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SECURITIES EXCHANGE COMMISSION
WASHINGTON, D.C. 20552
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Date of Report (Date of earliest event reported): January 26, 1998
SALIVA DIAGNOSTIC SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-21284 91-1549305
(State or other jurisdiction (Commission (IRS Employer
or incorporation) File Number) Identification no.)
11719 N.E. 95TH STREET
VANCOUVER, WA 98682
(360) 696-4800
(Address, including zip code, and telephone number
of principal executive offices)
Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER
Saliva Diagnostic Systems, Inc., a Delaware corporation (the
"Company"), has entered into a securities purchase agreement dated as of
January 26, 1998 in connection with a financing pursuant to Regulation D
promulgated under the Securities Act of 1933, as amended.
The following summary of the transaction is qualified in its entirety
by the terms of the related agreements, filed herewith as exhibits to this Form
8-K
THE TRANSACTION
The Company entered into a Securities Purchase Agreement with
Biscount Overseas Limited (the "Investor") dated as of January 26, 1998
providing for the issuance and sale of shares of the Company's newly designated
Series 1998-A Convertible Preferred Stock, stated value $1,000 per share (the
"1998-A Preferred Stock") (the "Offering"). Pursuant to the Securities
Purchase Agreement, the Company sold a total of 1,500 shares of the 1998-A
Preferred Stock to the Investor for an aggregate purchase price of $1,500,000.
The Investor is entitled to receive a number of shares of the Company's common
stock, par value $.01 per share (the "Common Stock"), upon conversion of the
1998-A Preferred Stock as determined by dividing the purchase price of the
1998-A Preferred Stock by the lesser of (i) $0.3375 (as adjusted for certain
capital events, which would include a reverse stock split), and (ii) 80% of the
average closing bid price of the Common Stock for the five trading days prior
to conversion, as reported by The Nasdaq Stock Market.
The Securities Purchase Agreement provides for an "Additional
Offering" of up to $1,500,000 of an additional series of the Company's
preferred stock (the "1998-B Preferred Stock") which the Investor may purchase
at its option upon substantially the same terms as the Offering. This option,
which must be exercised by the Investor on or prior to September 26, 1998, is
subject to two limitations. First, if the closing bid price of the Common
Stock is equal to or greater than $0.60 (as adjusted) for five consecutive
trading days, the Company may give notice to the Investor that the election
option will expire within 30 days. Second, if the Company enters into a
strategic alliance or merger, the Investor's election option may be revoked
immediately by the Company, subject to the payment by the Company to the
Investor of a termination fee of $250,000, payable in cash or Common Stock.
The 1998-B Preferred Stock will be convertible into a number of shares of
Common Stock determined by dividing the purchase price of the 1998-B Preferred
Stock by the lesser of (i) 80% of the average closing bid price of the Common
Stock for the five trading days prior to conversion, and (ii) $0.3375 (as
adjusted for certain capital events, including a reverse stock split);
provided, however, that at no time shall the 1998-B Preferred Stock be
convertible at less than 65% of the average closing bid price of the Common
Stock for the five trading days prior to conversion.
The 1998-A Preferred Stock is convertible into shares of
Common Stock on or prior to January 26, 2000, subject to the following
restrictions. The Investor may convert up
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to (i) 25% the 1998-A Preferred Stock at any time from and after April 26,
1998; (ii) 50% of the 1998-A Preferred Stock at any time from and after May 26,
1998; (iii) 75% of the 1998-A Preferred Stock at any time from and after June
25, 1998; and (iv) all of the 1998-A Preferred Stock at any time from and after
July 25, 1998.
In connection with the Offering, the Company also entered into
a registration rights agreement with the Investor, pursuant to which the
Company is required to file a registration statement covering resales of shares
of the Common Stock issuable upon conversion of the 1998-A Preferred Stock.
The Company may be required to make certain payments to the Investor as damages
if the registration statement is not filed on or before February 26, 1998 or is
not declared effective by the Securities and Exchange Commission by April 26,
1998.
As placement agent for the Offering, Aryeh Trading, Inc.
("ATI") received certain compensation from the Company. The Company paid a
cash fee of 7.5% of the gross proceeds of the Offering to ATI, and attorney's
fees in connection with the Offering equal to 0.5% of the gross proceeds of the
Offering to counsel to ATI. The Company also issued to ATI warrants to
purchase up to 750,000 shares of Common Stock at an exercise price of $0.3375
per share, which expire on January 26, 2003 (the "Warrants"). ATI has certain
registration rights with respect to the shares of Common Stock that may be
issued upon exercise of the Warrants. In addition, the Company has agreed to
issue to ATI additional warrants to purchase up to 250,000 shares of Common
Stock on the same terms as the Warrants if and when the 1998-B Preferred Stock
is issued.
USE OF PROCEEDS
The Company intends to use the net proceeds from the Offering
for working capital purposes.
OUTSTANDING SECURITIES OF THE COMPANY
There were issued and outstanding on January 23, 1998
approximately 30,543,475 shares of Common Stock and no shares of Preferred
Stock. On January 26, 1998, the Company issued to the Investor 1,500 shares of
1998-A Preferred Stock.
As of January 23, 1998, there were outstanding (i) stock
options to purchase an aggregate of 3,097,915 shares of Common Stock at
exercise prices ranging from $0.40 to $5.50 per share; (ii) warrants to
purchase 1,380,000 shares of Common Stock which were issued in the Company's
initial public offering, are exercisable at $1.25 per share, and expire March
31, 1998, unless extended by the Company; and (iii) warrants to purchase
567,216 shares which are exercisable at prices ranging from $0.50 to $4.00 per
share. On January 26, 1998, the Company issued the Warrants to ATI.
NASDAQ LISTING
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By letter dated October 27, 1997, The Nasdaq Stock Market,
Inc. ("Nasdaq") informed the Company that its Common Stock would be removed
from The Nasdaq SmallCap Market if the current continued listing requirements
were not met prior to January 27, 1998. The Nasdaq current continued listing
requirements include maintaining a common stock minimum closing bid price of
$1.00 or, alternatively, maintaining capital and surplus of $2,000,000 and a
market value of the public float of $1,000,000. Under the new Nasdaq continued
listing requirements effective February 22, 1998, the Company will be required
to maintain a $1.00 minimum bid price and one of the following: net tangible
assets of $2,000,000, market capitalization of $35,000,000 or net income of
$500,000 in the most recently completed fiscal year or in two of the last three
most recently completed fiscal years.
On January 27, 1998, the Company submitted to Nasdaq a request
for a hearing on written submission to consider the Company's plan for meeting
the continued listing requirements. Nasdaq granted such request and stayed the
delisting action until the hearing, which is scheduled for February 26, 1998.
On February 11, 1998, the Company submitted its plan of compliance for
consideration at the hearing. There can be no assurance that Nasdaq will
accept the Company's plan of compliance or that the Common Stock will not be
delisted from The Nasdaq SmallCap Market.
If the Company is removed from the Nasdaq system, trading, if
any, in the Common Stock would thereafter be conducted in the over-the-counter
market on an electronic bulletin board established for securities that do not
meet the Nasdaq listing requirements or in what are commonly referred to as
"pink sheets."
ITEM 7. EXHIBITS
(c) Exhibits
Number Description
4.1 Certificate of Designations, Rights and Preferences of the
Series 1998-A Convertible Preferred Stock
10.1 Securities Purchase Agreement dated as of January 26, 1998
between the Company and Biscount Overseas Limited
10.2 Registration Rights Agreement dated as of January 26, 1998
between the Company and Biscount Overseas Limited
10.3 Placement Agent Agreement dated as of January 26, 1998
between the Company and Aryeh Trading, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Saliva Diagnostic Systems, Inc.
DATE: February 13, 1998 By: /s/ Kenneth J. McLachlan
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Kenneth J. McLachlan
President and Chief Executive Officer
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SALIVA DIAGNOSTIC SYSTEMS, INC.
EXHIBIT INDEX
Number Description
4.1 Certificate of Designations, Rights and Preferences of the
Series 1998-A Convertible Preferred Stock
10.1 Securities Purchase Agreement dated as of January 26, 1998
between the Company and Biscount Overseas Limited
10.2 Registration Rights Agreement dated as of January 26, 1998
between the Company and Biscount Overseas Limited
10.3 Placement Agent Agreement dated as of January 26, 1998
between the Company and Aryeh Trading, Inc.
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EXHIBIT 4.1
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
1998-A CONVERTIBLE PREFERRED STOCK
OF
SALIVA DIAGNOSTIC SYSTEMS, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
Saliva Diagnostic Systems, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation pursuant to authority of the Board of Directors as
required by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of Incorporation,
as amended, the Board of Directors hereby authorizes a series of the
Corporation's previously authorized Preferred Stock, par value $0.01 per share
(the "Preferred Stock"), and hereby states the designation and number of
shares, and fixes the relative rights, preferences, privileges, powers and
restrictions thereof as follows:
1998-A Convertible Preferred Stock:
I. Designation and Amount
The designation of this series, which consists of One Thousand Five
Hundred (1,500) shares of Preferred Stock, is 1998-A Convertible Preferred
Stock (the "1998-A Preferred Stock") and the stated value shall be One Thousand
Dollars ($1,000) per share (the "Stated Value").
II. Rank
All 1998-A Preferred Stock shall rank (i) prior to the Corporation's
Common Stock, par value $.01 per share (the "Common Stock"); (ii) pari passu
with the Corporation's 1998-B Convertible Preferred Stock; (iii) prior to any
class or series of capital stock of the Corporation hereafter created (unless,
with the consent of the holders of the 1998-A Preferred Stock obtained in
accordance with Article IX hereof, such class or series of capital stock
specifically ranks, by its terms, pari passu with the 1998-A Preferred Stock
(together with the 1998-B Convertible Preferred Stock, the "Pari Passu
Securities")); and (iv) junior to any class or series of capital stock of the
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Corporation hereafter created (with the consent of the holders of the 1998-A
Preferred Stock obtained in accordance with Article IX hereof) that
specifically ranks, by its terms, senior to the 1998-A Preferred Stock
(collectively, the "Senior Securities"), in each case as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary.
III. Dividend
The holder of the 1998-A Preferred Stock shall be entitled to receive
when, as and if declared by the Board of Directors out of funds legally
available for such purpose, dividends at an annual rate of six percent (6%) per
annum (the "Dividend"), payable annually commencing on the date of issuance.
The Dividend paid on the 1998-A Preferred Stock shall be cumulative and shall
be declared and paid out of funds legally available therefor simultaneously
with any conversion thereof and as set forth in Articles IV through VII hereof.
IV. Liquidation
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 ninety (90) consecutive
days and, on account of any such event (a "Liquidation Event"), the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto, the holders
of shares of 1998-A Preferred Stock shall have received the Stated Value, plus
the Dividend for the period ending on the date of the Liquidation Event, 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 1998-A
Preferred Stock and holders of Pari Passu Securities shall be insufficient to
permit the payment to such holders of the preferential amounts payable thereon,
then the entire assets and funds of the Corporation legally available for
distribution to the 1998-A Preferred Stock and the Pari Passu Securities shall
be distributed ratably among such shares in proportion to the ratio that the
Stated Value of each such share bears to the aggregate Stated Value of all such
shares.
B. At the option of any holder of 1998-A Preferred
Stock, the sale, conveyance or disposition of all or substantially all of the
assets of the Corporation, the effectuation by the
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Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation for purposes of this Article IV; or (ii) be
treated pursuant to Article VI.C hereof. "Person" shall mean any individual,
corporation, limited liability corporation, partnership, association, trust or
other entity or organization.
V. Cash Payment of Dividend by
Corporation; Limited Redemption of 1998-A Preferred Stock
A. The Corporation shall have the right, in its sole
discretion, upon receipt of a Notice of Conversion pursuant to Article VI.D or
in the event of a Mandatory Conversion effected in accordance with Article VII
hereof, to pay any portion of the Dividend payable upon such conversion for
cash. All cash payments hereunder shall be paid in lawful money of the United
States of America at such address for the holder as appears on the record books
of the Corporation (or at such other address as such holder shall hereafter
give to the Corporation by written notice).
