UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1998
Commission File Number: 0000-23721
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LIFEPOINT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE #33-0539168
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10400 Trademark Street, Rancho Cucamonga, CA
(Address of Principal Executive Offices)
(909) 466-8047
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
[x] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the last practicable date.
As of February 11, 1999 - Common Stock, $.001 Par Value, 11,818,403 shares
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<TABLE>
<CAPTION>
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PART I
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FINANCIAL INFORMATION
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ITEM I. FINANCIAL STATEMENTS
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LIFEPOINT, INC.
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(A DEVELOPMENT STAGE ENTERPRISE)
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BALANCE SHEETS
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December 31
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1998 March 31
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(Unaudited) 1998
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ASSETS
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<S> <C> <C>
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Current Assets:
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Cash and cash equivalents $ 322,591 $ 597,254
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Prepaid expenses and other current assets 189,500 150,150
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Total current assets 512,091 747,404
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Property and equipment, net 171,743 286,188
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Patents and other assets, net 53,031 39,692
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$ 736,865 $ 1,073,284
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LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
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Current Liabilities:
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Accounts payable $ 230,813 $ 119,577
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Accrued expenses 659,548 217,876
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Total current liabilities 890,361 337,453
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Commitments and contingencies (Note 4)
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Stockholders' equity (deficit):
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Common stock, $.001 par value; 50,000,000 shares
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authorized, 11,779,206 and 10,497,206 issued and
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outstanding at December 31, 1998 and March 31, 1998,
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respectively 11,779 10,497
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Additional paid-in capital 13,621,270 12,398,933
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Deficit accumulated in the development stage (13,786,545) (11,673,599)
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Total stockholders' equity (deficit) (153,496) 735,831
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$ 736,865 $ 1,073,284
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</TABLE>
2
The accompanying notes are an integral part of the financial statments.
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<TABLE>
<CAPTION>
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LIFEPOINT, INC.
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(A DEVELOPMENT STAGE ENTERPRISE)
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STATEMENTS OF OPERATIONS
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(Unaudited)
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Cumulative
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From
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For the For the October 8, 1992
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Three Months Ended Nine Months Ended (Inception) to
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December 31 December 31 December 31
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1998 1997 1998 1997 1998
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<S> <C> <C> <C> <C> <C>
Revenues $ - $ - $ - $ - $ -
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Costs and Expenses:
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General and Administrative Expenses 536,557 236,488 1,194,048 407,022 3,778,596
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Research and Development 259,924 150,702 818,117 851,376 6,537,218
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Depreciation and Amortization 25,250 56,253 129,428 161,744 906,120
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Interest Expense - Parent - - - 34,530 95,790
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Management Fees - Parent - - - 409,838 2,089,838
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Interest Expense - 956 - 956 119,300
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Total Costs and Expenses 821,731 444,399 2,141,593 1,865,466 13,526,862
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Loss from Operations (821,731) (444,399) (2,141,593) (1,865,466) (13,526,862)
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Other Income/(Expense) 4,851 (185,228) 28,647 (185,228) (259,683)
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Net Loss $(816,880) $ (629,627) $(2,112,946) $(2,050,694) $ (13,786,545)
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Earnings per Common Share:
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Weighted Average Common Shares
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Outstanding 11,731,031 8,255,902 11,395,289 7,225,512
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Net Loss Per Common Share $ (0.07) $ (0.08) $ (0.19) $ (0.28)
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Earnings per Common Share, Assuming
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Dilution:
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Weighted Average Common Shares
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Outstanding 15,282,298 9,343,728 14,671,047 7,668,912
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Net Loss Per Common Share, Assuming
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Dilution $ (0.05) $ (0.07) $ (0.14) $ (0.27)
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</TABLE>
3
The accompanying notes are an integral part of the financial statments.
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<TABLE>
<CAPTION>
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LIFEPOINT, INC.
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(A DEVELOPMENT STAGE ENTERPRISE)
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STATEMENTS OF CASH FLOWS
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(Unaudited)
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Cumulative
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From
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October 8, 1992
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For the Nine Months Ended (Inception) to
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December 31 December 31
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1998 1997 1998
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<S> <C> <C> <C>
Cash Flow from Operating Activities:
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Net Loss $ (2,112,946) $ (2,050,694) $ (13,786,545)
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Adjustments to Reconcile Net Loss to Net Cash
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Used by Operating Activities:
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Depreciation and Amortization 129,428 161,744 906,120
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Consulting Expense 311,800 - 311,800
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Disposal of Property and Equipment - 189,248 237,976
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Unrealized Loss on Marketable Securities - - 627,512
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Amortization of Bond Discount - - (4,855)
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Changes in Operating Assets and Liabilities:
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(Increase) Decrease in Prepaid Expenses and
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Other Current Assets 50,650 (25,000) (65,099)
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(Increase) Decrease in Other Assets (7,432) 133 (11,768)
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Decrease in Bank Overdraft - (119,514) -
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Increase (Decrease) in Accounts Payable 111,236 (99,739) 285,172
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Increase (Decrease) in Accrued Expenses 243,212 50,933 326,088
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Net Cash Used by Operating Activities (1,274,052) (1,892,889) (11,173,599)
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Cash Flow From Investing Activities:
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Sale of Marketable Securities - - 3,285,625
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Purchases of Marketable Securities - - (3,908,281)
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Purchases of Property and Equipment (13,197) (55,625) (609,974)
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Proceeds from Sale of Property and Equipment, Net - 106,241 80,828
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Patent Costs (7,693) (1,402) (46,932)
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Net Cash Used by Investing Activities (20,890) 49,214 (1,198,734)
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Cash Flow from Financing Activities:
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Sales of Common Stock 1,025,000 1,600,000 11,246,226
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Expenses of Stock Offering (5,736) (100,000) (1,681,586)
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Exercise of stock options 1,015 - 1,015
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Payment of Loan to Parent - - (1,917,057)
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Proceeds of Loan by Parent - - 1,634,762
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Proceeds of Loan Payable - Parent - 1,464,811 4,715,067
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Payment of Loan Payable - Parent - - (1,299,782)
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Proceeds of Capital Leases - - 101,572
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Payments of Capital Leases - - (105,293)
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Proceeds of Brokerage Loan Payable - - 2,674,683
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Payments of Brokerage Loan Payable - - (2,674,683)
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Net Cash Provided by Financing Activities 1,020,279 2,964,811 12,694,924
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</TABLE>
4
The accompanying notes are an integral part of the financial statments.
<PAGE>
<TABLE>
<CAPTION>
LIFEPOINT, INC.
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(A DEVELOPMENT STAGE ENTERPRISE)
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STATEMENTS OF CASH FLOWS
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(Unaudited)
(Continued)
From
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October 8, 1992
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For the Nine Months Ended (Inception) to
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December 31 December 31
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1998 1997 1998
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<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents (274,663) 1,121,136 322,591
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Cash and Cash Equivalents - Beginning of Period 597,254 - -
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Cash and Cash Equivalents - End of Period $ 322,591 $ 1,121,136 $ 322,591
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Supplemental Disclosure of Cash Information:
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Cash Paid for Interest $ - $ 956 $ 192,046
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Noncash Operating Activities:
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Value of Common Stock Issued (Returned) and
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Additional Paid-in Capital for Consulting Services 53,340 - 203,340
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Noncash Investing Activities:
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Value of Assets Transferred to Lessor in Lieu of
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Payment on Capital Leases - - 71,405
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Noncash Financing Activities:
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Value of Common Stock Issued and Additional
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Paid-in Capital for the Transfer of Assets from
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Parent - 344,000 781,060
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Value of Common Stock Issued to Parent and
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Additional Paid-in Capital for the Forgiveness of
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Debt - 3,082,944 3,160,502
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Value of Warrants issued and to be Issued for
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Consulting Services 348,460 - 348,460
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</TABLE>
5
The accompanying notes are an integral part of the financial statments.
<PAGE>
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Unaudited)
NOTE 1 - Basis of Presentation
In the opinion of LifePoint, Inc. (the 'Company'), the accompanying
unaudited financial statements reflect all adjustments (which include only
normal recurring adjustments except as disclosed below) necessary to present
fairly the financial position, results of operations and cash flows for the
periods presented. Results of operations for interim periods are not necessarily
indicative of the results of operations for a full year due to external factors
which are beyond the control of the Company. This Report should be read in
conjunction with the Company's Annual Report on Form 10-K for the fiscal year
ended March 31, 1998 (the 'Annual Report').
In February 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings per Share (FASB No. 128), which is effective for
annual and interim periods ending after December 15, 1997. FASB No. 128 replaced
the previously required primary and fully diluted earnings per share (EPS) with
basic and diluted EPS. Unlike primary earnings per share, basic earnings per
share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
required fully diluted earnings per share. All earnings per share amounts for
all periods have been presented and, where necessary, restated to conform to
FASB No. 128. There were no adjustments necessary to net loss in calculating the
income available to common stockholders after assumed conversions of stock
options and warrants that are considered to be dilutive. The adjusted weighted
average shares to give effect for the assumed conversion of dilutive stock
options and warrants is presented on the Statements of Operations.
NOTE 2. - Continuing Operations and Liquidity
The Company has historically incurred recurring operating losses
due to the fact that it is still a development stage enterprise incurring
research and development expenses and deriving no revenues and has experienced
an ongoing deficiency in working capital. The Company financed its operations
during the quarter ended June 30, 1998 from the remainder of the net proceeds of
$1,434,000 realized from a private placement in November and December 1997
pursuant to Regulation D under the Securities Act of 1993, as amended (the
'Securities Act'), which sold 3,200,000 shares of the Company's Common Stock,
$.001 par value (the 'Common Stock'), at $0.50 per share or an aggregate
purchase price of $1,600,000. Recognizing that such financing would only furnish
sufficient working capital through July 1998, the Company initiated a second
private placement in July 1998 pursuant to Regulation D under the Securities
6
<PAGE>
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Unaudited)
(Continued)
NOTE 2. - Continuing Operations and Liquidity (Continued)
Act, with a minimum of 1,000,000 shares and a maximum of 5,000,000 shares of the
Common Stock at $1.00 per share. The Company closed on the minimum of 1,000,000
shares on July 17, 1998 and, on August 26, 1998, the Company sold an additional
25,000 shares of the Common Stock, or an aggregate of 1,025,000 shares of the
Common Stock offered pursuant to the second private placement. The offering of a
minimum of 1,000,000 and a maximum of 5,000,000 shares of the Common Stock
expired by its terms on October 14, 1998 without any additional shares being
sold.
On December 15, 1998, the Company initiated a third private placement
pursuant to Regulation D under the Securities Act, with a minimum of 25,000
shares and a maximum of 600,000 shares of the Series A 10% Cumulative
Convertible Preferred Stock, $.001 par value (the 'Series A Preferred Stock'),
at $10.00 per share. The Series A Preferred Stock is convertible into shares of
the Common Stock on the basis of 20 shares of the Common Stock for each share of
the Preferred Stock. The security will accrue a semi-annual dividend of $0.50
per share payable in cash or shares of the Common Stock at the Company's option.
The Company closed on the entire 600,000 shares on January 21, 1999. The
approximately $5,400,000 in net proceeds the Company received provides the funds
that, in management's opinion, will allow the Company to develop a working
prototype of its drugs of abuse and alcohol testing system using saliva as the
testing medium.
The Company will require additional capital to continue the research
and development and ultimate manufacture and marketing of its product. The
Company estimates that, in addition to the approximately $5,000,000 needed to
complete the prototype of its first product, the Company will need an additional
$8,000,000 to bring the product to market. As a result of its continuing
operational losses and its continuing capital requirements at March 31, 1998,
there was raised substantial doubt about the Company's ability to continue as a
going concern. The financial statements in this Report do not include any
adjustments to reflect the possible future effects, if any, on the
recoverability and classification of assets on the amounts and classification of
liabilities that may result from the outcome of this uncertainty. Although the
Company's fund raising efforts will now cease temporarily, the Company will need
to
7
<PAGE>
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Unaudited)
(Continued)
NOTE 2. - Continuing Operations and Liquidity (Continued)
continue to pursue parallel paths for the additional funding needed: private
placements, strategic partnering and a possible public offering. There can be no
assurance that any of these additional sources of financing will be available
and, in such event, the Company will not be able to complete its research and
development on a timely basis.
<TABLE>
<CAPTION>
NOTE 3 - Property and Equipment
Property and equipment is summarized as follows:
December 31, March 31,
1998 1998
----------------- -------------
<S> <C> <C>
Furniture and Fixtures $ 300,699 $287,502
Test Equipment 425,768 425,768
Leasehold Improvements 209,155 209,155
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935,622 922,425
Less: Accumulated Depreciation 763,879 636,237
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$ 171,743 $286,188
========= ========
</TABLE>
NOTE 4 - Commitments and Contingencies
In June 1995, the License Agreement with the Department of the Navy
then held by Substance Abuse Technologies, Inc. ('SAT'), the Company's then
parent, was renegotiated and amended to provide for minimum annual royalties of
$100,000 per year commencing October 1, 1995 and terminating September 30, 2005.
