<PAGE> 1
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
/X/ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from ______________ to _______________
Commission File Number 0-21092
OCTuS, INC.
(Exact name of small business issuer as specified in its charter)
CALIFORNIA 33-0013439
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
POST OFFICE BOX 232397, SAN DIEGO, CALIFORNIA 92193-2397
(Address of principal executive offices)
619-268-5140
(Issuer's telephone number)
N/A
------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes /X/ No / /
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
August 9, 1996 Common Stock, no par value 4,222,922
- - -------------- -------------------------- ---------
(Date) (Class) (Number of Shares)
Transitional Small Business Disclosure Format (check one):
Yes / / No /X/
<PAGE> 2
OCTuS, INC.
FORM 10-QSB
FOR THE PERIOD ENDED JUNE 30, 1996
INDEX
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Condensed Balance Sheets at June 30, 1996 and 3
December 31, 1995
Condensed Statements of Operations for the
three months ended June 30, 1996 and 1995 4
Condensed Statements of Operations for the
six months ended June 30, 1996 and 1995 5
Condensed Statements of Cash Flows for the
six months ended June 30, 1996 and 1995 6
Notes to Condensed Financial Statements 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 12
PART II. OTHER INFORMATION 20
SIGNATURES 21
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
OCTuS, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
ASSETS (UNAUDITED)
-------------- -------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,000 $ 3,000
Accounts receivable 0 12,000
Other current assets 1,000 1,000
------------ ------------
TOTAL CURRENT ASSETS 2,000 16,000
Property and equipment 8,000 13,000
Other noncurrent assets 1,000
------------ ------------
TOTAL ASSETS $ 11,000 $ 29,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 83,000 $ 84,000
Accrued liabilities 24,000 12,000
Current portion of capitalized lease obligations 2,000 4,000
Due to officer 0 4,000
------------ ------------
TOTAL CURRENT LIABILITIES 109,000 104,000
NONCURRENT LIABILITIES
Convertible note payable 25,000 25,000
Capitalized lease obligation, net of current portion 3,000 2,000
------------ ------------
------------ ------------
TOTAL LIABILITIES 137,000 131,000
Shareholders' Equity:
Common stock, no par value,
20,000,000 shares authorized,4,222,922 shares issued and outstanding 19,271,000 19,271,000
Series C Preferred Stock 50,000 --
Common Stock Warrants 2,696,000 2,696,000
Accumulated deficit (22,143,000) (22,069,000)
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (126,000) (102,000)
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 11,000 $ 29,000
============ ============
</TABLE>
See notes accompanying financial statements
3
<PAGE> 4
OCTuS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Net sales $ 0 $ 272,000
Royalties 0 317,000
Interest 0 648,000
----------- ----------
0 1,237,000
----------- ----------
Costs and expenses:
Cost of sales 0 168,000
Selling, general and administrative 49,000 216,000
Research and development 0 40,000
Interest 1,000 0
----------- ----------
50,000 424,000
----------- ----------
Net gain (loss) before income taxes (50,000) 813,000
----------- ----------
Net gain (loss) $ ( 50,000) $ 813,000
=========== ==========
Net gain (loss) per common share $ ( 0.01) $ 0.19
=========== ==========
Shares used in per share calculation 4,222,922 4,222,922
=========== ==========
</TABLE>
See notes accompanying financial statements
4
<PAGE> 5
OCTuS, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
----------- -----------
<S> <C> <C>
Revenues:
Net sales $ 5,000 $ 291,000
Royalties 50,000 714,000
Non recuring income 0 648,000
Interest 0 3,000
----------- ---------
55,000 1,656,000
----------- ---------
Costs and expenses:
Cost of sales 5,000 176,000
Selling, general and administrative 122,000 657,000
Research and development 0 154,000
Interest 2,000 0
----------- ---------
129,000 987,000
----------- ---------
Net (loss) before income taxes (74,000) 669,000
----------- ---------
Net (loss) income $ ( 74,000) $ 669,000
=========== =========
Net (loss) per common share $ ( 0.02) $ 0.16
=========== =========
Shares used in per share calculation 4,222,922 4,222,922
=========== =========
</TABLE>
See notes accompanying financial statements
5
<PAGE> 6
OCTuS, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended June 30,
1996 1995
---------- -----------
<S> <C> <C>
Cash flow from operating activities:
Net (loss) gain $(74,000) $ 669,000
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 3,000 0
Loss (gain) on disposal of property and equipment 0 ( 27,000)
Increase (decrease) in accounts receivable 12,000 ( 23,000)
Decrease in inventories 0 122,000
Decrease in other current assets 0 47,000
(Increase) decrease in other noncurrent assets ( 1,000) 47,000
(Decrease) in accounts payable ( 1,000) ( 113,000)
Increase (decrease) in accrued liabilities 12,000 ( 641,000)
Increase (decrease) in deferred revenue 0 ( 545,000)
-------------------------
Net cash used by operating activities ( 49,000) ( 464,000)
-------------------------
Cash flow from investing activities:
Expenditures for property and equipment 2,000 ( 1,000)
Loans to officers ( 4,000) 54,000
Proceeds from sale of fixed assets 0 56,000
-------------------------
Net cash provided by investing activities ( 2,000) 109,000
-------------------------
Cash flow from financing activities:
Payments of capital leases and long-term debt ( 1,000) ( 19,000)
Proceeds from issuance of preferred stock, net 50,000 0
-------------------------
Net cash provided by financing activities 49,000 ( 19,000)
-------------------------
Net decrease in cash and cash equivalents ( 2,000) ( 374,000)
Cash and cash equivalents at beginning of period 3,000 429,000
-------------------------
Cash and cash equivalents at end of period $ 1,000 $ 55,000
=========================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,000 $ 0
=========================
</TABLE>
See notes accompanying financial statements
6
<PAGE> 7
OCTuS, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying financial information has been prepared by OCTuS, Inc.
(the "Company") without audit, in accordance with the instructions to Form
10-QSB and, therefore, does not necessarily include all information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in accordance with generally accepted accounting
principles.
In management's opinion, the accompanying unaudited financial
statements contain all adjustments (which include only normal, recurring
adjustments) necessary to present fairly its financial position at June 30, 1996
and December 31, 1995, and the results of operations for the three and six
months ended June 30, 1996 and 1995, and its cash flows for the six months ended
June 30, 1996 and 1995. Although the Company believes that the disclosures made
in this report are adequate to make the information not misleading, these
financial statements should be read in connection with the financial statements
and notes thereto included in the Company's annual report on Form 10-KSB for the
year ended December 31, 1995.
NOTE 2. COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
-------------------------
<S> <C> <C>
Accounts receivable:
Trade accounts receivable: $ 0 $ 0
Other 0 12,000
-------------------------
$ 0 12,000
-------------------------
Property and equipment:
Computer and test equipment $ 19,000 $ 26,000
Furniture and fixtures 13,000 19,000
-------------------------
32,000 45,000
Less accumulated depreciation (24,000) (32,000)
-------------------------
$ 8,000 $ 13,000
=========================
</TABLE>
7
<PAGE> 8
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
(UNAUDITED)
--------------------------
<S> <C> <C>
Accrued liabilities:
Compensation and employee benefits $ 2,000 $ 9,000
Other 22,000 3,000
---------------------
$24,000 $12,000
=====================
</TABLE>
NOTE 3. SHAREHOLDERS' EQUITY
INITIAL PUBLIC OFFERING
On January 15, 1993, the Company completed an offering of 2,000,000
units at the initial public offering price of $6.00 per unit. Each unit
consisted of one share of Common Stock, no par value, and one Common Stock
purchase warrant. The warrants and Common Stock began trading separately on
January 18, 1993. The Company's common stock, units, and warrants were delisted
from the Nasdaq Small-Cap Market as of February 1, 1995 due to the Company's
inability to meet that market's minimum capital and surplus requirements. Since
that time, the Company's securities have been trading on the OTC Bulletin Board
(the "pink sheets").
PRIVATE OFFERINGS
In July 1994, the Company issued 941,975 shares of unregistered common
stock to three investors. Total proceeds to the Company, net of offering costs,
were $1,568,000 (see "Public Warrants", below).
In July, 1996, the Company issued 250,000 shares of unregistered Series
C Preferred Stock and one warrant to purchase up to 3,000,000 shares of the
Company's Common Stock to one investor. See "Subsequent Events", below.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share
held of record on all matters to be voted on by shareholders and upon giving
notice as required by law, are entitled to cumulate their votes in the election
of directors. However, effective upon the Company becoming a "listed
corporation" within the meaning of Section 301.5 of the California Corporations
Code, the Articles provide that cumulative voting will be eliminated.
The holders of Common Stock are entitled to receive such dividends as
may be declared from time to time by the Board of Directors in its discretion
from funds legally available, provided that no dividend or distribution may be
declared or paid on any shares unless at the same time an equivalent dividend is
declared or paid on all outstanding shares of Common Stock and Preferred Stock.
Upon liquidation or dissolution of the Company, subject to the prior liquidation
rights of the holders of any Preferred Stock, the holders of Common Stock are
entitled to receive ratably the remaining asset available for distribution to
the shareholders. The Common Stock has no preemptive or other subscription
rights, and there are not conversion rights or redemption or sinking fund
provisions with respect to such shares.
8
<PAGE> 9
PUBLIC WARRANTS
Each Public Warrant entitles the registered holder to purchase one
share of Common Stock from the Company until January 15, 1998. Due to completion
of a private offering of unregistered Common Stock in July 1994, the Company
adjusted the exercise price of the warrants and number of shares. Accordingly,
the exercise price of one share of common stock purchased pursuant to each
Public Warrant decreased from $7.00 per share to $6.49 per share. In addition,
the total number of Public Warrants increased from 2,000,000 shares to
2,157,660.
The holders of the Public Warrants have certain anti-dilution
protection upon the occurrence of certain events, including stock dividends,
stock splits, mergers, and reclassifications. The holders of the Public Warrants
have no right to vote on matters submitted to the shareholders of the Company
and have no right to receive dividends. The holders of the Public Warrants are
not entitled to share in the assets of the Company in the event of liquidation,
dissolution, or the winding up of the Company's affairs.
NON-PUBLIC WARRANTS
During 1993 and 1995, the Company issued non-public stock warrants to
certain directors and consultants of the Company. The per share price of the
warrants issued was determined by the Company's Board of Directors. At June 30,
1996, 33,000 shares at $6.00 per share and 25,000 shares at $0.25 per per share
(see Note 14) were outstanding and exercisable. Payment for shares to be issued
upon exercise of a warrant must be made in cash.
NOTE 4. NET GAIN OR LOSS PER COMMON SHARE
Net gain or loss per common share is calculated by dividing the net
loss for the period by the weighted average number of common shares outstanding
during the period increased by dilutive common stock equivalents using the
treasury stock method.
NOTE 5. PROMISSORY NOTE TO OFFICERS
In October, 1993, the Company issued to John C. Belden, President, a
$50,000 one-year unsecured promissory note payable to the Company at the indexed
rate for the Federal Home Loan Bank of San Francisco for the Eleventh Federal
Home Loan Bank District plus 2%. In February 1995, the Company forgave the
entire unpaid principal balance and accrued interest of this note in
consideration of Mr. Belden's agreement to a $75,000 reduction in his annual
salary and a shortening of the term of his employment agreement with the Company
by five months, to December 31, 1995.
NOTE 6. INCOME TAXES
The Company has adopted on a prospective basis effective January 1,
1993, Statement of Financial Accounting Standard No. 109 (FAS109), "Accounting
for Income Taxes." FAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax
basis of other assets and liabilities. There was no effect on the Company's
financial statements upon the implementation of FAS 109.
9
<PAGE> 10
NOTE 7. AGREEMENT FOR DISTRIBUTION OF RETAIL PRODUCT IN NORTH AMERICA
In March, 1995, the Company entered into a three-year agreement with
Cintech Tele-Management Systems, Inc. ("Cintech") granting Cintech exclusive
rights to distribute the retail version of OCTuS PTA in North America. In
connection with the agreement, Cintech also purchased all of the Company's
retail OCTuS PTA inventory and obtained the rights to manufacture additional
units of the product.
NOTE 8. DELISTING FROM NASDAQ SMALL-CAP MARKET
The Company's common stock, units and warrants were delisted from the
Nasdaq Small-Cap Market as of February 1, 1995 due to the Company's inability to
meet that market's minimum capital and surplus requirements. Since that time,
the Company's securities have been trading on the OTC Bulletin Board.
NOTE 9. REDUCTION IN WORKFORCE
The Company laid off a significant portion of its workforce in 1994 and
1995 in an effort to reduce costs and sustain operations. As of June 30, 1996,
the Company had one employee.
NOTE 10. RELEASE FROM PACIFIC BELL DELIVERY OBLIGATION
In May 1995, Pacific Bell released the Company from all remaining
obligations to deliver OCTuS PTA units to its customers under its product
delivery agreement. This includes $240,000 of advance payments for undelivered
products recorded as a liability on the Company's balance sheet at December
31,1994.
NOTE 11. EUROPEAN LICENSING AGREEMENT
On September 5, 1995, the Company entered into a product development
and license agreement with Ascom Telecommunications Limited ("Ascom") of the
United Kingdom. The agreement provides Ascom with an exclusive license to
manufacture and sell to distributors, resellers and end users in Europe a
special version of OCTuS PTA which has been modified to operate through the
personal computer's serial port with Ascom's proprietary telephone. Said
exclusivity shall continue for so long as Ascom sells or otherwise pays OCTuS a
specified minimum royalty on a quarterly basis. The agreement provides that
Ascom shall pay the Company a total of $65,000 for the required modifications to
the standard OCTuS PTA product. To date, the Company has received $55,000 of
that amount from Ascom as payment for the required modifications to the standard
OCTuS PTA program. Under the agreement, Ascom has the right to access the source
code of the product in the event the Company becomes insolvent or is otherwise
unable to support the product.
10
<PAGE> 11
NOTE 12. RELOCATION OF OPERATIONS
In April 1995, the Company relocated to a 12,400 square foot facilty
which it leased on a month-to-month basis from an unrelated third party with a
monthly lease payment of $2,500. In July 1995, the Company again relocated to
540 square feet of office space which it subleases from an unrelated third party
on month-to-month terms. The monthly rental payment for the latter space is
$500.
From April 1994 to April 1995, the Company's headquarters were located
in a 13,240 square foot facility adjacent to a 45,000 square foot facility which
served as the Company's headquarters from 1988 to 1994. The Company's monthly
lease and expense payments (which included common area maintenance, taxes and
insurance costs) on the 13,240 square foot facility were approximately $11,200.
The Company negotiated an agreement with the landlord of that facility to permit
the leasing of the premises to an unrelated third party, beginning in April
1995. In the event such third party's tenancy terminates prior to the
termination of the Company's lease in February 1998, the Company will have the
option to reoccupy or sublet the premises for the remainder of the Company's
lease term unless the landlord elects to terminate the Company's lease, in which
event the Company would be completely released from any other obligations under
the terms of the lease.
NOTE 13. CONVERTIBLE NOTE PAYABLE.
On December 1, 1995, Maroon Bells Capital Partners, Inc., a company
managed by Theodore Swindells, a former director of the Company, advanced
$25,000 to the Company for working capital purposes. The note bears interest at
8% and is due with accrued interest on November 30, 1997. Additionally, the note
may be converted at any time into shares of the Company's common stock at the
rate of $0.25 per share. The note also contains acceleration and anti-dilution
clauses upon conversion. Maroon Bells was also granted 25,000 private warrants
to purchase the Company's common stock at a price of $0 .25 per share. The note
also contains acceleration and anti-dilution clauses upon conversion. Maroon
Bells was also granted 25,000 private warrants to purchase the Company's common
stock at a price of $0.25 per share. The warrants are for a five-year period.
NOTE 14. SUBSEQUENT EVENT.
In July, 1996 the Company issued 250,000 of its Series C Preferred
Stock and one five-year warrant to purchase up to 3,000,000 shares of its Common
Stock to one investor for a total investment of $151,000. With respect to the
warrant, such shares may be exercised at a price of $0.43 per share. However,
such exercise price is subject to adjustment from time to time as described in
the warrant agreement. The Company has granted piggyback and demand registration
rights to the investor with respect to the shares of Common Stock underlying
such warrant. The Company has further agreed to no minate two (2) individuals
designated by such investor to the Company's board of directors.
The Series C Preferred Stock, as established by the Company, consists
of a total of 250,000 shares and is senior in preference and priority in all
manners whatsoever with respect to the Company's common stock and any and all
classes of the Company's preferred stock. The holders of the Series C Preferred
Stock shall not be convertible into Common Stock of the Company or any other of
the Company's securities. The holder of each share of Series C Preferred Stock
shall be entitled to 10 votes per share, entitled to vote on all matters which
come before the Company's shareholders for which a vote is taken or any written
consent of the Company's shareholders is solcited, such votes to be counted
together with all other shares of the Company's securities having general voting
power and not separately as a class. The Company has the right to call and
redeem all (but not less than all) of the outstanding shares of Series C
Preferred Stock for an aggregate price equal to $0.63 per share of Series C
Preferred Stock, plus any and all then accured but unpaid dividends, provided
however, that the Company shall have no right to call or redeem any shares of
Series C Preferred Stock prior to June 30, 1999 without the express prior
written consent of the holders of 100% of the then outstanding shares of the
Series C Preferred Stock, which consent may be withheld or denied in the sole
and absolute discretion of the holders of the Series C Preferred Stock for any
reason or no reason whatsoever.