B. In the event (each of the events described in clauses
(i)-(iii) below after expiration of the applicable cure period (if any) being a
"Redemption Event"):
(i) the Corporation fails to instruct its
transfer agent, and any such failure continues uncured for five (5) business
days after the Corporation has been notified thereof in writing by the holder,
to remove any restrictive legend on any certificate or any shares of Common
Stock issued to such holder of 1998-A Preferred Stock upon conversion of the
1998-A Preferred Stock as and when required by this Certificate of Designation,
the Securities Purchase Agreement, dated as of January 26, 1998 by and between
the Corporation and the other signatory or signatories thereto with respect to
the sale of 1998-A Preferred Stock (the "Securities Purchase Agreement") or the
Registration Rights Agreement dated as of January 26, 1998, by and among the
Corporation and the other signatory or signatories thereto;
(ii) a holder of shares of 1998-A Preferred Stock
submits a Conversion Notice, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of Article VI (in which case the
Corporation shall immediately notify such holder of such occurrence); or
(iii) the holder is prevented from converting
shares of 1998-A Preferred Stock because such conversion would result in the
issuance of 19.99% of all of the Corporation's issued and outstanding stock as
of the date of issuance of the 1998-A Preferred Stock in the circumstances
described in Section VI.A(d) hereof;
then, upon the occurrence of any such Redemption Event, each holder of shares
of 1998-A Preferred Stock shall thereafter have the option, exercisable in
whole or in part at any time and from time to time by delivery of notice from a
holder requiring a redemption (a "Redemption
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Notice") to the Corporation while such Redemption Event continues, to require
the Corporation to purchase for cash any or all of the then outstanding shares
of 1998-A Preferred Stock held by such holder for an amount per share equal to
the Redemption Amount (as defined in Paragraph C below) in effect at the time
of the redemption hereunder. Notwithstanding anything to the contrary herein,
in the event of a Redemption Event described in subparagraph (ii) or (iii)
above, such holder shall be entitled to receive the Redemption Amount only in
respect of that portion of the 1998-A Preferred Stock for which the Corporation
has insufficient shares of Common Stock to facilitate the conversion which is
the subject of such Notice of Conversion. If the Corporation fails to pay the
Redemption Amount for each share within two (2) business days of the effective
date of a Redemption Notice, then the holder of 1998-A Preferred Stock
delivering such Redemption Notice (i) shall be entitled to interest thereon at
a rate per annum equal to the lower of twelve percent (12%) and the highest
rate permitted by applicable law until the date of redemption hereunder, and
(ii) except with respect to the Redemption Event described in subparagraphs
(ii) and (iii) above, shall have the right, at any time and from time to time,
to require the Corporation, upon written notice, to immediately convert (in
accordance with the terms of Paragraph A of Article VI below) all or any
portion of the Redemption Amount, plus interest as aforesaid, into shares of
Common Stock at the Conversion Price. In the event more than one holder
delivers a Redemption Notice and the Corporation is not, at the effective date
of such Redemption Notice, able to redeem all of the shares of 1998-A Preferred
Stock subject to Redemption Notices, the Corporation shall select the shares of
1998-A Preferred Stock to be redeemed from each holder pro rata, based on the
total number of shares of 1998-A Preferred Stock included by such holder in the
Redemption Notice relative to the total number of shares of 1998-A Preferred
Stock in all of the Redemption Notices.
C. The "Redemption Amount" with respect to any
redemption of a share of 1998-A Preferred Stock means an amount equal to:
1,000
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CP x M
where:
"CP" means the then current Conversion Price; and
"M" means the highest closing bid price of the Corporation's
Common Stock during the period beginning on the date of the Redemption Notice
and ending on the date of the redemption, as reported on The Nasdaq Stock
Market (or the principal securities exchange or trading market on which the
Common Stock is traded).
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VI. Conversion at the Option of the Holder
A. Each holder of shares of 1998-A Preferred Stock may,
at its option, convert its shares of 1998-A Preferred Stock into Common Stock
in the following amounts and at the following times (an "Optional Conversion").
(a) Each share of 1998-A Preferred Stock shall be
convertible into such number of fully paid and nonassessable shares of Common
Stock as is determined by one of the following formulas, as applicable:
(1) if the Dividend has been paid in cash by
the Company in accordance with Article V.A hereof,
1,000
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CP
where: CP = Conversion Price (as defined in
Article VI.B); or
(2) if the Dividend has not been paid in
cash by the Company,
(.06)(N/365)(1,000) + 1,000
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CP
where: CP= Conversion Price (as defined in
Article VI.B), and
N= the number of days between the date
of issuance of the 1998-A Preferred
Stock to the holder and the Conversion
Date (as defined in Article VI.D(d)).
(b) A holder of shares of 1998-A Preferred Stock
shall have the right to effect an Optional Conversion of up to (i) twenty-five
percent (25%) of the shares of 1998-A Preferred Stock originally issued to the
holder at any time from and after the ninetieth (90th) day following the date
of issuance; (ii) fifty percent (50%) of the shares of 1998-A Preferred Stock
originally issued to the holder at any time from and after the one hundred
twentieth (120th) day following the date of issuance; (iii) seventy-five
percent (75%) of the shares of 1998-A Preferred Stock originally issued to the
holder at any time from and after the one hundred fiftieth (150th) day
following the date of issuance; and (iv) all (100%) of the shares of 1998-A
Preferred Stock originally issued to the holder at any time from and after the
one hundred eightieth (180th) day following the date of issuance.
(c) Notwithstanding anything to the contrary
contained herein, except as to Article VII hereof, in no event shall a holder
of shares of 1998-A Preferred Stock be entitled to convert any such shares in
excess of that number of shares upon conversion of which the sum
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of (x) the number of shares of Common Stock beneficially owned by the holder
and its affiliates and (y) the number of shares of Common Stock issuable upon
the conversion of the shares of 1998-A Preferred Stock with respect to which
the determination of this sentence is being made would result in beneficial
ownership by the holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock. For purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13 D-G
thereunder; provided, however, that for this purpose, in no event shall shares
otherwise includable pursuant to Rule 13d-3 be included in such calculation.
(d) Notwithstanding the provisions hereof to the
contrary, to the extent that the offering and sale of the 1998-A Preferred
Stock and the offering and sale of the 1998-B Preferred Stock are deemed to be
integrated for purposes of the rules or regulations of the Nasdaq SmallCap
Market, in the event that upon conversion of the 1998-A Preferred Stock and the
1998-B Preferred Stock the Corporation would be obligated to issue an aggregate
amount of shares of Common Stock which exceeds 19.99% of the number of shares
of Common Stock outstanding on the date the 1998-A Preferred Stock is issued to
the holder thereof (such amount to be proportionately adjusted from time to
time in the event of stock dividends, subdivisions, combinations,
reclassifications, capital reorganizations and similar events) (the "Exchange
Cap") and such issuance would constitute a breach of the Corporation's
obligations under the rules or regulations of the Nasdaq SmallCap Market, or
any other principal securities exchange or market upon which the Common Stock
is or becomes traded, the Corporation may elect to redeem at the Redemption
Amount (as defined in Section V.B hereof) only that amount of Preferred Stock
which, if converted, would result in the issuance of more than the Exchange
Cap.
B. The "Conversion Price" shall be the lesser of (i)
100% of the Market Price on the date the 1998-A Preferred Stock is initially
issued to the holder, and (ii) 80% of the Market Price on the Conversion Date
(as defined in paragraph D(d) of this Article VI). For the purposes hereof,
"Market Price" shall mean the average of the closing bid prices of the Common
Stock, as reported by The Nasdaq Stock Market, over a period of five
consecutive trading days ending on the day immediately preceding the date in
question.
C. The Conversion Price shall be subject to adjustment
from time to time as follows:
(a) Adjustment to Conversion Price Due to Stock
Split, Stock Dividend, Etc. If at any time when the 1998-A Preferred Stock is
issued and outstanding, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, or other similar event, the
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
Conversion Price shall be proportionately increased. In such event the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof.
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(b) Adjustment Due to Merger, Consolidation, Etc.
If, at any time when 1998-A Preferred Stock is issued and outstanding and prior
to the conversion of all 1998-A Preferred Stock, there shall be (i) any
reclassification or change of the outstanding shares of Common Stock (other
than a change in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination), (ii) any
consolidation or merger of the Corporation with any other corporation (other
than a merger in which the Corporation is the surviving or continuing
corporation and its capital stock is unchanged), (iii) any sale or transfer of
all or substantially all of the assets of the Corporation or (iv) any share
exchange pursuant to which all of the outstanding shares of Common Stock are
converted into other securities or property, then the holders of 1998-A
Preferred Stock shall, upon being given at least thirty (30) days prior written
notice of such transaction, thereafter have the right to purchase and receive
upon conversion of 1998-A Preferred Stock, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such shares of stock and/or
securities or other property as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
receivable upon the conversion of 1998-A Preferred Stock held by such holders
had such merger, consolidation, exchange of shares, recapitalization,
reorganization or other similar event not taken place, and in any such case
appropriate provisions shall be made with respect to the rights and interests
of the holders of the 1998-A Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
1998-A Preferred Stock) shall thereafter be applicable, as nearly as may be
practicable in relation to any shares of stock or securities thereafter
deliverable upon the conversion thereof. The above provisions shall similarly
apply to successive reclassifications, consolidations, mergers, sales,
transfers or share exchanges.
(d) No Fractional Shares. If any adjustment
under this Article VI.C would create a fractional share of Common Stock or a
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 shall be the next higher number of shares.
D. In order to convert 1998-A Preferred Stock into full
shares of Common Stock, a holder shall: (i) fax a copy of the fully executed
notice of conversion in the form attached hereto ("Notice of Conversion") to
the Corporation at the office of the Corporation (fax number 360-254-7942),
with a copy to the Corporation's Transfer Agent (fax number 718-921-8327 or
such other number as the Corporation shall specify in a notice to the holder)
for the 1998-A Preferred Stock that the holder elects to convert the same,
which notice shall specify the number of shares of 1998-A Preferred Stock to be
converted, the applicable Conversion Price and a calculation of the number of
shares of Common Stock issuable upon such conversion (together with a copy of
the first page of each certificate to be converted) prior to 6:00 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 1998-A Preferred Stock being converted (the
"Preferred Stock Certificates"), duly endorsed, along with a copy of the Notice
of Conversion within two (2) business days thereafter to the office of the
Corporation; provided, however, that the Corporation shall not be obligated to
issue certificates evidencing the shares of Common Stock
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issuable upon such conversion unless either the Preferred Stock Certificates
are delivered to the Corporation as provided above, or the holder notifies the
Corporation that such certificates have been lost, stolen or destroyed (subject
to the requirements of subparagraph (a) below). In the case of a dispute as to
the calculation of the Conversion Price, the Corporation shall promptly issue
such number of shares of Common Stock to purchase shares of Common Stock that
are n disputed in accordance with subparagraph (b) below. The Corporation
shall submit the disputed calculations to its outside accountant via facsimile
within five (5) business days of receipt of the Notice of Conversion. The
accountant shall audit the calculations and notify the Corporation and the
holder of the results no later than three (3) business days 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 1998-A Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity or security
reasonably satisfactory to the Corporation, and upon surrender and cancellation
of the Preferred Stock Certificate(s), if mutilated, the Corporation shall
execute and deliver new Preferred Stock Certificate(s) of like tenor and date.
However, the Corporation shall not be obligated to reissue such lost or stolen
Preferred Stock Certificate(s) if the holder contemporaneously requests the
Corporation to convert such 1998-A Preferred Stock.
(b) Delivery of Common Stock Upon Conversion.
Upon the surrender of certificates as described above from a holder of 1998-A
Preferred Stock accompanied by a Notice of Conversion, the Corporation shall
issue and, within two (2) business days (the "Delivery Period") after such
surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above),
request that its Transfer Agent deliver to or upon the order of the holder (i)
that number of shares of Common Stock for the portion of the shares of 1998-A
Preferred Stock converted as shall be determined in accordance herewith and
(ii) a certificate representing the balance of the shares of 1998-A Preferred
Stock not converted, if any.
(c) No Fractional Shares. If any conversion of
1998-A 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 1998-A Preferred Stock shall be the next higher number of
shares.
(d) Conversion Date. The "Conversion Date" shall
be the date specified in the Notice of Conversion, provided (i) that the
advance copy of the Notice of Conversion is faxed to the Corporation before
6:00 p.m., New York City time, on the Conversion Date, and (ii) that the
original Preferred Stock Certificate(s), duly endorsed, are surrendered along
with a copy of the Notice of Conversion within two (2) business days thereafter
to the office of the Corporation. 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 1998-A Preferred
Stock surrendered
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shall forthwith terminate except the right to receive the shares of Common
Stock or other securities or property issuable on such conversion.
E. A number of shares equal to 150% of the authorized
but unissued Common Stock to provide for the conversion of the 1998-A
Preferred Stock outstanding at the then current Conversion Price shall at all
times be reserved by the Corporation, free from preemptive rights, for such
conversion in accordance with the provisions of the Securities Purchase
Agreement. Notwithstanding anything to the contrary herein, shares of Common
Stock so reserved shall be allocated for issuance upon conversion of the 1998-A
Preferred Stock pro rata among the holders of 1998-A Preferred Stock based on
the number of shares of 1998-A Preferred Stock held by each such holder
relative to the total number of authorized shares of 1998-A Preferred Stock.
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 1998-A Preferred Stock shall be convertible at the then
current Conversion Price, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of
shares of Common Stock authorized and reserved, free from preemptive rights,
for conversion of the outstanding 1998-A Preferred Stock on the new basis. If
at any time a holder of shares of 1998-A Preferred Stock submits a Conversion
Notice 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 each holder such holder's pro rata share of all of the shares of
Common Stock which are available to effect such conversion and shall thereafter
use its best efforts and take all necessary action to obtain, as promptly as
practicable, shareholder approval to authorize the issuance of sufficient
shares of Common Stock to effect conversion of the 1998-A Preferred Stock then
outstanding. The number of shares of 1998-A Preferred Stock included in the
Notice of Conversion which exceeds the amount which is then convertible into
available shares of Common Stock 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.
F. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to
each holder of 1998-A Preferred Stock a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of 1998-A Preferred Stock, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustment or readjustment, (ii) the Conversion Price at the time in effect and
(iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of 1998-A Preferred Stock.
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VII. Mandatory Conversion
Each share of 1998-A Preferred Stock issued and outstanding on that
date which is two years from the issuance date of 1998-A Preferred Stock,
automatically shall be converted into shares of Common Stock on such date at
the Conversion Price plus a Dividend for the period ending on such date;
provided, however, that the Corporation may not automatically convert any
shares of 1998-A Preferred Stock pursuant to this Article VII which are the
subject of a Notice of Conversion which was faxed to the Corporation before
4:00 p.m., New York City time, on such date or before such date.
VIII. Voting Rights
The holders of the 1998-A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation
Law ("DGCL"), and in this Article VIII, and in Article IX below.
To the extent that under the DGCL the vote of the holders of the
1998-A Preferred Stock, voting separately as a class or series as applicable,
is required to authorize a given action of the Corporation, the affirmative
vote or consent of the holders of at least a majority of the shares of the
1998-A Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the shares of 1998-A Preferred
Stock (except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. To the extent that under the DGCL
holders of the 1998-A Preferred Stock are entitled to vote on a matter with
holders of Common Stock, voting together as one class, each share of 1998-A
Preferred Stock shall be entitled to a number of votes equal to the number of
shares of Common Stock into which it is then convertible using the record date
for the taking of such vote of shareholders as the date as of which the
Conversion Price is calculated. Holders of the 1998-A Preferred Stock shall be
entitled to notice of (and copies of proxy materials and other information sent
to shareholders) all shareholder meetings or written consents with respect to
which they would be entitled to vote, which notice would be provided pursuant
to the Corporation's by-laws and the DGCL.
IX. Protective Provision
So long as shares of 1998-A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of 1998-A Preferred Stock:
(a) alter or change the rights, preferences or
privileges of the 1998-A Preferred Stock;
(b) increase the authorized number of shares of
1998-A Preferred Stock;
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(c) create any new class or series of capital
stock having a preference over the 1998-A Preferred stock as to dividends and
as to distribution of assets upon liquidation, dissolution or winding up of the
Corporation (as previously defined herein, "Senior Securities"); or
(d) create any new class or series of capital
stock ranking pari passu with the 1998-A Preferred Stock (except for the 1998-B
Convertible Preferred Stock, for which no approval shall be required) as to
dividends and as to distribution of assets upon liquidation, dissolution or
winding up of the Corporation (as previously defined herein, "Pari Passu
Securities").
In the event holders of at least a majority of the then outstanding
shares of 1998-A Preferred Stock (voting together as a single class) agree to
allow the Corporation to alter or change the rights, preferences or privileges
of the shares of 1998-A Preferred Stock, pursuant to subsection (a) above, so
as to affect the 1998-A Preferred Stock, then the Corporation will deliver
notice of such approved change to the holders of the 1998-A Preferred Stock
that did not agree to such alteration or change (the "Dissenting Holders") and
Dissenting Holders shall have the right for a period of thirty (30) days to
convert pursuant to the terms of this Certificate of Designation as they exist
prior to such alteration or change or continue to hold their shares of 1998-A
Preferred Stock as altered or changed.
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IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 26th day of January, 1998.
SALIVA DIAGNOSTIC SYSTEMS, INC.
By: /s/ Kenneth J. McLachlan
--------------------------------------------
Kenneth J. McLachlan
President and Chief Executive Officer
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the 1998-A Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of 1998-A Preferred
Stock, represented by stock certificate no(s). ___________ (the "Preferred
Stock Certificates") into shares of common stock, par value $.01 per share
("Common Stock"), of Saliva Diagnostic Systems, Inc. (the "Corporation")
according to the conditions of the Certificate of Designation of 1998-A
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 1998-A Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), 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 1998-A Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation.
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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT, dated as of the date of
acceptance set forth below, is entered into by and between SALIVA DIAGNOSTIC
SYSTEMS, INC., a Delaware corporation, with headquarters located at 11719 NE
95th St., Vancouver, Washington 98682 (the "Company"), and the undersigned (the
"Buyer").
W I T N E S S E T H:
WHEREAS, the Company and the Buyer are executing and
delivering this Agreement in accordance with and in reliance upon the exemption
from securities registration afforded, inter alia, 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"), and/or Section 4(2) of the 1933 Act; and
WHEREAS, the Buyer wishes to purchase, upon the terms and
subject to the conditions of this Agreement, Series 1998-A Convertible
Preferred Stock (the "Preferred Stock"), of the Company which will be
convertible into shares of Common Stock, $.01 par value per share of the
Company (the "Common Stock"), upon the terms and subject to the conditions of
the such Preferred Stock, and subject to acceptance of this Agreement by the
Company;
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 parties agree as
follows:
1. AGREEMENT TO PURCHASE; PURCHASE PRICE.
a. PURCHASE; CERTAIN DEFINITIONS. (i) The undersigned
hereby agrees to purchase from the Company the Preferred Stock in the principal
amount set forth on the signature page of this Agreement (the "Initial
Preferred Stock"), and having the terms and conditions and being in the form
attached hereto as ANNEX I (the "Certificate of Designations"). The purchase
price for the Initial Preferred Stock shall be as set forth on the signature
page hereto and shall be payable in United States Dollars.
(i) As used herein, the term "Preferred Stock" means the
Initial Preferred Stock unless the context otherwise requires.
(ii) As used herein, the term "Securities" means the
Preferred Stock, the Warrants and the Common Stock issuable upon conversion of
the Preferred Stock or the exercise of the Warrants.
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(iii) As used herein, the term "First Closing Date" means
the date of the closing of the purchase and sale of the Initial Preferred
Stock, as provided herein.
(iv) As used herein the term "Additional Closing Date"
means the date of the closing of the purchase and sale of the Additional
Preferred Stock, as provided herein.
(v) As used herein, the term "Closing Date" means the
relevant First Closing Date or Additional Closing Date, as the case may be.
b. FORM OF PAYMENT. The Buyer shall pay the purchase
price for the Initial Preferred Stock by delivering immediately available good
funds in United States Dollars to the Company or in accordance with its written
instructions. No later than the relevant Closing Date, but in any event
promptly following payment by the Buyer of the purchase price of the relevant
Preferred Stock, the Company shall deliver the relevant Preferred Stock duly
executed on behalf of the Company to the Buyer.
c. METHOD OF PAYMENT. Payment of the purchase price for
the Initial Preferred Stock shall be made to or at the direction of the
Company. Not later than 1:00 p.m., New York time, on the date which is one (1)
New York Stock Exchange trading days after the Company shall have accepted this
Agreement and returned a signed counterpart of this Agreement to the Company or
its counsel/Placement Agent by facsimile, the Buyer shall deposit the aggregate
purchase price for the Initial Preferred Stock, in currently available funds.
Time is of the essence with respect to such payment, and failure by the Buyer
to make such payment, shall allow the Company to cancel this Agreement.
2. BUYER REPRESENTATIONS, WARRANTIES, ETC.; ACCESS TO
INFORMATION; INDEPENDENT INVESTIGATION.
The Buyer represents and warrants to, and covenants and agrees
with, the Company as follows:
a. Without limiting Buyer's right to sell the Common
Stock pursuant to the Registration Statement (as that term is defined in the
Registration Rights Agreement defined below), the Buyer is purchasing the
Preferred Stock and the Warrants and will be acquiring the shares of Common
Stock issuable upon conversion of the Preferred Stock (the "Converted Shares")
and the Warrant Shares for its own account for investment only and not with a
view towards the public sale or distribution thereof and not with a view to or
for sale in connection with any distribution thereof.
b. The Buyer is (i) an "accredited investor" as that
term is defined in Rule 501 of the General Rules and Regulations under the 1933
Act by reason of Rule 501(a)(3), (ii) experienced in making investments of the
kind described in this Agreement and the related documents, (iii) able, by
reason of the business and financial experience of its officers (if an
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<PAGE> 3
entity) and professional advisors (who are not affiliated with or compensated
in any way by the Company or any of its affiliates or selling agents), to
protect its own interests in connection with the transactions described in this
Agreement, and the related documents, and (iv) able to afford the entire loss
of its investment in the Securities.
c. All subsequent offers and sales of the Preferred
Stock and the shares of Common Stock representing the Converted Shares [and the
Warrant Shares] (such Common Stock sometimes referred to as the "Shares") by
the Buyer shall be made pursuant to registration of the Shares under the 1933
Act or pursuant to an exemption from registration.
d. The Buyer understands that the Preferred Stock are
being offered and sold to it in reliance on specific exemptions from the
registration requirements of United States federal and state securities laws
and that the Company is relying 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
Preferred Stock.
e. 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 Preferred
Stock and the offer of the Shares which have been requested by the Buyer,
including ANNEX V hereto. The Buyer and its advisors, if any, have been
afforded the opportunity to ask questions of the Company and have received
complete and satisfactory answers to any such inquiries. No representations or
warranties have been made to the Buyer by the Company, its officers or
directors, or any agent, employee or affiliate of any of them, except as set
forth herein. Without limiting the generality of the foregoing, the Buyer has
also had the opportunity to obtain and to review the Company's (1) Annual
Report on Form 10-KSB for the fiscal year ended December 31, 1996, (2)
Quarterly Report on Form 10-QSB for the fiscal quarters ended March 31, 1997,
June 30, 1997, and September 31, 1997, and (3) Forms 8-K, dated May 30, 1997
and June 5,1997, (the "Company's SEC Documents").
f. The Buyer understands that its investment in the
Securities involves a high degree of risk. In making the decision to invest in
the Securities, the Buyer has not relied on any representations or information
made by or from third parties.
g. The Buyer understands that no United States federal
or state agency or any other government or governmental agency has passed on
the fairness of an investment in, or made any recommendation or endorsement of,
the Securities.
h. This Agreement has been duly and validly authorized,
executed and delivered on behalf of the Buyer and is a valid and binding
agreement of the Buyer enforceable in accordance with its terms, subject as to
enforceability to general principles of equity and to bankruptcy, insolvency,
moratorium and other similar laws affecting the enforcement of creditors'
rights generally.
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<PAGE> 4
i. Notwithstanding the provisions hereof to the
contrary, to the extent that the offering and sale of the Initial Preferred
Stock and the offering and sale of the Additional Preferred Stock (as defined
in Section 4 hereof) are deemed to be integrated for purposes of the rules or
regulations of the Nasdaq SmallCap Market, in the event that upon conversion of
the Preferred Stock the Company would be obligated to issue an aggregate amount
of shares of Common Stock which exceeds 19.99% of the number of shares of
Common Stock outstanding on the First Closing Date (such amount to be
proportionately adjusted from time to time in the even of stock dividends,
subdivisions, combinations, reclassifications, capital reorganizations and
similar events) (the "Exchange Cap") and such issuance would constitute a
breach of the Company's obligations under the rules or regulations of the
Nasdaq SmallCap Market, or any other principal securities exchange or market
upon which the Common Stock is or becomes traded, the Company may elect to
redeem at the Redemption Amount (defined below) only that amount of Preferred
Stock which, if converted, would result in the issuance of more than the
Exchange Cap.
The "Redemption Amount" with respect to any
redemption of a share of Preferred Stock means an amount equal to:
1,000 x M
-------------
CP
where:
"CP" means the then current conversion price; and
"M" means the highest closing bid price of the
Company's Common Stock during the period beginning on the date of the
Redemption Notice and ending on the date of the redemption, as reported by The
Nasdaq Stock Market (or the principal securities exchange or trading market on
which the Common Stock is then traded).
j. The Buyer understands that the securities have not
been registered under the 1933 Act, and that it can not dispose of any or all
of the Securities until such shares are registered under the 1933 Act or
exemption from such registration are available.
k. Neither the Buyer nor any of its affiliates nor any
person acting on its or their behalf will at any time use Shares acquired upon
conversion of the Preferred Stock to settle/cover any put option, short
position or other similar instrument or position.
l. The Buyer is not a registered broker-dealer and is
not engaged in the business of a broker-dealer (whether or not registered).
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<PAGE> 5
3. COMPANY REPRESENTATIONS, ETC.
The Company represents and warrants to the Buyer that:
a. CONCERNING THE PREFERRED STOCK AND THE SHARES. The
Preferred Stock has been duly authorized, and when issued, will be duly and
validly issued, fully paid and non-assessable and will not subject the holder
thereof to personal liability by reason of being such holder. There are no
preemptive rights of any stockholder of the Company, as such, to acquire the
Preferred Stock, the Warrants or the Shares.
b. REPORTING COMPANY STATUS. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in each jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those jurisdictions
in which the failure to so qualify would not have a material adverse effect on
the business, operations or condition (financial or otherwise) of the Company.
