<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1997
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from _________ to _________
COMMISSION FILE NUMBER 0-20871
SELFCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-3164127
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 PROSPECT STREET
WALTHAM, MASSACHUSETTS 02154
(Address of principal executive offices)
(617) 647-3900
(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.
YES [X] NO [ ]
The number of shares outstanding of the registrant's Common Stock as of
October 27, 1997 was 8,469,616.
Transitional Small Business Disclosure Format (check one):
YES [ ] NO [X]
<PAGE> 2
SELFCARE, INC.
FORM 10-QSB
For the Quarterly Period Ended September 30, 1997
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Factors that might cause such
a difference are discussed in the section entitled "Certain Factors Affecting
Future Operating Results" on page 18 of this Form 10-QSB.
TABLE OF CONTENTS
PAGE
----
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements:
a) Consolidated Statement of Operations for the three
months ended September 30, 1997 and 1996 and the
nine months ended September 30, 1997 and 1996. 3
b) Consolidated Balance Sheets as of September 30,
1997 and December 31, 1996 4
c) Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 5
d) Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 15
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 2. Changes in Securities 20
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net product sales $ 13,287,047 $ 3,044,900 $ 34,382,465 $ 7,856,775
Grants and other revenue 336,366 755,589 1,011,939 1,241,242
------------ ------------ ------------ ------------
Net revenues 13,623,413 3,800,489 35,394,404 9,098,017
Cost of sales 6,640,776 2,872,666 17,702,639 6,477,303
------------ ------------ ------------ ------------
Gross profit 6,982,637 927,823 17,691,765 2,620,714
Operating Expenses:
Research and development 4,566,665 1,630,716 11,945,504 4,161,445
Charge for in-process research and
development (Note 4) 1,794,100 -- 3,072,300 --
Selling, general and administrative 6,712,950 2,445,886 17,414,334 6,241,131
Noncash compensation charge (Note 4) 37,629 819,214 112,887 4,184,697
------------ ------------ ------------ ------------
Total operating expenses 13,111,344 4,895,816 32,545,025 14,587,273
------------ ------------ ------------ ------------
Operating loss (6,128,707) (3,967,993) (14,853,260) (11,966,559)
------------ ------------ ------------ ------------
Interest expense, including noncash
interest expense relating to
issuance of warrants (Note 4) (1,544,001) (8,660,132) (3,273,642) (14,348,681)
Interest income 203,447 146,049 608,461 269,515
Equity in net loss of affiliate (430,000) -- (430,000) --
Unrealized loss on foreign currency
translation -- -- (716,601) --
Other income (expense) 23,148 -- (12,236) --
------------ ------------ ------------ ------------
Loss before dividends and accretion
on preferred stock of a subsidiary (7,876,113) (12,482,076) (18,677,278) (26,045,725)
Minority interest in subsidiaries' income 14,516 -- 144,936 --
Dividends and accretion on mandatorily
redeemable preferred stock of
a subsidiary (28,037) (35,087) (85,026) (81,188)
------------ ------------ ------------ ------------
Net loss $ (7,889,634) $(12,517,163) $(18,617,368) $(26,126,913)
------------ ------------ ------------ ------------
Net loss per common and
common equivalent share $ (1.08) $ (2.13) $ (2.57) $ (4.25)
------------ ------------ ------------ ------------
Weighted average number of common
and common equivalent shares outstanding 8,432,963 5,868,598 7,759,370 6,146,821
------------ ------------ ------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
3
<PAGE> 4
SELFCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 12,560,536 $ 16,458,654
Accounts receivable, net of allowance for doubtful
Accounts of $834,000 in 1997 and $316,000 in 1996 7,357,376 5,478,814
Inventories (Note 3) 4,342,816 2,266,234
Loan to supplier 5,000,000 --
Prepaid expenses and other current assets 1,971,592 1,034,260
------------ ------------
Total current assets 31,232,320 25,237,962
PROPERTY AND EQUIPMENT, NET 10,318,622 7,858,885
INVESTMENTS IN AFFILIATED COMPANIES 3,302,609 3,732,609
TRADEMARKS, NET 21,184,533 --
GOODWILL AND OTHER INTANGIBLE ASSETS, NET 22,152,157 3,741,171
OTHER ASSETS 2,885,651 518,825
------------ ------------
Total assets $ 91,075,892 $ 41,089,452
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term bank debt $ 2,967,566 $ 1,337,000
Notes payable 9,105,184 --
Accounts payable 5,323,101 4,991,543
Accrued expenses and other current liabilities 7,367,040 5,826,952
Loan from customer 5,000,000 --
Current portion of long-term debt 7,347,263 1,599,851
Current portion of deferred revenue 1,999,848 1,619,152
------------ ------------
Total current liabilities 39,110,002 15,374,498
LONG-TERM LIABILITIES:
Deferred revenue, net of current portion 3,206,287 4,786,347
Long-term debt, net of current portion 28,295,534 5,895,701
------------ ------------
Total long-term liabilities 31,501,821 10,682,048
COMMITMENTS AND CONTINGENCIES (NOTES 6 THROUGH 13)
MINORITY INTEREST IN SUBSIDIARIES 166,419 1,199,684
------------ ------------
MANDATORILY REDEEMABLE PREFERRED STOCK OF SUBSIDIARY 1,838,954 1,753,928
------------ ------------
REDEEMABLE CONVERTIBLE PREFERRED STOCK 8,883,000 --
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock
Authorized - 5,000,000 shares
Issued and outstanding - 400 in 1997 and 5,200 in 1996 -- 5
Common stock, $.001 par value -
Authorized - 40,000,000 shares
Issued and outstanding - 8,481,216 and 5,975,263
shares in 1997 and 1996 respectively 8,481 5,975
Additional paid-in capital 73,019,168 55,233,847
Deferred compensation (6,863) --
Less-Treasury stock, at cost, 32,197 shares in 1997 and
15,600 in 1996 respectively (211,460) (15,200)
Accumulated deficit (63,228,136) (43,318,898)
Cumulative translation adjustment (5,494) 173,565
------------ ------------
Total stockholders' equity 9,575,696 12,079,294
------------ ------------
Total liabilities and stockholders' equity $ 91,075,892 $ 41,089,452
------------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
4
<PAGE> 5
SELFCARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net loss $(18,617,368) $(26,126,913)
Adjustments to reconcile net loss to net cash used
in operating activities:
Dividends and accretion on preferred stock
of a subsidiary 85,026 81,188
Noncash interest expense related to issuance
of warrants -- 14,095,584
Compensation expense related to issuance of
common stock options 20,589 944,697
Compensation expense related to common stock options
issued to the Company's chief executive officer -- 3,240,000
Noncash in process research and development expense 3,072,300 --
Amortization of deferred revenue (1,046,907) (1,081,604)
Depreciation and amortization 3,814,881 647,018
Gain on sale of fixed assets (4,180) --
Equity in net loss of affiliate 430,000 --
Minority interest in subsidiaries' income (159,213) --
Changes in assets and liabilities:
Accounts receivable (2,291,203) (905,904)
Inventory (2,096,825) (175,926)
Prepaid and other current assets (554,351) (51,243)
Accounts payable 1,336,572 875,709
Accrued expenses and other current liabilities 1,303,371 1,306,253
------------ ------------
Net cash used in operating activities (14,707,308) (7,151,141)
------------ ------------
Cash Flows From Investing Activities:
Purchases of property and equipment (4,483,817) (2,802,269)
Cash paid for purchase of nutritional supplement brands (37,067,579) --
Cash paid for license from ChemTrak (333,000) --
Cash paid for investment in Orgenics Ltd. (9,134,252) --
(Increase) decrease in other assets (323,426) --
------------ ------------
Net cash used in investing activities (51,342,074) (2,802,269)
------------ ------------
Cash Flows From Financing Activities:
(Increase) decrease in restricted cash (927) (243,825)
Net proceeds from issuance of common stock 17,380,032 10,364,928
Net proceeds from issuance of preferred stock 7,600,000 --
Purchase of treasury stock (196,260) --
Net proceeds from issuance of notes payable 14,533,273 6,693,548
Repayments of notes payable (1,847,760) --
Net proceeds from borrowing under short-term bank debt 6,165,045 --
Net proceeds from borrowing under long-term bank debt 25,908,558 --
Repayments of long-term debt (2,378,224) --
Repayment of short-term debt (5,000,000) --
Cash loaned to Enviromed plc (572,105) --
Proceeds from receipt of capital grant -- 286,525
Principal repayments on capital lease obligations -- (11,070)
------------ ------------
Net cash provided by financing activities 61,591,632 17,090,106
------------ ------------
Foreign Exchange Effect on Cash and Cash Equivalents 559,632 (18,732)
Net Increase (Decrease) in Cash and Cash Equivalents (3,898,118) 7,117,964
Cash and Cash Equivalents, beginning of year 16,458,654 7,394,750
------------ ------------
Cash and Cash Equivalents, end of period $ 12,560,536 $ 14,512,714
------------ ------------
Supplemental Disclosures of Cash Flow Information:
Cash paid for-
Interest $ 2,042,396 $ 234,611
Income taxes $ 5,000 $ 16,689
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
5
<PAGE> 6
SELFCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) BASIS OF PRESENTATION OF FINANCIAL INFORMATION
The accompanying consolidated financial statements of Selfcare, Inc. and
its subsidiaries (the "Company" or "Selfcare") are condensed and unaudited. In
the opinion of management, the unaudited, condensed, consolidated financial
statements contain all adjustments considered normal and recurring necessary for
their fair presentation. Interim results are not necessarily indicative of
results to be expected for the year. These interim financial statements have
been prepared in accordance with the instructions for Form 10-QSB and therefore
do not include all information and footnotes necessary for a complete
presentation of operations, financial position, and cash flows of the Company,
in conformity with generally accepted accounting principles. The Company filed
audited consolidated financial statements which included information and
footnotes necessary for such presentation for the year ended December 31, 1996
on Form 10-KSB/A. These unaudited consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and
related notes for the period ended December 31, 1996 included on Form 10-KSB/A
filed with the Securities and Exchange Commission.
Net loss per common and common equivalent share is based on the weighted
average number of shares of Common Stock and Common Stock equivalents
outstanding during the period. Common Stock equivalents (certain stock options,
warrants and convertible preferred stock) for all periods have not been
included, as their inclusion would be antidilutive. The Financial Accounting
Standards Board has released Statement of Financial Accounting Standard ("SFAS")
No. 128, "Earnings per Share", which the Company will adopt for the year ended
December 31, 1997. The Company does not expect the adoption of SFAS No. 128 to
have a material affect on the Company's reported earnings per share.
2) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid cash investments with maturities of
three months or less at the date of acquisition to be cash equivalents. At
September 30, 1997, the Company's cash equivalents consisted of repurchase
agreements and money market funds. The Company follows the provisions of SFAS
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"; all
of the Company's cash equivalents are classified as held to maturity and carried
at amortized cost.
3) INVENTORY
Inventory is comprised of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials $2,516,865 $1,363,168
Work in-process 240,643 272,466
Finished goods 1,585,308 630,600
---------- ----------
$4,342,816 $2,266,234
---------- ----------
</TABLE>
4) NON RECURRING, NON-CASH EXPENSES
The company recognized expense of $1,794,100 and $3,072,300 for the three-
and nine-month periods ended September 30, 1997, respectively for in-process
research and development related to the acquisition of Orgenics, Ltd. ("Orgenics
acquisition") (see Note 7). The allocation of a portion of the purchase price to
in-process research and development represents the applicable pro-rata portion
of its appraised value of $7,700,000. There were no charges related to the
acquisition in the three- or nine-month periods ended September 30, 1996. Upon
completion of the Orgenics acquisition, the Company anticipates it will allocate
an additional $231,000 to in-process research and development.
6
<PAGE> 7
On August 15, 1995, the Company entered into a stock option agreement (the
"Agreement") with Ron Zwanziger, the Chief Executive Officer ("CEO") of the
Company. Under the Agreement, the CEO received an option to acquire 520,000
shares of the Company's common stock, par value $.001 per share (the "Common
Stock"). The stock option vested and became exercisable upon the completion of
the Company's initial public offering on August 9, 1996. The exercise price of
the option is $2.27 per share of Common Stock. For the nine months ended
September 30, 1996, the non-cash compensation expense related to this stock
option was $3,240,000.
For the nine months ended September 30, 1996, the Company also recognized a
non-cash compensation expense of $680,000 related to stock options granted to
employees that were contingent on certain goals which have been met and a
non-cash compensation expense of $77,000 related to stock options given to
consultants. The stock options were adjusted to their fair market value based on
SFAS No. 123, Accounting for Stock-based Compensation. The remaining $63,000 and
$188,000 of non-cash compensation expense for the three and nine months ended
September 30, 1996, respectively, relates to the amortization of deferred
compensation pertaining to the grant of certain stock options to employees. For
the three and nine months ended September 30, 1997, the amortization of deferred
compensation pertaining to the grant of certain stock options was $38,000 and
$113,000, respectively.
In 1995, the Company issued notes payable (the "Cambridge Diagnostics
Notes") and common stock warrants (the "Cambridge Diagnostics Warrants") to
individual investors for gross proceeds of $3,030,000. Of this amount,
$3,000,000 relates to the Cambridge Diagnostics Notes, which bear interest at
10% and are due on March 31, 1998. The remaining $30,000 represents amounts paid
to the Company in exchange for warrants to purchase shares of Common Stock. The
number of Cambridge Diagnostics Warrants is calculated as 69% of the net sales
of Cambridge Diagnostics for the fiscal year preceding the repayment of the
Cambridge Diagnostics Notes divided by $32.87. The Company would have issued
1,142,635 shares of the Company's Common Stock based on net sales of Cambridge
Diagnostics for 1995, if the notes were repaid prior to December 31, 1996.
In December 1996, the Company entered into agreements with substantially
all the principal holders of the Cambridge Diagnostics Notes, pursuant to which
such holders agreed to defer repayment of the principal amount of their notes
until January 15, 1998 and to cancel the Cambridge Diagnostics Warrants and in
turn the Company effectively fixed the ultimate number of shares of the
Company's Common Stock to be issued at 1,142,635, of which 314,222 will be
exercisable by certain directors and officers of the Company; 990,050 of the
shares of Common Stock will be issued for no additional consideration upon the
earlier of January 15, 2000 or the date on which a change in control of the
Company occurs. As consideration for the foregoing, the Company agreed to issue
five-year warrants to purchase an aggregate of 54,090 shares of Common Stock
that are fully exercisable at an exercise price of $12.875 (fair market value as
of grant dated) to such holders, of which 14,999 will be exercisable by certain
directors and officers of the Company. In the three months ended June 30, 1996,
the Company recognized $8.6 million of non-cash interest expense relating to the
Cambridge Diagnostics Warrants. The charge relates to the increase in the fair
market value of the related equity as compared to the estimated fair market
value at June 30, 1996. For the nine months ended September 30, 1996, the net
non-cash interest expense relating to the aforementioned warrants was $14.1
million. There were no charges for the three and nine months ended September 30,
1997 since the number of shares to be issued was fixed.
5) PUBLIC OFFERINGS OF COMMON STOCK
In connection with the Company's initial public offering, on August 6,
1996, the Common Stock began trading on the American Stock Exchange ("AMEX").
The Company sold 1,495,000 shares and received net proceeds of approximately
$10.4 million.
In March 1997, the Company sold 1,800,000 shares of Common Stock in a
public offering (the "March 1997 Offering"). The total net proceeds from the
March 1997 Offering were approximately $16.2 million.
6) NUTRITIONAL SUPPLEMENT LINES ACQUISITION
On February 19, 1997, a newly formed subsidiary of the Company (the
"Acquisition Subsidiary") acquired the U.S. rights to several nutritional
supplement product lines (the "Nutritional Supplement Lines" and the
"Nutritional Supplement Lines Acquisition") from American Home Products ("AHP").
As consideration for the Nutritional Supplement Lines, the Acquisition
Subsidiary paid to AHP $30.0 million in cash and the Company issued to AHP a
$6.0 million promissory note (the "AHP Note"). The total cost of approximately
$37.1 million, including acquisition expenses, was allocated to trademarks
($21.6 million) and goodwill ($15.5 million), each of which will be amortized
over their useful lives of 25 years. The Company funded the cash portion of the
purchase price with a credit facility (the "Acquisition Facility") consisting of
a $25.0 million term loan (the "AHP Term Loan") and a $5.0 million bridge loan
(the "AHP Bridge Loan") made to the Acquisition Subsidiary by Fleet National
Bank ("Fleet"). The AHP Bridge Loan was repaid June 4, 1997. The AHP Note is due
on February 19, 1998, the first anniversary of the Nutritional Supplement Lines
Acquisition, and bears interest payable quarterly at the rate of 7.0% per annum.
7
<PAGE> 8
The AHP Term Loan has a five-year term, with quarterly amortization of
principal at annual rates ranging from $3.0 million to $5.0 million, and a $6.25
million balloon payment at maturity. In addition to this amortization schedule,
the Acquisition Subsidiary is required to make mandatory prepayments of the AHP
Term Loan at the end of each fiscal year, in an amount equal to 50% of the
excess of (i) its earnings before interest, taxes, depreciation and amortization
("EBITDA") for such fiscal year over (ii) principal payments on the AHP Term
Loan, cash interest and tax expense, capital expenditures and any change in
working capital. These prepayments would be applied in the inverse order of the
established amortization schedule. The AHP Term Loan, at the Company's election,
bears interest at an annual floating rate equal to either LIBOR plus two
percent, or Fleet's Prime Rate. The Company may prepay the AHP Note at any time.
In connection with the Acquisition Facility, the Acquisition Subsidiary
obtained from Fleet a $5.0 million revolving credit line (the "Credit Line").
The Credit Line, at the Company's election, bears interest at an annual floating
rate equal to LIBOR plus 1.75 percent or Fleet's Prime Rate and matures in three
years. The Company has a limited number of LIBOR rate options for the AHP Term
Loan and the Credit Line. Each LIBOR rate option must be exercised for a period
between one month and 12 months and must cover a minimum of $1.0 million of the
loan. The AHP Term Loan and the Credit Line are secured by a first priority lien
on all the Acquisition Subsidiary's assets and are guaranteed by the Company,
which guaranty is secured by a first priority lien on substantially all the
Company's U.S. assets.
The AHP Term Loan and the Credit Line impose certain financial covenants on
the Acquisition Subsidiary, including (i) requirements to maintain certain
minimum EBITDA levels of $2.3 million per quarter beginning with the quarter
ending June 30, 1998 and $2.475 million per quarter beginning with the quarter
ended June 30, 1999 and not to exceed certain ratios of total indebtedness to
EBITDA, beginning with the quarter ended December 31, 1997, at which time the
ratio of total indebtedness to EBITDA cannot exceed 3.75 to 1, (ii) limits on
capital expenditures of $250,000 per year, (iii) a requirement to maintain a
ratio of EBITDA to fixed charges of not less than 1.25 for any quarter beginning
with the quarter ending March 31, 1998, and (iv) a requirement of a positive net
income for every quarter. The Acquisition Subsidiary has also agreed to
restrictions on (x) acquisitions, mergers or joint ventures without Fleet's
consent, (y) material asset sales and other payments, and (z) dividends and
distributions. Further, the Company, as guarantor of the Acquisition
Subsidiary's debt under the AHP Term Loan and the Credit Line, is subject to a
limited number of covenants, none of which are financial maintenance covenants,
including a requirement to provide Fleet with periodic financial statements and
other information and a prohibition on the Company having other liens on its
U.S. assets. The Company also will be limited in its ability to receive
dividends and distributions from the Acquisition Subsidiary. In addition, an
event of default shall be deemed to have occurred under the AHP Term Loan and
the Credit Line if any three of Ron Zwanziger, Kenneth D. Legg, Richard A.
Pinkowitz, Anthony H. Hall and Gary E. Long cease to be employed by the Company
or the Acquisition Subsidiary in positions comparable to their current
positions. Messrs. Zwanziger, Legg, Pinkowitz, and Hall are officers of the
Company. Mr. Long joined the Company in February 1997 and has the responsibility
for the operation of the Nutritional Supplement Lines business. In addition, the
Acquisition Subsidiary was required, at the time of the closing of the
Acquisition Facility, to have a proforma capital base of at least $9.5 million.
The Company and the Acquisition Subsidiary have paid fees and expenses totaling
approximately $1.4 million in connection with the Acquisition Facility and the
Credit Line. As of the date hereof, the Acquisition Subsidiary has not drawn
down on the Credit Line.
7) ACQUISITION OF ORGENICS
On December 23, 1995, the Company and Orgenics Ltd. ("Orgenics") entered
into an Investment and Loan Agreement whereby the Company purchased a
$1,000,000, 18-month, unsecured, interest-bearing debenture that is convertible
into redeemable preferred shares of Orgenics (the "Debenture"). Concurrent with
the issuance of the Debenture, the Company provided guaranties (in the form of
letters of credit) of $200,000 on the debt of Orgenics' French subsidiary to two
French banks, which is included as restricted cash in other assets in the
accompanying consolidated balance sheet. In October 1996, the Company exercised
its right to convert the Debenture (see below).
Two investment limited partnerships, Medica Investment (Israel) L.P. and
Medica Investment (U.S.) L.P. (collectively "Medica"), contributed a total of
$500,000 in cash toward the purchase of the Debenture. A director of the Company
is a partner of MVP Ventures, which serves as the general partner of both Medica
Investment (Israel) L.P. and Medica Investment (U.S.) L.P. On April 25, 1996,
the Company exercised its right to acquire Medica's interest in the Debenture
for 135,421 shares of Common Stock; the Company issued such shares on May 7,
1996. Accordingly, the Company was entitled to all of the Orgenics shares upon
conversion of the Debenture.
8
<PAGE> 9
The Company also entered into option purchase agreements (the "Option
Agreements") with all of the individual stockholders of Orgenics and Orgenics
International Holdings B.V. ("Orgenics International"), a Dutch holding company
whose only material asset is its investment in Orgenics. Each Option Agreement
provided a put option on the part of the stockholders to sell to the Company and
a call option on the part of the Company to purchase from the stockholders (the
"Optionees").
In October 1996, the Company acquired a 57.1% direct and indirect equity
interest in Orgenics as a result of the conversion of the Debenture and payment
of approximately $7.0 million in cash for the purchases of outstanding shares of
Orgenics and Orgenics International. In addition, the Company granted options to
purchase 85,800 shares of its Common Stock having an aggregate exercise price of
$1,056,000 on the date of grant, and incurred direct acquisition costs of
approximately $100,000. On March 6, 1997, the Company exercised its call options
and as a result will acquire a 100% equity interest in Orgenics. The Company is
required to pay for each share of Orgenics acquired pursuant to the Option
Agreements consideration equal to 1.75 times Orgenics' gross revenues per share
(on a fully diluted basis as of the exercise date, giving effect to the
conversion of the Debenture) during the most recent four fiscal quarters
immediately preceding the date of exercise. The shareholders of Orgenics and
Orgenics International were entitled to elect consideration in (i) cash, (ii)
shares of Selfcare, Inc. Common Stock, or (iii) 50% of each. The Company issued
promissory notes for 25% of the consideration due to the shareholders of
Orgenics and Orgenics International that chose to receive all cash
consideration. The promissory notes are due November 6, 1997 and bear interest
at the rate per annum equal to the prime rate plus three percent. The shares of
Orgenics are held in escrow until the promissory notes have been paid. The
shares of Orgenics International transfer to the Company at the time the cash
for 75% of the consideration is paid and the promissory note is issued. During
the three months ended September 30, 1997, the Company paid cash of $1.8 million
including repayments of substantially all of the promissory notes and issued
49,689 shares of Selfcare, Inc. Common Stock. As a result, at September 30,
1997, the Company owned a 97.0% direct and indirect equity interest in Orgenics.
The Company is obligated to pay additional consideration totaling approximately
$245,000 in cash, including interest and will issue another 2,856 shares of
Common Stock for the remaining shares in Orgenics and Orgenics International
pursuant to the exercise of the Option Agreements.
The aggregate purchase price of the Company's 97.0% direct and indirect
interest in Orgenics of approximately $18,211,000 was allocated based on the
relative fair values of the assets acquired as follows:
<TABLE>
<S> <C>
Current assets.................................... 5,779,000
Property, equipment and other assets.............. 3,026,000
Liabilities assumed............................... (6,544,000)
In-process research and development............... 7,469,000
Goodwill.......................................... 8,481,000
-----------
$18,211,000
-----------
</TABLE>
The allocation of a portion of the purchase price to in-process research
and development represents the applicable pro-rata portion of its appraised
value of $7,700,000. Upon completion of the Orgenics acquisition, the Company
anticipates that of the remaining purchase price of $279,000, it will allocate
an additional $231,000 to in-process research and development and the remainder
to goodwill.
The portion of the purchase price allocated to goodwill and other
intangible assets relates primarily to acquired technology, trade names and
goodwill and will be amortized on a straight-line basis over their estimated
useful lives of five years. The portion of the purchase price allocated to
in-process research and development projects that had not reached technological
feasibility and did not have a future alternative use was charged to expense as
of the acquisition date on a pro rata basis. The remaining portion of the
in-process research and development will be charged to expense upon completion
of the Orgenics Acquisition. The amount allocated to in-process research and
development projects represents the estimated fair value related to these
projects determined by an independent appraisal. Proven valuation procedures and
techniques were used in determining the fair market value of each intangible
asset. To bring these projects to technological feasibility, high-risk
development and testing issues will need to be resolved which will require
substantial additional effort and testing.
The Company has granted certain registration rights with respect to the
shares of Common Stock issued pursuant to the Option Agreements.
9
<PAGE> 10
8) INVESTMENT IN ENVIROMED
In October, 1996, the Company purchased 200,000 common shares of Enviromed,
plc ("Enviromed") and agreed to purchase EN PLC Limited Partnership's ("EN PLC")
holding of 7,961,386 common shares of Enviromed for a promissory note with a
principal amount of approximately $3.8 million (the "EN PLC Note"). In November
1996 the Company purchased an additional 100,000 common shares of Enviromed.
Effective as of January 1, 1997, the Company and EN PLC entered into an
amendment to the agreement ("EN PLC Agreement") with EN PLC pursuant to which
the Company agreed to issue two promissory notes, in principal amounts of
approximately $2.8 million and $1.0 million respectively, evidencing the
purchase price under the EN PLC Agreement. Each note bears interest at a
fluctuating annual rate equal to the Bank of Boston's prime rate plus 1.5
percent, payable quarterly over the two-year term of the notes. The principal
amount of the $1.0 million promissory note is payable in eight quarterly
installments, commencing in January 1997; the first four installments are
$85,897 each and the second four installments are $171,794 each. Approximately
$1.4 million of the principal amount of the $2.8 million promissory note is
payable in January 1998, followed by three equal quarterly installments of the
remaining principal. In consideration of the amendment, the Company agreed to
issue to EN PLC a warrant to purchase 15,401 shares of Common Stock at an
exercise price of $12.875 per share. The warrant is exercisable at any time
prior to January 1, 2002. In accordance with SFAS No. 123, the Company recorded
deferred financing costs of approximately $107,000 in connection with the grant
of this warrant. The EN PLC Note is secured only by the Enviromed common shares
purchased by the Company. In the event that the Company decides to sell or
transfer its Enviromed common shares, the Company will have to pay off the
balance of the EN PLC Note plus any interest due at that time. The EN PLC Note
is subordinated to any current or future indebtedness of the Company. The
Company's total equity interest in Enviromed is 28.9%. Mr. Zwanziger, the
Company's Chairman and Chief Executive Officer, shares control of EN PLC's
general partner with another individual who is not affiliated with the Company.
Mr. Zwanziger, Ms. Goldberg, and Mr. Umphrey, directors of the Company, are
among the Company's limited partners.
Following the Company's acquisition of its ownership interest in Enviromed,
the Company has accounted for its investment under the equity method. For the
three and nine-month periods ended September 30, 1997 the Company recognized a
loss of $430,000, representing the Company's pro rata share of Enviromed's
estimated net loss during the period. In the year ended December 31, 1996, the
Company recorded a loss of $200,000 for the pro rata share of Enviromed's
estimated net loss from the date that the Company acquired an equity interest.
The Company loaned [Pound]350,000 (approximately $572,000) to Enviromed during
the nine months ended September 30, 1997.
9) AGREEMENT WITH CHEMTRAK
In January 1997, Selfcare entered into an agreement with ChemTrak
Incorporated ("ChemTrak") pursuant to which ChemTrak appointed Selfcare as its
exclusive distributor in Europe, Scandinavia, and certain other countries
formerly comprising the U.S.S.R., including Russia (the "European Territory"),
of ChemTrak's home collection and mail-in HIV testing system for which FDA
approval is currently pending. As part of this agreement, Selfcare agreed to
pursue regulatory approval of the system in each country comprising the European
Territory. In addition, Selfcare agreed to establish and operate one or more
central testing facilities and offer services to report results and offer
counseling to users of the system. Under the terms of the distribution
agreement, ChemTrak retained the right to convert the Company's exclusive
distribution rights into non-exclusive rights upon the occurrence of certain
events, including the Company's failure to make certain regulatory filings and
the Company's failure to maintain market share goals. The Company paid Chemtrak
$333,000 as a license fee in January 1997. Under the terms of the distribution
agreement, the Company was obligated to pay quarterly royalty payments when
sales commence and milestone payments of $333,000 each upon (i) obtaining
regulatory approval in the first of the U.K., Germany, or France and (ii)
achieving the first $1.0 million in net sales of the mail-in HIV testing system
in the European Territory.
The Company has received notice from ChemTrak that ChemTrak is no longer
seeking regulatory approval in the United States and the Company now believes
that regulatory approval of the test will not be received within the next twelve
months. Accordingly, the Company has notified ChemTrak that it is terminating
the distribution agreement. As of September 30, 1997, the Company has expensed
$239,000 related to the license fee. The remaining $94,000 will be written off
in the fourth quarter of 1997.
10) SERIES A PREFERRED STOCK
In October 1996, the Company sold 5,500 shares of Series A Convertible
Preferred stock, $.001 par value per share (the "Series A Preferred Stock") at
$1,000 per share to various non-U.S. investors. The net proceeds of such sales
of approximately $5.2 million were used to purchase a portion of the Orgenics
and Orgenics International shares. The holders of Series A Preferred Stock
generally are entitled to receive cumulative dividends at the rate of six
percent per year and their shares of Series A Preferred Stock became convertible
into shares of the Company's Common Stock in five equal installments over a
120-day period beginning in December 1996. Shares of Series A Preferred Stock
are convertible at a discount of 14.5% from the average closing bid price per
share of the
10
<PAGE> 11
Company's Common Stock for the five trading days prior to their conversion,
except that the maximum conversion price is $20 per share and the minimum is
$8.75 per share, and the discount is reduced or eliminated if and to the extent
that the conversion price would be less than $12.00. Any shares of Series A
Preferred Stock not previously converted will automatically convert into shares
of the Company's Common Stock in October 1998 at the closing bid price at the
time. As of September 30, 1997, 5,100 shares of Series A Preferred Stock had
been converted to 530,911 shares of Common Stock.
11) SUBORDINATED ROYALTY REVENUE NOTES
At closings held in June and July 1997, the Company sold Subordinated
Revenue Royalty Notes (the "Notes") having an aggregate issue price of
$7,500,000. Each Note entitles the registered holder thereof (each, a
"Noteholder") to payments relating to net revenues of the Company and certain
related entities during each fiscal quarter the Note is outstanding, which
payments are pro rated with respect to the number of days the Note is
outstanding during such fiscal quarter (each, a "Royalty Payment"). The Company
is obligated to make Royalty Payments until the total amount of Royalty Payments
equals four times the total issue price of the Notes (the "Total Repayment
Amount"). In addition, the Company may elect to prepay the Notes, as described
below.
