of the Registrable Securities underlying the Preferred Stock issued pursuant to
the Securities Purchase Agreement, which Registration Statement, to the extent
allowable under the 1933 Act and the Rules promulgated thereunder (including
Rule 416), shall state that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Preferred Stock (i) to prevent dilution resulting from
stock splits, stock dividends or similar transactions or (ii) by reason of
changes in the Conversion Price of the Preferred Stock in accordance with the
terms of the Certificate of Determination. The number of shares of Common Stock
initially included in such Registration Statement shall be no less than 19.9% of
the outstanding stock on the Closing Date.
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of a majority-in-interest of the
Initial Investors, shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company.
c. Payments by the Company. The Company shall use its best efforts
to obtain effectiveness of the Registration Statement as soon as practicable. If
(i) the Registration Statement(s) covering the Registrable Securities required
to be filed by the Company pursuant to Section 2(a) hereof is not declared
effective by the SEC within one hundred five (105) days after the Closing Date
or if, after the Registration Statement has been declared effective by the SEC,
sales cannot be made pursuant to the Registration Statement due to the failure
of the Company to take action that would have allowed such sales, or (ii) the
Common Stock is not listed or included for quotation on the Nasdaq National
Market ("Nasdaq"), the Nasdaq SmallCap Market (the "Nasdaq SmallCap"), the New
York Stock Exchange (the "NYSE") or the American Stock Exchange (the "AMEX"), or
any other equivalent national securities exchange that may be
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<PAGE> 3
established in the future, after being so listed or included for quotation, then
the Company will make payments to the Investors in such amounts and at such
times as shall be determined pursuant to this Section 2(c) as partial relief for
the damages to the Investors by reason of any such delay in or reduction of
their ability to sell the Registrable Securities (which remedy shall not be
exclusive of any other remedies available at law or in equity). The Company
shall pay to each holder of the Preferred Stock or registrable Securities an
amount equal to the aggregate "Purchase Price" (as defined below) of the
Preferred Stock ("Aggregate Share Price") multiplied by three hundredths (.030)
times the sum of: (i) the number of months (prorated for partial months) after
the end of such 105-day period and prior to the date the Registration Statement
is declared effective by the SEC, provided, however, that there shall be
excluded from such period any delays which are solely attributable to changes
required by the Investors in the Registration Statement with respect to
information relating to the Investors, including, without limitation, changes to
the plan of distribution, or to the failure of the Investors to conduct their
review of the Registration Statement pursuant to Section 3(h) below in a
reasonably prompt manner; (ii) the number of months (prorated for partial
months) that sales cannot be made pursuant to the Registration Statement after
the Registration Statement has been declared effective due to the failure of the
Company to take action that would have allowed such sales (including, without
limitation, when sales cannot be made by reason of the Company's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of this Agreement); and (iii) the number of months (prorated for
partial months) that the Common Stock is not listed or included for quotation on
Nasdaq, the Nasdaq SmallCap, the NYSE or the AMEX or that trading thereon is
halted after the Registration Statement has been declared effective. (For
example, if the Registration Statement becomes effective one (1) month after the
end of such 105-day period, the Company would pay $30,000 for each $1,000,000 of
Outstanding Principal Amount. If thereafter, sales could not be made pursuant to
the Registration Statement for an additional period of one (1) month, the
Company would pay an additional $30,000 for each $1,000,000 of Outstanding
Principal Amount.) Such amounts shall be paid in cash or, so long as the
Registration Statement has been declared effective, at the Company's option, may
be convertible into Common Stock at the "Conversion Price" (as defined in the
Certificate of Determination). Any shares of Common Stock issued upon conversion
of such amounts shall be Registrable Securities. If the Company desires to
convert the amounts due hereunder into Registrable Securities, it shall so
notify the Investors in writing within two (2) business days of the date on
which such amounts are first payable in cash and such amounts shall be so
convertible (pursuant to the mechanics set forth under Article VI of the
Certificate of Determination), beginning on the last day upon which the cash
amount would otherwise be due in accordance with the following sentence.
Payments of cash pursuant hereto shall be made within five (5) days after the
end of each period that gives rise to such obligation, provided that, if any
such period extends for more than thirty (30) days, interim payments shall be
made for each such thirty (30) day period. The term "Purchase Price" means the
purchase price paid by the Investors for the Preferred Stock.
d. Piggy-Back Registrations. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall file with
the SEC a Registration Statement relating to an offering for its own account or
the account of others under the 1933 Act of any of its equity securities (other
than on Form S-4 or Form S-8 or their then equivalents relating to equity
securities to be issued solely in connection with any acquisition of any entity
or
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business or equity securities issuable in connection with stock option or other
employee benefit plans), the Company shall send to each Investor who is entitled
to registration rights under this Section 2(d) written notice of such
determination and, if within fifteen (15) days after the effective date of such
notice, such Investor shall so request in writing, the Company shall include in
such Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
to inclusion of such securities in such Registration Statement or are not
entitled to pro rata inclusion with the Registrable Securities; and provided,
further, however, that, after giving effect to the immediately preceding
proviso, any exclusion of Registrable Securities shall be made pro rata with
holders of other securities having the right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this Section
2(d) shall be construed to limit any registration required under Section 2(a)
hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering. Notwithstanding anything to the contrary set forth herein, the
registration rights of the Investors pursuant to this Section 2(d) shall only be
available in the event that the Company fails to timely file, obtain
effectiveness or maintain effectiveness of the Registration Statement to be
filed pursuant to Section 2(a) in accordance with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and warrants
that it currently meets the registrant eligibility and transaction requirements
for the use of Form S-3 for registration of the sale by the Initial Investors
and any other Investors of the Registrable Securities and the Company shall use
reasonable efforts to file all reports required to be filed by the Company with
the SEC in a timely manner so as to maintain such eligibility for the use of
Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
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a. The Company shall prepare promptly, and file with the SEC not
later than seventy-five (75) days after the Closing Date, a Registration
Statement with respect to the number of Registrable Securities provided in
Section 2(a), and thereafter use its best efforts to cause such Registration
Statement relating to Registrable Securities to become effective as soon as
possible after such filing, and keep the Registration Statement effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which all of the Registrable Securities have been sold and (ii) the date
on which the Registrable Securities (in the opinion of counsel to the Initial
Investors) may be immediately sold (without limitation as to volume) by each
holder thereof without registration under the 1933 Act (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein, or necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until such time
as all of such Registrable Securities have been disposed of in accordance with
the intended methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement. In the event the number of shares available
under a Registration Statement filed pursuant to this Agreement is insufficient
to cover all of the Registrable Securities issued or issuable upon conversion of
the Preferred Stock, the Company shall amend the Registration Statement, or file
a new Registration Statement (on the short form available therefore, if
applicable), or both, so as to cover all of the Registrable Securities, in each
case, as soon as practicable, but in any event within twenty (20) business days
after the necessity therefor arises (based on the market price of the Common
Stock and other relevant factors on which the Company reasonably elects to
rely). The Company shall use its best efforts to cause such amendment and/or new
Registration Statement to become effective as soon as practicable following the
filing thereof. The provisions of Section 2(c) above shall be applicable with
respect to such obligation, with the ninety (90) days running from the day after
the date on which the Company reasonably first determines (or reasonably should
have determined) the need therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of the Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor.