The Company has registered its Common Stock pursuant to Section 12 of the 1934
Act, and the Common Stock is currently listed and traded on The NASDAQ/SmallCap
Market. The Company has received notice from NASDAQ of its delisting as of
January 27, 1998 and makes no representations as to its ability to maintain its
NASDAQ listing.
c. AUTHORIZED SHARES. The Company has sufficient
authorized and unissued Shares as may be reasonably necessary to effect the
conversion of the Preferred Stock and to issue the Warrant Shares. The
Converted Shares and the Warrant Shares have been duly authorized and, when
issued upon conversion of, or as interest on, the Preferred Stock or upon
exercise of the Warrants, each in accordance with its respective terms, will be
duly and validly issued, fully paid and non-assessable and will not subject the
holder thereof to personal liability by reason of being such holder.
d. SECURITIES PURCHASE AGREEMENT; REGISTRATION RIGHTS
AGREEMENT AND STOCK. This Agreement and the Registration Rights Agreement, the
form of which is attached hereto as ANNEX IV (the "Registration Rights
Agreement"), and the transactions contemplated thereby, have been duly and
validly authorized by the Company, this Agreement has been duly executed and
delivered by the Company and this Agreement is, and the Warrants and the
Registration Rights Agreement, when executed and delivered by the Company, will
be, valid and binding agreements of the Company enforceable in accordance with
their respective terms, subject as to enforceability to general principles of
equity and to bankruptcy, insolvency, moratorium, and other similar laws
affecting the enforcement of creditors' rights generally; and the Preferred
Stock will be duly and validly authorized and, when executed and delivered on
behalf of the Company in accordance with this Agreement, will be a valid and
binding obligation of the Company in accordance with its terms, subject to
general principles of equity and to
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<PAGE> 6
bankruptcy, insolvency, moratorium, or other similar laws affecting the
enforcement of creditors' rights generally.
e. NON-CONTRAVENTION. Except as provided in ANNEX V
hereto, the execution and delivery of this Agreement and the Registration
Rights Agreement by the Company, the issuance of the Securities, and the
consummation by the Company of the other transactions contemplated by this
Agreement, the Registration Rights Agreement, and the Preferred Stock do not
and will not conflict with or result in a breach by the Company of any of the
terms or provisions of, or constitute a default under (i) the articles of
incorporation or by-laws of the Company, each as currently in effect, (ii) any
indenture, mortgage, deed of trust, or other material agreement or instrument
to which the Company is a party or by which it or any of its properties or
assets are bound, including any listing agreement for the Common Stock except
as herein set forth, (iii) to its knowledge, any existing applicable law, rule,
or regulation or any applicable decree, judgment, or order of any court, United
States federal or state regulatory body, administrative agency, or other
governmental body having jurisdiction over the Company or any of its properties
or assets, or (iv) the Company's listing agreement for its Common Stock, except
such conflict, breach or default which would not have a material adverse effect
on the Company or on the transactions contemplated herein.
f. APPROVALS. Except as provided in ANNEX V hereto, no
authorization, approval or consent of any court, governmental body, regulatory
agency, self-regulatory organization, or stock exchange or market or the
Stockholders of the Company is required to be obtained by the Company for the
issuance and sale of the Securities to the Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained.
g. SEC FILINGS. None of the Company's SEC Documents
contained, at the time they were filed, any untrue statement of a material fact
or omitted to state any material fact required to be stated therein or
necessary to make the statements made therein in light of the circumstances
under which they were made, not misleading. Except as set forth on ANNEX V
hereto, the Company has since January 1, 1997 timely filed all requisite forms,
reports and exhibits thereto with the SEC.
h. ABSENCE OF CERTAIN CHANGES. Since January 1, 1997,
there has been no material adverse change and no material adverse development
in the business, properties, operations, condition (financial or otherwise), or
results of operations of the Company, except as disclosed in ANNEX V or in the
Company's SEC Documents. Since January 1, 1997, except as provided in the
Company's SEC Documents, the Company has not (i) incurred or become subject to
any material liabilities (absolute or contingent) except liabilities incurred
in the ordinary course of business consistent with past practices; (ii)
discharged or satisfied any material lien or encumbrance or paid any material
obligation or liability (absolute or contingent), other than current
liabilities paid in the ordinary course of business consistent with past
practices; (iii) declared or made any payment or distribution of cash or other
property to stockholders with respect to its capital stock, or purchased or
redeemed, or made any agreements to purchase or
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<PAGE> 7
redeem, any shares of its capital stock; (iv) sold, assigned or transferred any
other tangible assets, or canceled any debts or claims, except in the ordinary
course of business consistent with past practices; (v) suffered any substantial
losses or waived any rights of material value, whether or not in the ordinary
course of business, or suffered the loss of any material amount of existing
business; (vi) made any changes in employee compensation, except in the
ordinary course of business consistent with past practices; or (vii)
experienced any material problems with labor or management in connection with
the terms and conditions of their employment.
i. FULL DISCLOSURE. There is no fact known to the
Company (other than general economic conditions known to the public generally
or as disclosed in the Company's SEC Documents) that has not been disclosed in
writing to the Buyer that (i) would reasonably be expected to have a material
adverse effect on the business or financial condition of the Company or (ii)
would reasonably be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to this Agreement or any of the
agreements contemplated hereby (collectively, including this Agreement, the
"Transaction Agreements").
j. ABSENCE OF LITIGATION. Except as set forth in ANNEX
V hereto, and in the Company's SEC Documents, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board or
body pending or, to the knowledge of the Company, threatened against or
affecting the Company, wherein an unfavorable decision, ruling or finding would
have a material adverse effect on the properties, business or financial
condition, or results of operation of the Company and its subsidiaries taken as
a whole or the transactions contemplated by any of the Transaction Agreements
or which would adversely affect the validity or enforceability of, or the
authority or ability of the Company to perform its obligations under, any of
the Transaction Agreements.
k. ABSENCE OF EVENTS OF DEFAULT. Except as set forth in
ANNEX V hereto and Section 3(e) hereof, no Event of Default (or its equivalent
term), as defined in the respective agreement to which the Company is a party,
and no event which, with the giving of notice or the passage of time or both,
would become an Event of Default (or its equivalent term) (as so defined in
such agreement), has occurred and is continuing, which would have a material
adverse effect on the Company's financial condition or results of operations.
l. PRIOR ISSUES. Except as set forth in ANNEX V, during
the twelve (12) months preceding the date hereof, the Company has not issued
any convertible securities. The presently outstanding unconverted principal
amount of each such issuance as of the date of this Agreement are set forth in
ANNEX V.
m. NO UNDISCLOSED LIABILITIES OR EVENTS. Except as set
forth in ANNEX V hereto, the Company has no liabilities or obligations other
than those disclosed in the Company's SEC Documents or those incurred in the
ordinary course of the Company's business since January 1, 1997, and which
individually or in the aggregate, do not or would not have a material adverse
effect on the properties, business, condition (financial or otherwise), or
results of
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operations of the Company. No event or circumstances has occurred or exists
with respect to the Company or its properties, business, condition (financial
or otherwise), or results of operations, which, under applicable law, rule or
regulation, requires public disclosure or announcement prior to the date hereof
by the Company but which has not been so publicly announced or disclosed.
n. NO DEFAULT. The Company is not in default in the
performance or observance of any material obligation, agreement, covenant or
condition contained in any material indenture, mortgage, deed of trust or other
material instrument or agreement to which it is a party or by which it or its
property is bound.
o. REGULATION D. Neither the Company nor any of its
affiliates nor any person acting on its or their behalf has, directly or
indirectly, at any time since September 1, 1996, made any offer or sales of any
security or solicited any offers to buy any security under circumstances that
would eliminate the availability of the exemption from registration under Rule
506 of Regulation D in connection with the offer and sale of the Securities as
contemplated hereby.
p. DILUTION. The number of Shares issuable upon
conversion of the Preferred Stock may increase substantially in certain
circumstances, including, but not necessarily limited to, the circumstance
wherein the trading price of the Common Stock declines prior to the conversion
of the Preferred Stock. The Company's executive officers and directors have
studied and fully understand the nature of the Securities being sold hereby and
recognize that they have a potential dilutive effect. The board of directors
of the Company has concluded, in its good faith business judgment, that such
issuance is in the best interests of the Company. The Company specifically
acknowledges that its obligation to issue the Shares upon conversion of the
Preferred Stock and upon exercise of the Warrants is binding upon the Company
and enforceable regardless of the dilution such issuance may have on the
ownership interests of other shareholders of the Company.
4. CERTAIN COVENANTS AND ACKNOWLEDGMENTS.
a. TRANSFER RESTRICTIONS. The Buyer acknowledges that
(1) the Preferred Stock have not been and are not being registered under the
provisions of the 1933 Act and, except as provided in the Registration Rights
Agreement, the Shares have not been and are not being registered under the 1933
Act, and may not be transferred unless (A) subsequently registered thereunder
or (B) the Buyer shall have delivered to the Company and opinion of counsel,
reasonably satisfactory in form, scope and substance to the Company, to the
effect that the Shares to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (2) any sale of the Shares
made in reliance on Rule 144 promulgated under the 1933 Act may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any resale of such Shares 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 used in the 1933 Act, may require compliance with
some other exemption under the 1933 Act or the rules
8
<PAGE> 9
and regulations of the SEC thereunder; and (3) neither the Company nor any
other person is under any obligation to register the Shares (other than
pursuant to the Registration Rights Agreement) under the 1933 Act or to comply
with the terms and conditions of any exemption thereunder.
b. RESTRICTIVE LEGEND. The Buyer acknowledges and
agrees that the Preferred Stock and the Warrants, and certificates and other
instruments representing any of the Securities shall bear a restrictive legend
in substantially the following form (and a stop-transfer order may be placed
against transfer of any such Securities):
THESE SECURITIES (THE "SECURITIES") HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES OR AN OPINION OF
COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE CORPORATION THAT
SUCH REGISTRATION IS NOT REQUIRED.
Within one day after the Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the Company shall cause to
be delivered to its transfer agent an opinion to the effect that the Shares may
be transferred without such restrictive legend upon presentation of a valid
prospectus and share certificate.
c. REGISTRATION RIGHTS AGREEMENT. The parties hereto
agree to enter into the Registration Rights Agreement on or before the First
Closing Date.
d. FILINGS. The Company undertakes and agrees to make
all necessary filings in connection with the sale of the Preferred Stock to the
Buyer under any United States laws and regulations applicable to the Company,
or by any domestic securities exchange or trading market, and to provide a copy
thereof to the Buyer promptly after such filing.
e. REPORTING STATUS. So long as the Buyer beneficially
owns any of the Preferred Stock, the Company shall file all reports required to
be filed with the SEC pursuant to Section 13 or 15(d) of 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 will take all reasonable action
under its control to continue the listing and trading of its Common Stock on
The NASDAQ SmallCap Market and will comply in all material respects with the
Company's reporting, filing and other obligations under the by-laws or rules of
the National Association of Securities Dealers, Inc. ("NASD") or The NASDAQ
SmallCap Market.
9
<PAGE> 10
f. USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Preferred Stock (excluding amounts paid by the Company for
legal fees, finder's fees and escrow fees in connection with the sale of the
Preferred Stock) for internal working capital purposes, and shall not, directly
or indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership enterprise or other person.
g. AVAILABLE SHARES. The Company shall have at all
times authorized and reserved for issuance, free from preemptive rights, shares
of Common Stock sufficient to yield one hundred fifty percent (150%) of the
number of shares of Common Stock issuable (i) at conversion as may be required
to satisfy the conversion rights of the Buyer pursuant to the terms and
conditions of the Preferred Stock and (ii) upon exercise as may be required to
satisfy the exercise rights of the Buyer pursuant to the terms and conditions
of the Warrants
h. WARRANTS. The Company agrees to issue to the Buyer
on the First Closing Date transferable, divisible warrants (the "Warrants") for
the purchase of 1,000,000 shares of Common Stock. The Warrants shall bear an
exercise price equal to the Market Price of the Common Stock for the five (5)
trading days ending on the day before the First Closing Date. The Warrants
shall be exercisable as follows: (i) Warrants for the purchase of 750,000
shares of Common Stock will be exercisable immediately and (ii) Warrants for
the remaining 250,000 shares will be exercisable commencing ten (10) calendar
days after the Additional Closing Date. The Warrants will expire on the fifth
anniversary of the First Closing Date. The Warrants shall be in the form
annexed hereto as ANNEX VI, together with registration rights as provided in
the Registration Rights Agreement.
i. HEDGING TRANSACTIONS. The Company understands that
the Buyer may be a so-called "hedge" fund, and the Company hereby expressly
agrees that the Buyer shall not in any way be prohibited or restricted from any
purchases or sales of any securities or other instruments of, or related to,
the Company or any of its securities, including, but not necessarily limited
to, puts, calls, futures contracts, short sales and hedging and arbitrage
transactions. The Buyer acknowledges that such purchases, sales and other
transactions may be subject to various federal and state securities laws and
agrees to comply with all such applicable securities laws.
j. Notwithstanding the provisions hereof or of the
Preferred Stock, in no event (except (i) with respect to an automatic
conversion, if any, of a Preferred Stock as provided in the Preferred Stock and
(ii) if the Company is in default under any Preferred Stock or any of the
Transaction Agreements, as defined below) shall the holder be entitled to
convert any Preferred Stock to the extent that, after such conversion, the sum
of (1) the number of shares of Common Stock beneficially owned by the Buyer and
its affiliates (other than shares of Common Stock which may be deemed
beneficially owned through the ownership of the unconverted portion of the
Preferred Stock), and (2) the number of shares of Common Stock issuable upon
the conversion of the Preferred Stock with respect to which the determination
of this proviso is being made, would result in beneficial ownership by the
Buyer and its affiliates of more than 4.99% of the outstanding shares of Common
Stock. For purposes of the proviso to the immediately
10
<PAGE> 11
preceding sentence, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), except as otherwise provided in clause (1) of such proviso.