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
Certain statements contained in this Management's Discussion and
Analysis of Financial Condition and Results of Operations that are not related
to historical results are forward looking statements. Actual results may differ
materially from those projected or implied in the forward statements. Further,
certain forward looking statements are based upon assumptions of future events
which may not prove to be accurate. These forward looking statements involve
risks and uncertainties including but not limited to those referred to below.
This information should be read in conjunction with the financial
statements and notes thereto included in Item 1 of this report for the quarter
ended June 30, 1996. Additionally, the financial statements and notes thereto
and Management's Discussion and Analysis in the Company's Annual Report on Form
10-KSB for the year ended December 31, 1995 will provide additional information.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 1996
The following table sets forth certain revenue and expense classifications as
percentage of revenues (unaudited):
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30,
1996 1995
---- ----
<S> <C> <C>
Revenues:
Net sales -- 22.0%
Royalties -- 25.6%
Interest -- 52.4%
----- -----
-- 100.0%
----- -----
Costs and expenses:
Cost of sales -- 13.6%
Selling, general and administrative -- 17.5%
Research and development -- 3.2%
Interest -- --
----- -----
-- 34.3
Loss before income taxes -- 65.7%
----- -----
Net gain (loss) -- 65.7%
===== =====
Cost of sales as a percent of net sales -- 61.8%
===== =====
</TABLE>
Net Sales. There were no net sales for the three months ended June 30,
1996, which represented a decrease of $272,000 or 100%, from the same period in
1995. This decrease is primarily the result of the completion of the Company's
shift, begun in 1995, from selling its OCTuS PTA product through retail channels
to one of promoting its technology through licensing.
Royalty and Technology Income. No royalty and technology income was
recorded during the three months ended June 30, 1996. This represented a
decrease of $317,000, or 100% from the amount recorded in the same period in
1995. Up through the month of August 1995, substantially all of the Company's
royalty and technology income was earned from a single licensee. In September
1992, the Company granted a perpetual non-exclusive and unlimited technology
license, involving certain laser printer technology, to a third party (which at
the time was a preferred shareholder of the Company) with
12
<PAGE> 13
whom it had a pre-existing technology license agreement in exchange for a
one-time royalty cash payment, net of foreign taxes, of $2.7 million. Royalty
income therefrom was recognized using the straight-line method over the
remaining term of the technology license agreement which expired in August 1995.
The Company's two primary licensees are: (i) Cintech Tele-Management
Systems, Inc. of Cincinnati, Ohio ("Cintech"), whereby in March 1995 the Company
granted Cintech the exclusive rights to the retail version of the OCTuS PTA
product for North America; and (ii) Ascom Telecommunications Limited of the
United Kingdom ("Ascom") which, in September, 1995, executed a license agreement
with the Company whereby the Company granted exclusive rights to Ascom to
manufacture and distribute a special serial-port version of the OCTuS PTA
software to the European market. In connection with that agreement, Ascom agreed
to pay the Company $65,000 in order to develop the modified version of the
product. To date, the Company has received $55,000 of such amount. It should be
noted, however, that although the above-referenced agreements provide for
payment of royalties to the Company by the aforementioned licensees with respect
to OCTuS PTA units manufactured and distributed by them, no such royalties have
been earned by the Company to date and there can be no assurance that
substantial royalties will develop from these sources (or under any other
similar licensing arrangements which have yet to be established), if at all.
Nonrecurring income. Nonrecurring income for the three month period
ended June 30, 1995 was $648,000. Such non-recurring income for such period was
due to the Company's one-time receipt of revenue in connection with its
transition from a sales and marketing company to a software licensing
organization, including revenue received by the Company in connection with the
buyout of royalties due from Spectrum Signal Processing; the disposition by the
Company of its excess physical inventory; and revenue recorded as a result of
Pacific Bell's May 1995 release of the Company's remaining obligations to
deliver OCTuS PTA units to its customers under its product delivery agreement.
Such release caused $240,000 in advance payments for undelivered products (which
had been recorded as a liability on the Company's balance sheet at December 31,
1994) to be recorded as revenue during the period ended June 30, 1995. As such,
it must be emphasized that the Company's receipt of such revenues was due to a
one-time occurrence and there can be no assurance that revenues in such amounts
will be received by the Company on a regular basis.
Cost of Sales. No amounts were recorded for cost of sales for the three
months ended June 30, 1996, which represents a decrease of $168,000, or 100%,
from the same period in 1995. The decrease reflects the completion of the
transition of the Company from a sales and marketing company to a licensing
organization. Cost of sales as a percentage of net sales was zero for the three
months ended June 30, 1996, as compared to 42.1% in the prior year period. This
reflects an decrease in product sales as compared to the same period in the
previous year, which was due to completion of the Company's transition from its
focus on sales and marketing to one of licensing of its technology.
Selling, General and Administrative. Selling, general and
administrative expenses for the three months ended June 30, 1996 decreased
$167,000, or 77.3%, from $216,000 for the same period in 1995 to $49,000. This
decrease from the prior period is due primarily to reduced capital resources and
operating expenses of the Company caused by continued downsizing and relocation
to significantly smaller quarters.
Research and Development. There were no significant research and
development expenses recorded during the period ended June 30, 1996; as such,
these expenses were recorded as general and administrative expenses. This
represented a decrease of $40,000 or 100.0% from the three month period ended
June 30, 1995. The decrease reflects the Company's reduced allocation of
resources to development of its OCTuS PTA product line due to reduced capital
resources.
Net Loss. Net loss for the three months ended June 30, 1996 was
$50,000, as compared to a $813,000 gain for the same period in 1995. It should
be noted that the gain recorded for the prior three month period ended June 30,
1995 primarily reflected one-time receipts of revenue by the Company in
connection with its transition from a sales and marketing company to a licensing
organization as well as a
13
<PAGE> 14
reduction in expenses associated with substantial reductions in force and other
operating costs necessitated by lack of significant product sales and resultant
decreases in available cash resources. The increase of $863,000, or 106%,
primarily reflects the Company's transition from a sales and marketing
organization to a technology licensing business.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996
The following table sets forth certain revenue and expense classifications as
percentage of revenues (unaudited):
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
1996 1995
------ ------
<S> <C> <C>
Revenues:
Net sales 9.1% 17.6%
Royalties 90.9% 43.1%
Nonrecurring income -- 39.1%
Interest -- .2%
------ ------
100.0% 100.0%
------ ------
Costs and expenses:
Cost of sales 9.0% 10.6%
Selling, general and administrative 221.8% 39.7%
Research and development -- 9.3%
Interest 3.6% --
------ ------
234.4% 59.6%
Loss before income taxes (134.54)% 40.4%
------ ------
Net (loss)gain (134.54)% 40.4%
====== ======
Cost of sales as a percent of net sales 100% 60.5%
====== ======
</TABLE>
Net Sales. Net sales for the six months ended June 30, 1996 were $5,000
representing a decrease of $286,000 or 98.3%, from the same period in 1995. This
decrease is primarily the result of the Company's shift in 1995 from selling its
OCTuS PTA product through retail channels to one of promoting its technology
through licensing.
Royalty and Technology Income. Royalty and technology income of $50,000
was recorded during the six months ended June 30, 1996. This represented a
decrease of $664,000, or 93.0% from the amount recorded in the same period in
1995. Up through the month of August 1995, substantially all of the Company's
royalty and technology income was earned from a single licensee. In September
1992, the Company granted a perpetual non-exclusive and unlimited technology
license, involving certain laser printer technology, to a third party (which at
the time was a preferred shareholder of the Company) with whom it had a
pre-existing technology license agreement in exchange for a one-time royalty
cash payment, net of foreign taxes, of $2.7 million. Royalty income therefrom
was recognized using the straight-line method over the remaining term of the
technology license agreement which expired in August 1995.
14
<PAGE> 15
A substantial part of the Company's royalty and technology income is
from two licensees: (i) Cintech Tele-Management Systems, Inc. of Cincinnati,
Ohio ("Cintech"), whereby in March 1995 the Company granted Cintech the
exclusive rights to the retail version of the OCTuS PTA product for North
America; and (ii) Ascom Telecommunications Limited of the United Kingdom
("Ascom") which, in September, 1995, executed a license agreement with the
Company whereby the Company granted exclusive rights to Ascom to manufacture and
distribute a special serial-port version of the OCTuS PTA software to the
European market. In connection with that agreement, Ascom agreed to pay the
Company $65,000 in order to develop the modified version of the product. To
date, the Company has received $55,000 of such amount. It should be noted,
however, that although the above-referenced agreements provide for payment of
royalties to the Company by the aforementioned licensees with respect to OCTuS
PTA units manufactured and distributed by them, no such royalties have been
earned by the Company to date and there can be no assurance that substantial
royalties will develop from these sources (or under any other similar licensing
arrangements which have yet to be established), if at all.
Interest Income. No interest income was recorded for the three months
ended June 30, 1996. This represented a decrease of $3,000, or 100% lower than
for the comparable period in 1995. The decrease is the result of a lower cash
balance during the three months ended June 30, 1996 due to the Company using its
cash reserves because of a lack of significant sales, which generated poor
operating cash flow.
Nonrecurring income. Nonrecurring income for the six month period ended
June 30, 1995 was $648,000. Such non-recurring income for such period was due to
the Company's one-time receipt of revenue in connection with its transition from
a sales and marketing company to a software licensing organization, including
revenue received by the Company in connection with the buyout of royalties due
from Spectrum Signal Processing; the disposition by the Company of its excess
physical inventory; and revenue recorded as a result of Pacific Bell's May 1995
release of the Company's remaining obligations to deliver OCTuS PTA units to its
customers under its product delivery agreement. Such release caused $240,000 in
advance payments for undelivered products (which had been recorded as a
liability on the Company's balance sheet at December 31, 1994) to be recorded as
revenue during the period ended June 30, 1995. As such, it must be emphasized
that the Company's receipt of such revenues was due to a one-time occurrence and
there can be no assurance that revenues in such amounts will be received by the
Company on a regular basis.
Cost of Sales. Cost of sales for the six months ended June 30, 1996 of
$5,000 represents a decrease of $171,000, or 97.2%, from $176,000 in the same
period in 1995. The decrease reflects the transition of the Company from a sales
and marketing company to a licensing organization. Cost of sales as a percentage
of net sales was 100.0% for the six months ended June 30, 1996, as compared to
60.5% in the prior year period. This reflects an decrease in product sales as
compared to the same period in the previous year, which was due to the Company's
transition from its focus on sales and marketing to one of licensing of its
technology.
Selling, General and Administrative. Selling, general and
administrative expenses for the six months ended June 30, 1996 decreased
$535,000, or 81.4%, from $657,000 for the same period in 1995 to $122,000. The
decrease primarily reflects a shift in expenses related to significant
restructuring and downsizing of the Company which occurred in 1994 and 1995 due
to lack of significant sales which resulted in the Company expending its limited
cash resources in order to fund operating expenses.
Research and Development. There were no significant research and
development expenses for the recorded during the period ended June 30, 1996; as
such, these expenses were recorded as general and administrative expenses. This
represented a decrease of $154,000 or 100.0% from the six month period ended
June 30, 1995. The decrease reflects the Company's reduced allocation of
resources to development of its OCTuS PTA product line due to reduced capital
resources.
Net Loss. Net loss for the six months ended June 30, 1996 was $74,000,
as compared to a $669,000 gain for the same period in 1995. It should be noted
that the gain recorded for the prior six
15
<PAGE> 16
month period ended June 30, 1995 primarily reflected one-time receipts of
revenue by the Company in connection with its transition from a sales and
marketing company to a licensing organization as well as a reduction in expenses
associated with substantial reductions in force and other operating costs
necessitated by lack of significant product sales and resultant decreases in
available cash resources. The increase of $743,000, or 111%, primarily reflects
the Company's transition from a sales and marketing organization to a technology
licensing business.
LIQUIDITY AND CAPITAL RESOURCES. For the six months ended June 30,
1996, the Company posted a net loss of $74,000. The Company's operating and
investing activities used cash of $51,000. Management believes that the
establishment of revenue generating licensing agreements, combined with possible
additional financing and existing capital resources, will enable it to carry out
its 1996 operating plan and meet the diminished liquidity requirements of the
Company for the remainder of 1996. However, the Company has no commitments for
additional licensing agreements and does not believe its current licensing
agreements are sufficient to provide for the continued viability and operations
of the Company. Additionally, although the Company did complete a private sale
of stock in July 1996 which provided approximately $151,000 to the Company, the
Company has no additional commitments from any party to provide additional
capital and there is no assurance that such funding will be available when
needed, or if available, that its terms will be favorable or acceptable to the
Company. Should the Company be unable to obtain additional capital when and as
needed, it could be forced to curtail operations, or cease business activities
altogether. As such, there is no assurance that the Company will not require
additional capital resources beyond 1996 in the conduct of its planned business
activities. In the absence of the establishment of significant revenue
generating licensing agreements and general market acceptance of the Company's
technology, there is no assurance that the Company will have the ability to
continue as a going concern.
FACTORS WHICH MAY AFFECT FUTURE RESULTS
INTRODUCTION
OCTuS, Inc. (the "Company") was formed as a California corporation in
1983. From incorporation to 1991, the Company's principal business activities
involved the design, development and distribution of controllers for nonimpact
printers and related laser printer products. In 1991, the Company became
primarily engaged in the design, development, marketing and distribution of
hardware and software products for use in the computer telephone integration
(CTI) market. In March 1995, the Company entered into a three-year agreement
with Cintech Tele-Management Systems, Inc. ("Cintech"), whereby Cintech was
granted exclusive rights to distribute the retail version of the Company's OCTuS
PTA product in North America. In connection with that agreement, Cintech also
purchased all of the Company's retail OCTuS PTA inventory and obtained the
rights to manufacture additional units of the product as well as rights to
access the product's source code in exchange for payment of royalties. In
addition, in September 1995, the Company executed a license agreement with Ascom
Telecommunications Limited providing for the exclusive licensing to Ascom of a
modified version of OCTuS PTA for sale in the European market. The Company is
continuing to concentrate its efforts on developing licensing opportunities with
third parties for its core technology. The Company's products are focused on the
unification of the personal computer and telephone in the office environment.
HISTORY OF OPERATING LOSSES
For the calendar year ended December 31 1994, the Company incurred a
net loss of $5.4 million. Although the Company recorded a gain of $586,000 for
the calendar year ended December 31, 1995, such gain primarily reflects one-time
receipts of revenue by the Company in connection with its transition from a
sales and marketing company to a licensing organization as well as a reduction
in expenses associated with substantial reductions in force and other operating
costs necessitated by lack of
16
<PAGE> 17
significant product sales and resultant decreases in available cash resources.
As such, there is no assurance that such revenue will continue to be received by
the Company and that such net gains will continue to be posted.
At December 31, 1995, the Company had working capital of negative
$88,000, an accumulated deficit of $22,069,000 and a shareholders' deficit of
$102,000. Although the Company has reduced its operating expenses through the
assignment of the North American retail channel to Cintech which has allowed the
Company to focus its efforts on licensing of the product to other third party
manufacturers, which entails significantly lower expenditures and has the
potential for increasing the Company's revenues through establishment of
possible new sources of income, the Company does not believe that the Cintech
agreement, by itself, will be sufficient to provide for the continued viability
and operations of the Company.
In any case, the absence of a significant level of sales of the
Company's products, either as standalone retail units or incorporated into third
party products will cause the Company to continue to generate significant
losses. There is no assurance that the Company's operations will be successful
or will be profitable in the future.
NEED FOR ADDITIONAL CAPITAL
The Company's cash on hand as of August 8, 1996 was $35,000 which is
inadequate to meet the Company's budgeted operating requirements. Additional
cash resources are required to sustain the Company's operations unless adequate
revenues from sales and licensing of the Company's OCTuS PTA product line
develop, of which there can be no assurance. It should be noted that the Company
has no commitment from any party to provide additional capital and there is no
assurance that such funding will be available when needed or, if available, that
its terms will be favorable or acceptable to the Company. Should the Company be
unable to obtain additional capital when and as needed, it could be forced to
curtail operations or cease business activities altogether.