Additional royalties will be paid pursuant to a schedule based upon sales of
products. Through March 31, 1997, the Company sub-licensed this Agreement from
its then parent and, accordingly, had obligations to its then parent for the
royalty payments required by the License Agreement. This license was transferred
from SAT to the Company effective with the sale of SAT's majority ownership of
the Common Stock on October 29, 1997. The Navy settled all past liabilities for
the transferred license for $10,000.
On March 3, 1998, the license from the Navy was expanded to an
exclusive, worldwide license for all saliva diagnostics. The terms of the
license expansion are currently being negotiated.
8
<PAGE>
LIFEPOINT, INC.
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
(Unaudited)
(Continued)
NOTE 5 - Stockholders' Equity
During the quarter ended December 31, 1998, the Company issued a 5-year
warrant to purchase 50,000 shares of the Common Stock at $1.08 per share to Ira
J. Mitchell as a finder's fee for $500,000 of the $1,000,000 raised during the
Company's second private placement in July 1998. Additionally, the Company
issued a 5-year warrant to purchase 250,000 shares of the Common Stock at $1.15
per share, based on the closing price on December 3, 1998, to Burrill & Company
for its work in helping the Company to establish multiple partnering agreements
in the life sciences area. As of December 31, 1998, there were warrants
outstanding to purchase 2,616,741 shares of the Common Stock.
The LifePoint, Inc. 1997 Stock Option Plan (the 'Plan'), as adopted
by the Board of Directors of the Company on August 14, 1997 and amended on June
5, 1998, now provides for the granting of options to purchase an aggregate of
2,000,000 shares (originally 1,000,000 shares) of the Common Stock.
Stockholders' approval of the Plan was obtained at the Annual Meeting of
Stockholders on August 13, 1998. Options granted under the Plan may either be
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code of 1986, as amended, or non-statutory or non-qualified
stock options not intended to satisfy such requirements. The exercise price per
share for incentive stock options will not be less than 100% of the fair market
value per share of the Common Stock on the grant date. For non-statutory or
non-qualified stock options, the exercise price per share may not be less than
85% of such fair market value. No option may have a term in excess of ten years.
During the quarter ended December 31, 1998, no options were granted
pursuant to the Plan. As of December 31, 1998, there were options to purchase
833,333 shares held by a total of 11 employees pursuant to the Plan.
9
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
General.
The Company was incorporated on October 8, 1992 under the laws of the
State of Delaware as a wholly owned subsidiary of SAT. Effective January 1,
1993, SAT sublicensed or transferred to the Company certain rights or assets to
develop drug testing products in exchange for 3,500,000 shares of the Common
Stock. In October 1993, the Company had a public offering of the Common Stock in
which an aggregate of 1,721,900 shares was sold. As of September 30, 1997, SAT
owned 5,575,306 shares of the Common Stock or 76.4% of the 7,297,206 shares of
the Common Stock then outstanding. From its inception until October 31, 1997,
the Company was a subsidiary of SAT or otherwise under its control. SAT ceased
providing advances to the Company in August 1997 as a result of its inability to
secure financing for its own programs. On September 10, 1997, SAT filed a
petition under Chapter 11 of the Federal Bankruptcy Code. The Company
temporarily suspended its product development activities on September 19, 1997,
but did not file for bankruptcy. The Company was able to resume such activities
on October 27, 1997 as a result of a loan by an unaffiliated party. On October
29, 1997, the majority ownership of the Company was transferred from SAT to
Meadow Lane Partners, LLC. The Company is now completely independent from SAT.
The Company is a development stage company focused on the
commercialization of the flow immunosensor technology licensed from the Naval
Research Laboratories. The flow immunosensor technology, in combination with the
focus on the use of saliva as a non-invasive test medium, will allow the Company
to develop a broadly applicable non-invasive, rapid, on-site diagnostic test
system. The first product under development is for the detection of drugs of
abuse and alcohol. However, other major market opportunities include rapid
diagnostic testing (substances of abuse, drug overdose, and heart attack),
long-term therapeutic drug monitoring to determine efficacy and compliance
(cardiovascular disease, osteoporosis), and wellness/health screening
(cardiovascular disease, osteoporosis, cancer).
Liquidity and Capital Resources.
Until August 1997 when SAT's inability to secure its own financing
caused SAT to cease advances to the Company, SAT had been the sole source of
financing to the Company since the Company's public offering of 1,721,900 shares
of the Common Stock in October and November 1993, which netted the Company
approximately $7,099,000. During the fiscal year ended March 31, 1997 and
through July 1997, SAT advanced $3,426,994 to the Company to fund its
operations, all of which was subsequently reflected as additional capital
contributions from SAT.
As a result of two loans made to the Company in September and October
1997 totaling $310,000 ($10,000 from an officer and $300,000 from an
unaffiliated source), both loans secured by a lien on the assets of the Company,
the Company recommenced its product development on October 27, 1997. During the
third quarter of 1997, the Company repaid the loans from the net proceeds
($1,434,000) of a private placement pursuant to Regulation D under the
Securities Act, which sold 3,200,000 shares of the Common Stock at $0.50 per
share or an aggregate purchase price of $1,600,000.
The Company's management at the time of the private placement estimated
that the net proceeds from the private placement would enable the Company to
continue its operations, at the reduced level, through July 1998. Management had
actively pursued during 1998, on a parallel basis, venture capital, strategic
partnering, and/or a private placement for all or part of the required funding.
However, because management recognized that it may have taken beyond
July to implement one of these long term financing possibilities, in July 1998,
management implemented a private placement of $1,000,000 to $5,000,000 in an
effort to enable the Company to continue its operations, including research and
development of its product, until one of these long term financing programs
could be
10
<PAGE>
successfully implemented. The Company received the minimum of
$1,000,000 on July 16, 1998 and, on August 26, 1998, the Company sold an
additional 25,000 shares of the Common Stock, or an aggregate of 1,025,000
shares of the Common Stock offered pursuant to this second private placement.
The offering of a minimum of 1,000,000 and a maximum of 5,000,000 shares of the
Common Stock expired by its terms on October 14, 1998 without any additional
shares being sold.
On December 15, 1998 the Company initiated a third private placement
pursuant to Regulation D under the Securities Act, with a minimum of 25,000
shares and a maximum of 600,000 shares of the Series A Preferred Stock at $10.00
per share. The Series A Preferred Stock is convertible into shares of the Common
Stock on the basis of 20 shares of the Common Stock for each share of the
Preferred Stock. The security is accruing a semi-annual dividend of $0.50 per
share payable in cash or shares of the Common Stock at the Company's option. The
Company closed on the entire 600,000 shares on January 21, 1999. The
approximately $5,400,000 in net proceeds the Company received provides the funds
that, in management's opinion, will allow the Company to develop a working
prototype of its drugs of abuse and alcohol testing system using saliva as the
test medium.
The Company will require additional capital to continue the research,
development and ultimate manufacture and marketing of its product. The Company
estimates that, in addition to the approximately $5,000,000 needed to complete
the prototype of its first product, the Company will need an additional
$8,000,000 to bring the product to market, and that the product is not expected
to be launched until the third quarter of 2000 at the earliest. Management will
need to reinitiate funding efforts in the future and will continue to parallel
path an additional private placement, strategic partnering and a public
offering.
The Company's management has also been exploring the possibility of
obtaining a strategic partner for the Company. To this end, the Company has an
agreement with Burrill & Company ('Burrill'), a San Francisco-based merchant
bank focused exclusively on servicing life science companies. Burrill assists
its portfolio companies in maximizing their value through various strategic
partnering relationships. Burrill had been engaged to introduce LifePoint to
potential partners with an on-going interest in saliva-based diagnostics or
point-of-care diagnostics and which might be otherwise interested in partnering
with or acquiring LifePoint at an early stage. Burrill has advised the Company
that the process to ascertain and close with a strategic partner may take five
months or more. In addition, management believes that a potential marketing
partner could be obtained on more acceptable terms when there is a working
prototype for the instrument and the disposables and certain clinical data are
obtained. Management currently anticipates that the prototype will be completed
by the first quarter of 2000 at the earliest.
Management had initially believed that one likely source for the
additional funding would have been an investment by a venture capital investor
or investors. Any such investment would have been likely to dilute substantially
the stock interest of the current stockholders. In addition, to make the
investment more attractive to potential venture capital investors, the Company
may have had to transfer its operations to a private subsidiary in which such
investor or investors could have invested. This is because venture capital
investors generally prefer the vehicle of an initial public offering as their
'out' strategy rather then investment in the Company by a venture capital
investor to be likely source of funding at this time.
Management has also pursued the possibility of an underwritten public
offering and has received expressions of interest from several well-known small
national and large regional firms. These firms have suggested, however, that the
Company wait to conduct such an offering until the working prototype is
completed (the first quarter of 2000 at the earliest). There can be assurance
that stock market conditions would be receptive to a public offering by the
Company at that timer. In addition, competitive conditions in the substance
abuse testing industry at that time may make the Company less attractive to
potential public investors.
11
<PAGE>
Having successfully consummated three private placements pursuant to
Regulation D under the Securities Act since December 1997, the Company may seek
to raise the additional financing through this method. As with a public
offering, there can be no assurance that potential investors would be receptive
to a private placement by the Company at that time, either because of general
stock market condition or conditions generally in the substance abuse technology
industry.
There can be no assurance that the Company will be successful in
securing financing, whether through a strategic partner, a public offering or a
private placement.
The Company has applied for three small business grants from the
National Institute of Health, in conjunction with Cedars Sinai Medical Center.
If the Company was to receive all three grants, the Company may receive up to
$3,000,000 in additional funding. However, there can be no assurance that the
Company will receive any of these grants.
If all of the Common Stock purchase warrants and stock options which
were outstanding on December 31, 1998 were exercised, the Company would realize
$2,207,538 in gross proceeds. However, there can be no certainty as to when and
if any of these securities may be exercised. Accordingly, management believes
that the Company cannot rely on these exercises as a source of financing.
Results of Operations
Three Months Ended December 31, 1998 vs. December 31, 1997
During the quarter ended December 31, 1998, the Company incurred
$259,924 for research and development and an additional $536,557 for general and
administrative expenses, as compared with $150,702 and $236,488, respectively,
during the three months ended December 31, 1997. The higher research and
development and general and administrative expenditures in the 1998 period were
due to the fact that, during the same period in December 1997, the Company
ceased the product development program and, as a result, had significantly
reduced expenditures for that period of time. Additionally, the general and
administrative expenses for the three months ended December 31, 1998 included a
non-cash charge of approximately $174,000 for the grant of stock and warrants to
a financial consultant and an investor relations firm.
The Company's net loss during the quarter ended December 31, 1998 was
$816,880 as compared with the net loss of $629,627 for the quarter ended
December 31, 1997. The increase of $187,253 or 29.7% was due to the reasons
described in the preceding paragraph.
From inception on October 8, 1992 to December 31, 1998, the Company has
incurred $6,537,218 for research and development and $3,778,596 for general and
administrative expenses. Management fees paid to SAT aggregated $2,089,838
during such period.
Nine Months Ended December 31, 1998 vs. December 31, 1997
During the nine months ended December 31, 1998, the Company incurred
$818,117 for research and development and an additional $1,194,048 for general
and administrative expenses, as compared with $851,376 and $407,022,
respectively, during the nine months ended December 31, 1997. The general and
administrative expenses for the nine months ended December 31, 1998 are higher
because, during the same period in 1997, significant general and administrative
expenses were paid to SAT as a management fee and these expenses are now
incurred directly by the Company. During the nine months ended December 31,
1997, an additional $409,838 was paid to SAT as the management fee. The research
and development expenses for the three months ended December 31, 1998 were
higher than those in the same period during 1997 due to the fact that during the
same period in December 1997 the Company ceased the product development program.
12
<PAGE>
The Company's net loss during the nine months ended December 31, 1998 was
$2,112,946 as compared with $2,050,694 during the nine months ended December 31,
1999. The increase of $62,252 or 3.0% was due to the reasons described in the
preceding paragraph. Because management does not anticipate that the Company
will commence marketing until the third quarter of 2000 at the earliest,
management anticipates that operating losses will continue through that date or
longer.
Forward-Looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements which involve risk and
uncertainties. Such forward-looking statements reflect management's current
views that the necessary financing will be available, when needed, to complete
the research and development program, that the product will be developed at the
contemplated cost and within the projected timetable, that, during the interim
period before the Company begins marketing, competitors will not begin to market
a competitive saliva-based testing product and that the other risks described in
the Annual Report and other filings by the Company with the Securities and
Exchange Commission will not materially adversely affect the Company's
operations. Because there can be no assurance that management's expectations
will be realized, actual results may differ.
Item 3. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
13
<PAGE>
PART II
OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) Not applicable.