5. TRANSFER AGENT INSTRUCTIONS.
a. Promptly following the delivery by the Buyer of the
aggregate purchase price for the Initial Preferred Stock in accordance with
Section 1(c) hereof, the Company will irrevocably instruct its transfer agent
to issue Common Stock from time to time upon conversion of the Preferred Stock
in such amounts as specified from time to time by the Company to the transfer
agent, bearing the restrictive legend specified in Section 4(b) of this
Agreement, registered in the name of the Buyer or its nominee, and in such
denominations to be specified by the Buyer in connection with each conversion
of the Preferred Stock. The Company warrants that no instruction other than
such instructions referred to in this Section 5 and stop transfer instructions
to give effect to Section 4(a) hereof prior to registration and sale of the
Shares under the 1933 Act will be given by the Company to the transfer agent
and that the Shares shall otherwise be freely transferable on the books and
records of the Company as and to the extent provided in this Agreement, the
Registration Rights Agreement, and applicable law. Nothing in this Section
shall affect in any way the Buyer's obligations and agreement to comply with
all applicable securities laws upon resale of the Securities. If the Buyer
provides the Company with an opinion of counsel reasonably satisfactory to the
Company that registration of a resale by the Buyer of any of the Securities in
accordance with clause (1)(B) of Section 4(a) of this Agreement is not required
under the 1933 Act, the Company shall (except as provided in clause (2) of
Section 4(a) of this Agreement) permit the transfer of the Securities and, in
the case of the Converted Shares or the Warrant Shares, as the case may be,
promptly instruct the Company's transfer agent to issue one or more
certificates for Common Stock without legend in such name and in such
denominations as specified by the Buyer.
b. (i) The Company will permit the Buyer to exercise
its right to convert the Preferred Stock by telecopying an executed and
completed Notice of Conversion to the Company and delivering within two (2)
business days thereafter, the original Notice of Conversion and the Preferred
Stock being converted to the Company by express courier, with a copy to the
transfer agent.
(ii) The term "Conversion Date" means, with respect
to any conversion elected by the holder of the Preferred Stock, the date
specified in the Notice of Conversion, provided the copy of the Notice of
Conversion is telecopied to or otherwise delivered to the Company in accordance
with the provisions hereof so that is received by the Company on or before such
specified date, and the original certificate representing the Preferred Stock
is received within two (2) business days. The Conversion Date for the
mandatory conversion at maturity shall be the Maturity Date of the Preferred
Stock.
11
<PAGE> 12
(iii) The Company will request that the transfer
agent transmit the certificates representing the Converted Shares issuable upon
conversion of any Preferred Stock (together with Preferred Stock not being so
converted) to the Buyer via express courier, by electronic transfer or
otherwise, within three (3) business days after receipt by the Company of the
original Notice of Conversion and the Preferred Stock being converted (the
"Delivery Date").
d. The Company understands that a delay in the issuance
of the Shares of Common Stock beyond the Delivery Date could result in economic
loss to the Buyer. As compensation to the Buyer for such loss, the Company
agrees that if same is due to any fault of the Company, to pay late payments to
the Buyer for late issuances of Shares upon Conversion in accordance with the
following schedule (where "No. Business Days Late" is defined as the number of
business days beyond five (5) business days from Delivery Date):
<TABLE>
<CAPTION>
Late Payment For Each $10,000
of Preferred Stock Principal
No. Business Days Late Amount Being Converted
---------------------- -----------------------------------
<S> <C>
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 +$200 for each Business
Day Late beyond 10 days
</TABLE>
The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Buyer's right to
pursue actual damages for the Company's failure to direct the transfer agent to
issue and deliver the Common Stock to the Buyer. Furthermore, in addition to
any other remedies which may be available to the Buyer, in the event that the
transfer agent fails to effect delivery of such shares of Common Stock within
five (5) business days after the Delivery Date, and such failure is due to any
fault of the Company, the Buyer will be entitled to revoke the relevant Notice
of Conversion by delivering a notice to such effect to the Company whereupon
the Company and the Buyer shall each be restored to their respective positions
immediately prior to delivery of such Notice of Conversion.
e. If, by the relevant Delivery Date, the transfer agent
fails to cause to be delivered the Shares to be issued upon conversion of a
Preferred Stock and such failure is due to any fault of the Company, and after
such Delivery Date, the holder of the Preferred Stock being
12
<PAGE> 13
converted (a "Converting Holder") purchases, in an open market transaction or
otherwise, shares of Common Stock (the "Covering Shares") in order to make
delivery in satisfaction of a sale of Common Stock by the Converting Holder
(the "Sold Shares"), which delivery such Converting Holder anticipated to make
using the Shares to be issued upon such conversion (a "Buy-In"), the Company
shall pay to the Converting Holder, in addition to all other amounts
contemplated in other provisions of the Transaction Agreements, and not in lieu
thereof, the Buy-In Adjustment Amount (as defined below). The "Buy-In
Adjustment Amount" is the amount equal to the excess, if any, of (x) the
Converting Holder's total purchase price (including brokerage commissions, if
any) for the Covering Shares over (y) the net proceeds (after brokerage
commissions, if any) received by the Converting Holder from the sale of the
Sold Shares. The Company shall pay the Buy-In Adjustment Amount to the Company
in immediately available funds immediately upon demand by the Converting
Holder. By way of illustration and not in limitation of the foregoing, if the
Converting Holder purchases shares of Common Stock having a total purchase
price (including brokerage commissions) of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for net proceeds of $10,000, the
Buy-In Adjustment Amount which Company will be required to pay to the
Converting Holder will be $1,000.
f. The Company will authorize its transfer agent to give
public information relating to the Company directly to the Buyer or the Buyer's
representatives upon the request of the Buyer or any such representative. The
Company will provide the Buyer with a copy of the authorization so given to the
transfer agent.
6. DELIVERY INSTRUCTIONS.
The Initial Preferred Stock or the Additional Preferred Stock,
as the case may be, shall be delivered by the Company to the Buyer pursuant to
Section 1(b) hereof, no later than on the relevant Closing Date.
7. CLOSING DATE.
(i) The First Closing Date for the issuance and sale of
the Initial Preferred Stock shall occur on the date which is the first Nasdaq
trading day after the fulfillment or waiver of all closing conditions pursuant
to Sections 8 and 9 hereof or such other date and time as is mutually agreed
upon by the Company and the Buyer. The date of the Additional Closing Date
shall be the date specified by the Buyer on at least five (5) business days'
advance notice to the Company; provided, however, that it shall be a condition
of the Additional Closing Date that each of the conditions contemplated by
Sections 8 and 9 hereof shall have been satisfied or waived on or before such
date.
(ii) Each closing of the purchase and issuance of
Preferred Stock shall occur on the relevant Closing Date, and shall take place
no later than 12:00 Noon, New York time, on such day or such other time as is
mutually agreed upon by the Company and the Buyer.
13
<PAGE> 14
8. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The Buyer understands that the Company's obligation to sell
the Preferred Stock to the Buyer pursuant to this Agreement on the relevant
Closing Date is conditioned upon:
a. The execution and delivery of this Agreement by the
Buyer;
b. Delivery by the Buyer of good funds as payment in
full of an amount equal to the purchase price for the relevant Preferred Stock
in accordance with this Agreement;
c. The accuracy on such Closing Date of the
representations and warranties of the Buyer contained in this Agreement, each
as if made on such date, and the performance by the Buyer on or before such
date of all covenants and agreements of the Buyer required to be performed on
or before such date; and
d. There shall not be in effect any law, rule or
regulation prohibiting or restricting the transactions contemplated hereby, or
requiring any consent or approval which shall not have been obtained.
9. CONDITIONS TO THE BUYER'S OBLIGATION TO PURCHASE.
The Company understands that the Buyer's obligation to
purchase the Preferred Stock on the relevant Closing Date is conditioned upon:
a. The execution and delivery of this Agreement and the
Registration Rights Agreement by the Company;
b. Delivery by the Company of the relevant Preferred
Stock in accordance with this Agreement;
c. The accuracy in all material respects on such Closing
Date of the representations and warranties of the Company contained in this
Agreement. each as if made on such date, and the performance by the Company on
or before such date of all covenants and agreements of the Company required to
be performed on or before such date;
d. On such Closing Date, the Registration Rights
Agreement shall be in full force and effect and the Company shall not be in
default thereunder; and
e. On such Closing Date, the Buyer shall have received
an opinion of counsel for the Company, dated such Closing Date, in form, scope
and substance reasonably satisfactory to the Buyer, substantially to the effect
set forth in ANNEX III attached hereto.
14
<PAGE> 15
10. GOVERNING LAW: MISCELLANEOUS.
a. This Agreement shall be governed by and interpreted
in accordance with the laws of the State of Delaware for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non conveniens, to the bringing of any
such proceeding in such jurisdictions.
b. A facsimile transmission of this signed Agreement
shall be legal and binding on all parties hereto.
c. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original.
d. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
e. 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.
f. This Agreement may be amended only by an instrument
in writing signed by both parties hereto.
g. This Agreement supersedes all prior agreements and
understandings among the parties hereto with respect to the subject matter
hereof.
11. NOTICES. Unless otherwise specified herein, any
notice required or permitted hereunder shall be given in writing and shall be
deemed effectively given on the earliest of
(i) the date delivered, if delivered by personal delivery as
against written receipt therefor or by confirmed facsimile
transmission,
(ii) the seventh business day after deposit, postage prepaid,
in the United States Postal Service by registered or certified
mail, or
(iii) the third business day after mailing by international
express courier, with delivery costs and fees prepaid,
15
<PAGE> 16
in each case, addressed to each of the other parties thereunto entitled at the
following addresses (or at such other addresses as such party may designate by
ten (10) days' advance written notice similarly given to each of the other
parties hereto):
COMPANY: SALIVA DIAGNOSTIC SYSTEMS, INC.
11719 NE 95th St.
Vancouver, WA 98682
ATTN: Kenneth J. McLachlan
Telephone No.: (360) 696-4800
Telecopier No.: (360) 254-7942
with a copy to:
Bryan Cave LLP
700 Thirteenth Street, N.W.
Washington, DC 20005-3960
ATTN: LaDawn Naegle, Esq.
Telephone No.: (202) 508-6000
Telecopier No.: (202) 508-6200
BUYER: At the address set forth on the signature page of
this Agreement.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
Company's and the Buyer's representations and warranties herein shall survive
the execution and delivery of this Agreement and the delivery of the Preferred
Stock and the Purchase Price for a period of one (1) year from the Initial
Closing Date or the Additional Closing Date, as applicable, and shall inure to
the benefit of the Buyer and the Company and their respective successors and
assigns.
[BALANCE OF PAGE INTENTIONALLY LEFT BLANK.]
16
<PAGE> 17
IN WITNESS WHEREOF, this Agreement has been duly executed by
the Buyer or one of its officers thereunto duly authorized as of the date set
forth below.
AGGREGATE PURCHASE PRICE OF INITIAL PREFERRED STOCK: $1,500,000
SIGNATURES FOR ENTITIES
IN WITNESS WHEREOF, the undersigned represents that the foregoing
statements are true and correct and that it has caused this Securities Purchase
Agreement to be duly executed on its behalf this 26th day of January, 1998.
<TABLE>
<S> <C>
Freilager Str. 47 BISCOUNT OVERSEAS LTD.
- ---------------------------------------- ------------------------------------------------
Address Printed Name of Subscriber
CH-8043 Zurich, Switzerland
- ----------------------------------------
By: /s/ Joseph Owadeyah
-------------------------------------------------
Telecopier No. 01-4935595 (Signature of Authorized Person)
-------------------------
Joseph Owadeyah, President
---------------------------------------------------
Printed Name and Title
- ----------------------------------------
Jurisdiction of Incorporation
or Organization
</TABLE>
As of the date set forth below, the undersigned hereby accepts this Agreement
and represents that the foregoing statements are true and correct and that it
has caused this Securities Purchase Agreement to be duly executed on its
behalf.
SALIVA DIAGNOSTIC SYSTEMS, INC.