RESTRUCTURING OF OPERATIONS
The Company underwent substantial restructuring in 1994 and 1995,
primarily as a result of continued operating losses. This restructuring included
a substantial reduction in the Company's workforce from 46 employees (as of
March 31, 1994) to one employee (as of August 8, 1996) as well as relocation of
its headquarters to a new facility with lower operating costs. In addition, Ray
M. Healy became the Company's President and Chief Executive Officer in November
1994. However, Mr. Healy resigned as the Company's President and Chief Executive
Officer on May 31, 1995 in order to pursue other opportunities and Mr. Belden
was re-appointed to that position. Mr. Belden is the sole remaining executive
officer of the Company. Mr. Donald O. Aldridge, a director of the Company since
June 1995, was appointed Chairman of the Board of the Company in October 1995.
Although this restructuring effected a major reduction in the Company's
operating expenses, the Company's cash on hand continues to be insufficient to
meet its present operating expenses.
NEED FOR PRODUCT ACCEPTANCE
The Company's ability to complete the development and testing of future
revisions and/or improvements to OCTuS PTA is uncertain due to lack of
sufficient financial resources. As such, there is no assurance that the
Company's testing and development schedules for such future versions will ever
be met. The Company's inability to complete such development and testing could
have a material adverse effect on the Company's financial condition and results
of operations, and could raise questions as to the Company's ability to continue
as a going concern.
17
<PAGE> 18
In addition, because the computer industry is characterized by rapid
technological change, there can be no assurance that the Company's products will
not be rendered obsolete as a result of technological developments before or
after their introduction. The Company's limited resources has impaired the
Company's ability to quickly introduce its new products, continually improve
such products and develop other products in order to compete effectively in this
industry. Accordingly, there is no assurance that the Company will be able to
complete the development of such new products or improvements on a timely basis,
if at all.
MARKETING/DEPENDENCE ON OTHERS FOR DISTRIBUTION
In order to generate significant revenues from OCTuS PTA, the Company
must generate sufficient royalty income from Cintech as well as successfully
implement a program to license the product to companies in the personal computer
and telecommunications industry for incorporation into their respective
products.
DEPENDENCE ON THIRD PARTY SOFTWARE
The Company's products are designed for use with Microsoft(R)
Windows(TM). Although the product functions with Windows 95, the Company will
likely have to revise its product for use with newer versions of Windows as well
as for each different combination of computers and telephone systems. In
addition, since the Company's products will operate in conjunction with these
other operating systems and applications, changes to such systems will require
the Company to adapt its products accordingly. The Company's ability to perform
such ongoing development has been impaired by its present financial condition
and there can be no assurance that the Company will be capable of conducting any
such improvements, which could affect the Company's ability to continue as a
going concern.
HIGHLY COMPETITIVE INDUSTRY
The computer industry is highly competitive and rapidly changing. There
are other companies that are engaged in marketing and development of products
similar to certain of the Company's products that employ similar technologies
which directly compete or could compete with the remainder of the Company's
products. Many of these competitors have significantly greater financial,
technical, manufacturing, and marketing resources and greater name recognition
than the Company. The Company believes that due to the nonproprietary nature of
its products and the relatively low barriers to entry to its markets that,
unless it establishes a significant installed base before its competitors, the
Company will not have any sustainable long-term advantage over its competitors.
The Company believes that its ability to compete depends on elements both within
and outside its control, including the success and timing of new product
development by the Company and its competitors, product performance and price,
productivity enhancement, distribution and customer support. There is no
assurance that the Company will be able to compete successfully with respect to
these factors or others.
FLUCTUATIONS IN OPERATING RESULTS
The Company's operating results may vary significantly from period to
period depending on factors such as the timing of new product introductions by
the Company and its competitors, product mix, changes in distribution channels,
increased competition, changes in product demand resulting from seasonal
fluctuations in business activity, and changes in operating and material costs.
As a result of these and other factors, the Company could experience significant
fluctuations in results of operations in future periods.
INTELLECTUAL PROPERTY
The Company generally relies on confidentiality agreements with its
employees and consultants to protect its proprietary information. There is no
assurance that existing or future patents, copyrights, trademarks and
confidentiality agreements will afford protection from material infringement.
There is
18
<PAGE> 19
also no assurance that the Company's technologies and products will not infringe
upon patents or copyrights of others. Management of the Company believes that
because of the rapid pace of technological change in its industry, patent and
copyright protection is less significant than the ability of the Company to
develop and market new products.
GENERAL ECONOMIC AND MARKET CONDITIONS
Demand for the Company's products depends largely upon the overall
demand for computer and communications products. Demand for such products
fluctuates from time to time based on numerous factors, including capital
spending levels and general economic conditions. There is no assurance that
there will not be a decline in overall demand for computer and communications
products as a result of general economic conditions or otherwise, and any such
decline could have a material adverse effect on the Company's business.
TRANSACTIONS WITH AFFILIATES
The Company has been a party to certain transactions with related
persons and affiliates. The Company believes that all such transactions were in
its best interests and on terms no less favorable to the Company than could have
been obtained from unaffiliated third parties and each transaction was approved
by disinterested and independent members of the Board of Directors. However,
such agreements were not always reached as the result of arms-length
negotiations.
TRADING MARKET/DELISTING FROM NASDAQ SMALLCAP MARKET/VOLATILITY OF
STOCK PRICE
In January 1993, the Company completed an initial public offering of
2,000,000 Units, each unit comprised of one share of Common Stock and one Common
Stock Purchase Warrant. These securities were quoted on the Nasdaq SmallCap
Market until February 1, 1995, at which time they were delisted due to the
Company's inability to meet that market's minimum capital and surplus
requirements. The securities now trade on the OTC Bulletin Board (commonly
referred to as the "pink sheets"), maintained by the National Quotation Bureau,
Inc., which are generally considered to be less efficient markets. While the
Company intends to reapply for listing on the Nasdaq SmallCap Market if
conditions are favorable for it to do so, there can be no assurance that the
Company's securities will be accepted by the Nasdaq SmallCap Market upon
application by the Company for relisting.
The market price of the Common Stock, Units, and Warrants, like that of
the securities of many other high technology companies, has been highly
volatile. Factors such as fluctuation in the Company's operating results,
announcements of technological innovations or new products by the Company or its
competitors, developments in the Company's strategic alliances with other
companies, and general market conditions may have a significant effect on the
market price of the Common Stock, Units, and Warrants.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of the Common Stock in the public market
could have an adverse effect on the price of the publicly-traded Units, Common
Stock and the Warrants and could potentially adversely affect the Company's
ability to raise additional funds. At December 31, 1995, 189,799 stock options
held by Mr. Belden at the time of the January 1993 initial public offering, are
subject to a lockup agreement with RAS Securities Corp., the underwriter of the
initial public offering, whereby such person have agreed not to sell, contract
to sell, or otherwise dispose of such shares of Common Stock, without the
consent of RAS Securities Corp., until the date the Company has $1.0 million or
more in earnings after taxes in any fiscal year as certified by the Company's
independent accountants.
19
<PAGE> 20
EFFECT OF CERTAIN ANTI-TAKEOVER CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Amended and Restated Articles of
Incorporation (the "Articles") and Bylaws could have the effect of making it
more difficult for a third party to acquire, or could discourage a third party
from attempting to acquire, control of the Company. Such provisions may limit or
reduce the price that investors might be willing to pay for shares of the Common
Stock. Certain of such provisions allow the Company to issue preferred stock
with rights senior to those of the Common Stock and impose various procedural
and other requirements that could make it more difficult for shareholders to
effect certain corporate actions. The Articles also provide for a classified
board in the event the Company's shares are traded on a national securities
exchange or the Nasdaq National Market. A classified board could make it more
difficult for a third party to acquire control, or could discourage a third
party from attempting to acquire, control of the board.
PART II.
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Exhibit List and Exhibits, beginning on page __.
(b) No reports on Form 8-K were filed with the SEC during the period ended
June 30, 1996.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the small business issuer has duly caused this report to be signed on its behalf
by the undersigned thereunto authorized.
OCTuS, INC.
Date: August 12, 1996.
---------------------------------------
John C. Belden
President & CEO/Chief Financial Officer
21
<PAGE> 22
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------ ----------- --------
<S> <C> <C>
3.1 Amended and Restated Articles of Incorporation (b)
3.1.1 Certificate of Determination of Preferences of Series C Preferred
Stock of OCTuS, Inc.
3.2 Amended Bylaws (e)
9 Irrevocable Proxy from Tokyo Electric Co., Ltd. (included in Exhibit
10.26.1) *
10.3 Sample Warrant *
10.4 Amended and Restated 1987 Nonstatutory Stock Option Plan (b)
10.5 Form of Stock Option Agreement, Non-Qualified Options,
1987 Plan *
10.6 Amended and Restated 1988 Nonstatutory Stock Option Plan (b)
10.7 Form of Stock Option Agreement, Non-Qualified Options, 1988
Plan *
10.8 Amended and Restated 1992 Key Executive Stock Purchase Plan *
10.10 Standard Industrial Net Lease dated July 29, 1994 by and between
Sorrento Corporate Center and OCTuS, Inc., for 9944 Barnes
Canyon Road , Suite A, San Diego CA 92121 (b)
10.11 Lease Surrender Agreement dated April 8, 1995 (as amended May 31,
1995), by and between Sorrento Corporate Center and OCTuS, Inc., for
9944 Barnes Canyon Road, Suite A, San Diego, CA 92121 (d)
10.12 Employment Agreement dated June 1, 1992 by and between OCTuS,
Inc. and John C. Belden, as amended May 14, 1993 and February 16,
1995 (c)
10.16 Form of Indemnification Agreements entered into by and between
OCTuS, Inc. and its officers and directors *
10.17 Agreement by and between Maroon Bells Capital Partners, Inc. and
OCTuS, Inc. dated January 19, 1995 (c)
10.18 Agreement dated September 8, 1992 by and between Kyocera
Corporation and OCTuS, Inc. *
10.19 Memorandum dated February 4, 1992 by and between OCTuS, Inc.
and Tokyo Electric Co., Ltd. *
10.19.1 Agreement and Release dated as of December 31, 1991 by and
between OCTuS, Inc. and Tokyo Electric Co., Ltd. *
10.19.2 New Shares Agreement dated as of December 31, 1991 by and
between OCTuS, Inc. and Tokyo Electric Co., Ltd. *
10.19.3 License Agreement dated as of December 31, 1991 by and between
OCTuS, Inc. and Tokyo Electric Co., Ltd. *
10.19.3.1 TEC/OASYS License Agreement - 01, dated August 22, 1986 by and
between Office Automation Systems, Inc. and Tokyo Electric Co.,
Ltd. *
10.19.3.2 Agreement dated August 22, 1986 by and between Tokyo Electric
Co., Ltd. and Office Automation Systems, Inc. *
10.20 401(k) Plan Document
10.23 Form of Unit Certificate *
10.24 Directors 1993 Stock Option Plan (b)
Form of Stock Option Agreement, Non-Qualified Options, 1993
Directors Stock Option Plan (a)
10.25 Warrant, Caledonian European Securities Ltd., dated July 15, 1993
</TABLE>
22
<PAGE> 23
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- - ------ ----------- --------
<C> <C> <C>
10.26 Warrant, Neil Haverty, dated July 15, 1993 (a)
10.27 Warrant, Maroon Bells Capital Partners, Inc., dated July 15, 1993 (a)
10.28 Promissory Note of Nolan K. Bushnell, dated as of February 8, 1993,
payable to OCTuS, Inc. (a)
10.28.1 Stock Pledge Agreement by Nolan K. Bushnell in favor of OCTuS, Inc.,
dated February 8, 1993, as amended October 7, 1993 (a)
10.31 Purchase and Sale Agreement dated September 14, 1993 by and
between OCTuS, Inc. and National Computer Systems, Inc. (a)
10.31.1 Letter Agreement dated January 26, 1995 by and between OCTuS, Inc.
and National Computer Systems, Inc. (c)
10.34 Product Development and License Agreement dated November 10, 1993
by and between OCTuS, Inc. and Spectrum Signal Processing, Inc., as
amended November 14, 1994 (a)
10.35 Purchase and License Agreement dated March 7, 1995 by and between
Cintech Tele-Management Systems, Inc. and OCTuS, Inc., as amended
May 16, 1995 (d)
10.36 Product Development and License Agreement dated September 5, 1995
by and between Ascom Telecommunications Limited and OCTuS, Inc. (e)
10.37 Promissory Note dated December 1, 1995 from OCTuS, Inc. to Maroon
Bells Capital Partners, Inc. (g)
10.38 Stock and Warrant Purchase Agreement dated June 24, 1996 by and
between OCTuS, Inc. and Advanced Technologies International, Ltd.
10.39 Warrant to Purchase Common Stock from OCTuS, Inc. to Advanced
Technologies International, Ltd. dated June 24, 1996
11 Statements re: computation of (loss) earnings per share and shares
used in per share calculation (d)
16.1 Letter dated March 13, 1996 from Price Waterhouse to the Securities
and Exchange Commission (f)
</TABLE>
* Incorporated by reference from the Company's Form S-1, as amended, bearing
the SEC registration number 33-51862, which was declared effective January
15, 1993.
(a) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the calendar year ended December 31, 1993.
(b) Incorporated by reference from the Company's Post-Effective Amendment No. 1
on Form S-3 to Form S-1, bearing the SEC registration number 33-51862,
which was declared effective January 6, 1995.
(c) Incorporated by reference from the Company's Annual Report on Form 10-KSB
for the calendar year ended December 31, 1994 filed with the SEC April 17,
1995.
(d) Incorporated by reference from the Company's amended Annual Report on Form
10-KSB/A for the calendar year ended December 31, 1994 filed with the SEC
July 6, 1995.
(e) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended September 30, 1995 filed with the SEC November
13, 1995.
23
<PAGE> 24
(f) Incorporated by reference from the Company's Form 8-K filed with the
Securities and Exchange Commission on March 12, 1996.
(g) Incorporated by reference from the Company's Quarterly Report on Form
10-QSB for the period ended March 31, 1995 filed with the SEC on April 30,
1996.
24
<PAGE> 1
(STATE OF CALIFORNIA LOGO)
SECRETARY OF STATE
CORPORATION DIVISION
I, BILL JONES, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the corporate record
on file in this office, of which it purports to be a copy, and that same is
full, true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix the Great
Seal of the State of California this
JUL - 5 1996
-------------------------------------
(SEAL OF THE STATE OF CALIFORNIA) /S/ Bill Jones
-------------------------------------
Bill Jones
Secretary of State
<PAGE> 2
ENDORSED
FILED
In the office of the Secretary of State
of the State of California
JUL - 3 1996
/s/ BILL JONES
------------------------------
BILL JONES, Secretary of State
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF
SERIES C PREFERRED STOCK
OF
OCTuS, INC.
(Pursuant to Section 401 of the General Corporation Law
of the State of California)
1. They are the duly elected and acting President and Assistant
Secretary, respectively, of the corporation.
2. Pursuant to authority given by the Articles of Incorporation of
OCTuS, Inc. (the "Corporation") the Board of Directors of the Corporation has
duly adopted the following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Corporation provide for a
class of shares known as Preferred Stock, issuable from time to time in one or
more series; and
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof, or any of them; and
WHEREAS, the Corporation does not have any shares of Preferred Stock
outstanding, and the Board of Directors of the Corporation desires, pursuant to
its authority, to determine and fix the rights, preferences, privileges, and
restrictions relating to, a series of Preferred Stock as follows:
a. The series of Preferred Stock shall be designated
"Series C Preferred Stock."
b. The number of shares constituting the Series C
Preferred Stock shall be 250,000 shares.
c. Intended Preference and Priority. The Series C
Preferred Stock shall be senior in preference and
priority in all matters whatsoever to (i) the
Corporation's no par value common stock (the
"Common Stock"), (ii) any and all classes or series
of the Corporation's preferred stock other than the
Series C Preferred Stock, whether now or hereafter
designated or outstanding (the "Junior Preferred
A-1
<PAGE> 3
Stock"), and (iii) any other class or series of capital stock
of the Corporation, whether now or hereafter designated or
outstanding (the "Junior Capital Stock"). The Common
Stock, the Junior Preferred Stock and the Junior Capital
Stock are hereinafter collectively referred to as the
"Junior Securities").
d. Dividends. The holders of record of the then outstanding
shares of Series C Preferred Stock shall be entitled to
receive cumulative dividends at the annual rate of $0.036
per share payable in cash when, as and if declared by the
Board out of any funds legally available therefor. Such
dividends shall accrue on a cumulative basis on each share of
Series C Preferred Stock from day to day, whether or not
declared or paid. If not theretofore paid, the Corporation
shall be obligated to pay any and all dividends accrued with
respect to the Series C Preferred Stock at the time of the
redemption of the Series C Preferred Stock. No dividends or
distributions shall be declared, paid or set aside for
payment in respect of any Junior Securities unless and
until any and all accrued dividends shall have been declared
and paid with respect to the Series C Preferred Stock.
e. Conversion. The shares of Series C Preferred Stock shall not
be convertible into Common Stock or any other of the
Corporation's securities.
f. Voting Rights. The holder of each share of Series C Preferred
Stock shall be entitled to 10 votes per share, entitled to vote
on all matters A which come before the Corporation's
stockholders for which a vote is taken or any written consent of
the Corporation's stockholders is solicited, such votes to be
counted together with all other shares of the Corporation's
securities having general voting power and not separately as a
class. Each holder of Series C Preferred Stock shall be entitled
to notice of any such proposed stockholder action at the
earliest time as such notice is provided to the holders of any
other series, class or designation of the Corporation's capital
stock and otherwise in accordance with the terms of the
Corporation's bylaws.
g. Redemption Rights. The Corporation shall have the right to call
and redeem all (but not less than all) of the outstanding shares
of Series C Preferred Stock for an aggregate price (the
"Redemption Value") equal to (i) Sixty Three Cents ($0.63) per
share of (Series C Preferred Stock) plus (ii) any and all then
accrued but unpaid dividends; provided, however, that the
Corporation shall have no right to call or redeem any shares of
Series C Preferred Stock prior to June 30, 1999 without the
express prior written consent of the holders of One Hundred
Percent (100%) of the then outstanding shares of the Series C
Preferred Stock, which consent may be withheld or denied in the
sole and absolute discretion of the holders of the Series C
Preferred Stock for any reason or no reason whatsoever.