The quarterly Royalty Payment for each $25,000 of issue price will equal
the greater of (i) 0.005% of net revenues of the Company and certain related
entities during such fiscal quarter and (ii) $1,300. Until the Total Repayment
Amount has been paid, the Company will pay Royalty Payments as to each Note as
follows: (i) the first payment will be made on or before the forty-fifth day
after the closing of the fourth full fiscal quarter during which such Note is
outstanding and will cover Royalty Payments for such fiscal quarter and the
prior fiscal quarters during which such Note was outstanding; provided, however,
that the aggregate Royalty Payments to be made at such time shall not be less
than $6,000; and (ii) the Royalty Payment for each subsequent fiscal quarter
will be made on or before the forty-fifth day after the closing of such fiscal
quarter.
If the Company elects to prepay the amount due under the Notes or if an
Event of Default (as defined below) is not cured within thirty days after notice
to the Company, the Company will pay an amount equal to the greater of (i) 1.5
times the issue price of the Notes minus all Royalty Payments made by the
Company prior to the date of payment (but excluding any amount paid as Late
Payment Interest, as defined below) or (ii) an amount equal to the issue price
of the Notes plus an annualized internal rate of return on the issue price equal
to thirty percent calculated from the issue date of the Notes to the date of
payment, minus all Royalty Payments made by the Company prior to the date of
payment (but excluding any amount paid as Late Payment Interest). Events of
Default for purposes of the Notes include (i) the Company's failure to make
payments under the Notes; (ii) the Company's failure to comply with the terms of
the Notes or the related note purchase agreement; (iii) any materially false
representation or warranty by the Company pursuant to or in connection with the
related note purchase agreement; (iv) the acquisition of beneficial ownership
within the meaning of Rule 13d-3 of the Securities Exchange Act of 1934
("Exchange Act") of fifty percent or more of either the voting stock or total
equity capital of the Company by any person, together with "affiliates" and
"associates" of such person within the meaning of Rule 12b-2 of the Exchange
Act, or any "group" including such person under sections 13(d) and 14(d) of the
Exchange Act; (v) the initiation by the Company of any action to dissolve,
liquidate or otherwise terminate its existence; (vi) the merger or consolidation
of the Company into another entity in a transaction in which the stockholders of
the Company immediately prior to such merger or consolidation do not own fifty
percent or more of either the voting stock or total equity capital of the
surviving entity; (vii) the sale by the Company of substantially all of its
assets; and (viii) certain bankruptcy or insolvency events involving the
Company.
The Notes will bear interest only in the event of a late Royalty Payment,
an Event of Default or a prepayment. If a Royalty Payment is not made within
forty-five days of the end of the relevant fiscal quarter, the overdue amount
will accrue interest ("Late Payment Interest") at the rate of eighteen percent
per annum, compounded daily, accruing from the date such Royalty Payment was due
to the date the Royalty Payment, including accrued interest thereon, is made.
Any such accrued interest will be payable on demand.
U.S. Boston Capital Corporation ("U.S. Boston Capital") acted as placement
agent for the offering of the Notes. As compensation for its services as
placement agent, U.S. Boston Capital received a cash commission equal to eight
percent of the aggregate issue price of the Notes, was reimbursed for the fees
and disbursements of its counsel and received a non-accountable expense
allowance of $5,000. Willard L. Umphrey, a Director of the Company, is Chairman,
President, Treasurer and a Director of U.S. Boston Capital.
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<PAGE> 12
Pear Tree Royalty Company, Inc. ("Pear Tree Royalty Company"), the initial
representative of the Noteholders, or its successor, is entitled to one percent
of any payments made to the Noteholders by the Company pursuant to the terms of
the Notes, such one percent to be deducted from the payments to the Noteholders.
Mr. Umphrey is also a Director and shareholder of Pear Tree Royalty Company.
On July 30, 1997, Pear Tree Royalty Company purchased a Note with an issue
price of $500,000. In addition, John F. Levy, a Director of the Company,
purchased a Note with an issue price of $100,000 on June 20, 1997.
12) SERIES B PREFERRED STOCK
On August 26, 1997, the Company sold in a private placement an aggregate of
8,000 shares of Series B Convertible Preferred Stock, par value $.001 per share,
of the Company (the "Series B Shares") and warrants (the "Warrants") to purchase
an aggregate of 114,628 shares of Common Stock (the "Warrant Shares") to Capital
Ventures International, C.C. Investments LDC and Proprietary Convertible
Investment Group, Inc. at an aggregate purchase price of $8,000,000. Each Series
B Share accrues a premium of 6% per annum (the "Premium"). The Series B Shares
are convertible into shares (the "Conversion Shares") of Common Stock. The
actual number of Conversion Shares issuable upon conversion of a Series B Share
is equal to the aggregate stated value per share (the "Face Value") (i.e.,
$1,000 per share), plus any accrued but unpaid Premium through the date of such
conversion, divided by (x) if the conversion occurs on or before December 31,
1997, a conversion price of $13.9581 per share (the "Fixed Conversion Price"),
(y) in the case of conversions after December 31, 1997, and before May 24, 1998,
a conversion price equal to the lower of the Fixed Conversion Price and the
average of the five lowest closing bid prices of the Common Stock during the
thirty trading days preceding such conversion (the "Variable Conversion Price"),
and (z) in the case of conversions after May 24, 1998, a conversion price equal
to the lower of the Fixed Conversion Price and 95% of the Variable Conversion
Price then in effect.
A holder of Series B Shares may elect to convert Series B Shares at any
time on or after the earlier of (i) the filing of a registration statement (the
"Registration Statement") registering the Conversion Shares and (ii) November
24, 1997. After August 26, 1998, the Company may require the conversion of all,
but not less than all, of the outstanding Series B Shares, provided, that the
closing bid prices of the Common Stock are equal to or greater than 200% of the
Fixed Conversion Price for twenty consecutive trading days preceding any such
conversion. Any unconverted Series B Shares will automatically convert into
shares of Common Stock on August 26, 2000.
The Series B Shares may also be redeemed under certain circumstances for
cash. A holder of Series B Shares may require the Company to redeem any or all
of such holder's Series B Shares in the event (each a "Redemption Event") that:
(i) the Company fails to issue the Conversion Shares with respect to any
conversion within a required period of time; (ii) the Common Stock is suspended
from trading on the American Stock Exchange for an aggregate of ten trading days
in any nine month period; (iii) the Registration Statement has not been declared
effective by February 28, 1998 or cannot be utilized by the holders of the
Series B Shares for an aggregate of more than thirty days (excluding certain
permitted blackout periods) in any twelve month period; (iv) the Company fails
to remove any restrictive legend on any certificate representing Conversion
Shares when required; (v) the Company provides notice to any holder of Series B
Shares of its intention not to issue Conversion Shares upon conversion; or (vi)
the Company engages in certain corporate reorganizations. With respect to the
Redemption Events described in clauses (i) through (v) immediately above, the
amount payable upon redemption (the "Redemption Amount") is equal to the product
of (i) the highest closing bid price of the Company's Common Stock during the
period beginning on the redemption date and the date the Redemption Amount is
paid, and (ii) the quotient (the "Quotient") obtained by dividing (x) the Face
Value of the Series B Shares being redeemed plus any accrued but unpaid Premium
by (y) the conversion price then in effect. With respect to the Redemption Event
set forth in (v) immediately above and for redemptions at the option of the
Company (described below) on account of certain corporate reorganizations, the
Redemption Amount is the lower of (a) 124% of the Face Value being redeemed plus
any accrued but unpaid Premium and (b) the product of (i) the fair market value
of the consideration payable to the holder of a share of Common Stock in
connection with the corporate reorganization and (ii) the Quotient.
The Company may also redeem (consisting of at least 50% of the then
outstanding Series B Shares) outstanding Series B Shares at its option,
provided, that the closing bid prices for any five consecutive trading days is
less than $9.00. The Redemption Amount in such case is equal to 115% of the Face
Value of the Series B Shares plus any accrued but unpaid Premium.
One-half of the Warrants vested immediately while the remaining Warrants
vest on August 25, 1998; provided, however, that to the extent any of the
Series B Shares are converted prior to such date, the number of Warrants vesting
will be reduced ratably. The Warrants are exercisable at any time until August
25, 2000.
Both the exercise price and the number of Warrant Shares issuable under the
Warrants are subject to anti-dilution provisions, and may be adjusted upon,
among others: (i) the issuance by the Company of shares of Common Stock pursuant
to a private transaction for no consideration or for a consideration per share
of less than 85% of the then market price of such shares; (ii) a subdivision of
the shares of Common Stock (e.g., by stock split, stock dividend or
recapitalization); or (iii) a combination of shares of Common Stock (e.g., by
reverse stock split or recapitalization).
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<PAGE> 13
The Series B Preferred Shares rank prior to the Company's Common Stock with
respect to distribution of the Company's assets in the event of liquidation,
dissolution or winding up of the Company, whether voluntarily or involuntarily.
In the event of liquidation, dissolution, or winding up, the Company may make no
distribution to the holders of its Common Stock unless and until the holders of
the outstanding Series B Shares receive the Face Value thereof plus the accrued
Premium thereon through the date of the final distribution.
The Series B Preferred Stock and Warrants were sold to: Capital Ventures
International, C.C. Investments LDC and Proprietary Convertible Investment
Group, Inc. (the "Series B Preferred Stockholders"). The sale of the Series B
Shares and of the related Warrants was intended to comply with the Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act"), and, pursuant
to the regulations promulgated thereunder, the Company filed a Form D in
accordance with Regulation D promulgated under the Securities Act. Based upon
the representations of the Series B Preferred Stockholders, the Company has
reason to believe that each of the Series B Preferred Stockholders, among
others, is an "accredited investor" as that term is defined in Rule 501(a) of
Regulation D, acquired the Series B Shares for investment purposes, and were
furnished with the information that each such Series B Preferred Stockholder or
its counsel requested. The Company did not engage in a general solicitation of
offers to purchase the Series B Shares.
Pursuant to the terms of the Series B Preferred Stock the Company is not
permitted to pay dividends on its Common Stock prior to August 26, 1998, the
first anniversary of the date of issuance of the Series B Preferred Stock.
13) SUBSEQUENT EVENTS
At a closing on October 28, 1997, the Company sold in a private placement
Senior Subordinated Convertible Notes (the "Notes") having an aggregate face
value of $10,000,000 and warrants (the "Notes Warrants") to purchase up to
106,700 shares of Common Stock to two institutional investors for gross proceeds
of $10,000,000.
The principal of the Notes is payable on October 28, 2002. The unpaid
principal of each Note accrues interest at the rate of 16% per year payable in
cash until the later of (i) the date of filing of a registration statement (the
"Notes Registration Date") covering the shares of Common Stock underlying the
Notes and the Notes Warrants (the "Registrable Securities"), and (ii) a date
between 180 and 270 days after October 27, 1997, selected by the Company (the
"Variable Conversion Date"). Thereafter, interest on the unpaid principal
accrues at the rate of 8% per year payable in cash or, at the Company's option
subject to certain conditions, shares of Common Stock calculated at a price per
share equal to 95% of the Recent Market Price. The "Recent Market Price" as of
any date is the lowest market price at which shares of Common Stock traded at
any time during the five trading days immediately preceding such date. During
the occurrence of an Event of Default (discussed below), the outstanding
principal amount and accrued but unpaid interest will accrue interest at a rate
of the lower of the Citibank Prime Rate per year plus 8% and the highest rate
permitted by law.
The holder of each Note may convert all or a portion of such Note into
shares of Common Stock prior to October 28, 2002. Prior to the Variable
Conversion Date, each Note converts into shares of Common Stock at 120% of the
Recent Market Price as of October 27, 1997. Following the Variable Conversion
Date, each Note converts at a conversion price per share equal to the Applicable
Percentage (as defined below) multiplied by the lesser of: (i) 125% of the
Recent Market Price as of October 27, 1997, as of the Variable Conversion Date
or (if later) as of the Notes Registration Date, whichever is least (the
"Ceiling Price"), and (ii) the Recent Market Price as of the date on which the
conversion notice is sent. The Applicable Percentage is a percentage ranging
from 100% to 92.5% depending upon the date that the Company chooses as the
Variable Conversion Date. Notwithstanding the above, the holder of a Note may on
any date elect to fix permanently with respect to all or a portion of the Note
the conversion price per share in effect on such date, in which event the Note
(or portion thereof) must be converted within 90 days thereafter. The Company
may block any conversion if the per share conversion price is less than 60% of
the Ceiling Price by offering to redeem for cash the Note (or portion thereof)
that the holder thereof would otherwise have converted for a price equal to the
fair market value of the shares of Common Stock that would have been issued plus
accrued interest on the Note (or portion thereof) so redeemed.
After October 27, 1999, the Company may elect to redeem the Notes, in whole
or in part, at 105% of their face value plus accrued but unpaid interest,
provided that the Recent Market Price has been equal to or greater than the
Ceiling Price for 75 consecutive trading days immediately preceding the date of
the redemption notice and for the fifteen trading days commencing on that date.
Events of Default for purposes of the Notes include: (a) the Company's
failure to make payments due under the Notes; (b) the Company's failure to
maintain the listing of its shares of Common Stock; (c) the registration
statement registering the Registrable Securities is not declared effective by a
certain date; (d) such registration statement is not available for use by the
holders of Registrable Securities for a certain period of time; (e) the
Company's failure to deliver appropriate stock certificates; (f) the Company
fails to comply with any of its other payment obligations or other material
agreements under the Notes, the Notes Warrants, or the related agreements (the
"Notes Agreements"); (g) the presence of a material misrepresentation in the
Notes Agreement; (h) the
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<PAGE> 14
Company defaults under any of its senior debt such that the holder thereof has a
right of acceleration; (i) the Company sells or otherwise disposes of all or
substantially all of its assets; or (j) the occurrence of certain events related
to bankruptcy.
The Notes Warrants may be exercised in whole or in part from time to time
until October 28, 2002. The exercise price per share of each Notes Warrant
equals the Recent Market Price as of October 27, 1997, the Variable Conversion
Date and (if later) the Notes Registration Date, whichever is lowest.
Notwithstanding the foregoing, the holder of a Notes Warrant may elect a
cashless exercise of such Notes Warrant.
The number of shares of Common Stock issuable upon conversion of the Notes
and exercise of the Notes Warrants, and the conversion price and exercise price,
respectively, thereof, are subject to anti-dilution provisions, and may be
adjusted, among others, upon (i) the issuance of stock dividends, or the
occurrence of stock splits, reclassifications, recapitalizations, or similar
events; (ii) any consolidation, merger, reorganization or similar fundamental
restructuring; or (iii) the issuance of shares of Common Stock or convertible
securities for consideration below a specified discount below the market price
of the Common Stock.
Shoreline Pacific Institutional Finance, the Institutional Division of
Financial West Group ("Shoreline"), acted as placement agent for the offering of
the Notes and the Notes Warrants. As compensation for its services as placement
agent, Shoreline received a cash commission of $500,000, representing 5% percent
of the gross proceeds of the offering. In addition, the Company issued four
warrants to purchase up to an aggregate of 31,250 shares of Common Stock with
the same terms as the Notes Warrants to certain designees of Shoreline.
14) RECONCILIATION OF NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE.
At September 30, 1997, the Company recorded accretion of $1.2 million
representing the 6% premium and 5% conversion discount on the Series B Shares.
The Company's also recorded dividends on the Series A Preferred Stock. The
dividends on the Series A Preferred Stock were $6,000 and $99,000 for the three
and nine-month periods ended September 30, 1997. The following is a
reconciliation of the net loss per common and common equivalent share.
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30, NINE MONTHS ENDED SEPTEMBER 30,
-------------------------------- -------------------------------
1997 1996 1997 1996
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net loss $(7,889,634) $(12,517,163) $(18,617,368) $(26,126,913)
Dividends on Series A Preferred Stock (6,049) -- (98,825) --
Accretion on Series B Preferred Stock (1,193,045) -- (1,193,045) --
Loss attributable to Common Shareholders $(9,088,728) $(12,517,163) $(19,909,238) $(26,126,913)
Net loss per common and Common equivalent share $ (1.08) $ (2.13) $ (2.57) $ (4.25)
Weighted average number of common
and common equivalent shares outstanding 8,432,963 5,868,598 7,759,370 6,146,821
</TABLE>
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<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Selfcare, Inc. (the "Company" or "Selfcare") is engaged in the development,
manufacture, and marketing of self-test diagnostic products for the diabetes,
women's health and infectious disease markets, as well as the marketing of
nutritional supplement products, several of which are targeted primarily at the
women's health market. The Company's existing and planned products are targeted
at the two largest existing markets for self-care diagnostics, diabetes
management and women's health, as well as the emerging market for self-tests for
infectious diseases and agents, including human immunodeficiency viruses
("HIV"). An important part of the Company's business strategy is to enter into
strategic alliances, joint ventures and licensing arrangements with third
parties, primarily medical products companies, for the development, manufacture,
and distribution of certain products. The Company is also pursuing a strategy of
selective acquisitions of companies; assets and technologies, which it believes,
will enhance its ability to deliver innovative diagnostic products to the
marketplace at a low cost.
RESULTS OF OPERATIONS
Net Revenues. Net revenues increased $9.8 million, or 258%, to $13.6
million for the three months ended September 30, 1997 from $3.8 million for the
three months ended September 30, 1996. Net revenues increased $26.3 million, or
289%, to $35.4 million for the nine months ended September 30, 1997 from $9.1
million for the nine months ended September 30, 1996. The Company acquired a
57.1% interest in Orgenics Ltd. ("Orgenics"); a company that manufactures and
sells professional diagnostic test kits for infectious disease agents, in
October 1996 and as of September 30, 1997 the Company owned 97.0% of the shares
of Orgenics. The Company also purchased a line of nutritional supplements
("Nutritional Supplement Lines") from American Home Products ("AHP") in February
1997 (the "Nutritional Supplement Lines Acquisition"). The results for the three
months ended September 30, 1997 included revenues of $2.8 million and $5.7
million for these businesses, respectively and revenues for the nine months
ended September 30, 1997 for these businesses amounted to $8.6 million and $12.6
million, respectively. Increased demand for the Company's pregnancy and
ovulation prediction products was also a significant contributor to revenue
growth.
Gross profit. Gross profit increased by $6.1 million or 653% to $7.0
million for the quarter ended September 30, 1997 from $0.9 million for the
quarter ended September 30, 1996. Gross profit increased $15.1 million or 575%
to $17.7 million for the nine months ended September 30, 1997 from $2.6 million
in the nine months ended September 30, 1996. Gross profit as a percentage of net
revenues increased to 51.3% and 50.0%, respectively, of net revenues in the
three and nine months ended September 30, 1997 from 24.4% and 28.8% of net
revenues during the respective periods in 1996. Gross profits from the recently
acquired businesses added $5.6 million and $13.7 million of the overall increase
in gross profit for the three and nine-month periods ended September 30, 1997.
As a percentage of the units' respective sales, the gross profits from sales of
Orgenics and the Nutritional Supplement Lines were 62.4% and 66.9% respectively
for the quarter ended September 30, 1997, and 65.4% and 64.3% for the nine
months ended September 30, 1997.
Research and Development Expense. Research and development expense
increased by $3.0 million or 180% for the three months ended September 30, 1997
to $4.6 million from $1.6 million for the three months ended September 30, 1996.
Research and development expense increased by $7.7 million or 187% to $11.9
million for the nine months ended September 30, 1997 from $4.2 million for the
nine months ended September 30, 1996. The increase was primarily due to expenses
incurred in connection with the development of the Company's electrochemical
blood glucose monitoring system and increased spending on research related to
non-invasive blood glucose technologies. These research and development
activities accounted for $2.4 million and $6.6 million of the increases during
the three and nine-month periods. The Company expects to continue to spend
significant amounts on research and development throughout the balance of 1997
and in 1998.
Charge for In Process Research and Development. A portion of the purchase
price of the Company's 97.0% interest in Orgenics was allocated to in process
research and development projects that did not achieve technological feasibility
and did not have future alternative uses. See Note 7 of "Notes to Consolidated
Financial Statements."
Selling, General, and Administrative Expense. Selling, general, and
administrative expense increased $4.3 million or 174% to $6.7 million for the
three months ended September 30, 1997 from $2.4 million for the three months
ended September 30, 1996. Selling, general, and administrative expense increased
$11.2 million or 179% to $17.4 million for the nine months ended September 30,
1997 from $6.2 million for the nine months ended September 30, 1996. The
increase was primarily attributable to the Orgenics and Nutritional Supplement
Lines businesses that were acquired by the Company. The aggregate selling,
general and administrative costs incurred by these businesses were $3.5 million
and $8.6 million, respectively, for the three- and nine-month periods ended
September 30, 1997. Additionally, the Company expanded marketing efforts on its
pregnancy and ovulation prediction products in the United
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<PAGE> 16
States and Europe, and hired additional staff to support the Company's
operations. Selling, general, and administrative expense, as a percentage of net
revenues, decreased during the three and nine months ended September 30, 1997 as
compared to the same periods in 1996. Selling, general, and administrative
expenses were 49.3% and 49.2%, respectively, of net revenues for the three and
nine months ended September 30, 1997 compared to 64.4% and 68.6%, respectively,
for the three and nine months ended September 30, 1996.
Noncash Compensation Expense. Substantially all of the non-cash
compensation expense for the three and nine months ended September 30, 1996
related to certain stock options granted to certain employees of the Company.
For the nine months ended September 30, 1996 the non-cash compensation expense
related to a stock option granted to the Company's Chief Executive Officer in
August 1995 was $3,240,000. Non-cash compensation expense of $680,000 for both
the three and nine month periods ended September 30, 1996 related to stock
options granted to certain employees that were contingent on certain goals which
have been met. In accordance with SFAS No. 123, Accounting for Stock Based
Compensation, the Company recorded non-cash compensation expense of $77,000 for
stock options to outside consultants. The remaining $63,000 and $188,000 of
non-cash compensation expense for the three and nine months ended September 30,
1996, respectively, relates to the amortization of deferred compensation
pertaining to the grant of certain stock options to employees. For the three and
nine months ended September 30, 1997, the amortization of deferred compensation
pertaining to the grant of certain stock options was $38,000 and $113,000,
respectively. The deferred compensation will be fully amortized as of December
31, 1997.
Interest and Other Income (Expense). For the three and nine months ended
September 30, 1997 the Company incurred $1.5 million and $3.3 million in
interest expense, respectively. In 1995, the Company issued notes payable (the
"Cambridge Diagnostics Notes") and common stock warrants (the "Cambridge
Diagnostics Warrants") to individual investors for gross proceeds of $3,030,000.
Of this amount, $3,000,000 relates to the Cambridge Diagnostics Notes, which
bear interest at 10%. In October 1996, the Company purchased 200,000 common
shares of Enviromed, plc ("Enviromed") and agreed to purchase EN PLC Limited
Partnership's ("EN PLC") holding of 7,961,386 common shares of Enviromed for a
promissory note with a principal amount of approximately $3.8 million (the "EN
PLC Note"). For the three and nine months ended September 30, 1997, the Company
incurred $72,000 and $251,000 of interest expense, respectively, on the
Cambridge Diagnostics Notes and $95,000 and $253,000 of interest expense,
respectively, on the note payable to EN PLC. The Company incurred $106,000 and
$258,000 of interest expense on the AHP Note for the three and nine-month
periods ended June 30, 1997. In addition, during the three and nine-month
periods ended September 30, 1997, the Acquisition Subsidiary incurred $492,000
and $1.3 million of interest expense, respectively, related to loans from Fleet
National Bank ("Fleet"). Orgenics incurred $76,000 and $411,000 of interest
expense related to short and long-term bank debts for the three and nine-month
periods ended September 30, 1997. For the three and nine months ended September
30, 1996, the Company incurred $76,000 and $226,000 of interest expense,
respectively, on the Cambridge Diagnostics Notes. For the three months ended
September 30, 1996, the Company also recognized $8.6 million of non-cash
interest expense relating to the Cambridge Diagnostics Warrants granted in
November 1994. The charge related to the increase in the fair market value of
the related equity as compared to the estimated fair market value at June 30,
1996. For the nine months ended September 30, 1996, the non-cash interest
expense relating to the aforementioned warrants was $14.1 million. Interest
income increased by $57,000 and $339,000 for the three and nine months ended
September 30, 1997 as compared to the same periods last year, primarily due to
larger cash balances. The Company's subsidiary in Inverness, Scotland accrued
$28,000 and $85,000 for the three and nine months ended September 30, 1997,
representing a 6% dividend payable on its outstanding cumulative redeemable
preference shares, as compared to $35,000 and $81,000 for the three and nine
months ended September 30, 1996.
Minority Interest. The Company recorded an expense of $15,000 for the three
months ended September 30, 1997 and $145,000 for the nine months ended September
30, 1997 representing the minority shareholders' portion of the subsidiaries
that are not wholly owned by the Company. All of the subsidiaries owned by the
Company during the nine months ended September 30, 1996 were (and are still)
wholly owned by the Company.
Foreign Currency Translation. Fluctuations in foreign currency did not
significantly impact revenue performance measured in U.S. dollars for the three
and nine months ended September 30, 1997. Substantially all of the Company's
foreign sales are paid in the functional currency of the selling entity. The
Company recorded an unrealized loss of $717,000 for the nine months ended
September 30, 1997 related to foreign currency translation of intercompany
balances.
Net Loss. For the three months ended September 30, 1997, the Company had a
net loss of $7.9 million or ($1.08) per common and common equivalent share
compared to a net loss of $12.5 million or ($2.13) per common and common
equivalent share for the three months ended September 30, 1996. The net loss for
the nine months ended September 30, 1997 was approximately $18.6 million or
($2.57) per common and common equivalent share compared to a net loss of $26.1
million or ($4.25) per common and common equivalent share for the nine months
ended September 30, 1996. The results for 1996 and 1997 included significant
non-recurring, non-cash charges.
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<PAGE> 17
For the quarter ended September 30, 1997, earnings before interest, taxes,
depreciation and amortization ("EBITDA") before non-recurring, non-cash charges
was a loss of $2.7 million or ($0.32) per common and common equivalent share
compared to a loss of $2.9 million or ($0.49) per common and common equivalent
share for the quarter ended September 30, 1996. For the nine months ended
September 30, 1997, EBITDA before non-recurring, non-cash charges was a loss of
$7.9 million or ($1.01) per common and common equivalent share compared to a
loss of $7.1 million or ($1.16) per common and common equivalent share for the
nine months ended September 30, 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations primarily through the funds it has
received in connection with its initial public offering, a follow-on public
offering, funds received in connection with the LifeScan Alliance (defined
below), private placements of debt and equity securities, bank loans and lines
of credit, capital lease obligations, cash from product sales and grants from
government development agencies.
On August 26, 1997, the Company sold in a private placement an aggregate of
8,000 shares of Series B Convertible Preferred Stock, par value $.001 per share,
of the Company (the "Series B Shares") and warrants (the "Warrants") to purchase
an aggregate of 114,628 shares of Common Stock (the "Warrant Shares") to Capital
Ventures International, C.C. Investments LDC and Proprietary Convertible
Investment Group, Inc. at an aggregate purchase price of $8,000,000. Each Series
B Share accrues a premium of 6% per annum (the "Premium"). The Series B Shares
are convertible into shares (the "Conversion Shares") of Common Stock. The
actual number of Conversion Shares issuable upon conversion of a Series B Share
is equal to the aggregate stated value per share (the "Face Value") (i.e.,
$1,000 per share), plus any accrued but unpaid Premium through the date of such
conversion, divided by (x) if the conversion occurs on or before December 31,
1997, a conversion price of $13.9581 per share (the "Fixed Conversion Price"),
(y) in the case of conversions after December 31, 1997, and before May 24, 1998,
a conversion price equal to the lower of the Fixed Conversion Price and the
average of the five lowest closing bid prices of the Common Stock during the
thirty trading days preceding such conversion (the "Variable Conversion Price"),
and (z) in the case of conversions after May 24, 1998, a conversion price equal
to the lower of the Fixed Conversion Price and 95% of the Variable Conversion
Price then in effect. See Note 12 of "Notes to Consolidated Financial
Statements."
At September 30, 1997, the Company had cash and cash equivalents of $12.6
million, a $2 million decrease from December 31, 1996. The net cash used in
operating activities in the nine months ended September 30, 1997 was $14.7
million due largely to net losses of $18.6 million. However, the net loss
includes non-cash charges (described above) totaling $6.2 million. Other uses of
cash in operating activities included an increased funding of accounts
receivable and inventory of $4.4 million during the nine months ended September
30, 1997, reflecting the Company's increase in sales. Cash was provided for
operations in part by an increase in accounts payable, accrued expenses, and
other current liabilities of $2.6 million during the nine months ended September
30, 1997. During the nine months ended September 30, 1997, the Company used $4.5
million to purchase property and equipment. Approximately $2.4 million spent on
property and equipment during the nine months ended September 30, 1997 was for
the Company's facility in Inverness, Scotland. The Company loaned <C163>350,000
(approximately $572,000) to Enviromed during the nine months ended September 30,
1997. The bridge loan from Fleet in connection with the Nutritional Supplement
Lines Acquisition (the "AHP Bridge Loan") of $5.0 million was repaid on June 4,
1997.
At a closing on October 28, 1997, the Company sold in a private placement
Senior Subordinated Convertible Notes (the "Notes") having an aggregate face
value of $10,000,000 and warrants (the "Notes Warrants") to purchase up to
106,700 shares of Common Stock to two institutional investors for gross proceeds
of $10,000,000. The principal of the Notes is payable on October 28, 2002. The
unpaid principal of each Note accrues interest at the rate of 16% per year
payable in cash until the later of (i) the date of filing of a registration
statement (the "Notes Registration Date") covering the shares of Common Stock
underlying the Notes and the Notes Warrants (the "Registrable Securities"), and
(ii) a date between 180 and 270 days after October 27, 1997, selected by the
Company (the "Variable Conversion Date"). Thereafter, interest on the unpaid
principal accrues at the rate of 8% per year payable in cash or, at the
Company's option subject to certain conditions, shares of Common Stock
calculated at a price per share equal to 95% of the Recent Market Price. The
"Recent Market Price" as of any date is the lowest market price at which shares
of Common Stock traded at any time during the five trading days immediately
preceding such date. See Note 13 of "Notes to Consolidated Financial
Statements."
The Company currently anticipates that its existing capital resources,
including funds expected to be generated from operations and other financing
activities, will be adequate to satisfy its capital requirements for at least 12
months. No assurance can be given that additional financing, including currently
planned financing, will be available, or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing equity
securities, further dilution to then existing stockholders will result. If
adequate funds are not available, the Company may be required to significantly
curtail one or more of its research and development programs, or obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or products which
the Company would otherwise pursue on its own.
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<PAGE> 18
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
This Form 10-QSB contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. The Company's actual results could differ materially from
those set forth in the forward-looking statements. Factors, including those
summarized below, that might cause such a difference are set forth under "Risk
Factors" beginning on page 8 of the Company's registration statement on Form
SB-2 filed with the Securities and Exchange Commission on January 16, 1997, as
amended.
The Company's future results of operations depend to a substantial degree
on the LifeScan Alliance and on LifeScan's ability to market and sell the
Company's proprietary electrochemical blood glucose monitoring system. There can
be no assurance that the LifeScan Alliance will be profitable for the Company.