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<PAGE> 6
The Company will immediately notify each Investor by facsimile of the
effectiveness of the Registration Statement or any post-effective amendment.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its shareholders.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of a Registration Statement,
and, if such an order is issued, to obtain the withdrawal of such order at the
earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (or, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof.
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review the Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC and will not request acceleration of the Registration Statement without
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<PAGE> 7
prior notice to such counsel. The sections of the Registration statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company and the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning after the effective date of the Registration Statement.
j. For all underwritten offerings pursuant to this Section 2, at the
request of any Investor, the Company shall furnish, on the date that Registrable
Securities are delivered to an underwriter, if any, for sale in connection with
the Registration Statement or, if such securities are not being sold by an
underwriter, on the date of effectiveness thereof (i) an opinion, dated as of
such date, from counsel representing the Company for purposes of such
Registration Statement, in form, scope and substance as is customarily given in
an underwritten public offering, addressed to the underwriters, if any, and the
Investors and (ii) a letter, dated such date, from the Company's independent
certified public accountants in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters, if any.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to the
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request
for purposes of such due diligence; provided, however, that each Inspector shall
hold in confidence and shall not make any disclosure (except to an Investor) of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the release of such Records is ordered pursuant to a subpoena or other order
from a court or government body of competent jurisdiction or (b) the information
in such Records has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company shall not be
required to disclose any confidential information in such Records to any
Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
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<PAGE> 8
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall use its best efforts to (i) cause all the
Registrable Securities covered by the Registration Statement to be listed on
each national securities exchange on which securities of the same class or
series issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure the designation and quotation, of all the Registrable Securities
covered by the Registration Statement on Nasdaq or, if not eligible for Nasdaq
or the Nasdaq SmallCap and, without limiting the generality of the foregoing,
will use its best efforts to arrange for at least two market makers to register
with the National Association of Securities Dealers, Inc. ("NASD") as such with
respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion of such counsel in the form
attached hereto as Exhibit 2.
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
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<PAGE> 9
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least five (5)
business days prior to the filing date of the Registration Statement, the
Company shall notify each Investor of the information the Company requires from
each such Investor. Each such Investor shall provide such information to the
Company as promptly as practicable following receipt of such notification, but
in any event at least two (2) days prior to the filing date.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, such underwriter
to be reasonably acceptable to the Company, and each Investor agrees to enter
into and perform such Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities, unless
such Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the Registration
Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
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<PAGE> 10
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof shall be borne by the Company; provided, however,
that the total amount of all fees payable pursuant to this Section 5 and Section
4(f) of the Securities Purchase Agreement shall not exceed $7,500.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the " 1934 Act"), if any, (iii) any
underwriter (as defined in the 1933 Act) for the Investors, and (iv) the
directors, officers, partners, employees and each person who controls any such
underwriter within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable but not less than monthly, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such
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<PAGE> 11
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; (ii) shall not apply
to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
such corrected prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other shareholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such shareholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement or such
Violation is a failure of such Investor to comply with applicable prospectus
delivery requirement under the 1933 Act (and such failure was not caused, in
whole or in part, by any action or failure to act by the Company or any third
party, so long as such Investor used reasonable efforts to comply with such
requirements); and subject to Section 6(c) such Investor will reimburse any
legal or other expenses (promptly as such expenses are incurred and are due and
payable) reasonably incurred by the Indemnified Parties in connection with
investigating or defending any such Claim; provided, however, that the indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of such Investor, which consent shall not be unreasonably withheld;
provided, further, however, that the Investor shall be liable under this
Agreement (including this Section 6(b) and Section 7) for only that amount as
does not exceed the net proceeds to such Investor as a result of the sale of
Registrable Securities pursuant to such Registration Statement. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of such Indemnified Party and shall survive the transfer of the
Registrable Securities by the Investors pursuant to Section 9. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 6(b) with respect to any preliminary prospectus shall
not inure to the benefit of any Indemnified Party if the untrue statement or
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<PAGE> 12
omission of material fact contained in the preliminary prospectus was corrected
on a timely basis in the prospectus, as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel chosen by the indemnifying party and
reasonably satisfactory to the Indemnified Person or the Indemnified Party, as
the case may be; provided, however, that an Indemnified Person or Indemnified
Party shall have the right to retain its own counsel with the reasonable fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential conflicts between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
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<PAGE> 13
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule
144 promulgated under the 1933 Act or any other similar rule or regulation of
the SEC that may at any time permit the investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and. defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by
the Investors to any transferee of all or any portion of Registrable Securities
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, (vi) such transferee shall be an "accredited investor" as that term
defined in Rule 501 of Regulation D promulgated under the 1933 Act and (vii)
such transfer involves Registrable Securities having a value of at least
$1,000,000 (based on the closing sale price of the Common Stock on Nasdaq or on
the principal securities exchange or quotation system on which the Common Stock
is traded on the date of transfer).