A-2
<PAGE> 4
h. Liquidation. Upon the dissolution, liquidation or winding up of
the Corporation, whether voluntary or involuntary, the holders
of the Series C Preferred Stock shall be entitled to receive out
of the assets of the Corporation available for distribution to
shareholders, an amount equal to the Redemption Value before any
payment or distribution shall be made to the holders of Junior
Securities. In the event the assets of the Corporation available
for distribution to the holders of shares of the Series C
Preferred Stock upon any dissolution, liquidation or winding up
of the Corporation shall be insufficient to pay in full all
amounts to which such holders are entitled pursuant to this
paragraph, then all of the assets of the Corporation to be
distributed shall be distributed ratably to the holders of
Series C Preferred Stock. After the payment to the holders of
the shares of the Series C Preferred Stock of the full amounts
provided for in this paragraph, the holders of the Series C
Preferred Stock as such shall have no right or claim to any of
the remaining assets of the Corporation.
i. Exclusive of Other Rights. Except as may otherwise be required
by law, the shares of Series C Preferred Stock shall not have
any voting powers, preferences and relative, participating,
optional of other special rights, other than those specifically
set forth in this resolution (as such resolution may be amended
from time to time) and in the Articles of Incorporation. The
shares of Series C Preferred Stock shall have no preemptive or
subscription rights.
j. Headings of Subdivisions. The headings of the various
subdivisions hereof are for convenience of reference only and
shall not affect the interpretation of any of the provisions
hereof.
k. Severability. If any voting powers, preferences and relative,
participating, optional and other special rights of the Series C
Preferred Stock and qualifications, limitations and restrictions
thereof set forth in this resolution (as such resolution may be
amended from time to time) is invalid, unlawful or incapable of
being enforced by reason of any rule of law or public policy,
all other voting powers, preferences and relative,
participating, optional and other special rights of Series C
Preferred Stock and qualifications, limitations and restrictions
thereof set forth in this resolution (as so amended) which can
be given effect without the invalid, unlawful or unenforceable
voting powers, preferences and relative, participating, optional
and other special rights of Series C Preferred Stock and
qualifications, limitations and restrictions thereof shall,
nevertheless, remain in full force and effect, and no voting
powers, preferences and relative, participating, optional or
other special rights of Series C Preferred Stock and
qualifications, limitations and restrictions thereof herein set
forth shall be deemed dependent upon any other such voting
powers, preferences and relative, participating,
A-3
<PAGE> 5
optional or other special rights of Series C Preferred Stock
and qualifications, limitations and restrictions thereof
unless so expressed herein.
RESOLVED, FURTHER, that the Chairman of the Board, the President or
Vice President, and the Secretary, the chief financial officer, the Treasurer,
or Assistant Secretary or Assistant Treasurer of the Corporation are each
authorized to execute, verify and file a certificate of determination of
preferences in accordance with California law.
3. The number of shares of Preferred Stock of the Corporation is
2,000,000 and the number of shares constituting Series C Preferred Stock is
250,000. None of the shares of either Series A Preferred Stock of Series B
Preferred Stock have been issued, therefore, no vote of the stockholders is
required for approval. None of the Series C Preferred Stock have been issued.
UNDER PENALTY OF PERJURY, the undersigned declare that the foregoing is
true and correct and that this certificate was executed on June 27, 1996 at San
Diego, California.
/s/ JOHN C. BELDEN
------------------------------------
John C. Belden, President
/s/ ROBERT S. FREEMAN
-------------------------------------
Robert Freeman, Assistant Secretary
A-4
<PAGE> 1
STOCK AND WARRANT PURCHASE AGREEMENT
THIS STOCK AND WARRANT PURCHASE AGREEMENT ("Agreement") is made as of this
24th day of June, 1996 by and between OCTuS, Inc., a California corporation
("Seller") and Advanced Technologies International, Ltd., a Bahamian corporation
("Purchaser").
RECITAL
A. Purchaser desires to purchase from Seller and Seller desires to sell
to Purchaser (i) 250,000 shares of Seller's authorized but unissued
no par value Series C preferred stock (the "Preferred Stock"), and
(ii) a warrant entitling the holder thereof to purchase up to Three
Million (3,000,000) shares of Seller's no par value common stock
(the "Common Stock"), all on the terms and conditions more
specifically set forth herein.
B. The Preferred Stock shall be evidenced by one or more original stock
certificates issued by Seller (the "Preferred Stock Certificates")
and shall be subject to the terms of a certain Designation of
Preferred in the form attached hereto and made a part hereof as
Exhibit A (the "Designation"), which Designation shall be filed with
the Secretary of State of the State of California prior to the
Closing Date (as hereinafter defined).
C. The Warrant shall be evidenced by one or more original warrant
certificates issued by Seller in the form attached hereto and made a
part hereof as Exhibit B.
AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1 PURCHASE AND SALE OF PREFERRED STOCK AND WARRANT.
1.1 Purchase and Sale. Subject to and upon the terms and conditions
hereinafter set forth, Purchaser hereby agrees to purchase from
Seller and Seller hereby agrees to sell, transfer, convey and assign
to Purchaser the Preferred Stock and the Warrant for an aggregate
purchase price of One Hundred Fifty One Thousand and No/100 Dollars
($151,000.00) in immediately available funds
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<PAGE> 2
(the "Purchase Price") which Purchase Price shall be delivered at
the direction of Seller as follows:
1.1.1 Fifty Thousand and No/100 Dollars ($50,000.00) on the Closing
Date;
1.1.2 Fifty Thousand and No/100 Dollars ($50,000.00) on or prior to
June 28, 1996, provided that Purchaser shall not be in default
hereunder for failure to make the payment required by this
Paragraph 1.1.2 if Seller receives such payment within five
(5) business days after the original due date provided herein;
and
1.1.3 Fifty One Thousand and No/100 Dollars ($51,000.00) on or prior
to July 5, 1996, provided that Purchaser shall not be in
default hereunder for failure to make the payment required by
this Paragraph 1.1.3 if Seller receives such payment within
five (5) business days after the original due date provided
herein.
1.2 Closing Date. The date (the "Closing Date") of the sale (the
"Closing") of the Common Stock and the Warrant shall be June 24,
1996 or such other date as the parties shall mutually agree.
2 CONDITIONS TO CLOSING.
2.1 Conditions to Purchaser's Obligation to Purchase. The obligation of
Purchaser to complete the purchase hereunder is subject to the
satisfaction of each of the following conditions, unless waived in
writing by Purchaser:
2.1.1 Acceptance of Agreement. Acceptance by Purchaser of this
Agreement for the purchase of the Preferred Stock and the
Warrant.
2.1.2 Performance. Seller shall have timely observed, performed and
complied with all covenants, agreements, terms and conditions
hereof on Seller's part to be observed, performed and complied
with.
2.1.3 Receipt of Documents. Seller shall have timely taken, executed
and delivered, or be prepared to take, execute and deliver at
the Closing all actions, instruments and documents required
for performance of this Agreement and full effectuation of the
transactions provided for herein, or incidental thereto, in
form and content reasonably
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<PAGE> 3
satisfactory to Purchaser and otherwise as required herein,
including, without limitation, the receipt by Purchaser of all
of the following;
2.1.3.1 a fully executed original of this Agreement;
2.1.3.2 the original Preferred Stock Certificates;
2.1.3.3 the original Warrant;
2.1.3.4 an original certified copy of the Designation as
filed with the Secretary of State of the State of
California;
2.1.3.5 an original Certificate of Good Standing issued by
the Secretary of State of the State of California
evidencing Seller's good standing in said State;
2.1.3.6 Seller's original Signature and Incumbency
Certificate in form and substance reasonably
satisfactory to Purchaser;
2.1.3.7 Seller's original Officer's Certificate in the form
attached hereto and made a part hereof as Exhibit
C; and
2.1.3.8 an original legal opinion from Latham & Watkins
in form and substance reasonably satisfactory to
Purchaser.
2.1.4 Representations and Warranties. All of Seller's
representations and warranties set forth herein shall be true
and complete in all material respects as of the Closing Date,
with the same force and effect as if made on and as of the
Closing Date.
2.1.5 No Default. Except for the potential suit (as hereinafter
defined), no event of default shall have occurred and be
continuing hereunder.
2.1.6 No Litigation. No litigation, arbitration or governmental
investigation or proceeding shall be pending, or, to the
knowledge of Seller, threatened, against Seller, the Preferred
Stock or the Warrant which, if determined adversely to Seller
would have a material adverse effect on Seller or the sale and
purchase contemplated hereby.
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<PAGE> 4
2.2 Conditions to Seller's Obligation to Sell. The obligation of Seller
to complete the sale hereunder is subject to the satisfaction of
each of the following conditions, unless waived in writing by
Seller:
2.2.1 Acceptance of Agreement. Acceptance by Seller of this
Agreement for the sale of the Preferred Stock and the Warrant.
2.2.2 Performance. Purchaser shall have timely observed, performed
and complied with all covenants, agreements, terms and
conditions hereof on Purchaser's part to be observed,
performed and complied with.
2.2.3 Receipt of Documents. Purchaser shall have timely taken,
executed and delivered, or be prepared to take, execute and
deliver at the Closing, all actions, instruments and documents
required for performance of this Agreement and full
effectuation of the transactions provided for herein, or
incidental thereto, in form and content reasonably
satisfactory to Seller and otherwise as required herein,
including, without limitation, the receipt by Seller of all of
the following:
2.2.3.1 a fully executed original of this Agreement; and
2.2.3.2 payment of the Purchase Price, in accordance with
the terms hereof.
2.2.4 Representations and Warranties. All of Purchaser's
representations and warranties set forth herein shall be true
and complete in all material respects as of the Closing Date,
with the same force and effect as if made on and as of the
Closing Date.
2.2.5 No Default. No event of default shall have occurred and be
continuing hereunder.
3 REPRESENTATIONS. WARRANTIES AND COVENANTS.
3.1 Purchaser's Representations and Warranties. Purchaser hereby
represents, warrants and covenants to Seller as set forth below with
the express understanding that said representations, warranties and
covenants are material to and are being relied upon by Seller. Said
representations and warranties
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<PAGE> 5
are true as of the date hereof, shall be true as of the Closing Date and
shall, except as otherwise expressly set forth herein, survive the Closing
Date for a period of one (1) year.
3.1.1 Execution Delivery & Performance. The execution, delivery,
performance and consummation of this Agreement by Purchaser has been
duly authorized by all requisite action. Purchaser has the full
right, power and authority to execute, deliver and consummate this
Agreement and the transactions provided for herein, without the
consent or approval of, notice to or registration with any person,
association, entity or governmental authority, and this Agreement
represents the valid and binding obligations of Purchaser,
enforceable against Purchaser and effective in accordance with its
terms.
3.1.2 No Conflict. The execution, delivery, performance and consummation
of this Agreement and the transactions provided for herein do not
and will not violate: (a) any contract, agreement or other
commitment to which Purchaser is a party, or by which Purchaser is
bound; (b) Purchaser's constituent documents; or (c) any order,
writ, injunction, decree, statute, ordinance, rule or regulation
applicable to Purchaser.
3.1.3 Representations and Warranties. No representation or warranty of
Purchaser contained herein or in any document delivered in
connection herewith contains or will contain any untrue statement of
material fact, or omits or will omit to state any material fact or
any fact necessary to make the statements made not materially
misleading.
3.2 Seller's Representations. Warranties and Covenants. Seller hereby
represents, warrants and covenants to Purchaser as set forth below with
the express understanding that said representations, warranties and
covenants are material to and are being relied upon by Purchaser. Said
representations and warranties are true as of the date hereof, shall be
true as of the Closing Date.
3.2.1 Execution, Delivery & Performance. The execution, delivery and
performance of this Agreement has been duly authorized by all
requisite action. Seller has the full right, power and authority to
execute, deliver and consummate this Agreement and the transactions
provided for herein, without the consent or approval of, notice to
or registration with any other person, association, entity or
governmental authority. This Agreement represents the valid and
binding obligation
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<PAGE> 6
of Seller, enforceable against Seller and effective in accordance with its
terms.
3.2.2 No Conflict. The execution, delivery and performance of this Agreement,
and the consummation of the transactions provided for herein, do not and
will not: (a) constitute a breach of or default under any contract,
agreement or other commitment to which Seller is a party, or by which
Seller, the Preferred Stock or the Warrant is bound, or (b) violate any
order, writ, injunction, decree, statute, ordinance, rule or regulation
applicable to Seller, the Preferred Stock or the Warrant.
3.2.3 Good Standing. Seller is a corporation duly organized, validly existing
and in good standing pursuant to the laws of the State of California and
Seller is qualified to do business and is in good standing in each other
jurisdiction where the nature of Seller's business requires such
qualification.
3.2.4 Representations and Warranties. No representation or warranty of Seller
contained herein or in any document delivered in connection herewith
contains or will contain any untrue statement of material fact, or omits
or will omit to state any material fact or any fact necessary to make the
statements made not materially misleading.
3.2.5 Litigation. Except for litigation which has been threatened (but, to the
best of Seller's knowledge and belief, not filed) against Seller by
principals and affiliates of RAS Securities and TAG Acquisition Corp. in
connection with the transaction contemplated hereby (the "Potential
Suit"), there is no action, suit or proceeding at law or equity, or before
or by any federal, state, local or other governmental department,
commission, board, bureau, agency or instrumentality, domestic or foreign,
pending, or to the knowledge of Seller threatened, against Seller, the
Preferred Stock or the Warrant which (i) if determined adversely would
have a material adverse effect on the sale and purchase contemplated
hereby, and (ii) has not heretofore been disclosed in Seller's publicly
available periodic filings with the United States Securities and Exchange
Commission (together with any exhibits or addenda thereto, the "SEC
Filings").
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<PAGE> 7
3.2.6 SEC Filings; Capitalization. The SEC Filings are true, correct
and complete in all material respects and do not contain any
untrue statement of material fact or omit to state any
material fact relating to Seller or Seller's business. Seller
has not issued any securities other than those disclosed in
Seller's most recent SEC Filing filed prior to the date
hereof.
3.2.7 Preferred Stock. When issued pursuant hereto, the Preferred
Stock shall:
3.2.7.1 be fully paid and non-assessable and shall be
free of any and all restrictions except those
specifically set forth in the Designation and
those which arise pursuant to State and federal
securities laws, including, without limitation,
the Securities Act of 1933, as amended (the
"Securities Act"); and
3.2.7.2 constitute all of Seller's issued preferred stock
of any class or series, or no class or series,
whatsoever, it being expressly understood that
all heretofore issued shares of Seller's Series A
and Series B preferred stock have been converted
into shares of Seller's common stock or are
otherwise no longer issued or outstanding as of
the date hereof.
3.2.8 Warrant. When issued pursuant hereto, the Warrant shall be
fully paid and non-assessable and shall be free of any and all
restrictions except those which arise pursuant to State and
federal securities laws, including, without limitation, the
Securities Act.
3.2.9 Registration Rights. Except as provided hereby, Seller has not
granted any registration rights to any party except pursuant
to that certain Representative's Warrant Agreement dated
January 15, 1993 (the "Initial Registration Rights"). Seller's
granting of registration rights pursuant to the terms hereof
does not violate the terms of the Initial Registration Rights
or any other agreement or obligation to which Seller is a
party or by which Seller is bound.
3.3 Use of Brokers. Each party represents and warrants to the other that
it has not dealt with any broker or finder in connection with this
Agreement or the
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<PAGE> 8
transactions provided for herein, and that no person or entity is
entitled to any brokerage or finder's fee, commission or other
compensation on account of any such dealings with the warranting
party. The provisions of this paragraph shall survive the Closing
Date, or the termination of this Agreement pursuant hereto.
3.4 Survival of Representations. Except as expressly set forth herein,
all representations and warranties contained in this Article 3 shall
survive for an undefined period after the Closing Date, the delivery
of the Preferred Stock, the Warrant and the Purchase Price and any
investigation at any time made by or on behalf of Purchaser or
Seller and shall not diminish Purchaser's or Seller's right to rely
thereon.