As part of the Company's plans for maintaining and expanding sales of the
Nutritional Supplement Lines, the Company expects to incur substantial marketing
and promotional expenses and allowances in 1997 and thereafter. There can be no
assurance that these expenditures and allowances will allow the Company to
increase or maintain the existing revenue levels from the Nutritional Supplement
Lines. The Company's product focus to date has been on diagnostic tests of
various kinds and the Company has not previously marketed nutritional
supplements, nor has the Company conducted a national advertising campaign of
the scope or magnitude of that which it plans for the Nutritional Supplement
Lines.
The Company is currently experiencing a period of rapid growth and
expansion, including growth and expansion experienced since the consummation of
the Nutritional Supplement Lines Acquisition. This growth and expansion has
placed, and could continue to place, a significant strain on the Company's
management, customer service and support, operations, sales and administrative
personnel and other resources. In order to serve the needs of its existing and
future customers, the Company has increased and will continue to increase its
workforce, which requires the Company to attract, train, motivate and manage
qualified employees. The Company's ability to manage its planned growth depends
upon the Company's success in continuing to expand its operating, management,
information and financial systems, which may significantly increase its
operating expenses. If the Company fails to achieve its growth as planned or is
unsuccessful in managing its anticipated growth, there could be a material
adverse effect on the Company.
The Company is at an early stage in its development. With the exception of
certain professional diagnostic products for infectious diseases, the
Nutritional Supplement Lines and its women's health products produced by
third-party manufacturers, all of the Company's products are in various stages
of research and development, and the Company has generated no revenue from the
commercialization of these products under development. Many of the Company's
products will require substantial additional development, pre-clinical and
clinical testing and investment prior to their commercialization. There can be
no assurance that the Company's research and development efforts will be
successful, that any of the Company's products under development will prove to
be safe or effective in clinical trials, that the Company will be able to obtain
regulatory approval to market any of its products, that any of its products can
be manufactured at acceptable cost and with appropriate quality, or that any of
its products, if and when approved, can be successfully marketed.
The Company's research, development and clinical programs, as well as its
manufacturing and marketing operations, are subject to extensive regulation by
numerous governmental authorities in the United States and other countries. Most
of the Company's products require governmental approvals for commercialization
that have not yet been obtained and are not expected to be obtained for several
months or years. Pre-clinical and clinical trials and manufacturing and
marketing of many of the Company's products will be subject to the rigorous
testing and approval process of the FDA and corresponding foreign regulatory
authorities. The regulatory process, which includes pre-clinical and clinical
testing of many of the Company's products to establish their safety and
efficacy, can take many years and require the expenditure of substantial
financial, managerial and other resources. Data obtained from pre-clinical and
clinical activities are susceptible to varying interpretations that could delay,
limit or prevent regulatory approval. In addition, delays or rejection may be
encountered based upon changes in, or additions to, regulatory policies for
device and test approval during the period of product development and regulatory
review. Delays in obtaining such approvals could adversely affect the marketing
of products developed by the Company and the Company's ability to generate
commercial product revenues.
The medical products industry, including the diagnostic testing industry,
places considerable importance on obtaining patent and trade secret protection
for new technologies, products and processes, and the Company's success will
depend, in part, on its ability to obtain patent protection for its products and
manufacturing processes, to preserve its trade secrets and to operate without
infringing the proprietary rights of third parties.
The Company holds certain patent rights, has certain patent applications
pending, and expects to seek additional patents in the future, but there can be
no assurance as to its success or timeliness in obtaining any such patents or as
to the breadth or degree of
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<PAGE> 19
protection that any such patents will afford the Company. The Company could
incur substantial costs in defending itself against patent infringement claims
or in asserting such claims against others. If the outcome of any such
litigation is adverse to the Company, the Company's business could be materially
adversely affected. To determine the priority of inventions, the Company may
also have to participate in interference proceedings declared by the U.S. Patent
and Trademark Office, which could also result in substantial costs to the
Company.
In addition, the Company may be required to obtain licenses to patents or
other proprietary rights of third parties to market its products. No assurance
can be given that licenses required under any such patents or proprietary rights
would be made available on terms acceptable to the Company, if at all. If the
Company does not obtain such licenses, it could encounter delays in product
market introductions while it attempts to design around such patents or other
rights, or be unable to develop, manufacture or sell such products in certain
countries or at all.
The medical products industry, including the diagnostic testing industry,
is rapidly evolving and developments are expected to continue at a rapid pace.
Competition in this industry is intense and expected to increase as new products
and technologies become available and new competitors enter the market. The
Company's competitors in the United States and abroad are numerous and include,
among others, diagnostic testing and medical products companies, universities
and other research institutions. The Company's success depends upon developing
and maintaining a competitive position in the development of products and
technologies in its area of focus. The Company's competitors may also succeed in
developing technologies and products that are more effective than any that have
been or are being developed by the Company or that render the Company's
technologies or products obsolete or noncompetitive. The Company's competitors
may also succeed in obtaining patent protection or other intellectual property
rights that would prevent the Company from developing its potential products, or
in obtaining regulatory approval for the commercialization of their products
more rapidly or effectively than the Company. Finally, many of the Company's
existing or potential competitors have or may have substantially greater
research and development capabilities, clinical, manufacturing, regulatory and
marketing experience and financial and managerial resources than the Company.
The Company is also aware of several of its competitors who are attempting
to develop a non-invasive blood glucose monitoring technology. The development
and successful introduction of any such products could have a material adverse
effect on the Company's business, financial condition and results of operations.
The Company will be subject to risks normally associated with debt
financing, including the risk that the Company's cash flow will be insufficient
to meet required payments of principal and interest. As of September 30, 1997,
the Company had $52.7 million of outstanding debt, including $23.0 million
remaining due on the term loan from Fleet taken in connection with the
Nutritional Supplement Lines Acquisition (the "AHP Term Loan") which was used to
pay part of the cash portion of the consideration payable to AHP under the terms
of the Nutritional Supplement Lines Acquisition. This outstanding indebtedness,
together with restrictions in the Company's financing instruments, may limit the
Company's ability to obtain additional debt financing in the future and to
respond to changing business and economic conditions and could adversely affect
its ability to effect its business strategies. In addition, because certain of
the Company's debt, including the AHP Term Loan, bears interest at floating
rates, an increase in interest rates could adversely affect the Company's
ability to meet its debt service obligations.
The Company currently anticipates that its existing cash and funds
available under the loans from Fleet will be adequate to satisfy its capital
requirements through December 31, 1997. No assurance can be given that
additional financing will be available, or, if available, that it will be
available on acceptable terms. If additional funds are raised by issuing equity
securities, further dilution to then existing stockholders will result. If
adequate funds are not available, the Company may be required to significantly
curtail one or more of its research and development programs, or obtain funds
through arrangements with collaborative partners or others that may require the
Company to relinquish rights to certain of its technologies or products which
the Company would otherwise pursue on its own.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently a party to or affected by litigation in several
matters which are described in the Company's 1996 Report on Form 10-KSB/A (see
Item 3, "Legal Proceedings") and in a Registration Statement on Form SB-2, filed
by the Company with the Securities and Exchange Commission on January 16, 1997,
as amended (see "Risk Factors-Risks Related to Certain Licensing Arrangements"
and "Business-Legal Proceedings").
There is ongoing litigation in connection with certain patent and
proprietary rights related to HIV technology owned by Institut Pasteur (the
"Pasteur HIV Technologies"), which has been licensed by Pasteur Sanofi
Diagnostics to Cambridge Biotech Corporation ("Cambridge Biotech") and in which
the Company derives an economic interest through the sale of products
incorporating the Pasteur HIV Technologies by a company known as Cambridge
Affiliate, which is 51% owned by bioMerieux Vitek, Inc. (which has purchased the
interest of Cambridge Biotech) and 49% owned by the Company. In April 1997,
Pasteur Sanofi Diagnostics filed a petition for certiorari, asking the United
States Supreme Court to review the decision of a three judge panel of the
Circuit Court of Appeals for the First Circuit, that Cambridge Biotech was
entitled to assume its license agreements with Pasteur Sanofi Diagnostics. On
June 27, 1997, the United States Supreme Court denied Pasteur Sanofi
Diagnostics' petition for writ of certiorari. No petition for rehearing was
filed and the time for filing such a petition has passed.
On July 18, 1997, a hearing was held on the merits of the appeals to the
United States District Court for the District of Massachusetts by Institut
Pasteur and Genetic Systems Corporation, of the rulings by the United States
Bankruptcy Court for the District of Massachusetts (Western District) that
Cambridge Biotech may sell products incorporating the Pasteur HIV Technologies
in the United States. The District Court affirmed the rulings of the United
States Bankruptcy Court and Institut Pasteur and Genetic Systems Corporation
have appealed the decisions of the District Court.
ITEM 2. CHANGES IN SECURITIES
On August 26, 1997, the Company sold in a private placement an aggregate of
8,000 shares of Series B Convertible Preferred Stock, par value $.001 per share,
of the Company (the "Series B Shares") and warrants (the "Warrants") to purchase
an aggregate of 114,628 shares of Common Stock (the "Warrant Shares") to Capital
Ventures International, C.C. Investments LDC and Proprietary Convertible
Investment Group, Inc. at an aggregate purchase price of $8,000,000. Each Series
B Share accrues a premium of 6% per annum (the "Premium"). The Series B Shares
are convertible into shares (the "Conversion Shares") of Common Stock. The
actual number of Conversion Shares issuable upon conversion of a Series B Share
is equal to the aggregate stated value per share (the "Face Value") (i.e.,
$1,000 per share), plus any accrued but unpaid Premium through the date of such
conversion, divided by (x) if the conversion occurs on or before December 31,
1997, a conversion price of $13.9581 per share (the "Fixed Conversion Price"),
(y) in the case of conversions after December 31, 1997, and before May 24, 1998,
a conversion price equal to the lower of the Fixed Conversion Price and the
average of the five lowest closing bid prices of the Common Stock during the
thirty trading days preceding such conversion (the "Variable Conversion Price"),
and (z) in the case of conversions after May 24, 1998, a conversion price equal
to the lower of the Fixed Conversion Price and 95% of the Variable Conversion
Price then in effect.
A holder of Series B Shares may elect to convert Series B Shares at any
time on or after the earlier of (i) the filing of a registration statement (the
"Registration Statement") registering the Conversion Shares and (ii) November
24, 1997. After August 26, 1998, the Company may require the conversion of all,
but not less than all, of the outstanding Series B Shares, provided, that the
closing bid prices of the Common Stock are equal to or greater than 200% of the
Fixed Conversion Price for twenty consecutive trading days preceding any such
conversion. Any unconverted Series B Shares will automatically convert into
shares of Common Stock on August 26, 2000.
The Series B Shares may also be redeemed under certain circumstances for
cash. A holder of Series B Shares may require the Company to redeem any or all
of such holder's Series B Shares in the event (each a "Redemption Event") that:
(i) the Company fails to issue the Conversion Shares with respect to any
conversion within a required period of time; (ii) the Common Stock is suspended
from trading on the American Stock Exchange for an aggregate of ten trading days
in any nine month period; (iii) the Registration Statement has not been declared
effective by February 28, 1998 or cannot be utilized by the holders of the
Series B Shares for an aggregate of more than thirty days (excluding certain
permitted blackout periods) in any twelve month period; (iv) the Company fails
to remove any restrictive legend on any certificate representing Conversion
Shares when required; (v) the Company provides notice to any holder of Series B
Shares of its intention not to issue Conversion Shares upon conversion; or (vi)
the Company engages in certain corporate reorganizations. With respect to the
Redemption Events described in clauses (i) through (v) immediately above, the
amount payable upon redemption (the "Redemption Amount") is equal to the product
of (i) the highest closing bid price of the Company's Common Stock during the
period beginning on the redemption date and the date the Redemption Amount is
paid, and (ii) the quotient (the "Quotient") obtained by dividing (x) the Face
Value of the Series B Shares being redeemed plus any accrued but unpaid Premium
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<PAGE> 21
by (y) the conversion price then in effect. With respect to the Redemption Event
set forth in (v) immediately above and for redemptions at the option of the
Company (described below) on account of certain corporate reorganizations, the
Redemption Amount is the lower of (a) 124% of the Face Value being redeemed plus
any accrued but unpaid Premium and (b) the product of (i) the fair market value
of the consideration payable to the holder of a share of Common Stock in
connection with the corporate reorganization and (ii) the Quotient.
The Company may also redeem (consisting of at least 50% of the then
outstanding Series B Shares) outstanding Series B Shares at its option,
provided, that the closing bid prices for any five consecutive trading days is
less than $9.00. The Redemption Amount in such case is equal to 115% of the Face
Value of the Series B Shares plus any accrued but unpaid Premium.
One-half of the Warrants vested immediately while the remaining Warrants
vest on August 25, 1998; provided, however, that to the extent any of the
Series B Shares are converted prior to such date, the number of Warrants vesting
will be reduced ratably. The Warrants are exercisable at any time until August
25, 2000.
Both the exercise price and the number of Warrant Shares issuable under the
Warrants are subject to anti-dilution provisions, and may be adjusted upon,
among others: (i) the issuance by the Company of shares of Common Stock pursuant
to a private transaction for no consideration or for a consideration per share
of less than 85% of the then market price of such shares; (ii) a subdivision of
the shares of Common Stock (e.g., by stock split, stock dividend or
recapitalization); or (iii) a combination of shares of Common Stock (e.g., by
reverse stock split or recapitalization).
The Series B Preferred Shares rank prior to the Company's Common Stock with
respect to distribution of the Company's assets in the event of liquidation,
dissolution or winding up of the Company, whether voluntarily or involuntarily.
In the event of liquidation, dissolution, or winding up, the Company may make no
distribution to the holders of its Common Stock unless and until the holders of
the outstanding Series B Shares receive the Face Value thereof plus the accrued
Premium thereon through the date of the final distribution.
The Series B Preferred Stock and Warrants were sold to: Capital Ventures
International, C.C. Investments LDC and Proprietary Convertible Investment
Group, Inc. (the "Series B Preferred Stockholders"). The sale of the Series B
Shares and of the related Warrants was intended to comply with the Section 4(2)
of the Securities Act, and, pursuant to the regulations promulgated thereunder,
the Company filed a Form D in accordance with Regulation D promulgated under the
Securities Act. Based upon the representations of the Series B Preferred
Stockholders, the Company has reason to believe that each of the Series B
Preferred Stockholders, among others, is an "accredited investor" as that term
is defined in Rule 501(a) of Regulation D, acquired the Series B Shares for
investment purposes, and were furnished with the information that each such
Series B Preferred Stockholder or its counsel requested. The Company did not
engage in a general solicitation of offers to purchase the Series B Shares.
Pursuant to the terms of the Series B Preferred Stock the Company is not
permitted to pay dividends on its Common Stock prior to August 26, 1998, the
first anniversary of the date of issuance of the Series B Preferred Stock.
SUBSEQUENT EVENTS:
At a closing on October 28, 1997, the Company sold in a private placement
Senior Subordinated Convertible Notes (the "Notes") having an aggregate face
value of $10,000,000 and warrants (the "Notes Warrants") to purchase up to
106,700 shares of Common Stock to two institutional investors for gross proceeds
of $10,000,000.
The principal of the Notes is payable on October 28, 2002. The unpaid
principal of each Note accrues interest at the rate of 16% per year payable in
cash until the later of (i) the date of filing of a registration statement (the
"Notes Registration Date") covering the shares of Common Stock underlying the
Notes and the Notes Warrants (the "Registrable Securities"), and (ii) a date
between 180 and 270 days after October 27, 1997, selected by the Company (the
"Variable Conversion Date"). Thereafter, interest on the unpaid principal
accrues at the rate of 8% per year payable in cash or, at the Company's option
subject to certain conditions, shares of Common Stock calculated at a price per
share equal to 95% of the Recent Market Price. The "Recent Market Price" as of
any date is the lowest market price at which shares of Common Stock traded at
any time during the five trading days immediately preceding such date. During
the occurrence of an Event of Default (discussed below), the outstanding
principal amount and accrued but unpaid interest will accrue interest at a rate
of the lower of the Citibank Prime Rate per year plus 8% and the highest rate
permitted by law.
The holder of each Note may convert all or a portion of such Note into
shares of Common Stock prior to October 28, 2002. Prior to the Variable
Conversion Date, each Note converts into shares of Common Stock at 120% of the
Recent Market Price as of October 27, 1997. Following the Variable Conversion
Date, each Note converts at a conversion price per share equal to the Applicable
Percentage (as defined below) multiplied by the lesser of: (i) 125% of the
Recent Market Price as of October 27, 1997, as of the Variable Conversion Date
or (if later) as of the Notes Registration Date, whichever is least (the
"Ceiling Price"), and (ii) the Recent
21
<PAGE> 22
Market Price as of the date on which the conversion notice is sent. The
Applicable Percentage is a percentage ranging from 100% to 92.5% depending upon
the date that the Company chooses as the Variable Conversion Date.
Notwithstanding the above, the holder of a Note may on any date elect to fix
permanently with respect to all or a portion of the Note the conversion price
per share in effect on such date, in which event the Note (or portion thereof)
must be converted within 90 days thereafter. The Company may block any
conversion if the per share conversion price is less than 60% of the Ceiling
Price by offering to redeem for cash the Note (or portion thereof) that the
holder thereof would otherwise have converted for a price equal to the fair
market value of the shares of Common Stock that would have been issued plus
accrued interest on the Note (or portion thereof) so redeemed.
After October 27, 1999, the Company may elect to redeem the Notes, in whole
or in part, at 105% of their face value plus accrued but unpaid interest,
provided that the Recent Market Price has been equal to or greater than the
Ceiling Price for 75 consecutive trading days immediately preceding the date of
the redemption notice and for the fifteen trading days commencing on that date.
Events of Default for purposes of the Notes include: (a) the Company's
failure to make payments due under the Notes; (b) the Company's failure to
maintain the listing of its shares of Common Stock; (c) the registration
statement registering the Registrable Securities is not declared effective by a
certain date; (d) such registration statement is not available for use by the
holders of Registrable Securities for a certain period of time; (e) the
Company's failure to deliver appropriate stock certificates; (f) the Company
fails to comply with any of its other payment obligations or other material
agreements under the Notes, the Notes Warrants, or the related agreements (the
"Notes Agreements"); (g) the presence of a material misrepresentation in the
Notes Agreements; (h) the Company defaults under any of its senior debt such
that the holder thereof has a right of acceleration; (i) the Company sells or
otherwise disposes of all or substantially all of its assets; or (j) the
occurrence of certain events related to bankruptcy.
The Notes Warrants may be exercised in whole or in part from time to time
until October 28, 2002. The exercise price per share of each Notes Warrant
equals the Recent Market Price as of October 27, 1997, the Variable Conversion
Date and (if later) the Notes Registration Date, whichever is lowest.
Notwithstanding the foregoing, the holder of a Notes Warrant may elect a
cashless exercise of such Notes Warrant.
The number of shares of Common Stock issuable upon conversion of the Notes
and exercise of the Notes Warrants, and the conversion price and exercise price,
respectively, thereof, are subject to anti-dilution provisions, and may be
adjusted, among others: upon (i) the issuance of stock dividends, or the
occurrence of stock splits, reclassifications, recapitalizations, or similar
events; (ii) any consolidation, merger, reorganization or similar fundamental
restructuring; or (iii) the issuance of shares of Common Stock or convertible
securities for consideration below a specified discount below the market price
of the Common Stock.
Shoreline Pacific Institutional Finance, the Institutional Division of
Financial West Group ("Shoreline"), acted as placement right for the offering of
the Notes and the Notes Warrants. As compensation for its services as placement
agent, Shoreline received a cash commission of $500,000, representing 5% percent
of the gross proceeds of the offering. In addition, the Company issued four
warrants to purchase up to an aggregate of 31,250 shares of Common Stock with
the same terms as the Notes Warrants to certain designees of Shoreline.
The sale of the warrants and of the Notes Warrants was intended to comply
with section 4(2) of the Securities Act, and, pursuant to the regulations
promulgated thereunder, the Company filed a Form D in accordance with Regulation
D promulgated under the Securities Act. Based upon the representations of the
purchasers of the Notes, the Company has reason to believe that each of such
purchasers, among others is an "accredited investor" as that term is defined in
Rule 501(a) of Regulation D, acquired the Notes for investment purposes, and
were furnished with the information that each such purchaser or its counsel
requested. The Company did not engage in a general solicitation of offers to
purchase the Notes.
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS:
EXHIBIT NUMBER TITLE
10.1 Amendment dated August 6, 1997, to
Manufacturing Agreement dated March 22, 1996,
between the Company and Princeton Biomeditech
Corporation
99.1 Registration Rights Agreement, dated August
26, 1997, by and among the Company and the
Series B Preferred Stockholders (incorporated
by reference to Exhibit 99.1 to the Company's
registration statement on Form S-3 as filed
with the Securities Exchange Commission on
October 15, 1997)
99.2 Certificate of Designations, Preferences and
Rights of Series B Convertible Preferred Stock
of Selfcare, Inc. (incorporated by reference
to Exhibit 99.2 to the Company's registration
statement on Form S-3 as filed with the
Securities Exchange Commission on October 15,
1997)
99.3 Securities Purchase Agreement, dated August
26, 1997, by and among the Company and each of
the Series B Preferred Stockholders
(incorporated by reference to Exhibit 99.3 to
the Company's registration statement on Form
S-3 as filed with the Securities Exchange
Commission on October 15, 1997)
99.4 Form of Warrant to Purchase Shares of Common
Stock of the Company issued to each of the
Series B Investors (incorporated by reference
to Exhibit 99.4 to the Company's registration
statement on Form S-3 as filed with the
Securities Exchange Commission on October 15,
1997)
99.5 Securities Purchase Agreement, dated as of
October 27, 1997, by and between the Company,
Elliott Associates, L.P. and Westgate
International, L.P.
99.6 Registration Rights Agreement, dated as of
October 27, 1997, by and between the Company, and
Elliott Associates, L.P. and Westgate
International, L.P.
99.7 Form of Senior Subordinated Convertible Note
due October 28, 2002
99.8 Form of Common Stock Purchase Warrant
Certificate dated as of October 27, 1997
27 Financial Data Schedule
b. REPORTS ON FORM 8-K:
The Company filed no reports on Form 8-K during the three-month period
ended September 30, 1997.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SELFCARE, INC.
Date: November 13, 1997 /s/ Anthony H. Hall
------------------------------------
Anthony H. Hall,
Chief Financial Officer
and an authorized officer
24
<PAGE> 1
EXHIBIT 10.1
EXECUTION COPY
AMENDMENT TO AGREEMENT BETWEEN SELFCARE, INC.
AND PRINCETON BIOMEDITECH CORPORATION
THIS AMENDMENT TO AGREEMENT BETWEEN SELFCARE, INC. AND PRINCETON
BIOMEDITECH CORPORATION is made as of August 6, 1997 by and between Selfcare,
Inc., a Delaware corporation with its principal place of business at 200
Prospect Street, Waltham, Massachusetts 02154 ("SELFCARE"), and Princeton
BioMeditech Corporation, a New Jersey corporation with its principal place of
business at 4242 U.S. Rt. 1, Monmouth Junction, New Jersey 08852 ("PBM").
WHEREAS, Selfcare and PBM are parties to that certain Agreement between
Selfcare, Inc. and Princeton BioMeditech Corporation executed by PBM on March
19, 1996 and by Selfcare on March 22, 1996 (the "MANUFACTURING AGREEMENT");
WHEREAS, the parties wish to extend the term of certain provisions of
the Manufacturing Agreement and to make certain amendments thereto;
NOW, THEREFORE, in consideration of the promises and the mutual
agreements hereinafter set forth and intending to be legally bound, the parties
hereby agree as follows:
1. AMENDMENTS TO MANUFACTURING AGREEMENT
The parties hereby agree that the Manufacturing Agreement shall be amended as
follows:
(a) Section 1 of the Manufacturing Agreement is hereby deleted and the
following is inserted in its place:
1) Selfcare will purchase certain HCG cassette tests from PBM for both
Selfcare brands as well as private label distribution for four years
beginning on July 1, 1997 (that four-year period hereinafter to be
called the "DESIGNATED TERM" and each successive 365-day period during
the Designated Term to be known respectively as the "FIRST CONTRACT
YEAR", "SECOND CONTRACT YEAR", "THIRD CONTRACT YEAR" or "FOURTH
CONTRACT YEAR"). PBM will provide the cassettes with desiccant and a
dropper in printed pouches to Selfcare's specifications. For the First
Contract Year, Selfcare will purchase a minimum of cassettes
at a price of each. This price is based upon Selfcare continuing
its current practice of supplying to PBM the plastic devices for the
cassettes and paying the cost of printing on the devices and the cost
of shipping such devices to PBM. This price shall be renegotiated from
time to time, if (i) Selfcare does not continue its current practice to
supply the plastic devices for the cassettes and/or pay for the
printing and shipping costs or (ii) significant changes occur in the
marketplace to significantly erode Selfcare's ability to aggressively
market the
<PAGE> 2
product. The two parties will work together to lower the cost of
product. Selfcare will purchase a minimum of cassettes during
the Second Contract Year, cassettes during the Third Contract
Year, and cassettes during the Fourth Contract Year, at
prices to be mutually agreed by the parties based on market conditions.
(b) Section 2 of the Manufacturing Agreement is hereby deleted and the
following is inserted in its place:
2) Selfcare will purchase certain midstream HCG sticks from PBM for
Selfcare brands during the Designated Term. PBM will supply the sticks
in Princeton's plastic parts in printed pouches to Selfcare's
specifications. During the First Contract Year, Selfcare will purchase
a minimum of STICKS at a price of each. This price shall
be renegotiated from time to time, if significant changes occur in the
marketplace to significantly erode Selfcare's ability to aggressively
market the product. The two parties will work together to lower the
cost of production. Selfcare will purchase a minimum of sticks
during the Second Contract Year, sticks during the Third
Contract Year, and sticks during the Fourth Contract Year, at
prices to be mutually agreed by the parties based on market conditions.
(c) Section 3 of the Manufacturing Agreement is hereby deleted and the
following is inserted in its place:
3) (a) Selfcare will purchase certain LH cassettes from PBM for both
Selfcare brands, as well as private label distribution during the
Designated Term. PBM will supply the cassettes in Princeton's plastic
parts in printed pouches to Selfcare's specifications. During the First
Contract Year, Selfcare will purchase a minimum of LH cassettes
at a price of each. This price shall be renegotiated from time
to time, if significant changes occur in the marketplace to
significantly erode Selfcare's ability to aggressively market the
product. The two parties will work together to lower the cost of
product. Selfcare will purchase a minimum of LH cassettes
during the Second Contract Year, cassettes during the Third
Contract Year, and cassettes during the Fourth Contract Year, at prices
to be mutually agreed by the parties based on market conditions.
(b) Selfcare will purchase certain LH sticks from PBM for both Selfcare
brands, as well as private label distribution during the Designated
Term. PBM will supply the sticks in Princeton's plastic parts in
printed pouches to Selfcare's specifications. During the First Contract
Year, Selfcare will purchase a minimum of LH sticks at a price
of each. This price shall be renegotiated from time to time, if
significant changes occur in the marketplace to significantly erode
Selfcare's ability to aggressively market the product. The two parties
will work together to lower the cost of product. Selfcare will purchase
a minimum of LH sticks during the Second Contract Year,
sticks during the Third Contract Year, and sticks
during the Fourth Contract Year, at prices to be mutually agreed by
the parties based on market conditions.
2. GENERAL PROVISIONS
(a) As amended hereby, the Manufacturing Agreement shall remain in full
force and effect in accordance with its terms and is hereby ratified, confirmed
and approved.
(b) This Amendment may be executed in any number of counterparts with
the same effect as if all parties hereto had signed the same document. All
counterparts shall be construed together and shall constitute one instrument.
[THE REST OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have executed this Amendment to
Agreement between Selfcare, Inc. and Princeton BioMeditech Corporation as of the
date first written above.
SELFCARE, INC.
By: /s/ Kenneth D. Legg
----------------------------------------
Name: Kenneth D. Legg
PRINCETON BIOMEDITECH CORPORATION
By: /s/ Jemo Kang
----------------------------------------
Name: Jemo Kang
----------------------------------
<PAGE> 1
EXHIBIT 99.5
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT ("Agreement") is entered into as of
October 27, 1997, by and between Selfcare, Inc., a Delaware corporation (the
"Company"), with headquarters located at 200 Prospect Street, Waltham, MA 02154
and the purchasers ("Purchasers") set forth on the execution pages hereof, with
regard to the following:
RECITALS
A. The Company and Purchasers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act").
B. Purchasers desire (a) to purchase, upon the terms and conditions
stated in this Agreement, Ten Million U.S. Dollars face amount of the Company's
Senior Subordinated Convertible Notes (the "Notes"), in the form attached hereto
as Exhibit A, convertible into shares of the Company's Common Shares, par value
$.001 per share (the "Common Stock"), and (b) to receive, in consideration for
such purchase, Stock Purchase Warrants (the "Warrants"), in the form attached
hereto as Exhibit B, to acquire shares of Common Stock. The shares of Common
Stock issuable upon exercise of or otherwise pursuant to the Warrants are
referred to herein as "Warrant Shares". The shares of Common Stock to be issued
to the Purchasers upon conversion of the Notes hereunder are referred to herein
as the "Common Shares." The Notes, the Common Shares, the Warrants, and the
Warrant Shares are collectively referred to herein as the "Securities."
C. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement (the "Registration Rights Agreement"), pursuant to which the Company
has agreed to provide certain registration rights under the Securities Act, the
rules and regulations promulgated thereunder and applicable state securities
laws.
AGREEMENTS
NOW, THEREFORE, in consideration of their respective promises contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Company and Purchasers hereby agree as
follows:
<PAGE> 2
ARTICLE I
PURCHASE AND SALE OF NOTES
1.1 Purchase of Notes. Subject to the terms and conditions of this
Agreement, the issuance, sale and purchase of the Notes shall be consummated in
a "Closing". On the date of the Closing, subject to the satisfaction or waiver
of the conditions set forth in Articles VI and VII, the Company shall issue and
sell to the Purchasers, and the Purchasers agree to purchase from the Company,
the Notes for an aggregate purchase price of Ten Million U.S. Dollars (the
"Purchase Price"), each Purchaser purchasing 50% of the Notes and paying 50% of
the Purchase Price.
1.2 Form of Payment. The Purchasers shall pay the Purchase Price for
the Notes by wire transfer to the account designated by the Company on the
signature page of this Agreement, upon delivery to the Purchasers of the Notes
and the Warrants, all in accordance with the terms of this Agreement, and upon
satisfaction of the other Closing conditions..
1.3 Closing Date. Subject to the satisfaction (or waiver) of the
conditions set forth in Articles VI and VII below, the date and time of the
issuance, sale and purchase of the Notes pursuant to this Agreement shall be at
6:00 p.m. New York City time, on October 27, 1997; provided, however, that in
the event the Purchasers have not irrevocably notified their bank(s) to promptly
wire the Purchase Price to the account or accounts directed by the Company by
2:15 p.m., October 28, 1997, the transactions contemplated by this Agreement
shall become void and this Agreement shall promptly terminate. Purchasers agree
to deliver to the Company, and the Company agrees to deliver to the Purchasers,
all signature pages signed by the other to this Agreement, the Registration
Rights Agreement, the Notes and the Warrants immediately following such
termination.