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10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with written consent of the Company and
Investors who hold a majority interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile and shall be effective five days after being placed in
the mail, if mailed by regular U. S. mail, or upon receipt, if delivered
personally or by courier (including a recognized overnight delivery service) or
by facsimile, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Abaxis, Inc.
1320 Chesapeake Terrace
Sunnyvale, California 94099
Attention: Chief Financial Officer
Facsimile: (408) 734-3120
With copy to:
Gray Cary Ware & Freidenrich,
A Professional Corporation
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Thomas W. Furlong, Esq.
Facsimile: (415) 327-3699
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
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d. This Agreement shall be enforced, governed by and construed in
accordance with the laws of the California applicable to agreements made and to
be performed entirely within such State. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof. The parties hereto hereby submit to the exclusive jurisdiction of the
United States Federal Courts located in the Northern District of California with
respect to any dispute arising under this Agreement or the transactions
contemplated hereby.
e. This Agreement and the Securities Purchase Agreement (including
all schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock then outstanding have been
converted into or exercised for Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
15
<PAGE> 16
IN WITNESS WHEREOF, the Company and the undersigned Initial Investor have caused
this Agreement to be duly executed as of the date first above written.
ABAXIS, INC.
By: ________________________________________
Name: ______________________________________
Its: _______________________________________
RGC INTERNATIONAL INVESTORS, LDC
By:Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp.
By: _______________________________
Name: Wayne D. Bloch
Its: Managing Director
ADVANTAGE FUND LTD.
By: ________________________________________
Name: ______________________________________
Its: _______________________________________
16
<PAGE> 17
EXHIBIT 1
to
Registration Rights Agreement
[Company Letterhead]
[Date]
[Name and address of Transfer Agent]
Ladies and Gentlemen:
This letter shall serve as our irrevocable authorization and direction
to you (1) to transfer or re-register (or at the holders request to reissue to
the holder thereof without any restrictive legend) the certificates for the
shares of Common Stock, no par value (the "Common Stock"), of Abaxis, Inc., a
California corporation (the "Company"), represented by certificate numbers for
an aggregate of shares (the "Outstanding Shares") of Common Stock presently
registered in the name of [Name of Investor] (which shares were previously
issued upon conversion of the Preferred Shares (as hereinafter defined) upon
surrender of such certificates to you, notwithstanding the legend appearing on
such certificates, and (2) to issue shares (the "Conversion Shares") of Common
Stock to or upon the order of the registered holder from time to time of shares
of Series Preferred Stock of the Company (the "Preferred Shares") upon surrender
to you of a properly completed and duly executed Conversion Notice and
certificates evidencing such Preferred Shares, notwithstanding the legend
appearing on such certificates. The transfer or re-registration of the
certificates for the Outstanding Shares by you should be made at such time as
you are requested to do so by the record holder of the Outstanding Shares. The
certificate issued upon such transfer or re-registration should be registered in
such name as requested by the holder of record of the certificate surrendered to
you and should not bear any legend which would restrict the transfer of the
shares represented thereby. In addition, you are hereby directed to remove any
stop-transfer instruction relating to the Outstanding Shares. Certificates for
the Conversion Shares should not bear any restrictive legend and should not be
subject to any stop-transfer restriction.
Contemporaneous with the delivery of this letter, the Company is
delivering to you an opinion of as to registration of the Outstanding Shares and
the Conversion Shares under the Securities Act of 1933, as amended.
Should you have any questions concerning this matter, please contact
me.
Very truly yours,
ABAXIS, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
Enclosures:
cc: [Name of Investor]
17
<PAGE> 18
EXHIBIT 2
to
Registration Rights Agreement
[Date]
[Name and address
of transfer agent]
Re: Abaxis, Inc.
Ladies and Gentlemen:
We are counsel to Abaxis, Inc., a California corporation (the
"Company") , and we understand that [Name of Investor] (the "Holder") has
purchased from the Company shares of the Company's Series - Convertible
Preferred Stock (the "Preferred Stock") that is convertible into the Company's
Common Stock, no par value per share (the "Common Stock"). The Preferred Stock
was purchased by the Holder pursuant to a Securities Purchase Agreement, dated
as of July _, 1997, between the Holder and the Company (the "Agreement").
Pursuant to a Registration Rights Agreement, dated as of July _, 1997, between
the Company and the Holder (the "Registration Rights Agreement"), the Company
agreed with the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "Securities Act"), upon the terms
provided in the Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on , 1997, the Company
filed a Registration Statement on Form S-3 (File No. 333- ) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities, which names the Holder as a selling stockholder
thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: [Name of investor]
18
<PAGE> 19
EXHIBIT 2
to
Registration Rights Agreement
[Date]
[Name and address
of transfer agent]
Re: Abaxis, Inc.
Ladies and Gentlemen:
We are counsel to Abaxis, Inc., a California corporation (the
"Company") , and we understand that [Name of Investor] (the "Holder") has
purchased from the Company shares of the Company's Series - Convertible
Preferred Stock (the "Preferred Stock") that is convertible into the Company's
Common Stock, no par value per share (the "Common Stock"). The Preferred Stock
was purchased by the Holder pursuant to a Securities Purchase Agreement, dated
as of July _, 1997, between the Holder and the Company (the "Agreement").
Pursuant to a Registration Rights Agreement, dated as of July _, 1997, between
the Company and the Holder (the "Registration Rights Agreement"), the Company
agreed with the Holder, among other things, to register the Registrable
Securities (as that term is defined in the Registration Rights Agreement) under
the Securities Act of 1933, as amended (the "Securities Act"), upon the terms
provided in the Registration Rights Agreement. In connection with the Company's
obligations under the Registration Rights Agreement, on , 1997, the Company
filed a Registration Statement on Form S-3 (File No. 333- ) (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") relating to
the Registrable Securities, which names the Holder as a selling stockholder
thereunder.
[Other introductory and scope of examination language to be inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered under the Securities Act.
[Other appropriate language to be included.]