3.5 Seller's Covenants. Seller hereby covenants to Purchaser as follows:
3.5.1 Board Compensation. Seller's Board (as hereinafter defined)
shall not take any action to change the cash or non-cash
compensation paid to any member of Seller's Board without
obtaining either (i) the approval of a majority of Seller's
stockholders, or (ii) the approval of a majority of Seller's
Board, provided that said majority includes the affirmative
vote of at least one of the ATI Board Representatives (as
hereinafter defined).
3.5.2 Issuance of Securities: Forced Exercise of Warrant. Without
the prior written consent of Purchaser, which consent may be
withheld or denied for any reason or no reason whatsoever,
Seller shall not, until after the second (2nd) anniversary of
the date hereof (the "Restricted Period"), issue, cause to be
issued or otherwise incur any obligation to issue, any
securities of any kind or nature whatsoever. Notwithstanding
the foregoing, in the event that Seller's Board determines in
good faith (as evidenced by the resolution of a majority of
the then members of Seller's Board) that Seller has less than
Sixty Thousand and No/100 Dollars ($60,000.00) in available
cash or cash equivalents, and Seller is otherwise unable to
conduct Seller's business in the ordinary course, Seller shall
have the right, pursuant to the terms of the Warrant, upon
fifteen (15) business days prior written notice, to demand
that Purchaser exercise the Warrant in a minimum amount
sufficient to provide Seller with gross proceeds resulting
from the exercise thereof in an amount of One Hundred Thousand
and No/100 Dollars ($100,000.00). It is expressly understood
that Seller's sole remedy in
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<PAGE> 9
the event of Purchaser's failure to so exercise the Warrant
pursuant to such a demand shall be the termination of Seller's
covenant pursuant to this Paragraph 3.5.2 and such default shall
have no other effect on the rights or obligations of the parties
arising hereunder, pursuant to the Preferred Stock or pursuant
to the Warrant.
3.5.3 ATI Representatives to Seller's Board. Until such time as the
Preferred Stock is redeemed in accordance with its terms,
Seller's board of directors ("Seller's Board") and officers
hereby agree to take any and all action necessary to effectuate
the nomination, recommendation and election of two (2) Purchaser
designees to Seller's Board (the "ATI Board Representatives").
It is further expressly understood that each member of Seller's
Board and each of Seller's officers hereby agrees to vote any
and all of Seller's securities over which said parties have
voting control in favor of the election of the ATI Board
Representatives.
3.5.4 Registration Rights. Seller hereby grants to Purchaser the
registration rights described on Exhibit D attached hereto and
made a part hereof.
3.5.5 Defense of the Potential Suit: Indemnity. If the Potential Suit
(or any other action arising or relating in any way to the
transactions contemplated hereby) is filed, Seller shall
vigorously defend against said action and shall engage counsel
in connection therewith satisfactory to Purchaser in Purchaser's
reasonable discretion. Seller shall indemnify, defend and hold
harmless Purchaser and Purchaser's affiliates, officers,
directors, employees, stockholders and other representatives and
each of said parties respective successors and assigns (each, an
"Indemnified Party"), of, from and against any and all loss,
claim, damage, demand, suit, action, cause of action, liability,
penalty, judgement, decree, cost and expense, (including,
without limitation, reasonable attorneys' fees and costs)
(collectively, "Damages") which may at any time be asserted or
recovered against or incurred by any Indemnified Party arising
from, in connection with, on account of, or relating to, the
transactions contemplated hereby, including, without limitation,
arising in connection with the Potential Suit. Without
limitation of the foregoing, Seller shall pay any Indemnified
Party, upon demand, all claims, judgements, damages, losses,
costs and expenses (including reasonable attorneys' fees and
court costs) incurred by such Indemnified Party as a result of
any legal or other action arising in connection with the
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transactions contemplated hereby, including, without
limitation, arising in connection with the Potential Suit.
3.5.6 Issuance of Preferred Stock. Notwithstanding the provisions of
Paragraph 3.5.2 hereof, without the prior written consent of
Purchaser, which consent may be withheld or denied for any
reason or no reason whatsoever, for so long as any shares of
the Preferred Stock remain outstanding, Seller shall not cause
to be issued or incur any obligation to issue any shares of
Seller's preferred stock.
4 REMEDIES. Upon a default hereunder by Seller, Purchaser shall have any and
all rights and remedies available to Purchaser at law or in. equity.
Purchaser shall have the right but not the obligation to pursue any one or
more of the remedies available to Purchaser concurrently or successively,
it being the intent hereof that all such remedies shall be cumulative and
that no such remedy shall be to the exclusion of any other. No waiver of
any breach or default hereunder shall constitute or be construed as a
waiver by Purchaser of any subsequent breach or default or of any breach
or default of any other provision of this Agreement.
5 MISCELLANEOUS.
5.1 Amendment and Waiver. Neither this Agreement nor any provision
hereof may be amended, modified, waived, discharged, or terminated
orally, but only by an instrument in writing signed by the party
against whom enforcement of the amendment, modification, waiver,
discharge or termination is sought.
5.2 Severability. Whenever possible, each provision of this Agreement
shall be interpreted in such a manner as to be effective and valid
under applicable law. If, however, any provision of this Agreement
shall be determined by a court of competent jurisdiction to be
invalid or unenforceable, such provisions shall be ineffective to
the extent of such invalidity or unenforceability, without
invalidating the remainder of such provision or the remaining
provisions of this Agreement.
5.3 Headings. The headings of various paragraphs of this Agreement have
been inserted for reference only and shall not be a part of this
Agreement.
5.4 Notices. Any notice required or permitted to be given hereunder
shall be in writing, and shall be either (i) personally delivered,
(ii) sent by U.S. certified or registered mail, return receipt
requested, postage prepaid, or (iii) sent by
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Federal Express or other reputable common carrier guaranteeing next
business day delivery, to the respective addresses of the parties
set forth below, or to such other place as any party hereto may by
notice given as provided herein designate for receipt of notices
hereunder. Any such notice shall be deemed given and effective upon
receipt or refusal of receipt thereof by the primary party to whom
it is to be sent.
To Seller: OCTuS, Inc.
P.O. Box 232397
San Diego, CA 92198-2397
Attn: Mr. John C. Belden
with a required copy to: Latham & Watkins
701 B Street
Suite 2100
San Diego, CA 92101
Attn: Thomas A. Edwards, Esq.
To Purchaser: Advanced Technologies International Ltd.
c/o Neal Gerber & Eisenberg
Two North LaSalle Street
Suite 2200
Chicago, IL 60602
Attn: Burton W. Kanter, Esq.
with a required copy to: Barack Ferrazzano Kirschbaum & Perlman
333 West Wacker Drive
Suite 2700
Chicago, IL 60606
Attn: Joshua S. Kanter, Esq.
5.5 Governing Law. This Agreement has been negotiated and delivered at
Chicago, Illinois, and shall be governed by and construed in
accordance with the internal laws of the State of Illinois without
reference to (i) its judicially or statutorily pronounced rules
regarding conflict of laws or choice of law; (ii) where any
instrument is executed or delivered; (iii) where any payment or
other performance required by any such instrument is made or
required to be made; (iv) where any breach of any provision of any
such instrument occurs, or any cause of action otherwise accrues;
(v) where any action or other proceeding is instituted or pending;
(vi) the nationality, citizenship, domicile,
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<PAGE> 12
principal place of business, or jurisdiction or organization or
domestication of any party; (vii) whether the laws of the form
jurisdiction otherwise would apply the laws of a jurisdiction other than
the State of Illinois; or (viii) any combination of the foregoing.
5.6 Successors and Assigns. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and their respective successors
and assigns.
5.7 Recitals and Exhibits Incorporated. The recitals and exhibits to this
Agreement are incorporated into and constitute an integral part of this
Agreement.
5.8 Entire Agreement. This Agreement constitutes the entire agreement and
understanding among the parties with regard to the subject matter hereof,
and there are no other prior or contemporaneous written or oral
agreements, undertakings, promises, warranties, or covenants respecting
such subject matter not expressly set forth herein.
5.9 Additional Documentation. At the request of any party from time to time on
and after the Closing Date, the other party shall, without further
consideration, execute and/or deliver to the requesting party such
documents and instruments, and take such other action, as the requesting
party may reasonably request in order to consummate more effectively the
transactions provided for herein. The provisions of this paragraph shall
survive the Closing Date.
5.10 Counterparts. This Agreement may be executed in any number of identical
counterparts, any of which may contain the signatures of less than all
parties, and all of which together shall constitute a single agreement.
5.11 Litigation. If any party commences an action against any other party to
enforce any of the terms hereof, the losing party shall pay to the
prevailing party the reasonable attorneys' fees and costs of the
prevailing party incurred in connection with the prosecution or defense of
such action or any appeal therefrom.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Purchaser: Advanced Technologies International, Ltd.
By: ___________________________________
Its: ___________________________________
Seller: OCTuS, Inc.
/s/ John C. Belden
By: ___________________________________
Its: ___________________________________
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<PAGE> 14
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first above written.
Purchaser: Advanced Technologies International, Ltd.
/s/ Frances Petryshen
By: ___________________________________
Vice President
Its: ___________________________________
Seller: OCTuS, Inc.
By: ___________________________________
Its: ___________________________________
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EXHIBIT A
DESIGNATION OF PREFERRED STOCK
<PAGE> 16
CERTIFICATE OF DETERMINATION OF PREFERENCES
OF
SERIES C PREFERRED STOCK
OF
OCTuS, INC.
(Pursuant to Section 401 of the General Corporation Law
of the State of California)
1. They are the duly elected and acting President and Assistant
Secretary, respectively, of the corporation.
2. Pursuant to authority given by the Articles of Incorporation of
OCTuS, Inc. (the "Corporation") the Board of Directors of the Corporation has
duly adopted the following recitals and resolutions:
WHEREAS, the Articles of Incorporation of the Corporation provide
for a class of shares known as Preferred Stock, issuable from time to time
in one or more series; and
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock,
to fix the number of shares constituting any such series, and to determine
the designation thereof, or any of them; and
WHEREAS, the Corporation does not have any shares of Preferred Stock
outstanding, and the Board of Directors of the Corporation desires,
pursuant to its authority, to determine and fix the rights, preferences,
privileges, and restrictions relating to, a series of Preferred Stock as
follows:
1. The series of Preferred Stock shall be designated "Series C
Preferred Stock."
2. The number of shares constituting the Series C Preferred Stock shall
be 250,000 shares.
3. Intended Preference and Priority. The Series C Preferred Stock shall
be senior in preference and priority in all matters whatsoever to
(i) the Corporation's no par value common stock (the "Common
Stock"), (ii) any and all classes or series of the Corporation's
preferred stock other
A-1
<PAGE> 17
than the Series C Preferred Stock, whether now or hereafter designated or
outstanding (the "Junior Preferred Stock"), and (iii) any other class or
series of capital stock of the Corporation, whether now or hereafter
designated or outstanding (the "Junior Capital Stock"). The Common Stock,
the Junior Preferred Stock and the Junior Capital Stock are hereinafter
collectively referred to as the "Junior Securities").
4. Dividends. The holders of record of the then outstanding shares of
Series C Preferred Stock shall be entitled to receive cumulative
dividends at the annual rate of $0.036 per share payable in cash when,
as and if declared by the Board out of any funds legally available
therefor. Such dividends shall accrue on a cumulative basis on each
share of Series C Preferred Stock from day to day, whether or not
declared or paid. If not theretofore paid, the Corporation shall be
obligated to pay any and all dividends accrued with respect to the
Series C Preferred Stock at the time of the redemption of the Series
C Preferred Stock. No dividends or distributions shall be declared,
paid or set aside for payment in respect of any Junior Securities unless
and until any and all accrued dividends shall have been declared and
paid with respect to the Series C Preferred Stock.
5. Conversion. The shares of Series C Preferred Stock shall not be
convertible into Common Stock or any other of the Corporation's
securities.
6. Voting Rights. The holder of each share of Series C Preferred Stock
shall be entitled to 10 votes per share, entitled to vote on all matters
which come before the Corporation's stockholders for which a vote is
taken or any written consent of the Corporation's stockholders is
solicited, such votes to be counted together with all other shares of the
Corporation's securities having general voting power and not separately
as a class. Each holder of Series C Preferred Stock shall be entitled
to notice of any such proposed stockholder action at the earliest time
as such notice is provided to the holders of any other series, class or
designation of the Corporation's capital stock and otherwise in
accordance with the terms of the Corporation's bylaws.
7. Redemption Rights. The Corporation shall have the right to call and
redeem all (but not less than all) of the outstanding shares of Series C
Preferred Stock for an aggregate price (the "Redemption Value") equal
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<PAGE> 18
to (i) Sixty Three Cents ($0.63) per share of Series C Preferred Stock,
plus (ii) any and all then accrued but unpaid dividends; provided,
however, that the Corporation shall have no right to call or redeem any
shares of Series C Preferred Stock prior to June 30, 1999 without the
express prior written consent of the holders of One Hundred Percent (100%)
of the then outstanding shares of the Series C Preferred Stock, which
consent may be withheld or denied in the sole and absolute discretion of
the holders of the Series C Preferred Stock for any reason or no reason
whatsoever.
8. Liquidation. Upon the dissolution, liquidation or winding up of the
Corporation, whether voluntary or involuntary, the holders of the
Series C Preferred Stock shall be entitled to receive out of the assets
of the Corporation available for distribution to shareholders, an
amount equal to the Redemption Value before any payment or
distribution shall be made to the holders of Junior Securities. In the
event the assets of the Corporation available for distribution to the
holders of shares of the Series C Preferred Stock upon any dissolution,
liquidation or winding up of the Corporation shall be insufficient to pay
in full all amounts to which such holders are entitled pursuant to this
paragraph, then all of the assets of the Corporation to be distributed
shall be distributed ratably to the holders of Series C Preferred Stock.
After the payment to the holders of the shares of the Series C
Preferred Stock of the full amounts provided for in this paragraph, the
holders of the Series C Preferred Stock as such shall have no right or
claim to any of the remaining assets of the Corporation.
9. Exclusion of Other Rights. Except as may otherwise be required by law, the
shares of Series C Preferred Stock shall not have any voting powers,
preferences and relative, participating, optional or other special rights,
other than those specifically set forth in this resolution (as such
resolution may be amended from time to time) and in the Articles of
Incorporation. The shares of Series C Preferred Stock shall have no
preemptive or subscription rights.
10. Headings of Subdivisions. The headings of the various subdivisions
hereof are for convenience of reference only and shall not affect the
interpretation of any of the provisions hereof.
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<PAGE> 19
11. Severability of Provisions. If any voting powers, preferences and
relative, participating, optional and other special rights of the
Series C Preferred Stock and qualifications, limitations and
restrictions thereof set forth in this resolution (as such
resolution may be amended from time to time) is invalid, unlawful or
incapable of being enforced by reason of any rule of law or public
policy, all other voting powers, preferences and relative,
participating, optional and other special rights of Series C
Preferred Stock and qualifications, limitations and restrictions
thereof set forth in this resolution (as so amended) which can be
given effect without the invalid, unlawful or unenforceable voting
powers, preferences and relative, participating, optional and other
special rights of Series C Preferred Stock and qualifications,
limitations and restrictions thereof shall, nevertheless, remain in
full force and effect, and no voting powers, preferences and
relative, participating, optional or other special rights of Series
C Preferred Stock and qualifications, limitations and restrictions
thereof herein set forth shall be deemed dependent upon any other
such voting powers, preferences and relative, participating,
optional or other special rights of Series C Preferred Stock and
qualifications, limitations and restrictions thereof unless so
expressed herein.
RESOLVED, FURTHER, that the Chairman of the Board, the President or
any Vice President, and the Secretary, the chief financial officer, the
Treasurer, or any Assistant Secretary or Assistant Treasurer of the
Corporation are each authorized to execute, verify and file a certificate
of determination of preferences in accordance with California law.
3. The authorized number of shares of Preferred Stock of the
Corporation is 2,000,000 and the number of shares constituting Series C
Preferred Stock, none of which has been issued, is 250,000.
IN WITNESS WHEREOF, the undersigned have executed this certificate on June
24, 1996.
____________________________________
John C. Belden, President
Attest:
_______________________________________
Robert Freeman, Assistant Secretary
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<PAGE> 20
EXHIBIT B
FORM OF WARRANT CERTIFICATE
<PAGE> 21
VOID AFTER 5:00 P.M. NEW YORK TIME, ON JUNE 24, 2001
WARRANT TO PURCHASE 3,000,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
OCTUS, INC.
This is to Certify That, FOR VALUE RECEIVED, Advanced Technologies
International, Ltd., a Bahamian corporation ("ATI") or assigns ("Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from Octus,
Inc., a California corporation ("Company"), 3,000,000 fully paid, validly issued
and nonassessable shares of Common Stock, no par value per share, of the Company
("Common Stock") at a price of $0.43 per share, subject to adjustment as
provided herein (as so adjusted from time to time, the "Base Exercise Price").