1.4 Warrants. In consideration of the purchase by Purchasers of the
Notes, the Company shall at the Closing issue to the Purchasers Warrants to
acquire an aggregate of One Hundred Six Thousand Seven Hundred (106,700) shares
of Common Stock (a Warrant representing 50% of such shares shall be delivered to
each Purchaser).
ARTICLE II
PURCHASER'S REPRESENTATIONS AND
WARRANTIES
Each Purchaser represents and warrants to the Company as of the date
hereof and as of the Closing as set forth in this Article II. The Purchasers
make no other representations or warranties, express or implied, to the Company
in connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by the
Purchasers to the Company in connection with the transactions contemplated
hereby shall be deemed to have been merged in this Agreement and any such prior
representations and
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<PAGE> 3
warranties, if any, shall not survive the execution and delivery of this
Agreement.
2.1 Investment Purpose. Purchaser is purchasing the Notes and the
Warrants for Purchaser's own account for investment only and not with a view
toward or in connection with the public sale or distribution thereof in
violation of the applicable securities laws. Purchaser will not, directly or
indirectly, offer, sell, pledge or otherwise transfer the Notes or Warrants or
any interest therein except pursuant to transactions that are exempt from the
registration requirements of the Securities Act or sales registered under the
Securities Act, the rules and regulations promulgated pursuant thereto and
applicable state securities laws. Purchaser understands that Purchaser must bear
the economic risk of this investment indefinitely, unless the Securities are
registered pursuant to the Securities Act and any applicable state securities
laws or an exemption from such registration is available, and that the Company
has no present intention of registering any such Securities other than as
contemplated by the Registration Rights Agreement. By making the representations
in this Section 2.1, the Purchaser does not agree to hold the Securities for any
minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption from registration under the Securities Act and any
applicable state securities laws.
2.2 Accredited Investor Status. Purchaser is an "accredited investor"
as that term is defined in Rule 501(a) of Regulation D.
2.3 Reliance on Exemptions. Purchaser understands that the Notes and
Warrants are being offered and sold to Purchaser in reliance upon specific
exemptions from the registration requirements of United States federal and state
securities laws and that the Company is relying upon the truth and accuracy of,
and Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Notes and Warrants.
2.4 Information. Purchaser or its counsel have been furnished all
materials relating to the business, finances and operations of the Company and
materials relating to the offer and sale of the Securities which have been
specifically requested by Purchaser, including without limitation the Company's
Registration Statement on Form S-3 filed with the Securities and Exchange
Commission ("SEC") on October 15, 1997, Annual Report on Form 10-KSB/A for the
Year ended December 31, 1996, Quarterly Reports on Form 10-QSB for the periods
ended March 31, 1997 and June 30, 1997, Current Report on Form 8-K filed with
the SEC on March 5, 1997, as amended by Form 8-K/A filed with the SEC on May 5,
1997, Prospectus dated March 7, 1997 ("Prospectus") and Proxy Statement dated
May 6, 1997 (such documents collectively, the "Furnished SEC Documents").
Purchaser has been afforded the
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<PAGE> 4
opportunity to ask questions of the Company and has received what Purchaser
believes to be complete and satisfactory answers to any such inquiries. The
Company agrees that neither such inquiries nor any other due diligence
investigation conducted by Purchaser or any of its representatives nor any other
disclosures or documents (including without limitation the Furnished SEC
Documents and the SEC Documents, as hereinafter defined) shall modify, amend or
affect Purchaser's right to rely on the Company's representations and warranties
contained in this Agreement or in any Exhibit or Schedule hereto or in any
certificate delivered pursuant hereto or thereto. Purchaser understands that
Purchaser's investment in the Securities involves a high degree of risk,
including without limitation the risks and uncertainties disclosed in the SEC
Documents. Subject to the foregoing, Purchaser acknowledges the disclosures
presented under the caption "Risk Factors" in the Company's Form 10-K SB/A for
the year ended December 31, 1996 and in the Prospectus.
2.5 Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
2.6 Transfer or Resale. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the Securities Act or any state securities laws,
and may not be offered, sold, pledged or otherwise transferred by Purchaser
unless subsequently registered thereunder or an exemption from such registration
is available (which exemption the Company expressly agrees may be established as
contemplated in clauses (b), (c) and/or (d) of Section 5.1 hereof); (ii) any
sale of such Securities made in reliance on Rule 144 under the Securities Act
(or a successor rule) ("Rule 144") may be made only in accordance with the terms
of Rule 144 and further, if Rule 144 is not applicable, any resale of such
Securities without registration under the Securities Act under circumstances in
which the seller may be deemed to be an underwriter (as that term is defined in
the Securities Act) may require compliance with some other exemption under the
Securities Act or the rules and regulations of the SEC thereunder, and (iii)
neither the Company nor any other person is under any obligation to register
such Securities under the Securities Act or any state securities laws or to
comply with the terms and conditions of any exemption thereunder (in each case,
other than pursuant to this Agreement or the Registration Rights Agreement).
2.7 Legends. Purchaser understands that, subject to Article V hereof,
the certificates for the Notes and Warrants and, until such time as the Common
Shares and Warrant Shares have been registered under the Securities Act as
contemplated by the Registration Rights Agreement or otherwise may be sold by
Purchaser pursuant to Rule 144 (subject to and in accordance with the procedures
specified in Article V hereof), the certificates
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<PAGE> 5
for the Common Shares and Warrant Shares, will bear a restrictive legend (the
"Legend") in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
2.8 Authorization: Enforcement. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable in accordance with their respective terms, except (i) to the extent
that such validity or enforceability may be subject to or affected by any
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally the enforcement of, creditors' rights or
remedies of creditors generally, or by other equitable principles of general
application, and (ii) as rights to indemnity and contribution under the
Registration Rights Agreement may be limited by Federal or state securities
laws.
2.9 Residency. Purchaser is a resident of the jurisdiction set forth
under Purchaser's name on the signature page hereto executed by Purchaser.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to each Purchaser as of the date
hereof and as of the Closing as set forth in this Agreement and in any Exhibit,
Schedule, agreement or certificate delivered in connection herewith or
therewith. Except as contemplated above and in Section 8.5, the Company makes no
other representations or warranties, express or implied, to the Purchaser in
connection with the transactions contemplated hereby and any and all prior
representations and warranties, if any, which may have been made by the Company
to the Purchaser in connection with the transactions contemplated hereby shall
be deemed to have been merged in this Agreement and any such prior
representations and warranties, if any, shall not survive the execution and
delivery of this Agreement.
3.1 Organization and Qualification. Each of the Company and its
direct and indirect subsidiaries (collectively, "Subsidiaries") is a corporation
duly organized and existing in good standing under the laws of the jurisdiction
in which it is incorporated, and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company and
each of its Subsidiaries is duly qualified as a foreign corporation to do
business and is in good standing in
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<PAGE> 6
every jurisdiction where the failure so to qualify or be in good standing would
have a Material Adverse Effect. "Material Adverse Effect" means any effect
which, individually or in the aggregate with all other effects, is or reasonably
would be expected to be materially adverse to the business, operations,
properties, financial condition or operating results of the Company and its
Subsidiaries, taken as a whole on a consolidated basis, or to the transactions
contemplated hereby or to any of the Securities.
3.2 Authorization: Enforcement. (a) The Company has the requisite
corporate power and authority to enter into and perform this Agreement and the
Registration Rights Agreement, and to issue, sell and perform its obligations
with respect to the Registration Rights Agreement, Notes and Warrants in
accordance with the terms hereof and the terms of the Registration Rights
Agreement, Notes and Warrants, and to issue the Common Shares and Warrant Shares
upon conversion of the Note and exercise of the Warrant, respectively, in
accordance with the terms and conditions of the Notes and Warrants,
respectively; (b) the execution, delivery and performance of this Agreement and
the Registration Rights Agreement by the Company and the consummation by it of
the transactions contemplated hereby and thereby (including without limitation
the issuance of the Notes and the Warrants, and the issuance and reservation for
issuance of the Common Shares and the Warrant Shares) have been duly authorized
by all necessary corporate action and, except as set forth on Schedule 3.2
hereof, no further consent or authorization of the Company, its board of
directors, or its stockholders or any other person, body or agency, and except
for a listing application with respect to the Common Shares and the Warrant
Shares to be filed by the Company promptly after Closing with AMEX (as herein
defined), no filing with any person, body or agency, is required with respect to
any of the transactions contemplated hereby or thereby (whether under rules of
the American Stock Exchange ("AMEX"), the National Association of Securities
Dealers or otherwise); (c) this Agreement, the Registration Rights Agreement,
the Notes, and the Warrants have been duly executed and delivered by the
Company; and (d) this Agreement, the Registration Rights Agreement, the Notes,
and the Warrants constitute legal, valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms,
except (i) to the extent that such validity or enforceability may be subject to
or affected by any bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights or remedies of creditors generally, or by other equitable
principles of general application, and (ii) as rights to indemnity and
contribution under the Registration Rights Agreement may be limited by Federal
or state securities laws.
3.3 Capitalization. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares reserved for issuance pursuant to the
Company's stock option plans, the number of shares reserved for issuance
pursuant to securities (other than the Notes or the Warrants) exercisable
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<PAGE> 7
for, or convertible into or exchangeable for any shares of Common Stock and the
number of shares to be reserved for issuance upon conversion of the Notes and
exercise of the Warrants is set forth on Schedule 3.3. All of such outstanding
shares of capital stock of the Company (including the Common Shares and the
Warrant Shares) have been, or upon issuance will be, validly issued, fully paid
and nonassessable. No shares of capital stock of the Company (including the
Common Shares and the Warrant Shares) are, and no such Common Shares or Warrant
Shares will be, subject to preemptive rights or any other similar rights
granted, created, suffered or caused by the Company or any liens or encumbrances
granted, created, suffered or caused by the Company or any of its Subsidiaries.
Except as disclosed in Schedule 3.3, as of the date of this Agreement, (i) there
are no outstanding options, warrants, scrip, rights to subscribe for, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exercisable or exchangeable for, any shares of capital stock
of the Company or any of its Subsidiaries, or contracts, commitments,
understandings or arrangements by which the Company or any of its Subsidiaries
is or may become bound to issue additional shares of capital stock of the
Company or any of its Subsidiaries, and (ii) issuance of the Securities will not
trigger antidilution or similar rights for any other present or future
outstanding or authorized securities of the Company, and (iii) there are no
agreements or arrangements under which the Company or any of its Subsidiaries is
obligated to register the sale of any of its or their securities under the
Securities Act (except the Registration Rights Agreement). The Company has
furnished to Purchaser true and correct copies of the Company's Certificate of
Incorporation as in effect on the date hereof ("Certificate of Incorporation"),
and the Company's By-laws as in effect on the date hereof (the "By-laws"). The
Company has set forth on Schedule 3.3 all instruments and agreements (other than
the Certificate of Incorporation and By-laws) governing or concerning securities
convertible into or exercisable or exchangeable for Common Stock of the Company
(and the Company shall provide to Purchasers copies thereof upon the request of
Purchasers). Unless signing and Closing occur simultaneously, the Company shall
provide Purchasers with a written confirmation of this representation signed by
the Company's Chief Executive Officer or Chief Financial Officer on behalf of
the Company as of the date of the Closing.
3.4 Issuance of Shares. The Common Shares and Warrant Shares are duly
authorized and reserved for issuance, and, upon conversion in the case of the
Notes and exercise in the case of the Warrants in accordance with the terms
thereof, as applicable, will be validly issued, fully paid and non-assessable,
and free from all taxes, liens, claims and encumbrances directly or indirectly
imposed or suffered by the Company or any of its Subsidiaries or affiliates,
will be entitled to all rights and preferences accorded to a holder of Common
Stock, shall be entitled to be traded on the same markets and exchanges as the
other shares of Common Stock of the Company are traded, and will not be subject
to preemptive rights or other similar rights of stockholders of the Company or
of any other person or entity
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<PAGE> 8
granted, created, suffered or caused by the Company or any of its Subsidiaries.
The Notes and Warrants are duly authorized and validly issued, fully paid and
nonassessable, and free from all liens, claims and encumbrances directly or
indirectly imposed or suffered by the Company or any of its Subsidiaries or
affiliates and will not be subject to preemptive rights or other similar rights
of stockholders of the Company or of any other person or entity granted,
created, suffered or caused by the Company or any of its Subsidiaries.
3.5 No Conflicts. The execution, delivery and performance of this
Agreement, the Notes, the Warrants and the Registration Rights Agreement by the
Company, and the consummation by the Company of transactions contemplated hereby
and thereby (including, without limitation, the issuance and reservation for
issuance, as applicable, of the Notes, Common Shares, Warrants, and Warrant
Shares) will not (a) result in a violation of the Certificate of Incorporation
or By-laws or (b) conflict with, or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
Subsidiaries is a party, or result in a violation of any law, rule, regulation,
order, judgment or decree (including U.S. federal and state securities laws and
regulations and the rules and regulations of AMEX) applicable to the Company or
any of its Subsidiaries, or by which any property or asset of the Company or any
of its Subsidiaries is bound or affected (except for such possible conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse Effect,
or that result solely and directly from any misrepresentation of the Purchasers
set forth herein). Neither the Company nor any of its Subsidiaries is in
violation of its Certificate of Incorporation or other organizational documents,
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which has not been permanently waived and released which, with
notice or lapse of time or both, would put the Company or any of its
Subsidiaries in default) under, nor has there occurred any event giving others
(with notice or lapse of time or both) any rights of termination, amendment,
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, except for possible
violations, defaults or rights as would not, individually or in the aggregate,
have a Material Adverse Effect. The businesses of the Company and its
Subsidiaries are not being conducted, and shall not be conducted so long as any
Purchaser (or any transferee or assignee of Purchaser or of such transferee or
assignee, and their successors and assigns, in a transaction of the type
referred to in Section 5.1(b) below ("Purchaser Transferee")) owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity, except for possible violations the sanctions for which either
individually or in the aggregate would not have a Material Adverse Effect.
Except as set forth on Schedule 3.5, or except (A) such as may be required under
the
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<PAGE> 9
Securities Act in connection with the performance of the Company's obligations
under the Registration Rights Agreement, (B) filing of a Form D with the SEC,
(C) filing of the listing application referred to in Section 3.2(b) above with
AMEX, and (D) compliance with the state securities or Blue Sky laws of
applicable jurisdictions, the Company is not required to obtain any consent,
authorization or order of, or make any filing or registration with, any court or
governmental agency or any regulatory or self-regulatory agency in order for it
to execute, deliver or perform any of its obligations under this Agreement, the
Notes, the Warrants or the Registration Rights Agreement or to perform its
obligations in accordance with the terms hereof or thereof. The Company is not
in violation of the listing requirements of AMEX, does not know of or anticipate
any event which could be grounds for any delisting, and does not reasonably
anticipate that the Common Stock will be delisted by AMEX for the foreseeable
future.
3.6 SEC Documents. Except as disclosed in Schedule 3.6, since
December 31, 1996, the Company has timely filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") (all of the foregoing filed after December 31, 1996 and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein, being referred to herein as the
"SEC Documents"). The Company has delivered to each Purchaser true and complete
copies of the Furnished SEC Documents, except for exhibits, schedules and
incorporated documents. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Exchange Act and the rules
and regulations of the SEC promulgated thereunder applicable to the SEC
Documents, and none of the SEC Documents, at the time they were filed with the
SEC, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the statements made in any such SEC Documents which is
required to be updated or amended under applicable law has not been so updated
or amended. None of the statements made in any such SEC Documents which was or
has become inaccurate or misleading, and which would have a Material Adverse
Effect, has not been so updated or amended. The financial statements of the
Company included in the SEC Documents have been prepared in accordance with U.S.
generally accepted accounting principles, consistently applied, and the rules
and regulations of the SEC during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they do not include
footnotes or are condensed or summary statements) and, fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements,
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<PAGE> 10
to normal, immaterial year-end audit adjustments). Except as specifically set
forth in the Furnished SEC Documents, the Company has no liabilities, contingent
or otherwise, other than (i) liabilities incurred in the ordinary course of
business consistent with past practice subsequent to the date of such financial
statements and (ii) obligations not required under generally accepted accounting
principles to be reflected in such financial statements under contracts and
commitments incurred in the ordinary course of business consistent with past
practice and (iii) liabilities not required under generally accepted accounting
principles to be reflected in such financial statements, in each case of clause
(i), (ii) and (iii) next above which, individually or in the aggregate, are not
material to the financial condition, business, operations, properties, operating
results or prospects of the Company and its Subsidiaries on a consolidated
basis, or to the transactions contemplated hereby or to the Securities. To the
extent required by the rules of the SEC applicable thereto, the SEC Documents
contain a complete and accurate list of all material undischarged written or
oral contracts, agreements, leases or other instruments existing as of the
respective date of each such SEC Document (or such other date required by the
rules of the SEC) to which the Company or any subsidiary is a party or by which
the Company or any subsidiary is bound or to which any of the properties or
assets of the Company or any subsidiary is subject (each a "Contract"). Except
as set forth in Schedule 3.6 or as specifically disclosed in the Furnished SEC
Documents, none of the Company, its Subsidiaries or, to the best knowledge of
the Company, any of the other parties thereto, is in breach or violation of any
Contract, which breach or violation would have a Material Adverse Effect, or of
any other existing agreement or document which the Company will be required to
list or describe in any subsequent SEC filing. No event, occurrence or condition
exists which, with the lapse of time, the giving of notice, or both, would
become a default by the Company or its Subsidiaries under any such Contracts,
agreements or documents which would have a Material Adverse Effect. The Company
has not provided and will not provide to any Purchaser any material non-public
information or any other information which, according to applicable law, rule or
regulation, should have been disclosed publicly by the Company but which has not
been so disclosed, except that with respect to any previously material
non-public information disclosed to the Purchasers, any such information will be
publicly disclosed by the Company within the time period set forth in the
Confidentiality Agreement referred to in Section 8.5 below.
3.7 Absence of Certain Changes. Since December 31, 1996, there has
been no Material Adverse Effect, except as disclosed in Schedule 3.7 or as
specifically disclosed in the Furnished SEC Documents.
3.8 Absence of Litigation. Except as disclosed in Schedule 3.8, there
is no action, suit, proceeding, inquiry or investigation before or by any court,
public board, government agency, or self-regulatory organization or body pending
or, to the knowledge of the Company or any of its Subsidiaries,
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<PAGE> 11
threatened against the Company, any of its Subsidiaries, or any of their
respective directors or officers in their capacities as such, which could
reasonably be expected to result in an unfavorable decision, ruling or finding
which would have a Material Adverse Effect or would adversely affect in any
material respect the transactions contemplated by this Agreement or any of the
documents executed and delivered pursuant hereto or which would adversely affect
the validity or enforceability of, or the authority or ability of the Company to
perform its obligations under, this Agreement or any of such other documents.
There are no facts known to the Company which, if known by a potential claimant
or governmental authority, could reasonably be expected to give rise to a claim
or proceeding which, if asserted or conducted with results unfavorable to the
Company or any of its Subsidiaries, could reasonably be expected to have a
Material Adverse Effect.
3.9 Disclosure. No information, statement or representation relating
to or concerning the Company or any of its Subsidiaries set forth in this
Agreement or in any Schedule, Exhibit, certificate or agreement provided to a
Purchaser in connection with the transactions contemplated hereby contains an
untrue statement of a material fact. No information relating to or concerning
the Company or any of its Subsidiaries set forth in any of the Furnished SEC
Documents contains a statement of material fact that was untrue as of the date
such Furnished SEC Document was filed with the SEC. The Company has not omitted
to state a material fact necessary in order to make the statements and
representations made herein or in any of the foregoing, in light of the
circumstances under which they were made and at the time they were made, not
misleading.
3.10 Acknowledgment Regarding Purchasers' Purchase of the Securities.
The Company acknowledges and agrees that each Purchaser is not acting as a
financial advisor or fiduciary of the Company or any of its Subsidiaries (or in
any similar capacity) with respect to this Agreement or the transactions
contemplated hereby, that this Agreement and the transaction contemplated
hereby, and the relationship between each Purchaser and the Company, are
"arms-length", and that any statement made by any Purchaser (except as set forth
in Article II), or any of its representatives or agents, in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation, is merely incidental to each Purchaser's purchase of the
Securities and has not been relied upon as such in any way by the Company, its
officers or directors. The Company further represents to each Purchaser that the
Company's decision to enter into this Agreement and the transactions
contemplated hereby have been based solely on an independent evaluation by the
Company and its representatives.
3.11 S-3 Registration. The Company is currently eligible to register
the resale of its Common Stock (including the Common Shares and the Warrant
Shares) on a registration statement on Form S-3 under the Securities Act.
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<PAGE> 12
3.12 No General Solicitation. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as described in Rule 502(c) under
Regulation D, with respect to any of the Securities being offered hereby.
3.13 No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would either require registration of
any of the Securities under the Act or prevent the parties hereto from
consummating, or delay or interfere with the consummation of, the transactions
contemplated hereby pursuant to an exemption from registration under the
Securities Act pursuant to the provisions of Regulation D. The transactions
contemplated hereby are exempt from the registration requirements of the
Securities Act, assuming the accuracy of the relevant representations and
warranties herein contained of the Purchasers and of Shoreline Pacific
Institutional Finance, the Institutional Division of Financial West Group
("Shoreline") in its agreement with the Company, to the extent relevant for such
determination. To the Company's knowledge, such representations and warranties
of Shoreline are accurate.
3.14 No Brokers. The Company has taken no action, directly or
indirectly, which would give rise to any claim by any person for brokerage
commissions, finder's fees or similar payments by Purchasers relating to this
Agreement or the transactions contemplated hereby. With respect to the Company's
dealings with Shoreline, the fees due Shoreline are the sole obligation of the
Company, and shall be paid in full by the Company. The Company will indemnify
the Purchasers from and against any fees and expenses (including without
limitation reasonable attorneys fees and expenses) sought or other claims made
by Shoreline with respect to any such fees. Shoreline has advised the Company
that Purchasers have no liability to Shoreline with respect to such fees.
3.15 Intellectual Property. Except as specifically disclosed in the
Furnished SEC Documents, each of the Company and its Subsidiaries owns, is
licensed to use, or possesses adequate and enforceable rights to use all
material patents, patent applications, trademarks, trademark applications, trade
names, service marks, copyrights, copyright applications, licenses, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") used or necessary for the
conduct of its business as now being conducted and as described in the Company's
Annual Report on Form 10-KSB/A for its most recently ended fiscal year. To the
Company's best knowledge, except as specifically disclosed in the Furnished SEC
Documents or set forth in Schedule 3.15, neither the Company nor any Subsidiary
of
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<PAGE> 13
the Company infringes on or is in conflict with any right of any other person
with respect to any Intangibles nor is there any claim of infringement made by a
third party against or involving the Company or any of its Subsidiaries, which
infringement, conflict or claim, individually or in the aggregate, could
reasonably be expected to result in an unfavorable decision, ruling or finding
which would have a Material Adverse Effect.
3.16 Key Employees. Each Key Employee (as defined below) is currently
serving the Company in the capacity disclosed in the Prospectus dated March 7,
1997. No Key Employee, to the best of the knowledge of the Company and its
Subsidiaries, after consultation by the Company with each Key Employee, is, or
is now expected to be, in violation of any material term of any employment
contract, confidentiality, disclosure or proprietary information agreement,
non-competition agreement, or any other contract or agreement or any restrictive
covenant, and the continued employment of each Key Employee does not subject the
Company or any of its Subsidiaries to any liability with respect to any of the
foregoing matters. Ron Zwanziger, to the best of the knowledge of the Company
and its Subsidiaries after consultation by the Company with Ron Zwanziger, has
no intention to terminate his employment with, or services to, the Company or
any of its Subsidiaries. "Key Employee" means each of Kenneth D. Legg, Ph.D.,
Tony Hall and Ron Zwanziger. No Key Employee has margined more than 20% of his
Common Stock, or placed more than 20% of his Common Stock in a situation which
could result in an involuntary sale thereof.
3.17 The Company does not have in effect a shareholders rights plan or
similar plan in the nature of a "poison pill." If the Company adopts such a
plan, none of the Purchasers' Notes, Warrants, Common Shares and Warrant Shares,
nor any of the transactions contemplated hereunder or thereunder, will be deemed
to trigger such plan.
3.18 Dilution. The number of Common Shares and Warrant Shares may
increase substantially in certain circumstances, including the circumstances
where the trading price of the Company's Common Stock declines. The Company
acknowledges that its obligation to issue Common Shares and Warrant Shares upon
conversion of the Notes and exercise of the Warrants is absolute and
unconditional, regardless of the dilution that such issuance may have on other
shareholders of the Company.
3.19 Certain Transactions. Except as disclosed in the SEC Documents
and except for arm's length transactions pursuant to which the Company or any of
its direct or indirect Subsidiaries makes payments in the ordinary course of
business upon terms no less favorable than the Company or any of its direct or
indirect Subsidiaries could obtain from third parties, none of the officers,
directors, or employees of the Company is presently a party to any transaction
with the Company or any of its direct or indirect Subsidiaries (other than for
services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
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<PAGE> 14
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
3.20 Permits; Compliance. The Company and each of its Subsidiaries is
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted (collectively, the "Company Permits"), and there is
no action pending or, to the knowledge of the Company, threatened regarding
suspension or cancellation of any of the Company Permits, except for such
Company Permits the failure of which to possess, or the cancellation or
suspension of which, would not, individually or in the aggregate, have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since January 1, 1996, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
3.21 Insurance. The Company and each of its Subsidiaries are insured
by insurers of recognized financial responsibility against such losses and risks
and in such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its Subsidiaries are
engaged. Neither the Company nor any such Subsidiary has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not have a Material
Adverse Effect.
ARTICLE IV
COVENANTS
4.1 Reasonable Efforts. The parties shall use commercially reasonably
efforts to timely satisfy each of the conditions described in Articles VI and
VII of this Agreement.
4.2 Securities Laws. The Company agrees to timely file a Form D with
respect to the Securities with the SEC as required under Regulation D and to
provide a copy thereof to each Purchaser promptly after such filing. The Company
agrees to timely file the appropriate SEC Form disclosing this Agreement and the
transactions contemplated hereby with the SEC. The
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<PAGE> 15
Company shall, on or prior to the date of Closing, take such action as is
necessary to qualify the Securities for sale to the Purchasers in compliance
with applicable securities laws of the states of the United States or obtain
exemption therefrom, and shall provide evidence of any such action so taken to
the Purchasers on or prior to the date of the Closing.
4.3 Reporting Status. So long as any Purchaser or any Purchaser
Transferee beneficially owns any of the Securities, (a) the Company shall timely
file all reports required to be filed with the SEC pursuant to the Exchange Act,
and the Company shall not terminate its status as an issuer required to file
reports under the Exchange Act even if the Exchange Act or the rules and
regulations thereunder would permit such termination, and (b) the Company will
maintain its ability and eligibility to register its Common Stock (including the
Common Shares and the Warrant Shares) on Form S-3.
4.4 Information. The Company agrees to send the following reports,
documents and information to each Purchaser and each Purchaser's Transferee
until each Purchaser and each Purchaser's Transferee transfers, assigns or sells
all of its Securities in transactions in which the transferee is (unless such
transferee is an affiliate) not subject to securities law resale restrictions or
limitations: (a) within three (3) business days after the filing with the SEC, a
copy of its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB,
any proxy statements and any Current Reports on Form 8-K; (b) within one (1)
business day after release, copies of all press releases issued by the Company
or any of its Subsidiaries and; (c) contemporaneously with the sending of any
document, notice or information to any class of the Company's equity security
holders, a copy of each document, notice or information furnished to any class
of the Company's equity security holders. The Company further agrees to promptly
provide to each Purchaser and each Purchaser's Transferee any information with
respect to the Company, its properties, or its business or each Purchaser's
investment as any Purchaser or Purchaser's Transferee may reasonably request;
provided, however, that the Company shall not be required to give any Purchaser
any material non-public information. If any information requested by a Purchaser
from the Company contains material non-public information, and if the Company is
willing to provide such material non-public information to a Purchaser, the
Company shall inform the Purchaser in writing that the information requested
contains material non-public information and shall in no event provide such
information to Purchaser without the express written consent of the Purchaser
after being so informed. Further, so long as any Purchaser or any Purchaser's
Transferee beneficially owns any Notes, Warrants, Common Shares or Warrant
Shares, the Company will give such Purchaser and any Purchaser's Transferee
prior notice of, promptly upon its occurrence, (a) any event or transaction
which has occurred or failed to occur (i) which will require an adjustment of
any component of the conversion or exercise rights or provisions under the Notes
or the Warrants, or (ii) which is a default or breach (with or without the
giving of
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<PAGE> 16
notice or the passage of time) by the Company under this Agreement, the
Registration Rights Agreement, the Notes or the Warrants, and (b) the selection
by the Company of a record date with respect to any of its equity securities,
and the purpose for which such record date was selected.
4.5 Listing. The Company shall continue the uninterrupted listing and
trading of its Common Stock and the Common Shares and Warrant Shares on the
Nasdaq National Market, the New York Stock Exchange or AMEX; and comply in all
material respects with the Company's reporting, filing and other obligations
under the By-laws and rules of the Nasdaq and such Exchange, as applicable. If
and so long as the Common Stock, the Common Shares and the Warrant Shares are
not listed on the Nasdaq or one of such Exchanges, as partial compensation for
the added liquidity risk of such delisting the Company shall be obligated to
make the following additional cash payments (the "Delisting Payments"). The
Delisting Payments will be equal to two percent (2%) of the Purchase Price (plus
accrued but unpaid interest) of any outstanding Notes for each month (pro rata
for partial months) following the date any such shares are delisted (the
"Delisting Date") continuing through the date all such shares are listed on
Nasdaq or one of such Exchanges (the "New Listing"). If such delisting occurs
within three (3) trading days of the date a Purchaser converts its Notes, and if
within such three (3) trading day period the Purchaser has not effectively sold
its Common Shares received upon such conversion, then, for the purpose of
calculating the Delisting Payment, the Notes so converted shall be deemed
outstanding until the New Listing date. The Delisting Payments will be paid to
the Holders of the Notes in cash within five (5) business days following the
earlier of (i) the end of each month following the Delisting Date, or (ii) the
effective date of the New Listing. Nothing herein shall limit the Note Holder's
right to pursue damages (including without limitation lost trading or other
profits and reimbursement for expenses and reasonable legal fees incurred;
excluding, however, other consequential damages and punitive damages)
(collectively, "Damages") for the Company's failure to maintain its listing on
Nasdaq or any such Exchange. The period between each Delisting Date and New
Listing date is herein called the "Delisting Period." A default by the Company
shall be deemed to exist hereunder and under the Warrants, without notice, and
an Event of Default shall automatically exist under the Notes, without notice,
at such time as the aggregate number of trading days in all Delisting Periods
during any twelve month period exceeds five (5) trading days.
4.6 Prospectus Delivery Requirement. Each Purchaser understands that
the Securities Act may require delivery of a prospectus relating to the Common
Shares and Warrant Shares in connection with any sale thereof pursuant to a
registration statement under the Securities Act covering the resale by a
Purchaser of the Common Shares and Warrant Shares being sold, and each Purchaser
shall comply with the applicable prospectus delivery requirements of the
Securities Act in connection with any such sale; in this regard, the Company
covenants that it
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<PAGE> 17
shall at all times provide each Purchaser, promptly upon its request, with
adequate quantities of prospectuses which comply with all applicable securities
laws.