Very truly yours,
cc: [Name of investor]
18
<PAGE> 1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of July
____, 1997, by and among Abaxis, Inc., a California corporation, with
headquarters located at 1320 Chesapeake Terrace, Sunnyvale, California 94089
(the "COMPANY"), and each of the purchasers set forth on the signature pages
hereto (the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement in
reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("REGULATION D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized a new series of preferred stock, designated as
its Series B Convertible Preferred Stock (the "PREFERRED STOCK"), having the
rights, preferences and privileges set forth in the Certificate of Determination
of Rights, Preferences, Privileges and Restrictions substantially in the form
attached hereto as EXHIBIT "A" (the "CERTIFICATE OF DETERMINATION");
C. The Preferred Stock is convertible into shares of Common Stock, no par
value per share, of the Company (the "COMMON STOCK"), upon the terms and subject
to the limitations and conditions set forth in the Certificate of Determination;
D. The Buyers desire to purchase and the Company desires to issue and sell,
upon the terms and conditions set forth in this Agreement, an aggregate of three
thousand (3,000) shares of Preferred Stock, at a price per share equal to One
Thousand Dollars ($1,000), the stated value thereof, or an aggregate purchase
price of Three Million Dollars ($3,000,000);
E. Each Buyer wishes to purchase, upon the terms and conditions stated in this
Agreement, the number of shares of Preferred Stock set forth immediately below
its name on the signature pages hereto; and
F. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as EXHIBIT "B" (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws;
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. The Company shall issue and sell to
each Buyer and each Buyer severally agrees to purchase from the Company such
number of shares of Series B Preferred Stock as is set forth immediately below
such Buyer's name on the signature
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<PAGE> 2
pages hereto (collectively, together with any Preferred Stock issued in
replacement thereof or as a dividend thereon or otherwise with respect thereto
in accordance with the terms thereof, the "PREFERRED SHARES") at a price per
share equal to One Thousand Dollars ($1,000) (the "PER SHARE PURCHASE PRICE").
The issuance, sale and purchase of the Preferred Shares shall take place in one
closing (the "CLOSING"). Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, at the Closing,
the Company shall issue and sell to each Buyer and each Buyer shall purchase
from the Company Preferred Shares for a price per Preferred Share equal to the
Per Share Purchase Price. The aggregate number of Preferred Shares to be issued
at the Closing is Three Thousand (3,000) for an aggregate purchase price of
Three Million Dollars ($3,000,000).
b. Form of Payment. On the Closing Date (as defined below), (i) each
Buyer shall pay the purchase price for the Preferred Shares to be issued and
sold to it at the Closing (the "PURCHASE PRICE") by wire transfer of immediately
available funds to the Company, in accordance with the Company's written wiring
instructions, against delivery of a duly executed certificate(s) representing
such number of Preferred Shares which such Buyer is purchasing, and (ii) the
Company shall deliver such certificate(s) against delivery of such Purchase
Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares pursuant to this Agreement (the
"CLOSING DATE") shall be 12:00 noon Eastern Standard Time on July 14, 1997 or
such other mutually agreed upon time. The Closing shall occur at the offices of
Gary Cary Ware & Freidenrich, A Professional Corporation, 400 Hamilton Avenue,
Palo Alto, California 94301 or such other mutually agreed upon place.
2. BUYERS' REPRESENTATIONS AND WARRANTIES.
Each Buyer severally (and not jointly) represents and warrants to the
Company solely as to such Buyer that:
a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion thereof (the "CONVERSION SHARES" and, collectively with the Preferred
Shares, the "SECURITIES") for its own account for investment only and not with a
present view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Buyer understands that the Securities
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
2
<PAGE> 3
4. Information. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and have received what the Buyer believes to be satisfactory answers to
any such inquiries. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The Buyer understands that its
investment in the Securities involves a significant degree of risk.
e. No Governmental Review. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
f. Restricted Transfer; Resale. The Buyer understands that (i)
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the 1933 Act or any applicable state
securities laws, and may not be transferred unless (a) subsequently included in
an effective registration statement thereunder, or (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion shall be
reasonably acceptable to the Company) to the effect that the Securities to be
sold or transferred may be sold or transferred pursuant to an exemption from
such registration or (c) sold pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule); (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any resale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
g. Legends. The Buyer understands that the Preferred Shares and,
until such time as the Conversion Shares have been registered under the 1933
Act, as contemplated by the Registration Rights Agreement, the Conversion
Shares, may bear a restrictive legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the certificates for such
Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The securities
have been acquired for investment and may not be sold, transferred or
assigned in the absence of an effective registration statement for the
securities under said Act, or an opinion of counsel, in form, substance
and scope reasonably acceptable to the Company, that registration is
not required under said Act or unless sold pursuant to Rule 144 under
said Act."
3
<PAGE> 4
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by applicable state securities laws, (a)
such Security is registered for sale under an effective registration statement
filed under the 1933 Act, or (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope reasonably acceptable to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act or (c) such holder provides the
Company with reasonable assurances that such Security can be sold pursuant to
Rule 144 under the 1933 Act (or a successor rule thereto) without any
restriction as to the number of Securities acquired as of a particular date that
can then be immediately sold. The Buyer agrees to sell all Securities, including
those represented by a certificate(s) from which the legend has been removed, in
compliance with applicable prospectus delivery requirements, if any.
h. Authorization; Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of the Buyer and are valid and binding agreements of the Buyer
enforceable in accordance with their terms, except as may be limited by
bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium, usury
and other laws of general application affecting the enforcement of creditors'
rights.
i. Residency. The Buyer is a resident of the jurisdiction set forth
immediately below such Buyer's name on the signature pages hereto.
j. No Brokers. No Buyer has taken any action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with Wharton Capital Partners, Ltd., whose commissions and
fees will be paid for by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Buyer as of the Closing
Date, except as otherwise described in this Agreement or on a schedule provided
to the Buyers (which schedule shall specifically refer to the section hereof
modified thereby), that:
a. Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
The Company has no Subsidiaries (as defined below). The Company is duly
qualified as a foreign corporation to do business and is in good standing in
every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary except where the failure to be so qualified or in
good standing would not have a Material Adverse Effect. "MATERIAL ADVERSE
EFFECT" means any material adverse effect on the business, operations, assets or
financial condition of the Company, or on the transactions contemplated hereby
or by the agreements or instruments to be entered into in connection herewith.