After June 24, 1997, this Warrant may be exercised with respect to 1,000,000
Warrant Shares at the Base Exercise Price and with respect to 2,000,000 Warrant
Shares at the lesser of (i) the Base Exercise Price on June 24, 1997 multiplied
by two (2), or (ii) $0.50 (the "First Adjusted Exercise Price"). After June 24,
1998, this Warrant may be exercised with respect to 1,000,000 Warrant Shares at
the Base Exercise Price, with respect to 1,000,000 Warrant Shares at the First
Adjusted Exercise Price and with respect to 1,000,000 Warrant Shares at the
lesser of (i) the Base Exercise Price on June 24, 1998 multiplied by three (3),
or (ii) $0.75 (the "Second Adjusted Exercise Price"). The Base Exercise Price,
the First Adjusted Exercise Price and the Second Adjusted Exercise Price, as
applicable and as adjusted from time to time is hereinafter referred to as the
"Exercise Price." The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for each share of Common Stock
may
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<PAGE> 22
be further adjusted from time to time as hereinafter set forth. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
for a share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT
This Warrant may be exercised in whole or in part at any time or from
time to time on or after the date hereof and until 5:00 p.m. (New York time)
June 24, 2001 (the "Exercise Period"); provided, however, that if either such
day is a holiday or a day on which banking institutions in the State of New York
are authorized by law to close, then 5:00 p.m. (New York time) on the next
succeeding day which shall not be such a day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. As soon as practicable after
each such exercise of this Warrant, but not later than seven (7) days from the
date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable
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<PAGE> 23
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder. The Company shall
pay all documentary, stamp or similar taxes and other governmental charges that
may be imposed with respect to the issuance of this Warrant, or the issuance or
delivery of any shares of Common Stock upon exercise of this Warrant; provided,
however, that if shares of Common Stock are to be delivered in a name other than
the name of the registered holder of the Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Company the amount of transfer taxes or charges incident thereto, if any.
(b) RESERVATION OF SHARES; FULLY PAID AND NON-ASSESSABLE; ETC. The
Company shall at all times reserve for issuance and/or delivery upon exercise of
this Warrant such number of shares of its Common Stock as shall be required for
issuance and delivery upon exercise of the Warrants. Upon such issuance the
Warrant Shares shall be fully paid and non-assessable, free and clear of all
liens, claims, taxes, encumbrances and charges whatsoever with respect to the
issue thereof and free from all preemptive or similar rights.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a securities exchange or admitted
to unlisted trading privileges on such exchange or listed for trading on the
Nasdaq National Market or the Nasdaq SmallCap Market, the current market value
shall be the last reported sale price or the average of the means of the last
reported bid and asked prices, respectively, of the
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<PAGE> 24
Common Stock on such exchange or market on the last business day prior to the
date of exercise of this Warrant; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the average of the means
of the last reported bid and asked prices of the Common Stock on the last
business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof determined in
accordance with generally accepted accounting principles as at the end of the
most recent fiscal quarter of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer
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<PAGE> 25
agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal
5
<PAGE> 26
the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(2) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (8) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to the
date of such issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately. After the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or
6
<PAGE> 27
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (1) above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Subsection (8) below),
less the fair market value (as determined by the Company's Board of Directors)
of said assets or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(4) In case the Company shall issue shares of its Common Stock
excluding shares issued (i) in any of the transactions described in Subsection
(1) above, (ii) upon exercise of options granted to the Company's employees
under a plan or plans adopted by the Company's Board of Directors and approved
by its shareholders, if such shares would otherwise be included in this
Subsection (4), (but only to the extent that the aggregate number of shares
excluded hereby and issued after the date hereof shall not exceed 10% of the
Company's Common Stock
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<PAGE> 28
outstanding at the time of any issuance and provided further that the exercise
price per share of such options is not less than the current market price per
share of Common Stock (as defined in Subsection (8) below) on the date of
grant), (iii) upon exercise of options and warrants outstanding at June 24,
1996, (iv) to shareholders of any corporation which merges into the Company in
proportion to their stock holdings of such corporation immediately prior to such
merger, upon such merger, (v) pursuant to the Stock and Warrant Purchase
Agreement dated June 24, 1996 between the Company and ATI (the "Stock and
Warrant Purchase Agreement"), or (vi) issued in a bona fide public offering
pursuant to a firm commitment underwriting where the offering price per share of
Common Stock offered is not less than the current market price per share of
Common Stock (as defined in Subsection (8) below on the date of such issuance,
but only if no adjustment is required pursuant to any other specific subsection
of this Section (f) (without regard to Subsection (9) below) with respect to the
transaction giving rise to such rights, for a consideration per share (the
"Offering Price") less than the current market price per share as defined in
Subsection (8) below on the date the Company fixes the offering price of such
additional shares, the Exercise Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received determined as provided in Subsection
(7) below for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares.
(5) In case the Company shall issue any securities convertible into or
8
<PAGE> 29
exchangeable for its Common Stock (including warrants or options to purchase
Common Stock) excluding securities issued in transactions described in
Subsections (2) and (3) above for a consideration per share of Common Stock (the
"Conversion Price") initially deliverable upon conversion or exchange of such
securities determined as provided in Subsection (7) below less than the current
market price per share as defined in Subsection (8) below in effect immediately
prior to the issuance of such securities, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such securities
and the number of shares of Common Stock which the aggregate consideration
received determined as provided in Subsection (7) below for such securities
would purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the maximum number of shares
of Common Stock of the Company deliverable upon conversion of or in exchange for
such securities at the initial conversion or exchange price or rate.
(6) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsections (1), (2), (3), (4), and (5) above, the
number of Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Shares then issuable upon exercise of
this Warrant by the Exercise Price then in effect and dividing the product so
obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration received
pursuant to Subsections (4) and (5) above, the following shall apply:
(A) in the case of the issuance of shares of Common Stock for
cash,
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<PAGE> 30
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of the Company (irrespective of the accounting
treatment thereof) on the basis of a record of values of similar property or
services; and
(C) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange thereof the
consideration in each case to be determined in the same manner as provided in
clauses (A) and (B) of this Subsection (7).
(8) For the purpose of any computation under Subsections (2),
(3), (4) and (5) above, the current market price per share of Common Stock at
any date shall be deemed to be the lower of (i) the average of the daily closing
prices for 30 consecutive business days before such date or (ii) the closing
price on the business day immediately preceding such date. The closing price for
each day shall be the last sale price regular way or, in case no such reported
sale takes place on such day, the average of the means of the last reported bid
and asked prices regular way, in either case on the principal national
securities exchange or the Nasdaq Stock Market on which the Common Stock is
admitted to trading or listed, or if not listed or admitted to trading on such
exchange or market, the average of the highest reported bid and lowest
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<PAGE> 31
reported asked prices of the Common Stock, or if not so available, the fair
market price as determined in good faith by the Board of Directors but in no
event less then the per share book value of the Company as determined in
accordance with generally accepted accounting principles as of the end of the
last fiscal quarter prior to such determination.
(9) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustments which by reason of this
Subsection (9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including this Warrant).
(10) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of each Warrant, and
if requested, information describing the transactions giving rest to such
adjustments, to be mailed to the Holders at their last addresses appearing in
the Warrant Register, and shall cause a certified copy thereof to be mailed to
its transfer agent, if
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<PAGE> 32
any. In the event the Company does not provide the Holder with such notice and
information within 10 days of a request by the Holder, then notwithstanding the
provisions of this Section (f), the Exercise Price shall be immediately adjusted
to equal the lowest Offering Price, Subscription Price or Conversion Price, as
applicable, since the date of this Warrant, and the number of shares issuable
upon exercise of this Warrant shall be adjusted accordingly. The Company may
retain a firm of independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by the Company) to
make any computation required by this Section (f), and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (1) to (9), inclusive above.
(12) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(13) Notwithstanding the foregoing, in no event shall the Exercise
Price be adjusted pursuant to this Section (f) to an amount in excess of the
Exercise Price then in effect, except in the case of a reverse-split or other
combination of the outstanding shares of Common Stock.
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<PAGE> 33
(g) OFFICERS CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, or (iv) if action is to be taken by holders of
the Company's Common Stock at a meeting or by written consent, then in any such
case, the Company shall cause to be mailed by certified mail to the Holder, at
least fifteen days prior the date specified in (x), (y) or (z) below or, if
earlier, the date a notice is sent to the holders of the Company's Common Stock
with respect to such
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<PAGE> 34
action, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up or (z) the shareholder action whether at a meeting or by written
consent is to take place.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another entity of the
property of the Company as an entirety or substantially as an entirety, the
Company or such successor, leasing or purchasing entity, as the case may be,
shall as a condition precedent to such transaction, cause effective provisions
to be made so that the Holder shall have the right thereafter by exercising this
Warrant at any time prior to the expiration of the Warrant, to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change,
14
<PAGE> 35
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common
14a
<PAGE> 36
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) Pursuant to the Stock and Warrant Purchase Agreement, ATI
acknowledges and agrees that the Company may require ATI to exercise a certain
portion of this Warrant solely in accordance with Section 3.5.2 of the Stock and
Warrant Purchase Agreement, to the extent applicable. It is expressly understood
that the Company's sole remedy in connection with ATI's breach of this Section
(j) or Section 3.5.2 of the Stock and Warrant Purchase Agreement shall be as set
forth in said Section 3.5.2 of the Stock and Warrant Purchase Agreement.
OCTUS, INC.
By: /s/ John C. Belden
---------------------------------
John C. Belden
President
Dated: June 24, 1996
Attest:
/s/ Robert Freeman
- - ------------------------------
Robert Freeman
Assistant Secretary
15
<PAGE> 37
PURCHASE FORM
Dated ____________, 19__
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________________ shares of Common Stock and
hereby makes payment of ______________ in payment of the actual exercise price
thereof.
16
<PAGE> 38
ASSIGNMENT FORM
FOR VALUE RECEIVED,_____________________hereby sells, assigns and
transfers unto
Name________________________________________
(Please typewrite or print in block letters)
Address_____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
___________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________________Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date________________________, 19__
Signature___________________________________
17
<PAGE> 39
EXHIBIT C
FORM OF OFFICER'S CERTIFICATE
<PAGE> 40
OFFICER'S CERTIFICATE
I, John C. Belden, do hereby certify to Advanced Technologies
International, Ltd. that:
1. I am the President of OCTuS, Inc., a California corporation (the
"Corporation"), duly elected to such office in accordance with the
Corporation's bylaws and other constituent documents and the laws of
the State of California.
2. Attached hereto and made a part hereof as Exhibit A is a true,
correct and complete original copy of the Corporation's Articles of
Incorporation, together with any and all amendments thereto, as
certified by the Secretary of State of the State of California on
June 12, 1996, and the same has not been otherwise amended,
rescinded or repealed and is in full force and effect as of the date
hereof.
3. Attached hereto and made a part hereof as Exhibit B is a true,
correct and complete copy of the Corporation's bylaws, together with
any and all amendments thereto, and the same has not been otherwise
amended, rescinded or repealed and is in full force and effect as of
the date hereof.
4. Attached hereto and made a part hereof as Exhibit C are true,
correct and complete copies of certain resolutions of the
Corporation's Board of Directors, adopted on June 24, 1996, and the
same have not been otherwise amended, rescinded or repealed and are
in full force and effect as of the date hereof.
Dated: June 24, 1996
_________________________
John C. Belden
<PAGE> 41
EXHIBIT D
REGISTRATION RIGHTS
<PAGE> 42
REGISTRATION RIGHTS
1. DEFINITIONS. As used herein, the following terms shall have the following
meanings:
a. "Agreement" shall mean the registration rights provided hereby.
b. "ATI" shall mean Advanced Technologies International, Ltd.,
together with its successors and assigns.
c. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and all rules and regulations promulgated thereunder.
d. "Common Stock" shall mean the Company's no par value common stock.
e. "OCTuS" shall mean OCTuS, Inc., together with its successors and
assigns.
f. "Registrable Securities" shall mean the Warrant Shares and any
Common Stock issued or issuable with respect to the Warrant Shares
by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or
other reorganization.
As to any particular Registrable Securities, such securities will
cease to be Registrable Securities when they have (a) been
effectively registered under the Securities Act and disposed of in
accordance with the Registration Statement covering them, (b) been
sold to the public in accordance with Rule 144 (or any similar
provision then in force) under the Securities Act, or (c) been
otherwise transferred and new certificates for them not bearing a
Securities Act restrictive legend have been delivered by OCTuS.
Whenever any particular securities cease to be Registrable
Securities, the holder thereof will be entitled to receive from
OCTuS, without expense, new securities of like tenor not bearing a
restrictive legend.
g. "Registration Expenses" shall mean all expenses incident to OCTuS'
performance of or compliance with this Agreement, including,
without limitation, all registration and filing fees, fees and
expenses of compliance with securities or blue sky laws, printing
expenses, messenger and delivery expenses, and fees and
disbursements of counsel for OCTuS and all independent certified
public accountants, underwriters (excluding discounts and
commissions) and other person or entity retained by OCTuS.
D-1
<PAGE> 43
h. "Registration Statement" shall mean a registration statement filed
pursuant to the Securities Act on Form S-1, S-2, S-3 or any similar
registration statement pursuant to which the Registrable Securities
may be registered.
i. "Securities Act" shall mean the Securities Act of 1933, as amended,
and all rules and regulations promulgated thereunder.
j. "Stock and Warrant Purchase Agreement" shall mean that certain Stock
and Warrant Purchase Agreement to which this Exhibit forms a part
by and between ATI and OCTuS.
k. "Warrant" shall have the meaning ascribed thereto in the Stock and
Warrant Purchase Agreement.
l. "Warrant Shares" shall mean all shares of Common Stock underlying
the Warrant prior to the exercise thereof and all shares of Common
Stock issuable from time to time to ATI upon the full exercise of
the Warrant.
2. PIGGYBACK REGISTRATIONS.
a. RIGHT TO PIGGYBACK. Whenever OCTuS proposes to register any of its
securities under the Securities Act [other than pursuant to a
Demand Registration (as hereinafter defined)] and the registration
form to be used may be used for the registration of any Registrable
Securities (a "Piggyback Registration"), OCTuS will (i) give prompt
written notice to ATI of its intention to effect such a
registration, and (ii) include in such registration all Registrable
Securities in accordance with the priorities set forth in
Paragraphs 2.c. and 2.d. below with respect to which OCTuS has
received ATI's written request for inclusion therein within fifteen
(15) days after ATI's receipt of OCTuS' notice.
b. PIGGYBACK EXPENSES. All Registration Expenses incurred by OCTuS in
connection with any Piggyback Registration will be paid by OCTuS.
c. PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is
an underwritten primary registration on behalf of OCTuS and the
managing underwriters advise OCTuS in writing that in their opinion
the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering,
OCTuS will include in such registration (i) first, the securities
that OCTuS proposes to sell, (ii) second, the securities
D-2
<PAGE> 44
registrable pursuant to the Initial Registration Rights, (iii)
third, the Registrable Securities requested to be included in such
registration, and (iv) fourth, any other securities requested to be
included in such registration.
d. PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of
OCTuS' securities and the managing underwriters advise OCTuS in
writing that in their opinion the number of securities requested to
be included in such registration exceeds the number which can be
sold in such offering, OCTuS will include in such registration (i)
first, the securities requested to be included therein by the
holders requesting such registration, (ii) second, the securities
registrable pursuant to the Initial Registration Rights, (iii)
third, the Registrable Securities, and (iv) fourth, any other
securities requested to be included in such registration.
e. OTHER REGISTRATIONS. If OCTuS has previously filed a registration
statement with respect to Registrable Securities pursuant to
Paragraph 3 hereof or pursuant to this Paragraph 2, and if such
previous registration has not been withdrawn or abandoned, OCTuS
will not file or cause to be effected any other registration of any
of its equity securities or securities convertible or exchangeable
into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own
behalf or at the request of any holder or holders of such
securities, until a period of at least six (6) months has elapsed
from the effective date of such previous registration except with
respect to any Demand Registration which is required due to the
inability of ATI to register all of the Registrable Securities
required to be included in any Piggyback Registration.