4.7 Corporate Existence. So long as any Purchaser or any Purchaser
Transferee beneficially owns any Notes, Warrants, Common Shares or Warrant
Shares, the Company shall maintain its corporate existence; except in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets pursuant to which the surviving or successor entity in such transaction
(i) unconditionally and irrevocably assumes in writing the Company's obligations
hereunder and under the agreements and instruments (including the Notes,
Warrants and Registration Rights Agreement) entered into in connection herewith
and (ii) is a publicly traded corporation whose Common Stock is listed and
remains eligible for listings (both immediately before and after such
transaction) for trading on the NASDAQ, the Nasdaq Small Cap Market, the New
York Stock Exchange or the AMEX.
4.8 Deferred Registration. The Company agrees that no registration
statement with respect to any shares of Common Stock, options or conversion
rights shall be declared effective by the SEC earlier than 180 days (plus such
additional days as equals the total number of days during each Delay Period,
defined in the Registration Agreement, and during each Delisting Period), after
the effective date of the registration statement with respect to the Securities
("Restricted Registration Period"). Notwithstanding the foregoing, such
restriction shall not apply to registration statements relating to equity
securities to be issued solely in connection with an acquisition of any entity
or business, or in connection with stock option or other employee benefit plans,
or to not more than one underwritten public offering by the Company which covers
only shares of Common Stock being sold by the Company for its own account (and
not for the account of any other person or entity), or to registration
statements required to be filed by the Company during the Restricted
Registration Period pursuant to a non-appealable court order involuntarily
imposed upon the Company. The Company agrees to diligently use its commercially
reasonable efforts to oppose any such court order, and to seek appellate review
thereof if permissible.
4.9 Other Covenants. The Company agrees that, from the date hereof
until a date which is 180 days following the Required Effective Date (as that
term is defined in Section 2(a) of the Registration Rights Agreement), no Key
Employee shall margin more than 20% of his Common Stock, or place more than 20%
of his Common Stock in a situation which could result in an involuntary sale
thereof.
ARTICLE V
LEGEND REMOVAL, TRANSFER, CERTAIN SALES, ADDITIONAL SHARES
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<PAGE> 18
5.1 Removal of Legend. The Legend shall be removed and the Company
shall issue, or shall cause to be issued, a certificate without such Legend to
the holder of any Security upon which it is stamped, and a certificate for a
security shall be originally issued without the Legend, if, (a) the resale of
such Security is registered under the Securities Act, (b) such holder provides
the Company with an opinion of counsel, in form, substance and scope customary
for opinions of counsel in comparable transactions and reasonably satisfactory
to the Company and its counsel to the effect that a sale or transfer of such
Security may be made without registration under the Securities Act pursuant to
an exemption from such registration requirements or (c) such Security can be
sold pursuant to Rule 144, the Holder provides the Company with reasonable
assurances that the Security is to be so sold, and a registered broker dealer
provides to the Company's transfer agent and counsel copies of (i) a customary
seller's representation letter reasonably acceptable to such transfer agent and
counsel with respect to such a sale to be made pursuant to Rule 144 and (ii) a
Form 144 in respect of such Security executed by such holder and filed (or
mailed for filing) with the SEC or (d) such Security can be sold pursuant to
Rule 144(k). Each Purchaser agrees to sell all its registered Securities,
including those represented by a certificate(s) from which the Legend has been
removed, or which were originally issued without the Legend, only pursuant to an
effective registration statement, in accordance with the manner of distribution
described in such registration statement and to deliver a prospectus, as
contemplated in Section 4.6, in connection with such sale or in compliance with
an exemption from the registration requirements of the Securities Act or any
applicable state securities laws. In the event the Legend is removed from any
Security or any Security is issued without the Legend and the Security is to be
disposed of other than pursuant to the registration statement or pursuant to
Rule 144, then prior to, and as a condition to, such disposition such Security
shall be relegended as provided herein in connection with any disposition if the
subsequent transfer thereof would be restricted under the Securities Act. Also,
in the event the Legend is removed from any Security or any Security is issued
without the Legend and thereafter the effectiveness of a registration statement
covering the resale of such Security is suspended or the Company determines that
a supplement or amendment thereto is required by applicable securities laws,
then upon reasonable advance notice to Purchaser holding such Security, the
Company may require that the Legend be placed on any such Security that cannot
then be sold pursuant to an effective registration statement or Rule 144 or with
respect to which the opinion referred to in clause (b) next above has not been
rendered and/or has given stop transfer instructions to the Company's transfer
agent, which Legend and stop transfer instructions shall be promptly removed
when such Security may be sold pursuant to an effective registration statement
or Rule 144 or such holder provides the opinion with respect thereto described
in clause (b) next above.
5.2 Transfer Agent Instructions. The Company shall instruct its
transfer agent to issue certificates, registered in
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<PAGE> 19
the name of each Purchaser or its nominee, for the Common Shares and the Warrant
Shares in such amounts specified from time to time by each Purchaser upon
conversion or exercise of the Notes and the Warrants, respectively. Such
certificates shall bear the Legend only to the extent provided by Section 5.1
above. The Company covenants that no instruction other than such instructions
referred to in this Article V, and stop transfer instructions to give effect to
Section 2.6 hereof in the case of the Common Shares and Warrant Shares prior to
registration of the Common Shares and Warrant Shares under the Securities Act or
stop transfer instructions to give effect to "black-out" periods as provided in
the Registrations Rights Agreement will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company. Nothing in this Section shall affect in any
way the Purchasers' obligations and agreement set forth in Section 5.1 hereof to
resell the Securities pursuant to an effective registration statement and to
deliver a prospectus as required in Section 5.1 in connection with such sale or
in compliance with an exemption from the registration requirements of applicable
securities laws. If (a) a Purchaser provides the Company with an opinion of
counsel, which opinion of counsel shall be in form, substance and scope
customary for opinions of counsel in comparable transactions and reasonably
satisfactory to the Company and its counsel to the effect that the Securities to
be sold or transferred may be sold or transferred in the manner proposed
pursuant to an exemption from registration or (b) a Purchaser transfers
Securities to an affiliate which is an accredited investor (within the meaning
of Regulation D under the Securities Act) and which delivers to the Company in
written form the same representations, warranties and covenants, to the extent
relevant to such transfer, made by Purchasers hereunder or pursuant to Rule 144,
the Company shall permit the transfer, and, in the case of the Common Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denomination as specified by such
Purchaser. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Purchasers by vitiating the intent
and purpose of the transaction contemplated hereby.
ARTICLE VI
CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL
6.1 The obligation of the Company hereunder to issue and sell the
Notes and Warrants to the Purchasers at the Closing is subject to the
satisfaction, as of the date of the Closing, of each of the following conditions
thereto, provided that these conditions are for the Company's sole benefit and
may be waived by the Company at any time in its sole discretion:
(i) Both Purchasers shall have executed the signature page to
this Agreement and the Registration Rights Agreement, and delivered the
same to the Company.
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<PAGE> 20
(ii) Both Purchasers shall have wired to the account of the
Company the portion of the Purchase Price payable by it.
(iii) The representations and warranties of each Purchaser shall
be true and correct in all material respects as of the date when made
and as of the Closing as though made at that time (except for
representations and warranties that speak as of a specific date, which
representations and warranties shall be true and correct as of such
date), and each Purchaser shall have performed, satisfied and complied
with in all material respects the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with
by the Purchaser at or prior to the Closing.
(iv) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which restricts or prohibits or limits
the consummation of any of the transactions contemplated by this
Agreement.
ARTICLE VII
CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE
7.1 The obligation of each Purchaser hereunder to purchase the Notes
and Warrants to be purchased by it on the date of the Closing is subject to the
satisfaction as of the date of the Closing, of each of the following conditions,
provided that these conditions are for each Purchaser's sole benefit and may be
waived by each Purchaser at any time in the Purchaser's sole discretion:
(i) The Company shall have executed signature pages to this
Agreement and the Registration Rights Agreement and delivered the same
to each Purchaser.
(ii) The Company shall have delivered to each Purchaser duly
issued Notes being so purchased by such Purchaser and certificates for
the Warrants being issued to such Purchaser at the Closing in such
number and denominations as are reasonably requested by each Purchaser.
(iii) The Common Stock shall be listed on the AMEX and trading in
the Common Stock shall not have been suspended or limited by the AMEX
or the SEC or other regulatory authority, and no such proceeding
seeking suspension shall be pending.
(iv) The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and
as of the Closing as though made at that time (except for
representations and warranties that speak
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<PAGE> 21
as of a specific date, which representations and warranties shall be
true and correct as of such date), and the Company shall have
performed, satisfied and complied with in all material respects the
covenants, agreements and conditions required by this Agreement to be
performed, satisfied or complied with by the Company at or prior to the
Closing. Purchaser shall have received a certificate, executed by the
Chief Executive Officer or Chief Financial Officer of the Company,
dated as of the Closing, to the foregoing effect.
(v) No statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent
jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby which prohibits or restricts the
consummation of any of the transactions contemplated by this Agreement.
(vi) Purchaser shall have received the officer's certificate
described in Section 3.3, dated as of the Closing.
(vii) Purchaser shall have received opinions of Goodwin, Procter
& Hoar, dated as of the Closing, in the form attached hereto as
Exhibit C.
(viii) The Company shall have paid all reasonable legal fees, due
diligence fees and expenses incurred by each Purchaser in connection
with the transactions contemplated hereby in an aggregate amount not to
exceed $25,000.
ARTICLE VIII
GOVERNING LAW; MISCELLANEOUS
8.1 Governing Law: Jurisdiction. This Agreement shall be governed by
and construed in accordance with Delaware law. The parties hereto irrevocably
consent to the jurisdiction of the United States federal courts and state courts
located in the County of New Castle in the State of Delaware or the Borough of
Manhattan in the State of New York in any suit or proceeding based on or arising
under this Agreement or the transactions contemplated hereby and irrevocably
agree that all claims in respect of such suit or proceeding may be determined in
such courts. The Company and each Purchaser irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding in such forum.
The Company and each Purchaser further agrees that service of process upon the
Company or such Purchaser, as applicable, mailed by first class mail in
accordance with Section 8.6 shall be deemed in every respect effective service
of process upon the Company or such Purchaser in any suit or proceeding arising
hereunder. Nothing herein shall affect any Purchaser's or the Company's right to
serve process in any other manner permitted by law. The parties hereto agree
that a final non-appealable judgment in any such suit or
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<PAGE> 22
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner. The parties hereto
irrevocably waive any right to trial by jury under applicable law.
8.2 Counterparts. This Agreement may be executed in two or more
counterparts, including, without limitation, by facsimile transmission, all of
which counterparts shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each party and delivered
to the other party. In the event any signature page is delivered by facsimile
transmission, the party using such means of delivery shall promptly cause
additional original executed signature pages to be delivered to the other
parties.
8.3 Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
8.4 Severability. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
8.5 Entire Agreement: Amendments. This Agreement and the Exhibits and
Schedules hereto and the certificates and agreements required to be delivered
hereby and thereby contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor any Purchaser makes any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and each Purchaser. Nothing in this Agreement or in any Exhibit or
document issued in connection herewith shall waive or release any of the
Company's obligations or any of the Purchasers rights under the Confidentiality
Agreement between Elliott Associates, L.P. and the Company by fax dated
September 23, 1997. The parties agree that, for purposes of such Confidentiality
Agreement, it shall be deemed dated and entered into on September 23, 1997.
8.6 Notice. Any notice herein required or permitted to be given shall
be in writing and may be personally served or delivered by nationally-recognized
overnight courier or by facsimile machine confirmed telecopy, and shall be
deemed delivered at the time and date of receipt (which shall include telephone
line facsimile transmission). The addresses for such communications shall be:
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<PAGE> 23
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Telecopy: (617) 647-3939
Attention: Ron Zwanziger
and with a copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Telecopy: (617) 523-1231
Attention: Stephen W. Carr, P.C. &
Martin Carmichael, III, P.C.
If to either Purchaser:
c/o Stonington Management Corporation
712 Fifth Avenue, 36th Fl.
New York, NY 10019
Telecopy: (212) 974-2092
Attention: Brett Cohen
and with a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, NY 10176
Telecopy: (212) 986-8866
Attention: Fredric A. Kleinberg, Esq.
in each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Telecopy: (415) 332-7800
Attention: General Counsel
Each party shall provide notice to the other party of any change in address.
8.7 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other, which
consent by the Company shall not be unreasonably withheld or unreasonably
delayed. Notwithstanding the foregoing, each Purchaser may, subject to and in
compliance with Article 5 hereof, assign all or part of its rights and
obligations hereunder to any of its "affiliates," as that term is defined under
the Securities Act, or to a "Financial Institution" (as defined below), without
the consent of the Company so long as
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<PAGE> 24
such affiliate or Financial Institution is an accredited investor (within the
meaning of Regulation D under the Securities Act) and agrees in writing to be
bound by the applicable provisions of this Agreement. A "Financial Institution"
shall include those institutions commonly called financial institutions as well
as banks, savings and loans, mutual funds, private investment partnerships
(commonly called "hedge funds"), investment banks, brokers, dealers, pension and
profit sharing plans, insurance companies, and similar entities. This provision
shall not limit a Purchaser's right to transfer the Securities pursuant to the
terms of this Agreement or the instruments or documents referenced herein, or to
assign the Purchaser's rights hereunder to any such transferee pursuant to the
terms of this Agreement or the instruments or documents referenced herein.
8.8 Third Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors, assigns
transferees and participants and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
8.9 Survival. The representations and warranties of the Company and
each Purchaser and the agreements and covenants set forth herein shall survive
the closing hereunder notwithstanding any due diligence investigation conducted
by or on behalf of the Company or any Purchaser, as the case may be. The Company
and each Purchaser agrees to indemnify and hold harmless each Purchaser or the
Company, as the case may be, and each of such party's respective officers,
directors, employees, partners, agents and affiliates for loss or damage or
expenses (including reasonable attorneys fees) arising as a result of or related
to any breach or alleged breach by the Company or any Purchaser, as the case may
be, of any of their respective representations or covenants set forth herein,
including advancement of expenses as they are incurred.
8.10 Public Filings; Publicity. As soon as practicable following
Closing, the Company shall issue a press release with respect to the
transactions contemplated hereby. The Company and each Purchaser shall have the
right to approve before issuance any press releases, relevant portions of SEC or
AMEX or other exchange filings, or any other public statements, with respect to
the transactions contemplated hereby (which approval shall not be unreasonably
withheld or delayed); provided, however, that the Company shall be entitled,
without the prior approval of a Purchaser, to make any press release or SEC,
AMEX, NASD or exchange filings with respect to such transactions as is required
by applicable law and regulations (although the Company shall make all
reasonable efforts to consult with each Purchaser in connection with any such
press release prior to its release and shall provide each Purchaser with a copy
thereof as provided in Section 4.4 hereof).
8.11 Further Assurances. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements,
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<PAGE> 25
certificates, instruments and documents, as the other party may reasonably
request in order to carry out the intent and accomplish the purposes of this
Agreement and the consummation of the transactions contemplated hereby.
8.12 Remedies. No provision of this Agreement providing for any remedy
to a Purchaser shall limit any remedy which would otherwise be available to such
Purchaser at law or in equity. Nothing in this Agreement shall limit any rights
a Purchaser may have with under any applicable federal or state securities laws
with respect to the investment contemplated hereby. The Company and each
Purchaser acknowledges that a breach by it of its respective obligations
hereunder will cause irreparable harm to each Purchaser, in the case of the
Company, and the Company, in the case of a Purchaser. Accordingly, the Company
and each Purchaser acknowledges that the remedy at law for a breach of its
respective obligations under this Agreement will be inadequate and agrees, in
the event of a breach or threatened breach by the Company or a Purchaser, as the
case may be, of the provisions of this Agreement, that a Purchaser or the
Company, as the case may be, shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate compliance, without the necessity of showing economic loss and without
any bond or other security being required.
8.13 Expenses. The Company shall pay at Closing, and promptly upon
receipt of any invoice relating to same, all reasonable legal fees and
disbursements and reasonable due diligence fees and expenses, up to an aggregate
maximum of $25,000, incurred by Purchasers in connection with this Agreement and
the transactions contemplated hereby.
8.14 Several Liability. Notwithstanding anything in this Agreement to
the contrary, the obligations, representations, warranties, and liabilities of
the Purchasers hereunder shall be several and not joint.
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<PAGE> 26
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have
caused this Securities Purchase Agreement to be duly executed as of the date
first above written.
PURCHASERS:
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Supin
---------------------------
Name:
Title:
Residency: New York, U.S.A.
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-fact
By: /s/ Paul Supin
---------------------------
Name:
Title:
Residency: Cayman Islands
SELFCARE, INC.:
By: /s/ Ron Zwanziger
---------------------------
Name: Ron Zwanziger
Title: President and CEO
Wire Transfer instructions:
Routing ABA #011500010
Fleet Prov
Beneficiary Account #: 050124672800101
Beneficiary Name: Retirement Plan Services
For further credit
Account Name: Selfcare, Incorporated
Account #: 000 210 5670
Attn: Sonji White (Phone # 617-346-2483)
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<PAGE> 1
EXHIBIT 99.6
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of October 27, 1997 (the
"Agreement"), is made by and between Selfcare, Inc., a Delaware corporation (the
"Company"), and Elliott Associates, L.P. and Westgate International, L.P.
(collectively, the "Initial Investor").
W I T N E S S E T H :
WHEREAS, in connection with the Securities Purchase Agreement dated as
of October 27, 1997 between the Initial Investor and the Company (the "Purchase
Agreement"), the Company has agreed, upon the terms and subject to the
conditions of said Purchase Agreement, to issue and sell to the Initial Investor
Ten Million U.S. Dollars face amount of Senior Subordinated Convertible Notes of
the Company (the "Notes"), together with Warrants to purchase additional shares
of common stock of the Company, par value $0.001 per share (the "Common Stock").
The shares of Common Stock into which the Notes are convertible, any shares of
Common Stock issuable pursuant to the Notes in lieu of cash interest and the
shares of Common Stock into which Warrants are exercisable are collectively
referred to herein as the "Common Shares." The term "Notes" as used herein shall
also mean any additional Notes issued pursuant hereto or pursuant to the
Purchase Agreement; the term "Warrants" as used herein shall also mean any
additional Warrants issued pursuant hereto or pursuant to the Purchase
Agreement.
WHEREAS, to induce the Initial Investor to execute and deliver the
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws with respect to the Common
Shares;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Initial Investor hereby agree as follows:
1. Definitions. Capitalized terms used herein and not otherwise
defined herein shall have the respective meanings set forth in the Purchase
Agreement. As used in this Agreement, the following terms shall have the
following meanings:
(a) "Holders" are stockholders of the Company who, by virtue of
agreements with the Company, are entitled to include their securities in certain
Registration Statements filed by the Company.
(b) "Investors" means the Initial Investor and any transferee or
assignee of the Initial Investor who agrees to
<PAGE> 2
become bound by the provisions of this Agreement in accordance with Section 9
hereof.
(c) "Registrable Securities" means the Common Shares, together
with any shares of Common Stock or other securities which hereafter are issued
as a dividend or other distribution or in exchange for Common Shares and any
additional shares of Common Stock or other securities which hereafter are issued
due to anti-dilution adjustments with respect to the Common Shares, which are
required to be included in a Registration Statement pursuant to Section 2(a)
below.
(d) "Registration Period" means the period between the date of
this Agreement and the earlier of (i) the date on which all of the Registrable
Securities have been sold in transactions where the transferee is not subject to
resale registration restrictions or volume limitations imposed by the Securities
Act or any state securities law (or is subject to such restrictions or
limitations solely due to its status as an "affiliate" of the Company under the
Securities Act and the Rules promulgated thereunder), or (ii) the date on which
the Registrable Securities (in the reasonable opinion of Investors' counsel) may
thereafter be sold to the public without registration under Rule 144(k)
(assuming that the holder is not an "affiliate" of the Company).
(e) "Registration Statement" means a registration statement of
the Company filed with the Securities and Exchange Commission (the "SEC") under
the 1933 Act.
(f) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a Registration Statement in
compliance with the 1933 Act and applicable rules and regulations thereunder,
and the declaration or ordering of effectiveness of such Registration Statement
by the SEC.
2. Registration.
(a) Mandatory Registration. The Company will file a Registration
Statement with the SEC registering the Registrable Securities for resale within
one hundred (100) days of the closing of the purchase of the Notes (the "Closing
Date"). To the extent allowable under the 1933 Act, the Registration Statement
shall include the Common Shares and such indeterminate number of additional
shares of Common Stock as may become issuable in lieu of cash interest under any
of the Notes and as may become issuable upon conversion of the Notes and
exercise of the Warrants (i) to protect against dilution in accordance with the
terms of the Notes and the Warrants, or (ii) by reason of changes in the
conversion price of the Notes or the exercise price of the Warrants in
accordance with the terms thereof. The number of shares of Common Stock
initially included in such Registration Statement on account of the Investors
shall be no less than one and one half (1.5) times the number of Common Shares
that are issuable upon conversion of the Notes and
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<PAGE> 3
exercise of the Warrants. The Company shall also have the right to register in
such Registration Statement (a) shares of Common Stock, if any, which the
Company presently has a contractual obligation to register for UBS'93
(approximately 438,750 shares), to the extent that the Company is contractually
obligated to register such shares in such Registration Statement, (b) additional
shares of Common Stock (approximately 31,250) which may be issued upon the
exercise of warrants issued by the Company on the date hereof to four
individuals at the request of Shoreline Pacific, and (c) shares of Common Stock,
if any, which the Company is hereafter involuntarily ordered, by a court of
competent jurisdiction, in a non-appealable court order, to include in such
Registration Statement (provided the Company has diligently attempted to prevent
the issuance of such court order) and has diligently prosecuted an appeal, if
permissible, of such court order. The Company shall use its best efforts to
cause such Registration Statement to be declared effective by the SEC as soon as
practicable after filing and in any event on or before the earlier of the
following two dates: (1) 187 days after the Company's registration statement
relating to the Series B Convertible Preferred Stock (the "Series B Registration
Statement"), the purchase of which closed on August 26, 1997, has been declared
effective by the SEC or (2) May 24, 1998. Such periods may be extended by the
number of days, not to exceed in the aggregate 90 days, that a permitted
"blackout" is in effect under the Series B Registration Statement (the earliest
date on which the Registration Statement is required to be declared effective
under this Section 2(a) is the "Required Effective Date"). Such best efforts
shall include, but not be limited to, promptly responding to all comments
received from the staff of the SEC. Should the Company receive notification from
the SEC that the Registration Statement will receive no action or no review from
the SEC, the Company shall cause such Registration Statement to become effective
within five (5) business days of such SEC notification; provided, however, that
in no event will the Company be required to cause such Registration Statement to
be declared effective prior to said 187 day period, as so permitted to be
extended for such "blackout" periods. Once declared effective by the SEC, the
Company shall cause such Registration Statement to remain effective throughout
the Registration Period.
(b) Late Registration Payments. If the Registration Statement
required pursuant to Section 2(a) above has not been declared effective by the
Required Effective Date, the Company will make cash payments to the Investor as
partial compensation for the added liquidity risk of such delay (the "Late
Registration Payments"). The Late Registration Payments will be equal to two
percent (2%) of the purchase price for the Notes (plus accrued but unpaid
interest) for each month (pro rated for partial months) following the Required
Effective Date, continuing through the date the Registration Statement is
declared effective by the SEC. The Late Registration Payments will be paid to
the Initial Investor within five (5) business days following the earlier of: (i)
the end of each month following the Required Effective Date, or (ii) the
effective date of the Registration
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<PAGE> 4
Statement. Nothing herein shall limit the Investor's right to pursue damages
(including without limitation lost trading or other profits of the Investor and
expenses and reasonable legal fees incurred by the Investor; excluding, however,
other consequential damages and punitive damages) (collectively, "Damages") for
the Company's failure to file a Registration Statement or to have it declared
effective by the SEC on or prior to the Required Effective Date in accordance
with the terms of this Agreement. The late payments may be made, at the option
of each Initial Investor, in cash or additional Notes with the face amount of
any additional Notes equal to the Late Registration Payment (and including the
related Warrants in the same proportion as in the initial purchase of the Notes
pursuant to the Purchase Agreement).
(c) Piggyback Registrations. If, at any time prior to the
expiration of the Registration Period, the Company decides to register any of
its securities for its own account or for the account of others (excluding
registrations relating to equity securities to be issued solely in connection
with an acquisition of any entity or business or in connection with stock option
or other employee benefit plans), the Company will promptly give the Investors
written notice thereof, and will use its best efforts to include in such
registration all or any part of the Registrable Securities so requested by such
Investors (excluding any Registrable Securities previously included in a
Registration Statement which is then currently effective). Each Investor's
request for registration must be given to the Company in writing within ten (10)
business days after receipt of the notice from the Company. If the registration
for which the Company gives notice is a public offering involving an
underwriting, the Company will so advise the Investors as part of the
above-described written notice. In such event, if the managing underwriter(s) of
the public offering impose a limitation on the number of shares of Common Stock
which may be included in the Registration Statement because, in such
underwriter(s)' judgment, such limitation would be necessary to effect an
orderly public distribution, then the Company will be obligated to include only
such limited portion, if any, of the Registrable Securities with respect to
which such Investors have requested inclusion hereunder. Any exclusion of
Registrable Securities shall be made pro-rata among all Holders of the Company's
securities seeking to include shares of Common Stock in proportion to the number
of shares of Common Stock sought to be included by such Holders; provided,
however, that the Company will not exclude any Registrable Securities unless the
Company has first excluded all outstanding securities the Holders of which are
not entitled by right to inclusion in such Registration Statement. No right to
registration of Registrable Securities under this Section 2(c) shall be
construed to limit in any way the registration required under Section 2(a)
above. The obligations of the Company under this Section 2(c) will expire upon
the earlier of: (i) the effectiveness of the Registration Statement filed
pursuant to Section 2(a) above, unless such Registration Statement is no longer
effective and neither clause (ii) nor (iii) hereof have been met; (ii) after the
Company has afforded the opportunity for
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<PAGE> 5
the Investors to exercise registration rights under this Section 2(c) for two
separate registrations; provided, however, that any Investor who shall have had
any Registrable Securities excluded from any Registration Statement in
accordance with this Section 2(c) shall be entitled to include in one additional
Registration Statement (for each one that an Investor had Registerable
Securities so excluded) filed by the Company the Registrable Securities so
excluded; or (iii) when all of the Registrable Securities held by any Investor
may be sold by such Investor under Rule 144 under the 1933 Act without being
subject to any volume restrictions or limitations.
(d) Eligibility for Form S-3. The Company represents and
warrants that it meets the requirements for the use of Form S-3 for registration
of the resale by the Investors of the Registrable Securities, and the Company
shall use all best efforts to file all reports required to be filed by the
Company with the SEC in a timely manner so as to maintain such eligibility for
the use of Form S-3.
3. Additional Obligations of the Company. In connection with the
registration of the Registrable Securities, the Company shall have the following
additional obligations:
(a) Except as otherwise expressly provided in this Agreement,
the Company shall use its best efforts to keep the Registration Statement
effective pursuant to Rule 415 under the 1933 Act at all times during the
Registration Period after such Registration Statement is initially declared
effective.
(b) The Registration Statement (including any amendments or
supplements thereto and prospectuses contained therein) filed by the Company
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein, or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading.
The Company shall prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration Statement and the
prospectus used in connection with the Registration Statement as may be
necessary to keep the Registration Statement effective at all times during the
Registration Period after such Registration Statement is initially declared
effective, and, at all times during such period, shall comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement until such time
as all of such Registrable Securities have been disposed of. In the event the
number of shares of Common Stock included in a Registration Statement filed
pursuant to this Agreement (excluding piggyback registrations as provided for in
Section 2(c) above) is insufficient to cover all of such Registrable Securities,
the Company shall amend the Registration Statement and/or file a new
Registration Statement so as to cover all of the Registrable Securities as soon
as practicable, but in no event more than twenty (20) business days after the
Company first determines (or reasonably should have determined) the need
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<PAGE> 6
therefor. The Company shall use its best efforts to cause such amendment and/or
new Registration Statement to become effective as soon as practicable following
the filing thereof. The Late Registration Payment provisions of Section 2(b)
above shall become applicable with respect to the effectiveness of such
amendment and/or new Registration Statement on the sixtieth (60th) day following
the date the Company first determines (or reasonably should have determined), or
is notified in writing of, the need for the amendment and/or new Registration
Statement.
(c) The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statement (i) promptly after the
same is prepared and publicly distributed, filed with the SEC or received by the
Company, one copy of the Registration Statement and any amendment thereto; each
preliminary prospectus and final prospectus and each amendment or supplement
thereto; and, in the case of the Registration Statement required under Section
2(a) above, each letter written by or on behalf of the Company to the SEC and
each item of correspondence from the SEC, in each case relating to such
Registration Statement (other than any portion of any item thereof which
contains information for which the Company has sought confidential treatment);
and (ii) such number of copies of a prospectus, including a preliminary
prospectus, and all amendments and supplements thereto, and such other documents
as such Investor may reasonably request in order to facilitate the disposition
of the Registrable Securities owned by such Investor.
(d) The Company shall use its commercially reasonable efforts to
(i) register and qualify the Registrable Securities covered by the Registration
Statement under such other securities or blue sky laws of such jurisdictions as
the Investors reasonably request, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions.
Notwithstanding the foregoing provision, the Company shall not be required in
connection therewith or as a condition thereto to (i) qualify to do business in
any jurisdiction where it would not otherwise be required to qualify but for
this Section 3(d), (ii) subject itself to general taxation in any such
jurisdiction, (iii) file a general consent to service of process in any such
jurisdiction, (iv) provide any non-customary undertakings that cause more than
nominal expense or burden to the Company, or (v) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
(e) In the event Investors who hold a majority in interest of
the Registrable Securities being offered in an offering select underwriters for
such offering, the Company shall
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<PAGE> 7
enter into and perform its obligations under an underwriting agreement in usual
and customary form including, without limitation, customary indemnification and
contribution obligations, with the managing underwriter of such offering. Such
Investors shall use commercially reasonable efforts to consult with the Company
with respect to the selection of such underwriter. The Company shall have the
right to reasonably object to two (2) such underwriters proposed by the
Investors, provided the Company promptly so objects. No Investor shall be
obligated to participate in any such underwriting.
(f) As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor who holds Registrable Securities
being sold pursuant to a Registration Statement of the happening of any event of
which the Company has knowledge as a result of which the prospectus included in
the Registration Statement as then in effect includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (a "Suspension Event"). The Company shall
make such notification as promptly as practicable after the Company becomes
aware of such Suspension Event, shall promptly, but in all events within five
(5) business days, use its best efforts to prepare a supplement or amendment to
the Registration Statement to correct such untrue statement or omission, and
shall deliver a number of copies of such supplement or amendment to each
Investor as such Investor may reasonably request. Notwithstanding the foregoing
provision, the Company shall not be required to maintain the effectiveness of
the Registration Statement or to amend or supplement the Registration Statement
for a period (a "Delay Period") commencing on the happening of the Suspension
Event and expiring upon the earlier to occur of (i) the date on which such
material information is disclosed to the public or ceases to be material or,
(ii) the date on which the Company is able to comply with its disclosure
obligations and SEC requirements related thereto, or (iii) thirty (30) days
after the occurrence of the Suspension Event; provided, however, that there
shall not be more than two Delay Periods in any twelve (12) month period. In the
event that the aggregate number of days in all Delay Period(s) taken together
within a twelve-month period exceeds forty-five (45) days, or in the event that
there are more than two Delay Periods in any twelve-month period, regardless of
duration, the Company shall compensate the Investor for such delay by making
monthly cash payments, prorated on a daily basis, to such Investor of two
percent (2%) of the purchase price paid for the Registrable Shares still held by
such Investor at such time continuing through the date such Registration
Statement is declared effective by the SEC (the "Delay Compensation"). The Delay
Compensation will begin to accrue on the thirty-first (31st) day falling within
one or more Suspension Events in any twelve-month period, on the first day of
any Delay Period in excess of the first two Delay Periods in any twelve-month
period; and on the forty sixth day of all Delay Periods taken together in any
twelve-month period, and will be payable thirty days from each such date and
each thirty days thereafter until the Investor
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<PAGE> 8
is notified that the Registration Statement becomes or is brought effective.