By: /s/ Kenneth J. McLachlan
-----------------------------------------
Title: President and Chief Executive Officer
------------------------------------------
Date: January 26, 1998
------------------------------------------
<PAGE> 18
ANNEX I (A) CERTIFICATE OF DESIGNATION FOR INITIAL
PREFERRED STOCK
ANNEX II [INTENTIONALLY OMITTED]
ANNEX III OPINION OF COUNSEL
ANNEX IV REGISTRATION RIGHTS AGREEMENT
ANNEX V COMPANY DISCLOSURE MATERIALS
ANNEX VI FORM OF WARRANT
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 26, 1998
(this "Agreement"), is made by and between SALIVA DIAGNOSTIC SYSTEMS, INC., a
Delaware corporation (the "Company"), and the entity named on the signature
page hereto (the "Investor").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement, dated as of January 26, 1998, between the
Investor and the Company (the "Securities Purchase Agreement"; terms not
otherwise defined herein shall have the meanings ascribed to them in the
Securities Purchase Agreement), the Company has agreed to issue and sell to
the Investor two Series of Preferred Stock of the Company in two separate
offerings, in an aggregate principal amount not exceeding $3,000,000 (the
"Preferred Stock"); and
WHEREAS, the Company has agreed to issue the Warrants to the
Investor in connection with the issuance of the Initial Preferred Stock; and
WHEREAS, the Preferred Stock are convertible into shares of
Common Stock (the "Conversion Shares") upon the terms and subject to the
conditions contained in the Preferred Stock and the Warrants may be exercised
for the purchase of shares of Common Stock (the "Warrant Shares") upon the
terms and conditions of the Warrants; and
WHEREAS, to induce the Investor 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 "Securities Act"), with respect to the Conversion Shares
and the Warrant Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
the Investor hereby agree as follows:
1
<PAGE> 2
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investor" means the Investor and any permitted transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "Potential Material Event" means any of the following: (a)
the possession by the Company of material information not ripe for disclosure
in a registration statement, which shall be evidenced by determinations in
good faith by the Board of Directors of the Company that disclosure of such
information in the registration statement would be detrimental to the
business and affairs of the Company; or (b) any material engagement or
activity by the Company which would, in the good faith determination of the
Board of Directors of the Company, be adversely affected by disclosure in a
registration statement at such time, which determination shall be accompanied
by a good faith determination by the Board of Directors of the Company that
the registration statement would be materially misleading absent the
inclusion of such information.
(iii) "Register," "Registered," and "Registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the Securities Act and pursuant to Rule 415
under the Securities 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").
(iv) "Registrable Securities" means the Conversion Shares and
the Warrant Shares.
(v) "Registration Statement" means a registration statement of
the Company under the Securities 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 file
with the SEC, as soon as possible after the Closing Date but no later than
thirty (30) days following each Closing Date, a Registration Statement on
Form S-3 or amendment to an existing registration statement registering for
resale by the Investor a sufficient number of shares of Common Stock for the
Investor (or such lesser number as may be required by the SEC, but in no
event less than
2
<PAGE> 3
(i) one hundred fifty percent (150%) of the aggregate number of shares into
which the Initial Preferred Stock would be convertible at the time of filing of
the Form S-3 (assuming for such purposes that the maximum Additional Preferred
Stock had been issued at such date and that all Preferred Stock had been
eligible to be converted, and had been converted, into Conversion Shares in
accordance with their terms, whether or not such issuance, eligibility or
conversion had in fact occurred as of such date) and (ii) the number of shares
which would be issued upon exercise of all of the Warrants at the time of filing
of the Form S-3 (assuming for such purposes that the Warrants had been eligible
to be exercised for the maximum number of shares contemplated thereby and had
been exercised in accordance with their terms, whether or not such eligibility
or exercise had in fact occurred as of such date). If the Registration Statement
on Form S-3 is not available to the Company for any reason, the Company shall
file a registration statement or amendment on an appropriate alternative form.
Such Registration Statement or amended Registration Statement shall also state
that, in accordance with Rule 416 and 457 under the Securities Act, it also
covers such indeterminate number of additional shares of Common Stock as may
become issuable upon conversion of the Preferred Stock and the exercise of the
Warrants resulting from adjustment in the Conversion Price or the Warrant
exercise price, as the case may be, or to prevent dilution resulting from stock
splits, or stock dividends. The Company will use its reasonable best efforts to
cause such Registration Statement to be declared effective no later ninety (90)
days after the First Closing Date, or sixty (60) days after the Second Closing
date, as may be applicable. If at any time the number of shares of Common Stock
into which the Preferred Stock may be converted and which would be issued upon
exercise of the Warrants exceeds the aggregate number of shares of Common Stock
then registered, the Company shall, within ten (10) business days after receipt
of a written notice from the Investor, either (i) amend the Registration
Statement filed by the Company pursuant to the preceding sentence, if such
Registration Statement has not been declared effective by the SEC at that time,
to register all shares of Common Stock into which the Preferred Stock may
currently or in the future be converted and which would be issued currently or
in the future upon exercise of the Warrants, or (ii) if such Registration
Statement has been declared effective by the SEC at that time, file with the SEC
an additional Registration Statement on Form S-3 (or an appropriate alternative
form that is available to the Company) to register the shares of Common Stock
into which the Preferred Stock may currently or in the future be converted and
which would be issued currently or in the future upon exercise of the Warrants
that exceed the aggregate number of shares of Common Stock already registered.
(b) PAYMENTS BY THE COMPANY.
(i) If the Registration Statement covering the
Registrable Securities is not filed in proper form with the SEC within thirty
(30) days after the First Closing Date (the "Required Filing Date"), the
Company will make payment to the Investor in such amounts and at such times
as shall be determined pursuant to this Section 2(b).
(ii) If the Registration Statement covering the
Registrable Securities is not effective (a) within ninety (90) days following
the First Closing Date or sixty (60) days
3
<PAGE> 4
following the Second Closing Date, as may be applicable (the "Required Effective
Date"), or (b) after a Suspension Period (as defined below), then the Company
will make payments to the Investor in such amounts and at such times as shall be
determined pursuant to this Section 2(b); provided, however, that the Company
shall not be required to request that the Registration Statement be declared
effective in the event that such Registration Statement contains information
required to be disclosed in a 1934 Act report not yet filed by the Company. In
such a case, "Required Effective Date" shall be deemed to be the day after which
the Company's 1934 Act report is filed, or is required to be filed in accordance
with the requirements of the 1934 Act.
(iii) The amount (the "Periodic Amount") to be paid by the
Company to the Investor shall be determined as of each Computation Date (as
defined below) and such amount shall be equal to (A) two percent (2%) of the
purchase price paid by the Investor (the "Purchase Price") for all Preferred
Stock then purchased and outstanding pursuant to the Securities Purchase
Agreement for the period from the date following the Required Effective Date.
(iv) Each Periodic Amount will be payable by the Company
in cash or other immediately available funds to the Investor upon demand of
the Investor.
(v) The parties acknowledge that the damages which may be
incurred by the Investor if the Registration Statement is not filed by the
Required Filing Date or if the Registration Statement has not been declared
effective by the Required Effective Date may be difficult to ascertain. The
parties agree that the Periodic Amount represent a reasonable estimate on the
part of the parties, as of the date of this Agreement, of the amount of such
damages.
(vi) Notwithstanding the foregoing, the amounts payable by
the Company pursuant to this provision shall not be payable to the extent any
delay in the effectiveness of the Registration Statement occurs because of an
act of, or a failure to act or to act timely by the Investor or its counsel,
or in the event all of the Registrable Securities may be sold pursuant to
Rule 144 or another available exemption under the Securities Act.
(vii) "Computation Date" means (i) the date which is the
earlier of (A) thirty (30) days after the Required Effective Date, or (B) the
date after the Required Effective Date on which the Registration Statement is
declared effective, and (ii) each date which is the earlier of (A) thirty
(30) days after the previous Computation Date or (B) the date after the
previous Computation Date on which the Registration Statement is declared
effective.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall do each of the
following.
(a) Prepare promptly, and file with the SEC by thirty (30) days
after the Closing Date, a Registration Statement with respect to not less
than the number of Registrable Securities provided in Section 2(a) above, and
thereafter use its reasonable best efforts to cause
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<PAGE> 5
each Registration Statement relating to Registrable Securities to become
effective as set forth herein, and keep the Registration Statement effective at
all times until the earliest (the "Registration Period") of (i) the date that is
two (2) years after the First Closing Date, (ii) the date when the Investors may
sell all Registrable Securities under Rule 144 or (iii) the date the Investors
no longer own any of the Registrable Securities, 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, in light of the circumstances in which they were made, not
misleading;
(b) 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 effective at all times during the
Registration Period, and, during the Registration Period, comply with the
provisions of the Securities 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;
(c) The Company shall permit a single firm of counsel
designated by the Investors to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time (but not less
than three (3) business days) prior to their filing with the SEC, and not
file any document in a form to which such counsel reasonably objects.
(d) Furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to
the Company, (i) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one (1) copy of
the Registration Statement, each preliminary prospectus and prospectus, and
each amendment or supplement thereto, and (ii) such number of copies of a
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;
(e) As promptly as practicable after becoming aware of such
event, 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 omits to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading, and use its best efforts promptly
to prepare a supplement or amendment to the Registration Statement or other
appropriate filing with the SEC to correct such untrue statement or omission,
and deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such
event, notify each
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<PAGE> 6
Investor who holds Registrable Securities being sold (or, in the event of an
underwritten offering, the managing underwriters) of the issuance by the SEC of
a Notice of Effectiveness or any notice of effectiveness or any stop order or
other suspension of the effectiveness of the Registration Statement at the
earliest possible time;
(g) Notwithstanding the foregoing, if at any time or from time
to time after the date of effectiveness of the Registration Statement, the
Company notifies the Investors in writing of the existence of a Potential
Material Event, the Investors shall not offer or sell any Registrable
Securities, or engage in any other transaction involving or relating to the
Registrable Securities, from the time of the giving of notice with respect to
a Potential Material Event until such Investor receives written notice from
the Company that such Potential Material Event either has been disclosed to
the public or no longer constitutes a Potential Material Event; provided,
however, that the Company may not so suspend the right to such holders of
Registrable Securities for more than two twenty (20) day periods in the
aggregate during any 12-month period ("Suspension Period") with at least a
ten (10) business day interval between such periods, during the periods the
Registration Statement is required to be in effect;
(h) Use its reasonable efforts to secure designation of all the
Registrable Securities covered by the Registration Statement on the "Small
Capitalization Market" of the National Association of Securities Dealers
Automated Quotations System ("NASDAQ") within the meaning of Rule 11Aa2-1 of
the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the quotation of the Registrable Securities on The NASDAQ SmallCap
Market; or if, despite the Company's reasonable efforts to satisfy the
preceding clause, the Company is unsuccessful in doing so, to use its
reasonable efforts to secure NASDAQ/OTC Bulletin Board authorization and
quotation for such Registrable Securities and, without limiting the
generality of the foregoing, 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;
(i) 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;
(j) Cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
Registration Statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts as the case may be, as the
Investors may reasonably 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 appropriate
instruction and opinion of such counsel; and
(k) Take all other reasonable actions necessary to expedite and
facilitate
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<PAGE> 7
disposition by the Investor of the Registrable Securities pursuant to the
Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall have the
following obligations:
(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) days prior to the first anticipated filing date
of the Registration Statement, the Company shall notify each Investor of the
information the Company requires from each such Investor (the "Requested
Information") if such Investor elects to have any of such Investor's
Registrable Securities included in the Registration Statement. If at least
two (2) business days prior to the filing date the Company has not received
the Requested Information from an Investor (a "Non-Responsive Investor"),
then the Company may file the Registration Statement without including
Registrable Securities of such Non-Responsive Investor;
(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; and
(c) 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(e) or 3(f), above, 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(e) or 3(f)
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.
5. EXPENSES OF REGISTRATION. All reasonable expenses (other
than underwriting discounts and commissions of the Investor) incurred in
connection with registrations, filings or qualifications pursuant to Section
3, but including, without limitation, all registration, listing, and
qualifications fees, printers and accounting fees, the fees and disbursements
of counsel for the Company, shall be borne by the Company.
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<PAGE> 8
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
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor,
each person, if any, who controls any Investor within the meaning of the
Securities Act or the Exchange Act (each, an "Indemnified Person" or
"Indemnified Party"), against any losses, claims, damages, liabilities or
expenses (joint or several) incurred (collectively, "Claims") to which any of
them may become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations in the Registration
Statement, or any post-effective amendment thereof, or any prospectus
included therein: (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged
untrue statement of a material fact 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
Securities Act, the Exchange Act, any state securities law or any rule or
regulation under the Securities Act, the Exchange Act or any state securities
law arising out of statements, omissions or violations in the Registration
Statement (the matters in the foregoing clauses (i) through (iii) being,
collectively, "Violations"). Subject to clause (b) of this Section 6, the
Company shall reimburse the Investors, promptly as such expenses are incurred
and are due and payable, for any legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a) shall not (I) 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 or on behalf of any Indemnified Person expressly for use in connection
with the preparation of the Registration Statement or any such amendment
thereof or supplement thereto, or any prospectus contained therein, if such
prospectus was timely made available by the Company pursuant to Section 3(c)
hereof; (II) be available to the extent such Claim is based on a failure of
the Investor to deliver or cause to be delivered the prospectus made
available by the Company; or (III) 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. Each Investor
will indemnify the Company and its officers, directors and agents against any
claims 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 or
on behalf of such Investor, expressly for use in connection with the
preparation of the Registration Statement, subject to such limitations and
conditions as are applicable to the Indemnification provided by the Company
to this Section 6. Such indemnity shall remain in full force and effect
regardless of
8
<PAGE> 9
any investigation made by or on behalf of the Indemnified Personand shall
survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
(b) 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 mutually
satisfactory to the indemnifying party and the Indemnified Person or the
Indemnified Party, as the case may be. In case any such action is brought
against any Indemnified Person or Indemnified Party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will
be entitled to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, assume the defense
thereof, subject to the provisions herein stated and after notice from the
indemnifying party to such Indemnified Person or Indemnified Party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such Indemnified Person or Indemnified Party under this Section 6
for any legal or other reasonable out-of-pocket expenses subsequently
incurred by such Indemnified Person or Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation, unless the
indemnifying party shall not pursue the action of its final conclusion. The
Indemnified Person or Indemnified Party shall have the right to employ
separate counsel in any such action and to participate in the defense
thereof, but the fees and reasonable out-of-pocket expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying
party has assumed the defense of the action with counsel reasonably
satisfactory to the Indemnified Person or Indemnified Party. The failure to
deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall not relieve such indemnifying party
of any liability to the Indemnified Person or Indemnified Party under this
Section 6, except to the extent that the indemnifying party is prejudiced in
its ability to defend such action. 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.