3. DEMAND REGISTRATIONS.
a. REQUESTS FOR REGISTRATION. ATI may, at any time within five (5)
years from the date of the Stock and Warrant Purchase Agreement,
demand that OCTuS file a Registration Statement with respect to all
or part of the Registrable Securities. A registration requested
pursuant to this Paragraph 3 is referred to herein as "Demand
Registration".
b. NUMBER OF DEMAND REGISTRATIONS. ATI will be entitled to request one
(1) Demand Registration pursuant to which the Registrable
Securities shall be registered. A registration will not count as
the permitted Demand Registration (i) until it has become effective
(unless such Demand
D-3
<PAGE> 45
Registration has not become effective due solely to the fault of
ATI), and (ii) unless ATI is able to register one hundred percent
(100%) of the Registrable Securities requested to be included in
such registration (unless ATI is not so able to register such amount
of the Registrable Securities due solely to the fault of ATI).
c. PRIORITY ON DEMAND REGISTRATIONS. If securities other than
Registrable Securities are to be included in a Demand Registration
which is an underwritten offering and the managing underwriters
advise OCTuS in writing that in their opinion the number of
Registrable Securities and other securities requested to be included
exceeds the number of Registrable Securities and other securities
which can be sold in such offering, OCTuS will include in such
registration, prior to the inclusion of any securities which are not
Registrable Securities, the number of Registrable Securities
requested to be included which in the opinion of such underwriters
can be sold.
d. DEMAND EXPENSES. All Registration Expenses incurred by OCTuS in
connection with any Demand Registration will be paid by OCTuS,
provided that OCTuS shall not be obligated to incur legal fees
(exclusive of costs and expenses) in excess of Ten Thousand and
No/100 Dollars ($10,000.00) attributable solely to the preparation
and filing of the subject Registration Statement.
e. SELECTION OF UNDERWRITERS. ATI shall have the right to select one or
more, if any, investment bankers and managers to administer the
offering.
4. REGISTRATION OF REGISTRABLE SECURITIES PRIOR TO EXERCISE OF WARRANT. It is
expressly understood that, without limitation of any other provision
hereof, the term "Registrable Securities" shall include the shares of
Common Stock underlying the warrant prior to the exercise thereof as well
as the shares of Common Stock issuable from time to time upon the full or
partial exercise thereof. It is further expressly understood that ATI may
request the inclusion of the Registrable Securities in a Piggyback
Registration or may demand a Demand Registration with respect to the
Registrable Securities, at any time, in accordance with the terms hereof,
whether or not ATI has theretofore exercised the warrant in whole or in
part. Notwithstanding anything to the contrary contained herein, it is
expressly understood that OCTuS shall have no obligation to register the
Warrant.
D-4
<PAGE> 46
5. HOLDBACK AGREEMENTS.
a. In connection with any underwritten Piggyback Registration, ATI
agrees not to effect any public sale or distribution of equity
securities of OCTuS, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven
(7) days prior to and the ninety (90)-day period beginning on the
effective date of any such underwritten Piggyback Registration in
which Registrable Securities are included on behalf of ATI, unless
the underwriters managing the registered public offering otherwise
agree and such sale or distribution otherwise complies with
Regulation Section 240.10b-6 of the Exchange Act; provided, however,
that ATI may elect, at its option, to not have the underwriter sell
the Registrable Securities which ATI have registered and to
otherwise determine the method and timing of the sale of the
securities so registered without regard to the holdback provisions
hereof.
b. OCTuS agrees (i) not to effect any public sale or distribution of
its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven
(7) days prior and the ninety (90)-day period beginning on the
effective date of any underwritten Demand Registration, unless the
underwriters managing the registered public offering otherwise
agree, and (ii) to cause each holder of its equity securities, or
any securities convertible into or exchangeable or exercisable for
such securities, purchased from OCTuS (other than in a registered
public offering) to agree not to effect any public sale or
distribution of any such securities during such period (except as
part of such underwritten registration, if otherwise permitted, or
except as permitted in Paragraph 5.a. hereof, unless the
underwriters managing the registered public offering otherwise
agree.
6. REGISTRATION PROCEDURES. Whenever ATI has requested that any Registrable
Securities be registered pursuant to this Agreement, OCTuS will use its
reasonable best efforts to effect the registration and the sale of such
Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto, OCTuS will as expeditiously as
possible:
a. prepare and file with the Securities and Exchange Commission a
Registration Statement with respect to such Registrable Securities
and use its best efforts to cause such Registration Statement to
become effective (provided that, before filing a Registration
Statement or prospectus or any amendments or supplements thereto,
OCTuS will furnish to ATI's counsel copies of all such documents
proposed to be filed);
D-5
<PAGE> 47
b. prepare and file with the Securities and Exchange Commission such
amendments and supplements to such Registration Statement and the
prospectus used in connection therewith as may be necessary to keep such
registration statement effective for a period of not less than twelve (12)
months and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration
Statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such Registration
Statement;
c. furnish to ATI such number of copies of such Registration Statement, each
amendment and supplement thereto, the prospectus included in such
Registration Statement (including each preliminary prospectus) and such
other documents as ATI may reasonably request in order to facilitate the
disposition of the Registrable Securities;
d. use its reasonable best efforts to register or qualify such Registrable
Securities under such other securities or blue sky laws of such
jurisdictions as ATI reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable ATI to
consummate the disposition in such jurisdictions of Registrable Securities
owned by ATI;
e. notify ATI, at any time when a prospectus relating to Registrable
Securities is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in
such Registration Statement contains an untrue statement of a material
fact or omits any fact necessary to make the statements therein not
misleading, and, at the request of ATI, OCTuS will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein not misleading;
f. cause all such Registrable Securities to be listed on each securities
exchange, inter-dealer quotation system or other market or reporting
service on which similar securities issued by OCTuS are then listed, if
any;
g. provide a transfer agent and registrar for all such Registrable Securities
not later than the effective date of such Registration Statement;
D-6
<PAGE> 48
h. enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as
ATI, or the underwriters, if any, reasonably request in order to
expedite or facilitate the disposition of such Registrable
Securities (including, without limitation, effecting a stock split
or a combination of shares); and
i. make available for inspection during normal business hours by ATI,
any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent
retained by ATI or underwriter, all financial and other records,
pertinent corporate documents and properties of OCTuS, and cause
OCTuS' officers, directors, employees and independent accountants to
supply all information reasonably requested by ATI, underwriter,
attorney, accountant or agent in connection with such Registration
Statement.
7. INDEMNIFICATION.
a. OCTuS agrees to indemnify, to the extent permitted by law, ATI, its
officers and directors and each person or entity who controls ATI
(within the meaning of the Securities Act) against all losses,
claims, damages, liabilities and expenses caused by any untrue or
alleged untrue statement of material fact contained in any
Registration Statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein, except
insofar as the same are caused by or contained in any information
furnished to OCTuS by ATI expressly for use therein or which ATI
failed to provide after being so requested or by ATI's failure to
deliver a copy of the Registration Statement or prospectus or any
amendments or supplements thereto after OCTuS has furnished ATI with
a sufficient number of copies of the same or which is otherwise
attributable of the negligence or willful misconduct of ATI. In
connection with an underwritten offering, OCTuS will indemnify such
underwriters, their officers and directors and each person or entity
who controls such underwriters (within the meaning of the Securities
Act) to the same extent as provided above with respect to the
indemnification of ATI.
b. In connection with any Registration Statement in which ATI is
participating, ATI will furnish to OCTuS in writing, within fifteen
(15) days after request therefor, such information and affidavits as
OCTuS reasonably requests for use in connection with any such
Registration Statement or prospectus and, to the extent permitted by
law, will indemnify OCTuS, its directors and officers,
D-7
<PAGE> 49
each person or entity who controls OCTuS (within the meaning of the
Securities Act), against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement
of material fact contained or required to be contained in the
Registration Statement, prospectus or preliminary prospectus or any
amendment thereof or supplement thereto or any omission or alleged
omission of a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only to
the extent that such untrue statement or omission is contained or
required to be contained in any information or affidavit so
furnished or required to be so furnished in writing by ATI.
c. Any person or entity entitled to indemnification hereunder will (i)
give prompt written notice to the indemnifying party of any claim
with respect to which it seeks indemnification, and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist with
respect to such claim, permit such indemnifying party to assume the
defense of such claim, with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying
party will not be subject to any liability for any settlement made
by the indemnified party without the indemnifying party's consent
(but such consent will not be unreasonably withheld). An
indemnifying party who is not entitled to, or elects not to, assume
the defense of a claim will not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by
such indemnifying party with respect to such claim, unless in the
reasonable judgment of any indemnified party a conflict of interest
may exist between such indemnified party and any other of such
indemnified parties with respect to such claim.
d. The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or
controlling person or entity of such indemnified party and will
survive the transfer of securities. OCTuS also agrees to make such
provisions, as are reasonably requested by any indemnified party,
for contribution to such party in the event OCTuS' indemnification
is unavailable for any reason.
8. OTHER REGISTRATION RIGHTS. OCTuS will not grant to any person or entity
the right to request or require OCTuS to register any equity securities of
OCTuS, or any securities convertible or exchangeable into or exercisable
for such securities, without the prior written consent of ATI.
D-8
<PAGE> 50
9. CURRENT PUBLIC INFORMATION. At all times after OCTuS has filed a
Registration Statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Exchange
Act and such Registration Statement has been declared effective, OCTuS
will file all reports required to be filed by it pursuant to the
Securities Act or the Exchange Act, and will take such further action as
ATI may reasonably request, all to the extent required to enable ATI to
sell Registrable Securities pursuant to (i) Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act (as such rule
may be amended from time to time) or any similar rule or regulation
hereafter adopted by the Securities and Exchange Commission, or (ii) a
Registration Statement. Upon request, OCTuS will deliver to ATI a written
statement as to whether it has complied with such requirements.
10. NO INCONSISTENT AGREEMENTS. OCTuS will not hereafter enter into any
agreement with respect to its securities which is inconsistent with the
rights granted to ATI in this Agreement.
11. ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. OCTuS will not take any
action or permit any change to occur with respect to its securities which
would materially and adversely affect the ability of ATI to include the
Registrable Securities in a registration undertaken pursuant to this
Agreement or which would materially and adversely affect the marketability
of such Registrable Securities in any such registration (including,
without limitation, effecting a stock split or a combination of shares).
12. SUCCESSORS AND ASSIGNS. All covenants and agreements in this Agreement by
or on behalf of any of the parties hereto will bind and inure to the
benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which are for
the benefit of purchasers or holders of Registrable Securities are also
for the benefit of, and enforceable by, any subsequent holder of
Registrable Securities.
D-9
<PAGE> 1
VOID AFTER 5:00 P.M. NEW YORK TIME, ON JUNE 24, 2001
WARRANT TO PURCHASE 3,000,000 SHARES OF COMMON STOCK
WARRANT TO PURCHASE COMMON STOCK
OF
OCTUS, INC.
This is to Certify That, FOR VALUE RECEIVED, Advanced Technologies
International, Ltd., a Bahamian corporation ("ATI") or assigns ("Holder"), is
entitled to purchase, subject to the provisions of this Warrant, from Octus,
Inc., a California corporation ("Company"), 3,000,000 fully paid, validly issued
and nonassessable shares of Common Stock, no par value per share, of the Company
("Common Stock") at a price of $0.43 per share, subject to adjustment as
provided herein (as so adjusted from time to time, the "Base Exercise Price").
After June 24, 1997, this Warrant may be exercised with respect to 1,000,000
Warrant Shares at the Base Exercise Price and with respect to 2,000,000 Warrant
Shares at the lesser of (i) the Base Exercise Price on June 24, 1997 multiplied
by two (2), or (ii) $0.50 (the "First Adjusted Exercise Price"). After June 24,
1998, this Warrant may be exercised with respect to 1,000,000 Warrant Shares at
the Base Exercise Price, with respect to 1,000,000 Warrant Shares at the First
Adjusted Exercise Price and with respect to 1,000,000 Warrant Shares at the
lesser of (i) the Base Exercise Price on June 24, 1998 multiplied by three (3),
or (ii) $0.75 (the "Second Adjusted Exercise Price"). The Base Exercise Price,
the First Adjusted Exercise Price and the Second Adjusted Exercise Price, as
applicable and as adjusted from time to time is hereinafter referred to as the
"Exercise Price." The number of shares of Common Stock to be received upon the
exercise of this Warrant and the price to be paid for each share of Common Stock
may
1
<PAGE> 2
be further adjusted from time to time as hereinafter set forth. The shares of
Common Stock deliverable upon such exercise, and as adjusted from time to time,
are hereinafter sometimes referred to as "Warrant Shares" and the exercise price
for a share of Common Stock in effect at any time and as adjusted from time to
time is hereinafter sometimes referred to as the "Exercise Price".
(a) EXERCISE OF WARRANT
This Warrant may be exercised in whole or in part at any time or from
time to time on or after the date hereof and until 5:00 p.m. (New York time)
June 24, 2001 (the "Exercise Period"); provided, however, that if either such
day is a holiday or a day on which banking institutions in the State of New York
are authorized by law to close, then 5:00 p.m. (New York time) on the next
succeeding day which shall not be such a day. This Warrant may be exercised by
presentation and surrender hereof to the Company at its principal office, or at
the office of its stock transfer agent, if any, with the Purchase Form annexed
hereto duly executed and accompanied by payment of the Exercise Price for the
number of Warrant Shares specified in such form. As soon as practicable after
each such exercise of this Warrant, but not later than seven (7) days from the
date of such exercise, the Company shall issue and deliver to the Holder a
certificate or certificate for the Warrant Shares issuable upon such exercise,
registered in the name of the Holder or its designee. If this Warrant should be
exercised in part only, the Company shall, upon surrender of this Warrant for
cancellation, execute and deliver a new Warrant evidencing the rights of the
Holder thereof to purchase the balance of the Warrant Shares purchasable
thereunder. Upon receipt by the Company of this Warrant at its office, or by the
stock transfer agent of the Company at its office, in proper form for exercise,
the Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable
2
<PAGE> 3
upon such exercise, notwithstanding that the stock transfer books of the Company
shall then be closed or that certificates representing such shares of Common
Stock shall not then be physically delivered to the Holder. The Company shall
pay all documentary, stamp or similar taxes and other governmental charges that
may be imposed with respect to the issuance of this Warrant, or the issuance or
delivery of any shares of Common Stock upon exercise of this Warrant; provided,
however, that if shares of Common Stock are to be delivered in a name other than
the name of the registered holder of the Warrant being exercised, then no such
delivery shall be made unless the person requesting the same has paid to the
Company the amount of transfer taxes or charges incident thereto, if any.
(b) RESERVATION OF SHARES; FULLY PAID AND NON-ASSESSABLE; ETC. The
Company shall at all times reserve for issuance and/or delivery upon exercise of
this Warrant such number of shares of its Common Stock as shall be required for
issuance and delivery upon exercise of the Warrants. Upon such issuance the
Warrant Shares shall be fully paid and non-assessable, free and clear of all
liens, claims, taxes, encumbrances and charges whatsoever with respect to the
issue thereof and free from all preemptive or similar rights.
(c) FRACTIONAL SHARES. No fractional shares or script representing
fractional shares shall be issued upon the exercise of this Warrant. With
respect to any fraction of a share called for upon any exercise hereof, the
Company shall pay to the Holder an amount in cash equal to such fraction
multiplied by the current market value of a share, determined as follows:
(1) If the Common Stock is listed on a securities exchange or admitted
to unlisted trading privileges on such exchange or listed for trading on the
Nasdaq National Market or the Nasdaq SmallCap Market, the current market value
shall be the last reported sale price or the average of the means of the last
reported bid and asked prices, respectively, of the
3
<PAGE> 4
Common Stock on such exchange or market on the last business day prior to the
date of exercise of this Warrant; or
(2) If the Common Stock is not so listed or admitted to unlisted
trading privileges, the current market value shall be the average of the means
of the last reported bid and asked prices of the Common Stock on the last
business day prior to the date of the exercise of this Warrant; or
(3) If the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, the current
market value shall be an amount, not less than book value thereof determined in
accordance with generally accepted accounting principles as at the end of the
most recent fiscal quarter of the Company ending prior to the date of the
exercise of the Warrant, determined in such reasonable manner as may be
prescribed by the Board of Directors of the Company.
(d) EXCHANGE, TRANSFER, ASSIGNMENT OR LOSS OF WARRANT. This Warrant is
exchangeable, without expense, at the option of the Holder, upon presentation
and surrender hereof to the Company or at the office of its stock transfer
agent, if any, for other warrants of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Common
Stock purchasable hereunder. Upon surrender of this Warrant to the Company at
its principal office or at the office of its stock transfer agent, if any, with
the Assignment Form annexed hereto duly executed and funds sufficient to pay any
transfer tax, the Company shall, without charge, execute and deliver a new
Warrant in the name of the assignee named in such instrument of assignment and
this Warrant shall promptly be cancelled. This Warrant may be divided or
combined with other warrants which carry the same rights upon presentation
hereof at the principal office of the Company or at the office of its stock
transfer
4
<PAGE> 5
agent, if any, together with a written notice specifying the names and
denominations in which new Warrants are to be issued and signed by the Holder
hereof. The term "Warrant" as used herein includes any Warrants into which this
Warrant may be divided or exchanged. Upon receipt by the Company of evidence
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Warrant, if mutilated, the Company will execute and deliver a new Warrant of
like tenor and date. Any such new Warrant executed and delivered shall
constitute an additional contractual obligation on the part of the Company,
whether or not this Warrant so lost, stolen, destroyed, or mutilated shall be at
any time enforceable by anyone.
(e) RIGHTS OF THE HOLDER. The Holder shall not, by virtue hereof, be
entitled to any rights of a shareholder in the Company, either at law or equity,
and the rights of the Holder are limited to those expressed in the Warrant and
are not enforceable against the Company except to the extent set forth herein.