Payment of the Delay Compensation is not intended to be the Investor's exclusive
remedy; the Investor shall also be entitled to seek any Damages incurred.
(g) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement and, if such an order or other suspension is issued,
shall use its best efforts to obtain the withdrawal of such order or other
suspension at the earliest possible time and to notify each Investor who holds
Registrable Securities being sold (and in the event of an underwritten offering,
the managing underwriters) of the issuance of such order or other suspension and
the resolution thereof. For purposes of Section 3(f), a stop order or other
suspension referred to in this subparagraph (g) shall be an additional
"Suspension Event."
(h) The Company shall permit a single firm of counsel designated
by the Investors who hold a majority in interest of the Registrable Securities
being sold pursuant to such registration to review the Registration Statement
and all amendments and supplements thereto (as well as all requests for
acceleration or effectiveness thereof) a reasonable period of time (not to
exceed five (5) business days) prior to their filing with the SEC, and shall not
file any document in a form to which such counsel reasonably objects. Clean and
marked (showing changes from previous drafts) copies shall be so provided to
counsel for the Investors. Such review shall not be deemed approval of anything
contained therein.
(i) The Company shall make generally available to its security
Holders as soon as practical, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in a form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
following the effective date of the Registration Statement.
(j) At the request of any Investor who holds the Registrable
Securities being sold pursuant to such registration, the Company shall furnish
on the date that Registrable Securities are delivered to an underwriter for sale
in connection with the Registration Statement (i) a letter, dated such date,
from the Company's independent certified public accountants in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters;
and (ii) an opinion, dated such date, from counsel representing the Company for
purposes of such Registration Statement, in form and substance as is customarily
given in an underwritten public offering, addressed to the underwriters and
Investors.
(k) The Company shall make available for inspection by any
Investor whose Registrable Securities are being sold pursuant
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<PAGE> 9
to such registration, any underwriter participating in any disposition pursuant
to the Registration Statement, and one firm of attorneys, accountants or other
agent retained by all such Investors and one firm of attorneys, accountants or
other agent retained by all underwriters (collectively, the "Inspectors"), all
pertinent financial and other records, pertinent corporate documents and
properties of the Company (collectively, the "Records"), as shall be reasonably
necessary to enable each Inspector to exercise its due diligence responsibility,
and cause the Company's officers, directors and employees to supply all
information which any Inspector may reasonably request for purposes of such due
diligence; provided, however, that each Inspector shall hold in confidence and
shall not make any disclosure (except to an Investor who agrees to be bound by
such confidentiality agreement) of any Record or other information which the
Company determines in good faith to be confidential, and of which determination
the Inspectors are so notified in writing, unless (i) the disclosure of such
Records is necessary to avoid or correct a misstatement or omission in any
Registration Statement, (ii) the release of such Records is ordered pursuant to
a subpoena or other order from a court or government body of competent
jurisdiction or such release is reasonably necessary in connection with
litigation or other legal process, or (iii) the information in such Records has
been made generally available to the public other than by disclosure by an
Investor or its agent or such Inspector in violation of this or any other
agreement. The Company shall not be required to disclose any confidential
information in such Records to any Inspector until and unless such Inspector
shall have entered into confidentiality agreements (in form and substance
satisfactory to the Company) with the Company with respect thereto,
substantially covering the matters set forth in the form of this Section 3(k).
Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
(l) The Company shall hold in confidence and shall not make any
disclosure of information concerning an Investor provided to the Company
pursuant hereto unless (i) disclosure of such information is necessary to comply
with federal or state securities laws, (ii) the disclosure of such information
is necessary to avoid or correct a misstatement or omission in any Registration
Statement, (iii) the release of such information is ordered pursuant to a
subpoena or other order from a court or governmental body of competent
jurisdiction, or such release is reasonably necessary in connection with
litigation or other legal process, or (iv) such information has been made
generally available to the public other than by disclosure in violation of this
agreement. The Company agrees that it shall, upon learning
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<PAGE> 10
that disclosure of such information concerning an Investor is sought in or by a
court or governmental body of competent jurisdiction or through other means,
give prompt notice to such Investor and allow such Investor, at its expense, to
undertake appropriate action to prevent disclosure of, or to obtain a protective
order for, such information.
(m) The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by the Registration Statement to be
listed on AMEX or another national securities exchange and on each additional
national securities exchange on which similar securities issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) secure designation of all
the Registrable Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System ("Nasdaq")
"national market system security" within the meaning of Rule 11Aa2-1 of the SEC
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
the quotation of the Registrable Securities on the Nasdaq National Market System
or, if, despite the Company's best efforts to satisfy the preceding clause (i)
or (ii), the Company is unsuccessful in satisfying the preceding clause (i) or
(ii), to secure listing on a national securities exchange or Nasdaq
authorization and quotation for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at least two market
makers to register with the National Association of Securities Dealers, Inc.
("NASD") as such with respect to such Registrable Securities.
(n) The Company shall provide a transfer agent and registrar,
which may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
(o) The Company shall cooperate with the Investors who hold
Registrable Securities being sold and the managing underwriter or underwriters,
if any, to facilitate the timely preparation and delivery of certificates (not
bearing any restrictive legends) representing Registrable Securities to be sold
pursuant to the Registration Statement and enable such certificates to be in
such denominations or amounts as the case may be, and registered in such names
as the managing underwriter or underwriters, if any, or the Investors may
reasonably request; and, within three (3) trading days after a Registration
Statement which includes Registrable Securities is ordered effective by the SEC,
the Company shall deliver, and shall cause legal counsel selected by the Company
to deliver, to the transfer agent for the Registrable Securities (with copies to
the Investors whose Registrable Securities are included in such Registration
Statement) instructions to the transfer agent to issue new stock certificates
without a legend and an opinion of Company's counsel that the Common Shares have
been registered.
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<PAGE> 11
(p) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investor of the
Registrable Securities pursuant to the Registration Statement.
4. Obligations of the Investors. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations:
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to each
Investor that such Investor shall, upon request of the Company, furnish to the
Company such information regarding itself, the number of Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be required by rules of the SEC to effect the registration
of the Registrable Securities. The information so provided by the Investor shall
be included without material alteration in the Registration Statement and shall
not be modified without such Investor's written consent, which consent shall be
deemed to be given, if not objected to, in connection with and upon completion
of the review contemplated by Section 3(h) hereof. At least twelve (12) business
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of such Investor's Registrable Securities included in the Registration
Statement. If within seven (7) business days of such notice the Company has not
received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor.
(b) Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as required to
comply with applicable securities laws and as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
(c) In the event Investors holding a majority in interest of the
Registrable Securities being registered determine to engage (subject to Section
3(e) above) the services of an underwriter, each Investor agrees to enter into
and perform such Investor's obligations under an underwriting agreement, in
usual and customary form, including, without limitation, customary
indemnification and contribution obligations, with the managing underwriter of
such offering and take such other actions as are reasonably required in order to
expedite or facilitate the disposition of the Registrable Securities, unless
such Investor has notified the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from the
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<PAGE> 12
applicable Registration Statement. No Investor shall be obligated to participate
in any such underwriting.
(d) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or 3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
(e) No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions applicable with respect to its
Registrable Securities.
5. Expenses of Registration. All expenses, other than underwriting
discounts and commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company and counsel for the
underwriter, and the reasonable fees and disbursements of one counsel selected
by the Initial Investors pursuant to Section 3(e) hereof, shall be borne by the
Company.
6. Indemnification. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Investor who holds such Registrable Securities, the
directors, if any, of such Investor, the officers, if any, of such Investor, the
partners, if any, of such Investor, each person, if any, who controls any
Investor within the meaning of the 1933 Act or the Exchange Act, any underwriter
(as defined in the 1933 Act) for the Investors, the directors, if any, of such
underwriter and the officers, if any, of such underwriter, and each person, if
any, who controls any such underwriter within the meaning of the 1933 Act or the
Exchange Act (each, an "Indemnified Person"), against any losses, claims,
damages, expenses or liabilities (joint or several)
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<PAGE> 13
(collectively "Claims") to which any of them become subject under the 1933 Act,
the Exchange Act or otherwise, insofar as such Claims (or actions or
proceedings, whether commenced or threatened, in respect thereof) arise out of
or are based upon any of the following statements, omissions or violations in
the Registration Statement, or any post-effective amendment thereof, or any
prospectus included therein: (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) any untrue statement or alleged untrue
statement of a material fact contained in any preliminary prospectus if used
prior to the effective date of such Registration Statement, or contained in the
final prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the 1933 Act, the Exchange Act or any state securities law or any rule or
regulation promulgated thereunder (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Investors and each such underwriter or controlling
person, promptly as such expenses are incurred and are due and payable, for any
legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (A) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c) hereof; (B) with respect to any preliminary prospectus shall not inure to
the benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if a prospectus was timely
made available by the Company pursuant to Section 3(c) hereof; and (C) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnified Persons
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9.
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<PAGE> 14
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor, severally and not jointly, agrees
to indemnify and hold harmless, to the same extent and in the same manner set
forth in Section 6(a), the Company, each of its directors, each of its officers
who signs the Registration Statement, each person, if any, who controls the
Company within the meaning of the 1933 Act or the Exchange Act, any underwriter
and any other stockholder selling securities pursuant to the Registration
Statement or any of its directors or officers or any person who controls such
stockholder or underwriter within the meaning of the 1933 Act or the Exchange
Act (collectively and together with an Indemnified Person, an "Indemnified
Party"), against any Claim to which any of them may become subject, under the
1933 Act, the Exchange Act or otherwise, insofar as such Claim arises out of or
is based upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with written
information furnished to the Company by such Investor expressly for use in
connection with such Registration Statement, and such Investor will promptly
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) shall not apply to amounts
paid in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim as does not exceed the net
proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented unless such corrected prospectus was timely
provided to the Investor and was not thereafter delivered as required by law on
a timely basis by the Investor or by an underwriter selected by such Investor.
(c) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action (including any governmental action), such Indemnified Person or
Indemnified Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof and this indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
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<PAGE> 15
indemnifying parties; provided, however, that an Indemnified Person or
Indemnified Party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if, in the reasonable opinion
of counsel retained by the indemnifying party, the representation by such
counsel of the Indemnified Person or Indemnified Party and the indemnifying
party would be inappropriate due to actual or potential differing interests
between such Indemnified Person or Indemnified Party and other party represented
by such counsel in such proceeding. The Company shall pay for only one separate
legal counsel for the Investors; such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities. The
failure to deliver written notice to the indemnifying party within a reasonable
period of time following the commencement of any such action shall not relieve
such indemnifying party of any liability to the Indemnified Person or
Indemnified Party under this Section 6, except to the extent that the
indemnifying party is prejudiced in its ability to defend such action. The
indemnification required by this Section 6 shall be made by periodic payments of
the amount thereof during the course of the investigation or defense, as such
expense, loss, damage or liability is incurred and is due and payable.
7. Contribution. If the indemnification provided for in Section 6
herein is unavailable to the Indemnified Parties in respect of any losses,
claims, damages or liabilities referred to herein (other than by reason of the
exceptions provided therein), then each such Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Investor on the
other, in such proportion as is appropriate to reflect the relative fault of the
Company and of such Investor in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the Company on
the one hand and of any Investor on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact relates
to information supplied by the Company or by such Investor.
In no event shall the obligation of any Indemnifying Party to
contribute under this Section 7 exceed the amount that such Indemnifying Party
would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Investors agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro rata
allocation (even if the Investors or the underwriters were treated as one entity
for such purpose) or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately preceding
paragraphs. The amount paid or payable by an
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<PAGE> 16
Indemnified Party as a result of the losses, claims, damages and liabilities
referred to in the immediately preceding paragraphs shall be deemed to include,
subject to the limitations set forth above, any legal or other expenses
reasonably incurred by such Indemnified Party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
section, no Investor or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any Investor, the net
proceeds received by such Investor from the sale of Registrable Securities or
(ii) in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such Investor
or underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. With a view to making available to the Investors the benefits of
Rule 144 promulgated under the Securities Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("Rule 144"), the
Company agrees (until such time as all Registrable Securities may be sold by the
Investor pursuant to Rule 144(k)) to:
(a) File with the SEC in a timely manner and make and keep
available all reports and other documents required of the Company under the
Exchange Act so long as the Company remains subject to such requirements and the
filing and availability of such reports and other documents is required for the
applicable provisions of Rule 144; and
(b) Furnish to each Investor so long as such Investor holds
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144 and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the Company, and (iii)
such other information as may be reasonably requested to permit the Investors to
sell such securities pursuant to Rule 144 without registration.
9. Assignment of Registration Rights. The rights to have the Company
register Registrable Securities pursuant to this Agreement shall be
automatically assigned with respect to the transferred Registrable Securities or
Notes or Warrants by the Investors to transferees or assignees of all or any
portion of such securities only if (i) the Investor agrees in writing with the
transferee or assignee to assign such rights and a copy of such agreement is
furnished to the Company within a reasonable time after such assignment, (ii)
the Company is, within a reasonable period of time after such transfer or
assignment, furnished with written notice of the name and address of such
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<PAGE> 17
transferee or assignee and the securities with respect to which such
registration rights are being transferred or assigned, (iii) following such
transfer or assignment the further public disposition of such securities by the
transferee or assignee is conditioned, restricted or limited under the 1933 Act
or applicable state securities laws, (iv) at or before the time the Company
received the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the relevant provisions contained herein, (v) such transfer shall have been made
in all material respects in accordance with the applicable requirements of the
Purchase Agreement, and (vi) such transferee shall be an "accredited investor"
as that term is defined in Rule 501 of Regulation D promulgated under the 1933
Act.
10. Amendment of Registration Rights. Provisions of this Agreement may
be amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of the Company and each Investor in the case of an amendment,
and in the case of a waiver, with the written consent of the party charged with
the enforcement of any such provision. Any amendment or waiver effected in
accordance with this Section 10 shall be binding upon each Investor and the
Company.
11. Third Party Beneficiary. The parties acknowledge and agree that
Shoreline Pacific Institutional Finance, the Institutional Division of Financial
West Group ("Shoreline"), shall be deemed a third party beneficiary of the
Company's agreements and representations set forth in this Agreement and to
indemnification by the Company for any damages resulting to Shoreline from any
actual or threatened breach thereof by the Company, both in Shoreline's personal
capacity and, should Shoreline so elect, and provided that Shoreline has
obtained the prior written consent of the Investor, on behalf of the Investor.
12. Miscellaneous.
(a) Conflicting Instructions. A person or entity is deemed to be
a holder of Registrable Securities whenever such person or entity owns of record
such Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.
(b) Notices. Any notices required or permitted to be given under
the terms of this Agreement shall be sent by certified or registered mail (with
return receipt requested) or delivered personally or by courier (including a
nationally recognized overnight delivery service) or by facsimile transmission.
Any notice so given shall be deemed effective upon receipt if delivered
personally, by U.S. Mail, by courier or by facsimile transmission, in each case
addressed to a party at the
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<PAGE> 18
following address or such other address as each such party furnishes to the
other in accordance with this Section 12(b):
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Attention: Ron Zwanziger
Facsimile: (617) 647-3939
With copy to:
Goodwin, Procter & Hoar LLP
Exchange Place
Boston, MA 02109
Telecopy: (617) 523-1231
Attention: Stephen W. Carr, P.C. &
Martin Carmichael, III, P.C.
If to either Investor:
c/o Stonington Management Corporation
712 Fifth Avenue, 36th Fl.
New York, NY 10019
Attention: Brett Cohen
Facsimile: (212) 974-2092
with a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, NY 10176
Attention: Fredric A. Kleinberg, Esq.
Facsimile: (212) 986-8866
In each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Attention: General Counsel
Facsimile: (415) 332-7808
(c) Waiver. Failure of any party to exercise any right or remedy
under this Agreement or otherwise, or delay by a party in exercising such right
or remedy, shall not operate as a waiver thereof.
(d) Governing Law. This Agreement shall be enforced, governed by
and construed in accordance with the laws of the State of Delaware, without
giving effect to rules governing the conflict of laws, and any disputes arising
hereunder will be adjudicated in federal or state court situated therein or in
the State of New York. Each party hereto consents to such venue in Delaware and
New York and to the personal and subject matter
- 18 -
<PAGE> 19
jurisdiction of said courts and, to the extent permitted by applicable law,
agrees to waive any objection as to such jurisdiction or venue, and agrees not
to assert any defense based on lack of jurisdiction or venue.
(e) Severability. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or rule of
law, then such provision shall be deemed inoperative to the extent that it may
conflict therewith and shall be deemed modified to conform with such statute or
rule of law. Any provision hereof which may prove invalid or unenforceable under
any law shall not affect the validity or enforceability of any other provision
hereof.
(f) Entire Agreement. This Agreement and the Purchase Agreement
(including all schedules and exhibits thereto) constitute the entire agreement
among the parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein or therein. This Agreement supersedes all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof. Nothing in this Agreement is intended to reduce the Company's
obligations or reduce the Investor's rights under the Purchase Agreement.
(g) Successors and Assigns. Subject to the requirements of
Section 9 hereof, this Agreement shall inure to the benefit of and be binding
upon the successors and assigns of each of the parties hereto.
(h) Use of Pronouns. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
(i) Headings. The headings and subheadings in the Agreement are
for convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(j) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission, and
facsimile signatures shall be binding on the parties hereto.
(k) Further Acts. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) Remedies. No provision of this Agreement providing for any
remedy to the Company or an Investor, respectively, shall limit any remedy which
would otherwise be
- 19 -
<PAGE> 20
available to such party at law or in equity. Nothing in this Agreement shall
limit any rights the Company or an Investor, respectively, may have with respect
to any applicable federal or state securities laws with respect to the
investment contemplated hereby. The Company and each Investor acknowledges that
a breach by it of its respective obligations hereunder will cause irreparable
harm to each Investor, in the case of the Company, and the Company, in the case
of an Investor. Accordingly, the Company and each Investor acknowledge that the
remedy at law for a breach of its obligations under this Agreement will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company or an Investor, as the case may be, of the provisions of this Agreement,
that an Investor or the Company, as the case may be, shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate compliance, without the necessity of showing
economic loss and without any bond or other security being required.
(m) Consents. All consents and other determinations to be made
by the Investors pursuant to this Agreement shall be made by Investors holding a
majority of the Registrable Securities, determined as if all Warrants and Notes
then outstanding had been exercised or converted for Registrable Securities.
- 20 -
<PAGE> 21
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of the date first above written.
COMPANY:
SELFCARE, INC.
By: /s/ Ron Zwanziger
---------------------------
Name: Ron Zwanziger
Title: President and CEO
INITIAL INVESTORS:
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul Supin
---------------------------
Name:
Title:
WESTGATE INTERNATIONAL, L.P.
By: Martley International, Inc.
Attorney-in-fact
By: /s/ Paul Supin
---------------------------
Name:
Title:
- 21 -
<PAGE> 1
EXHIBIT 99.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
FORM OF
SENIOR SUBORDINATED CONVERTIBLE NOTE
$________ October 27, 1997
Number __
FOR VALUE RECEIVED, Selfcare, Inc., a Delaware corporation (the
"Company"), hereby promises to pay to ________________________, or its order or
its permitted assigns (the "Holder") on October 28, 2002 (the "Maturity Date")
the principal amount of _________________________ ($__________), and to pay
interest on the principal amount hereof, in such amounts, at such times and on
such terms and conditions as are specified herein. This Note is one of a
numbered series of Notes having an aggregate principal amount of $10,000,000
(plus any Notes issued pursuant to the Registration Rights Agreement referred to
below) which are identical in all material respects except as to the principal
amount and date of issuance thereof and as to any restriction on the transfer
thereof in order to comply with the Securities Act of 1933, as amended, and the
regulations of the Securities and Exchange Commission ("SEC") promulgated
thereunder. Such Notes are referred to herein collectively as the "Notes".
Article 1. Interest
The Company shall pay interest on the unpaid principal amount of this
Senior Subordinated Convertible Note ("Note") as set forth below through the
date the principal hereof is paid in full or the date this Note is fully
converted. Such interest shall accrue daily effective from the date hereof and
shall be payable, and shall compound, quarterly in arrears on the first day of
April, July, October and January of each year commencing January 1, 1998 with
appropriate proration for any partial interest periods based on a 365-day year
(366 days for leap years). If the Holder shall convert this Note during any
quarter, the Company shall pay to the Holder, upon conversion, the pro-rata
portion of accrued interest payable through the date of conversion, by including
the accrued interest with the principal amount of the Note being converted.
Prior to the later of the Variable Conversion Date (as defined herein)
or the date the registration statement registering the resale of the Common
Stock underlying the Notes pursuant to a Registration Rights Agreement entered
into by the Company on the date hereof is declared effective by the SEC (the
"Registration Date"), interest will be payable in cash at the rate of Sixteen
percent (16%) per annum. Thereafter, interest will accrue at the rate of Eight
percent (8%) per annum and will
<PAGE> 2
be payable, at the Company's option, either in cash or in shares of Common Stock
of the Company (the "Common Stock") calculated at a price per share equal to
Ninety Five percent (95%) of the Recent Market Price (as defined herein) as of
the interest payment date, and certificates for such Common Stock shall be
delivered to the Holder no later than two (2) business days after the interest
payment date. The Company's option to pay the interest in shares of Common Stock
shall only be available if (i) at the time of such election and thereafter
through the payment date, the resale of the shares of Common Stock is registered
with the SEC pursuant to a then currently effective Registration Statement (with
no "black-out" in effect or pending), the shares are listed on the exchange on
which the Company's shares are primarily traded, and no Event of Default has
occurred and is continuing, (ii) the Company irrevocably notifies the Holder of
such election not later than two weeks prior to the interest payment date
("Stock Notice Date") and (iii) payment of such interest payment with Common
Stock shall not be permitted (and such interest shall be paid in cash) if (a)
the Recent Market Price (as defined below) calculated from the Stock Notice Date
is below Eight Dollars ($8.00) per share (as such shares are presently
constituted, before any anti-dilution adjustments), or (b) the cash amount of
the interest payment exceeds the product obtained by multiplying (x) the average
fair market value per share (based upon the average closing price of the
Company's Common Stock over the ten trading days immediately preceding the Stock
Notice Date on the principal market where such Common Stock is then trading) by
(y) the average daily trading volume of shares of the Company's Common Stock on
such principal market during such ten day period, or (c) if upon receipt of such
shares, the Holder would be deemed to beneficially own more than 4.9% of the
Company's total issued and outstanding shares of Common Stock (as contemplated
in Section 3.1). References in this Note to interest shall include all default
interest.
The outstanding principal amount and accrued but unpaid interest due
hereunder shall bear interest, from and after the 10th day following the
occurrence and during the continuance of an Event of Default hereunder, at the
rate equal to the lower of the Citibank Prime Rate per annum plus 8% or the
highest rate permitted by law.
Notwithstanding anything contained in this Note to the contrary, no
interest (and no other payment deemed interest, if any, under applicable law)
shall become due or payable with respect to any period hereunder to the extent
that such interest or such payment would exceed the highest rate permitted
hereunder by applicable law. Subject to applicable law, any such interest or
payment otherwise payable that is not paid for any applicable period because it
would exceed the highest rate permitted hereunder by applicable law shall become
payable whenever the payment thereof, together with other interest due for any
such subsequent period, would not exceed such highest legal rate.
- 2 -
<PAGE> 3
Article 2. Method of Payment
This Note (or Lost Note Affidavit, as defined below) must be
surrendered to the Company in order for the Holder to receive payment of the
principal amount hereof. Unless otherwise converted pursuant to Article 3 below,
the Company shall pay the principal of and accrued interest on this Note in U.S.
dollars by check delivered to Holder by overnight courier at the address shown
on the Register (as defined in Section 12.1 below) or by wire transfer to an
account designated by Holder. Interest payments shall be subject to any required
withholding under applicable U.S. Internal Revenue Service Regulations.
Article 3. Conversion
Section 3.1. Right to Convert; Conversion Price. The Holder shall
have the right, at its option, to convert this Note into shares of Common Stock
of the Company prior to the Maturity Date, as set forth in Section 3.3 below.
Prior to the Variable Conversion Date, the Notes will be convertible into the
Common Stock at 120% of the Recent Market Price as of the date of original
issuance of the Notes. "Variable Conversion Date" shall mean a date, which shall
be selected by the Company, that is between 180 and 270 days after the issuance
of this Note, and with respect to which the Company has given the Holder not
less than ten trading days' advance notice. If the Variable Conversion Date is
not so selected by the Company, it shall be the 270th day after the issuance of
this Note. "Recent Market Price" as of any date shall mean the lowest price at
which the Company's Common Stock has traded at any time during the five trading
days immediately preceding such date. From and after the Variable Conversion
Date, this Note will be convertible into the Common Stock at a conversion price
equal to the Applicable Percentage (as defined below) multiplied by the lesser
of the following: (i) 125% of the Recent Market Price as of the date of original
issuance of this Note, as of the Variable Conversion Date or (if later) as of
the Registration Date, whichever is least (the "Ceiling Price") or (ii) the
Recent Market Price as of the date on which the conversion notice is sent.
The "Applicable Percentage" is 100% if the Variable Conversion Date is 180 days
after the date of issuance of this Note, 98% if the Variable Conversion Date is
181-210 days after such issuance, 95.5% if the Variable Conversion Date is
211-240 days after such issuance and 92.5% if the Variable Conversion Date is
241-270 days after such issuance.
Notwithstanding the other provisions of this Note, the Holder may on any date,
with respect to all or some specified portion of this Note, elect to fix the
conversion price permanently at the conversion price in effect on that date
("Fixed Conversion Date"), in which event this Note (or the specified portion
hereof) must be converted within 90 days thereafter. Such 90 day period shall be
extended for the aggregate number of days (or partial days) after the Fixed
Conversion Date during which there exists an Event of Default, a Delay Period
(as defined in the
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<PAGE> 4
Registration Rights Agreement), a Delisting Period (as defined in the Securities
Purchase Agreement pursuant to which this Note was originally issued) or a
period for which Late Registration Payments (as defined in the Registration
Rights Agreement) are payable.
Notwithstanding anything to the contrary contained in this Note, no Note may be
converted by a holder thereof to the extent that, after giving effect to the
shares of Common Stock issued pursuant to the exercise hereof, the total number
of shares of Common Stock deemed beneficially owned by such Holder (other than
by virtue of the ownership of Notes or Warrants (as defined in the Securities
Purchase Agreement) or other securities that in each case have limitations on a
Holder's rights to convert or exercise similar to those limitations set forth in
this paragraph), together with all shares of Common Stock deemed beneficially
owned by Holder's "affiliates" (as defined in Rule 144 under the 1933 Act) that
would be aggregated for purposes of determining whether a group under Section
13(d) of the Securities Exchange Act of 1934, as amended, exists, would exceed
4.9% of the total issued and outstanding shares of Common Stock; provided that
each Holder shall have the right to waive this restriction, in whole or in part,
immediately (unless such right to immediate lifting is waived by the Holder) in
case of (i) an Event of Default hereunder, or (ii) if an event occurs, or there
occurs an announcement or notice by the Company of the expectation that an event
will occur, which event would result in a change of control of the Company (as
reasonably determined by the Holder); and in any other case upon 61 days' prior
notice to the Company. The exercise of all or part of the Notes by any Holder
shall be deemed a representation by such Holder that it is in compliance with
this paragraph, and the Company shall be entitled to rely on such
representation, without investigation. A transferee of the Notes shall not be
bound by this provision unless it expressly agrees to be so bound. The term
"deemed beneficially owned" as used in this paragraph shall exclude shares that
might otherwise be deemed beneficially owned by reason of the exercisability of
the Notes or the Warrants.
The number of shares of Common Stock issuable upon the conversion of this Note
is determined by dividing the portion of the principal amount hereof to be
converted, together with all accrued but unpaid interest thereon, by the
applicable conversion price, as determined in accordance with the provisions of
this Section 3.1, and rounding the result to the nearest 1/100th of a share. If
any conversion would create a fractional share, then in lieu of issuing such
fractional share, the Company shall pay to the Holder cash equal to such
fraction multiplied by the closing price of the Company's Common Stock on the
principal market on which the Company's Common Stock is then traded on the date
the Notice of Conversion is sent by the Holder. Except as otherwise provided in
this Section 3.1, no payment of or adjustment for accrued interest shall be made
upon conversion whether or not such conversion occurs before, on or after an
interest payment date. Less than all of the principal amount of
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<PAGE> 5
this Note may be converted into Common Stock, and the provisions of this
Article 3 that apply to the conversion of the entire Note also apply to the
conversion of a portion of it. The conversion price and the number of shares of
Common Stock to be received by the Holder upon conversion are subject to
adjustment as set forth in Article 6 below.
Section 3.2. Floor Price. "Floor Price" means an amount equal to 60%
of the Ceiling Price. Subject to the following, the Company may block
conversions below the Floor Price by redeeming the Note (or portion thereof)
that the Holder indicates would otherwise have been so converted for a price
equal to (x) the value (based on the closing price of the Common Stock on the
principal market where such Common Stock is then traded on the trading day
preceding the nominal conversion date, i.e., the date the Holder sends the
Notice of Conversion) of the shares that would have been issued if that
conversion had occurred in the normal course, plus (y) accrued interest on the
Note (or portion thereof) so redeemed. In order for the Company to block
conversion below the Floor Price, it must notify the Holder of its election to
do so. Once such notice is given, it will take effect five trading days
thereafter (and not before) and shall remain in effect until withdrawn on five
trading days' advance notice. So long as such a blockage notice remains in
effect, the Company shall be obligated to redeem as provided above any Notes
tendered for conversion by the Holder when the conversion price is below the
Floor Price. The cash redemption price so payable will be due two (2) trading
days after the conversion notice is delivered, but the Company may defer that
payment for a period of time, not to exceed 30 days, during which deferral the
cash redemption payment amount shall accrue interest at 16% per annum.
Section 3.3. Conversion Procedure. To convert this Note into Common
Stock, the Holder must (a) complete, sign and deliver to the Company the Notice
of Conversion attached hereto, (b) surrender the original Note (or Lost Note
Affidavit) to the Company, (c) furnish appropriate endorsements if so requested
by the Company, and (d) pay any transfer or similar tax required to be paid by
the Holder pursuant to Section 3.6 hereof if requested by the Company. The
Company shall issue and deliver to the Holder a certificate or certificates for
the number of shares of Common Stock to which such Holder shall be entitled
within two (2) trading days of receipt of the duly executed Notice of
Conversion; provided, however, that the Company shall not be required to deliver
a certificate for Common Stock unless and until the Company receives the
original Note (or Lost Note Affidavit) to be converted ("Required Delivery
Date"). A conversion shall be deemed to be made immediately prior to the close
of business on the date of surrender of the Note (or Lost Note Affidavit) to be
converted, and the Holder entitled to receive the Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder of such
Common Stock on the date of surrender to the Company of the Note (or Lost Note
Affidavit). Upon surrender of a Note that is to be converted in part, the
Company shall promptly issue to the Holder a new Note or Notes equal in
principal amount to the unconverted
- 5 -
<PAGE> 6
portion of the Note surrendered (in such number and denomination as the Holder
shall request).