(b) On January 19, 1999, the Company filed an amendment to its
Certificate of Incorporation creating a new class of capital stock consisting of
3,000,000 shares of Preferred Stock, $.001 par value (the 'Preferred Stock'),
and designated 600,000 shares of the Preferred Stock as the Series A 10%
Cumulative Convertible Preferred Stock (the 'Series A Preferred Stock'). A copy
of the Amendment is filed as Exhibit A to this Report and is incorporated herein
by this reference. The Board of Directors of the Company is authorized by the
Amendment to designate the remaining series of the Preferred Stock, to determine
the number of shares of the Preferred Stock in each series and to fix the
powers, preferences and rights of each such series and the qualifications,
limitations or restrictions thereof. Shares of the Series A Preferred Stock
which have been redeemed, converted or otherwise acquired by the Company, upon
compliance by the Company with the provisions of the General Corporation Law of
the State of Delaware (the 'GCL'), have the status of authorized and unissued
shares of the Preferred Stock not constituting part of any series of the
Preferred Stock, unless the Board of Directors elects by resolution to retain
the shares of the Series A Preferred Stock as treasury shares or to retire the
same and reduce the capital of the Company in accordance with the GCL.
The Series A Preferred Stock has priority over the Company's Common
Stock, $.001 par value (the 'Common Stock'), with respect to dividends,
redemption and liquidation or other winding up of the Company, as well as over
any other series of the Preferred Stock that may be created by the Board in the
future. Certain of its rights and privileges are described in the succeeding
nine subsections:
(i) Dividends.
The holders of shares of the Series A Preferred Stock are
entitled to receive, when and as declared by the Board of Directors of the
Company, out of the funds of the Company legally available therefor, cumulative
dividends at the annual rate of $1.00 per share payable semiannually, commencing
on July 1, 1999, and thereafter on January 2 and July 1 of each year. Dividends
began to accrue on the 600,000 shares of the Series A Preferred Stock on January
21, 1999. See section (c) of this Item 2. The dividends, at the option of the
Company, are payable in cash or in the form of shares of the Common Stock, the
shares to be valued at the Average Market Price (as defined) over a
20-trading-day period. Because of the priority with respect to dividends of the
Series A Preferred Stock, the foregoing dividend provision is another reason why
dividends on the Common Stock are unlikely to be paid in the foreseeable future.
However, because of the Company's continuing losses and the need for funds to
pay for the Company's product development program, payment of dividends on the
Common Stock was not contemplated in any event.
14
<PAGE>
(ii) Conversion.
The shares of the Series A Preferred Stock are convertible at
any time into shares of the Common Stock at the conversion price of $.50 per
share based on a stated value of $10.00 per share of the Series A Preferred
Stock. Thus, one share of the Series A Preferred Stock would convert into 20
shares of the Common Stock. If all 600,000 shares of the Series A Preferred
Stock were converted, an aggregate of 12,000,000 shares of the Common Stock
would be issued. Simultaneously with the issuance of shares of the Common Stock
upon conversion, the Company is obligated to pay accrued but unpaid dividends,
if any. The number of shares of the Common Stock issuable upon conversion and
the conversion price will be adjusted in the event of a stock dividend, a stock
split, a reorganization, a recapitalization, or a combination or subdivision of
the Common Stock or a similar event. Because, as of February 11, 1999, there
were 11,818,403 shares of the Common Stock outstanding, conversion of all of the
outstanding shares of the Series A Preferred Stock would more than double the
number of shares of the Common Stock outstanding, thereby substantially diluting
the interests of the current stockholders.
(iii) Optional Redemption.
The Company may at any time on or after July 1, 1999, upon not
less than 30 nor more than 60 days' notice, redeem the Series A Preferred Stock
at $10.00 per share plus accrued but unpaid dividends. The Company may, at its
option, pay the redemption price in cash or in shares of the Common Stock (the
number of shares being computed on the basis of the Average Market Value of the
Common Stock during the 20-trading-day period preceding the date of notice of
redemption). As an alternative to accepting the optional redemption payment,
whether in cash or in shares of the Common Stock, the holder may convert his,
her or its shares of the Series A Preferred Stock into shares of the Common
Stock as provided in the preceding paragraph.
(iv) Mandatory Redemption.
In the event that the Average Market Price of the Common Stock
for any 30-day period is $4.00 or more, the Company shall call the Series A
Preferred Stock for redemption, the redemption to be effected as if the holders
converted as provided in the second preceding subsection.
(v) Voting Rights.
The holders of the Series A Preferred Stock have one vote per
share to vote with the holders of the Common Stock on the election of directors
and all other matters submitted to a vote of the holders of the Common Stock
except where the holders of the Series A Preferred Stock have the right to vote
separately as a class. In addition, the holders of the Series A Preferred Stock
may, voting separately as a class, elect one director if the Company defaults in
paying three consecutive semiannual dividend payments. The holders may also vote
separately as a class where provided by Delaware law, as, for example, where an
Amendment to the Company's Certificate of Incorporation would adversely affect
their rights and privileges, or where their consent is requested by the Company
(the votes of the holders of at least 66 2/3% of the outstanding shares being
necessary to consent).
(vi) Liquidation or Dissolution.
Upon any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Company, each holder of the shares of the
Series A Preferred Stock will be entitled to receive out of the assets of the
Company available for distribution to stockholders an amount equal to $10.00 per
share before any payments or distributions will be made on the Common Stock or
any other series of the Preferred Stock hereafter authorized and issued. Each
holder will also receive, as a preferential payment, a sum equal to all accrued
but unpaid dividends, if any. After payment in cash in full to the holders of
the
15
<PAGE>
shares of the Series A Preferred Stock of these preferential amounts such
holders will have no right or claim to any of the remaining assets of the
Company.
A merger or consolidation of the Company in which it is not
the survivor will not be deemed a liquidation, dissolution or winding up of the
Company, provided that the provision for the exchange of the shares of the
Series A Preferred Stock and for the payment of accrued but unpaid dividends
thereon is made with the approval of the holders of at least 66 2/3% of the then
outstanding shares of the Series A Preferred Stock. If such approval is
obtained, such provision will be binding on the remaining holders. Otherwise
such merger or consolidation will be deemed a liquidation of the Company.
(vii) Indebtedness Limitation.
The Company has agreed that, until the working prototype for
its saliva based testing product for drugs of abuse and alcohol is completed
(currently estimated to be January 2000 at the earliest), it will not, without
the consent of the holders of at least 66 2/3% of the then outstanding share of
the Series A Preferred Stock, incur indebtedness, other than the anticipated up
to $2,000,000 in indebtedness at any time outstanding incurred in connection
with the purchasing or leasing of manufacturing, research and office equipment
and facilities. This restriction terminates if the General Conference of
Seventh-day Adventists, which is the holder of 225,000 shares of the Series A
Preferred Stock and the largest non-affiliated holder of shares of the Common
Stock (1,035,000 shares as of February 11, 1999), does not exercise its right of
first refusal, granted to it in connection with the sale of the Series A
Preferred Stock (see section (c) of this Item 2), as to a proposal for new
equity financing.
(viii) Other Required Consents.
The Company may not, without the consent of the holders of at
least 66 2/3% of the outstanding shares of the Series A Preferred Stock, merge
or consolidate with another corporation or corporations if the Company is not
the survivor. Such consent is also necessary before the Company may amend its
Certificate of Incorporation in a manner which would alter or change the
preferences, special rights or powers given to the shares of the Series A
Preferred Stock so as to affect such holders adversely or to authorize or create
a class or series of stock having any preference or priority which is pari passi
or superior to the shares of the Series A Preferred Stock.
(c) Recent Sales of Unregistered Securities
(i) Private Placement
(1) On January 21, 1999, which date was subsequent to the end
of the period for which this Report is filed, the Company sold 600,000 shares of
the Series A Preferred Stock, which was the maximum number of shares to be
offered pursuant to this private placement.
(2) There were no underwriters for this private placement. The
shares of the Series A Preferred Stock were offered and sold to persons who were
accredited investors as such term is defined in Rule 501(a) under the Securities
Act.
(3) The shares of the Series A Preferred Stock were sold for
$10.00 per share or an aggregate purchase price of $6,000,000. There were no
underwriting discounts or commissions; however, the Company paid as finder's
fees an aggregate of $592,078 (including $420,457 to Jonathan J. Pallin, a
director of the Company who also serves as a financial consultant) and issued to
finders Common Stock purchase warrants expiring January 20, 2004 to purchase an
aggregate of 447,000 shares of the Common Stock at $2.41 per share.
16
<PAGE>
(4) The Company claims that the sales were exempt from the
registration requirements of the Securities Act pursuant to Section 4(2) thereof
and Rule 506 of Regulation D thereunder, the sales constituting a transaction by
an issuer not involving any public offering. The purchasers were all accredited
investors, each of whom or which gave an investment representation.
(5) The shares of the Series A Preferred Stock are, as
indicated in Item 2(b)(ii) to this Report, convertible into shares of the Common
Stock at a conversion price of $.50 based on a stated value of $10.00 per share
of the Series A Preferred Stock. Accordingly, one share of the Series A
Preferred Stock is convertible into 20 shares of the Common Stock.
(ii) Finder's Warrants
(1) On January 21, 1999, which date was subsequent to the end
of the period for which this Report is filed, the Company issued Common Stock
purchase warrants (the 'Finder's Warrants') to purchase an aggregate of 447,000
shares of the Common Stock. Each Finder's Warrant expires January 20, 2004 and
has an exercise price of $2.41 per share.
(2) There were no underwriters for the grants of the Finder's
Warrants, which were granted as finder's fees in connection with the placement
described in paragraph (c)(i) of this Item 2, to two persons and seven entities.
(3) None of the Finder's Warrants were sold for cash, the
consideration therefor being a finder's fee for obtaining subscriptions in
private placement described in paragraph (c)(i) of this Item 12 and there were
no underwriting discounts or commissions.
(4) The Company claims that each of the grants of a Finder's
Warrant was exempt from the registration requirements of the Securities Act
pursuant to Section 4(2) thereof, each grant constituting a transaction by an
issuer not involving a public offering.
(d) Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On January 7, 1999, which date was subsequent to the end of the period
for which this Report is filed, Jonathan J. Pallin, a director and then the
Chairman of the Board of the Company and the holder of 4,325,306 shares of the
Common Stock, Herman Sandler, the holder of 1,250,000 shares of the Common
Stock, Peter S. Gold, a director of the Company and the holder of 700,000 shares
of the Common Stock, and Paul Sandler, a director of the Company and the holder
of 200,000 shares of the Common Stock, consented, pursuant to Section 228(a) of
the GCL, to the adoption of the Certificate of Amendment to the Company's
Certificate of Incorporation described in Item 2(b) to this Report. Because such
6,475,306 shares constituted more than 50% of the then outstanding 11,791,320
shares of the Common Stock, the Company had obtained the necessary consents to
filing the Certificate of Amendment pursuant to Section 242 of the GCL. Pursuant
to Section 228(d) of the GCL, the Company then caused the Transfer Agent for the
Common Stock to mail a notice to the other stockholders of record on January 7,
1999. Having complied with the GCL provisions for consent in lieu of a
stockholders' meeting, the Company filed the Certificate of Amendment on January
19, 1999.
Item 5. Other Information.
As indicated in Item 2(b) (vii) to this Report, General Conference of
Seventh-day Adventists acquired 225,000 shares of the Series A Preferred Stock,
which means that prior to conversion, as of February 11, 1999, it would have
1,260,000 (including its 1,035,000 shares of the Common Stock) of the 12,043,403
votes on the election of directors or 10.5% thereof. However, if all 600,000
shares of the
17
<PAGE>
Series A Preferred Stock were converted into 12,000,000 shares of
the Common Stock, it would have 5,535,000 of the 23,818,403 votes on the
election of directors or 23.2%. If only this stockholder converted its 225,000
shares of the Series A Preferred Stock into 4,500,000 shares of the Common
Stock, it would have 5,535,000 of the 16,693,403 votes on the election of
directors or 33.2% thereof. [All of the foregoing calculations are based on the
assumption that no outstanding options or Common Stock purchase warrants are
exercised.
Despite this increase in the voting power of General Conference
Corporation of Seventh-day Adventists, management does not believe that its
acquisition of shares of the Series A Preferred Stock constituted a change in
control because this stockholder reported that it acquired all of its shares for
investment purposes only and not for the purpose of taking control over the
Company. In addition, this stockholder has made no request for any Board
representation or otherwise to participate in the management functions of the
Company and has always expressed its support for current management.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Exhibits
<S> <C>
A Copy of Amendment to the Company's Certificate of Incorporation as filed in the State of
Delaware on January 19, 1999.
B Copy of Fifth Amendment dated August 18,
1998 to lease dated March 18, 1991 by and
between Rancho Cucamonga Business Park (now
The Realty Trust) as landlord and SAT (now
the Company) as tenant, which lease was
filed as an exhibit to SAT's Annual Report
on Form 10-K for the fiscal year ended March
31, 1996 and is incorporated herein by this
reference.
C Copy of Agreement dated December 1, 1998 between Burrill & Company and the Company.
</TABLE>
(b) Reports on Form 8-K
There were no Reports on Form 8-K filed during the quarter for
which this Report is filed.
18
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned therein to be duly authorized.
LIFEPOINT, INC.