(f) ANTI-DILUTION PROVISIONS. The Exercise Price in effect at any time
and the number and kind of securities purchasable upon the exercise of the
Warrants shall be subject to adjustment from time to time upon the happening of
certain events as follows:
(1) In case the Company shall (i) declare a dividend or make a
distribution on its outstanding shares of Common Stock in shares of Common
Stock, (ii) subdivide or reclassify its outstanding shares of Common Stock into
a greater number of shares, or (iii) combine or reclassify its outstanding
shares of Common Stock into a smaller number of shares, the Exercise Price in
effect at the time of the record date for such dividend or distribution or of
the effective date of such subdivision, combination or reclassification shall be
adjusted so that it shall equal
5
<PAGE> 6
the price determined by multiplying the Exercise Price by a fraction, the
denominator of which shall be the number of shares of Common Stock outstanding
after giving effect to such action, and the numerator of which shall be the
number of shares of Common Stock outstanding immediately prior to such action.
Such adjustment shall be made successively whenever any event listed above shall
occur.
(2) In case the Company shall fix a record date for the issuance of
rights or warrants to all holders of its Common Stock entitling them to
subscribe for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price (the "Subscription Price") (or having a conversion
price per share) less than the current market price of the Common Stock (as
defined in Subsection (8) below) on the record date mentioned below, the
Exercise Price shall be adjusted so that the same shall equal the price
determined by multiplying the Exercise Price in effect immediately prior to the
date of such issuance by a fraction, the numerator of which shall be the sum of
the number of shares of Common Stock outstanding on the record date mentioned
below and the number of additional shares of Common Stock which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate conversion price of the convertible securities so offered) would
purchase at such current market price per share of the Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding on such record date and the number of additional shares of Common
Stock offered for subscription or purchase (or into which the convertible
securities so offered are convertible). Such adjustment shall be made
successively whenever such rights or warrants are issued and shall become
effective immediately. After the expiration of such rights or warrants the
Exercise Price shall be readjusted to the Exercise Price which would then be in
effect had the adjustments made upon the issuance of such rights or
6
<PAGE> 7
warrants been made upon the basis of delivery of only the number of shares of
Common Stock (or securities convertible into Common Stock) actually delivered.
(3) In case the Company shall hereafter distribute to the holders of
its Common Stock evidences of its indebtedness or assets (excluding cash
dividends or distributions and dividends or distributions referred to in
Subsection (1) above) or subscription rights or warrants (excluding those
referred to in Subsection (2) above), then in each such case the Exercise Price
in effect thereafter shall be determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the total number of shares of Common Stock outstanding multiplied by the current
market price per share of Common Stock (as defined in Subsection (8) below),
less the fair market value (as determined by the Company's Board of Directors)
of said assets or evidences of indebtedness so distributed or of such rights or
warrants, and the denominator of which shall be the total number of shares of
Common Stock outstanding multiplied by such current market price per share of
Common Stock. Such adjustment shall be made successively whenever such a record
date is fixed. Such adjustment shall be made whenever any such distribution is
made and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
(4) In case the Company shall issue shares of its Common Stock
excluding shares issued (i) in any of the transactions described in Subsection
(1) above, (ii) upon exercise of options granted to the Company's employees
under a plan or plans adopted by the Company's Board of Directors and approved
by its shareholders, if such shares would otherwise be included in this
Subsection (4), (but only to the extent that the aggregate number of shares
excluded hereby and issued after the date hereof shall not exceed 10% of the
Company's Common Stock
7
<PAGE> 8
outstanding at the time of any issuance and provided further that the exercise
price per share of such options is not less than the current market price per
share of Common Stock (as defined in Subsection (8) below) on the date of
grant), (iii) upon exercise of options and warrants outstanding at June 24,
1996, (iv) to shareholders of any corporation which merges into the Company in
proportion to their stock holdings of such corporation immediately prior to such
merger, upon such merger, (v) pursuant to the Stock and Warrant Purchase
Agreement dated June 24, 1996 between the Company and ATI (the "Stock and
Warrant Purchase Agreement"), or (vi) issued in a bona fide public offering
pursuant to a firm commitment underwriting where the offering price per share of
Common Stock offered is not less than the current market price per share of
Common Stock (as defined in Subsection (8) below on the date of such issuance,
but only if no adjustment is required pursuant to any other specific subsection
of this Section (f) (without regard to Subsection (9) below) with respect to the
transaction giving rise to such rights, for a consideration per share (the
"Offering Price") less than the current market price per share as defined in
Subsection (8) below on the date the Company fixes the offering price of such
additional shares, the Exercise Price shall be adjusted immediately thereafter
so that it shall equal the price determined by multiplying the Exercise Price in
effect immediately prior thereto by a fraction, the numerator of which shall be
the sum of the number of shares of Common Stock outstanding immediately prior to
the issuance of such additional shares and the number of shares of Common Stock
which the aggregate consideration received determined as provided in Subsection
(7) below for the issuance of such additional shares would purchase at such
current market price per share of Common Stock, and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after the
issuance of such additional shares.
(5) In case the Company shall issue any securities convertible into or
8
<PAGE> 9
exchangeable for its Common Stock (including warrants or options to purchase
Common Stock) excluding securities issued in transactions described in
Subsections (2) and (3) above for a consideration per share of Common Stock (the
"Conversion Price") initially deliverable upon conversion or exchange of such
securities determined as provided in Subsection (7) below less than the current
market price per share as defined in Subsection (8) below in effect immediately
prior to the issuance of such securities, the Exercise Price shall be adjusted
immediately thereafter so that it shall equal the price determined by
multiplying the Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance of such securities
and the number of shares of Common Stock which the aggregate consideration
received determined as provided in Subsection (7) below for such securities
would purchase at such current market price per share of Common Stock, and the
denominator of which shall be the sum of the number of shares of Common Stock
outstanding immediately prior to such issuance and the maximum number of shares
of Common Stock of the Company deliverable upon conversion of or in exchange for
such securities at the initial conversion or exchange price or rate.
(6) Whenever the Exercise Price payable upon exercise of each Warrant
is adjusted pursuant to Subsections (1), (2), (3), (4), and (5) above, the
number of Shares purchasable upon exercise of this Warrant shall simultaneously
be adjusted by multiplying the number of Shares then issuable upon exercise of
this Warrant by the Exercise Price then in effect and dividing the product so
obtained by the Exercise Price, as adjusted.
(7) For purposes of any computation respecting consideration received
pursuant to Subsections (4) and (5) above, the following shall apply:
(A) in the case of the issuance of shares of Common Stock for
cash,
9
<PAGE> 10
the consideration shall be the amount of such cash, provided that in no case
shall any deduction be made for any commissions, discounts or other expenses
incurred by the Company for any underwriting of the issue or otherwise in
connection therewith;
(B) in the case of the issuance of shares of Common Stock for a
consideration in whole or in part other than cash, the consideration other than
cash shall be deemed to be the fair market value thereof as determined in good
faith by the Board of Directors of the Company (irrespective of the accounting
treatment thereof) on the basis of a record of values of similar property or
services; and
(C) in the case of the issuance of securities convertible into or
exchangeable for shares of Common Stock, the aggregate consideration received
therefor shall be deemed to be the consideration received by the Company for the
issuance of such securities plus the additional minimum consideration, if any,
to be received by the Company upon the conversion or exchange thereof the
consideration in each case to be determined in the same manner as provided in
clauses (A) and (B) of this Subsection (7).
(8) For the purpose of any computation under Subsections (2),
(3), (4) and (5) above, the current market price per share of Common Stock at
any date shall be deemed to be the lower of (i) the average of the daily closing
prices for 30 consecutive business days before such date or (ii) the closing
price on the business day immediately preceding such date. The closing price for
each day shall be the last sale price regular way or, in case no such reported
sale takes place on such day, the average of the means of the last reported bid
and asked prices regular way, in either case on the principal national
securities exchange or the Nasdaq Stock Market on which the Common Stock is
admitted to trading or listed, or if not listed or admitted to trading on such
exchange or market, the average of the highest reported bid and lowest
10
<PAGE> 11
reported asked prices of the Common Stock, or if not so available, the fair
market price as determined in good faith by the Board of Directors but in no
event less then the per share book value of the Company as determined in
accordance with generally accepted accounting principles as of the end of the
last fiscal quarter prior to such determination.
(9) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least one cent ($0.01) in
such price; provided, however, that any adjustments which by reason of this
Subsection (9) are not required to be made shall be carried forward and taken
into account in any subsequent adjustment required to be made hereunder. All
calculations under this Section (f) shall be made to the nearest cent or to the
nearest one-hundredth of a share, as the case may be. Anything in this Section
(f) to the contrary notwithstanding, the Company shall be entitled, but shall
not be required, to make such changes in the Exercise Price, in addition to
those required by this Section (f), as it shall determine, in its sole
discretion, to be advisable in order that any dividend or distribution in shares
of Common Stock, or any subdivision, reclassification or combination of Common
Stock, hereafter made by the Company shall not result in any Federal Income tax
liability to the holders of Common Stock or securities convertible into Common
Stock (including this Warrant).
(10) Whenever the Exercise Price is adjusted, as herein provided, the
Company shall promptly but no later than 10 days after any request for such an
adjustment by the Holder, cause a notice setting forth the adjusted Exercise
Price and adjusted number of Shares issuable upon exercise of each Warrant, and
if requested, information describing the transactions giving rest to such
adjustments, to be mailed to the Holders at their last addresses appearing in
the Warrant Register, and shall cause a certified copy thereof to be mailed to
its transfer agent, if
11
<PAGE> 12
any. In the event the Company does not provide the Holder with such notice and
information within 10 days of a request by the Holder, then notwithstanding the
provisions of this Section (f), the Exercise Price shall be immediately adjusted
to equal the lowest Offering Price, Subscription Price or Conversion Price, as
applicable, since the date of this Warrant, and the number of shares issuable
upon exercise of this Warrant shall be adjusted accordingly. The Company may
retain a firm of independent certified public accountants selected by the Board
of Directors (who may be the regular accountants employed by the Company) to
make any computation required by this Section (f), and a certificate signed by
such firm shall be conclusive evidence of the correctness of such adjustment.
(11) In the event that at any time, as a result of an adjustment made
pursuant to Subsection (1) above, the Holder of this Warrant thereafter shall
become entitled to receive any shares of the Company, other than Common Stock,
thereafter the number of such other shares so receivable upon exercise of this
Warrant shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with respect to the
Common Stock contained in Subsections (1) to (9), inclusive above.
(12) Irrespective of any adjustments in the Exercise Price or the
number or kind of shares purchasable upon exercise of this Warrant, Warrants
theretofore or thereafter issued may continue to express the same price and
number and kind of shares as are stated in the similar Warrants initially
issuable pursuant to this Agreement.
(13) Notwithstanding the foregoing, in no event shall the Exercise
Price be adjusted pursuant to this Section (f) to an amount in excess of the
Exercise Price then in effect, except in the case of a reverse-split or other
combination of the outstanding shares of Common Stock.
12
<PAGE> 13
(g) OFFICERS CERTIFICATE. Whenever the Exercise Price shall be adjusted
as required by the provisions of the foregoing Section, the Company shall
forthwith file in the custody of its Secretary or an Assistant Secretary at its
principal office and with its stock transfer agent, if any, an officer's
certificate showing the adjusted Exercise Price determined as herein provided,
setting forth in reasonable detail the facts requiring such adjustment,
including a statement of the number of additional shares of Common Stock, if
any, and such other facts as shall be necessary to show the reason for and the
manner of computing such adjustment. Each such officer's certificate shall be
made available at all reasonable times for inspection by the holder or any
holder of a Warrant executed and delivered pursuant to Section (a) and the
Company shall, forthwith after each such adjustment, mail a copy by certified
mail of such certificate to the Holder or any such holder.
(h) NOTICES TO WARRANT HOLDERS. So long as this Warrant shall be
outstanding, (i) if the Company shall pay any dividend or make any distribution
upon the Common Stock, or (ii) if the Company shall offer to the holders of
Common Stock for subscription or purchase by them any share of any class or any
other rights, or (iii) if any capital reorganization of the Company,
reclassification of the capital stock of the Company, consolidation or merger of
the Company with or into another corporation, sale, lease or transfer of all or
substantially all of the property and assets of the Company to another
corporation, or voluntary or involuntary dissolution, liquidation or winding up
of the Company shall be effected, or (iv) if action is to be taken by holders of
the Company's Common Stock at a meeting or by written consent, then in any such
case, the Company shall cause to be mailed by certified mail to the Holder, at
least fifteen days prior the date specified in (x), (y) or (z) below or, if
earlier, the date a notice is sent to the holders of the Company's Common Stock
with respect to such
13
<PAGE> 14
action, as the case may be, a notice containing a brief description of the
proposed action and stating the date on which (x) a record is to be taken for
the purpose of such dividend, distribution or rights, or (y) such
reclassification, reorganization, consolidation, merger, conveyance, lease,
dissolution, liquidation or winding up is to take place and the date, if any is
to be fixed, as of which the holders of Common Stock or other securities shall
receive cash or other property deliverable upon such reclassification,
reorganization, consolidation, merger, conveyance, dissolution, liquidation or
winding up or (z) the shareholder action whether at a meeting or by written
consent is to take place.
(i) RECLASSIFICATION, REORGANIZATION OR MERGER. In case of any
reclassification, capital reorganization or other change of outstanding shares
of Common Stock of the Company, or in case of any consolidation or merger of the
Company with or into another corporation (other than a merger with a subsidiary
in which merger the Company is the continuing corporation and which does not
result in any reclassification, capital reorganization or other change of
outstanding shares of Common Stock of the class issuable upon exercise of this
Warrant) or in case of any sale, lease or conveyance to another entity of the
property of the Company as an entirety or substantially as an entirety, the
Company or such successor, leasing or purchasing entity, as the case may be,
shall as a condition precedent to such transaction, cause effective provisions
to be made so that the Holder shall have the right thereafter by exercising this
Warrant at any time prior to the expiration of the Warrant, to purchase the kind
and amount of shares of stock and other securities and property receivable upon
such reclassification, capital reorganization and other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
which might have been purchased upon exercise of this Warrant immediately prior
to such reclassification, change,
14
<PAGE> 15
consolidation, merger, sale or conveyance. Any such provision shall include
provision for adjustments which shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Warrant. The foregoing
provisions of this Section (i) shall similarly apply to successive
reclassifications, capital reorganizations and changes of shares of Common Stock
and to successive consolidations, mergers, sales or conveyances. In the event
that in connection with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares of Common Stock
shall be issued in exchange, conversion, substitution or payment, in whole or in
part, for a security of the Company other than Common
14a
<PAGE> 16
Stock, any such issue shall be treated as an issue of Common Stock covered by
the provisions of Subsection (1) of Section (f) hereof.
(j) Pursuant to the Stock and Warrant Purchase Agreement, ATI
acknowledges and agrees that the Company may require ATI to exercise a certain
portion of this Warrant solely in accordance with Section 3.5.2 of the Stock and
Warrant Purchase Agreement, to the extent applicable. It is expressly understood
that the Company's sole remedy in connection with ATI's breach of this Section
(j) or Section 3.5.2 of the Stock and Warrant Purchase Agreement shall be as set
forth in said Section 3.5.2 of the Stock and Warrant Purchase Agreement.
OCTUS, INC.
By: /s/ John C. Belden
---------------------------------
John C. Belden
President
Dated: June 24, 1996
Attest:
/s/ Robert Freeman
- - ------------------------------
Robert Freeman
Assistant Secretary
15
<PAGE> 17
PURCHASE FORM
Dated ____________, 19__
The undersigned hereby irrevocably elects to exercise the within
Warrant to the extent of purchasing ________________ shares of Common Stock and
hereby makes payment of ______________ in payment of the actual exercise price
thereof.
16
<PAGE> 18
ASSIGNMENT FORM
FOR VALUE RECEIVED,_____________________hereby sells, assigns and
transfers unto
Name________________________________________
(Please typewrite or print in block letters)
Address_____________________________________
the right to purchase Common Stock represented by this Warrant to the extent of
___________ shares as to which such right is exercisable and does hereby
irrevocably constitute and appoint ___________________Attorney, to transfer the
same on the books of the Company with full power of substitution in the
premises.
Date________________________, 19__
Signature___________________________________
17
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 1000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1000
<PP&E> 32000
<DEPRECIATION> 24000
<TOTAL-ASSETS> 8000
<CURRENT-LIABILITIES> 109000
<BONDS> 137000
0
50000
<COMMON> 19271000
<OTHER-SE> 2696000
<TOTAL-LIABILITY-AND-EQUITY> 11000
<SALES> 5000
<TOTAL-REVENUES> 55000
<CGS> 5000
<TOTAL-COSTS> 129000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2000
<INCOME-PRETAX> (74000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (74000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (74000)
<EPS-PRIMARY> (.02)
<EPS-DILUTED> (.01)
</TABLE>