Section 3.4. Unlegended Shares. The shares of Common Stock issued
upon conversion after the registration statement registering such Common Stock
for resale has been declared effective by the SEC shall not bear any restrictive
legend. In the event any shares of Common Stock are issued with a restrictive
legend before such registration statement becomes effective, then upon
effectiveness of the registration statement, the Company will, within two (2)
business days of the holder's request, exchange the legended certificates
without charge for unlegended, but otherwise identical, certificates
representing such shares of Common Stock (except that such certificates shall be
in such number and denomination as the Holder shall request).
Section 3.5. Payments for Late Delivery. The Company understands that
a delay in the issuance of certificates for the shares of Common Stock upon
conversion could result in substantial economic loss to the Holder. As
compensation to the Holder for such delay, and not as a penalty, the Company
agrees to pay to the Holder in cash an amount equal to two percent (2%) of the
value (based on the closing price of the Common Stock on the principal market on
which such Common Stock is then traded on the trading day prior to the Required
Delivery Date) of the shares covered by the certificates delivered late, per
day, beginning on the day immediately following the Required Delivery Date.
Notwithstanding anything in this Note to the contrary, such delayed delivery of
certificates shall automatically become an Event of Default hereunder, without
notice, at the close of business on the Second (2nd) trading day following the
Required Delivery Date (unless such certificates are delivered to the Holder
prior to such time). Such payments shall accrue each day beginning on the day
following the Required Delivery Date and extending through the date certificates
for the shares of Common Stock are issued to the Holder. The payments shall be
paid by check or wire transfer to an account designated by such Holder upon the
earlier to occur of (a) issuance of certificates for the shares of Common Stock
to the Holder, or (b) each monthly anniversary of the Company's receipt of the
Notice of Conversion. Nothing herein shall waive the Company's obligation to
deliver certificates for the shares of Common Stock upon conversion of the Notes
or limit the Holder's right to pursue damages (including without limitation lost
trading or other profits and reimbursement for expenses and reasonable legal
fees incurred; excluding, however, other consequential damages and punitive
damages) (collectively, "Damages") for the Company's failure to timely issue and
deliver the shares of Common Stock to the Holder on the Required Delivery Date.
Section 3.6. Taxes on Conversion. The Company shall pay any
documentary, stamp or similar issue or transfer tax due on the issue of shares
of Common Stock upon the conversion of this Note. However, the Holder shall pay
any such tax which is due because the shares of Common Stock are issued in a
name other than the Holder's name.
- 6 -
<PAGE> 7
Section 3.7. Revocation of Notice of Conversion. In addition to any
other remedies which may be available to the Holder, in the event the Company
fails for any reason to effect delivery to the Holder of certificates
representing the shares of Common Stock receivable upon conversion by the
Required Delivery Date, the Holder may revoke the Notice of Conversion by
delivering a notice of such effect to the Company. Upon receipt by the Company
of such a revocation notice, the Company shall immediately return the subject
Note(s) and other conversion documents, if any, delivered by the Holder, to the
Holder, and the Company and the Holder shall each be restored to their
respective positions held immediately prior to delivery of the Notice of
Conversion; provided, however, that the Company shall remain liable for payment
of the amounts determined pursuant to Section 3.5 above for each day falling
between the Required Delivery Date and the date the revocation notice is
received by the Company, and shall also remain liable for any damages suffered
by the Holder.
Article 4. Subordination.
Section 4.1. The only debt to which the Notes are senior is (i) all
sums due or payable under the $7.5 Million U.S. subordinate revenue royalty
notes issued in June and July, 1997, (ii) royalty obligations to USB '93
Technology Associates Limited Partnership and (iii) debt that by its terms is
subordinated to the Notes.
Section 4.2. Holder hereby specifically acknowledges and agrees, and
each of Holder's successors and assigns or any other holder of this Note (each
such successor, assign, or other holder, a "Later Holder") by accepting this
Note agrees, upon the happening and continuation of an Event of Default
described in Section 11.1(h), that all indebtedness evidenced by this Note will
be junior and subordinate in right of payment to the prior payment in full of
all obligations owed by the Company in respect of all Senior Debt (as
hereinafter defined). "Senior Debt" means and includes all principal of,
interest on, premium, if any, and other obligations of the Company with respect
to any (i) indebtedness for money borrowed by the Company from a Financial
Institution (as that term is defined in Section 8.7 of the Securities Purchase
Agreement) or for cash grants made to the Company by a governmental authority,
to the extent such grants may have to be repaid by the Company (collectively,
"Indebtedness") whether outstanding on the date hereof (provided any Senior Debt
outstanding on the date hereof is described on Schedule 4.2 hereof) or incurred,
created or arising hereafter pursuant to any agreement or instrument which the
Company may have executed and delivered prior to the date hereof (provided such
agreements or instruments are described on Schedule 4.2 hereof), or may execute
and deliver at any time hereafter, (ii) principal of, interest on and premium,
if any, relating to any Indebtedness of others of the kinds described in (i)
above hereafter assumed or guaranteed by the Company, and (iii) amendment,
modification, supplement, restatement, deferral, renewal, extension or refunding
of any such Indebtedness
- 7 -
<PAGE> 8
described in (i) and (ii) above (and any of the foregoing having the effect of
increasing the principal amount of the Indebtedness outstanding or available
thereunder) as may be entered into by the Company from time to time.
Notwithstanding the foregoing, and in further limitation (and not in expansion)
of the term Senior Debt, Senior Debt shall not include (a) any debt or
Indebtedness that is directly or indirectly convertible into or exchangeable for
any equity securities of the Company, (b) any debt or Indebtedness hereafter
created that is not by its terms expressly stated to be senior to the Notes, or
(c) and debt or indebtedness which is junior or subordinate to Senior Debt or
which is not pari passu with Senior Debt.
Article 5. Redemption. The Notes will not be redeemable at the option of the
Company for two (2) years (plus such number of days as equals the aggregate
number of "blackout" days referred to in Section 2(a) of the Registration Rights
Agreement and days in Delay Periods, as that term is defined in Section 3(f) of
the Registration Rights Agreement) from the issuance thereof, except as may be
required in Section 3.2. From and after the second anniversary (plus such number
of days as equals the aggregate number of "blackout" days referred to in Section
2(a) of the Registration Rights Agreement and days in Delay Periods, as that
term is defined in Section 3(f) of the Registration Rights Agreement) of the
issuance of the Notes, the Company may redeem the Notes from the Holder, in
whole or in part, at 105% of their face value, plus accrued but unpaid interest,
upon 30 calendar days' advance notice. The Notes may only be redeemed under this
Article 5 if the Recent Market Price has been equal to or greater than the
Ceiling Price for the seventy-five (75) consecutive trading days immediately
preceding the date of the redemption notice and for the fifteen (15) trading
days commencing on that date.
Article 6. Adjustments. The conversion price and the kind and amount of
securities and property for which the Notes may be converted shall be subject to
adjustment from time to time, upon notice to the Holder, as follows:
Section 6.1. Stock Dividends, Stock Splits, Reclassifications,
Recapitalizations, Etc. If, at any time after the issuance of the Notes, the
Company (a) pays a dividend or makes a distribution in Common Stock to the
holders of its equity securities (including investments or securities
convertible into or exchangeable for such equity securities)to the holders of
its Common Stock, (b) subdivides its outstanding Common Stock into a greater
number of shares, (c) combines its outstanding Common Stock into a smaller
number of shares (including a recapitalization in connection with a
consolidation or merger in which the Company is the continuing corporation), or
(d) issues, by reclassification of the Common Stock, any other securities of the
Company, then, in each such event, the conversion price in effect on the date of
such event shall be adjusted so that the Holder of the Note(s) thereafter
surrendered for conversion shall be entitled to receive the kind and number of
shares of Common Stock and/or other property which such Holder would have been
- 8 -
<PAGE> 9
entitled to receive immediately following such event had the Notes been
converted immediately prior thereto. Any adjustment made pursuant to this
Section 6.1 shall become effective immediately after the record date in the case
of a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
Section 6.2. Consolidation, Merger, Sale of Assets, Reorganization,
Etc. In the event the Company enters into any consolidation, merger, sale of all
or substantially all of its assets, or other transaction in which its Common
Stock is exchanged for or changed into other stock or securities, money and/or
any other property, then the holders of the Notes shall thereafter have the
right to (a) convert each Note into the kind and amount of shares of stock or
other securities or property, including cash, into which the shares of Common
Stock into which the Notes could have been converted immediately prior to such
merger, consolidation or sale would have been exchanged for pursuant to any such
transaction, with, as nearly as reasonably possible, not less than the same
economic value and relative conversion and other rights and preferences as apply
to the Notes immediately before such transaction, or (b) immediately following
such merger, consolidation or sale, exchange the Notes for notes of the
surviving entity providing the holders of the Notes with, as nearly as
reasonably possible, the same economic value and relative rights and preferences
as apply to the Notes immediately before such transaction.
Section 6.3. Spin-offs, etc. (a) If the Company, at any time while
the Notes are outstanding, shall distribute to all holders of Common Stock
evidences of its indebtedness or assets or rights (other than rights issued
pursuant to a shareholders rights plan adopted by the Company) or warrants to
subscribe for or purchase any security (excluding those referred to in Section
6.4 below) then in each such case the Ceiling Price at which the Note shall
thereafter be convertible shall be determined by multiplying the Ceiling Price
in effect immediately prior to the record date fixed for determination of
shareholders entitled to receive such distribution by a fraction of which the
denominator shall be the Recent Market Price for shares of Common Stock
determined at the record date mentioned above, and of which the numerator shall
be such Recent Market Price for shares of Common Stock at such record date less
the then fair market value at such record date of the portion of such assets or
evidence of indebtedness so distributed applicable to one outstanding share of
Common Stock as determined by the Board of Directors in good faith; provided,
however that in the event of a distribution exceeding 15% of the net assets of
the Company, as determined according to generally accepted accounting
principles, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
chartered accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the Board of Directors and Holders of a majority in
interest of the Notes. In
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<PAGE> 10
either case the adjustments shall be described in a statement provided to all
holders of Notes of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made and shall
become effective immediately after the record date mentioned above.
Section 6.4. Issuance below Certain Price. In the event that the
Company issues or sells any Common Stock or securities which are convertible
into or exchangeable for its Common Stock or any convertible securities, or any
warrants or other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
shares or options issued or which may be issued pursuant to the Company's
employee or director option plans or shares issued upon exercise of options,
warrants or rights outstanding on the date of the Securities Purchase Agreement
pursuant to which this Note was originally issued) at an effective purchase
price per share which is less than eighty-five (85%) percent of the Recent
Market Price then in effect at the time of the issuance of such securities,
warrants, options or convertible securities, then in each such case, the
conversion price in effect immediately prior to such issue or sale shall be
reduced effective concurrently with such issue or sale to an amount determined
by multiplying the conversion price then in effect by a fraction, (x) the
numerator of which shall be the sum of (1) the number of shares of Common Stock
outstanding immediately prior to such issue or sale, plus (2) the number of
shares of Common Stock which the aggregate consideration received or receivable
by the Company for such additional shares would purchase at the then applicable
Recent Market Value or, Ceiling Price, as the case may be, then in effect; and
(y) the denominator of which shall be the number of shares of Common Stock of
the Company outstanding immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the issuance of any
convertible securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock issuable upon exercise, exchange or
conversion of such Convertible Securities shall be deemed to be outstanding,
provided that no further adjustment shall be made upon the actual issuance of
Common Stock upon exercise, exchange or conversion of such Convertible
Securities.
The number of shares which may be purchased hereunder shall be increased
proportionately to any reduction in conversion price pursuant to this paragraph,
so that after such adjustments the aggregate conversion price payable hereunder
for the number of shares which may be purchased hereunder (as so increased)
shall be the same as the aggregate conversion price in effect just prior to such
adjustment.
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<PAGE> 11
Article 7. Company to Reserve Stock
The Company shall reserve out of its authorized but unissued Common Stock or
Common Stock held in treasury a sufficient number of shares of Common Stock to
permit the conversion of the Notes and exercise of the Warrants (in addition to
shares then required by the Company for all other purposes). If and so long as
the number of shares reserved for issuance upon conversion of the Notes and
exercise of the Warrants is insufficient to permit conversion of all of the
outstanding Notes and exercise of all of the outstanding Warrants and for all
other purposes required by the Company, the Company will make cash payments to
the Holder as partial compensation for the added liquidity risk of such failure
(the "Reserve Payments"). The Reserve Payments will be equal to two percent (2%)
of the Purchase Price of any outstanding Notes (plus accrued but unpaid
interest) for each month (or part thereof) following the date that an
insufficient number of shares of Common Stock (as determined above) was reserved
for such purpose (the "Failure Date") continuing through the date a sufficient
number of additional shares of Common Stock (as determined above) is reserved
for such purpose (the "Reserve Date"). The Reserve Payments will be paid to the
Holder in cash within five (5) business days following the earlier of: (i) the
end of each month following the Failure Date, or (ii) the Reserve Date. Nothing
herein shall limit the Holder's right to pursue damages for the Company's
failure to maintain a sufficient number of shares of Common Stock reserved for
issuance. If, at any time, the number of authorized but unissued shares of
Common Stock is insufficient to effect the conversion of all outstanding Notes
and the exercise of all Warrants and for all other purposes then required by the
Company, the Company shall promptly take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to such
number of shares as would be sufficient for all such purposes. All shares of
Common Stock which may be issued upon the conversion hereof shall be fully paid
and nonassessable. At a minimum, the Company shall at all times so reserve at
least 200% of number of shares of Common Stock needed for issuance upon
conversion of the Notes and exercise of the Warrants.
Article 8. Restrictions on Transfer.
This Note and the Common Stock issuable upon the conversion hereof have not been
registered under the Securities Act of 1933 (the "Act") and may not be offered
for sale, sold or otherwise transferred unless such offer, sale or other
transfer is registered under the Act or such transfer is exempt from
registration. The Company has undertaken to so register such shares of Common
Stock pursuant to a Registration Rights Agreement with the Holder dated the date
hereof.
Article 9. No Impairment.
The Company shall not, by amendment of its Certificate of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue, or sale of securities
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<PAGE> 12
or any other voluntary action, avoid or delay or seek to avoid or delay the
observance or performance of any of the terms hereof, but will at all times in
good faith carry out all provisions hereof and take all such action as may be
necessary or appropriate in order to protect the conversion and other rights of
the holders of the Notes against impairment. The Holder shall not have the right
to enjoin the Company from taking any such action; however, the Company shall be
liable for all of the Holder's Damages if the Company violates this Article 9.
Article 10. Reports
As required pursuant to the Securities Purchase Agreement between the
initial Holder and the Company, the Company will mail to the Holder hereof at
its address as shown on the Company's register a copy of any annual, quarterly
or current report that it files with the SEC promptly after the filing thereof
and a copy of any annual, quarterly or other report or proxy statement that it
gives to its shareholders generally at the time such report or statement is sent
to shareholders.
Article 11. Defaults and Remedies
Section 11.1. Events of Default. An "Event of Default" occurs if (a)
the Company does not make the payment of the principal (and premium, if any) of
this Note when the same becomes due and payable at maturity, upon redemption or
otherwise and such default continues for two (2) days thereafter, (b) the
Company does not make a payment of interest when such interest becomes due and
payable and such default continues for a period of eight (8) days thereafter,
(c) the Company fails to maintain the listing of its Common Stock (and the
Common Shares and the Warrant Shares) as required under Section 4.5 of the
Securities Purchase Agreement such that the aggregate number of trading days in
all Delisting Periods (as defined in said Section 4.5) during any twelve month
period exceeds five (5) trading days, (d) one or more Suspension Event(s) (as
that term is defined in Section 3(f) of the Registration Rights Agreement) occur
such that the aggregate number of days for which Delay Compensation (as that
term is defined in said Section 3(f) of the Registration Rights Agreement) is
payable by the Company exceeds twenty-five (25) days during any twelve month
period, (e) the Company fails to effectively register the Registerable
Securities (as that term is defined in Section 1(c) of the Registration Rights
Agreement) prior to the Required Effective Date (as that term is defined in
Section 2(a) of the Registration Rights Agreement) and as a result of which the
aggregate number of days for which Late Registration Payments (as that term is
defined in Section 2(b) of the Registration Rights Agreement) are payable by the
Company exceeds twenty-five (25) days during any twelve month period, (f) the
Company fails to issue on the Required Delivery Date shares of Common Stock upon
conversion of this Note pursuant to Section 3.3 hereof and such default
continues for two (2) trading days thereafter, (g) the Company fails to comply
with any of its other payment or other material (individually or in the
aggregate) agreements in this Note and such failure continues for the period
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<PAGE> 13
and after the notice specified below, or (h) the Company, pursuant to or within
the meaning of any Bankruptcy Law (as hereinafter defined): (i) commences a
voluntary case; (ii) consents to the entry of an order for relief against it in
an involuntary case; (iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of its property; (iv)
makes a general assignment for the benefit of its creditors; or (v) a court of
competent jurisdiction enters an order or decree under any Bankruptcy Law that:
(A) is for relief against the Company in an involuntary case; (B) appoints a
Custodian of the Company or for all or substantially all of its property or (C)
orders the liquidation of the Company, and the order or decree remains unstayed
and in effect for sixty days; (i) there is a material misrepresentation by the
Company herein concerning information which reasonably would be expected to be
important to a prudent investor, herein, in the Securities Purchase Agreement,
in the Registration Rights Agreement or in the Warrant Agreement, or in any
certificate, Exhibit, Schedule or attachment delivered with respect thereto; (j)
the Company is in default under any Senior Debt such that the holder thereof has
a right of acceleration thereunder; (k) the Company sells or otherwise disposes
of all or substantially all of its assets; or (l) the Company fails to comply
with any other payment or other material (individually or in the aggregate)
obligation under the Securities Purchase Agreement, the Registration Rights
Agreement or the Warrant Agreement, and such failure continues for the period
and after the notice specified below. As used in this Section 11.1, the term
"Bankruptcy Law" means Title 11 of the United States Code or any similar federal
or state law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law. A
default under clauses (g) or (l) above is not an Event of Default until the
holders of at least 25% of the aggregate principal amount of the Notes then
outstanding notify the Company of such default and the Company does not cure it
within eight (8) days (with respect to payment defaults) or thirty (30) days
(with respect to non-payment defaults) after the receipt of such notice, which
must specify the default, demand that it be remedied and state that it is a
"Notice of Default;" except that if such default relates to payments due
monthly, the Holder shall only be obligated to give notice of such late payment
to the Company for the first of a series of similar monthly payment defaults. In
addition to any other remedies provided herein, the Company will indemnify the
Holder for all Damages incurred as a result of the happening of an Event of
Default.
Section 11.2. Acceleration. If an Event of Default occurs and is
continuing, the Holder hereof by notice to the Company, may declare the
principal of and accrued interest on this Note to be due and payable. Upon such
declaration, principal and interest hereof shall be due and payable, the Holder
shall be entitled to receive the greater of (a) 110% of the outstanding
principal and accrued interest hereof (if the date of declaration is prior to
the redemption date referred to in Article 5, or 105% if thereafter) or (b) the
Holders "lost benefit" for not
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<PAGE> 14
converting at that time determined as the difference between the lowest
conversion price per share then in effect and the then closing price of the
Common Stock on the date of such declaration, times the number of shares which
could then have been received upon conversion.
Section 11.3. Waiver. The holders of a majority in principal amount of
the Notes outstanding may waive a default or rescind the declaration of an Event
of Default and its consequences except for a default in the payment of principal
of or interest on any Note as set forth in Section 11.2 hereof, which may be
waived by the holders of outstanding Notes effected by such default.
Article 12. Register; Transfer; Replacements
Section 12.1. Record Ownership. The Company shall maintain a current
register of the holders of the Notes (the "Register") showing their names and
addresses and the serial numbers and principal amounts of Notes issued to or
transferred of record by them from time to time. The Register may be maintained
in electronic, magnetic or other computerized form. The Company may treat the
person named as the Holder of this Note in the Register as the sole owner of
this Note. The Holder of this Note is the person exclusively entitled to receive
payments of interest on this Note, receive notifications with respect to this
Note, convert it into Common Stock and otherwise exercise all of the rights and
powers as the absolute owner hereof.
Section 12.2. Registration of Transfer. Transfers of this Note may be
registered on the books of the Company maintained for such purpose pursuant to
Section 12.1 above (i.e., the Register). Transfers shall be registered when this
Note is presented to the Company with a request to register the transfer hereof
and the Note is duly endorsed by the appropriate person, reasonable assurances
are given that the endorsements are genuine and effective, and the Company has
received evidence reasonably satisfactory to it that such transfer is rightful
and in compliance with all applicable laws, including tax laws and state and
federal securities laws; provided, however, that if the transferee is an
affiliate of the Holder, or a Financial Institution (as defined in Section 8.7
of the Securities Purchase Agreement), no such documentation nor any consent by
the Company shall be required. When this Note is presented for transfer and duly
transferred hereunder, it shall be canceled and a new Note showing the name of
the transferee as the record holder thereof shall be issued in lieu hereof. When
this Note is presented to the Company with a reasonable request to exchange it
for an equal principal amount of Notes of other denominations, the Company shall
make such exchange and shall cancel this Note and issue in lieu thereof Notes
having a total principal amount equal to this Note in the denominations
requested by the Holder. The Company may charge a reasonable fee for any
registration of transfer or exchange other than one occasioned by a notice of
redemption or the conversion hereof.
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<PAGE> 15
Section 12.3. Worn and Lost Notes. If this Note becomes worn, defaced
or mutilated but is still substantially intact and recognizable, the Company or
its agent may issue a new Note in lieu hereof upon its surrender. Where the
Holder of this Note claims that the Note has been lost, destroyed or wrongfully
taken, the Company shall issue a new Note in place of the original Note if the
Holder so requests by written notice ("Lost Note Affidavit") to the Company
actually received by the Company before it is notified (together with reasonable
evidence thereof) that the Note has been acquired by a bona fide purchaser, and
the Holder has delivered to the Company an affidavit of the Holder setting forth
the facts concerning such loss, destruction or wrongful taking and such other
information in such form with such proof or verification as the Company may
reasonably request.
Section 12.4. Assignment. The Holder (but not the Company) may
transfer or assign this Note or any interest herein and may mortgage, encumber
or transfer any of its rights or interest in and to this Note or any part hereof
and, without limitation, each assignee, transferee and mortgagee (which may
include any affiliate of the Holder) shall have the right to transfer or assign
its interest; any such assignment or transfer may be made without notice to or
consent from the Company, if the assignee or transferee is an affiliate of the
transferor or a Financial Institution (as defined in Section 8.7 of the
Securities Purchase Agreement). All other assignments and transfers of this Note
will require the prior consent of the Company, which consent the Company
covenants it shall not unreasonably withhold or unreasonably delay. Each such
assignee, transferee and mortgagee shall have all of the rights of the Holder
under this Note. The Company agrees that, subject to compliance with the
Securities Purchase Agreement, after receipt by the Company of written notice of
assignment from the Holder or from the Holder's assignee by registered or
certified mail, return receipt requested, or by any other delivery method
whereby the Company signs a receipt therefore, all principal, interest and other
amounts which are then and thereafter become due under this Note shall be paid
to such assignee at the place of payment designated in such notice. This Note
shall be binding upon the Company and its successors, assigns and affiliates and
shall inure to the benefit of the Holder and its successors and assigns.
Article 13. Notices
Except as otherwise provided in this Note, any notices required or
permitted to be given hereunder shall be in writing and shall be effective (a)
upon hand delivery or delivery by facsimile, or (b) on the next business day
following the date of deposit in the U.S. Mail, certified mail with postage
prepaid, or with a nationally recognized overnight courier service. Notices
shall be addressed to the Holder at such Holder's address or facsimile number
appearing in the records of the Company, or to the Company at the address most
recently provided to the Holder by the Company.
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<PAGE> 16
Article 14. Time
Where this Note authorizes or requires the payment of money or the
performance of a condition or obligation on a Saturday or Sunday or a public
holiday, or authorizes or requires the payment of money or the performance of a
condition or obligation within, before or after a period of time computed from a
certain date, and such period of time ends on a Saturday or a Sunday or a public
holiday, such payment may be made or condition or obligation performed on the
next succeeding business day, and if the period ends at a specified hour, such
payment may be made or condition performed, at or before the same hour of such
next succeeding business day, with the same force and effect as if made or
performed in accordance with the terms of this Note. Where time is extended by
virtue of the provisions of this Article 14, such extended time shall be
included in the computation of interest.
Article 15. Rules of Construction
In this Note, unless the context otherwise requires, words in the
singular number include the plural, and in the plural include the singular, and
words of the masculine gender include the feminine and the neuter, and when the
sense so indicates, words of the neuter gender may refer to any gender. The
numbers and titles of sections contained in this Note are inserted for
convenience of reference only, and they neither form a part of this Note nor are
they to be used in the construction or interpretation hereof. Wherever, in this
Note, a determination of the Company is required or allowed, such determination
shall be made by a majority of the Board of Directors of the Company acting in
good faith. Nothing in this Note is intended to reduce the Company's obligations
or reduce the Holder's rights under the Securities Purchase Agreement or the
Registration Rights Agreement.
Article 16. Governing Law
This Note shall be governed by and interpreted in accordance with the
laws of the State of Delaware without reference to principles of conflicts of
law, and any disputes arising hereunder will be adjudicated in federal or state
court situated in New York or Delaware. Each party hereto consents to such venue
and to the personal and subject matter jurisdiction of said courts and, to the
extent permitted by applicable law, agrees to waive any objection as to such
jurisdiction or venue, and agrees not to assert any defense based on lack of
jurisdiction or venue.
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<PAGE> 17
IN WITNESS WHEREOF, the Company has duly executed this Note as of the
date first written above.
SELFCARE, INC.
By /s/ Ron Zwanziger
------------------------------
Print Name Ron Zwanziger
----------------------
Title Chairman, President and CEO
---------------------------
Re: ___________________
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<PAGE> 18
NOTICE OF CONVERSION
[To be completed and signed only upon conversion of Note]
The undersigned Holder of this Note hereby elects to exercise the right to
convert it into common stock of Selfcare, Inc., par value $___ per share, as
follows:
<TABLE>
<S> <C>
[Complete if less than _____________Dollars ($________)*_____
all of principal amount
is to be converted]
[Signature must be ______________________________________
guaranteed if registered (Name of Holder of shares if different
holder of stock differs than registered Holder of Note)
from registered Holder
of Note]
______________________________________
(Address of Holder if different than
address of registered Holder of Note)
______________________________________
(Social Security No. or Tax ID No. of
Holder of shares if different than
Holder of Note)
*If the principal amount of the Note to be converted is less than the
entire principal amount thereof, a new Note OR NOTES for the balance of
the principal amount shall be returned to the Holder of the Note IN
SUCH NUMBER AND DENOMINATIONS AS IS REQUESTED BY THE HOLDER.
Date:________________ Sign: ________________________________
(Signature must conform in all
respects to name of Holder shown
on face of this Note)
</TABLE>
- 18 -
<PAGE> 19
Assignment of Note
The undersigned hereby sell(s) and assign(s) and transfer(s)
unto _________________________________________________________________________
(name, address and SSN or EIN of assignee)
________________________________________________Dollars ($______________)_____
(principal amount of Note)
of principal amount of this Note together with all accrued interest hereon.
Date:________ Sign: ________________________________________
(Signature must conform in all respects
to name of Holder shown on face of Note)
Signature Guaranteed:
Senior Subordinated Convertible Note
Page
- 19 -
<PAGE> 1
EXHIBIT 99.8
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF
THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD
OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.
FORM OF
COMMON STOCK PURCHASE WARRANT CERTIFICATE
Dated: October 27, 1997
to Purchase ______ shares of Common Stock of
SELFCARE, INC.
Selfcare, Inc., a Delaware corporation (the "Company"), hereby
certifies that ________________________, its permissible transferees, designees,
successors and assigns (collectively, the "Holder"), for value received, is
entitled to purchase from the Company at any time commencing on October 28, 1997
and terminating on October 28, 2002 up to _____________________________________
(________) shares (the "Shares") of the Company's common stock (the "Common
Stock"), at a price per Share (the "Exercise Price") equal to the Recent Market
Price (as defined below) as of the date hereof, as of the Variable Conversion
Date (as defined below) or (if later) as of the Registration Date (as defined
below), whichever is lowest. The number of Shares purchasable hereunder and the
Exercise Price are subject to adjustment as provided in Section 4 hereof.
(a) "Recent Market Price," as of any date, shall mean the lowest
price at which the Company's Common Stock has traded during the five trading
days immediately preceding such date;
(b) "Variable Conversion Date" shall mean a date, to be selected
by the Company, that is between 180 and 270 days after the issuance of this
Warrant, and with respect to which the Company has given the Holder not less
than ten trading days' advance notice; and
(c) "Registration Date" shall mean the date the registration
statement registering the resale of the Common Stock underlying the Warrants is
declared effective by the SEC.
1. Exercise of Warrants.
(a) Upon presentation and surrender of this Common Stock
Purchase Warrant Certificate ("Warrant Certificate" or "Certificate"), or lost,
stolen etc. affidavit in lieu thereof (as provided in Section 2(b) below),
accompanied by a completed Election to Purchase in the form attached hereto as
Exhibit A (the "Election to Purchase") duly executed, at the principal office of
the Company at 200 Prospect Street, Waltham, MA,
<PAGE> 2
02154, together with a check payable to the Company in the amount of the
Exercise Price multiplied by the number of Shares being purchased, the Company
or the Company's Transfer Agent, as the case may be, shall, within two (2)
trading days of receipt of the foregoing, deliver to the Holder hereof,
certificates of fully paid and non-assessable Common Stock which in the
aggregate represent the number of Shares being purchased; provided, however,
that the Holder may elect to utilize the cashless exercise provisions set forth
below in lieu of tendering the Exercise Price in cash. The certificates so
delivered shall be in such denominations as may be reasonably requested by the
Holder and shall be registered in the name of the Holder or such other name as
shall be designated by the Holder. All or less than all of the Warrants
represented by this Certificate may be exercised and, in case of the exercise of
less than all, the Company, upon surrender hereof, will at the Company's expense
deliver to the Holder a new Warrant Certificate or Certificates (in such
denominations as may be requested by the Holder) of like tenor and dated the
date hereof entitling said holder to purchase the number of Shares represented
by this Certificate which have not been exercised and to receive Registration
Rights with respect to such Shares, and all other rights with respect to the
Shares which the Holder has on the date hereof.
(b) Cashless Exercise. Notwithstanding the foregoing provision
regarding payment of the Exercise Price in cash, the Holder may elect to receive
a reduced number of Shares in lieu of tendering the Exercise Price in cash. In
such case, the number of Shares to be issued to the Holder shall be computed
using the following formula:
X = Y(A-B)
------
A
where: X = the number of Shares to be issued to the Holder;
Y = the number of Shares to be exercised under this Warrant
Certificate;
A = the Market Value (defined below) of one share of Common Stock; and
B = the Exercise Price.