(Registrant)
Date: February 12, 1999 By /s/ Linda H. Masterson
---------------------------------
Linda H. Masterson
President and Chief Executive Officer
19
<PAGE>
LIFEPOINT, INC.
Index to Exhibits Filed With
Quarterly Report on Form 10-Q
for the Quarter Ended December 31, 1998
<TABLE>
<CAPTION>
Number Exhibit Page
<S> <C> <C>
A Copy of amendment to the Company's Certificate of Incorporation E-2
as filed in the State of Delaware on January 19, 1999.
B Copy of Fifth Amendment dated August 18, 1998 to Lease E-17
dated March 18, 1991, by and between Rancho
Cucamonga Business Park (now the Realty Trust) as
landlord and SAT (now the Company) as tenant.
C Copy of Agreement dated December 1, 1998 between E-18
Burrill & Company and the Company.
</TABLE>
E-1
<PAGE>
Exhibit A
CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
LIFEPOINT, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the 'Corporation') is
LifePoint, Inc.
2. The certificate of incorporation of the Corporation is hereby amended
by striking out Article FOURTH thereof and by substituting in lieu of said
Article the following new Article:
'FOURTH: A. The total number of shares of stock (hereinafter referred
to as the 'Capital Stock') which the Corporation shall have authority to issue
is 53,000,000, all of which shares shall have the par value of $.001 per share,
and the Capital Stock shall be divided into two classes:
1. 3,000,000 of the shares shall be Preferred Stock.
2. 50,000,000 of the shares shall be Common Stock.
B. The relative rights, powers, privileges, preferences, participations,
qualifications, limitations and restrictions of the classes of the Capital Stock
are as follows:
1. Series A 10% Cumulative Convertible Preferred Stock
(a) Designation of Series. Of the 3,000,000 shares of the
Preferred Stock of various series that the Corporation shall be authorized to
issue, 600,000 shares shall be available for issuance as the initial series of
the Preferred Stock of the Corporation with the designation 'Series A 10%
Cumulative Convertible Preferred Stock' (hereinafter called the 'Series A
Preferred Stock'), which the Corporation shall be entitled to issue with the
relative powers, rights, preferences and limitations hereinafter set forth in
subparagraphs Fourth B.1(b) to (i) hereof.
(b) Priority. The Series A Preferred Stock shall, to the extent
of its relative rights, powers and preferences as hereinafter set forth, be
senior to any and all classes and series of the Capital Stock now or hereafter
created by the Corporation, including, without limitation, the other series of
the Preferred Stock and the Common Stock.
E-2
<PAGE>
(c) Dividends. The holders of shares of the Series A Preferred Stock shall
be entitled, when and as declared by the Board of Directors, out of the funds of
the Corporation legally available therefor, cumulative dividends at the rate of
$1.00 per annum per share of the Series A Preferred Stock, in accordance with
the provisions of this subparagraph Fourth B.1(c) Such dividends shall be prior
and in preference to any declaration or payment of any dividend or any
distribution (as hereinafter defined in subparagraph Fourth B.1 (c) (vii)
hereof) on shares of the Common Stock, or any other class or series of the
Capital Stock (including any other series of the Preferred Stock) ranking junior
to the Series A Preferred Stock upon liquidation, upon redemption or as to
dividends (the Common Stock and such other class or series of the Capital Stock
hereinafter collectively referred to as the 'Junior Stock').
(i) Payment. Dividends on the Series A Preferred Stock shall be cumulative
and shall accrue on each share of the Series A Preferred Stock (whether or not
earned or declared) from day to day from the date of original issuance (but not
earlier than the Subsequent Offering Termination Date as such term is defined in
the Corporation's Confidential Private Placement Memorandum dated as of December
15, 1998). Dividends shall be payable semiannually, in arrears, on the first day
of January and July of each year commencing on July 1, 1999, unless any such
date is a non-Business Day, in which event the dividend shall be payable on the
next Business Day. Dividends for any period that is less than six full calendar
months shall be pro-rated based upon a 365-day-year. The Corporation shall not
declare or pay the scheduled dividend for any semiannual period unless the
Corporation has sufficient funds legally available for such purpose.
(ii) Record Date. When the Board of Directors declares a semiannual
dividend, the dividend shall be payable to the holders of record of the Series A
Preferred Stock on the 15th day of the month (if a Business Day; if not, on the
next Business Day) immediately preceding the respective dividend payment date or
on such other record date as shall be fixed by the Board of Directors, provided
that the record date shall not be more than 60 or less than 10 days prior to the
dividend payment date.
(iii) Payment Form. At its option, the Corporation may pay a dividend in
cash or in the form of shares of the Common Stock on the basis of the Average
Market Price (as hereinafter defined in this subparagraph Fourth B.1 (c) (iii))
of the Common Stock for the 20 trading days immediately preceding the record
date for such dividend. For purposes of this subparagraph Fourth B.1(c)(iii),
the Average Market Price for a 20-trading-day period shall be determined as
follows: (1) if the Common Stock shall then be listed on a national securities
exchange or on The Nasdaq Stock Market, Inc. (hereinafter referred to as
'Nasdaq'), whether the National Market System or the SmallCap Market, the
Average Market Price shall mean the average of the closing sale prices on the
exchange or quoted for Nasdaq for each trading day during such 20-trading-day
period or (2) if the Common Stock shall not then be listed on an exchange or
quoted on Nasdaq, the Average Market Price shall mean the average of
E-3
<PAGE>
the bid and asked prices for the Common Stock in the OTC Bulletin Board of the
National Association of Securities Dealers, Inc. (hereinafter referred to as the
'NASD'), if so quoted, or, if not so quoted, in the pink sheets as reported by
the National Quotation Bureau, Inc., or other organization performing similar
functions in the over-the-counter market, for each trading day during such
20-trading-day period.
(iv) Accrued and Unpaid Dividends. Except as set forth in subparagraph
Fourth B.2 (c) (v) hereof or except as may be waived by the holders of not less
than 66 2/3% of the then outstanding shares of the Series A Preferred Stock, so
long as any shares of the Series A Preferred Stock shall be outstanding and
unless and until all accumulated but unpaid dividends on the Series A Preferred
Stock shall have been paid or provided for, then (1) no dividends shall be paid,
whether in cash or property, nor shall any distribution be made, on the Junior
Stock (other than dividends or distributions on the Common Stock in shares of
the Capital Stock of the Corporation or subscription rights, options or warrants
to subscribe for or purchase shares of any such Capital Stock); (2) no shares of
the Junior Stock shall be redeemed, purchased or otherwise acquired for any
consideration by the Corporation (except by conversion into, or exchange for,
shares of the Junior Stock); and (3) the Corporation shall not distribute to the
holders of the Junior Stock any assets upon liquidation, dissolution or winding
up of the Corporation.
(v) Partial Payment. Notwithstanding the provisions of subparagraph Fourth
B.1 (c) (iv) hereof, the Board of Directors may declare the payment of a
dividend on the Series A Preferred Stock in an amount less than all accumulated
but unpaid dividends thereon provided that the Corporation has sufficient funds
legally available for such purpose.
(vi) Interest. If the dividends on any shares of the Series A Preferred
Stock shall be in arrears, the holders thereof shall not be entitled to any
interest thereon or any other sum of money in lieu thereof.
(vii) Definition of Distribution. For purposes of this subparagraph Fourth
B.1 (c), unless the context otherwise requires, 'distribution' shall mean the
transfer of cash or property without consideration, whether by way of dividend
or otherwise, payable other than in shares of the Capital Stock (other than
redemptions as set forth in subparagraph Fourth B.1 (d) hereof or repurchases of
shares of the Common Stock held by employees or consultants of the Corporation
upon termination of their employment or services pursuant to agreements
providing for such repurchase) for cash or property, including any such
transfer, purchase or redemption by a subsidiary of the Corporation.
(d) Redemptions.
(i) Optional Redemption. The Corporation may, but shall not be obligated
to, redeem, in whole or in part (but only in multiples of 500 shares unless the
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holder owns less than 500 shares), shares of the Series A Preferred Stock at any
time on or after July 1, 1999 at a redemption price of $10.00 per share, plus
all accrued but unpaid dividends to the date of redemption (hereinafter referred
to as the 'Optional Redemption Date') designated in the Notice of Redemption (as
hereinafter defined in subparagraph Fourth B.1 (d) (v) hereof), payable in the
Board's discretion in cash or in the form of shares of the Common Stock on the
basis of the Average Market Price of the Common Stock for the 20 trading days
immediately preceding the date of the Notice of Redemption, the Average Market
Price being determined pursuant to subparagraph Fourth B.1 (c) (iii) hereof in
the same manner as for a dividend in shares of the Common Stock. Each Notice of
Redemption shall be mailed, not less than 30 nor more than 60 days prior to the
Optional Redemption Date, to each holder of record of the shares of the Series A
Preferred Stock to be redeemed at his, her or its address as it appears in the
records of the Corporation. Payment of the accrued but unpaid dividends shall be
made in the manner provided in subparagraph Fourth B.1 (c) (iii) hereof.
(ii) Partial Optional Redemption. To the extent that less than all of the
outstanding shares of the Series A Preferred Stock are to be redeemed pursuant
to subparagraph Fourth B.1 (d) (i) hereof, then the following provisions shall
be applicable:
(1) The number of shares to be redeemed shall be determined by the Board of
Directors of the Corporation and, if the shares of the Series A Preferred
Stock are held by more than one stockholder on the Optional Redemption
Date, the Corporation shall redeem from each stockholder a pro rata number
of shares which, for each stockholder, shall be calculated by multiplying
(a) the total number of shares of the Series A Preferred Stock to be
redeemed pursuant to subparagraph Fourth B.1 (d) (i) on such Optional
Redemption Date by (b) a fraction, the numerator of which shall equal the
number of shares of the Series A Preferred Stock owned by such stockholder
on such Optional Redemption Date and the denominator of which shall equal
the total number of shares of the Series A Preferred Stock issued and
outstanding on such Optional Redemption Date.
(2) The Corporation shall issue and deliver to the holder, at the expense of
the Corporation, a certificate for the shares of the Series A Preferred
Stock not redeemed.
(iii) Mandatory Redemption. So long as any of the Series A Preferred Stock
shall be outstanding, if the Average Market Value (as hereinafter defined in
subparagraph Fourth B.1 (d) (iv) hereof) of the Common Stock is $4.00 or more
per share for a period of 30 days, the Corporation shall, by a Notice of
Redemption to the holders of the then outstanding shares of the Series A
Preferred Stock in the manner provided in subparagraph Fourth 1.b (d) (v)
hereof, call such shares for redemption as of a date not less than ten nor more
than 30 days after the date the Notice is given
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(hereinafter referred to as the 'Mandatory Redemption Date') and, in lieu of a
cash payment, shall issue shares of the Common Stock to the holders as if they
had converted, pursuant to subparagraph Fourth B.1 (f) hereof, on the Mandatory
Redemption Date. Each Notice of Redemption shall be mailed to each holder of
record of the shares of the Series A Preferred Stock at his, her or its address
as it appears in the records of the Corporation.
(iv) Average Market Price. For the purpose of subparagraph Fourth 1.b (d)
(iii) hereof, the Average Market Price for a 30-day period shall be (1) if the
Common Stock shall be listed on a national securities exchange or on Nasdaq, the
average of the closing sales prices on the exchange or quoted for Nasdaq for
each trading day during such 30-day period or (2) if the Common Stock shall not
be listed on an exchange or quoted on Nasdaq, the average of the bid and asked
prices for the Common Stock in the OTB Bulletin Board of the NASD, if so quoted,
or, if not so quoted, in the pink sheets as reported by the National Quotation
Bureau, Inc., or other organization performing similar functions in the
over-counter market, for each trading day during such 30-day period.
(v) Notice of Redemption. The Notice of Redemption shall state:
(1) the redemption date (which, if the required date is a non-Business Day,
shall be the next Business Day);
(2) the number of shares of the Series A Preferred Stock to be redeemed and, if
less than all of the shares held by such holder are to be redeemed, the
number of such shares of such holder to be redeemed;
(3) the redemption price per share and the aggregate redemption price;
(4) the accumulated but unpaid dividends to be paid with the redemption price;
and
(5) the place or places where such shares are to be surrendered for payment of
the redemption price.
Neither failure to mail any such notice to one or more holders nor any defect in
such Notice of Redemption shall effect the sufficiency of the proceedings for
redemption as to the other holders.
(vi) Termination of Rights. Unless the Corporation shall have defaulted in
the payment of the redemption price, (1) from and after each redemption date all
dividends on the shares of the Series A Preferred Stock called for redemption
shall cease to accrue and (2) on such redemption date (a) all rights of the
holders of such shares of the Series A Preferred Stock shall cease and
terminate, except the right to
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receive the redemption price of the Series A Preferred Stock upon the
presentation and surrender to the Corporation of the certificates representing
the same and the right to convert, pursuant to subparagraph Fourth B.1 (f)
hereof, on or prior to such redemption date; (b) such shares of the Series A
Preferred Stock shall not thereafter be transferred (except with the consent of
the Corporation) on the books of the Corporation; and (c) such shares of the
Series A Preferred Stock shall not be deemed to be outstanding for any purpose
whatsoever.