"SUBSIDIARIES" means any corporation or
4
<PAGE> 5
other organization, whether incorporated or unincorporated, in which the Company
owns, directly or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to file and perform its obligations under the
Certificate of Determination and to enter into and perform this Agreement and
the Registration Rights Agreement and to consummate the transactions
contemplated hereby and thereby and to issue the Securities, in accordance with
the terms hereof and thereof, (ii) the execution and delivery of this Agreement
and the Registration Rights Agreement by the Company and the consummation by it
of the transactions contemplated hereby and thereby (including without
limitation the filing of the Certificate of Determination, the issuance of the
Preferred Shares and the issuance and reservation for issuance of the Conversion
Shares issuable upon conversion thereof) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board or Directors, or its shareholders is required, (iii) this
Agreement has been duly executed and delivered and the Certificate of
Determination has been duly filed by the Company, and (iv) each of this
Agreement and the Certificate of Determination constitutes, and upon execution
and delivery by the Company of the Registration Rights Agreement, such
instrument will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as may be
limited by bankruptcy, insolvency, reorganization, fraudulent conveyance,
moratorium, usury and other laws of general application affecting the
enforcement of creditors' rights.
c. Capitalization. As of July 2, 1997, the authorized capital stock
of the Company consists of (i) 35,000,000 shares of Common Stock of which
11,886,153 shares are issued and outstanding, 1,156,924 shares are reserved for
issuance pursuant to the Company's stock option plans, 105,647 shares are
reserved for issuance pursuant to securities (other than the Preferred Shares)
exercisable for, or convertible into or exchangeable for shares of Common Stock
and 2,376,042 shares (19.99% of outstanding stock) are reserved for issuance
upon conversion of the Preferred Shares (subject to adjustment pursuant to the
Company's covenant set forth in Section 4(g) below); and (ii) 5,000,000 shares
of preferred stock, none of which shares are issued and outstanding (exclusive
of the Preferred Shares). All of such outstanding shares of capital stock are,
or upon issuance will be, duly authorized, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company are subject to
preemptive rights or any other similar rights of the stockholders of the Company
or any liens or encumbrances imposed through the actions or failure to act of
the Company. Except as disclosed in this Section 3(c) or SCHEDULE 3(C), as of
the effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company, or arrangements by
which the Company is or may become bound to issue additional shares of capital
stock of the Company, and (ii) there are no agreements or arrangements under
which the Company is obligated to register the sale of any of its or their
securities under the 1933 Act (except the Registration Rights Agreement) and
(iii) there are no anti-dilution or price adjustment provisions contained in any
security issued by the Company (or in any agreement providing rights to security
holders) that will be triggered by the issuance of the Preferred Shares or
Conversion Shares. The Company has furnished to the Buyer true and correct
copies of the
5
<PAGE> 6
Company's Restated Articles of Incorporation as in effect on the date hereof
("ARTICLES OF INCORPORATION"), the Company's By-laws, as in effect on the date
hereof (the "BY-LAWS"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.
d. Issuance of Shares. The Preferred Shares and the Conversion
Shares are duly authorized and, upon issuance in accordance with the terms of
this Agreement (including the issuance of the Conversion Shares upon conversion
of the Preferred Shares in accordance with the Certificate of Determination)
will be validly issued, fully paid and non-assessable, and free from all taxes,
liens and charges with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of shareholders of the Company. The
term Conversion Shares includes the shares of Common Stock issuable upon
conversion of the Preferred Shares, including without limitation, such
additional shares, if any, as are issuable as a result of the events described
in Section 2(c) of the Registration Rights Agreement. The Company understands
and acknowledges the potentially dilutive effect to the Common Stock of the
issuance of the Conversion Shares upon conversion of the Preferred Shares. The
Company further acknowledges that its obligation to issue Conversion Shares upon
conversion of the Preferred Shares in accordance with this Agreement and the
Certificate of Determination is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
shareholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the filing of the Certificate of Determination
and the issuance and reservation for issuance of the Conversion Shares) will not
(i) conflict with or result in a violation of any provision of the Articles of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company is a party, or result in
a violation of any law, rule, regulation, order, judgment or decree (including
federal and state securities laws and regulations) applicable to the Company or
by which any property or asset of the Company is bound or affected (except for
such breaches, conflicts, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). The Company is not in violation of its Articles
of Incorporation, By-laws or other organizational documents and the Company is
not in default (and no event has occurred which with notice or lapse of time or
both could put the Company in default) under, and the Company has not taken any
action or failed to take any action that would give to others any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company is a party or by which any property
or assets of the Company is bound or affected, except for possible defaults,
terminations, amendments, accelerations or cancellations as would not,
individually or in the aggregate, have a Material Adverse Effect. The business
of the Company is not being conducted in violation of any law, ordinance or
regulation of any governmental entity, except as would not have a Material
Adverse Effect. Except as specifically contemplated by this Agreement and as
required under the 1933 Act and any applicable state securities laws, the
Company is not required to obtain any
6
<PAGE> 7
consent, authorization or order of, or make any filing or registration with, any
court or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement or the Registration Rights Agreement in accordance with the terms
hereof or thereof. Except as discussed in SCHEDULE 3(E), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company are unaware of any facts or
circumstances which might give rise to any of the foregoing. The Company is not
in violation of the listing requirements of the Nasdaq National Market
("NASDAQ") and does not reasonably anticipate that the Common Stock will be
delisted by the Nasdaq in the foreseeable future.
f. SEC Documents, Financial Statements. Since March 31, 1995, the
Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Exchange Act of 1934, as amended (the "1934 ACT") (all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than
exhibits) incorporated by reference therein, being hereinafter referred to
herein as the "SEC DOCUMENTS"). The Company has delivered to each Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
normal year-end audit adjustments and the absence of footnote disclosures and
other presentation items. Except as set forth in the financial statements of the
Company included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business subsequent to March 31, 1997 and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under generally accepted accounting principles to be reflected in such
financial statements, which, individually or in the aggregate, are not material
to the financial condition or operating results of the Company.
g. Absence of Certain Changes. Since March 31, 1997, there has been
no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition or results of
operations of the Company.