(c) Investor will indemnify Company, its directors, its
officers and each person, if any, who controls the Company within the meaning
of the Securities Act or the Exchange Act to the same extent as set forth
above in paragraphs (a) and (b) with respect to statements or omissions made
in any registration statement, or amendment or supplement thereto, or in any
prospectus, in reliance upon and in conformity with information furnished to
the Company with respect to the Investor.
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
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<PAGE> 10
to the fullest extent permitted by law; provided, however, that (a) 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; (b) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Registrable Securities who
was not guilty of such fraudulent misrepresentation; and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making
available to the Investors the benefits of Rule 144 promulgated under the
Securities 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 Securities Act and the Exchange
Act; 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
Securities Act and the Exchange 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 THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this Agreement shall
be automatically assigned by the Investors to any transferee of the
Registrable Securities (or all or any portion of any Preferred Stock of the
Company which is convertible into such securities) only if: (a) 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, (b) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (i) the name
and address of such transferee or assignee and (ii) the securities with
respect to which such registration rights are being transferred or assigned,
(c) immediately following such transfer or assignment the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws, and (d) at or before the
time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company
to be bound by all of the provisions contained herein. In the event of any
delay in filing or effectiveness of the Registration Statement as a result of
such assignment, the Company shall not be liable for any damages arising from
such delay, or the payments set forth in Section 2(c) hereof.
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<PAGE> 11
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and Investors
who hold an eighty (80%) percent 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) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when personally
delivered (by hand, by courier, by telephone line facsimile transmission,
receipt confirmed, or other means) or sent by certified mail, return receipt
requested, properly addressed and with proper postage pre-paid (i) if to the
Company, SALIVA DIAGNOSTIC SYSTEMS, INC., 11719 NE 95th St., Vancouver, WA
98682, ATTN: Kenneth J. McLachlan, Telecopier No.: (360) 254-7942; with a
copy to Bryan Cave LLP, 700 Thirteenth Street, N.W., Washington, DC
20005-3960, ATTN: LaDawn Naegle, Esq., Telecopier No.: (202) 508-6200; (ii)
if to the Investor, at the address set forth under its name in the
Securities Purchase Agreement, with a copy to Samuel Krieger, Esq., Krieger &
Prager, 319 Fifth Avenue, Third Floor, New York, NY 10016, Telecopier No.:
(212) 213-2077; and (iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company, or at such other
address as each such party furnishes by notice given in accordance with this
Section 11(b), and shall be effective, when personally delivered, upon
receipt and, when so sent by registered or certified mail, four (4) calendar
days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware for contracts to be wholly
performed in such state and without giving effect to the principles thereof
regarding the conflict of laws. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement
and hereby waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the
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<PAGE> 12
bringing of any such proceeding in such jurisdictions.
(e) 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.
(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) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.
(h) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.
(i) This Agreement may be executed in one 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 telephone line facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
(j) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3(a) hereof, or any delay in such
performance could result in loss to the Investors, and the Company agrees
that, in addition to any other liability the Company may have by reason of
such failure or delay, the Company shall be liable for all direct damages
caused by any such failure or delay, unless the same is the result of force
majeure. Neither party shall be liable for consequential damages.
(k) This Agreement constitutes the entire agreement among
the parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein. This Agreement supersedes all prior agreements
and understandings among the parties hereto with respect to the subject
matter hereof. This Agreement may be amended only by an instrument in writing
signed by the party to be charged with enforcement thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed by their respective officers thereunto duly authorized as of
the day and year first above written.
COMPANY:
SALIVA DIAGNOSTIC SYSTEMS, INC.
By: /s/ Kenneth J. McLachlan
---------------------------------------------
Name: Kenneth J. McLachlan
Title: President and Chief Executive Officer
INVESTOR:
BISCOUNT OVERSEAS LTD.
By: /s/ Joseph Owadeyah
---------------------------------------------
Name: Joseph Owadeyah
Title: President
13
<PAGE> 1
EXHIBIT 10.3
Saliva Diagnostic Systems, Inc.
11719 NE 95th St.
Vancouver, Washington 98682
Gentlemen:
This letter will confirm our mutual agreement with respect to our
engagement as exclusive Placement Agent ("Placement Agent") to act on behalf of
Saliva Diagnostic Systems, Inc. (the "Company") in connection with the offer
and sale on a best efforts basis of up to $3,000,000 principal amount of the
Company's Preferred Stock, Series 1998-A and Series 1998-B pursuant to two
separate offerings under Regulation D promulgated under the Securities Act of
1933, as amended (the "Act"), subject to applicable regulations.
1. The engagement hereunder shall be for a term commencing upon the
execution of this letter by the Company and continuing until January 31, 1998.
You represent that no other offering is presently in progress by the Company
which has not been disclosed to us.
2. (a) The offerings will done in two offerings (the "First
Offering" and the "Second Offering," respectively) of $1,500,000 each. The
closing of the first offering (the "First Closing Date") will take place within
two trading days after the Securities Purchase Agreement ("Securities Purchase
Agreement"), in the form annexed hereto as Exhibit A, and other related
documents are signed by the Company and the Buyer, and the Company receives
good funds for the purchase price of that offering. The closing for the Second
Offering, if any, will be held on a date (the "Second Closing Date") selected
by the Buyer at any time within nine months after the First Closing Date.
If the closing bid price of the Common Stock as reported by the Nasdaq
Stock Market or Bloomberg L.P. (after adjusting for any stock splits, reverse
stock splits or stock dividends effected after the First Closing Date) for each
of five consecutive trading days is $.60 or more, then, for as long as such
adjusted closing bid price does not go below $.60, the Company may give the
Buyer notice that the option for the Second Offering will expire on a date set
by the Company at least 30 days from the date of such notice. Additionally, at
the option of the Company, the Buyer's option for the Second Offering will
expire upon notice to the Buyer that the Company is entering into a merger or
strategic alliance, and the Company within thirty (30) days will pay to the
Buyer $250,000 in cash or in freely tradeable common stock of the Company, and
provided that such merger or strategic alliance is actually consummated. If
such merger or strategic alliance is not consummated within thirty (30) days
of payment, then (i) the Buyer will, upon notice from the Company, return the
payment of $250,000 to the Company, and (ii) the Second Closing Date shall be
extended for sixty (60) days.
<PAGE> 2
(b) The Company will receive net proceeds of the sale of the Preferred
Stock after deducting the Fees (as defined below). The "Fees" are the Placement
Agent's cash fees of 7.5% of the aggregate principal amount of Preferred Stock
sold in each offering (the "Placement Agent's Fees"). The parties shall
jointly and in equal amounts pay the legal fees of Placement Agent's counsel of
1%. Other than the Fees, the Placement Agent shall not be entitled to any
additional compensation from the Company, nor shall Placement Agent be
reimbursed for its expenses.
(c) (i) The Preferred Stock issued in the First Offering shall be
convertible into Common Stock at the lesser of (a) 100% of the average closing
bid price of the Common Stock for the five (5) trading days prior to the First
Closing Date ("1st Market Price"), or (b) 80% of the average closing bid price
for the five (5) days prior to conversion, subject to the additional terms on
the annexed Exhibit A.
(ii) The Preferred Stock issued in the Second Offering s hall be
convertible into Common Stock at the lesser of (i) 80% of the average closing
bid price for the five trading days prior to conversion and (ii) the 1st Market
Price; provided, however, that at no time shall the Preferred Stock be
convertible at less than 65% of the average closing bid price for the five
trading days prior to conversion.
(d) The Buyer will, within two business days after acceptance by the
Company of a Securities Purchase Agreement, pay the purchase price for the
First Offering Preferred Stock to or at the direction of the Company, provided
that:
(i) the Company approves such Buyer and subscription documents
(in the form of an exhibit hereto) which have been submitted
and signed by the Buyer, and
(ii) the Company has caused to be delivered to or at the direction
of the Buyer, the First Offering Preferred Stock purchased by
such Buyer and the opinion of counsel attached as Annex III
to the Securities Purchase Agreement.
(e) The Company shall have the right in its sole discretion to reject
any Subscription and to disapprove the Buyer and any person or entity which is
proposed by the Placement Agent to be a party to the Securities Purchase
Agreement.
3. The Company will cause the Preferred Stock purchased pursuant to such
Securities Purchase Agreement to be delivered to, or at the direction of the
Buyer, within a reasonable time after the conditions in Section 2(d) have been
met.
4. The terms set forth in Exhibit A attached hereto represent the further
understanding of the parties.
<PAGE> 3
5. The Placement Agent represents, warrants and agrees that
the Buyer will be qualified to purchase the Preferred Stock under the
laws of the jurisdiction in which such person resides and that the
offer and sale of the Preferred Stock will not violate the securities
or other laws of such jurisdiction. The Company agrees that with
respect to any offerees resident in the United States, the Company
will file, at the request of Placement Agent, such necessary
applications with any applicable securities regulatory authority,
relying solely on the Placement Agent's representations that all U.S.
offerees will be accredited investors.
6. The Placement Agent further agrees that:
(a) all offering materials and documents used in
connection with offers and sales of the Preferred Stock prior to the
expiration of the engagement period shall be approved in advance in
writing by the Company, and shall include statements to the effect
that the Preferred Stock have not been registered under the Act and
that neither the Buyer, nor any direct or indirect purchaser of the
Preferred Stock from such Buyer, may directly or indirectly offer or
sell the Preferred Stock in the United States or to U.S. persons
unless the Preferred Stock are registered under the Act, or an
exemption from the registration requirements of the Act is available;
(b) it will comply with all laws, rules and regulations of
the jurisdictions in which the Preferred Stock are offered and sold;
and
(c) Placement Agent has no authority to act on behalf of
the Company or otherwise bind the Company.
(d) Each Buyer will be an "accredited investor" as said
term is defined in Rule 501 under Regulation D promulgated under the
Act.
7. Placement Agent is an independent contractor, and is not
the agent of the Company. It is not authorized to bind the Company,
or to make any representations or warranties on behalf of the Company.
8. The Company represents, warrants, and agrees that, in
addition to the warranties to be made by the Company to the Buyer:
(a) The Company has timely filed all the material required
to be filed pursuant to Section 13(a) or 15(d) of the Exchange Act
for a period of at least twelve months preceding the date hereof, and
the Company will continue to file all such material on a timely basis.
(b) The Company is in full compliance, to the extent
applicable, with all reporting obligations under either Section
12(b), 12(g) or 15(d) of the Exchange Act. The Company has registered
its Common Stock pursuant to Section 12 of the Exchange Act and the
Common Stock is currently listed on The NASDAQ/SmallCap Market. The
<PAGE> 4
Company has received notice from NASDAQ of its delisting as of
January 27, 1998, subject to certain conditions as described in
Exhibit C annexed hereto.
(c) The Preferred Stock will be offered and sold in
compliance with the requirements for the exemption from registration
pursuant to Section 4(2) and Section 5 of the Act contained and
Regulation D under the Act, and with all other U.S. securities laws
and regulations; it being understood that this representation,
warranty and agreement is made relying exclusively on the
representations, warranties and agreements made by the Placement
Agent herein or in the applicable subscription documents. The
Company will, at its expense, make all filings required under the Act
and any applicable domestic securities exchange or trading market, if
any.
(d) All information furnished by the Company to purchasers
under Regulation D will not contain any untrue statement of material
fact or omit to state a material fact required to be stated or
necessary to make the statements therein not misleading; provided
however, that this representation and warranty does not extend to
written material furnished to the Company by Placement Agent relating
to Placement Agent or the distribution process.
(e) The Company has all requisite corporate power and
authority to execute and perform this agreement. All corporate
action necessary for the authorization, execution, delivery and
performance of this agreement and the transaction contemplated hereby
have been taken. This agreement constitutes a valid and binding
obligation of the Company.
(f) The execution and performance of this agreement by the
Company and the offer and sale of the Preferred Stock will not
violate any provision of the Articles of Incorporation or By-laws of
the Company or any material agreement or other instrument to which
the Company is party or by which it is bound, and which violation(s)
would have a material adverse effect on the business or financial
condition of the Company. Any material necessary approvals, U.S.
governmental and private, will be obtained by the Company prior to
the issuance of the Preferred Stock.