(vii) Status of Redeemed Shares. Shares of the Series A Preferred Stock
which have been redeemed or reacquired in any manner (including upon conversion
in accordance with subparagraph Fourth B.1 (f) hereof) shall, upon compliance
with any applicable provisions of the General Corporation Law of the State of
Delaware (hereinafter referred to as the 'GCL,' which definition as used herein
shall include any successor statute), have the status of authorized and unissued
shares of the Preferred Stock not constituting part of any series of the
Preferred Stock, unless the Board of Directors elects by resolution to retain
the shares of the Series A Preferred Stock that were redeemed or reacquired as
treasury shares or to retire the same and reduce the capital of the Corporation
in accordance with the GCL.
(viii) Deposits in Trust. If the Corporation shall deposit, as a trust fund
with any bank or trust company having a capital surplus and undivided profits of
at least $25,000,000, a sum sufficient to redeem on the date fixed for
redemption thereof any shares of the Series A Preferred Stock called or
scheduled for redemption (including within such sum, if applicable, an amount
sufficient to pay all accumulated but unpaid dividends to the date of deposit),
with irrevocable instructions and authority for the bank to pay the redemption
price (and, if applicable, the accumulated but unpaid dividends to the date of
deposit) of such shares upon surrender of the certificate or certificates
evidencing the shares to be redeemed, then from and after the date of deposit
(even if prior to the date fixed for redemption) all rights of the holders of
such shares shall cease and terminate except only the right either (1) to
receive the redemption price and, if applicable, accumulated but unpaid
dividends to the date of deposit or (2) to convert the shares of the Series A
Preferred Stock into shares of the Common Stock in accordance with subparagraph
Fourth B.1 (f) hereof, in the event of which conversion the funds not so used
shall be returned to the Corporation.
(e) Preference on Liquidation. Subject to the prior rights of creditors,
the holders of shares of the Series A Preferred Stock shall be entitled to
receive, upon any liquidation, dissolution or winding up of the Corporation,
$10.00 per share plus accumulated but unpaid dividends to the date of payment
before any distribution of assets of the Corporation may be made to the holders
of the Junior Stock. If, upon such liquidation, dissolution or winding up of the
Corporation, the assets of the Corporation are insufficient to permit full
payment to the holders of the Series A Preferred Stock, then the entire
available assets (after satisfying the rights of prior creditors) shall be
distributed ratably to the holders of the Series A Preferred Stock. After
payment of the full amount of the preferential liquidation distribution to which
they are entitled and, if
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applicable, any accumulated but unpaid dividends, the holders of the shares of
the Series A Preferred Stock shall not be entitled to any further participation
in any distribution of assets by the Corporation. Written notice of such
liquidation, dissolution or winding up, stating a payment date, the amount of
the liquidation payment and the place where such sums shall be payable shall be
sent by mail, postage prepaid, not less than 60 days prior to the payment date
stated therein, to the holders of record of the Series A Preferred Stock, such
notice to be addressed to each such holder at his, her or its address as shown
in the records of the Corporation. A consolidation or merger of the Corporation
with or into another corporation or corporations shall not be deemed to be a
liquidation, dissolution or winding up of the Corporation within the meaning
hereof if the Corporation is the survivor or if the Corporation is not the
survivor and the holders of at least 66 2/3% of the then outstanding shares of
the Series A Preferred Stock approve the consolidation or merger.
(f) Conversion
(i) Conversion Right. A holder of shares of the Series A Preferred Stock, but
only as to 500 shares or a multiple thereof unless the holder owns less
than 500 shares, may, at the holder's option, convert such shares into
shares of the Common Stock as constituted on January 7, 1999 at the
conversion price of $.50 per share (hereinafter referred to as the
'Conversion Price'). The number of shares of the Common Stock to be issued
upon the conversion shall be equal to the product of the number of shares
of the Series A Preferred Stock to be converted and the stated value of
$10.00 per share divided by the Conversion Price.
(ii) Conversion Procedure. In order to exercise the conversion privilege, the
holder of any shares of the Series A Preferred Stock to be converted shall
surrender the certificate or certificates evidencing such shares to the
Corporation at its then principal office or at its agency designated for
such purpose (which may be the transfer agent for the Common Stock) and
shall give notice to the Corporation that the holder elects to convert such
shares or a specified portion thereof as permitted by subparagraph Fourth
B.1 (f) (i) hereof. Such notice shall also state the name or names (with
address) in which the certificate or certificates for the Common Stock,
which shall be issuable upon such conversion, shall be issued. As promptly
after receipt of such notice and the surrender of the shares of the Series
A Preferred Stock as aforesaid, the Corporation shall issue and deliver to
either such holder or, on his, her or its written order, a permitted
transferee a certificate or certificates for the number of full shares of
the Common Stock issuable upon the conversion of such shares of the Series
A Preferred Stock in accordance with the provisions of this subparagraph
Fourth B.1 (f) and cash, as provided in Subparagraph Fourth B.1 (g) hereof,
in respect of any fractional interest otherwise issuable upon such
conversion. Such conversion shall be deemed to have been effected as of the
close of business on the date on which such shares of the Series A
Preferred Stock shall have been surrendered as aforesaid, the rights of the
holder of such shares of the Series A Preferred Stock as such holder shall
cease on said date, and the person or persons in whose name or names any
certificate or certificates for the Common Stock shall be issuable upon
such conversion shall be deemed to have become on said date the holder or
holders of record represented thereby. No adjustment shall be made for
dividends accrued on any shares of the Series A Preferred Stock, except
that dividends accrued to the conversion date shall be paid on any shares
of the Series A Preferred Stock which are converted in the manner provided
in subparagraph Fourth B.1 (c)(iii) hereof.
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In the event any share of the Series A Preferred Stock shall be surrendered
for conversion of a part only, the Corporation shall issue and deliver to the
holder, at the expense of the Corporation, a certificate for the shares of the
Series A Preferred Stock not converted.
(iii) Adjustments. Subject to the provisions of this subparagraph Fourth
B.1 (f), the number of shares of the Common Stock issuable upon the exercise of
the conversion rights under the Series A Preferred Stock shall be subject to
adjustment from time to time as follows:
(1) In case the Corporation after the date hereof shall (a) pay a dividend in
shares of the Capital Stock of the Corporation, (2) subdivide its
outstanding shares of the Common Stock, (3) combine its outstanding shares
of the Common Stock into a smaller number of shares, or (4) issue by
reclassification of the Common Stock any shares of Capital Stock of the
Corporation, then the number of shares of the Common Stock issuable
immediately after the happening of any of the events described above shall
be adjusted so as to consist of the number of shares of the Capital Stock
of the Corporation which a record holder of the number of shares of the
Common Stock immediately prior to the happening of such event would own or
be entitled to receive after the happening of such event. Similar
adjustments to the Common Stock shall be made at any time any of the events
described above in this subparagraph Fourth B.1 (f) (iii) (1) occur. An
adjustment made pursuant to this subparagraph Fourth B.1 (f) (iii) (1)
shall become effective immediately after the record date in the case of a
dividend payable in the Capital Stock of the Corporation, and shall become
effective immediately after the effective date in the case of a
subdivision, combination or reclassification.
(2) In case the Corporation after the date hereof shall distribute to all
holders of the Common Stock evidence of its indebtedness or assets (other
than a cash distribution made as a dividend payable out of earnings or out
of any surplus legally available for dividends under the GCL) or rights to
subscribe or purchase, then the number of shares of the Common Stock (until
adjusted again pursuant to this subparagraph Fourth B.1 (f) (iii)) shall be
adjusted to that number determined by multiplying the number of shares of
the Common Stock outstanding immediately prior to such adjustment by a
fraction, the numerator of which is the Market Value per share of the
Common Stock determined as provided in subparagraph Fourth B.1 (g) hereof
(as if the record date for such distribution were the date of surrender for
conversion there mentioned) and the denominator of which is such Market
Value per share less the fair value (as determined by the Board of
Directors of the Corporation, whose determination shall be conclusive) of
the portion of such evidences of indebtedness or assets so distributed, or
of such subscription or purchase rights, applicable to one share of the
Common Stock. An adjustment made pursuant to this subparagraph Fourth B.1
(f) (iii) (2) shall become effective immediately after the record date for
the determination of stockholders entitled to receive such distribution.
This subparagraph Fourth B.1 (f) (iii) (2) shall not apply to any
transaction for which an adjustment is prescribed under subparagraph Fourth
B.1 (f) (iii) (1) hereof.
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(3) For the purpose of this subparagraph Fourth B.1 (f), the term 'Common
Stock' shall mean (a) the class of stock designated as the Common Stock of
the Company at January 7, 1999 or (b) any other class of stock resulting
from one or more changes or reclassifications of such Common Stock
consisting solely of changes in par value, or from par value to no par
value, or from no par value to par value.
(iv) Accountant's Certificate. The certificate of any independent firm of
public accountants of recognized standing selected by the Board of Directors of
the Corporation (including the accountants regularly employed as the
Corporation's independent auditors) shall be conclusive evidence of the
correctness of any computation made under this subparagraph Fourth B.1 (f).
(v) Merger or Consolidation. In case after the date hereof, as a result of
a merger or consolidation of the Corporation into or with another corporation,
or the sale or other transfer of the Corporation's property, assets and
business, substantially as an entirety, to a successor, the Common Stock is in
effect changed into, in whole or in part, a different kind or class of stock (or
other securities representing or payable in, or convertible into, or entitling
the holder to purchase or subscribe for, stock of any class), the Corporation or
the successor, as the case may be, shall execute and deliver to the holders of
the Series A Preferred Stock agreements providing that the holders of such
shares then outstanding shall have the right thereafter (until the expiration of
the right of conversion of such shares) to receive upon conversion, in lieu of
the number of shares of the Common Stock previously issuable upon conversion,
such securities which shall conform as to its constituent parts with what was
receivable upon such merger, consolidation, sale or other transfer by a holder
of the same number of shares of the Common Stock immediately prior to such
change. Such agreements shall provide for adjustment which shall be as nearly
equivalent as practicable to the adjustments provided for this subparagraph
Fourth B.1 (f). The provisions of this subparagraph Fourth B.1 (f) (v) shall
similarly apply to successive mergers, consolidations, or sales or other
transfers.
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(vi) Adjustment to Conversion Price. Whenever the number of shares of the
Common Stock is adjusted pursuant to this subparagraph Fourth B.1 (f), the
Conversion Price shall be proportionately adjusted.
(vii) Conversion Adjustment Notice Whenever the conversion rights of a
holder of the Series A Preferred Stock are adjusted pursuant to this
subparagraph Fourth B.1 (f), the Corporation shall promptly mail to each holder
of the Series A Preferred Stock a notice describing the adjustment and
specifying the number, or kind, or class of shares or other securities or
property issuable upon conversion of the Series A Preferred Stock after giving
effect to such adjustment.
(viii) Notices for Certain Transactions. In case the Corporation after the
date of issuance of shares of the Series A Preferred Stock shall propose (1) to
pay any dividend payable in shares of the Capital Stock to the holders of the
Common Stock or to make any other distribution (other than cash distributions
out of earnings or surplus as referred to in subparagraph Fourth B.1 (f) (iii)
(2) hereof), (2) to take action to offer for subscription pro rata to the
holders of the Common Stock rights to subscribe to, or purchase, any additional
shares of any class or series of the Capital Stock or any other rights or
options, or (3) to effect any reclassification of the Common Stock (other than a
reclassification involving merely the subdivision or combination of outstanding
shares of the Common Stock) or any capital reorganization, or consolidation or
merger, or any sale or other transfer of its property, assets and business
substantially as an entirety, or the liquidation, dissolution or winding up of
the Corporation, then, in each such case, the Corporation shall mail to each
holder of the Series A Preferred Stock notice of such proposed action, which
notice shall specify the date on which the books of the Corporation shall close,
or a record shall be taken, for such stock dividend, distribution or
subscription or purchase rights, or the date on which such reclassification,
reorganization, consolidation, merger, sale or transfer, liquidation,
dissolution or winding up shall take place or commence, as the case may be, and
the date of participation therein by the holders of the Common Stock if any such
date is to be fixed, and shall also set forth such facts then known to the
Corporation with respect thereto as shall be reasonably necessary to indicate
the effect of such action on the shares of the Common Stock and/or the shares of
Series A Preferred Stock which will occur as a result of such action. Such
notice shall be mailed, in the case of any action covered by clause (1) or (2)
above, at least ten days prior to the record data for determining holders of the
Common Stock for purposes of such action and, in the case of any action covered
by clause (3) above, at least ten days prior to the date of the taking of such
proposed action.
Failure to mail any notice, or any defect in any notice, pursuant to this
subparagraph Fourth B.1 (f) (viii) shall not affect the legality or validity of
the adjustment to the number of shares of the Common Stock or the type or amount
of property to be received upon conversion thereof or of any transaction giving
rise thereto.