7
<PAGE> 8
h. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company threatened against or affecting the Company (or any of
its officers and directors) that could have a Material Adverse Effect. SCHEDULE
2(H) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company, without regard to
whether it would have a Material Adverse Effect.
i. Patents, Copyrights, etc. The Company owns or possesses the
requisite licenses or rights to use all patents, patent rights, inventions,
know-how, trade secrets, trademarks, service marks, service names, trade names
and copyrights ("INTELLECTUAL PROPERTY") necessary to enable it to conduct its
business as now operated; there is no claim or action by any person pertaining
to, or proceeding pending, or to the Company's knowledge threatened which
challenges the right of the Company with respect to any Intellectual Property
necessary to enable it to conduct its business as now operated; to the best of
the Company's knowledge, the Company's current and intended products, services
and processes do not infringe on any Intellectual Property or other rights held
by any person; and the Company is unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of its
Intellectual Property.
j. Tax Status. Except as set forth on SCHEDULE 3(J), the Company has
made or filed all federal and state income and all other tax returns, reports
and declarations required by any jurisdiction to which it is subject (unless and
only to the extent that the Company has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction for any such return, and the Company knows
of no basis for any such claim.
k. Certain Transactions. Except as disclosed in the SEC Documents
pursuant to Item 404 of Regulation S-K, and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms which are, to the Company's knowledge, no less favorable than the
Company could obtain from third parties and other than the grant of stock
options disclosed on SCHEDULE 3(C), none of the officers, directors, or
employees of the Company is presently a party to any transaction with the
Company (other than for services as employees, officers and directors) that is
material to the Company, including any contract, agreement or other arrangement
providing for the furnishing of services to or by, providing for rental of real
or personal property to or from, or otherwise requiring payments to or from any
officer, director or such employee or, to the knowledge of the Company, any
corporation, partnership, trust or other entity in which any officer, director,
or any such employee has a substantial interest or is an officer, director,
trustee or partner.
8
<PAGE> 9
l. Disclosure. All information relating to or concerning the Company
set forth in this Agreement and provided to the Buyers pursuant to Section 2(d)
hereof and otherwise in connection with the transactions contemplated hereby is
true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its business, properties, operations or financial conditions, which,
under applicable law, rule or regulation, requires public disclosure or
announcement by the Company but which has not been so publicly announced or
disclosed (assuming for this purposes that the Company's reports filed under the
1934 Act are being incorporated into an effective registration statement filed
by the Company under the 1933 Act).
m. Acknowledgment Regarding Buyers' Purchase of Preferred Shares.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers, purchase of the
Preferred Shares. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
n. No Integrated Offering. Neither the Company nor, to the knowledge
of the Company, any of its affiliates, nor any person acting on its or their
behalf, has directly or indirectly made any offers or sales in any security or
solicited any offers to buy any security under circumstances that would require
registration under the 1933 Act of the issuance of the Securities to the Buyers.
The issuance of the Securities to the Buyers will not be integrated with any
other issuance of the Company's securities which requires shareholder approval
under the rules of The Nasdaq Stock Market.
o. No Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with Wharton Capital Partners, Ltd., whose commissions and
fees will be paid for by the Company.
p. Permits; Compliance. The Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own, lease
and operate its properties and to carry on its business as it is now being
conducted (collectively, the "COMPANY PERMITS"), and there is no action pending
or, to the knowledge of the Company, threatened regarding suspension or
cancellation of any of the Company Permits which, if determined adversely to the
Company, would have a Material Adverse Effect. To its knowledge, the Company is
not in conflict with, or in default or violation of, any of the Company Permits,
except for any such conflicts, defaults or violations which, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect. During the period commencing on March 31, 1997 and ending on the
9
<PAGE> 10
date hereof, the Company has not received any notification with respect to
possible conflicts, defaults or violations of applicable laws, except for
notices relating to possible conflicts, defaults or violations, which conflicts,
defaults or violations would not have a Material Adverse Effect.
q. Environmental Matters.
(i) Except as set forth in SCHEDULE 3(Q), there are, to the
Company's knowledge, with respect to the Company or any predecessor of the
Company, no past or present violations of Environmental Laws (as defined below),
releases of any material into the environment, actions, activities,
circumstances, conditions, events, incidents, or contractual obligations which
may give rise to any common law environmental liability or any liability under
the Comprehensive Environmental Response, Compensation and Liability Act of 1980
or similar federal, state, local or foreign laws and the Company has not
received any notice with respect to any of the foregoing, nor is any action
pending or, to the Company's knowledge, threatened in connection with any of the
foregoing which, if determined adversely to the Company, would have a Material
Adverse Effect. The term "ENVIRONMENTAL LAWS" means all federal, state, local or
foreign laws relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including, without limitation,
laws relating to emissions, discharges, releases or threatened releases of
chemicals, pollutants contaminants, or toxic or hazardous substances or wastes
(collectively, "HAZARDOUS MATERIALS") into the environment, or otherwise
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of Hazardous Materials, as well as all
authorizations, codes, decrees, demands or demand letters, injunctions,
judgments, licenses, notices or notice letters, orders, permits, plans or
regulations issued, entered, promulgated or approved thereunder.
(ii) To the Company's knowledge, other than those that are or
were stored, used or disposed of in compliance with applicable law, no Hazardous
Materials are contained on or about any real property currently owned, leased or
used by the Company and no Hazardous Materials were released on or about any
real property previously owned, leased or used by the Company during the period
the property was owned, leased or used by the Company except in the normal
course of the Company's business which would result in a Material Adverse
Effect.
(iii) Except as set forth in SCHEDULE 3(Q), to the Company's
knowledge, there are no underground storage tanks on or under any real property
owned, leased or used by the Company that are not in compliance with applicable
law with such exceptions as would not have a Material Adverse Effect.
r. Title to Property . Except as set forth in SCHEDULE 3(R), the
Company has good and marketable title in fee simple to all real property and
good and marketable title to all personal property owned by them which is
material to the business of the Company, in each case free and clear of all
liens, encumbrances and defects except such as are described in Schedule 3(s) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company are held by them under valid,
subsisting and enforceable leases with such exceptions as would not have a
Material Adverse Effect.