(g) The Company makes no other representation or warranty
with respect to the Company, its finances, assets, business or
prospects or otherwise, except as expressly set forth herein or in
the Securities Purchase Agreement. Placement Agent will advise the
Buyer of the foregoing, and that the Buyer is relying on its own
investigation with respect to all such matters, and that it will be
given reasonable access to any and all material publicly available
documents and Company personnel it may require for such
investigation.
(h) The Company will deliver to the Buyer, a Registration
Rights Agreement substantially in the form annexed hereto as Annex IV
(the "Registration Rights Agreement").
<PAGE> 5
9. The Company will provide the Buyer with an opinion of
counsel substantially in the form attached as Annex III to the
Securities Purchase Agreement.
10. As more fully described in Exhibit B hereto, which is
incorporated herein by reference, each party hereto will indemnify
and hold the other (including its partners, agents, employees, and
controlling persons within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act) harmless from and against certain
claims, liabilities, losses, damages and expenses incurred, including
fees and disbursements of counsel, related to or arising out of this
engagement. Exhibit B will be executed and delivered simultaneously
with this agreement.
11. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Delaware. Each of the
parties consents to the jurisdiction of the federal courts whose
districts encompass any part of the City of New York or the state
courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby
waives, to the maximum extent permitted by law, any objection,
including any objection based on forum non coveniens, to the bringing
of any such proceeding in such jurisdictions. A facsimile
transmission of this signed Agreement shall be legal and binding on
all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The
headings of this Agreement are for convenience of reference and shall
not form part of, or affect the interpretation of, this Agreement.
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. This Agreement may be amended only by an
instrument in writing signed by both parties. This Agreement
supersedes all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof. Any notices
required or permitted to be given under the terms of this Agreement
shall be sent by mail or delivered personally or by courier and shall
be effective five days after being placed in the mail, if mailed, or
upon receipt, if delivered personally or by courier, in each case
addressed to a party at such party's address shown in the
introductory paragraph or on the signature page of this Agreement or
such other address as a party shall have provided by notice to the
other party in accordance with this provision.
Dated: January 26, 1998 ARYEH TRADING, INC.
By: /s/ Moishe Bodner
---------------------
AGREED & ACCEPTED:
SALIVA DIAGNOSTIC SYSTEMS, INC.
By: /s/ Kenneth J. McLachlan
---------------------------------------------
Its President and Chief Executive Officer
<PAGE> 6
EXHIBIT A
CONVERSION TERMS: The Preferred Stock are convertible into shares
of Common Stock according on the following schedule:
a. For each offering:
--25% of the Preferred Stock are convertible
beginning 90 days after issuance;
--an additional 25% of the Preferred Stock
(cumulative 50%) are convertible beginning 120
days after issuance;
--an additional 25% of the Preferred Stock
(cumulative 75%) are convertible beginning 150
days after issuance; and
--100% of the Preferred Stock are convertible
beginning 180 days after issuance provided that
if the Second Offering is issued within 120 days
of the First Offering, the Second Offering shall
be convertible commencing two hundred ten (210)
days after issuance of the First Offering.
The securities of each offering are convertible
up to two (2) years from such offering's closing
date. In the event that any securities remain
outstanding on the second anniversary of the
relevant closing date, all remaining securities
must be converted (subject to the ability of the
Company to issue shares in excess of 19.99% of
all issued and outstanding Common Stock in
compliance with NASDAQ regulatory requirements).
WARRANTS: The Buyer or its designee shall be issued transferable
divisible warrants to purchase 1,000,000 shares of Common Stock
with an exercise price equal to the average closing bid price of
the common stock for five (5) trading days ending on the trading
day prior to the First Closing Date. Warrants for 750,000 of
these shares will be exercisable immediately; the warrants for
the remaining shares will be exercisable commencing no earlier
than 10 days after the closing date of the Second Offering. No
additional warrants will be issued to the Buyer in connection
with the closing of the Second Offering. The common stock
underlying the Warrants will be registered pursuant to a
registration rights agreement. The Warrants will have a term of
five (5) years from the First Closing Date.
REGISTRATION
RIGHTS: The Company will agree to file one or more
registration statements or amendments to an existing
registration statement covering the
<PAGE> 7
Common Stock underlying the Preferred Stock of each Offering1 within
thirty (30) days after the each Closing Date and will cause such
registration statement to become effective no later than the
"Required Effective Date," which is ninety (90) days from the
First Closing Date and sixty (60) days from the Second Closing
Date.
LATE FILING OR
EFFECTIVENESS: If the Company does not file the registration
statement with SEC on timely basis or if the registration
statement is not declared effective by the Required Effective
Date, the Company will compensate the Buyer in an amount equal
to 2% per month of the principal amount of the Preferred Stock
acquired. Such payment will be made in cash on demand and will
continue to accrue until the registration statement is declared
effective.
AVAILABLE SHARES: The Company will always have reserved for
issuance to the Buyer at least 150% of the shares then
anticipated to be necessary for issuance upon conversion of all
outstanding Preferred Stock and all Warrants.
DELIVERY OF
CERTIFICATES: On conversion, the Company will direct the
transfer agent to deliver certificates for shares to Buyer
within 3 business days. If such request is made more than
5 days late, the Company will compensate Buyer at rate of
$100/day for first 10 days and $200/day thereafter for each
$10,000 of purchase price. Buyer will also have right to
rescind conversion notice. In addition, if, after 3rd
business day, the Company has not made its request of
transfer agent, if Buyer has sold shares of Common Stock,
the Company will compensate Buyer for extra costs incurred
to cover sale.
4.99% CONVERSION
LIMIT: The Buyer will agree not to convert Preferred
Stock if it would result in beneficial ownership of more
than 4.99% of the outstanding shares. This limit will not
apply (i) if the Company is in default under any of the
Transaction Agreements or (ii) in connection with any
mandatory conversion.
LIMITATIONS ON
COMPANY'S
ISSUANCE: If the Company is restricted from issuing shares
upon conversion of the Second Offering Preferred Stock because
of NASDAQ Regulatory Requirements, then the Company will take
all steps reasonably necessary to comply with such regulations
and be able to issue such shares. If the Company does not or
can not do so, the Buyer will have the right to require the
Company to redeem the outstanding unconvertible Preferred Stock
at a
<PAGE> 8
redemption price equal to (x) the unconvertible Preferred Stock plus
all accrued but unpaid interest thereon, divided by the then
applicable conversion price, multiplied by (y) the then market
price(2) of the Common Stock.
ADJUSTMENTS: Under certain circumstances (including, but not
necessarily limited to, recapitalizations, stock splits, reverse
stock splits) the conversion price and the warrant exercise
price will be adjusted. In the event the Company does "spin
off" transaction prior to conversion or warrant exercise,
additional provisions relating to adjustment in price and shares
of spun off entity will apply.
DILUTIVE EFFECT: The Company will acknowledge possible dilutive effect
of conversion and exercise terms, including possible price adjustment.
HEDGE FUND: The Company will acknowledge that Buyer may be
"hedge" fund and may engage in certain hedging transactions.
NO UNDISCLOSED LIABILITIES
OR EVENTS REQUIRING
DISCLOSURE: The Company will represent that (i) it has no
undisclosed liabilities other than in the ordinary course
of business (which individually or in the aggregate do not
have a material adverse effect on the condition of the
Company) and (ii) there are no events or circumstances
requiring public disclosure which have not been disclosed.
REGULATION D: The Company will represent that neither it nor
its affiliates have engaged in any sales or offers which
would eliminate the Regulation D exemption for this
transaction.
TRANSFER AGENT
AUTHORIZATION: The Company will authorize the transfer agent to
give public information relating to the Company directly to
Buyer or representatives.
OPINION: The Company counsel will provide an opinion to
Buyer substantially in form attached to Securities Purchase Agreement.
<PAGE> 9
EXHIBIT B
INDEMNIFICATION AGREEMENT
In consideration of the agreement of ARYEH TRADING, INC.
("Placement Agent") to act on behalf of Saliva Diagnostic Systems,
Inc. (the "Company") pursuant to the Placement Agent Agreement (the
"Agreement") dated January 26, 1998, the Company agrees to indemnify
and hold harmless Placement Agent, its affiliates, and each of their
respective partners, directors, officers, agents, consultants,
employees and controlling persons (within the meaning of the
Securities Act of 1933) (Placement Agent and each such other person
or entity are hereinafter referred to as an "Indemnified Person"),
from and against any losses, claims, damages, expenses and
liabilities or actions in respect thereof (collectively "Losses"), as
they may be incurred including all reasonable legal fees and other
expenses incurred in connection with investigating, preparing,
defending, paying, settling or compromising any Losses (whether or
not in connection with any pending or threatened litigation in which
any Indemnified Person is a named party) to which any of them may
become subject (including in any settlement effected with the
Company's consent) and which are related to or arise out of any act,
omission, transaction or event contemplated by the Agreement. The
Company will not, however, be responsible under the foregoing
provisions with respect to any Losses (a) to the extent that a court
of competent jurisdiction shall have determined by a final judgment
that such Losses resulted primarily from actions taken or omitted to
be taken by an Indemnified Person due to its gross negligence, bad
faith or willful misconduct, or (b) resulting solely from one or more
decreases in the market price of the Company's common stock.
If the indemnity referred to in this agreement should be, for
any reason whatsoever, unenforceable, unavailable or otherwise
insufficient to hold such Indemnified Person harmless, the Company
shall pay to or on behalf of each Indemnified Person contributions
for Losses so that each Indemnified Person ultimately bears only a
portion of such Losses as is appropriate (i) to reflect the relative
benefits received by each such Indemnified Person, respectively, on
the one hand and the Company on the other hand in connection with the
transaction, or (ii) if the allocation on that basis is not permitted
by applicable law, to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each such
Indemnified Person, respectively, and the Company as well as any
other relevant equitable considerations; provided, however, that in
no event shall the aggregate contribution of all Indemnified Persons
to all Losses in connection with any transaction exceed the value of
the consideration actually received by Placement Agent pursuant to
the Agreement. The respective relative benefits received by
Placement Agent and the Company in connection with any transaction
shall be deemed to be in the same proportion as the aggregate
consideration received by Placement Agent in connection
<PAGE> 10
with the transaction bears to the total consideration of the
transaction. The relative fault of each Indemnified Person and the
Company shall be determined by reference to, among other things,
whether the actions or omissions to act were by such Indemnified
Person or the Company, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action or omission to act.
The Company also agrees that no Indemnified Person shall have
any liability to the Company or its affiliates, directors, officers,
employees, agents or shareholders, directly or indirectly, related to
or arising out of the Agreement, except that each Indemnified Person
shall indemnify and hold harmless the Company, its directors,
officers, agents, consultants and controlled persons from and against
any Losses as they are incurred, which result primarily from actions
taken or omitted to be taken by such Indemnified Person due to its
gross negligence, bad faith or willful misconduct. In no event,
regardless of the legal theory advanced, shall the Company or any
Indemnified Person be liable for any consequential, indirect,
incidental or special damages of any nature.
If any action is brought against any Indemnified Person in
respect of which indemnity may be sought against the Company
hereunder, such Indemnified Person shall promptly notify the Company
in writing of such action and the Company shall be entitled to
participate therein and, to the extent the Company shall wish, assume
the defense thereof. Upon the request of an Indemnified Person, the
Company shall retain counsel reasonably satisfactory to such
Indemnified Person to represent such Indemnified Person and any
others the Company may designate in such action and shall pay the
reasonable fees and expenses of such counsel related thereto as they
are incurred. In any such action, an Indemnified Person shall have
the right to retain its own counsel at its own expense, except that
the Company shall pay as they are incurred the reasonable fees and
expenses of counsel retained by the indemnified party only in the
event that (i) the Company and such Indemnified Person shall have
mutually agreed to the retention of such counsel or (ii) the Company
has directed counsel to represent one or more parties in addition to
such Indemnified Person in such action and representation of both
such Indemnified Person and such other party or parties by the same
counsel would be inappropriate, in the reasonable opinion of such
Indemnified Person, due to actual or potential differing interests
between them, it being understood that the Company shall not be
liable for the reasonable fees and expenses of more than one separate
firm for all the Indemnified Persons. No indemnification provided
for herein shall be available to any Indemnified Person that fails to
give notice as provided above if the Company was unaware of the
action to which such notice would have related and was substantially
prejudiced by such failure or to any Indemnified Person that retains
its own counsel in accordance with the immediately preceding sentence
except in the circumstances set forth in clauses (i) and (ii)
thereof. The Company agrees that without Placement Agent's prior
written consent it shall not settle, compromise or consent to the
entry of any judgment in any pending or threatened claim, action,
suit or proceeding related to the Distribution Agreement unless the
<PAGE> 11
settlement, compromise or consent also includes an express
unconditional release of all Indemnified Persons from all liability
and obligations arising therefrom.
The respective obligations of the Company and the Indemnified
Persons referred to above shall be in addition to any rights that any
Indemnified Person or the Company, as the case may be, may otherwise
have and shall be binding upon and inure to the benefit of any
successors, assigns, heirs and personal representatives of any
Indemnified Person and the Company. It is understood that the
respective obligations of the Company and the Indemnified Persons
will remain operative regardless of any termination or completion of
Placement Agent's services pursuant to the Agreement.