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(g) Fractional Shares. The Corporation shall not be required to issue any
fractional shares of the Common Stock upon the conversion or redemption of
shares of the Series A Preferred Stock or upon the payment of a dividend in
shares of the Common Stock with respect to the shares of the Series A Preferred
Stock. If any fractional interest in a share of the Common Stock shall be
deliverable upon conversion or redemption of shares of the Series A Preferred
Stock, or with respect to a dividend in shares of the Common Stock, the
Corporation shall purchase such fractional interest for an amount in cash
(computed to the nearest cent) equal to the Market Value (as hereinafter
defined) of such fractional share. If the shares of the Common Stock shall then
be listed on a national securities exchange or quoted on Nasdaq, the Market
Value shall be the closing sale price of such shares on such exchange or quoted
by Nasdaq on the last Business Day preceding the surrender for conversion, the
redemption date or the dividend payment date, whichever is applicable, on which
shares of the Common Stock were sold. If the shares of the Common Stock shall
not then be listed on any such exchange or quoted on Nasdaq, the Market Value
shall be the average of the bid and asked prices as reported by the OTC Bulletin
Board of the NASD, if so quoted, or, if not so quoted, as reported by the
National Quotation Bureau, Inc., or other organization performing similar
functions in the over-the-counter market, on the last Business Day preceding the
surrender for conversion, the redemption date or the dividend payment date,
whichever shall be applicable, on which there were such quotations.
(h) Voting Rights.
(i) Vote Per Share. The shares of the Series A Preferred Stock shall entitle
each holder to one vote for each share held on matters on which such holder
shall have the right to vote.
(ii) General Voting Rights. The holders of the Series A Preferred Stock shall
vote together with the holders of the Common Stock (1) in all elections for
directors, (2) upon the approval of any employee benefit plan, (3) upon the
selection of independent certified public accountants and (4) upon such
other matters as shall be submitted to a vote generally of the holders of
the Capital Stock and on which the holders of the Series A Preferred Stock
shall not be entitled to vote separately as a class.
(iii)Contingent Voting Rights. If and whenever the Corporation shall have
failed to declare and pay three consecutive semiannual dividends on the
Series A Preferred Stock, the holders of the Series A Preferred Stock,
voting as a class, shall be entitled to elect one director of the
Corporation and the holders of the Common Stock and any other class or
series of the Capital Stock (including the Series A Preferred Stock) as
shall than have the right to vote for directors shall be entitled to elect
the remaining members of the Board of Directors. At such time as all
dividends accumulated on the outstanding shares of the Series A Preferred
Stock have been paid, the contingent rights of the holders of the Series A
Preferred Stock to elect a member of the Board as provided in this
subparagraph Fourth B.1 (h) (iii) shall cease, subject to reinstitution
from time to time upon the same terms and conditions.
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(iv) Contingent Voting Procedures. At any time after the voting power to elect a
member of the Board of Directors shall have become vested in the holders of
the Series A Preferred Stock as provided in subparagraph Fourth B.1 (h)
(ii) hereof, the President or any Vice President of the Corporation shall,
upon the request of the record holders of at least 20% of the shares of the
Series A Preferred Stock then outstanding, addressed to the President or
any Vice President of the Corporation at the principal office of the
Corporation, call a special meeting of the holders of the Series A
Preferred Stock to be held at the place and upon the notice provided in the
By-Laws of the Corporation for the holding of meetings of stockholders. If
such meeting shall not be so called within two days after personal service
of the request, or within five days after mailing of the same by registered
mail within the United States of America, then the record holders of at
least ten percent of the shares of the Series A Preferred Stock then
outstanding, as a class, may designate in writing one of their members to
call such meeting, and the person so designated may call such meeting at
the place and upon the notice above provided, and for that purpose shall
have access to the stock books of the Corporation relating to the Series A
Preferred Stock. Anything in this subparagraph Fourth B.1 (h) (iv) to the
contrary notwithstanding, no special meeting to permit the holders of the
Series A Preferred Stock to elect a director shall be called if such matter
is included in the notice of meeting for the Annual Meeting of Stockholders
and such meeting is held within 60 days after receipt of the request for an
election. At any special meeting so called or at any Annual Meeting held
while the holders of the Series A Preferred Stock, as a class, have the
voting power to elect a member of the Board of Directors, the holders of a
majority of the then outstanding shares of the Series A Preferred Stock, as
a class, present in person or by proxy, shall be sufficient to constitute a
quorum for the election of the director the holders of the Series A
Preferred Stock are entitled to elect and a plurality of the votes cast at
the meeting shall be sufficient to elect such director. The person so
elected as a director, together with such persons, if any, as may be
elected as directors by the holders of the Common Stock and such other
class or series of the Capital Stock (including the Series A Preferred
Stock) as shall then have the right to vote for directors, shall constitute
the duly elected directors of the Corporation.
(v) Cessation of Contingent Voting Rights. When the rights of the holders of
the Series A Preferred Stock to vote as provided in subparagraph Fourth B.1
(h) (iii) hereof have ceased as hereinabove provided, the term of office of
the person elected by them as a director as a result of the failure to
declare and pay a dividend shall forthwith terminate.
(i) Covenants by the Corporation. As long as any shares of the Series A
Preferred Stock are outstanding, and without the approval of the holders of at
least 66 2/3% of the then outstanding shares of the Series A Preferred Stock,
the Corporation shall not (i) amend its Certificate of Incorporation if such
action would alter or change the preferences, special rights or powers given to
the shares of the Series A Preferred Stock so as to affect the holders of the
Series A Preferred Stock adversely; (ii) authorize or create any class or series
of stock of the Corporation having any preference or priority which is pari
passu or superior to the shares of the Series A Preferred Stock as to dividends,
mandatory redemption or distribution of assets made in dissolution, liquidation
or winding up the Corporation; (iii) merge or consolidate with or into any other
corporation or corporations if the Corporation is not the survivor; or (iv)
incur indebtedness, other than up to $2,000,000 in indebtedness at any time
outstanding incurred in connection with the purchase or leasing of
manufacturing, research and office equipment and facilities. The covenant in
subparagraph Fourth B.1 (i) (iv) shall expire, terminate and have no further
force and effect upon the Corporation completing the working prototype for its
saliva based testing product for drugs of abuse and alcohol or upon the event
that, if a right of first refusal as to additional financing is granted in
connection with the sale of the Series A Preferred Stock, such right of first
refusal is not exercised with respect to a proposal for equity financing.
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2. Preferred Stock
(a) Designation of Series. With respect to the 2,400,000 shares of the
Preferred Stock not designated as the Series A Preferred Stock, or any or all of
the 600,000 shares of the Series A Preferred Stock that, after redemption,
conversion or other acquisition by the Corporation, shall be restored to the
status of shares of the Preferred Stock without series as provided in
subparagraph Fourth B.1 (d) (vii) hereof, the Board of Directors of the
Corporation is authorized, subject to the limitations prescribed by the GCL and
the provisions of this subparagraph Fourth B.2, to provide for the issuance of
the shares of the Preferred Stock in series and, by filing a certificate
pursuant to the GCL, to establish from time to time the number of shares to be
included in each such series, and to fix the designations, powers, preferences
and rights of the shares of each such series and the qualifications, limitations
or restrictions thereof.
(b) Priority. Each series into which the Preferred Stock shall be
subdivided by the Board of Directors subsequent to the date hereof, as herein
provided, shall, to the extent of its relative rights, powers and preferences,
be senior to the Common Stock and each subsequently created series of the
Preferred Stock unless provision is otherwise made by the Board of Directors;
provided, however, the Preferred Stock and each series thereof shall in any
event be junior to the Series A Preferred Stock except as may otherwise be
consented to by the holders of at least 66 2/3% of the then outstanding shares
of the Series A Preferred Stock.
(c) Board Designation. The authority of the Board of Directors with respect
to each series of the Preferred Stock shall include, but not be limited to,
determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
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(ii) The dividend rate on the shares of that series, whether dividends shall be
cumulative, and, if so, from which date or dates, and the relative rights
of priority, if any, of payment of dividends on shares of that series;
(iii)Whether that series shall have voting rights, in addition to the voting
rights provided by law, and, if so, the terms of such voting rights;
(iv) Whether that series shall have conversion privileges, and, if so, the terms
and conditions of such conversion, including provision for adjustment of
the conversion rate in such events as the Board of Directors shall
determine;
(v) Whether or not the shares of that series shall be redeemable, and, if so,
the terms and conditions of such redemption, including the date upon or
after which they shall be redeemable, and the amount per share payable in
case of redemption, which amount may vary under different conditions and at
different redemption dates;
(vi) Whether the series shall have a sinking fund for the redemption or purchase
of shares of that series, and, if so, the terms and amount of such sinking
fund;
(vii)The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that
series; and
(viii) Any other relative rights, preferences and limitations of that series.
(d) Dividends. Dividends on the outstanding shares of the Preferred Stock
shall be paid or declared and set apart for payment before any dividends shall
be paid or declared and set apart for payment on the shares of the Common Stock
with respect to the same dividend period.
(e) Preference on Liquidation. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation the assets available
for distribution to the holders of shares of the Preferred Stock of all series
shall be insufficient to pay such holders the full preferential amount to which
they are entitled, then such assets shall be distributed ratably among the
shares of all series of the Preferred Stock in accordance with the respective
preferential amounts (including unpaid cumulative dividends, if any) payable
with respect thereto.
3. Common Stock
(a) Designation and Dividends. The Common Stock shall be designated "Common
Stock." Subject to all of the rights of the Series A Preferred Stock and the
Preferred Stock, dividends may be paid upon the Common Stock as and when
declared by the Board of Directors out of any funds legally available for the
payment of dividends.
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(b) Liquidation, Dissolution or Winding Up. Upon any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
and subject to the prior rights of creditors and after the holders of the Series
A Preferred Stock and any other then outstanding series of the Preferred Stock
shall have been paid in full amounts to which they shall be entitled, or an
amount sufficient to pay the aggregate amount to which the holders of the Series
A Preferred Stock and the other then outstanding series of the Preferred Stock
shall be entitled shall have been deposited with a bank or trust company having
a capital surplus and undivided profits of at least $25,000,000 as a trust fund
for the benefit of the holders of the Series A Preferred Stock and the other
then outstanding series of the Preferred Stock, the remaining net assets of the
Corporation shall be distributed pro rata to the holders of the Common Stock.
For the purposes of this subparagraph Fourth B.3 (b), the consolidation or
merger of the Corporation with any other corporation or corporations shall not
be deemed a liquidation or dissolution of the Corporation.
(c) Voting Right. Each holder of the Common Stock shall be entitled to one
vote per share thereof held upon all matters.
4. Definitions.
(i) The term "Business Day" shall mean any day on which national banks in the
City of Los Angeles, State of California are open.
(ii) The term "Common Stock" shall mean the Corporation's currently authorized
Common Stock and any shares into which such Common Stock may hereafter be
changed."
_____________________________
3. The amendment of the certificate of incorporation herein certified has
been duly adopted and written consent has been given in accordance with the
provisions of Section 228 and 242 of the General Corporation Law of the State of
Delaware.
Signed on this 19th day of January, 1999
/s/ Linda H. Masterson
Linda H. Masterson
President and Chief Executive Officer
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Exhibit B
FIFTH AMENDMENT TO INDUSTRIAL LEASE
10400 Trademark Street, Rancho Cucamonga, CA 91730
The terms of that industrial lease dated March 18, 1991 originally between
Rancho Cucamonga Business Park as Lessor and U.S. Alcohol Testing of America as
Lessee and subsequently by and between Substance Abuse Technologies, Inc.
(formerly U.S. Alcohol Testing of America) as Lessee and The Realty Trust (TRT)
as Lessor is amended as follows:
Substance Abuse Technologies (SAT) previously rejected the then existing
lease under authority of bankruptcy proceedings.
U.S. Drug Testing, Inc. (USDT), formerly a subsidiary of Substance Abuse
Technologies, continued occupancy of the premises at 10400 Trademark Street
under the terms of the FOURTH AMENDMENT TO INDUSTRIAL LEASE executed by the
parties in November 1997. U.S. Drug Testing, Inc. has since changed its name to
LIFEPOINT, INC. and wishes to continue occupancy of the premises at 10400
Trademark Street for an additional period of eighteen months.
Commencing October 1, 1998 and terminating on March 31, 2000, the monthly
rental for 10400 Trademark Street shall be $6,000.00 per month.
At least 90 days before the lease termination date of March 31, 2000,
LIFEPOINT shall give TRT notice of its intentation to terminate. Any holdover by
LIFEPOINT must be agreed to in writing by The Realty Trust. In the event of an
agreed holdover the lease shall continue from month to month and either party
may terminate the lease by giving the other party a 90 day written notice of
termination.
The terms and conditions of the original lease dated March 18, 1991 and its
addendum and amendments shall remain in full force and effect except that
LIFEPOINT shall occupy only the premises at 10400 Trademark Street and shall pay
only 1/2 of the total real estate taxes, insurance, landscaping and exterior
maintenance charges levied against the entire building.