10
<PAGE> 11
s. Insurance. The Company's insurance policies are set forth in
SCHEDULE 3(S). The Company believes that it maintains a reasonable level of
insurance, taking into consideration the costs and benefits of such insurance.
The Company has no reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not have a Material Adverse Effect.
t. Internal Accounting Controls. The Company believes that, based
upon the results of audits of its financial statements, maintains a system of
internal accounting controls sufficient, in the judgment of the Company's board
of directors, to provide reasonable assurance that transactions are executed in
accordance with management's general or specific authorizations and that
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain asset accountability.
4. COVENANTS.
a. Form D; Blue Sky Laws. The Company agrees to file a Form D with
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable closing pursuant to this Agreement under applicable securities or
"blue sky" laws of the states of the United States (or to obtain an exemption
from such qualification), and shall provide evidence of any such action so taken
to each Buyer on or prior to such Closing Date.
b. Reporting Status, Eligibility to Use Form S-3. The Company's
Common Stock is registered under Section 12(g) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company currently meets, and shall use
reasonable efforts to continue to meet, the "registrant eligibility"
requirements set forth in the general instructions to Form S-3.
c. Use of Proceeds. The Company shall use the proceeds from the sale
of the Preferred Shares for working capital and general corporate purposes and
shall not, directly or indirectly, use such proceeds for any loan to or
investment in any other corporation, partnership, enterprise or other person.
d. Additional Equity Capital; Right of First Refusal. Subject to the
exceptions described below, the Company agrees that during the period beginning
on the date hereof and ending one hundred eighty (180) days following the
Closing Date (the "LOCK-UP PERIOD"), the Company will not, without the prior
written consent of a majority-in-interest of the Buyers, negotiate or contract
with any party to obtain additional equity financing (including debt financing
with an equity component) unless at any time within twenty (20) days prior to
the consummation of such financing, the closing bid price of the Common Stock is
greater than one hundred fifty
11
<PAGE> 12
percent (150%) of the Fixed Conversion Price (as defined in the Certificate of
Determination) for five (5) consecutive trading days. In addition, subject to
the exceptions described below, the Company will not conduct any equity
financing (including debt with an equity component) ("FUTURE OFFERINGS") during
the period beginning on the first day of the Lock-Up Period and ending three
hundred sixty-five (365) days following the Closing unless it shall have first
delivered to each Buyer, at least fifteen (15) business days prior to the
closing of such Future Offering, written notice describing the proposed Future
Offering, including the terms and conditions thereof, and providing each Buyer
an option during the ten (10) day period following delivery of such notice to
purchase its pro rata share (based on the ratio that the number of Preferred
Shares purchased by it hereunder bears to the aggregate number of Preferred
Shares purchased hereunder) of the securities being offered in the Future
Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this and the immediately preceding sentence are
collectively referred to as the "CAPITAL RAISING LIMITATIONS"). The Capital
Raising Limitations shall not apply to any transaction involving (i) issuances
of securities in a firm commitment underwritten public offering (excluding a
continuous offering pursuant to Rule 415 under the 1933 Act), (ii) warrants
issued in connection with equipment, inventory or receivables financing through
commercial banks, (iii) issuances of securities as consideration for a merger,
consolidation or sale of assets, or in connection with any strategic partnership
or joint venture (the primary purpose of which is not to raise equity capital),
or in connection with the disposition or acquisition of a business, product or
license by the Company or (iv) issuances of securities (not exceeding 30,000
shares of Common Stock or securities convertible or exercisable into not more
than 30,000 shares of Common Stock in any calendar quarter) to the Company's
consultants, service providers or vendors in the ordinary course of business in
exchange for bona fide services, which issuances are or have been approved by a
majority of the Company's disinterested directors. The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan approved by a majority of the Company's
disinterested directors.
e. Expenses. The Company shall reimburse Rose Glen Capital
Management, L.P. ("RGC") for all expenses incurred by it in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other agreements to be executed in connection herewith, and the
preparation and filing of the Registration Statement to be filed pursuant to the
Registration Rights Agreement, including, without limitation, attorneys' and
consultants' fees and expenses. The Company's obligation to reimburse RGC's
expenses under this Section 4(f) and Section 5 of the Registration Rights
Agreement shall be limited to Seven Thousand Five Hundred Dollars ($7,500).
f. Financial Information. So long as a Buyer owns Preferred Shares,
the Company agrees to send the following reports to such Buyer: (i) within ten
(10) days after the filing with the SEC, a copy of its Annual Report on Form
10-K, its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K;
(ii) within one (1) day after release, copies of all press releases issued by
the Company; and (iii) contemporaneously with the making available or giving to
the shareholders of the Company, copies of any notices or other information the
Company makes available or gives to such shareholders.
12
<PAGE> 13
g. Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
(based on the Conversion Price of the Preferred Shares in effect from time to
time). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of the Preferred Shares without the
consent of each Buyer, which consent will not be unreasonably withheld. The
Company shall use its best efforts at all times to maintain the number of shares
of Common Stock so reserved for issuance at no less than 1.5 times the number
that is then actually issuable upon full conversion of the Preferred Shares
(based on the Conversion Price of the Preferred Shares in effect from time to
time). If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares issued and
issuable upon conversion of the Preferred Shares, the Company will promptly take
all corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of shareholders
to authorize additional shares, in the case of an insufficient number of
authorized shares, and using its best efforts to obtain shareholder approval of
an increase in such authorized number of shares.
h. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Conversion Shares from time
to time issuable upon conversion of the Preferred Shares. The Company will use
its best efforts to obtain and maintain the listing and trading of its Common
Stock on Nasdaq, the Nasdaq SmallCap Market ("NASDAQ SMALLCAP"), the New York
Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX"), or any other
equivalent national securities exchange that may be established in the future,
and will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly
provide to each Buyer copies of any notices it receives from Nasdaq regarding
the continued eligibility of the Common Stock for listing on Nasdaq.
i. Corporate Existence. So long as a Buyer beneficially owns any
Preferred Shares, the Company shall maintain its corporate existence and shall
not sell all or substantially all of the Company's assets, except in the event
of a merger or consolidation or sale of all or substantially all of the
Company's assets, where the surviving or successor entity in such transaction
(i) assumes the Company's obligations hereunder and under the agreements and
instruments entered into in connection herewith and (ii) is a publicly traded
corporation whose Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap,
NYSE or AMEX, or any other equivalent national securities exchange that may be
established in the future.
j. No Integration. The Company will not conduct any future offering
that will be integrated with the issuance of the Securities solely for purposes
of Rule 4460(i) of the Nasdaq Stock Market.