As used herein, "Market Value" refers to the closing bid price of the Common
Stock (as reported by Bloomberg, L.P.) on the day before the Election to
Purchase and this Warrant Certificate are duly surrendered to the Company for a
full or partial exercise hereof. Notwithstanding the foregoing definition, if
the Common Stock is not listed on a national securities exchange or quoted in
the Nasdaq System at the time said Election to Purchase is submitted to the
Company in the foregoing manner, the Market Value of the Common Stock shall be
as reasonably determined in good faith, as nearly as comparable as above, by the
Board of Directors of the Company, unless the Company shall become subject to a
merger, acquisition, or other consolidation pursuant to which the Company is not
the surviving entity, in which case the Market Value of the Common Stock shall
be deemed to be the value
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<PAGE> 3
received per share by the Company's common stockholders pursuant to such merger,
acquisition or other consolidation.
(c) Notwithstanding anything to the contrary contained in this
Warrant, no Warrant may be exercised by a holder thereof to the extent that,
after giving effect to the shares of Common Stock issued pursuant to the
exercise hereof, the total number of shares of Common Stock deemed beneficially
owned by such Holder (other than by virtue of the ownership of Warrants or Notes
(as defined in the Securities Purchase Agreement pursuant to which this Warrant
was initially issued) or other securities that in each case have limitations on
a Holder's rights to convert or exercise similar to those limitations set forth
in this subparagraph (c)), together with all shares of Common Stock deemed
beneficially owned by Holder's "affiliates" (as defined in Rule 144 under the
1933 Act) that would be aggregated for purposes of determining whether a group
under Section 13(d) of the Securities Exchange Act of 1934, as amended, exists,
would exceed 4.9% of the total issued and outstanding shares of Common Stock;
provided that each Holder shall have the right to waive this restriction, in
whole or in part, immediately (unless such right to immediate lifting is waived
by the Holder) in case of (i) an Event of Default under the Note, or (ii) if an
event occurs, or there occurs an announcement or notice by the Company of the
expectation that an event will occur, which event would result in a change of
control of the Company (as reasonably determined by the Holder); and in any
other case upon 61 days' prior notice to the Company. The exercise of all or
part of this Warrant by any Holder shall be deemed a representation by such
Holder that it is in compliance with this subparagraph (c) and the Company shall
be entitled to rely on such representation, without investigation. A transferee
of the Warrants shall not be bound by this provision unless it expressly agrees
to be so bound. The term "deemed beneficially owned" as used in this
subparagraph (c) shall exclude shares that might otherwise be deemed
beneficially owned by reason of the exercisability of the Notes or the Warrants.
2. Exchange, Transfer and Replacement. (a) At any time prior to the
exercise hereof, this Certificate may be exchanged upon presentation and
surrender to the Company, alone or with other Certificates of like tenor of
different denominations registered in the name of the same Holder, for another
Certificate or Certificates of like tenor in the name of such Holder exercisable
for the aggregate number of Shares as the Certificate or Certificates
surrendered.
(b) Replacement of Warrant Certificate. Upon receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction, or
mutilation of this Warrant Certificate and, in the case of any such loss, theft,
or destruction, upon delivery of an indemnity agreement reasonably satisfactory
in form and amount to the Company, or, in the case of any such mutilation, upon
surrender and cancellation of this Warrant Certificate, the Company, at its
expense, will execute and deliver in lieu thereof, a new Warrant Certificate of
like tenor.
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<PAGE> 4
(c) Cancellation; Payment of Expenses. Upon the surrender of
this Warrant Certificate in connection with any transfer, exchange or
replacement as provided in this Section 2, this Warrant Certificate shall be
promptly canceled by the Company. The Company shall pay all taxes (other than
securities transfer taxes) and all other expenses (other than legal expenses, if
any, incurred by the Holder or transferees) and charges payable in connection
with the preparation, execution and delivery of Warrant Certificates pursuant to
this Section 2.
(d) Warrant Register. The Company shall maintain, at its
principal executive offices (or at the offices of the transfer agent for the
Warrant Certificate or such other office or agency of the Company as it may
designate by notice to the holder hereof), a current register for this Warrant
Certificate (the "Warrant Register"), in which the Company shall record the name
and address of the person in whose name this Warrant Certificate has been
issued, as well as the name and address of each permitted transferee and each
prior owner of this Warrant Certificate.
3. Rights and Obligations of Holders of this Certificate. The Holder
of this Certificate shall not, by virtue hereof, be entitled to any rights of a
stockholder in the Company, either at law or in equity; provided, however, that
in the event any certificate representing shares of Common Stock or other
securities is issued to the holder hereof upon exercise of some or all of the
Warrants, such holder shall, for all purposes, be deemed to have become the
holder of record of such Common Stock on the date on which this Certificate, or
lost, stolen, etc. affidavit in lieu thereof (as provided in Section 2(b)
above), together with a duly executed Purchase Form, was surrendered and payment
of the aggregate Exercise Price was made, irrespective of the date of delivery
of such share certificate.
4. Adjustments.
(a) Stock Dividends, Reclassifications, Recapitalizations, Etc.
In the event the Company: (i) pays a dividend in Common Stock or makes a
distribution in Common Stock, (ii) subdivides its outstanding Common Stock into
a greater number of shares, (iii) combines its outstanding Common Stock into a
smaller number of shares or (iv) increases or decreases the number of shares of
Common Stock outstanding by reclassification of its Common Stock (including a
recapitalization in connection with a consolidation or merger in which the
Company is the continuing corporation), then (1) the Exercise Price on the
record date of such division or distribution or the effective date of such
action shall be adjusted by multiplying such Exercise Price by a fraction, the
numerator of which is the number of shares of Common Stock outstanding
immediately before such event and the denominator of which is the number of
shares of Common Stock outstanding immediately after such event, and (2) the
number of shares of Common Stock for which this Warrant Certificate may be
exercised immediately before such event shall be adjusted by multiplying
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<PAGE> 5
such number by a fraction, the numerator of which is the Exercise Price
immediately before such event and the denominator of which is the Exercise Price
immediately after such event, such that the aggregate Exercise Price for all
shares of Common Stock issuable pursuant to this Warrant Certificate immediately
after such event shall equal the aggregate Exercise Price for all shares of
Common Stock issuable pursuant to this Warrant Certificate immediately before
such event.
(b) Cash Dividends and Other Distributions. In the event that at
any time or from time to time the Company shall distribute to all holders of
Common Stock (i) any dividend or other distribution of cash, evidences of its
indebtedness, shares of its capital stock or any other properties or securities
or (ii) any options, warrants or other rights to subscribe for or purchase any
of the foregoing (other than in each case, (w) the issuance of any rights under
a shareholder rights plan, (x) any dividend or distribution described in Section
4(a), (y) any rights, options, warrants or securities described in Section 4(c)
and (z) any cash dividends or other cash distributions from current earnings),
then the number of shares of Common Stock issuable upon the exercise of each
Warrant Certificate shall be increased to a number determined by multiplying the
number of shares of Common Stock issuable upon the exercise of such Warrant
Certificate immediately prior to the record date for any such dividend or
distribution by a fraction, the numerator of which shall be such Current Market
Value (as hereinafter defined) per share of Common Stock on the record date for
such dividend or distribution, and the denominator of which shall be such
Current Market Value per share of Common Stock on the record date for such
dividend or distribution less the sum of (x) the amount of cash, if any,
distributed per share of Common Stock and (y) the fair value (as determined in
good faith by the Board of Directors of the Company, whose determination shall
be evidenced by a board resolution, a copy of which will be sent to the Holders
upon request) of the portion, if any, of the distribution applicable to one
share of Common Stock consisting of evidences of indebtedness, shares of stock,
securities, other property, warrants, options or subscription or purchase
rights; and the Exercise Price shall be adjusted to a number determined by
dividing the Exercise Price immediately prior to such record date by the above
fraction. Such adjustments shall be made whenever any distribution is made and
shall become effective as of the date of distribution, retroactive to the record
date for any such distribution. No adjustment shall be made pursuant to this
Section 4(b) which shall have the effect of decreasing the number of shares of
Common Stock issuable upon exercise of each Warrant Certificate or increasing
the Exercise Price.
(c) Rights Issue. In the event that at any time or from time to
time the Company shall issue rights, options or warrants entitling the holders
thereof to subscribe for shares of Common Stock, or securities convertible into
or exchangeable or exercisable for Common Stock to all holders of Common Stock
(other than in connection with the adoption of a shareholder rights plan by the
Company) entitling such holders to subscribe
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<PAGE> 6
for or purchase shares of Common Stock at a price per share that as of the
record date for such issuance is less than the then Current Market Value per
share of Common Stock, the number of shares of Common Stock issuable upon the
exercise of each Warrant Certificate shall be increased to a number determined
by multiplying the number of shares of Common Stock theretofore issuable upon
exercise of each Warrant Certificate by a fraction, the numerator of which shall
be the number of shares of Common Stock outstanding on the date of issuance of
such rights, options, warrant or securities plus the number of additional shares
of Common Stock offered for subscription or purchase or into or for which such
securities that are issued are convertible, exchangeable or exercisable, and the
denominator of which shall be the number of shares of Common Stock outstanding
on the date of issuance of such rights, option, warrants or securities plus the
total number of shares of Common Stock which the aggregate consideration
expected to be received (including any sum received by the Company upon the
issuance of such rights, options, warrants or securities) by the Company
(assuming the exercise or conversion of all such rights, options, warrants or
securities) would purchase at the then Current Market Value per share of Common
Stock. In the event of any such adjustment, the Exercise Price shall be adjusted
to a number determined by dividing the Exercise price immediately prior to such
date of issuance by the aforementioned fraction. Such adjustment shall be made
immediately after such rights, options or warrants are issued and shall become
effective, retroactive to the record date for the determination of stockholders
entitled to receive such rights, options, warrants or securities. No adjustment
shall be made pursuant to this Section 4(c) which shall have the effect of
decreasing the number of shares of Common Stock purchasable upon exercise or
each Warrant Certificate or of increasing the Exercise Price.
(d) Combination: Liquidation. (i) Except as provided in Section
4(d)(ii) below, in the event of a Combination (as defined below), each Holder
shall have the right to receive upon exercise of the Warrant Certificates the
kind and amount of shares of capital stock or other securities or property which
such Holder would have been entitled to receive upon or as a result of such
Combination had such Warrant Certificate been exercised immediately prior to
such event (subject to further adjustment in accordance with the terms hereof).
Unless paragraph (ii) is applicable to a Combination, the Company shall provide
that the surviving or acquiring Person (the "Successor Company") in such
Combination will assume by written instrument the obligations under this Section
4 and the obligations to deliver to the Holder such shares of stock, securities
or assets as, in accordance with the foregoing provisions, the Holder may be
entitled to acquire. The provisions of this Section 4(d)(i) shall similarly
apply to successive Combinations involving any Successor Company. "Combination"
means an event in which the Company consolidates with, mergers with or into, or
sells all or substantially all of its assets to another Person, where "Person"
means any individual, corporation, partnership, joint venture, limited liability
company, association, joint-stock company,
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<PAGE> 7
trust, unincorporated organization, government or any agency or political
subdivision thereof or any other entity.
(ii) In the event of (x) a Combination where consideration to
the holders of Common Stock in exchange for their shares is payable solely in
cash or (y) the dissolution, liquidation or winding-up of the Company, the
Holders shall be entitled to receive, upon surrender of their Warrant
Certificates, distributions on an equal basis with the holders of Common Stock
or other securities issuable upon exercise of the Warrant Certificates, as if
the Warrant Certificates had been exercised immediately prior to such event,
less the Exercise Price. In case of any Combination described in this Section
4(d)(ii), the surviving or acquiring Person and, in the event of any
dissolution, liquidation or winding-up of the Company, the Company, shall
deposit, promptly following the consummation of such combination or at the time
of such dissolution, liquidation or winding-up, with an agent or trustee for the
benefit of the Holders of the funds, if any, necessary to pay to the Holders the
amounts to which they are entitled as described above. After such funds and the
surrendered Warrant Certificates are received, the Company is required to
deliver a check in such amount as is appropriate (or, in the case of
consideration other than cash, such other consideration as is appropriate) to
such Person or Persons as it may be directed in writing by the Holders
surrendering such Warrant Certificates.
(e) Notice of Adjustment. Whenever the Exercise Price or the
number of shares of Common Stock and other property, if any, issuable upon
exercise of the Warrant Certificates is adjusted, as herein provided, the
Company shall deliver to the holders of the Warrant Certificates in accordance
with Section 10 a certificate of the Company's Chief Financial Officer setting
forth, in reasonable detail, the event requiring the adjustment and the method
by which such adjustment was calculated (including a description of the basis on
which (i) the Board of Directors determined the fair value of any evidences of
indebtedness, other securities or property or warrants, options or other
subscription or purchase rights and (ii) the Current Market Value of the common
Stock was determined, if either of such determinations were required), and
specifying the Exercise Price and number of shares of Common Stock issuable upon
exercise of Warrant Certificates after giving effect to such adjustment.
(f) Purchase Price Adjustment. In the event that the Company
issues or sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock or any convertible securities, or any warrants
or other rights to subscribe for or to purchase or any options for the purchase
of its Common Stock or any such convertible securities (other than shares or
options issued or which may be issued pursuant to the Company's employee or
director option plans or shares issued upon exercise of options, warrants or
rights outstanding on the date of the Agreement) at an effective purchase price
per share which is less than eighty-five (85%) percent of the closing price of
the Common Stock on the trading day next preceding such issue or
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<PAGE> 8
sale, then in each such case, the Exercise Price in effect immediately prior to
such issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying the Exercise Price then in effect by
a fraction, (x) the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to such issue or sale, plus
(2) the number of shares of Common Stock which the aggregate consideration
received or receivable by the Company for such additional shares would purchase
at such fair market value or, Exercise Price as the case may be, then in effect;
and (y) the denominator of which shall be the number of shares of Common Stock
of the Company outstanding immediately after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the issuance of any
convertible securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock issuable upon exercise, exchange or
conversion of such Convertible Securities shall be deemed to be outstanding,
provided that no further adjustment shall be made upon the actual issuance of
Common Stock upon exercise, exchange or conversion of such Convertible
Securities.
The number of shares which may be purchased hereunder shall be increased
proportionately to any reduction in Exercise Price pursuant to this paragraph
4(d), so that after such adjustments the aggregate Exercise Price payable
hereunder for the increased number of shares shall be the same as the aggregate
Exercise Price in effect just prior to such adjustment.
(g) Notice of Certain Transactions. In the event that the
Company shall propose (a) to pay any dividend payable in securities of any class
to the holders of its Common Stock or to make any other non-cash dividend or
distribution to the holders of its Common Stock, (b) to offer the holders of its
Common Stock rights to subscribe for or to purchase any securities convertible
into shares of Common Stock or shares of stock of any class or any other
securities, rights or options, (c) to effect any capital reorganization,
reclassification, consolidation or merger affecting the class of Common Stock,
as a whole, or (d) to effect the voluntary or involuntary dissolution,
liquidation or winding-up of the Company, the Company shall, within the time
limits specified below, send to each Holder a notice of such proposed action or
offer. Such notice shall be mailed to the Holders at their addresses as they
appear in the Warrant Register (as defined in Section 2(d)), which shall specify
the record date for the purposes of such dividend, distribution or rights, or
the date such issuance or event is to take place and the date of participation
therein by the holders of Common Stock, if any such date is to be fixed, and
shall briefly indicate the effect of such action on the Common Stock and on the
number and kind of any other shares of stock and on other property, if any, and
the number of shares of Common Stock and other property, if any, issuable upon
exercise of each Warrant Certificate and the Exercise Price after giving effect
to any adjustment pursuant to
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<PAGE> 9
Section 4 which will be required as a result of such action. Such notice shall
be given as promptly as possible and (x) in the case of any action covered by
clause (a) or (b) above, at least 10 days prior to the record date for
determining holders of the Common Stock for purposes of such action or (y) in
the case of any other such action, at least 20 days prior to the date of the
taking of such proposed action or the date of participation therein by the
holders of Common Stock, whichever shall be the earlier; PROVIDED, HOWEVER, that
the failure to so provide shall not affect the validity of any such action or
transaction (although the Company shall be liable for all Damages (as that term
is defined in the Securities Purchase Agreement) incurred by the Holder, arising
out of or resulting from such failure).
(h) Current Market Value. "Current Market Value" per share of
Common Stock or any other security at any date means (i) if the security is not
registered under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), (a) the value of the security, determined in good faith by the Board of
Directors of the Company and certified in a board resolution, based on the most
recently completed arm's-length transaction between the Company and a Person
other than an affiliate of the Company or between any two such Persons and the
closing of which occurs on such date or shall have occurred within the six-month
period preceding such date, or (b) if no such transaction shall have occurred
within the six-month period, the value of the security as determined by an
independent financial expert or (ii) if the security is registered under the
Exchange Act, the average of the daily closing bid prices (or the equivalent in
an over-the-counter market) for each day on which the Common Stock is traded for
any period on the principal securities exchange or other securities market on
which the common Stock is being traded (each, a "Trading Day") during the period
commencing ten (10) Trading Days before such date and ending on the date one day
prior to such date, or if the security has been registered under the Exchange
Act for less than ten (10) consecutive Trading Days before such date, the
average of the daily closing bid prices (or such equivalent) for all of the
Trading Days before such date for which daily closing bid prices are available;
provided, however, that if the closing bid price is not determinable for at
least five (5) Trading Days in such period, the "Current Market Value" of the
security shall be determined as if the security were not registered under the
Exchange Act.
(i) Other Adjustments. If the event of any other transaction of
the type contemplated by this Section 4, but not expressly provided for by the
provisions hereof, the Board of Directors of the Company will make appropriate
adjustment in the Exercise Price so as to equitably protect the rights of the
Holder.
(j) No Impairment of Holder's Rights. The Company will not, by
amendment of its certificate of incorporation or bylaws or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or any other voluntary action, avoid or seek to avoid the
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<PAGE> 10
observance or performance of any of the terms of this Warrant Certificate, but
will (except as expressly provided herein) at all times in good faith carry out
of all such terms and take of all action as may be necessary or appropriate in
order to protect the rights of the Holder against dilution or other impairment.
5. Company's Representations.
(a) The Company covenants and agrees that all shares of Common
Stock issuable upon exercise of this Warrant Certificate will, upon delivery, be
duly and validly authorized and issued, fully-paid and non-assessable and free
from all taxes, liens, claims and encumbrances granted, created, suffered or
caused by the Company or any of its Subsidiaries.
(b) The Company covenants and agrees that it will at all times
reserve and keep available an authorized number of shares of its Common Stock
and other applicable securities sufficient to permit the exercise and conversion
in full of all outstanding options, warrants, convertible securities, and
rights, including this Warrant Certificate.
(c) The Company shall use its best efforts to promptly secure
the listing of the Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed or
become listed (subject to official notice of issuance upon exercise of this
Warrant Certificate) and shall use its best efforts to maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all shares of
Common Stock from time to time issuable upon the exercise of this Warrant
Certificate; and the Company shall use its best efforts to so list on each
national securities exchange or automated quotation system, as the case may be,
and shall use its best efforts to maintain such listing of, any other shares of
capital stock of the company issuable upon the exercise of this Warrant
Certificate if and so long as any shares of the same class shall be listed on
such national securities exchange or automated quotation system.
(d) The Company has taken, or with respect to the required AMEX
listing application will promptly take following the Closing, all necessary
action and proceedings as required and permitted by applicable law, rule and
regulation, including, without limitation, the notification of the principal
market on which the Common Stock is traded, for the legal and valid issuance of
this Warrant Certificate to the Holder under this Warrant Certificate.
(e) With a view to making available to Holder the benefits of
Rule 144 promulgated under the Act and any other rule or regulation of the
Securities and Exchange Commission ("SEC") that may at any time permit Holder to
sell securities of the Company to the public without registration, the Company
agrees to use all commercially reasonable efforts to:
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<PAGE> 11
(i) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times;
(ii) file with the SEC in a timely manner all reports and
other documents required of the Company under the Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"); and
(iii) furnish to any Holder forthwith upon request a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 and of the Act and the Exchange Act, a copy of the most recent annual
or quarterly report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested to permit any such Holder to
take advantage of any rule or regulation of the SEC permitting the selling of
any such securities without registration.
6. Registration and other Rights. The Holder is entitled to the
benefit of such registration and other rights in respect of the Shares as are
set forth in the Registration Rights Agreement, and the Securities Purchase
Agreement, each by and between, INTER ALIA, the Company and the initial Holder,
including the right to assign such rights to certain permitted assignees as set
forth therein.
7. Issuance of Certificates. Within two (2) trading days of receipt
of a duly completed Election to Purchase form, together with this Certificate,
or lost, stolen, etc. affidavit in lieu thereof (as provided in Section 2(b)
above), and payment of the Exercise Price, the Company, at its expense, will
cause to be issued in the name of and delivered to the Holder of this Warrant, a
certificate or certificates for the number of fully paid and non-assessable
Shares of Common Stock to which that holder shall be entitled on such exercise.
In the event the shares of Common Stock are not timely delivered to the Holder,
the Company agrees to (a) indemnify Holder for all Damages, and (b) beginning on
the third (3rd) day following the Company's receipt of a duly completed Election
to Purchase form, pay a default premium of 2% per month (pro rated for partial
months) of the value of underlying shares (based on the highest closing price
during the two (2) day period preceding the date of surrender of the Warrant
Certificate). In lieu of issuance of a fractional share upon any exercise
hereunder, the Company will pay the cash value of that fractional share,
calculated on the basis of the market price of the Shares on the date of
exercise. Prior to registration of the resale of the shares of Common Stock
underlying this Warrant Certificate, and prior to such time as such resale may
be effected without such registration under Rule 144(k), all such certificates
shall bear a restrictive legend to the effect that the Shares represented by
such certificate have not been registered under the 1933 Act, and that the
Shares may not be sold or transferred in the absence of such registration or an
exemption therefrom, such legend to be substantially in the
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<PAGE> 12
form of the bold-face language appearing at the top of Page 1 of this Warrant
Certificate.
8. Disposition of Warrants or Shares. The Holder of this Warrant
Certificate, each transferee hereof and any holder and transferee of any Shares,
by his or its acceptance thereof, agrees that no distribution or transfer of
Warrants or Shares will be made in violation of the provisions of the 1933 Act.
Furthermore, it shall be a condition to the transfer of the Warrants that any
transferee thereof deliver to the Company his or its written agreement to accept
and be bound by all of the relevant terms and conditions contained in this
Warrant Certificate.
9. Merger or Consolidation. The Company will not merge or consolidate
with or into any other corporation, or sell or otherwise transfer its property,
assets and business substantially as an entirety to another corporation, unless
the corporation resulting from such merger or consolidation (if not the
Company), or such transferee corporation, as the case may be, shall expressly
assume, by supplemental agreement reasonably satisfactory in form and substance
to the Holder, the due and punctual performance and observance of each and every
covenant and condition of this Warrant Certificate to be performed and observed
by the Company.
10. Notices. Except as otherwise specified herein to the contrary, all
notices, requests, demands and other communications required or desired to be
given hereunder shall only be effective if given in writing by certified or
registered U.S. mail with return receipt requested and postage prepaid; by
private overnight delivery service (e.g. Federal Express); by facsimile
transmission (if no original documents or instruments must accompany the
notice); or by personal delivery. Any such notice shall be deemed to have been
given (a) on the business day immediately following the mailing thereof, if
mailed by certified or registered U.S. mail as specified above; (b) on the
business day immediately following deposit with a private overnight delivery
service if sent by said service; (c) upon receipt of confirmation of
transmission if sent by facsimile transmission; or (d) upon personal delivery of
the notice. All such notices shall be sent to the following addresses (or to
such other address or addresses as a party may have advised the other in the
manner provided in this Section 10):
If to the Company:
Selfcare, Inc.
200 Prospect Street
Waltham, MA 02154
Telephone: (617) 647-3900 x 130
Telecopy: (617) 647-3939
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<PAGE> 13
And with a copy to:
Goodwin, Procter & Hoar, LLP
Exchange Place
Boston, MA 02109
Telecopy: (617) 523-1231
Attention: Stephen W. Carr, P.C.
& Martin Carmichael, III, P.C.
If to each Holder:
c/o Stonington Management Corporation
712 Fifth Avenue, 36th Fl.
New York, NY 10019
Telecopy: (212) 974-2092
Attention: Brett Cohen
And with a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, NY 10176
Telecopy: (212) 986-8866
Attention: Fredric A. Kleinberg, Esq.
In each case with a copy to:
Shoreline Pacific Institutional Finance
3 Harbor Drive, Suite 211
Sausalito, CA 94965
Attention: General Counsel
Telephone: (415) 332-7800
Fax: (415) 332-7808
Notwithstanding the time of effectiveness of notices set forth in this Section,
an Election to Purchase shall not be deemed effectively given until it has been
duly completed in all material respects and submitted to the Company together
with the original Warrant Certificate to be exercised, or lost, stolen, etc.
affidavit in lieu thereof (as provided in Section 2(b) above), and payment of
the Exercise Price in a manner set forth in this Section.
11. Governing Law. This Warrant Certificate and all rights and
obligations hereunder shall be deemed to be made under and governed by the laws
of the State of Delaware without giving effect to the conflicts of laws
provisions. The Holder hereby irrevocably consents to the venue and jurisdiction
of the State and Federal Courts located in the State of New York, County of New
York, and the State and Federal Courts located in the State of Delaware.
12. Successors and Assigns. This Warrant Certificate shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
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<PAGE> 14
13. Headings. The headings of various sections of this Warrant
Certificate have been inserted for reference only and shall not affect the
meaning or construction of any of the provisions hereof.
14. Severability. If any provision of this Warrant Certificate is held
to be unenforceable under applicable law, such provision shall be excluded from
this Warrant Certificate, and the balance hereof shall be interpreted as if such
provision were so excluded.
15. Modification and Waiver. This Warrant Certificate and any
provision hereof may be amended, waived, discharged or terminated only by an
instrument in writing signed by the Company and the Holder.
16. Specific Enforcement. The Company and the Holder acknowledge and
agree that irreparable damage would occur in the event that any of the
provisions of this Warrant Certificate were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Warrant Certificate and to enforce
specifically the terms and provisions hereof, without the necessity of posting a
bond, this being in addition to any other remedy to which either of them may be
entitled by law or equity.
17. Assignment. Except as provided below, this Warrant Certificate may
be transferred or assigned, in whole or in part, at any time and from time to
time by the then Holder by submitting this Warrant, or lost, stolen, etc.
affidavit in lieu thereof (as provided in Section 2(b) above, to the Company
together with a duly executed Assignment in substantially the form and substance
of the Form of Assignment which accompanies this Warrant Certificate and, upon
the Company's receipt hereof, and in any event, within three (3) trading days
thereafter, the Company shall issue a Warrant Certificate to the Holder to
evidence that portion of this Warrant Certificate, if any, as shall not have
been so transferred or assigned. The Holder (but not the Company) may transfer
or assign this Warrant or any interest herein and may mortgage, encumber or
transfer any of its rights or interest in and to this Warrant or any part hereof
and, without limitation, each assignee, transferee and mortgagee (which may
include any affiliate of the Holder) shall have the right to transfer or assign
its interest; any such assignment or transfer may be made without notice to or
consent from the Company, if the assignee or transferee is an affiliate of the
transferor or a Financial Institution (as defined in Section 8.7 of the
Securities Purchase Agreement). All other assignments and transfers of this
Warrant will require the prior consent of the Company, which consent the Company
covenants it shall not unreasonably withhold or unreasonably delay. Each such
assignee, transferee and mortgagee shall have all of the rights of the Holder
under this Warrant. This Warrant shall be binding upon the Company and its
successors, assigns and affiliates and shall
- 14 -
<PAGE> 15
inure to the benefit of the Holder and its successors and assigns.
18. Other Agreements. Nothing in this Agreement is intended to reduce
the Company's obligations or reduce the Holder's rights under the Securities
Purchase Agreement or the Registration Rights Agreement.
- 15 -
<PAGE> 16
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed, manually or by facsimile, by one of its officers thereunto
duly authorized.
SELFCARE, INC.
Date: 10-27-97 By: /s/ Ron Zwanziger
-------- ---------------------------
Ron Zwanziger
Chairman, President and CEO
Re: __________________
- 16 -
<PAGE> 17
ELECTION TO PURCHASE
To Be Executed by the Holder
in Order to Exercise the Common Stock
Purchase Warrant Certificate
The undersigned Holder hereby elects to exercise _______ of the
Warrants represented by the attached Common Stock Purchase Warrant Certificate,
and to purchase the shares of Common Stock issuable upon the exercise of such
Warrants, and requests that certificates for securities be issued in the name
of:
________________________________________________________________________________
(Please type or print name and address)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Social Security or Tax Identification Number)
and delivered to:_______________________________________________________________
_______________________________________________________________________________.
(Please type or print name and address if different from above)
If such number of Warrants being exercised hereby shall not be all the Warrants
evidenced by the attached Common Stock Purchase Warrant Certificate, a new
Common Stock Purchase Warrant Certificate for the balance of such Warrants shall
be registered in the name of, and delivered to, the Holder at the address set
forth below.
[In full payment of the purchase price with respect to the Warrants
exercised and transfer taxes, if any, the undersigned hereby tenders payment of
$__________ by check, money order or wire transfer payable in United States
currency to the order of Selfcare, Inc.] or [The undersigned elects cashless
exercise in accordance with Section 1(b) of the Common Stock Purchase Warrant
Certificate.]
HOLDER:
Dated:_________________ By: ____________________________
Name:
Title:
Address: ___________________
___________________
___________________
- 16 -
<PAGE> 18
Common Stock Purchase Warrant Certificate
Page 2
FORM OF ASSIGNMENT
(To be signed only on transfer of Warrant)
For value received, the undersigned hereby sells, assigns, and transfers unto
_____________ the right represented by the within Warrant to purchase ______
shares of Common Stock of Selfcare, Inc., a Delaware corporation, to which the
within Warrant relates, and appoints ____________________ Attorney to transfer
such right on the books of Selfcare, Inc., a Delaware Corporation, with full
power of substitution of premises.
<TABLE>
<S> <C>
Dated: __________________ By: ______________________
Name:
Title:
(signature must conform to name of
holder as specified on the fact of
the Warrant)
Address: _________________________
__________________________________
__________________________________
Signed in the presence of:
__________________________
</TABLE>
- 17 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
FINANCIAL STATEMENTS FOR THE THREE AND NINE MONTH PERIODS ENDED SEPTEMBER 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 12,560,536
<SECURITIES> 0
<RECEIVABLES> 8,191,376
<ALLOWANCES> 834,000
<INVENTORY> 4,342,816
<CURRENT-ASSETS> 31,232,320
<PP&E> 14,719,378
<DEPRECIATION> 4,400,756
<TOTAL-ASSETS> 91,075,892
<CURRENT-LIABILITIES> 39,110,002
<BONDS> 28,295,534
1,838,954
8,883,000
<COMMON> 8,481
<OTHER-SE> 9,567,215
<TOTAL-LIABILITY-AND-EQUITY> 91,075,892
<SALES> 34,382,465
<TOTAL-REVENUES> 35,394,404
<CGS> 17,702,659
<TOTAL-COSTS> 29,359,838
<OTHER-EXPENSES> 3,185,187
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,273,642
<INCOME-PRETAX> 18,617,368
<INCOME-TAX> 0
<INCOME-CONTINUING> 18,617,368
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,617,368
<EPS-PRIMARY> (2.57)
<EPS-DILUTED> (2.57)
</TABLE>