This Fifth Amendment is executed in two (2) originals. One original shall be
held by the Lessor, The Realty Trust, and one original shall be held by the
Lessee, LIFEPOINT, Inc.
Dated: August 18, 1998 Dated: August 14, 1998
LIFEPOINT, INC. THE REALTY TRUST
By: /s/ Linda H. Masterson By: /s/ Simi Dabah
Linda H. Masterson, President Simi Dabah, Trustee
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December 1, 1998
Linda Masterson
President and Chief Executive Officer
LifePoint, Inc.
10400 Trademark Street
Rancho Cucamonga, CA 91730
Dear Linda:
It has been a pleasure discussing LifePoint and its partnering strategy with
you. Over the last several months and again at our meeting at Laguna Niguel, we
have been impressed with the progress LifePoint has made under your watch. This
letter proposes the structure and terms under which we would like to work with
you and the company for the next year. It includes the changes you added, and
those we have discussed. I am enclosing both a blackline and a clean copy for
your signature.
Burrill & Company is a private merchant bank investing in public and late-stage
private life sciences (primarily biotechnology) companies. Our principal
activities include partnering/strategic alliance creation, technology
acquisition, mergers, and providing strategic advice and counsel to assist
companies to maximize their value. We are one of the leaders in spin-outs and
spin-ins from pharmaceutical companies as they increasingly 'dis-integrate', and
as a result have extensive relationships in both the biotechnology and
pharmaceutical worlds.
Steve Burrill's experience reflects over 30 years of working with growing
high-tech and biotech companies. He assisted the founders of Cetus, Amgen,
Genentech, ALZA, Plant Genetics/Calgene, Collagen and over 50 others from their
inception. Over ten years ago while at Ernst & Young, he began to write the
industry's annual report on the biotechnology industry (both US and Europe),
which chronicles the industry's developments and reflects his insight into the
issues of tomorrow. Through these books, the conferences/meetings that B&C
sponsors, and the vast network Steve has developed, B&C has an unparalleled
access to biotech and pharmaceutical companies at the top levels.
Steve's experience is complemented by the B&C team:
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o Dr. David Collier, who has extensive financial and medical experience, and
is currently active in our Agbio Capital Fund.
o Dr. John Kim, who recently joined us from Goldman Sachs, where he served as
a medical device analyst.
o Todd Morrill, who has a strong business and science background, and has led
or is leading the teams for a number of the spin-outs and partnerings.
o Laura J. Vitez, who has a background in both science and business
development, most recently with the public biotechnology company Cell
Genesys, Inc.
o Dr. Roger Wyse, former Dean of the College of Agricultural and Life
Sciences at the University of Wisconsin, Madison.
Our three analysts and administrative support staff are also an important part
of our team.
The in-house B&C team is supplemented by a Business Advisory Board (BAB), a
group of former CEOs of major pharmaceutical/biotech companies and industry
luminaries, and a Scientific Advisory Board (SAB) of pre-eminent scientists and
Nobel Laureates. Both boards are available to our portfolio companies at our
semi-annual BAB/SAB meetings, and at other times as necessary.
The Business Advisory Board
o Jack Bowman was an international pharmaceutical executive with American
Cyanamid, and ran Johnson & Johnson's pharmaceutical business as Company
Group Chairman.
o Irwin Lerner and Herbert Conrad (Hoffmann-La Roche's former CEO and COO,
respectively) have experience building and running US operations of one of
the giant pharmaceutical companies.
o Fred Frank of Lehman Brothers is generally recognized as the pre-eminent
investment banker in biotechnology.
o Paul Freiman is the former Chairman and Chief Executive Officer of Syntex
Corporation and currently Chairman of both Digital Gene Technology and the
University of California, San Francisco Foundation.
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o Martin Gerstel built ALZA as its CEO, and is one of the industry's most
creative financiers and joint venture/strategic alliance strategists.
o Leigh Thompson, former Chief Scientific Officer of Eli Lilly, is an expert
in pharmaceutical and biotechnology research and development.
o John Wilkerson, who founded The Wilkerson Group, has tremendous insight as
a major pharmaceutical/biotechnology industry strategic advisor.
The Scientific Advisory Board
o Dr. Paul Berg, Cahill Professor in Cancer Research in the Department of
Biochemistry at Stanford University and Director of the Beckman Center for
Molecular and Genetic research at the Stanford University School of
Medicine. In 1980, Dr. Berg received the Nobel Prize in Chemistry for his
studies of the biochemistry of nucleic acids.
o Dr. Michael Bishop (emeritus) currently holds three posts at the University
of California, San Francisco: Professor, Microbiology and Immunology:
Director, The George Hooper Research Foundation; Professor, Biochemistry
and Physics. In 1989, Dr. Bishop received the Nobel Prize in Physiology of
Medicine. He also currently serves on the Advisory Boards for Somatix
Therapy, Terrapin Technologies, Mercator Genetics, Mitotix and Syntex.
o Dr. Sean Carroll, Investigator of the Howard Hughes Medical Institute and
Professor of Molecular Biology, Genetics and Medical Genetics at the
University of Wisconsin. He is a Director and consultant to Ophidian
Pharmaceuticals, and has also consulted for Boehringer Mannheim and Amgen.
o Dr. Eric Lander, Director of the Whitehead Institute/MIT Center for Genomic
Research and Professor of the Department of Biology at the Massachusetts
Institute of Technology. He also currently serves on the Scientific
Advisory Boards for Millennium, Affymetrix, Ribozyme Pharmaceutical,
Healthcare Ventures, Arris Pharmaceutical and the Dana-Farber Cancer
Institute.
o Dr. Keith Yamamoto currently holds three posts at the University of
California, San Francisco: Professor of Biochemistry, Department of
Biochemistry and Biophysics; Director of Biochemistry and Molecular Biology
Program; Professor and Chairman, Department of Cellular and Molecular
Pharmacology. He also serves on the Scientific Advisory Board for Tularik
Inc.
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Proposed Relationship - Purpose and Goals
We understand that LifePoint is interested in partnering its proprietary
diagnostic technology with pharmaceutical and biotech companies. The purpose of
the partnerships is to "validate" the technology, help develop
non-drugs-of-abuse applications for the device, and realize economic benefits
for LifePoint.
As we discussed, we are interested in adding LifePoint to our small 'partnering
portfolio' of biotech companies. We believe that LifePoint has the management
expertise (and will soon have the capitalization and technical/IP position) to
successfully partner, and so we would like to develop a close working
relationship with your team. We will act as LifePoint's partner in sourcing,
negotiating with, and closing partners in North America, Europe, and possibly
the Far East.
We also understand that LifePoint is willing and interested in discussing merger
or acquisition opportunities, so we will also act as your partner and agent in
sourcing and developing these opportunities. As we discussed, in the event of an
M&A transaction we will recruit one of our investment bank friends to assist
LifePoint with issues related to public-equity M&A.
We propose to source LifePoint's partners in two ways: first, by a directed
search for those companies which we believe will be interested in LifePoint's
technology, and second, by being opportunistic about interesting alternatives,
that is, thinking 'out of the box'. In our experience, our relationship is most
likely to be mutually rewarding and successful when your team is able to
evaluate both obvious and non-obvious opportunities.
Directed Search - From our experience in the biotech and pharma worlds, we know
of a number of companies selling and developing diagnostics. We will work hard
to generate interest, and bring them to the negotiating table on behalf of
LifePoint. In each case, we will provide LifePoint with preliminary information
on the company, and should you be interested in proceeding, additional in-depth
information. We will help you analyze the opportunity and negotiate terms, and
close the deal.
Opportunistic Search - In our discussions with pharmaceutical companies, biotech
firms, investment banks, venture capitalists, and other participants in
healthcare markets, we sometimes hear of companies actively seeking new
technologies or M&A opportunities. We propose to present these opportunities to
LifePoint as they arise; some will not be directly applicable to your activities
today, but many will offer you the chance to take a bold step in the development
of LifePoint.
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We would also like to offer you the chance to interact with and benefit from our
BAB and SAB. They assist us regularly and meet formally in early June and
mid-October. During those meetings, we hold one or two slots for our portfolio
companies to meet with them, and benefit from their collective wisdom and
experience. We believe that our BAB/SAB represents an incredible surrogate
'Board of Directors' which will complement LifePoint's BOD and senior management
talent.
Proposed Relationship - Timeline
We would like to structure the compensation in our relationship so as to give
both sides incentive to think clearly and quickly about the opportunities as
they arise. Also, our goal is to provide significant value to LifePoint in the
form of 'doable' partnerships within the first months of our relationship, with
completion of more than one deal within a year.
The process we propose will involve four phases. We are basing the time
estimates on a December 1 start for the project.
Phase I
During the initial phase of the project, we will develop a list of potential
partners who have a strategic interest in LifePoint's technology. We will use
our knowledge of the industry, certain search algorithms, and any targets
already identified by LifePoint to build the list of potential partners. We will
use our contacts, plus those of our BAB, SAB and Agbio board, to reach the
decision makers (usually the CEO level) at each potential partner.
While we build the list, we will work with you to prepare the documentation
needed to support the initial solicitation, namely an Executive Summary, which
is a non-confidential document that describes the product and the proposed
transaction and a more detailed Descriptive Memorandum (DM). The Descriptive
Memorandum is likely to include a market analysis of the product opportunity,
technical, clinical, and medical descriptions of the product, and a business
overview. We expect to work closely with LifePoint at each step, and will visit
your site one or more times to discuss strategy and technical details.
While the DM is being finalized, the potential partners will be contacted to
begin the process and to assess their likely level of interest. The Executive
Summary, a cover letter, and a confidentiality agreement (CDA) will be sent to
each interested prospect. We anticipate that Phase I can be completed within 45
days of project initiation.
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Phase II
The second phase of the project involves intensive follow-up with prospects.
Through conversations with the prospective suitors, we will continue to assess
their specific interest in the transaction, and we will encourage those with a
strong interest to sign the CDA. Upon receipt of a signed CDA, we will forward
the DM to each interested party and inform them of the timeline for the process.
We estimate that Phase II will be completed by within 30 days of the end of
Phase I.
Phase III
Each recipient will have a period of about 30 days to digest the DM. During this
period, we will solicit Preliminary Indications of Interest (PIOIs), which will
be used to screen suitors, and determine which will be granted the opportunity
to perform additional due diligence at LifePoint. We will work with LifePoint
management to schedule appropriate visits for due diligence and partnering
discussions.
We estimate that Phase III will require 45 to 60 days from the completion of
Phase II.
Phase IV
Burrill & Company will be responsible for coordinating all contact with partners
including coordinating due diligence meetings with LifePoint and responding to
additional questions which may arise, and in collaboration with you, negotiating
final terms with one or more partners. We hope to secure a number of potential
partner meetings over the 30 to 90 days required for Phase III. We expect to be
at the term-sheet stage with one or more partners by the end of Phase IV. Final
negotiations and drafting the contract will take a few weeks, at which the point
the deal can be signed and approved.
During each of the phases of the process, we will keep LifePoint abreast of
developments and progress by periodic updates, at least monthly.
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roposed Relationship - Compensation Structure
We suggest that B&C's compensation reflect the growing and intensifying
relationship that will develop between our team and yours. Arguably, the
greatest value for all of us will occur upon completion of a transaction, but
clearly we all will be working very hard and putting ourselves at considerable
risk before the close. Therefore, we propose:
o A project initiation fee of $10,000 per month payable upon our engagement,
and a retainer of $10,000 per month payable on the first day of each month
starting December 1, 1998.
o 500,000 options for LifePoint stock, granted on initiation of the project,
half vesting pro-rata over 12 months, half vesting upon completion of a
partnership. The option strike price will be the lower of LifePoint's
average closing stock price for the 20 trading days preceding the signing
of this letter, and the average closing stock price for the 20 trading days
preceding announcement of a partnership.
o A success fee equal to 10% of the first $1M of value received by LifePoint
of any transaction we source and/or are active participants in, 7.5% of the
next $4M of value and 7% of any value in excess of $5M. (The 'deal value'
will be agreed upon jointly by LifePoint and Burrill & Company when
external valuations are not available). The success fee is 20% payable in
cash or unrestricted, registered stock, the rest in the 'currency of the
transaction'.
The milestone fees help us defray costs, but we feel do not 'pay for' our
efforts other than nominally. After we have a good working relationship, the
options provide us the opportunity to benefit from value we build at LifePoint
without putting the company at any cash risk. The success fee provides the bulk
of our compensation when the deal is done; we take it in the 'currency' used in
the transaction, but need to reserve the right to take 20% in a negotiable
currency. The cash is simply a way for us to pay taxes.
In addition, we will expect reimbursement of reasonable expenses incurred when
on LifePoint business, indemnification by you for activities undertaken on your
behalf (indemnification language attached), and a 18 month 'tail' on
opportunities we are involved in or bring to your attention.
We propose to start the process immediately. We suggest regular project reviews,
in which as a team we formally evaluate each of the opportunities we have
surfaced. Finally, either side may terminate the agreement at any time, with 30
days written notice.