13
<PAGE> 14
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer agent
to issue certificates, registered in the name of each Buyer or its nominee, for
the Conversion Shares in such amounts as specified from time to time by each
Buyer to the Company upon proper conversion of the Preferred Shares (the
"Irrevocable Transfer Agent Instructions"). Prior to registration of the
Conversion Shares under the 1933 Act, all such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior
to registration of the Conversion Shares under the 1933 Act), will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way the Buyer's obligations and agreement set
forth in Section 2(g) hereof to comply with all applicable prospectus delivery
requirements, if any, upon resale of the Securities. If a Buyer provides the
Company with an opinion of counsel, reasonably satisfactory to the Company in
form, substance and scope, that registration of a resale by such Buyer of any of
the Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue one or more certificates in such name and in such
denominations as specified by such Buyer. The Company acknowledges that a breach
by it of its obligations hereunder will cause irreparable harm to the Buyers, by
vitiating the intent and purpose of the transaction contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations under this Section 5 will be inadequate and agrees, in the event of
a breach or threatened breach by the Company of the provisions of this Section,
that the Buyers shall be entitled, in addition to all other available remedies,
to an injunction restraining any breach and requiring immediate transfer,
without the necessity of showing economic loss and without any bond or other
security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Preferred
Shares to a Buyer at the Closing, is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions thereto, provided that
these conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price in
accordance with Section l(b) above.
c. The Certificate of Determination shall have been accepted for
filing with the Secretary of State of California.
14
<PAGE> 15
d. The representations and warranties of the applicable Buyer shall
be true and correct in all material respects as of the date when made and as of
the Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date), and the applicable Buyer shall
have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
The obligation of each Buyer hereunder to purchase the Preferred Shares
at the Closing, is subject to the satisfaction, at or before the Closing Date,
of each of the following conditions, provided that these conditions are for such
Buyer's sole benefit and may be waived by such Buyer at any time in its sole
discretion:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
(ii) The Certificate of Determination shall have been accepted for
filing with the Secretary of State of California, and a copy thereof certified
by such Secretary of State shall have been delivered to such Buyer.
(iii) The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Preferred Shares being so purchased in accordance with Section l(b) above.
(iv) The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
(v) The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer of the Company, dated as of the Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, but not limited to certificates with respect to the Company's
Articles of Incorporation, By-laws and Board of Directors' resolutions relating
to the transactions contemplated hereby.
15
<PAGE> 16
(vi) No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
(vii) The Conversion Shares shall have been authorized for quotation
on Nasdaq and trading in the Common Stock on Nasdaq shall not have been
suspended by the SEC or Nasdaq.
(viii) The Buyer shall have received an opinion of the Company's
counsel, dated as of each Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as EXHIBIT "C"
attached hereto.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of California without
regard to the principles of conflict of laws. The parties hereto hereby submit
to the exclusive jurisdiction of the United States Federal Courts located in the
Northern District of California with respect to any dispute arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby.
b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed by
a party, may be delivered to the other party hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
16
<PAGE> 17
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular U.S. mail, or upon receipt,
if delivered personally or by courier (including a recognized overnight delivery
service) or by facsimile, in each case addressed to a party. The addresses for
such communications shall be:
If to the Company:
Abaxis, Inc.
1320 Chesapeake Terrace
Sunnyvale, California 94089
Attention: Chief Financial Officer
Facsimile: (408) 734-3120
With copy to:
Gray Cary Ware & Freidenrich,
A Professional Corporation
400 Hamilton Avenue
Palo Alto, California 94301
Attention: Thomas W. Furlong, Esq.
Facsimile: (415) 327-3699
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, any Buyer may assign its rights hereunder to any
person that purchases Securities convertible into shares of Common Stock valued
at not less than $1,000,000 (based on the closing sale price of the Common Stock
on Nasdaq or on the principal securities exchange or quotation system on which
the Common Stock is traded on the date of transfer) in a private transaction
from a Buyer or to any of its "affiliates," as that term is defined under the
1934 Act, without the consent of the Company.
h. Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company and
the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive
the closing hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Buyers.
17
<PAGE> 18
j. Publicity. The Company and each of the Buyers shall have the
right to review a reasonable period of time before issuance of any press
releases, SEC, Nasdaq or NASD filings, or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of each of the Buyers, to
make any press release or SEC, Nasdaq or NASD filings with respect to such
transactions as is required by applicable law and regulations (although each of
the Buyers shall be consulted by the Company in connection with any such press
release prior to its release and shall be provided with a copy thereof and be
given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will
be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
18
<PAGE> 19
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
ADVANTAGE FUND LTD.
By: ________________________________________
Name: ______________________________________
Its: _______________________________________
RESIDENCE:
ADDRESS:
c/o CITCO
Kaya Flamboyan 9
Curacao, Netherlands Antilles
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Shares of Series B Convertible Preferred Stock: 1.000
Aggregate Purchase Price: $1,000,000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-1-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,161,000
<SECURITIES> 4,583,000
<RECEIVABLES> 1,764,000
<ALLOWANCES> (61,000)
<INVENTORY> 1,595,000
<CURRENT-ASSETS> 9,184,000
<PP&E> 6,925,000
<DEPRECIATION> (4,510,000)
<TOTAL-ASSETS> 11,688,000
<CURRENT-LIABILITIES> 3,356,000
<BONDS> 350,000
0
0
<COMMON> 58,403,000
<OTHER-SE> (50,421,000)
<TOTAL-LIABILITY-AND-EQUITY> 11,688,000
<SALES> 2,753,000
<TOTAL-REVENUES> 2,753,000
<CGS> 2,595,000
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</TABLE>