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Summary
We are looking forward to getting started with the formal relationship, and so
hope that you find the terms of this letter acceptable. With your signature
below, we can bring you several opportunities immediately.
Best regards,
G. Steven Burrill Todd Morrill
Read and Agreed:
Date
Linda Masterson
President and Chief Executive Officer
Enclosures:
Exhibit A: Indemnification
Exhibit B: LifePoint Rider to Burrill & Company Proposal
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Exhibit A
Indemnification Agreement
In connection with the services that Burrill & Company ('B&Co.') has agreed
to render hereunder, LifePoint hereby agrees to indemnify and hold harmless
B&Co. and its controlling persons, directors, officers, employees, agents and
affiliates (each an 'indemnified person'), to the full extent lawful, from and
against all losses, claims, damages, liabilities and expenses incurred by them
(including fees and disbursements of counsel, but excluding any lost profits or
consequential damages of any kind) suffered or alleged to have been suffered by
B&Co. or any other indemnified person that (a) are related to or arise out of
(i) actions taken or omitted to be taken (including any material untrue
statements made or any statements omitted to be made) by LifePoint or (ii)
actions taken or omitted to be taken by an indemnified person with the consent,
or upon the instructions, of LifePoint or (b) are otherwise related to or arise
out of B&Co.'s activities hereunder, and LifePoint will reimburse B&Co. and any
other indemnified person for all expenses (including reasonable fees and
disbursements of counsel) as they are incurred by B&Co. or such other
indemnified person in connection with investigating, preparing or defending any
such action or claim, whether or not in connection with pending or threatened
litigation in which B&Co. or such other indemnified person is a party. LifePoint
will not be responsible, however, for any losses, claims, damages, liabilities
or expenses pursuant to clause (b) of the preceding sentence that are finally
judicially determined to have resulted primarily from the gross negligence or
willful misconduct of B&Co. or of the other person seeking indemnification
hereunder. Neither B&Co., nor any of its controlling persons, directors,
officers, employees, agents and affiliates, shall have any liability to
LifePoint in connection herewith except for such liability for losses, claims,
damages, liabilities or expenses incurred by LifePoint as is finally judicially
determined to have resulted primarily from B&Co.'s gross negligence or willful
misconduct; provided that in no event will B&Co. have any liability to LifePoint
hereunder in excess of the aggregate amount of consideration received by B&Co.
from LifePoint hereunder. LifePoint further agrees that it will not, without the
prior written consent of B&Co., settle or compromise or consent to the entry of
any judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not B&Co.
or any other indemnified person is an actual or potential party to such claim,
action, suit or proceeding) unless such settlement, compromise or consent
includes an unconditional release of B&Co. and each other indemnified person
from all liability arising out of such claim, action, suit or proceeding except
for any liability to LifePoint for the gross negligence or willful misconduct of
B&C or the other identified person.
Promptly after receipt by an indemnified person of notice of any complaint
or the commencement of any action or proceeding with respect to which
indemnification is being sought hereunder, such person will notify LifePoint in
writing of such complaint or of the commencement of such action or proceeding,
but failure to so notify LifePoint will not relieve LifePoint from any liability
that it may have hereunder or otherwise, except to the extent that such failure
materially prejudices LifePoint's rights or its ability to defend against such
complaint, action or proceeding. If LifePoint so elects or is requested by such
indemnified person, LifePoint will assume the defense of such action or
proceeding, including the employment of counsel (which may be counsel to
LifePoint) reasonably satisfactory to B&Co. and the payment of the fees and
disbursements of such counsel. In the event, however, such indemnified person
reasonably determines in its judgment that having common counsel would present
such counsel with a conflict of interest, or if LifePoint fails to assume the
defense of the action or proceeding in a timely manner, then such indemnified
person may employ separate counsel to represent or defend it in any such action
or proceeding and LifePoint will pay the reasonable fees and disbursements of
such counsel; provided, however, that LifePoint will not be required to pay the
fees and disbursements of more than one separate counsel for all indemnified
persons in any jurisdiction in any single action or proceeding. In any action or
proceeding the defense of which is assumed by LifePoint, any indemnified person
will have the right to participate in such litigation and to retain its own
counsel at such indemnified person's own expense.
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LifePoint agrees that if any indemnification sought hereunder by an
indemnified person in connection with a transaction is held by a court to be
unavailable for any reason other than as specified in the second sentence of the
first paragraph of this Exhibit A, then (whether or not B&Co. is the indemnified
person), LifePoint and B&Co. will contribute to the losses, claims, damages,
liabilities and expenses for which such indemnification is held unavailable in
such proportion as is appropriate to reflect (a) the relative benefits to
LifePoint, on the one hand, and B&Co., on the other hand, in connection with
such transaction, (b) the relative fault of LifePoint, on the one hand, and
B&Co., on the other hand, in connection therewith and (c) any relevant equitable
considerations; provided, however, that in any event B&Co.'s aggregate
contribution to all losses, claims, damages, liabilities and expenses in
connection with a transaction will not exceed the value of compensation actually
received by B&Co. from LifePoint in connection with such transaction. It is
hereby agreed that the relative benefits to LifePoint, on the one hand, and
B&Co., on the other hand, with respect to B&Co.'s engagement in connection with
a transaction shall be deemed to be in the same proportion as (a) the total
value paid or proposed to be paid in such transaction bears to (b) the value of
the compensation paid or proposed to be paid to B&Co. in connection with such
transaction.
The indemnity, reimbursement and contribution obligations under this Letter
Agreement shall be in addition to any rights that B&Co. or any other indemnified
person may have at common law or otherwise. LifePoint and B&Co. hereby agree, to
the extent permitted by applicable law, to waive any right to trial by jury with
respect to any claim, counter-claim or action arising out of the engagement or
the transactions contemplated hereby.
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EXHIBIT B
LIFEPOINT INC. RIDER TO BURRILL & CO. PROPOSAL
1. Compensation
B&C shall receive as compensation for its services hereunder the following:
(a) LifePoint will pay B&C a project initiation fee of $10,000 within five
business days after the execution of this Agreement by LifePoint.
(b) During the term of this Agreement, LifePoint will pay B&C a monthly
retainer of $10,000, starting December 1, 1998.
(c) LifePoint will issue to B&C, within five business days after the execution
of this Agreement by LifePoint, a Common Stock purchase warrant expiring
November 30, 2003 (the 'First Warrant') to purchase 250,000 shares of
LifePoint's Common Stock, $.001 par value (the 'Common Stock'), at an
exercise price per share equal to the average of the closing sales prices
of the Common Stock during the twenty trading days preceding the date of
execution by LifePoint of this Agreement. The First Warrant shall become
exercisable, on a cumulative basis, as to 20,830 shares of the Common Stock
subject thereto on the first day of each month, commencing December 1,
1998, for a period of 12 months, ending November 1, 1999, for a total of
250,000 shares of the Common Stock.
(d) LifePoint will issue to B&C, within five business days after the
consummation of a partnership arrangement with, or the acquisition of
LifePoint, whether through a merger or otherwise, by, a third party
introduced to LifePoint by B&C pursuant to this Agreement, a Common Stock
purchase warrant expiring five years from the date of consummation of such
partnering arrangement or acquisition (the 'Second Warrant') to purchase
250,000 shares of the Common Stock at an exercise price per share equal to
the lower of the average of the closing sales prices of the Common Stock
during the twenty trading days preceding the date of execution by LifePoint
of this Agreement or the average of the closing sales prices of the Common
Stock during the twenty trading days preceding the public announcement by
LifePoint of the consummation of such a partnership arrangement or
acquisition. The Second Warrant shall become exercisable on the
consummation of a partnership agreement with, or the acquisition of
LifePoint, whether through merger or otherwise, by a third party introduced
to LifePoint by B&C Pursuant to this Agreement.
(e) In the event that during the term of this Agreement, a partnership
arrangement between LifePoint and a third party introduced by B&C to
LifePoint is consummated, or in the event that LifePoint is acquired,
whether through a merger or otherwise, by such a third party, LifePoint
will, not later than ten business days after any such consummation, pay to
B&C an additional fee (the 'Success Fee') equal to (i) 10% of the first
$1,000,000 of value received by LifePoint from the transaction as to which
B&C was the source, (ii) 7.5% of the next $4,000,000 of value and (iii) 7%
of any value in excess of $5,000,000. In the event that the value of the
transaction is not readily ascertainable from external sources, the value
shall be mutually determined by LifePoint and B&C or, if they cannot agree
on a value, by arbitration in Los Angeles, California in accordance with
the rules of the American Arbitration Association. LifePoint shall pay to
B&C 20% of the Success Fee in cash, and the remaining 80% in the 'currency
of the transaction'; however, under no circumstances shall LifePoint pay to
B&C more than 20% of the cash LifePoint receives from a partnership. Any
Success Fee payable to B&C in excess of 20% of the cash LifePoint receives
(up to 20% of the value received by LifePoint) shall be paid in a
negotiable currency mutually agreed to by B&C and LifePoint. If the Success
Fee is paid in shares of the Common Stock, LifePoint will promptly file a
registration statement under the Securities Act of 1933, as amended (the
'Securities Act'), with respect to such shares and shall use its best
efforts to have such registration statement declared effective as soon
thereafter as practicable. If the 'currency of the transaction' is
securities of an issue other than LifePoint which are not registered under
the Securities Act, B&C will deliver such investment representation as is
appropriate under the Securities Act to permit a transfer thereof in
payment of the Success Fee and LifePoint shall use its best efforts to
arrange for B&C to be included in any registration commitment which it
obtains from the issuer of such securities.
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(f) In the event that no partnership arrangement with, or acquisition of,
LifePoint is consummated prior to the termination of this Agreement through
the efforts of B&C and thereafter, within one year after the date of
termination, such a transaction is consummated with a third party
introduced by B&C to LifePoint, LifePoint shall be obligated to pay to B&C
the Success Fee as provided in subsection (d) hereof as if the transaction
had been consummated prior to the termination of this Agreement. In
addition, the Second Warrant shall be issued as to the additional 250,000
shares of the Common Stock and the expiration date and the exercise price
of the Second Warrant shall be determined in the same manner as provided in
subsection (d) hereof as if this Agreement had not terminated.
(g) LifePoint will reimburse B&C for its reasonable expenses incurred during
the term of this Agreement while performing services for LifePoint,
provided that the expenses are appropriately documented and submitted to
LifePoint by B&C.
2. Term
The term of this Agreement shall commence on the date of execution by LifePoint
and shall terminate at the end of twelve months (one year) unless sooner
terminated by either LifePoint or B&C upon 30 days' prior written notice to the
other and with or without cause. The term of this Agreement shall continue on a
month-to-month basis after December 1, 1999 unless either party terminates as
provided in the preceding sentence.
LifePoint reserves the right, in its sole and absolute discretion, to accept or
reject any proposed partner submitted by B&C.
3. Confidentiality
B&C and its respective officers, directors, employees, agents, and
representatives will hold in strict confidence all information obtained from
LifePoint and its officers, directors, agents or representatives and will use
such information only for the purposes of securing a partner for LifePoint in
accordance with the terms of this Agreement. At the request of LifePoint, B&C
will promptly return to LifePoint all documents obtained from LifePoint and its
officers, directors, employees, agents and representatives or destroy the same,
except any such information or documents which (a) is or are in the public
domain,(b) was or were in fact lawfully known or lawfully furnished to B&C prior
to disclosure to B&C by LifePoint or its officers, directors, employees, agents
or representatives, or (c) was or were lawfully disclosed pr furnished to B&C by
a third party (other than the officers, directors, employees, agents and
representatives of LifePoint) after disclosure to B&C by LifePoint. B&C shall
obtain a similar confidentiality commitment from any prospective partner to
which it intends to submit information or documents.
E-29
<PAGE>
4. Miscellaneous
B&C is an independent contractor and shall have no authority to act for or on
behalf of LifePoint or to bind LifePoint to any obligation whatsoever. B&C shall
not hold itself out as the agent for LifePoint or purport to bind LifePoint to
any obligation without LifePoint's express approval.
This Agreement constitutes the entire agreement between LifePoint and B&C, and
it may not be modified except in writing signed by all parties hereto. This
Agreement shall be governed by, and construed in accordance with, the laws of
the State of California.
Agreed to and accepted:
Linda H. Masterson G. Steven Burrill
President and CEO President
LifePoint, Inc. Burrill & Co.
E-30
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<FISCAL-YEAR-END> Mar-31-1998
<PERIOD-START> Oct-01-1998
<PERIOD-END> Dec-31-1998
<PERIOD-TYPE> 3-mos
<CASH> 322,591
<SECURITIES> 0
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<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 512,091
<PP&E> 935,622
<DEPRECIATION> 763,879
<TOTAL-ASSETS> 736,865
<CURRENT-LIABILITIES> 890,361
<BONDS> 0
0
0
<COMMON> 11,779
<OTHER-SE> 13,621,270
<TOTAL-LIABILITY-AND-EQUITY> 736,865
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
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<OTHER-EXPENSES> 821,731
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<CHANGES> 0
<NET-INCOME> (816,880)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.05)
</TABLE>
